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FDIC Chairman delivers remarks on the impact of technology in the business of banking
On May 7, FDIC Chairman, Martin J. Gruenberg, spoke at the Forum on the Use of Technology in the Business of Banking about the importance of understanding the ways in which emerging technology is positively affecting banking operations, while also recognizing associated risk management challenges. Gruenberg noted that the benefits of technology—such as reduced transaction costs, operational efficiency, payment speed improvements, and economic inclusion and access to mainstream banking—also pose challenges to financial institutions that may be amplified as new products and services are adopted. Challenges include: (i) cybersecurity risks; (ii) Bank Secrecy Act/anti-money laundering concerns; and (iii) various other consumer protection issues. Gruenberg also discussed the role of the FDIC’s Emerging Technology Steering Committee, which was established to address these issues, and its two working groups responsible for “monitoring trends, opportunities, and risks in this area, and evaluating impacts on banking, general safety and soundness, deposit insurance, financial reporting, economic inclusion, and consumer protection.” He stressed that the committee’s work will inform the agency’s “supervisory strategy for responding to opportunities and risks presented by the use of emerging technologies to supervised institutions.”
Pennsylvania adopts CFPB mortgage servicing regulations
On April 28, the Pennsylvania Department of Banking and Securities adopted regulations to effectively incorporate Subpart C of the CFPB’s RESPA mortgage servicing regulations (Regulation X), which were amended effective as of April 19. The adopted regulations address, among other things, (i) disclosure requirements; (ii) mortgage servicing transfers; (iii) escrow payments and account balances; (iv) forced-place insurance; and (v) loss mitigation procedures. The adopted regulations were effective on April 28.
District Court grants FTC request for preliminary injunction against mortgage assistance relief operation that allegedly misrepresented material facts to distressed homeowners
On May 8, the FTC announced that the U.S. District Court for the Central District of California entered a preliminary injunction on April 27 at the FTC’s request against a mortgage assistance relief operation and its principals (defendants), prohibiting them from misrepresenting material facts to consumers and imposing an asset freeze and other equitable relief. According to a complaint filed by the FTC on April 12, which sought “temporary, preliminary, and permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief,” the defendants allegedly violated the FTC Act and the Mortgage Assistance Relief Services Rule (Regulation O) in their marketing and sale of mortgage relief services to distressed homeowners.
The FTC claimed in its press release that the defendants “misrepresent[ed] the likelihood of success” of their mortgage payment reduction program and directed “confirmed” consumers to pay thousands of dollars in “closing costs” prior to discussing the defendants’ terms with their loan holders or servicers. Furthermore, the defendants allegedly discouraged consumers from communicating with their mortgage lenders and encouraged consumers to stop payments to their lenders without informing them that their actions could lead to foreclosure or damage their credit ratings.
In granting the preliminary injunction, the court ruled that there was good cause to believe that, unless the defendants continued to be restrained and enjoined by order of the court, “the court’s ability to grant effective final relief in the form of monetary restitution and disgorgement of ill-gotten gains will suffer immediate and irreparable damage from [the] [d]efendants’ transfer, dissipation, or concealment of [a]ssets or business records.” Furthermore, the court found good cause to (i) appoint a temporary receiver; (ii) grant the FTC limited expedited discovery from third-parties related to assets; and (iii) freeze defendants’ assets.
Mortgage servicer must face TCPA allegations after court dismisses other claims
On May 2, the U.S. District Court for the Eastern District of New York granted in part and denied in part a mortgage loan owner and mortgage loan servicer’s motion to dismiss a consumer’s lawsuit alleging various violations of TILA, RESPA, FDCPA, TCPA and certain New York state laws. The court’s decision explains that the mortgage loan owner first initiated foreclosure proceedings against the consumer in 2009, but in August 2013 that action was dismissed and the parties executed a modification agreement. The consumer argues in the amended complaint that the mortgage debt is time-barred based on the six year statute of limitations to enforce the mortgage note, starting the clock with the 2009 foreclosure filing. The consumer alleges that after the statute of limitations expired, the mortgage servicer contacted the consumer by mail and by telephone to collect the mortgage debt, totaling over 600 calls placed by an autodialer and up to four threatening collection letters per month since 2015. The court, however, agreed with the mortgage companies that the execution of the 2013 modification agreement restarted the statute of limitations and therefore, the consumer’s alleged violations of New York state laws and the FDCPA failed because the mortgage debt was not time-barred. The court also held that the consumer failed to plead sufficient facts to support the alleged violations of TILA, RESPA, and New York’s General Business Law. In contrast, the court denied the mortgage servicer’s motion to dismiss the consumer’s claim under the TCPA, holding that the mortgage application signed by the consumer did not clearly consent to contact by an autodialer on his cell phone.
FINRA amends anti-money laundering rule to comply with FinCEN’s CDD rule
On May 3, FINRA issued a Regulatory Notice 18-19 amending Rule 3310—Anti-Money Laundering (AML) Compliance Program rule—to reflect the Financial Crimes Enforcement Network’s final rule concerning customer due diligence requirements for covered financial institutions (CDD rule), which becomes applicable on May 11. According to Regulatory Notice 18-19, member firms should ensure that their AML programs are updated to include, among other things, appropriate risk-based procedures for conducting ongoing customer due diligence including (i) “understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile,” and (ii) “conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.” The announcement also makes reference to FINRA’s Regulatory Notice 17-40, issued last November, which provides additional guidance for member firms complying with the CDD rule. (See previous InfoBytes coverage here.). The notice further states that the “provisions are not new and merely codify existing expectations for firms.”
FinCEN and California card club agree to a reduced penalty for AML violations
On May 3, the Financial Crimes Enforcement Network (FinCEN) and a California card club agreed to a $5 million penalty for Bank Secrecy Act (BSA) and anti-money laundering (AML) violations from 2009 to 2017. In November 2017, FinCEN assessed the company $8 million in civil money penalties but has now agreed to suspend $3 million pending compliance with certain requirements in the consent order. As previously covered by InfoBytes, FinCEN alleges the company failed to file certain Suspicious Activity Reports (SARs) regarding loan sharking and other criminal activities being conducted through the company and failed to implement sufficient internal controls to monitor risks associated with gaming practices that allowed customers to co-mingle and pool bets with anonymity. The order requires the company to, among other things, adopt an AML program and hire a qualified independent consultant to review its effectiveness and retain a compliance officer to ensure compliance with BSA requirements.
CFTC Commissioner says FSOC should take lead in future fintech policy regulation
On May 3, Commodities Futures Trading Commission (CFTC) Commissioner Rostin Behnam emphasized that the Financial Stability Oversight Council (FSOC) should take the lead in evaluating the future of oversight and regulation of the fintech industry. In his keynote address to a financial regulatory conference in Washington, D.C., Behnam highlighted the rise of cryptocurrencies as an example of the need to “identify and craft an appropriate path forward for ensuring that legal issues resulting from these technologies are identifiable and solvable before they cross the horizon.” According to Benham, FSOC, due to its mandate in the Dodd-Frank Act, has the authority to, among other things, convene financial regulators for collaboration and propose policy direction based on input from all stakeholders. Acknowledging the need for all market participants and regulators to be aligned when it comes to fintech regulation, Benham stated that “anything less than decisive action by policymakers in the short term” will lead to uncertainty.
New York Senate introduces bill to enact state charters for on-line lenders
On May 2, the New York Senate introduced a bill that, if passed, would establish a new article under the state’s banking law to provide for the chartering and regulating of internet lending services corporations (on-line lenders). Among other things, the “New York limited state charter for internet lending services,” S8340, would (i) authorize the New York Department of Financial Services (NYDFS) to issue limited state charters to on-line lenders who “engage in the business of making loans over an internet or electronic platform”; (ii) allow chartered on-line lenders to approve or deny consumer loan applications submitted through NYDFS-approved electronic means; (iii) limit the principal amount of personal loans to $25,000 and $50,000 for business and commercial loans, as well as require the adherence to legally authorized interest rates; (iv) require that chartered on-line lenders be able to demonstrate fiscal solvency with “a minimum capital requirement of not less than $250,000”—an amount five times higher than what is required of brick and mortar-based licensed lenders; and (v) grant NYDFS the authority to regulate chartered on-line lenders.
S8340 further notes that, at present, the state’s banking law does not provide a regulatory environment to oversee the operations of on-line lenders. The bill currently sits with the Senate’s Banks Committee.
District Court partially denies defendants’ time-barred claims, rules certain TSR violations may proceed
On May 3, the U.S. District Court for the Central District of California addressed time-barred claims raised by a group of affiliated law firms and their managing attorneys (defendants) that partnered with a now-defunct entity to offer debt relief services to consumers. The court granted in part and denied in part defendants’ request for summary judgment after determining that many of the allegedly improper up-front fees charged to consumers seeking debt relief were collected within the three-year statute of limitations for enforcement actions. As previously covered in InfoBytes last January, the CFPB claimed, among other things, that the defendants violated the Telemarketing Sales Rule (TSR) by allegedly assisting a different, now-defunct debt relief service company with charging up-front fees. Last May, the district court denied the defendants’ bid for dismissal but at the time “declined to resolve the parties’ dispute over the applicable statute of limitations.” While the CFPB agreed to limit its request for relief to the three years preceding the filing of the suit, the defendants filed a motion for summary judgment arguing that the entire action should be barred because the alleged violations relate to a “singular scheme” discovered by the CFPB in 2012. However, according to the court, federal consumer financial law states that “any violations of the TSR that occur within the relevant limitations period are not time-barred.” Therefore, because the CFPB provided evidence that fees were collected in 2015—well within the applicable statute of limitations—the defendants’ request as to violations of the TSR that allegedly occurred within three years of the filing is denied. Notwithstanding, the court granted part of the defendants’ request for summary judgment and barred all claims related to conduct that occurred outside the three-year window because the CFPB did not oppose the motion.
FDIC issues regulatory relief guidance for financial institutions in areas of Alabama affected by severe storms
On May 4, the FDIC issued a Financial Institution Letter, FIL-24-2018, to provide regulatory relief to financial institutions and facilitate recovery in areas of Alabama affected by severe storms and tornados. The FDIC is encouraging institutions to consider, among other things, extending repayment terms and restructure existing loans that may be affected by the natural disasters. Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act (CRA) consideration for certain development loans, investments, and services in support of disaster recovery. The FDIC letter also contemplates regulatory relief for banks located in the affected areas.
Find continuing InfoBytes coverage on Disaster Relief here.