CFPB Sues For-Profit College For Alleged Predatory Lending

On September 16, the CFPB filed a civil action against a for-profit college for allegedly engaging in an “illegal predatory lending scheme.” Specifically, the CFPB alleges that the school engaged in unfair and deceptive practices by: (i) inducing enrollment through false and misleading representations about job placement and career opportunities; (ii) inflating tuition to require students to obtain private loans in addition to Title IV aid; (iii) persuading students to incur significant debt through private loans that had substantially high interest rates (as compared to federal loans) and required repayment while students attended school; (iv) misleading students to believe that the school did not have an interest in the private loans offered; and (v) knowing its students were likely to default on the private loans made. In addition, the CFPB alleges that the school violated the FDCPA by taking aggressive and unfair action, including pulling students out of class, blocking computer access, preventing class registration, and withholding participation in graduation, to collect payments on the private loans as soon as they became past due. The CFPB is seeking to permanently enjoin the school from engaging in the alleged activity, restitution and damages to consumers, disgorgement, rescission of all private loans originated since July 21, 2011, civil money penalties, and costs and other monetary relief. Read more…

LinkedInFacebookTwitterGoogle+Share

CFPB Finalizes Rule To Oversee Larger Nonbank International Money Transfer Providers

On September 12, the CFPB finalized a rule that allows it to supervise larger participants in the international money transfer market. In particular, this rule, which finalizes the proposed rule the CFPB issued in January 2014, allows the CFPB to supervise nonbank international money transfer providers that provide more than $1 million in international transfers annually, for compliance with the Remittance Rule under the Electronic Fund Transfer Act. The final rule will be effective December 1, 2014.

The CFPB will seek to ensure that these providers comply with a number of specific consumer-protection provisions, including the following:

  • Disclosures: The CFPB will examine providers to determine that consumers receive the Remittance Rule-required disclosures in English as well as in any other language the provider uses to advertise, solicit, or market its services, or in any language in which the transaction was conducted. These disclosures inform consumers of the exchange rate, fees, the amount of money that will be delivered abroad, and the date the funds will be available.
  • Option to Cancel: The CFPB will examine transfer providers to ensure that consumers receive at least thirty minutes to cancel the transfer if it has not yet been received, and that consumers receive a refund regardless of the reason for the cancellation.
  • Correction of Errors: The CFPB will insist that remittance transfer providers properly investigate certain errors, and, if a consumer reports an error within 180 days, the CFPB will examine providers to determine that they have investigated and corrected certain types of errors. The CFPB will also examine providers to ensure that they are held accountable for the actions of any agents they use.

The CFPB used the authority granted to it in the Dodd-Frank Act to supervise “larger participants” in consumer financial markets, and this is the Bureau’s fourth larger participant rule. The CFPB indicates that it will use the same examination procedures for nonbank providers as it does for bank remittance providers, and the CFPB intends to coordinate with state examiners in its supervision.

The CFPB estimates that nonbank international money transfer providers transfer $50 billion each year, and 150 million individual international money transactions occur each year through these institutions, with seven million U.S. households transferring funds abroad each year through a nonbank.

 

LinkedInFacebookTwitterGoogle+Share

CFPB Offers More Details On Plans To Supervise Auto Finance Market

On September 17, the CFPB released new information about its plans to supervise and enforce auto finance companies’ compliance with consumer financial laws, including fair lending laws. As it indicated it would earlier this year, the CFPB released a proposed rule that would allow it to supervise certain nonbank auto finance companies. Also as previously promised, the CFPB published a white paper on its method to proxy for race and national origin in auto finance transactions. Finally, the CFPB published its most recent Supervisory Highlights report, which is dedicated to its supervisory findings at depository institutions with auto finance operations.

The CFPB released the materials in connection with its September 18th field hearing on auto finance issues. These actions come roughly 18 months after the CFPB first provided guidance to auto finance companies regarding its expectations related to dealer “reserve” (or “participation”) and fair lending. Read more…

LinkedInFacebookTwitterGoogle+Share

CFPB Updates TILA-RESPA Integrated Disclosure Rule Compliance Guide

On September 8, the CFPB released an updated Small Entity Compliance Guide for its TILA-RESPA Integrated Disclosure Rule, which becomes effective next August. The updates include information on where to find additional resources on the rule, additional clarification on questions relating to the Loan Estimate and 7 day waiting period, and additional clarification on questions relating to the timing for revisions to the Loan Estimate. The new guides follow a recent webinar hosted by the CFPB and the Federal Reserve Board to address rule implementation.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , , ,
POSTED IN: Consumer Finance, Federal Issues

Federal Reserve, CFPB Announce Increased Consumer Credit, Lease Transaction Thresholds

On September 9, the Federal Reserve Board and the CFPB announced an increase in the dollar thresholds in Regulation Z and Regulation M for exempt consumer credit and lease transactions. Transactions at or below the thresholds are subject to the protections of the regulations. Based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2014, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less beginning January 1, 2015—an increase of $1,100 from 2014. Private education loans and loans secured by real property, used or expected to be used as a principal dwelling, remain subject to TILA regardless of the amount of the loan.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , ,
POSTED IN: Banking, Federal Issues

Prudential Regulators Seek Comments On Proposed CRA Questions And Answers

On September 8, the OCC, the FDIC, and the Federal Reserve Board released proposed revisions to the Interagency Questions and Answers Regarding Community Reinvestment. Specifically, the agencies propose to revise three questions and answers that address alternative systems for delivering retail banking service and provide additional examples of innovative or flexible lending practices. In addition, the proposal would revise three questions and answers addressing community development-related issues and add four new questions and answers – two of which address community development services, and two of which provide general guidance on responsiveness and innovativeness. Comments on the proposal are due by November 10, 2014.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , ,
POSTED IN: Banking, Federal Issues

Prudential Regulators Finalize Liquidity Coverage Ratio Rule

On September 3, the OCC, the FDIC, and the Federal Reserve Board released a final rule establishing a minimum liquidity requirement for large and internationally active banking organizations. The rule will require banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure, and such banking organizations’ subsidiary depository institutions that have assets of $10 billion or more, to hold high quality, liquid assets (HQLA) that can be converted easily into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period. The ratio of the institution’s HQLA to its projected net cash outflow is its “liquidity coverage ratio,” or LCR. The Federal Reserve Board also is adopting a modified LCR for bank holding companies and savings and loan holding companies that do not meet these thresholds, but that have $50 billion or more in total assets. Bank holding companies and savings and loan holding companies with substantial insurance or commercial operations are not covered by the final rule. Relative to the proposal issued in October 2013, the final rule includes changes to the range of corporate debt and equity securities included in HQLA, a phasing-in of daily calculation requirements, a revised approach to address maturity mismatch during a 30-day period, and changes in the stress period, calculation frequency, and implementation timeline for the bank holding companies and savings and loan companies subject to the modified LCR. Covered U.S. firms will be required to be fully compliant with the rule by January 1, 2017. Specifically, covered institutions will be required to maintain a minimum LCR of 80% beginning January 1, 2015. From January 1, 2016, through December 31, 2016, the minimum LCR would be 90%. Beginning on January 1, 2017, and thereafter, all covered institutions would be required to maintain an LCR of 100%.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , , ,
POSTED IN: Banking, Federal Issues

Prudential Regulators Finalize Supplementary Leverage Ratio Rule

On September 3, the OCC, the FDIC, and the Federal Reserve Board released a final rule that modifies the definition of the denominator of the supplementary leverage ratio in a manner consistent with recent changes agreed to by the Basel Committee. The revisions to the supplementary leverage ratio apply to all banking organizations subject to the advanced approaches risk-based capital rule. The final rule modifies the methodology for including off-balance sheet items, including credit derivatives, repo-style transactions, and lines of credit, in the denominator of the supplementary leverage ratio. The final rule also requires institutions to calculate total leverage exposure using daily averages for on-balance sheet items and the average of three month-end calculations for off-balance sheet items. Certain public disclosures required by the final rule must be made starting in the first quarter of 2015, and the minimum supplementary leverage ratio requirement using the final rule’s denominator calculations is effective January 1, 2018.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , ,
POSTED IN: Banking, Federal Issues

OFAC Fines Commodity Trading Advisor For Apparent Sanctions Violations

On September 9, OFAC released an enforcement action against a CFTC-registered Introducing Broker and Commodity Trading Advisor that operates an electronic trading platform that allows customers to automatically place currency foreign exchange (FX) trades with broker-dealers. The company agreed to pay $200,000 to settle potential civil liability for apparent violations of Iran, Syria, and Sudan sanctions rules. According to OFAC, over “a number of years” the company maintained accounts for over 400 persons in Iran, Sudan, and Syria, and exported services to these customers by placing FX trades via its platform. The company also (i) originated eight funds transfers totaling $10,264.36 destined for two individuals located in Iran; and (ii) failed to screen or otherwise monitor its customer base for OFAC compliance purposes at the time of the apparent violations. OFAC determined that the company did not voluntarily self-disclose the apparent violations, and that the apparent violations constitute a non-egregious case. The base penalty for the apparent violations was $844,090,000. The lower settlement amount reflects OFAC’s consideration of the matter’s facts and circumstances, including the following mitigating factors: (i) the company is small with limited business operations; (ii) the company has taken remedial action in response to the apparent violations; (iii) the company has not received a penalty notice or Finding of Violation in the five years preceding the earliest date of the transactions giving rise to the apparent violations; and (iv) the company substantially cooperated with OFAC’s investigation.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS:
POSTED IN: Banking, Federal Issues

FinCEN Offers Red Flags Guidance On Human Trafficking And Smuggling

On September 11, in FIN-2014-A008, FinCEN advised financial institutions on how to detect and report suspicious financial activity that may be related to human smuggling and/or trafficking. The advisory describes the differences between human smuggling and trafficking, and describes how each is conducted. FinCEN suggests that financial institutions consider evaluating indicators of potential human smuggling or trafficking activity in combination with other red flags and factors, such as expected transaction activity, before making determinations of suspiciousness. Additionally, FinCEN states that in making a determination of suspiciousness, financial institutions are encouraged to use previous FinCEN advisories and guidance as a reference when evaluating potential suspicious activity, including a May 2014 advisory on the use and structure of funnel accounts. The advisory also attached two appendices that provide examples of human smuggling and trafficking red flags. FinCEN advises institutions that in evaluating whether certain transactions are suspicious and/or related to human smuggling or trafficking, they should share information with one another as appropriate, under Section 314(b) of the USA PATRIOT Act. If a financial institution knows, suspects, or has reason to suspect that a transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction, the financial institution should file a SAR with the terms “Advisory Human Smuggling” and/or Advisory Human Trafficking” in the narrative and the Suspicious Activity Information. The narrative should also include an explanation of why the institution knows, suspects, or has reason to suspect that the activity is suspicious. The advisory further notes that a potential victim of human smuggling or trafficking should not be reported as the subject of the SAR, but rather to provide all available information on the victim in the narrative portion of the SAR.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: ,
POSTED IN: Banking, Federal Issues

DOJ Announces Associate Attorney General’s Departure

On September 3, the DOJ announced that Associate Attorney General Tony West will depart the agency on September 15, 2014. The announcement came a year after Mr. West was confirmed for the position, though he held the position in an “acting” capacity since March 2012. As Associate Attorney General, Mr. West has advised and assisted the Attorney General and the Deputy Attorney General in formulating and implementing departmental policies and programs related to a broad range of issues, including civil litigation, federal and local law enforcement, and public safety. Prior to March 2012, Mr. West served as the Assistant Attorney General for the Civil Division – the largest litigating division at the DOJ – where he emphasized the Civil Division’s authority to bring civil and criminal actions to enforce the nation’s consumer protection laws, and served in various positions on the Financial Fraud Enforcement Task Force.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS:
POSTED IN: Federal Issues

Fannie Mae Authorizes Servicers To Waive Deficiency Judgment Rights, Announces Other Servicing Policy Updates

On September 8, Fannie Mae advised in Servicing Guide Announcement SVC-2014-16 that servicers now have discretion to waive Fannie Mae’s deficiency judgment rights if doing so will help resolve foreclosure delays based upon individual borrower circumstances. The new authorization is applicable to conventional mortgage loans only, and the announcement provides a table of actions a servicer must complete prior to approving a waiver of deficiency judgment rights. The announcement also introduced the Suspended Counterparty Program (SCP), stating that servicers must establish and maintain a procedure to ensure any individual or entity on the FHFA’s SCP list is not involved in activities related to the origination or servicing of mortgage loans owned by Fannie Mae, including the marketing, maintenance, or sale of Fannie Mae REO properties. The program is effective immediately. Fannie Mae also announced several other servicing policy clarifications and form updates.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: ,
POSTED IN: Federal Issues, Mortgages

Fannie Mae Issues Fact Sheet on Prior Derogatory Credit Event Policies

On September 8, Fannie Mae published a fact sheet about borrower eligibility after a derogatory credit event. The fact sheet reviews Fannie Mae’s recently updated policy related to the minimum waiting periods following a bankruptcy, preforeclosure sale, or deed-in-lieu of foreclosure and provides sample borrower scenarios.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS:
POSTED IN: Federal Issues, Mortgages

Fannie Mae Announces Selling Guide Updates

On August 26, Fannie Mae issued Selling Guide Announcement SEL-2014-11, which advises that Fannie Mae is retiring two standard Fannie Mae ARM plans—ARM Plan 1445 and ARM Plan 1446—because certain revisions to Regulation Z and the absence of any deliveries of loans under those ARM plans in recent years. The announcement also advises sellers that (i) the requirement to confirm that potential employees are not on the Suspended Counterparty Program list has been added to Fannie Mae’s requirements for lender hiring practices and to the procedures that third party originators must follow; (ii) Fannie Mae has amended the Guide to clarify that its policy with regard to requirements pertaining to lender review of disputed tradelines applies to manually underwritten loans; and (iii) Fannie Mae is clarifying the policy regarding the allowable age of credit documents to specify that when consecutive documents are in the loan file, the most recent document is used to determine the age.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS:
POSTED IN: Federal Issues, Mortgages

Special Alert: FinCEN Publishes Long-Awaited Proposed Customer Due Diligence Requirements

On August 4, 2014, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published a Notice of Proposed Rulemaking (“NPRM”) that would amend existing Bank Secrecy Act (“BSA”) regulations intended to clarify and strengthen customer due diligence (“CDD”) obligations for banks, securities broker-dealers, mutual funds, and futures commission merchants and introducing brokers in commodities (collectively, “covered financial institutions”).

In drafting the modifications, FinCEN clearly took into consideration comments responding to its February 2012 Advance Notice of Proposed Rulemaking (“ANPRM”), as the current proposal appears narrower and somewhat less burdensome on financial institutions. Comments on the proposed rulemaking are due October 3, 2014.

Overview: Under the NPRM, covered financial institutions would be obligated to collect information on the natural persons behind legal entity customers (beneficial owners) and the proposed rule would make CDD an explicit requirement. If adopted the NPRM would amend FinCEN’s AML program rule (the four pillars) by making CDD a fifth pillar.

Click here to view the special alert.

LinkedInFacebookTwitterGoogle+Share