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OCC outlines fiscal year 2020 supervision priorities
On October 1, the OCC’s Committee on Bank Supervision released its bank supervision operation plan (Plan) for fiscal year 2020. The Plan outlines the agency’s supervision priorities and specifically highlights the following supervisory focus areas: (i) cybersecurity and operational resiliency; (ii) Bank Secrecy Act/anti-money laundering compliance; (iii) commercial and retail credit loan underwriting; (iv) effects of changing interest rates on bank activities and risk exposures; (v) preparation necessary for the current expected credit losses accounting standard, as well the potential phase-out of the London Interbank Offering Rate; and (vi) technological innovation and implementation.
The annual plan guides the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, service providers, and agencies of foreign banking organizations. Updates about these priorities will be provided in the OCC’s Semiannual Risk Perspective.
CFPB and South Carolina take action against loan broker for veteran pension loans
On October 1, the CFPB and the South Carolina Department of Consumer Affairs filed an action in the U.S. District Court for the District of South Carolina against two companies and their owner, alleging that the defendants violated the Consumer Financial Protection Act (CFPA) and the South Carolina Consumer Protection Code (SCCPC) by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. The complaint alleges that the majority of the credit offers are brokered for veterans with disability pensions or retirement pensions. The defendants allegedly did not disclose to consumers the interest rates associated with the products, marketing the contracts as sale of payments and not credit offers. The defendants also allegedly did not disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits. The Bureau and South Carolina are seeking injunctive relief, restitution, damages, disgorgement, and civil money penalties.
The Bureau’s announcement notes that this is the third action in 2019 related to the marketing or administration of high-interest credit to veterans. As previously covered by InfoBytes, in January 2019, the Bureau settled with an online loan broker resolving allegations that the broker violated the CFPA by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments. Additionally, in August 2019, the Bureau and the Arkansas attorney general announced a proposed settlement with three loan brokerage companies, along with their owner and operator, for allegedly misrepresenting high-interest credit offers to veterans and other consumers as purchases of future pension or disability payments (covered by Infobytes here).
SEC settles with blockchain company for $24 million over unregistered ICO
On September 30, the SEC announced a settlement with a blockchain technology company resolving allegations that the company conducted an unregistered initial coin offering (ICO). According to the order, the company raised several billion dollars from the general public after an ICO, in which it publicly offered and sold 900 million digital assets in exchange for virtual currency, to raise capital to develop software. The SEC alleges that the company violated Section 5(a) and 5(c) of the Securities Act because the digital assets it sold were securities under federal securities laws, and the company did not have the required registration statement filed or in effect, nor did it qualify for an exemption to the registration requirements. The order, which the company consented to without admitting nor denying the findings, imposes a $24 million civil money penalty.
OFAC settles with multinational corporation for Cuban sanctions violations
On October 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement of more than $2.7 million with a multinational corporation, on behalf of three subsidiaries, to resolve potential civil liability for 289 alleged violations of the Cuban Assets Control Regulations (CACR). The settlement resolves allegations that between December 2010 and February 2014, the subsidiaries accepted payments on 289 occasions from an entity identified on OFAC’s List of Specially Designated Nationals and Blocked Persons “for goods and services provided to a Canadian customer.” OFAC alleged that although the subsidiaries negotiated and entered into contracts with the Canadian customer—and invoices were sent to the customer—the designated entity was approved as a third-party payer and paid more than 65 percent of the total transactions. OFAC asserted that the subsidiaries failed to undertake sufficient diligence into the activities of the Canadian customer, and noted that the sanctions screening software used by the subsidiaries was set to screen for only one version of the designated entity’s name.
In arriving at the settlement amount, OFAC considered various mitigating factors including that (i) OFAC has not issued a violation against the subsidiaries in the five years preceding the earliest date of the transactions at issue; (ii) the corporation identified the alleged violations by testing and auditing its compliance program, and implemented several remedial measures in response to the alleged violations, which included improvements to its compliance program; and (iii) the corporation entered into, and agreed to extend, multiple statute of limitations tolling agreements.
OFAC also considered various aggravating factors, including that (i) the subsidiaries “failed to take proper or reasonable care with respect to their U.S. economic sanctions obligations”; (ii) the subsidiaries’ actions allowed a large volume of high-value transactions to be conducted with the designated entity, causing “substantial harm” to the CACR objectives; and (iii) the corporation’s submissions to OFAC “leave substantial uncertainty about the totality of the benefits conferred” to the designated entity through the Canadian customer.
OCC updates four booklets in Comptroller’s Handbook
On September 30, the OCC issued updates to four booklets of the Comptroller’s Handbook: Bank Supervision Process, Community Bank Supervision, Federal Branches and Agencies Supervision, and Large Bank Supervision. Among other things, the updates include (i) the interim final rule for the expanded 18-month supervisory cycle for certain institutions (covered by InfoBytes here); (ii) a revised OCC report of examination policy based on the revised Federal Financial Institutions Examination Council report of examination policy; (iii) the revisions to the OCC’s enforcement action policies (covered by InfoBytes here); and (iv) changes to the OCC’s credit underwriting assessment.
Republican lawmakers urge CFPB to extend Remittance Rule safe harbor
On September 30, 16 Republican members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the upcoming expiration of a safe harbor to the Remittance Rule (the Rule), which allows certain insured depository institutions to estimate exchange rates and certain fees they are required to disclose to customers about remittance transactions. As previously covered by InfoBytes, the CFPB issued a Request for Information (RFI) last April on two aspects of the Rule that require financial institutions handling international money transfers, or remittance transfers, to disclose to individuals transferring money information about the exact exchange rate, fees, and the amount expected to be delivered. The RFI also sought feedback on a possible extension of the current statutory exception, which is set to expire July 21, 2020. While lawmakers recognize the CFPB’s interest in mitigating negative effects that may result from the exception’s expiration, they urged the CFPB to “take every available step” to ensure that consumers may continue to access remittance services. The lawmakers stressed that it is often difficult, if not “virtually impossible,” for depository institutions to calculate the exact cost of certain remittance transactions. The letter further noted that “depository institutions cannot readily covert all foreign currencies at the time a transfer is conducted, and if the currency exchange takes place after the transfer is initiated, a consumer’s financial institution may only be able to estimate the applicable exchange rate.” Accordingly, if the exception expired, it could cause many depository institutions to discontinue providing remittance services due to increased compliance risk, or cease transfers to certain countries or beneficial banks due to non-compliance risks.
The lawmakers urged the CFPB to use its statutory authority under the Electronic Fund Transfer Act or Dodd-Frank to make the exception permanent “so financial institutions are able to make long-term decisions regarding the provision of these services.”
CFPB report examines bankruptcy trends
On September 25, the CFPB released the latest quarterly consumer credit trends report, which examines how the volume and types of bankruptcy filings have changed from 2001 to 2018. The report focuses on consumers who filed for Chapter 7 or Chapter 13 bankruptcy during the reported timeframe. Key findings of the report include: (i) in 2005, there was a rush to file for bankruptcy before the income limits of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect, increasing the share of Chapter 7 filings to 80 percent of all personal bankruptcy filings that year; (ii) from 2015 to 2018, with the effects of the recession fading, Chapter 7 filings appear to have stabilized at about 63 percent; (iii) Chapter 7 and 13 filers, on average, had more than twice the mortgage debt during the recession than in the periods before and after; and (iv) median credit scores increase steadily from year-to-year after consumers file a bankruptcy petition, with Chapter 7 filers’ scores increasing more quickly than Chapter 13, on average.
CFTC awards $7 million to whistleblower for CEA action
On September 27, the Commodity Futures Trading Commission (CFTC) announced a whistleblower award of approximately $7 million to an individual who reported information that led to a successful Commodity Exchange Act (CEA) enforcement action. The associated order notes that five claimants submitted whistleblower award applications to the CFTC in response to the covered action, but the CFTC provided the award only to claimant one, as that individual voluntarily provided the original information to the Commission. The order does not provide any other significant details about the information provided or the related enforcement action. The CFTC has awarded over $90 million to whistleblowers since the enactment of the Whistleblower Program under the Dodd-Frank Act, and their information has led to more than $730 million in sanctions to date.
OFAC amends Venezuela-related general licenses
On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced amended Venezuelan General Licenses (GL) 3G, which supersedes and replaces GL 3F, and 9F, which supersedes GL 9E. The amended GLs concern authorized transactions related to the financing and dealings in certain bonds and securities, and extend the authorization wind-down periods to March 31, 2020. As previously covered by InfoBytes, the GLs were issued in conjunction with Executive Order 13884 which, among other things, prevents all property and interest in property of the Government of Venezuela within the U.S. or in the possession of a U.S. person from being transferred, paid, exported, withdrawn, or otherwise dealt in.
New York AG sues national coffee chain over data breach
On September 26, the New York attorney general announced a lawsuit against a national franchisor of a coffee retail chain for allegedly failing to protect thousands of customer accounts from a series of cyberattacks. According to the complaint, the attorney general asserts that, beginning in 2015, customer accounts containing stored value cards that could be used to make purchases in stores and online were subject to repeated cyberattack attempts, resulting in almost 20,000 compromised accounts and “tens of thousands” of dollars stolen. The attorney general alleges that, following the attacks, the company failed to take steps to protect the affected customers, such as notifying them of the unauthorized access, resetting account passwords, or freezing the stored value cards. The complaint also alleges that the retailer failed to conduct an investigation to determine the extent of the attacks or implement appropriate safeguards to limit future attacks. In addition, according to the complaint, in 2018, a vendor notified the company of another attack that resulted in the unauthorized access of over 300,000 customer accounts, and the company’s response included inaccurate representations to customers. The complaint asserts violations of New York’s data breach notification statute and violations of New York’s consumer protection laws. The attorney general is seeking injunctive relief, restitution, disgorgement, and civil money penalties.