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FDIC, OCC issue final rulemaking to shorten securities transaction settlement cycle
On June 1, the FDIC and OCC issued a final rule shortening to two business days (T+2) the standard settlement cycle for securities purchased or sold by OCC- and FDIC-supervised institutions, national banks, and federal savings associations. The agencies stated that the final rule will shorten the settlement cycle from three business days after the date of the contract to T+2—the number of business days in the standard settlement cycle as implemented by the SEC—“unless otherwise agreed to by the parties at the time of the transaction.” (See OCC press release and FDIC FIL-30-2018.) The final rule will align the settlement cycle requirements of the OCC, FDIC, and Federal Reserve Board, and will become effective 30 days following publication in the Federal Register.
Maryland alters certain mortgage broker finder’s fee restrictions
On May 16, the Maryland legislature enacted, without the governor’s signature, HB 1511, which will alter Maryland’s mortgage broker “finder’s fee” law to place a limit on the amount a broker may charge on the same property more than once within a 24-month period. Effective October 1, the law will only allow a mortgage broker to charge a finder’s fee with respect to the same property within a 24-month period if the fee is equal to or less than eight percent of the initial loan amount, combined with (i) the finder’s fee charged on the initial loan; and (ii) any other finder’s fee collected during the 24-month period.
District Court holds that FTC investigation and initiation of enforcement proceedings do not qualify as final agency actions subject to judicial review
On May 29, the U.S. District Court for the Northern District of California granted the FTC’s motion to dismiss a declaratory-judgment action filed by several California-based companies that provide student loan processing services, along with their CEO/primary shareholder (plaintiffs). In August 2017, having allegedly learned that the FTC “was in the final process of gathering information to file a lawsuit against one or more of [the] [p]laintiffs on the purported and factually unsupportable basis that the [c]ompanies made misrepresentations to consumers” and violated the TSR’s debt relief service provision, the plaintiffs filed for instant declaratory relief under the Declaratory Judgment Act, seeking a declaration that the Telemarketing Sales Rule’s (TSR) debt relief provisions did not apply to them or, alternatively, that they were in compliance with the provisions. In February 2018, the FTC filed an enforcement action against the plaintiffs alleging that their collection of fees in advance of providing services violated the FTC Act and the TSR, and seeking injunctive and equitable relief. The FTC also moved to dismiss the plaintiffs’ declaratory judgment for lack of subject-matter jurisdiction.
According to the order granting the FTC’s motion, the court agreed with the FTC that the Administrative Procedure Act (APA)—not the Declaratory Judgment Act—is the exclusive, proper vehicle to obtain judicial review of a federal agency’s action. The court then held that the plaintiffs failed to satisfy the two prerequisites for judicial review under the APA, that (i) the agency’s actions constitute as a “final” agency action, and (ii) there exists no other adequate remedy in court. Specifically, the court found that the plaintiffs failed to demonstrate that the FTC’s “investigation into the lawfulness of the [plaintiffs’] actions and initiation of enforcement proceedings” qualified as a “final” agency action subject, and that the plaintiffs’ alternative “adequate remedy” was to be had in the enforcement action brought against them by the FTC, where they would be able to present all of the same defenses and arguments they sought to advance in their declaratory judgment action.
District Court holds that a debt buyer qualifies as a debt collector under the FDCPA
On May 25, the U.S. District Court for the Eastern District of Pennsylvania held that a debt buyer of time-barred debt qualified as a “debt collector” under the Federal Debt Collection Practices Act (FDCPA). The consumer (plaintiff) sued a debt collector and a debt buyer after receiving collection letters from the collector requesting she contact it to discuss settlement. The plaintiff alleged both companies violated the FDCPA by implying the debts were legally enforceable when, in fact, the statute of limitations had run. In rejecting the defendants’ motion to dismiss, the court found that the debt buyer’s “principal purpose of business is debt collection, either directly or through another collector” and therefore it is a debt collector under the FDCPA. The court also rejected the defendants’ arguments that the consumer did not adequately plead a violation of the FDCPA, holding that the collection letter—even though it did not threaten litigation or include a payoff amount—could mislead “the least sophisticated debtor” into believing she had a legal obligation to pay a time-barred debt because it called on plaintiff to contact it to discuss “settlement options” and specifically noted that the collector was not obligated to accept any payment proposal. The court also found that the letter may leave the least sophisticated debtor “uncertain as to her dispute rights under the [FDCPA]” and should have contained a “reconciling statement.”
FTC settles with North Carolina-based debt collection business and its principals
On June 4, the FTC announced settlements with a North Carolina-based debt collection business and its principals resolving allegations that the business violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by making false, unsubstantiated, or misleading representations regarding debt owed on payday loans or other debts and threatening legal action. As previously covered in InfoBytes, the business allegedly used a variety of “trade names” that sound like law firms to threaten individuals if they failed to pay debt they did not actually owe or that the defendants had no right to collect. The terms of the settlement call for a $2.7 million judgment against the business and one of the principals, as well as a $1.8 million judgment against the remaining principal, with all parties jointly and severally liable for approximately $1.6 million. The judgments will be partially suspended after defendants surrender certain assets. The settlements also prohibit all defendants from debt collection activities as well as from buying or selling debt in the future.
FDIC FIL addendum: Federal banking agencies will not enforce Volcker rule for financial institutions exempt under S.2155
On June 4, the FDIC issued FIL-31-2018, which contains an addendum describing legislative changes to Section 13 of the Bank Holding Company Act (Volcker rule) under the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155/P.L. 115-174) that are applicable to FDIC-insured depository institutions with total assets under $10 billion. (See previous InfoBytes coverage on S.2155 here.) Effective immediately, any financial institution that “‘does not have and is not controlled by a company that has (i) more than $10,000,000,000 in total consolidated assets; and (ii) total trading assets and trading liabilities as reported on the most recent applicable regulatory filing filed by the institution, that are more than 5 percent of total consolidated assets’” is exempt from the rule. As result, the federal banking agencies will no longer enforce the Volcker rule for qualifying financial institutions in a manner inconsistent with the statutory amendments to the Volcker rule, and announced plans “to address these statutory amendments outside of the current notice of proposed rulemaking.”
The federal banking agencies responsible for developing the proposal (the Federal Reserve Board, CFTC, FDIC, OCC, and SEC) also formally announced on June 5 a joint notice and request for public comment on the proposed revisions. Comments will be accepted for 60 days following publication in the Federal Register.
Visit here for InfoBytes coverage on the federal banking agencies’ proposed revisions to the Volcker rule announced May 30.
OFAC issues Ukraine-/Russia-related General Licenses to extend expiration dates
On June 4, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Ukraine-/Russia-related General License 16 (GL 16) authorizing specified wind-down activities, which would be otherwise prohibited by Ukraine-Related Sanctions Regulations. Permissible activities with the two designated, previously sanctioned companies (and any entity in which either of the two companies has a 50 percent or greater ownership interest, directly or indirectly) apply to operations, contracts, and agreements that were effective prior to April 6. GL 16 extends the wind-down period, which was originally set to expire June 5 under General License 12C (GL 12C), until October 23. (See previous InfoBytes coverage on GL 12C here.)
Earlier on May 31, OFAC issued Ukraine-/Russia-related General License 13B (GL 13B) to replace and supersede General License 13A (GL 13A) in its entirety, and to extend the expiration date through 12:01 a.m. EDT August 5. (See previous InfoBytes coverage on GL 13A, which was set to expire June 6, here.) GL 13B permits the same conduct as GL 13A, including authorizing certain divestiture transactions with specified blocked persons to a non-U.S. person, and allowing the facilitation of transfers of debt, equity, or other holdings involving listed blocked persons, including entities owned 50 percent or more and issued by the named persons.
Visit here for additional InfoBytes coverage on Ukraine/Russian sanctions.
Fannie Mae issues industry alert concerning borrower employment scheme in Southern California
On May 24, Fannie Mae’s Mortgage Fraud Program issued an industry alert to mortgage lenders in Los Angeles County identifying 34 entities and businesses listed as employers on loan applications, the existence of which could not be confirmed by Fannie Mae. In the event one of the identified companies is provided as a borrower’s place of employment, Fannie Mae warns lenders to exercise caution when reviewing the entire loan file and “take appropriate steps to prevent the institution from being the victim of fraud.” The alert provides additional fraud detection and prevention steps, including encouraging awareness of third-party originators/brokers, educating staff, and reporting suspicious activity.
New York governor signs bill authorizing NYDFS to study online lending in the state
On June 1, the New York governor signed AB 8938, which authorizes and directs the New York Department of Financial Services (NYDFS) to study online lending institutions that conduct business in the state, and requires NYDFS to submit a report containing analysis, assessments, and recommendations pertaining to online lending institutions by July 1. As previously covered in InfoBytes, NYDFS announced plans on April 24 to issue a report, which would include an analysis of the differences between online lending products and services and those of traditional lending institutions, the risks/benefits of the products offered, and the availability of various credit products in the absence of online lending. With the enactment of AB 8938, NYDFS is also tasked with, among other things, surveying existing state and federal laws and regulations applicable to the online lending industry. The act is effective immediately and shall expire July 1—the report’s due date.
District Court rules South Dakota banking regulator exceeded authority in revoking payday lender’s license
On May 29, the U.S. District Court for the District of South Dakota denied a motion to dismiss filed by the director of the South Dakota Division of Banking (defendant), ruling that the defendant exceeded his authority when he revoked a payday lender’s (plaintiff) operating license instead of initiating a cease and desist order, and that he failed to provide sufficient opportunities for the plaintiff to respond. According to the court, the defendant “had good cause to revoke [the plaintiff’s] money lending licenses,” having determined that late fees on the plaintiff’s loan product violated the 36 percent finance charge cap in the state’s 2017 payday lending law. But the court also held that the defendant committed a “procedural error” when he chose to “revoke the licenses rather than afford[] a hearing or [give the plaintiff] an opportunity to bring its practices into compliance. . . .”
The court further granted the plaintiff’s motion for partial summary judgment “on the violation of procedural due process” for a period from September 13 through September 28, 2017—the date that the defendant issued a limited stay on the license revocation allowing the company to collect on loans issued before the South Dakota payday lending law went into effect. “In short, [the defendant’s] Order did not meaningfully advance the interests of the state (and indeed contravened state law), and the ‘substitute procedures’ sought by [the plaintiff] (and required under state law) would have accommodated the competing interests, provided due process, and not needlessly compromised the private interests of [the plaintiff],” the court wrote.