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International Financial Institution Sanctions Two French Companies for Corruption in Developing Countries
An international financial institution recently sanctioned two French companies for separate allegations of corruption in developing countries. On November 30, the financial institution announced that a French digital security company, was debarred for 2.5 years for “corrupt and collusive practices” related to a project that would establish a national ID system in Bangladesh. As part of its Negotiated Resolution Agreement (NRA), the company acknowledged “improper payments to a sub-contractor and collusive misconduct to obtain and modify bid specifications to narrow competition and secure the award of the contract.” The company was credited for its “extensive cooperation” with the financial institution’s investigation, including voluntarily acknowledging the misconduct, proactively conducting an internal investigation, holding individuals accountable, and taking “preliminary steps to improve its governance and compliance procedures.”
On December 5, the financial institution separately announced that a French manufacturing company, was debarred for two years for a “corrupt practice” related to a project that would improve electricity infrastructure in the Congo. The financial institution's investigation found evidence that the company “made improper payments to an employee of a consulting company to influence a tender process.” Under the NRA, the manufacturing company’s parent company was also “conditionally non-debarred” for an 18-month probationary period. The holding company for the entities agreed to pay €6.8 million to the Congo, and the companies agreed to develop and implement a “group-wide integrity compliance program.” The holding company was credited for its “ongoing cooperation” with the financial institution's investigators, “acceptance of responsibility,” and “voluntary corrective and remedial actions.”
Court Reduces Sentence for Former Cayman Islands Soccer Executive Who Pleaded Guilty in International Soccer Association Investigation
On December 12, Judge Chen of the U.S. District Court for the E.D.N.Y. amended the recent sentence entered against a former general secretary of a Cayman Islands football association. On October 31, he was sentenced to serve 15 months in prison, pay $3 million in restitution, and observe a ban from international soccer organizations. Under the amended sentence, he was credited 10 months for time served in a Swiss jail prior to extradition; the other terms remained the same.
He was arrested in Zurich in 2015, as part of the U.S. government’s investigation into corruption involving an international soccer association. Earlier this year, he pleaded guilty to a conspiracy charge, admitting that he laundered millions of dollars in bribes from sports marketing companies to his longtime associate and the former president of a continental soccer association. He is the second individual sentenced among a group of more than 40 who have been indicted or pleaded guilty since 2015. Previous FCPA Scorecard coverage of the investigation can be found here.
FCC Votes to Overturn Net Neutrality Rules
On December 14, the FCC voted 3-2 to overturn the 2015 Open Internet Order rules (known as, “Net Neutrality” rules) which mandate that internet service providers (ISPs) treat all web content equally. The FCC released a draft order in November, which outlined the new framework for ISPs, including removing the restrictions barring the providers from slowing down or speeding up web traffic based on business relationships. ISPs are now required to publicly disclose information about their practices including any paid or affiliated prioritization of web content. The FCC places the enforcement authority of the new regulatory framework with the FTC. The order is effective upon OMB approval of the new requirements for ISP public disclosures.
Judge Dismisses OCC Fintech Charter Challenge
A U.S. District Court Judge dismissed the New York Department of Financial Services’ (NYDFS) challenge to the OCC’s proposed federal charter for fintech firms. (See previous InfoBytes coverage here.) In the December 12 order, the judge agreed with the OCC that the court lacked subject matter jurisdiction over NYDFS’ claims because the OCC has yet to finalized its plans to actually issue fintech charters. The case was dismissed without prejudice.
As previously covered by InfoBytes, the Conference of State Bank Supervisors (CSBS) has also filed a lawsuit, which challenges the same statutory authority allowing the OCC to create charters for fintech companies. The CSBS lawsuit is still active.
Supreme Court Rejects Tribal Lenders’ Petition to Avoid CFPB CID
On December 11, the U.S. Supreme Court rejected without comment a petition from online tribal lending entities to appeal a Ninth Circuit Court of Appeals decision that ordered the entities to comply with a CFPB investigation related to small-dollar loan products. As previously covered by InfoBytes, the entities argued that due to tribal sovereignty, the CFPB does not have jurisdiction over the small-dollar lending services. The CFPB urged the Supreme Court to deny the petition, arguing that the Court’s review is unnecessary because “[t]he question at this juncture is solely whether the Bureau may obtain information from petitioners pursuant to a CID,” not “whether petitioners are subject to the Bureau’s regulatory authority.”
Freddie Mac Issues Guidance on Reporting Imminent Default Data; Fannie Mae Updates Servicing Guide
On December 13, Freddie Mac issued Guide Bulletin 2017-27, providing updates and reminders to servicers regarding the imminent default evaluation requirements. The bulletin includes specifics on how servicers should process and report imminent default data using the “Workout Prospector” web-based application. According to the bulletin, servicers are must implement the new requirements by July 1, 2018. The bulletin also incorporates the additional non-discrimination guide language announced for sellers in Guide Bulletin 2017-26 (previously covered by InfoBytes here).
On December 13, Fannie Mae announced that it has updated its Servicing Guide. One such update includes the removal of requirements related to individual mortgage loan file records retention. Instead, the information will be available solely in Fannie Mae’s Selling Guide, which it expects to be updated on December 19. Another notable update is the Servicing Guide’s extension of the $30 maximum expense reimbursement “for each insured loss repair inspection required on a current or delinquent mortgage loan” to all mortgages, and not just those affected by disasters.
Credit Reporting Agencies Must Comply With Emergency Regulations
On Tuesday, New York State adopted emergency regulations intended to “provide consumers with the means to protect themselves against identity theft” and assist those consumers who have fallen victim to such theft. The New York Department of State’s Division of Consumer Protection (the Division), which has the authority to promulgate rules and regulations related to consumer protection activities of all state agencies, announced the adoption of regulations as part of its Identify Theft Prevention and Mitigation Program (the Program). In a press release issued December 12 by the office of New York Governor Andrew M. Cuomo, the regulations will require consumer credit reporting agencies to comply with the following, among other things:
- provide responses within 10 days to information requests made by the Division when investigating, mediating, or mitigating a consumer’s identity theft complaint;
- identify dedicated points of contact to assist the Division’s effective administering of the program;
- make available to the Division a list and description of all business affiliations and contractual relationships that provide identity theft and credit monitoring-related products or services; and
- clearly disclose all fees associated with offered products and services marketed to prevent identity theft, and inform consumers of trial and cancellation provisions.
Consumer credit reporting agencies will be required to comply with these regulations, effective immediately. A to-be-announced public comment period will occur prior to the regulations’ final adoption.
As previously covered by InfoBytes, New York Department of Financial Services (NYDFS) has taken several steps to address cybersecurity concerns, including a September 18 announcement that the state would expand cybersecurity standards to cover credit reporting agencies. Under the proposed regulation, credit reporting agencies would be subject to compliance examinations, would be required to initially register with NYDFS, and would be required to comply with cybersecurity regulations starting on April 4, 2018, in accordance with a phased-in compliance schedule.
Department of Defense Updates MLA Interpretive Guidance; Addresses Timing for Safe Harbor Qualification
The Department of Defense (DoD) published a new interpretive rule (rule) under the Military Lending Act (MLA) on December 14. This interpretive rule takes effect immediately, and it both amends and adds to the interpretive rule issued by DoD in August 2016 (previously covered by a Buckley Special Alert). In general, the rule contains the following updated interpretations:
- Exemption of Credit Secured by a Motor Vehicle or Personal Property. The rule provides additional guidance on the exemption covering purchase money-secured motor vehicle and personal property loans. Specifically, the rule states that additional costs may be added to an extension of credit so long as these costs relate to the object securing the credit, and not the extension of credit itself. For example, the rule explains that credit used to finance “optional leather seats,” “an extended warranty,” or “negative equity” in connection with the purchase of a motor vehicle will not cause the loan to be subject to the MLA. However, the rule also states that, if credit is extended to cover “Guaranteed Auto Protection insurance or a credit insurance premium” or additional “cashout,” the loan is not eligible for the MLA exception.
- Security Interests in Covered Borrowers’ Accounts. The rule addresses the ability of a creditor to take a security interest in a covered borrower’s account. Specifically, the rule states that a covered borrower may “convey security interest for all types of consumer credit” to a creditor, so long as the creditor complies with all other laws and the MLA rule. Similarly, the rule notes that the MLA does not prohibit a creditor from exercising rights to take an otherwise-valid statutory lien on funds that have been deposited into a covered borrower’s account “at any time.” However, the rule also emphasizes methods a creditor may not use to obtain payment from a covered borrower’s account, such as a “remotely created check.”
- Timing for Safe Harbor Qualification. The rule provides additional clarity on when a creditor must check an applicant’s active duty status to obtain the MLA’s safe harbor. The rule states that an applicant’s covered borrower status should be determined when the applicant (i) initiates the transaction, (ii) submits an application to establish an account or during the processing of that application, or (iii) anytime during a 30-day period of time prior to such action. In addition, the rule states that a covered borrower check can qualify for the safe harbor if it is performed “during the course of the creditor’s processing of that application for consumer credit.”
OFAC Issues License and Guidance on Amended Ukrainian/Russian Sanctions
On November 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) released General License 1B to address amendments made to Directives 1 and 2 (Directives) of its Ukrainian/Russian-related Sectoral Sanctions. The amendments were made in accordance with the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA). (See previous InfoBytes coverage on Directives here.) The Directives prohibit U.S. persons from dealings in certain equity and debt of persons determined by OFAC to be part of the Russian financial and energy sectors. According to a Treasury press release, General License 1B addresses the decrease in the maturity dates of debt transactions prohibited by Directive 1 from 30 days to 14 days, and the decrease in the maturity dates of debt transactions prohibited by Directive 2 from 90 days to 60 days. General License 1B authorizes transactions by U.S. persons, wherever located, and transactions within the United States that involve derivative products whose value is linked to an underlying asset that constitutes prohibited debt issued by person subject to Directives 1, 2 or 3 of the Sectoral Sanctions, including those issued on or after November 28 that have the reduced maturity dates targeted by CAATSA. OFAC also released updated FAQs to answer questions related to the Ukrainian-/Russian-related amended directives.
California Department of Business Reaches $1.1 Million Settlement With South Carolina-Based Mortgage Lender and Servicer
The California Department of Business Oversight (DBO) announced on December 11 that it had reached a $1.1 million settlement with a South Carolina-based mortgage lender and servicer to resolve allegations that the company (1) violated California’s statutory restriction on per diem interest and (2) serviced loans without a California license. This settlement marks the second time in five years that examiners discovered alleged per diem overcharges in the company’s loans. Under California law, lenders are prohibited from charging interest on mortgage loans prior to the last business day that immediately precedes the day the loan proceeds are disbursed. In addition, it is a violation of state law to service residential mortgage loans without obtaining proper licensure.
According to the terms of the settlement—which resolves violations identified during a 2016 supervisory examination—the company must: (i) refrain from loan servicing activities until licensed by the state; (ii) pay $1 million in penalties to DBO for past violations; (iii) pay $125 for each additional violation identified by an independent audit of its loan originations; and (iv) issue per diem interest refunds totaling more than $141,000 to at least 1,347 borrowers. The company has also agreed to revise its policies and procedures to prevent future violations of California law.