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OFAC targets facilitators of illicit North Korean financial transactions; Russian bank sanctioned
On August 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced its decision to sanction a Russian bank, pursuant to Executive Order (E.O.) 13810, for allegedly “knowingly facilitating a significant transaction” on behalf of an individual connected to North Korea’s primary foreign exchange bank. According to OFAC, the Russian bank violated its UN Security Council (UNSC) obligations by providing banking services to a representative of the North Korean bank who had previously been designated for weapons of mass destruction-related activities connected to North Korea. OFAC also issued sanctions against the North Korean bank’s Moscow-based deputy representative (E.O. 13687), as well as two of its associated “front companies” (E.O. 13722) accused of facilitating North Korean illicit financial activity. OFAC noted that, in accordance with UNSC requirements, all identified representatives “working on behalf of or at the direction of a [North Korean] bank or financial institution” should have been expelled from Russia, but instead, the Russian bank continued to facilitate transactions with the sanctioned persons. Pursuant to OFAC’s sanctions, all property and interests in property of the designated persons within U.S. jurisdiction are blocked and “may not be transferred, paid, exported, withdrawn, or otherwise dealt in.” Moreover, U.S. persons are “generally prohibited” from participating in transactions with these individuals and entities.
See here for previous InfoBytes coverage on North Korean sanctions.
Washington state updates mortgage provisions of Consumer Loan Act
On July 24, the Washington Department of Financial Institutions adopted new mortgage-related provisions of the state’s Consumer Loan Act (CLA). In addition to technical changes and certain definition modifications, the rulemaking, among other things, (i) adds a requirement that if electronic records are stored using a closed service, the service must be located in the U.S. or its territories; (ii) prohibits certain servicing activities, such as receiving payments and collection activities, from being conducted outside the U.S. or its territories; and (iii) requires servicers to maintain a compliance management system with the functionalities that are described in the CFPB’s Supervision and Examination Manual. The rulemaking is effective September 1.
President Trump issues Iran-related executive order reimposing previously lifted sanctions; OFAC updates Iran-related FAQs
On August 6, President Trump announced the issuance of Iran-related Executive Order 13846 (E.O. 13846), which reimposes nuclear-related sanctions that were lifted in connection with the United States’ participation in the Joint Comprehensive Plan of Action (JCPA) of July 14, 2015. As previously covered in InfoBytes, President Trump announced his decision to withdraw from the JCPA on May 8. Newly issued E.O. 13846 reimposes certain sanctions, effective August 7, concerning persons—including foreign financial institutions—who facilitate or provide “financial, material, or technological support for” areas including Iran’s trade in U.S. bank notes and precious metals, its automotive sector, and its currency. Sanctions targeting Iran’s energy sector, as well as transactions between foreign financial institutions and the Central Bank of Iran, will resume effective November 5. E.O. 13846 also revokes and supersedes several previously issued E.O.s.
In response to E.O. 13846, OFAC released updates to its FAQs concerning the additional sanctions, along with amendments to existing FAQs concerning the Iran Freedom and Counter-Proliferation Act of 2012. FAQs related to revoked E.O. 13622, Section 4 of E.O. 13628, and E.O. 13645 have been archived.
See here for previous InfoBytes coverage on Iranian sanctions.
Georgia Attorney General reaches settlement with mortgage company to resolve allegations concerning unauthorized third-party fees
On August 1, the Georgia Attorney General announced a settlement with a New Jersey-based mortgage company to resolve allegations that it charged unauthorized fees to Georgia consumers in violation of the state’s Fair Business Practices Act. According to the Attorney General’s office, the company allegedly marketed various third-party products and services, such as insurance products and home warranty programs, for certain mortgages it serviced and added the charges for these products and services to consumers’ monthly mortgage bills without their knowledge. Under the settlement terms, the company is required to (i) comply with the Fair Business Practices Act; (ii) refrain from soliciting third-party products and/or services to Georgia consumers; (iii) cease all billing for the alleged third-party products and services; (iv) notify consumers currently being billed for the alleged third-party products and services that the remainder of their contracts may be cancelled without penalty; (v) pay $25,000 in restitution; and (vi) pay $50,000 to the Attorney General’s office to go towards fees, penalties, investigation and litigation costs, and future consumer protection and education costs.
Bipartisan group of state Attorneys General seek legislative enhancements to combat anonymous shell companies
On August 2, a bipartisan group of 24 state Attorneys General sent a letter to ranking leaders of the House Financial Services Committee expressing support for legislation that requires disclosure of the owners of companies at the time of incorporation—in order to prevent “individuals from using anonymous shell companies to evade accountability”—but encouraged the adoption of additional components. The letter emphasizes that the use of anonymous shell companies allows criminals to launder and spend money attained through activities such as human trafficking and drug dealing, and legislative change could assist states in their investigation and enforcement against these crimes. Specifically, the letter requests that legislation addressing anonymous shell companies include the following components: (i) availability of information to state and local law enforcement to assist in civil and criminal investigations and provide states authority to enact relevant state laws; (ii) continued access to information throughout the investigation; and (iii) the definition of “beneficial ownership” does not allow loopholes that can be exploited by criminals.
District Court denies service provider’s motion to dismiss on several grounds, rules Bureau’s structure is constitutional
On August 3, the U.S. District Court for the District of Montana denied a Texas-based service provider’s motion to dismiss a suit brought by the CFPB over allegations that the service provider engaged in unfair, deceptive, and abusive acts or practices in violation of the Consumer Financial Protection Act (CFPA) by assisting three tribal lenders in the improper collection of short-term, small-dollar loans that were, in whole or in part, void under state law. (See previous InfoBytes coverage here.) The defendants moved to dismiss the claims on multiple grounds: (i) the Bureau’s structure is unconstitutional; (ii) the claims are not permitted under the CFPA; (iii) the complaint “fails to, and cannot, join indispensable parties;” and (iv) certain claims are time-barred.
In answering the service provider’s challenges to the Bureau’s constitutionality, the court ruled that the CFPB’s structure is legal and cited to orders from nine district courts and an en banc panel of the D.C. Circuit Court, which also rejected similar arguments. (See Buckley Sandler Special Alert.) Addressing whether the Bureau’s claims were permitted under the CFPA, the court ruled that other courts have held that enforcing a prohibition on amounts that consumers do not owe is different from establishing a usury limit, and that moreover, “[t]he fact that state law may underlie the violation . . . does not relieve [d]efendants . . . of their obligation to comply with the CFPA.” Regarding the defendants’ argument that the complaint should be dismissed on the grounds of failure to join an indispensable party because the tribal lenders possess sovereign immunity to the suit, the court wrote that “[u]nder these circumstances, the Court will not create a means for businesses to avoid regulation by hiding behind the sovereign immunity of tribes when the tribes themselves have failed to claim an interest in the litigation.” Furthermore, the court found that the remedies sought by the Bureau would not “impede the [t]ribal [l]enders’ ability to collect on their contracts or enforce their choice of law provisions directly.” Finally, the court stated that, among other things, the service provider failed to show that the Bureau’s suit fell outside the CFPA’s three-year statute of limitations for filing claims after violations have been identified.
Arizona Supreme Court holds statute of limitations for credit cards begins to accrue upon first missed payment
On July 27, the Arizona Supreme Court held that a cause of action to collect a credit card debt subject to an acceleration clause begins to accrue as of the date of the consumer’s first uncured missed payment. According to the opinion, the consumer was sued in 2014 by a debt collector for an unpaid balance of over $17,000 on a credit card issued in 2007. Throughout 2007 and 2008 the consumer routinely made late payments and completely missed the February 2008 payment. The consumer moved for summary judgment, arguing that the claim was barred by Arizona’s six-year statute of limitations, which began to accrue at the time of the first missed payment in February 2008. The motion was granted by the trial court. The appellate court reversed, agreeing with the debt collector that the cause of action for the entire debt does not accrue until the creditor accelerates the debt. Disagreeing with the appeals court, and affirming the trial court’s decision, the Arizona Supreme Court distinguished revolving credit card accounts from closed-end installment contracts, which have a set date that the debt must be paid in full. The court explained that with installment contracts, the accrual date can be no later than the date in which the entire balance must be paid, as compared to credit card accounts, which have no end date. On that basis, the court held that allowing a creditor to delay accrual by not accelerating the debt, would “functionally eliminate the protection provided to defendants by the statute of limitations.”
FDIC releases 25th anniversary edition of FDIC Consumer News
On August 3, the FDIC published a special edition of its quarterly FDIC Consumer News publication, recognizing the 25th anniversary of the newsletter, titled “25 Years of Tips You Can Bank On: Time-Tested Strategies for Managing and Protecting Your Money.” The quarterly newsletter intends to deliver “timely, reliable and innovative tips and information” about financial matters to consumers. The special edition reprises and updates an old article from each year going back to 1993 and includes topics such as (i) retirement planning and saving; (ii) how to know what is FDIC insured; (iii) minimizing the risk of identity theft; (iv) refinancing loans; and (v) cybersecurity checklists.
CFPB denies debt collector’s petition to set aside CID
On July 23, the CFPB denied a petition by a debt collector to modify or set aside a civil investigative demand (CID) issued by the Bureau in September 2017. The CID requested information from the debt collector “to determine whether debt collectors, depository institutions, or other persons have engaged or are engaging in unlawful acts and practices in connection with the collection of debt. . . .” The debt collector petitioned the Bureau to set aside or modify the CID, which requests were denied. The Bureau rejected the company’s argument that the CID should be set aside because the purported violations of the Fair Debt Collection Practices Act are not actionable under the “bona fide error rule.” The order emphasizes that the Bureau is not required to establish there was a violation of law in order to issue a CID, and the debt collector’s arguments “prematurely assert substantive defenses to claims the Bureau has not yet asserted.” The order also rejects the company’s argument that the CID be modified because certain requests are “disproportionate” and would impose an undue burden on the company, requiring the manual review of numerous audio files, which the Bureau denies because “[c]onclusory allegations of burdensomeness are insufficient.” The Bureau did allow for some of the information in the petition to be redacted because it could constitute confidential supervisory information but denied the request for confidential treatment of the rest of the materials.
FDIC issues updated Section 19 policy statement
On August 3, the FDIC published in the Federal Register an updated statement of policy pursuant to Section 19 of the Federal Deposit Insurance Act (FDI Act) concerning participation in banking of a person convicted of a crime of dishonesty, breach of trust, money laundering or who has entered a pretrial diversion program in connection with the prosecution of such offenses. In addition to technical and clarifying changes, the final policy statement expands the criteria of de minimis offenses for which the FDIC will not require the filing of an application, and in response to comments received on the January proposal, (i) clarifies when an expungement is considered complete for Section 19 purposes; (ii) clearly recognizes that convictions set aside based on procedural or substantive error should not be considered convictions under Section 19; and (iii) adjusts the definition of “jail time” to not include “those on probation or parole who may be restricted to a particular jurisdiction.”