On May 19, the CFPB announced a stipulated final judgment against a California-based worldwide payment system company. According to the CFPB’s complaint, filed the same day, the defendant (i) failed to honor advertised promotional benefits; (ii) charged consumers deferred-interest fees; (iii) enrolled consumers in a credit product without their knowledge or consent; (iv) failed to remove late fees and interest charges that consumers accrued because of website failures; and (v) mishandled consumers’ billing disputes. Under the terms of the final judgment, the company will improve its disclosures regarding enrollment options and payment allocation, pay $15 million to reimburse consumers who were the victims of its practices, and pay $10 million to the CFPB’s Civil Penalty Fund.
DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets
On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.
On May 20, the CFPB launched its Financial Coaching Initiative, an educational program designed to help “recently-transitioned veterans and economically vulnerable consumers.” The program places 60 certified financial coaches – all of whom will be accredited by the Association for Financial Counseling and Planning Education – at diverse, non-profit partner organizations around the country. With over 49 million people living below the poverty line, and at least 68 million financially underserved, the goal of the CFPB’s new educational service is to “help these consumers make good financial decisions and reach their financial goals.” The program is being paid for by the CFPB’s Civil Penalty Fund.
According to its May 19 securities filing, a Brazilian manufacturer of commercial jets has entered into discussions with the DOJ to resolve an FCPA probe launched by the Department in 2010. The government’s investigation stems from allegations that the manufacturer’s sales executives bribed various Dominican individuals who, in exchange, influenced legislators in the Dominican Republic to approve a $92 million contract and financing agreement for aircraft. In its filing, the company stated that a resolution of the investigation would result in fines and other sanctions by the DOJ. The Brazilian government’s criminal case against the manufacturer’s eight sales executives is ongoing.
On May 20, the SEC announced that it had instituted and settled administrative proceedings against a global resources company to resolve alleged FCPA violations during the 2008 Summer Olympics. According to the SEC’s administrative order, the company invited over 175 government officials and employees of state-owned enterprises, many from countries in Africa and Asia with a “well-known history of corruption,” to attend the Games at its expense. Those who accepted were provided with “hospitality packages” that included event tickets, luxury hotel accommodations, meals and, in many cases, business class airfare. Even though the company was aware that providing high-end hospitality packages to government officials created a heightened risk of violating anti-corruption laws, its internal controls were “insufficient” because there was no independent legal or compliance review of the invited guests or enhanced training of employees regarding the corruption risks. Read more…
On May 20, the FHFA announced that Fannie Mae and Freddie Mac released updates to their operational and financial eligibility requirements for single-family mortgage Seller/Servicers. Because of changes in the servicing industry, the FHFA directed Fannie and Freddie to update their Seller/Servicer standards to “help ensure the safe and sound operation of the Enterprises and provide greater transparency, clarity and consistency to industry participants and other stakeholders and reflect feedback received over the past several months.” Fannie Mae’s revised operational standards will take effect by September 1, 2015, and Servicers must implement the financial eligibility changes by December 31, 2015. Operational standards for Freddie Mac Servicers will take effect August 18, 2015; financial eligibility revisions must be in place by December 31, 2015.
On May 20, the FCC released an enforcement advisory regarding the enforcement of Section 222 of the Communications Act as it relates to providers of broadband Internet access service (BIAS). The advisory bulletin indicates that, until the FCC implements new BIAS-specific privacy regulations, the Enforcement Bureau will “focus on whether broadband providers are taking reasonable, good-faith steps to comply with Section 222, rather than focusing on technical details.” Thus, “the Enforcement Bureau intends that broadband providers should employ effective privacy protections in line with their privacy policies and core tenets of basic privacy protections.”
On May 21, FinCEN announced Jamal El-Hindi as its new Deputy Director. Since January 2015, El-Hindi has been serving as the agency’s acting Deputy Director, and previously served as Associate Deputy Director for the Policy Division. Prior to joining FinCEN in June 2006, El-Hindi oversaw OFAC’s Compliance Outreach Division, Licensing and Policy Division as the Associate Director for Program Policy and Implementation, and was an Attorney-Advisor in the Office of Chief Counsel (Foreign Assets Control) within Treasury’s Office of General Counsel, serving on economic sanctions programs as a legal advisor. In his role as FinCEN’s Deputy Director, El-Hindi will work alongside law enforcement, intelligence, financial, and regulatory communities “to ensure the effective coordination of anti-money laundering and anti-terrorist financing initiatives.”
On May 15, a San Diego-based storage company entered into a consent order with the DOJ to settle claims that the company’s practice of auctioning off active duty servicemembers’ stored belongings violated the Servicemembers Civil Relief Act (SCRA). As part of the settlement, the storage company will: (i) pay $170,000 in damages to those servicemembers whose stored belongings it sold without obtaining a court order; (ii) implement new SCRA policies and procedures, which are to be approved by the government; and (iii) ensure that those employees who are involved with the enforcement of storage liens receive government approved SCRA training annually.
The Department of Education is set to propose new regulations which could change how financial institutions provide services on college campuses, according to a NPRM to be published in the Federal Register on May 18. The new rules, part of a nearly 300-page “Program Integrity and Improvement” package, are intended to among other things (i) ensure that students have convenient access on their Title IV funds, (ii) do not incur unreasonable and uncommon financial account fees, and (iii) are not led to believe they must open a particular account from a financial institution to receive Federal student aid. The proposed regulations also update other provisions in the cash management regulations, clarify how previously passed coursework is treated with respect to Title IV funds eligibility, and streamline the requirements for converting clock hours to credit hours. Public comments on the proposed rulemaking will be due 45 days after date of publication in the Federal Register.
On May 14, the CFPB published a Request For Information (RFI) seeking public comment on student loan servicing practices. In particular, the Bureau is requesting comments on six areas: (i) industry practices that cause repayment challenges; (ii) challenges faced by distressed borrowers; (iii) financial incentives that affect the quality of service; (iv) application of consumer protections in other markets to the loan servicing market; and (v) the availability of information about the student loan market. According to the Bureau, the comments received concerning the aforementioned areas will be used to assist student loan servicers and policymakers identify potential options to improve service, reduce defaults, develop industry best practices, examine consumer protection, and spur innovation. Along with the RFI, the CFPB released a factsheet on student debt stress, highlighting statistics that could lead to significant challenges for the industry. In prepared remarks for a field hearing concerning the issue, CFPB Director Richard Cordray alluded to the growing concerns within the student loan market, mentioning that two-thirds of graduates finishing their bachelor’s degrees graduate with debt averaging almost $30,000.
On May 26, The CFPB and the Federal Reserve will host a 60-minute webinar to answer questions with respect to the TILA-RESPA Integrated Disclosure rule under the TILA and RESPA, also known as TRID. “This fifth and final in the planned series of webinars will address specific questions related to rule interpretation and implementation challenges that have been raised to the Consumer Financial Protection Bureau by creditors, mortgage brokers, settlement agents, software developers, and other stakeholders,” according to the Federal Reserve. For those interested in attending, registration is required and can be accessed here.
On May 12, CFPB Director Richard Cordray addressed the National Association of Realtors regarding the 2008-2009 economic crash and the gradual recovery of the American housing market. In an effort to restore consumers’ confidence in the mortgage market, the Bureau implemented rules, such as the Ability-to-Repay rule and the Qualified Mortgage rule, to ensure that lenders were offering consumers mortgages they could afford. Effective August 1, the Bureau’s “Know Before You Owe” rule will replace the current separate disclosures required by TILA and RESPA with combined TILA-RESPA disclosures (“TRID”); the new forms are “consumer-tested to be more user-friendly, which will ease the process and improve the consumer experience.”. In his remarks, Cordray did not signal that the TRID effective date or enforcement of the same would by delayed by the Bureau.
On May 11, the CFPB issued Bulletin 2015-02, reminding creditors to include income from the Section 8 Housing Choice Voucher (HCV) Homeownership Program when underwriting mortgage loans. Within the Bulletin, the Bureau noted that it “has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes,” further mentioning that “some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels.” The Bulletin warns that disparate treatment prohibited under ECOA and Reg. B may exist when a creditor does not consider Section 8 as a source of income and provides guidance on how lenders can mitigate their fair lending risk. In conjunction with the guidance, the CFPB also published a blog post, providing an overview of the Section 8 HCV Program and detailed how consumers can submit complaints if they believe they have been discriminated against.
On May 12, FDIC Chairman Martin Gruenberg delivered remarks at the American Association of Bank Directors (AABD)-SNL Knowledge Center Bank Director Summit. In his prepared remarks, Gruenberg discussed, among other things, (i) the role of bank directors with respect to the safety and soundness of the U.S. banking system, particularly the importance of an effective corporate governance framework within community banks, and (ii) current challenges facing the boards of community banks, citing strategic and cyber risk as the most pressing. Of significant importance, Gruenberg provided information concerning community bank directors’ professional liability in regard to the banking regulator’s supervisory expectations, reminding that as receiver for a failed bank, the FDIC has the authority to bring legal action against professionals, including bank directors, for their role in a bank’s failure. BuckleySandler’s David Baris serves as President of AABD.