InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB Publishes Updated Reference Material for HMDA
On September 28, the CFPB released, on its website, updates to the reference material for the Home Mortgage Disclosure Act (HMDA). The Bureau updated the, (i) institutional coverage criteria; (ii) transactional coverage criteria; and (iii) key dates timeline.
These updates are associated with the changes, previously reported in InfoBytes, that the CFPB made in the 2017 HMDA final rule.
California Legislature Urges Congress to Request the Department of Defense Alter Criteria for Safe Harbor Provision in the MLA
On September 25, the California Legislature filed a joint resolution that urges Congress to impress upon the Department of Defense the need to realign their criteria requiring a social security number for the safe harbor provision in the Military Lending Act (MLA). The resolution noted that the revised MLA regulations requiring lenders to ask for a social security number, among other information from borrowers, may expose lenders to liability under the California Unruh Civil Rights Act. It further states that this provision of the MLA could unnecessarily burden many segments of California’s immigrant communities.
Diagnostic Test Manufacturer Settles FCPA Violations With SEC for $13 Million
On September 28, the SEC announced that a diagnostic test manufacturer had settled a variety of FCPA books and records and internal control allegations stemming from its sales practices in Africa, Asia, and Latin America, including the failure to improperly characterize and record payments made to government officials in Columbia and India. In concluding the more than two year investigation, the company agreed to pay a civil monetary penalty of $9.2 million, and disgorgement and interest of approximately $3.8 million. As part of the settlement agreement, the company did not admit or deny the SEC’s findings of fact. As discussed in a previous FCPA Scorecard post, the DOJ announced in March 2016 that it is also investigating the company’s foreign sales practices. That investigation is ongoing.
Ongoing FCPA investigations can of course have costly business implications beyond reputational damage; the ongoing FCPA investigation of the company appears to have taken a toll, likely playing a role in the reduced price paid by a global healthcare company in April 2017 to acquire the company.
Financial Industry Groups Sue the CFPB Over Arbitration Rule
On September 29, the U.S. Chamber of Commerce (Chamber) and other financial industry groups joined together to file a lawsuit in a Texas District Court against the CFPB over the constitutionality and legality of the Bureau’s arbitration rule (rule). The complaint alleges four reasons why the rule is invalid and should be set aside:
- the rule is a product of the unconstitutional structure of the CFPB – as covered in a previous InfoBytes, a similar argument is being heard in the U.S. Court of Appeals for the D.C. Circuit in the case brought by PHH;
- the CFPB failed to follow procedures in the Administrative Procedures Act (APA) in adopting the conclusions of a flawed arbitration study. Specifically, the complaint alleges that the study improperly limited public participation, applied flawed methodologies, misunderstood relevant data, and did not address key considerations;
- the rule is a model of arbitrary and capricious agency action because it fails to take into account important aspects of the problem it is attempting to address and runs counter to the record before the Bureau; and
- the rule is a violation of the Dodd Frank Act because it fails to advance the public interest or consumer welfare.
Currently, the rule is also under scrutiny by Congress. As previously discussed in InfoBytes, the House passed a disapproval resolution, under the Congressional Review Act, to repeal the rule. A similar measure is set for discussion in the Senate.
Buckley Sandler will follow up with a more detailed summary of the lawsuit.
Federal Banking Regulatory Agencies Issue Proposed Rulemaking to Simplify Regulatory Capital Rule
On September 27, the Federal Reserve Board, the FDIC, and the OCC (agencies) issued a joint notice of proposed rulemaking to simplify capital rule compliance requirements and reduce the regulatory burden in accordance with the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Among other things, the proposed rule will “apply a simpler regulatory capital treatment” for mortgage servicing assets, certain deferred tax assets, investments in unconsolidated financial institutions, and capital issued by a consolidated subsidiary of a banking organization and held by third parties, or minority interest. To assist banks in evaluating the potential impact of the proposal, the agencies provided an estimation tool template and summary of the proposal. As previously discussed in InfoBytes, the agencies—all members of the Federal Financial Institutions Examination Council (FFIEC)—issued a report in March following an EGRPRA review, in which the agencies outlined initiatives designed to reduce regulatory burdens, particularly on community banks and savings associations. In a statement issued by FDIC Chairman Martin J. Gruenberg, commenters are encouraged to also consider methods for simplifying existing regulatory capital rules impacting community banks. Comments on the joint proposed rule are due 60 days after publication in the Federal Register.
Senate Judiciary Tech Subcommittee to Hold Hearing on Data Breach; New Credit Reporting Agency CEO Speaks Out
On September 27, interim CEO, Paulino do Rego Barros Jr., spoke out for the first time since a major credit reporting agency (agency) appointed him to the role the previous day. In addition to issuing an apology, Barros stated that the agency is extending the deadline to sign up for their credit monitoring services and free credit freezes through the end of January 2018. He also made the commitment that by January 31, the agency will offer a new service for consumers to control access to their personal credit data. As previously reported in InfoBytes, the agency is still in the process of responding to the data breach that impacted approximately 143 million U.S. consumers.
On October 4, the Senate Judiciary Subcommittee on Privacy, Technology and the Law will hold a hearing on the agency’s data breach to continue to monitor data-broker cybersecurity. The hearing is scheduled for 2:30 pm in the Dirksen Senate Office Building 226.
HUD IG Blames Ginnie Mae for Inadequate Supervision; HUD IG Concludes HUD Did Not Follow Requirements When Forgiving Debts
On September 21, the HUD Inspector General (IG) released an audit report of Ginnie Mae’s oversight of nonbanks in the mortgage servicing industry. The report found that Ginnie Mae did not adequately respond to the growth in its nonbank issuer base; a base, the report notes, that tends to have more complex financial and operating structures than banking institutions. The IG found, among other things, that Ginnie Mae may not be prepared to identify problems with nonbank issuers prior to default, requiring additional funds from the U.S. Treasury to pay back investors in the event of a large default.
On the same day, the IG also announced a report which found that HUD did not always follow applicable requirements when forgiving debts and terminating debt collections. The report determined that HUD’s review process for evaluating debt forgiveness or collection termination was not thorough enough to ensure that statutory, regulatory, and policy requirements associated with this process were met—such as ensuring DOJ approval was obtained when required.
CFPB Issues Consent Order for Steering to Real Estate Settlement Services Provider
On September 27, the CFPB issued a consent order against a real estate settlement services provider for allegedly steering consumers to a title insurer owned in part by three of its executives without disclosing its affiliated business interests, as required by RESPA. According to the consent order, the company received money “beyond the commission it would normally have been entitled to collect” due to an agreement or understanding that it would refer its business to the title insurer, but it did not make the disclosures of the affiliate relationships required by RESPA to over 7,000 consumers. The CFPB’s order requires the company to pay up to $1.25 million in redress to affected consumers and to implement policies and procedures to ensure proper disclosure of applicable referrals to consumers in the future.
DOJ Obtains Auto Repossession Settlement for Servicemembers
On September 27, the DOJ announced a settlement with a California-based indirect auto financing company and its subsidiary responsible for extending auto title loans (defendants) resolving allegations that the defendants violated the Servicemembers Civil Relief Act (SCRA) by illegally repossessing at least 70 SCRA-protected servicemembers’ vehicles. The DOJ filed its complaint against the defendants in the U.S. District Court for the Central District of California the same day the settlement agreement was reached. This is the second DOJ settlement reached this month over alleged SCRA violations concerning auto repossessions. (See previous InfoBytes summary here.) According to the complaint, the CFPB’s Office of Servicemember Affairs alerted the DOJ in 2016 to the alleged unlawful vehicle repossessions. The DOJ’s investigation concluded that the defendants repossessed the vehicles between 2011 and 2016, without confirming whether the servicemembers were SCRA-protected or obtaining court orders. The defendants’ practice of violating the SCRA, the DOJ contends, was “intentional, willful, and taken in disregard for the rights of servicemembers.”
Under the terms of the settlement agreement, the defendants must comply with the following: (i) obtain a court order or “valid SCRA waiver” in compliance with the outlined terms of the agreement before repossessing servicemember vehicles; (ii) develop a set of SCRA policies and procedures that outline repossession compliance measures and another set of policies and procedures to provide SCRA relief; (iii) appoint SCRA-specialized employees; and (iv) provide SCRA compliance training. The defendants must also compensate affected servicemembers $700,000, in addition to “lost equity,” accrued interest, credit repair relief, and an auto loan interest rate cap for eligible servicemembers. Further, the defendants must pay a civil penalty of $60,788 to the Treasury, and provide a list of repossessions between October 2016 and the effective date of the settlement to be reviewed by the DOJ for additional SCRA-violations.
OFAC Imposes Additional North Korean Sanctions; Senate Banking Committee Hearing Discusses Multi-Department Efforts
On September 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced it was imposing sanctions on an additional eight North Korean banks and 26 individuals connected to North Korean financial networks across the globe. The individuals sanctioned are North Korean nationals who represent North Korean banks operating in China, Russia, Libya, and the UAE, and have been designated “in response to North Korea’s ongoing development of weapons of mass destruction and continued violations of United Nations Security Council Resolutions.” OFAC’s action complements the United Nations Security Council’s resolution UNSCR 2375, adopted September 11, 2017. As a result, property or interests in property of the designated persons within U.S. jurisdictions are blocked.
These actions closely follow President Trump’s recent issuance of sanctions targeting individuals, companies, and financial institutions that finance or facilitate trade with North Korea. (See previous InfoBytes coverage here.)
Additionally, the Senate Committee on Banking, Housing, and Urban Affairs (Committee) held an open session hearing on September 28 entitled “Evaluating Sanction Enforcement and Policy Options on North Korea: Administration Perspectives.” Committee Chairman Mike Crapo (R-Idaho) opened the hearing to stress that “[m]any Members of Congress, including on this committee, have a keen interest in knowing more about how and when enforcement of these new measures will occur, wondering if last week’s executive order and earlier UN sanctions will be sufficient to achieve U.S. policy goals.” Sen. Crapo also mentioned the Committee’s legislative efforts to “maximize pressure against North Korea.”
The September 28 hearing—a video of which can be accessed here—included testimony from the following witnesses concerning North Korea’s nuclear and ballistic missile program and the need to curtail the country’s access to revenue, trade, and financial systems.