On May 17, the Federal Reserve Board released an April 29, 2013 written agreement between the Federal Reserve Board, an Illinois state regulator, a foreign bank, and its U.S. bank holding company subsidiary (the Holding Company) regarding certain Bank Secrecy Act/Anti-Money Laundering (BSA/AML) deficiencies at the foreign bank’s Chicago branch (the Branch) and an OCC regulated subsidiary of the Holding Company. The OCC took parallel action on the same date against the Holding Company’s Chicago bank subsidiary. The Federal Reserve Board agreement requires that the Holding Company conduct a comprehensive review of its BSA/AML compliance program within 60 days, and within 90 days submit a report of its findings and recommendations, a written enhanced program, and a written plan to strengthen board oversight.  Also within 90 days, the Branch must submit a written plan to improve its BSA/AML compliance, and the foreign bank, the Holding Company, and the Branch must submit an enhanced customer due diligence program. The OCC agreement requires that the Chicago bank’s board establish a compliance committee and within 90 days submit a compliance action plan. Within 30 days, the bank’s board must review its current engagement with an independent consultant, and within 90 days (i) develop a staffing plan for its internal BSA compliance department, (ii) conduct an MIS assessment, (iii) develop customer due diligence controls, and (iv) develop written suspicious activity policies and procedures. Both agreements require quarterly reporting, and neither includes a monetary penalty.

On May 16, the CFPB issued a final rule clarifying its January 2013 final rule on escrow account requirements for first-lien higher-priced mortgage loans (HPMLs). The January 2013 rule expands existing escrow requirements for such loans and creates a new exemption for small creditors that operate predominantly in rural or underserved areas. The clarifying rule adopts the rule clarifications as proposed. The clarifying rule explains how a county’s rural and underserved status may be determined based on currently applicable Urban Influence Codes established by the Department of Agriculture, or based on HMDA data, and provides illustrations to facilitate compliance. With the clarifying rule, the CFPB posted on its website a final list of rural and underserved counties, for use with mortgages closed from June 1, 2013 through December 31, 2013. The list is identical to the preliminary list posted in March. Finally, the clarifying rule (i) notes that the final escrow rule inadvertently removed existing language that provided certain protections related to a consumer’s ability to repay and prepayment penalties for HPMLs, and (ii) establishes a temporary provision to ensure the removed protections remain in effect until the expanded HPML protections take effect on January 10, 2014.

On May 15, the CFPB announced a YouTube playlist, which includes seven videos that provide information about the mortgage rules the CFPB published earlier this year. The CFPB stated that the purpose of the videos is to provide an overview of the rules in a plain language format for use by a broad array of industry constituents, but cautioned that the videos are not a substitute for the rules themselves. Also on May 15, the CFPB announced a Spanish language website, with mobile capability, that provides access to CFPB resources, including information about how to submit a consumer complaint and answers to consumers’ frequently asked questions.

On May 16, the U.S. Court of Appeals for the Third Circuit held that an appointment to the National Labor Relations Board (NLRB) made by President Obama in March 2010 during a purported Senate recess was unconstitutional and vacated orders of the NLRB as constituted with the improperly appointed member. NLRB v. New Vista Nursing & Rehab., No. 11-3440, 2013 WL 2099742 (3rd Cir. May 16, 2013). The NLRB member appointment at issue in this case precedes the appointments at issue in Noel Canning, which appointments were made during the same pro forma Senate session in which President Obama appointed CFPB Director Richard Cordray. The D.C. Circuit’s opinion invalidating those appointments currently is on appeal to the Supreme Court. Here, as explained in the majority opinion and as in Noel Canning, the central question is the meaning of “the Recess of the Senate.” The court concluded that “the Recess of the Senate” in the Recess Appointments Clause refers to only intersession breaks, held that the NLRB panel lacked the requisite number of members to exercise its authority because one panel member was invalidly appointed during an intrasession break, and vacated the Board‘s orders. In a dissenting opinion, one judge argued that the majority holding undoes an appointments process that has successfully operated for over 220 years, and the court instead should have held that “the Recess” refers to both intrasession and intersession recesses because the Senate can be unavailable to provide advice and consent during both. The Third Circuit did not address whether the President may only fill vacancies that arise or begin during such intersession recesses, as opposed to vacancies that happen to exist during such recesses.

On May 14, Senator Elizabeth Warren (D-MA) sent a letter to Federal Reserve Board Chairman Ben Bernanke, Attorney General Eric Holder, and SEC Chairman Mary Jo White seeking additional information about the agencies’ respective approach to enforcement actions. Specifically, the letter asks whether the agencies have conducted any internal research or analysis on trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation to obtain an admission. The letter notes that the OCC recently informed Ms. Warren that it does not have any such internal research or analysis and reiterates Ms. Warren’s concern that “if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial . . . the regulator has a lot less leverage in settlement negotiations.

On May 14, the FTC released a letter it sent to the CFPB’s assistant directors for fair lending and supervision examinations describing activities related to the FTC’s administration and enforcement of the regulations implementing ECOA, EFTA, TILA, and the Consumer Leasing Act. The annual letter reviews the FTC’s post-Dodd-Frank Act responsibilities with regard to these regulations and reports on enforcement actions taken with regard to each. For example, with regard to TILA, the letter reviews FTC enforcement actions involving non-mortgage credit advertisements, mortgage lending advertisements, and forensic audit scams, and describes the FTC’s rulemaking and policy work related to the CFPB’s mortgage rules and in the area of mobile payments.

On May 15, the FTC announced that it sent letters to businesses to help them comply with new requirements under the revised Children’s Online Privacy Protection Act (COPPA) rule. The letters went to 90 businesses whose online services or mobile applications appear to collect personal information from children under 13, as defined by the revised rule. The letters differ depending on whether the business is domestic or foreign, and whether the business collects images or sounds of children, or collects persistent identifiers.

On May 13, Freddie Mac announced in Bulletin Number 2013-7 that servicers can immediately begin offering modifications under the streamlined modifications initiative announced by the FHFA in March. The Bulletin states that servicers must generate the terms of each trial period plan using their own proprietary system or third-party system until Workout Prospector® becomes available July 15, 2013 to process the terms of a streamlined modification. The Bulletin also revises Freddie Mac’s property valuation requirements for modifications of mortgages secured by manufactured homes and 2- to 4-unit properties, and eliminates the requirement that a property value be obtained for a long-term forbearance plan. On May 7, Fannie Mae published new Frequently Asked Questions intended to help servicers understand and implement the requirements of Servicing Guide Announcement SVC-2013-05, which, beginning July 1, 2013, requires services to offer eligible borrowers who are at least 90 days delinquent on their mortgage a way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation. The FAQs relate to (i) solicitation, (ii) eligibility requirements/exclusions, (iii) workout hierarchy, (iv) valuations, and (v) servicer requirements.

On May 15, Freddie Mac issued Bulletin Number 2013-8, which includes numerous revisions to requirements for sellers and servicers. According to the Bulletin, beginning January 1, 2014, a seller/servicer will be charged a $7,500 low activity fee if the seller/servicer does not either (i) sell mortgages to Freddie Mac with an aggregate unpaid principal balance greater than $5 million during the immediately preceding calendar year, or (ii) service, or act as a servicing agent for, mortgages for Freddie Mac with an aggregate unpaid principal balance of at least $25 million as of December 31 of the immediately preceding calendar year. In addition, the Bulletin, among other things: (i) requires seller/servicers to comply with the deadlines specified by Freddie Mac when it requests cooperation in a fraud investigation; (ii) notifies sellers and reminds servicers that seller/servicers must direct mortgage insurers providing coverage on mortgages sold to and/or serviced for Freddie Mac to release data to Freddie Mac at Freddie Mac’s request; (iii) updates and revises requirements for Living Trusts and announces that mortgages secured by properties in which the legal and equitable title is held by a land trust will no longer be eligible for purchase under the Guide, unless certain conditions are met; and (iv) prohibits sellers that have guarantor master commitments from taking out fixed-rate cash contracts for the sale of super conforming mortgages.

Over the past week, HUD issued numerous mortgagee letters applicable to single-family mortgagees. Mortgagee Letter 2013-14, dated May 9, 2013, establishes documentation requirements for mortgagees to demonstrate eligibility for FHA mortgage insurance of loans when a governmental entity, or its agency or instrumentality, directly provides the borrower’s required minimum cash investment. The letter also provides guidance on resolving concerns with extending secondary financing by a governmental entity when such an entity provides the minimum cash investment through secondary financing. The letter becomes effective July 1, 2013. Also on May 9, HUD issued Mortgagee Letter 2013-15, which introduces new status codes for reporting delinquent mortgages in the Single Family Default Monitoring System and announces a new requirement to report each non-incentivized loan modification. The reporting and status code requirements become effective November 9, 2013. On May 14, HUD issued Mortgagee Letters 2013-16 and 2013-17. The former permits the subordination of partial claim liens for FHA streamlined refinances and eliminates consideration of partial claim notes from the 125% combined loan-to-value ratio calculation for streamlined refinances. Mortgagees have until July 13, 2013 to implement the changes. The latter provides guidance for determining interest rates to use when implementing loss mitigation home retention options for trial payment plans offered on or after July 1, 2013.

This week, FinCEN published its semiannual SAR Activity Review, which provides information about the preparation, use, and value of Suspicious Activity Reports (SARs) filed by financial institutions. The report identifies SAR trends, reviews law enforcement cases that demonstrate the importance and value of Bank Secrecy Act (BSA) data to the law enforcement community, and highlights issues related to financial exploitation of older Americans. FinCEN also published an annual companion report, “By the Numbers,” which compiles numerical data gathered from SARs filed by financial institutions.

On May 3, the FTC approved a final order settling charges against a California-based cord blood bank firm alleged to have violated the FTC Act by failing to use reasonable and appropriate procedures for handling customers’ personal information, despite its privacy policy claims to the contrary. Further, the FTC alleged that the firm created unnecessary risks to personal information by transporting portable data storage devices containing personal information in a manner that made the information vulnerable to theft, and failed to prevent, detect and investigate unauthorized access to computer networks. According to the FTC, these practices resulted in a data breach in which certain portable devices were stolen from an employee’s personal vehicle and the personal information of nearly 300,000 customers was compromised. The settlement requires the company to establish a comprehensive information security program and submit to security audits by independent auditors every other year for 20 years, and prohibits the company from misrepresenting the privacy and security of information collected from consumers.

On May 7, the DOJ charged two employees of a U.S. broker-dealer and a senior official in Venezuela’s state economic development bank for their alleged roles in what the DOJ describes as a “massive international bribery scheme.” According to an unsealed criminal complaint, the DOJ accuses the broker-dealer employees and the foreign official of violating the FCPA by conspiring to pay $5 million in bribes to the foreign official in exchange for her directing the economic development bank’s trading business to the broker-dealer, which yielded millions of dollars more in mark-ups and mark-downs for the broker-dealer. The government alleges that commissions paid on the directed trades were split with the foreign official through monthly kickbacks and that some of the trades executed for the bank had no discernible business purpose. The government also claims that the kickbacks often were paid using intermediary corporations and offshore accounts, which will be pursued through a separate civil forfeiture action. On the same day, the SEC announced a parallel civil action against the two broker-dealer employees and two other individuals who allegedly participated in and profited from the scheme. The investigations stemmed from a routine periodic SEC examination of the broker-dealer. The DOJ warned others in the financial services industry, particularly brokers, about engaging in similar activities, and the SEC’s handling of this case suggests its examiners are focused on conduct that potentially violates the FCPA.

On May 7, the CFPB proposed to temporarily delay the effective date of one aspect of its loan originator compensation rule. Under the final rule, effective June 1, 2013, creditors would be prohibited from financing premiums or fees for certain credit insurance products offered in connection with certain mortgage loan transactions. The CFPB proposes to temporarily delay the relevant provision so that the Bureau can clarify its application to transactions other than those in which a lump-sum premium is added to the loan amount at closing. The CFPB plans to publish a new proposal to seek further notice and comment about whether, and under what circumstances, premiums for certain credit insurance products can be charged on a periodic basis in connection with a covered consumer credit transaction