InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OCC Updates Risk Assessment Guidance
On December 3, the OCC revised its Comptroller’s Handbook to include updated guidance regarding its risk assessment system (RAS). The RAS guidance clarifies the relationship between RAS and the Uniform Financial Institutions Rating System known as CAMELS. In addition, the guidance revises the definition of banking risk and applies a single definition – “the potential that events will have an adverse effect on a bank’s current or projected financial condition and resilience” – to all categories. Finally, the guidance expands the quality of risk management assessment to include a category of “insufficient,” between the already existing categories of “satisfactory” and “weak,” and also expands the assessment of strategic and reputation risk to consider both quantity of risk and quality of risk management.
Second Circuit Upholds District Court Decision to Dismiss Arbitration Case
On November 19, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a case alleging that two leading credit card issuing banks schemed to require that disputes be settled in arbitration, as opposed to class action lawsuits. The plaintiffs challenged the District Court’s decision on the grounds that language in United States v. General Motors Corp. should be used “to adopt a rule that the existence of conspiracy is a legal conclusion subject to review de novo.” Ross v. Citigroup, Inc., No. 14-1610 (2nd Cir. Nov. 19, 2015). Plaintiffs further argued that the District Court’s conclusion that the defendants’ actions did not constitute as conspiracy in violation of the Sherman Act should not be shielded by the “clearly erroneous” test. The District Court analyzed various “plus factors,” including motive, the quantity and nature of inter-firm communications, and whether the arbitration clauses were “artificially standardized” because of an illegal agreement, to determine whether or not conspiracy existed among the credit card issuing banks. The District Court concluded that the credit card issuing banks’ final decision to implement class-action-barring clauses was reached “individually and internally.” Stating that General Motors has never been applied as generously as the plaintiffs argued for it to be, the Second Circuit’s review of the record found the District Court’s conclusion plausible and not “clearly erroneous.”
DOJ Charges 16 Additional Individuals with FIFA-Related Corruption; Swiss Authorities Arrest Two High-Ranking FIFA Members
On December 3, the DOJ charged an additional 16 individuals in connection with its ongoing corruption investigation into FIFA. The new indictment included a number of high ranking FIFA members, including Alfredo Hawit, the president of the Confederation of North, Central America and Caribbean Association Football (CONCACAF) and vice-president of FIFA, and Juan Angel Napout, the president of the South American Football Confederation (CONMEBOL) and a member of the FIFA executive committee. Both of these individuals were arrested by Swiss authorities in Zurich and are opposing extradition to the United States.
With the additional 16 individuals, a total of 41 people and entities have been charged as part of the DOJ’s ongoing investigation.
CFPB Takes Action Against Nationwide Credit Reporting Company and Owner
On December 3, The CFPB took action against a nationwide credit reporting company and its owner over alleged violations of the Fair Credit Reporting Act. According to the CFPB, the defendants (i) obtained consumer reports, without permissible purpose, from third-party CRAs to generate marketing presentations for prospective clients; and (ii) failed to investigate consumer disputes, including those relating to identity theft. The CFPB further alleged that the company “routinely failed” to provide consumer dispute information to furnishers. In addition to an $8 million civil money penalty, the consent order requires the defendants to submit to the CFPB a compliance plan that ensures their “practices for obtaining Consumer Reports and conducting reinvestigations of disputes [comply] with all applicable federal consumer financial laws, as defined in the CFPA.” Finally, the order prohibits the company from engaging in certain practices, such as the selling or reselling of any consumer report to any person whose purpose for obtaining the report is to consider purchasing any service provided by the defendants, or to generate a lead.
Mortgage Company Resolves DOJ Allegations of False Claims Act Violations
On December 2, a Tennessee mortgage company agreed to pay the United States $70 million to resolve allegations that it violated the False Claims Act. According to the DOJ, the company, acting as a direct endorsement lender, knowingly originated and accepted FHA-insured mortgage loans that did not meet applicable HUD underwriting and quality control requirements. As part of the settlement agreement, the company admitted to engaging in the following conduct between January 1, 2006 and March 31, 2012: (i) employing unqualified junior underwriters to complete important underwriting tasks; (ii) setting high quotas for underwriters and disciplining them if the quotas were not met; and (iii) offering underwriters bonuses based in part on the number of loan files reviewed as incentive to increase loan production. Even though deficiencies in the loan underwriting process were identified in post-close audits, the company did not make any self-reports until 2009 and, even then, “[v]ery few of these self-reported loans were reported for containing serious underwriting deficiencies.” As a result of the company’s conduct, the FHA insured loans that were not eligible, purportedly suffering “substantial losses when it later paid insurance claims on those loans.”
CFPB Releases HMDA Implementation Resources
On December 1, the CFPB released a group of resources designed to help financial institutions understand their obligations under HMDA and Regulation C, as amended by the Bureau's October 15 final rule. The resources include a brief 5-page executive summary of the recent changes, the HMDA Small Entity Compliance Guide, two reference tools that show when data must be collected, recorded, and reported and when data can be reported as "not applicable," and HMDA institutional coverage charts for both 2017 and 2018.
The most substantial of these resources is the HMDA Small Entity Compliance Guide that the Bureau describes as, "a plain-language guide to the new rule which makes the content more accessible for industry constituents, especially smaller businesses with limited legal and compliance staff." The guide is 109 pages and covers key changes and effective dates, institutions and transactions that are covered under the new rule, the data points that must be reported and how they should be recorded and reported, as well as small sections on practical implementation and how mergers and acquisitions affect the applicability of the new rule. The guide also provides an e-mail address and phone number for anyone who has reviewed all of the available materials and still has a specific regulatory interpretation question.
New York DFS Proposes Anti-Terrorism and Anti-Money Laundering Regulation
On December 1, the New York DFS announced a proposed anti-terrorism and anti-money laundering regulation, Transaction Monitoring and Filtering Program Requirements and Certifications. Key requirements of the proposed regulation include maintaining programs (i) to monitor transactions after they’ve been executed for potential BSA/AML violations and Suspicious Activity Reporting; and (ii) to ban certain transactions that are prohibited by applicable sanctions, politically exposed persons lists, and internal watch lists. The proposed regulation outlines the programs’ respective minimum requirements, including ensuring that they are based on the Risk Assessment of the institution. Critically, the proposal also requires a Certifying Senior Officer of the regulated financial institutions to file with the Department executed certifications ensuring compliance with the requirements by April 15 of each year.
DOJ Announces Mortgage Lending Discrimination Charges Against Massachusetts Bank
On November 30, the DOJ announced the filing of a complaint and proposed consent order against a Massachusetts-based bank alleged to have violated the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) by charging African-American and Hispanic borrowers higher prices for home loans than similarly situated white borrowers. From 2011 until at least 2014, the bank allegedly used a “target pricing” mortgage origination policy, assigning loan officers with a Minimum Base Price (MBP) they were expected to achieve on each home loan without regard to the borrower’s creditworthiness. According to the DOJ’s complaint, “African-American and Hispanic borrowers were served disproportionately by loan officers with higher MBPs than the loan officers serving white borrowers.” The complaint further alleges that, from April 2011 through December 2013, the bank authorized loan officers to price a loan higher than their assigned MBP, without documenting the reasons for doing so. Pending court approval, the DOJ’s proposed consent order will require the bank to (i) pay $1,175,000 as compensation to borrowers affected by its practices; (ii) establish a new loan pricing policy and a new loan officer compensation policy; (iii) provide fair lending and fair housing training to loan officers and bank employees; and (iv) establish a monitoring program designed to, at a minimum, assess loan pricing disparities.
In May 2013, the FDIC conducted a consumer compliance examination of the bank and found reason to believe that its lending practices violated the FHA and ECOA, prompting the agency to refer the matter to the DOJ on February 7, 2014.
Agencies Announce 2016 Consumer Credit, Lease Transaction Thresholds
On November 25, the Federal Reserve and the CFPB announced that the dollar thresholds in Regulation Z and Regulation M for exempt consumer credit and lease transactions will not change in 2016. Based on the annual percentage decrease in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2015, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less beginning January 1, 2016 – the same thresholds that applied in 2015. Regardless of the loan amount, private education loans and loans secured by real property remain subject to TILA. The agencies published notices of thresholds in Regulation Z and Regulation M in the Federal Register on November 27, 2015.
CFPB Monthly Complaint Snapshot Highlights Bank Account and Service Complaints
On November 24, the CFPB released its monthly complaint report, which focuses on bank account and service complaints. According to the report, the most commonly reported bank account or service complaints include (i) problems opening and managing an account; (ii) difficulties disputing transactions; and (iii) issues with depositing and withdrawing funds. Nationwide, the CFPB identified debt collection as the most-complained-about financial product or service, representing about 28% of complaints submitted. According to the report, complaints about prepaid products rose 193%, while payday loan complaints showed the greatest decrease. The report also identifies the most-complained-about companies. The CFPB acknowledged that Idaho showed the greatest increase in complaint volume and placed Connecticut in its geographic spotlight, noting that as of November 1, 2015, Connecticut consumers submitted more than 8,000 complaints, with mortgage-related complaints taking the lead.