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Agencies issue interim final rules to comply with EGRRCPA
On August 22 and 23, the OCC, Federal Reserve, and FDIC (Agencies) jointly issued two interim final rules to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) (previously Senate bill S.2155).
On August 22, the Agencies issued an interim final rule amending the liquidity coverage ratio (LCR) rule to treat certain eligible municipal securities as high-quality liquid assets. The LCR rule applies to banking organizations that have $250 billion or more in total assets or that have $10 billion or more in foreign exposures, and to their subsidiaries that have assets of $10 billion, as required by Section 403 of EGRRCPA. According to the FDIC’s Financial Institution Letter, FIL-43-2018, the interim final rule amends the LCR rule to (i) add liquid, readily-marketable, and investment grade municipal obligations to the list of assets eligible for treatment as level 2B liquid assets; (ii) include a definition for “municipal obligations”; and (iii) add a reference to the Federal Reserve’s definition of “liquid and readily-marketable.” The rule takes effect upon publication in the Federal Register and comments are due within 30 days of publication.
On August 23, the Agencies issued an additional interim final rule allowing a lengthened examination cycle for an expanded number of qualifying insured depository institutions and U.S. branches and agencies of foreign banks. Specifically, as authorized by EGRRCPA, the interim final rule would allow qualifying insured depository institutions with less than $3 billion in total assets (an increase from the previous threshold of $1 billion) to be eligible for an 18-month on-site examination cycle. The rule takes effect upon publication in the Federal Register and comments are due within 60 days of publication.
Global bank settles two FCPA actions for $10.5 million
On August 16, the SEC announced that a global bank had settled two enforcement actions involving alleged violations of the FCPA’s books and records and internal control provisions. The FCPA’s anti-bribery provisions were not implicated in either action.
The first action alleged that three traders employed by a U.S. subsidiary of the bank had mismarked positions in certain proprietary accounts, causing $81 million in losses that were not reflected in the company’s books and records. Some of these losses were from allegedly “widespread unauthorized trading.” The second action alleged that the bank had “failed to devise and maintain adequate internal accounting controls,” causing $475 million in losses, when the company did not identify that a Mexican subsidiary had loaned nearly $3.3 billion to a counterparty on the basis of fraudulent documentation provided by the counterparty. Without admitting or denying the SEC’s findings, the bank “agreed to pay $10.5 million in penalties”: $5.75 million for the first action, and $4.75 million for the second.
OCC provides guidance to institutions affected by Hurricane Lane; Fannie Mae, Freddie Mac offer forbearance relief to impacted homeowners
On August 24, the OCC issued a proclamation permitting OCC-regulated institutions to close their offices affected by Hurricane Lane in Hawaii. OCC Bulletin 2012-28 provides further guidance on natural disasters and other emergency conditions.
On August 23, Fannie Mae also reminded servicers of mortgage assistance options for homeowners impacted by the hurricane. Specifically, qualifying homeowners are eligible to stop making mortgage payments for up to 12 months, during which time late fees will not be incurred nor delinquencies reported to the credit bureaus. Additionally, servicers may immediately suspend or reduce mortgage payments for up to 90 days without any contact with homeowners believed to have been affected by the hurricane. Further, foreclosures and other legal proceedings must be suspended for impacted homeowners.
The same day, Freddie Mac confirmed its disaster relief options are available to borrowers with homes or places of employment impacted by the hurricane, emphasizing that borrowers in FEMA-declared disaster areas have access to federal individual assistance programs. The relief suspends foreclosures by providing forbearance for up to 12 months. Penalties and late fees will also be waived, and servicers should not report forbearance or delinquencies caused by the disaster to credit bureaus. Moreover, Freddie Mac also reminded servicers to consider borrowers who live and work in affected areas but have homes outside the eligible disaster area for standard relief policies.
Find continuing InfoBytes coverage on disaster relief here.
CFPB publishes final rule adjusting annual dollar amount thresholds under TILA regulations
On August 27, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), including as amended by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank ability-to-repay and qualified mortgage provisions (ATR/QM). The CFPB is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2018. The following thresholds will be effective on January 1, 2019:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- For open-end consumer credit plans under the CARD Act amendments, the adjusted dollar amount for the safe harbor for a first violation penalty fee will increase from $27 to $28, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will increase from $38 to $39;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $21,549, and the adjusted points and fees dollar trigger for high-cost mortgages will be $1,077; and
- The maximum thresholds for total points and fees for qualified mortgages under the ATR/QM rule will be: (i) 3 percent of the total loan amount for loans greater than or equal to $107,747; (ii) $3,232 for loan amounts greater than or equal to $64,648 but less than $107,747; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,549 but less than $64,648; (iv) $1,077 for loan amounts greater than or equal to $13,468 but less than $21,549; and (v) 8 percent of the total loan amount for loan amounts less than $13,468.
CFPB publishes quarterly consumer credit trends on telecommunications-debt collection reporting
On August 22, the CFPB released the latest quarterly consumer credit trends report, which focuses on the reporting of telecommunications-debt collections to nationwide consumer reporting agencies based on a sample of approximately 5 million credit records. The report notes that during the past five years approximately 22 percent of credit records contained at least one telecommunications-related (telecom-related) item, with nearly 95 percent of these telecom-related items being reported by collection agencies. The report highlights that 37 percent of consumers who reported having been contacted about a debt in collection in the prior year were contacted about a telecommunications debt, and more than one fifth of all debt collection revenue is telecom-related debt. The report also observed that a single telecom collection may be associated with multiple tradelines in a credit record over time, suggesting that telecom collections are often reassigned. Notably, however, the report suggests that while the presence of a telecom-related collection item on a credit record is most commonly associated with consumers with lower credit scores, the change in score before and after the collection item appears on the credit record is often small, and as a result, a single telecom-related collection is unlikely to affect a credit decision for those consumers.
8th Circuit rules Fannie Mae, Freddie Mac net worth sweep payments acceptable under FHFA statutory authority
On August 23, the U.S. Court of Appeals for the 8th Circuit affirmed a lower court’s dismissal of claims brought by shareholders of Fannie Mae and Freddie Mac (GSEs) against the GSEs’ conservator, the Federal Housing Finance Agency (FHFA), alleging that FHFA exceeded its powers under the Housing and Economic Recovery Act (HERA) and “acted arbitrarily and capriciously” when it entered an agreement with the Treasury Department requiring the GSEs to pay their entire net worth, minus a small buffer, as dividends to the Treasury every quarter. In so holding, the 8th Circuit joined the 5th, 6th, 7th, and D.C. Circuits, each of which has previously “rejected materially identical arguments” presented by other GSE shareholders. (See previous InfoBytes coverage on the 5th Circuit decision here.) The shareholders sought an injunction to set aside the so-called “net worth sweep,” asserting that “HERA’s limitation on judicial review does not apply when FHFA exceeds its statutory powers under the Act . . . [and] that the net worth sweep exceeds, and is antithetical to, FHFA’s statutory powers.” However, the appellate court agreed with the lower court and found, among other things, the net worth sweep payments to be acceptable because HERA “grant[s] FHFA broad discretion in its management and operation of Fannie and Freddie” and permits, but does not require, the agency “to preserve and conserve Fannie’s and Freddie’s assets and to return [them] to private operation.” The court also noted that HERA “authorize[d] FHFA to act ‘in the best interests’ of either Fannie and Freddie or itself,” thus affording FHFA more discretion than common law conservators. Finally, the appellate court held that HERA’s anti-injunction provision, which states that “no court may take any action to restrain or affect the exercise of powers or functions of the [FHFA] as a conservator or a receiver,” also precludes enjoining the Treasury Department from participating in the net worth sweep because doing so would “restrain or affect” FHFA.
NYDFS releases updated guidance regarding indirect auto lending fair lending compliance
On August 23, the New York Department of Finance Services (NYDFS) released updated guidance reminding institutions engaged in indirect auto lending through third parties that they must comply with the state’s Fair Lending Law, despite the May repeal of the CFPB’s Bulletin 2013-02 on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). (The repeal was previously covered by InfoBytes here.) The updated guidance “consolidates, streamlines and reinforces previous guidance issued by [NYDFS]’s predecessor, the New York State Banking Department,” which applies to supervised financial institutions and their subsidiaries and affiliates (lenders). The guidance provides a list of actions lenders should take to develop a fair lending compliance program for indirect auto lending, including (i) submitting all applications for loans that are rejected or withdrawn to an automatic review by a higher-level supervisor; (ii) implementing a fair lending training program for both new hires and current employees; (iii) obtaining written agreements from all dealers that certify that the dealer acknowledges its responsibility to comply with fair lending laws and the policies and procedures contained in the fair lending plan; and (iv) extending fair lending plan principles to refinancing and collection practices.
CFTC wins $1.1 million judgment in cryptocurrency fraud action
On August 23, the U.S. District Court for the Eastern District of New York entered final judgment in favor of the Commodity Futures Trading Commission (CFTC) in its suit against a cryptocurrency trading advice company and its owner (defendants) for allegedly misappropriating investor money through a cryptocurrency trading scam. As previously covered by InfoBytes in March, the court granted the CFTC’s request for a preliminary injunction, holding that the CFTC has the authority to regulate virtual currency as a “commodity” within the meaning of the Commodity Exchange Act and that the CFTC has jurisdiction to pursue fraudulent activities involving virtual currency even if the fraud does not directly involve the sale of futures or derivative contracts. The final judgment orders the defendants to pay over $1.1 million in restitution and civil money penalties and permanently enjoins them from engaging in future activities related to commodity interests and virtual currencies.
UK SFO charges former UK-based engineering company employees with bribery conspiracy as DOJ declines to prosecute the company for FCPA violations
On August 17, the UK Serious Fraud Office (SFO) announced that it was charging two former employees of Reading-based engineering company with “conspiracy to make corrupt payments.” The SFO alleged that the founder and former Managing Director of the company had “conspired to corruptly make payments to a public official and employee of [Korean research company].” The conduct allegedly occurred over a period of 13 years, from April 2002 to September 2015.
A few days later, on August 20, the DOJ published a letter informing the engineering company that it was declining to prosecute the company for potential FCPA and money laundering violations related to payments it had made to the former director of the Korean research company. In October 2017, the Korean company director was sentenced to 14 months in federal prison on a U.S. money laundering charge related to the bribery scheme. The DOJ’s letter stated that it was declining to prosecute because, among other reasons, the company voluntarily disclosed the misconduct, provided cooperation that assisted with the prosecution of the former director, undertook “significant remedial efforts,” and “committed to accepting responsibility” for its conduct in the parallel SFO investigation.
Court denies law firm’s request for judgment on Texas debt collection claim
On August 14, the U.S. District Court for the Southern District of Texas entered judgment in favor of a bank, mortgage loan servicer, and servicer’s law firm (defendants) on all but one Texas Debt Collection Practices Act (TDCPA) claims, among others, brought by homeowner plaintiffs, but determined the law firm was not entitled to judgment as a matter of law regarding its attempted foreclosure on the property despite an attorney exemption provision in the TDCPA. The court agreed with the defendants that the plaintiff failed to allege material facts that support the majority of the claims brought, but disagreed with the law firm as to the remaining TDCPA claim. According to the opinion, the plaintiffs alleged the law firm violated the TDCPA by operating as a third-party debt collector in Texas without the surety bond required by law. The law firm moved for judgment, arguing, among other things, that it was not subject to the TDCPA bond requirement because it simply “assisted” the mortgage servicer with the foreclosure, which is not considered debt collection absent a collection attempt on a deficiency judgment. The court rejected this argument as a matter of law. The court also rejected the law firm’s argument that it was not a “third-party debt collector,” concluding there was a genuine dispute about whether the law firm was a debt collector under the TDCPA despite the attorney exemption, due to whether the letters sent were in its capacity as attorneys for the servicer or as a debt collector.