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Treasury Issues Joint BSA/AML Fact Sheet
On August 30, the Department of the Treasury, along with the OCC, FDIC, Federal Reserve and NCUA, issued a joint fact sheet on foreign correspondent banking. The fact sheet provides a summary of the agencies’ (i) expectations for BSA/AML and OFAC risk management at U.S. depository institutions; (ii) risk-based approach to the supervisory examination process; and (iii) use of enforcement as an “extension of the supervisory process.” As highlighted in a corresponding blog post, the fact sheet explains that about “95% of BSA/OFAC compliance deficiencies identified by the [Federal Banking Agencies], FinCEN, and OFAC are corrected by the institution’s management without the need for any enforcement action or penalty.” The fact sheet notes that, under existing regulations there is no general requirement for depository institutions to conduct due diligence on an individual customer of a foreign financial institution (FFI). But it also notes that “[i]n determining the appropriate level of due diligence necessary for an FFI relationship, U.S. depository institutions should consider the extent to which information related to the FFI’s markets and types of customers is necessary to assess the risks posed by the relationship, satisfy the institution’s obligations to detect and report suspicious activity, and comply with U.S. economic sanctions. This may require U.S. depository institutions to request additional information concerning the activity underlying the FFI’s transactions in accordance with the suspicious activity reporting rules and sanctions compliance obligations.”
UK-Based Pharmaceutical Company Agrees to Pay $5.5 Million to Settle FCPA Charges with SEC
On August 30, the SEC announced a $5.5 million settlement with a U.K.-based pharmaceutical company to settle charges under the FCPA’s books and records and internal control provisions due to allegedly improper payments made by the company’s wholly-owned subsidiaries in China and Russia. In its administrative order, the SEC alleged that the Chinese subsidiaries made improper payments to doctors at state-owned healthcare providers to incentivize purchasing and prescribing the company’s pharmaceuticals. The improper payments were funded by fraudulent tax receipts, inflated travel invoices, and fabricated speaker fees. The Chinese subsidiary also allegedly made improper payments to government officials in exchange for reductions or dismissals of proposed financial sanctions against the subsidiary. Similarly, the SEC alleged that the company’s Russian subsidiary made improper payments in connection with pharmaceutical sales. Without admitting or denying the SEC’s findings, the company agreed to disgorge $4.325 million and pay a $375,000 civil penalty with $822,000 in prejudgment interest.
The SEC’s administrative order indicates that the company waived its statute of limitations defenses. This is notable because the company’s misconduct allegedly ended in 2010, and the statute of limitations for FCPA offenses is five years.
This settlement represents another in a series of SEC investigations of the pharmaceutical industry.
State Regulatory Registry Proposes Policy Change Related to NMLS Public Comment Procedures
On August 30, the State Regulatory Registry LLC (SRR), a subsidiary of the Conference of State Bank Supervisors (CSBS) and the entity that operates the Nationwide Multistate Licensing System and Registry (NMLS), requested public comment on a proposal to adopt a formal policy that would govern procedures and processes for requesting comments on NMLS-related updates that impact outside parties. Proposed matters warranting public comment would include (i) major NMLS functionality updates; (ii) call report updates; (iii) impacts to NMLS usability; (iv) Uniform Form changes; and (v) fee changes. SRR proposes that the comment period for NMLS-related updates last for at least 60 days but no longer than 180 days unless, as determined by the SRR Senior Vice President of Policy, there is good cause for extending the comment period. Comments on SRR’s proposed policy change, which defines the roles and responsibilities of various persons and working groups that would be involved in considering proposed NMLS updates, are due by October 31, 2016.
Minnesota AG Swanson Takes Action Against Unlicensed Debt Collector
In August, Minnesota AG Lori Swanson filed a lawsuit against a debt collection company, alleging that it repeatedly attempted to collect on debts that consumers did not owe, and made unlicensed collection calls to individuals, their relatives, and their co-workers. According to AG Swanson, the company pursued “phantom” debts against consumers, threatening non-compliant individuals with lawsuits and arrests. AG Swanson further asserts that the company “failed to inform people of their legal right to dispute the ‘debt’ and refused to provide verification of the ‘debt’ when people asked questions.”
District Court Issues Orders Against False Mortgage Relief Operation
The District Court for the Middle District of Florida recently ruled in favor of the FTC in the FTC’s complaint for equitable relief against several Florida-based companies and individuals (collectively, defendants), effectively banning the defendants from the mortgage loan modification and debt relief business. The FTC took this action against the defendants in 2014, alleging that they, acting in concert, ran a deceptive mortgage relief operation. According to the FTC, the defendants falsely promised consumers that, by paying an upfront fee of $1,000 to $4,000, and in some cases additional monthly fees, consumers would receive loan modifications or legal representation to prevent foreclosure of their homes. The Court’s final order imposes a judgment of more than $13.5 million against the defendants, subject to a separate stipulated order imposing an $8 million judgment on a subset of the defendants who had previously reached a settlement with the FTC in November 2015.
CFPB Issues Proposed Rule Seeking to Amend Procedures for Disclosing Certain Confidential Information
On August 24, the CFPB published a proposed rule seeking to amend procedures used by persons in the public domain to obtain information from the CFPB under the Freedom of Information Act, the Privacy Act of 1974 and legal proceedings. In part, the proposal also seeks to revise the 2013 final rule related to the “exchange of confidential supervisory information (CSI) with certain agencies.” Specifically, the CFPB proposes to remove the standard for sharing CSI, thereby utilizing the same standard for sharing information that is not considered CSI and giving the CFPB the discretion to disclose CSI to another agency “to the extent that the disclosure of the information is relevant to the exercise of the [agency’s] statutory or regulatory authority.” Among other things, if accepted, the proposal may allow the CFPB to establish a CSI sharing regime to include state attorneys general and other agencies without supervisory power. Comments are due by October 24, 2016.
CFPB Responds to Senators' Request to Tailor Regulations to Exempt Smaller Financial Institutions
On August 17, CFPB Director Cordray responded to a request, from a 70 senator coalition spearheaded by Senators Donnelly (D-IN) and Sasse (R-NE), that the CFPB further tailor its regulations that may be “unduly burdensome” for community banks and credit unions. In Cordray’s response, he stated that the CFPB is committed to achieving well-tailored and effective regulations within the provisions of Dodd-Frank. Further, Cordray outlined already-in-place exemptions for small creditors, various actions taken to ensure the CFPB’s “commitment” to maintaining effective regulations, and highlighted the Small Business Regulatory Enforcement Act (SBREFA) panel as “just one part of the Bureau’s broader initiatives to address the unique issues facing small financial institutions.” Cordray did, however, note that one of the CFPB’s objectives is to “enforce Federal consumer financial law ‘consistently, without regard to the status of a person as a depository institution.’”
CFPB Announces New Board and Council Members
On August 19, the CFPB announced new members to the Consumer Advisory Board, the Community Bank Advisory Council, Credit Union Advisory Council, and Academic Research Council. Pursuant to the Dodd-Frank Act, the CFPB established the Consumer Advisory Board to counsel the agency’s Director on consumer financial issues; the Community Bank Advisory Council, the Credit Union Advisory Council, and the Academic Research Council were created at the Director’s order. The nine newly appointed members to the Consumer Advisory Board and the two new members to the Academic Research Council will serve three-year terms; the seven new members to the Community Bank Council and the eight new members to Credit Union Advisory Council will serve two-year terms.
CFPB Considers Registration Rule for Nonbank Financial Institutions
The CFPB recently issued a Request for Information (RFI) seeking vendor feedback on the agency’s consideration of establishing a web-based system that would require nonbank financial institutions to register with the CFPB. The RFI outlines the potential registration system’s capabilities and services, noting that nonbank financial institutions would use it to “apply for, amend, update, or renew a registration online using a single set of uniform applications.” In addition to other data gathering components, the potential registration system may be used for the collection of financial, operational, and organizational structure data. Responses from technology system vendors were due on July 29, 2016, with a disclaimer that the RFI was not “to be construed as a commitment that the CFPB will propose a rulemaking on the registration of nonbank financial institutions or that the CFPB will propose any specific system requirements.”
CFPB Issues Consent Order to a National Bank Over Student Loan Servicing Practices
On August 22, the CFPB issued a consent order to a national bank to resolve allegations that its student loan servicing practices were unfair and deceptive in violation of the Dodd-Frank Act and that its payment aggregation practices violated the Fair Credit Reporting Act. The CFPB alleged that the bank failed to disclose key aspects related to its payment allocation process, including that partial payments would be distributed across all loans, even if a payment was sufficient to satisfy the minimum payment required for an individual loan. According to the consent order, the bank’s “allocation of a Partial Payment proportionally to all loans in the account sometimes caused consumers’ payments to satisfy fewer, if any, of the loan amounts due in the account than if the Partial Payment had been allocated in a manner that satisfied as many of the loan amounts as possible.” According to the CFPB, the bank’s failure to properly disclose its method for payment allocation resulted in consumers incurring improper late fees, which, if left unpaid for more than 30 days at the end of the month, were reported as delinquent to consumer reporting agencies. The CFPB further alleged that the bank’s payment processors used a late fee monitoring report that had a system coding error that improperly charged consumers late fees if a payment was made on the last day of a grace period, or if consumers chose to make partial payments instead of one payment. The CFPB contended that the bank failed to update, correct, or remove negative information that was inaccurately reported to credit reporting agencies. Pursuant to the consent order, the bank must (i) pay $410,000 in consumer redress; (ii) pay a civil penalty of $3.6 million; (iii) improve its student loan servicing practices to ensure that consumers’ partial payments are distributed in such a way that the amount due is satisfied for as many loans as possible, unless the consumer requests otherwise; (iv) enhance its disclosure statements; and (v) remove or correct errors on consumers’ credit reports.