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FINRA releases new Sanctions Guidelines revisions
On May 2, FINRA issued a notice revising its Sanction Guidelines to reflect recent changes to General Principle No. 2, which instructs adjudicators “to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements” in addition to the more traditional disciplinary history when assessing sanctions. FINRA Regulatory Notice 18-17 states that if an adjudicator determines that a “pattern of causing harm” to investors or market integrity exits, or a respondent demonstrates a disregard to regulatory requirements, then more stringent sanctions should be considered.
Revisions to the Sanctions Guidelines will apply to all complaints filed in FINRA’s disciplinary system beginning June 1.
Global banking firm fined $110 million for alleged FX violations
On May 1, the Federal Reserve Board (Fed) and the New York Department of Financial Services (NYDFS) announced (press releases available here and here) a combined nearly $110 million settlement with a global banking firm to resolve allegations that the bank engaged in unsafe and unsound practices in its foreign exchange (FX) trading business. According to consent orders issued by the Fed and NYDFS, the bank did not maintain sufficient policies and procedures to identify and prevent “unsafe and unsound” activities conducted by certain FX traders. Among other things, between 2008 and 2012 (NYDFS’ time frame goes through 2013), certain FX traders allegedly disclosed confidential customer information and trading activity with competitors through electronic chatrooms. NYDFS additionally alleged that the traders discussed coordinating their trading activities and other ways to manipulate currency prices to increase trading profits, and claimed that while the bank had policies in place intended to prevent such activity, the policies were not adequately enforced.
The bank did not admit to any wrongdoing in agreeing to the terms of the settlement, and the Fed and NYDFS noted the bank’s full cooperation with the investigations. In addition to the fine, the bank is prohibited from employing certain traders involved and is required to improve its internal controls and programs to comply with applicable New York State and federal laws and regulations, submit a written plan to improve its compliance risk management program, and provide an enhanced written internal audit program.
OFAC issues new Ukraine-/Russia-related General Licenses and FAQs
On May 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Ukraine-/Russia-related General License 12B (GL 12B) authorizing specified wind-down activities, which would be otherwise prohibited by Ukraine-related Sanctions Regulations, through June 5. According to a Treasury announcement, GL 12B—which replaces and supersedes General License 12A in its entirely—permits “originating and intermediary U.S. financial institutions to process funds transfers that they would otherwise block to an account held by a blocked U.S. person at a U.S. financial institution,” and allows the release of “such funds for authorized maintenance and wind-down purposes.”
The same day, OFAC also issued Ukraine-/Russia-related General License 13A (GL 13A) to replace and supersede General License 13 (GL 13) in its entirety. (See previous InfoBytes coverage on GL 13 here.) GL 13A authorizes certain divestiture transactions with specified blocked persons to a non-U.S. person, and allows 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. GL 13A is effective through June 6.
OFAC also released three new FAQs and published updated FAQs related to these general licenses.
Visit here for additional InfoBytes coverage on Ukraine/Russian sanctions.
Judge dismisses CSBS challenge to OCC fintech charter on ripeness grounds
On April 30, a U.S. District Court judge dismissed the Conference of State Bank Supervisors’ (CSBS) challenge to the OCC’s proposed federal charter for fintech firms. (See previous InfoBytes coverage here.) According to the court, the suit is not “constitutionally or prudentially ripe for determination” and cannot proceed because the OCC has yet to issue a fintech charter to any firm. “This dispute would benefit from a more concrete setting and additional percolation. In particular, this dispute will be sharpened if the OCC charters a particular [f]intech—or decides to do so imminently,” the judge wrote.
As previously covered in InfoBytes, last December the U.S. District Court for the Southern District of New York dismissed a lawsuit filed by the New York Department of Financial Services against the OCC, citing to lack of subject matter jurisdiction over the claims because the OOC had yet to finalize its plans to actually issue fintech charters.
7th Circuit affirms summary judgment for consumers in FDCPA suit
On May 2, the U.S. Court of Appeals for the 7th Circuit affirmed four district court decisions granting summary judgment in favor of consumers who alleged a debt collector violated the Fair Debt Collection Practices Act (FDCPA) by communicating debts to credit reporting agencies without indicating the debts were disputed. According to the opinion, the debt collector sent the four consumers a debt validation notice regarding an alleged credit card debt. More than 30 days later, a local legal aid organization sent the debt collector’s general counsel a notice of representation for each of the four consumers, noting, “the amount reported is not accurate.” After the attorney letters were sent, the debt collector reported the debts to the credit reporting agencies. The consumers each filed a separate action in district court alleging a violation of the FDCPA, and each district court granted the consumer summary judgment, finding the debt collector did not handle the letters properly. In the consolidated appeal, the 7th Circuit agreed with the district courts, holding that the actions of the debt collector were “a clear violation of the statute” as each attorney letter stated the amount was inaccurate and the debt collector still reported the debts without noting they were disputed. While the panel noted that there is no clear definition of “dispute” under the FDCPA, the court concluded, “there is simply no other way to interpret [the] language” of the attorney letter, rejecting the debt collector’s “bona fide error defense.”
FTC settles with cellphone manufacturer over data security issues
On April 30, the FTC and a Florida cellphone manufacturer entered into a settlement over allegations that the manufacturer allowed third party data collection from customer phones after falsely claiming data collection was limited only to information needed by the third parties to perform requested services. According to the complaint, released at the same time as the settlement, the manufacturer contracted with a Chinese technology company to issue security and operating system updates to the manufacturer’s devices. When issuing those updates, the Chinese company collected and transferred personal information about the device owners without their consent or knowledge, including text messages, call logs, and contact lists. In November 2016, the public became aware of this practice and the manufacturer issued a notice informing its customers that the Chinese company changed its software to no longer collect the personal information. However, the manufacturer allegedly continued to allow this practice on older devices. The FTC alleges that the manufacturer failed to perform adequate due diligence in the selection of the Chinese company and failed to adopt and implement written security standards for their third-party providers. Under the settlement, the manufacturer, among other things, is (i) prohibited from future misrepresentations about security and privacy; (ii) required to establish and implement a comprehensive data security program; and (iii) subject to data security assessments every two years by a third party for the next 20 years.
PHH will not challenge CFPB’s constitutionality with Supreme Court
PHH will not seek to appeal the January 31 decision by the U.S. Court of Appeals for the D.C. Circuit, which upheld the CFPB’s constitutionality in a 7-3 decision. (Covered by a Buckley Sandler Special Alert.) The Supreme Court requires petitions for writ of certiorari to be filed within 90 days of the decision, which would have put PHH’s deadline around May 1. According to reports, a PHH spokesperson confirmed the company did not file the petition but declined to provide further comment.
As previously covered by InfoBytes, the U.S. Court of Appeals for the 5th Circuit recently agreed to hear a similar challenge to the constitutionality of the CFPB’s single-director structure by two Mississippi-based payday loan and check cashing companies.
Florida District Court of Appeal holds contract for used car not covered by state usury law
On April 25, a Florida District Court of Appeal held that a Florida usury law did not apply to the purchase of a used car because the contract for purchase was a retail installment sales contract covered under the Florida Motor Vehicle Retail Sales Finance Act (the Finance Act). According to the opinion, a consumer filed a lawsuit against a used car seller and a lender claiming violations of Florida’s general usury law, which prohibits interest of more than 18 percent per year, because the contract for purchase of a used car had a 27.81 percent interest rate. In affirming the trial court’s decision to grant summary judgment for the car seller and lender, the appeals court found that the contract for purchase met the state’s definition of a retail installment sales contract and, therefore, was governed by the Finance Act (which both the seller and lender were licensed under) rather than the general usury statute. Additionally, because the car was financed over a four-year period, the appeals court found that the finance charge per year was permissible under the Finance Act at $16.48 for every $100. The court also held that the general usury law did not apply to a contract to secure the price of personal property sold, as opposed to a contract for the “loan of money.”
FDIC proposes information collection renewal for appraisal management companies
On May 2, the FDIC published a notice and request for comment in the Federal Register regarding the renewal of an existing information collection on the minimum requirements for appraisal management companies (AMCs). According to the notice, there is no significant change in the methodology or substance of the information collection; however, burden estimates for states and AMCs have been revised to include (i) “AMC Written Notice of Appraiser Removal from Network or Panel;” (ii) “Develop and Maintain a State Licensing Program;” (iii) “AMC Reporting Requirements (State and Federal AMCs);” and (iv) “State Reporting Requirements to the Appraisal Subcommittee.” The notice requests comment on, among other things, whether the information collection is necessary and ways to minimize the burden of the information collection on the respondents. Comments are due by July 2.
Senators release report on credit reporting agency from data in CFPB’s public complaint database
On April 30, three Democratic Senate Banking Committee members released a report addressing publicly available complaints the CFPB received regarding the 2017 data breach announcement by a national credit reporting agency. In a letter to the CFPB, which accompanied the release of the report, the Senators encouraged the Bureau to “hold [the credit reporting agency] accountable and act quickly and decisively to protection the millions of consumers harmed by the breach.” Additionally, the Senators make a plea for the CFPB to continue to keep consumer complaints public, citing to recent remarks by Mulvaney that the database would soon be removed from public view. According to the report, within six months of the data breach announcement—which reportedly affected 143 million American consumers—the CFPB received over 20,000 complaints against the company. Of the 20,000 complaints, the issues consumers mentioned include (i) “improper use of a credit report after the breach”; (ii) “incorrect information on credit report”; (iii) “[Company]’s inadequate assistance in resolving problems after the breach”; and (iv) “[Company]’s credit monitoring services, fraud alerts, security freezes, and other identity theft protection products.” The report also cites to specific narratives from consumer complaints that were available through the CFPB’s consumer complaint database.