CFPB and DOJ Announce Joint Settlement with Indirect Auto Lender over Alleged ECOA Violations

On February 2, the CFPB and the DOJ announced a joint enforcement action against an indirect auto lender for alleged violations of the Equal Credit Opportunity Act (ECOA) and implementing Regulation B. In April 2013, the CFPB and the DOJ began an investigation into the indirect auto lender’s compliance with the ECOA and found that its policies allowed for dealers to mark up a consumer’s interest rate on the retail installment contract above the established risk-based buy rate, known as “dealer markup.” The dealers received greater compensation from the indirect auto lender on loans with a higher interest rate. The DOJ and the CFPB determined that the respondent’s practice of allowing pricing discretion resulted in qualified African-American/Pacific Islander borrowers paying more than qualified white borrowers. To resolve the DOJ and the CFPB’s allegations, the respondent agreed to (i) reduce the amount by which loans can be marked up to only 1.25% above the established buy rate for auto loans with terms of five years or less, and 1% for loans with longer terms; (ii) pay at least $19.9 million in redress to borrowers affected by its finance practices from January 2011 to February 2, 2016, and up to $2 million more from the date of the action until it implements a new pricing and compensation structure, which must be in place by August 2016; and (iii) hire a settlement administrator to ensure that affected borrowers receive compensation.

These enforcement actions are the fourth in a series of joint CFPB and DOJ actions addressing fair lending risks in the indirect auto lending industry.

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CFPB Releases Compliance Bulletin, Letter to Financial Institutions, and Consumer Resources in an Effort to Address Access to Checking Accounts Concerns

On February 3, the CFPB held a field hearing to address concerns relating to consumers’ access to checking accounts. In Director Cordray’s opening remarks at the field hearing, he announced steps the CFPB is taking to alleviate concern that (i) consumers lack options that fit their financial need and situation; and (ii) inaccurate information is used to screen potential customers. To address the first issue, the CFPB sent a letter to the 25 largest retail banks urging them to make lower-risk account offerings that promise no authorized overdrafts available to consumers. The CFPB’s letter, which the agency describes as “simply a suggestion,” further recommends that banks already offering lower-risk products more prominently “feature them among their standard account offerings both in their branches and online.” Regarding the second concern, the CFPB issued Compliance Bulletin 2016-01, warning banks and credit unions (collectively, furnishers) of their obligation under Regulation V “to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information relating to consumers that they furnish to consumer reporting agencies (CRAs).” The bulletin notes that a furnisher’s failure to comply with such obligations under Regulation V could “potentially cause adverse consequences for consumers when included in a credit report, such as being denied a loan at a more favorable interest rate or being unable to open a transaction account.” Read more…

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FDIC Updates Videos on Interest Rate Risk

On February 3, the FDIC issued FIL-10-2016 announcing the release of updated videos on interest rate risk. The new videos are intended to provide directors, management, and staff of financial institutions with a better understanding of interest rate risk and how to manage it. The FDIC previously released an interest rate video made specifically for directors, and a series of more technical videos tailored to management and staff responsible for interest rate risk management. The FDIC’s updated videos (i) reflect recent industry data and expand on relevant topics; (ii) emphasize the FDIC’s expectation that institutions prudently manage interest rate risk; and (iii) address industry trends, board and management responsibilities, types of interest rate risk, various risk measurement systems, key modeling assumptions, internal controls, and independent review. Finally, according to the FDIC, “[f]inancial institution balance sheets continue to reflect a heightened mismatch between asset and funding maturities that, coupled with tighter net interest margins, have left financial institutions more vulnerable to rising interest rates.”

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POSTED IN: Banking, Federal Issues

Federal Reserve Releases Progress Report on Efforts to Improve US Payment System

On February 2, the Federal Reserve published a report titled, “Progress Report: Strategies for Improving the U.S. Payment System.” The report details “progress made and outlin[es] anticipated steps for moving forward with [the Federal Reserve’s] initiative to enhance payment system speed, efficiency, and security.” The report highlights the significance of industry collaboration among stakeholders, commenting on the creation of the Faster Payments and Secure Payments Task Forces, which are comprised of more than 500 industry members. Looking ahead, the Federal Reserve plans to continue enhancing its 2015 initiative by, among other things, (i) providing additional opportunities for stakeholders to engage in strategy efforts; (ii) publishing, in early 2017, an assessment of faster payments solution proposals brought forward by participants of the Faster Payments Task Force; (iii) developing greater end-to-end efficiency for domestic and cross-border payments by creating a “detailed plan and timeline for implementation of the ISO 20022 format for wire transfers”; and (iv) releasing operational details regarding enhancements to its payment, settlement, and risk management services.

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POSTED IN: Federal Issues, Payments

FDIC Issues Winter 2015 Supervisory Insights

On February 1, the FDIC published its Winter 2015 issue of Supervisory Insights to promote sound principles and practices for bank supervision. The most recent issue of Supervisory Insights focuses on the following four areas: (i) cybersecurity, highlighting the importance of maintaining a cybersecurity awareness training program and ensuring that a bank’s “executive management and Board of Directors (board) play a key role in overseeing programs to protect data and technology assets and establishing a corporate culture consistent with the bank’s risk tolerance”; (ii) marketplace lending, emphasizing associated risks, such as third-party arrangements, and the significance of examining the overall marketplace lending model to ensure that it is aligned with the bank’s business strategy; (iii) an assessment of the lending landscape for banks, describing current lending conditions and the risks reported in the FDIC’s Credit and Consumer Products/Services Survey; and (iv) an overview of recently released regulations and supervisory guidance, including the revised interagency examination procedures for the new TRID rule.

The FDIC’s marketplace lending guidance comes after the California Department of Business Oversight’s December inquiry into the industry, requesting that 14 firms provide information on their business models and online platforms.

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SEC Names Jane Jarcho Deputy Director of National Exam Program

On February 3, the SEC named Jane Jarcho Deputy Director of its Office of Compliance Inspections and Examinations (OCIE). Jarcho will continue to serve as the National Director of the OCIE’s Investment Adviser/Investment Company examination program, a role she assumed in 2013. As the head of the Investment Adviser/Investment Company examination program, Jarcho increased company examinations more than 27% and “targeted areas such as cybersecurity, never before examined investment advisers and investment companies, alternative mutual funds, fixed incomes, and retirement accounts.” Jarcho’s SEC career began in 1990 in the Division of Enforcement, where she held various positions, including Branch Chief, Senior Trial Counsel, and Assistant Regional Director. In 2008, Jarcho joined the OCIE; prior to being named National Director of the office, she served as Associate Director of the Investment Adviser/Investment Company examination program.

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HUD Announces $1.9 Million Settlement with Memphis-Based Bank over Alleged FHA Discrimination

On February 1, HUD announced a $1.9 million settlement with a Memphis-based bank to resolve alleged violations of the Fair Housing Act. Specifically, the complainant alleged that the bank “was responsible for discriminatory terms and conditions for making loans, discrimination in the making of loans, and discriminatory financing, with respect to real estate transactions.” In addition, the complainant alleged that the bank engaged in discriminatory practices by failing to place bank branches in minority-concentrated areas, ultimately denying African-American and Hispanic applicants mortgage loans. The bank denied the allegations, but agreed to “voluntarily settle [the] controversy and resolve [the] matter without the necessity of an evidentiary hearing or other judicial process . . . .” Under the agreement, the bank will (i) establish a subsidy fund of $1.5 million over three years to provide interest rate reductions on home mortgages, along with down payment or closing cost assistance to qualified borrowers in identified regional areas; (ii) contribute $270,000 over the course of three years to support governmental or community-based organizations’ efforts to help homeowners repair properties in predominantly minority communities, or to provide credit, financial, homeownership, or foreclosure-prevention services to homeowners in affected areas; (iii) pay directly to the complainant $105,000 to fund similar home repair, credit, financial, homeownership, and foreclosure services; and (iv) pay directly to the complainant $25,000 in damages.

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POSTED IN: Federal Issues, Mortgages

FDIC Announces RMBS-Related Settlement with New York-Based Financial Institution

On February 2, the FDIC announced a settlement for more than $62 million with a New York-based financial institution to resolve “federal and state securities law claims based on misrepresentations in the offering documents for 14 RMBS [residential mortgage-backed securities] purchased by three failed banks.” The FDIC, as the receiver of the three failed banks, filed four lawsuits from February 2012 to January 2014 against the financial institution and other defendants for their alleged involvement in the sale of the RMBS to the three failed banks. These lawsuits are four of the 19 RMBS-related lawsuits that the FDIC has filed, as of December 31, 2015, on behalf of eight failed institutions.

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POSTED IN: Banking, Federal Issues, Mortgages

OFAC Issues Finding of Violation for Alleged Violations of Sudanese Sanctions Regulations

On February 4, OFAC announced that a subsidiary of a New Jersey-based manufacturer violated the Sudanese Sanctions Regulations, for a period of 7 months in 2010, by facilitating the exportation of goods to Sudan by coordinating and supervising shipments of goods from an Egyptian branch of the company to Khartoum, Sudan. Pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, OFAC issued a Finding of Violation to the subsidiary based in part on the following “aggravating” factors: (i) acting with reckless disregard for U.S. sanctions requirements by making exports to Sudan when it knew it may be subject to restrictions under U.S. sanctions; (ii) failing to properly take into consideration the implications of OFAC regulations – even though it is part of a corporation with experience in international trade – when it restructured its consumer business and placed a U.S. company in charge of sales to Sudan; and (iii) failing to include in its compliance program training on OFAC regulations for its General Manager, who was responsible for sales to Sudan. OFAC also determined that the subsidiary’s General Manager for Emerging Markets in the Middle East and North Africa was not only aware of but also involved in conduct giving rise to the violations. OFAC issued a Finding of Violation in lieu of a civil money penalty, after considering various mitigating factors, including the subsidiary’s effort to take remedial action, such as implementing additional compliance training and conducting an internal investigation of the violations, the absence of a prior OFAC sanctions history and its cooperation with OFAC’s investigation.

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POSTED IN: Federal Issues, International

Germany-Based Software Company Settles Bribery Case with SEC for $3.7 Million

On February 1, the SEC agreed to a $3.7 million settlement with a Germany-based software company regarding allegations that it violated the FCPA regarding the payment and offer of bribes to senior Panamanian government officials. The settlement, stemming from the actions of the company’s former executive Vincente Garcia who pleaded guilty last August to one count of conspiracy to violate the FCPA, found that the company lacked appropriate internal controls to detect the illegal activity. According to the SEC, Garcia arranged the sale of heavily discounted software licenses and used the savings to create a “slush fund.” The money in this fund was then used to pay bribes and kickbacks.

Read more…

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California-Based Pharmaceutical Company Settles with SEC Regarding FCPA Offenses in China

On February 4, the SEC settled FCPA allegations with a California-based pharmaceutical company with a cease and desist order finding that the company violated the FCPA’s anti-bribery, books and records, and internal controls provisions related to activities in China. The SEC found that from at least 2007 to 2012, employees of the company’s subsidiaries gave money and gifts to Chinese officials (including employees of state-owned hospitals) in order to boost sales. The SEC further found that the company failed to devise and implement a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program.

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CFPB Monthly Complaint Snapshot Highlights Financial Services Markets

On January 28, the CFPB released its monthly complaint report focusing on a number of financial services markets, including debt settlement, check cashing, tax refund anticipation checks, money order providers, and credit repair. The report states that, since July 19, 2014, the CFPB has handled approximately 2,700 complaints relating to these other types of financial services. According to the report, debt settlement and credit repair complaints are among the more common complaints, and over a quarter of these complaints mention student loans, with borrowers selecting fraud or scam as their primary issue. Additional findings highlighted in the snapshot include: (i) consumers being charged excessive fees, including upfront fees that are generally prohibited by law, for debt settlement and credit repair services; (ii) consumers encountering problems redeeming money orders, taking issue with the amount of time it took to resolve errors with customer service representatives; and (iii) consumers complaining they were victims of fraud when using money orders and travelers checks. The CFPB identified New York State and the New York metro area as its geographic spotlight in this issue, noting that, as of January 1, 2016, the CFPB has received 50,400 complaints from New York State consumers alone. Similar to past reports, mortgages remain the most complained-about product.

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OFAC Issues Amendments to Cuba Sanctions Regulations

On January 26, OFAC announced amendments to the Cuban Assets Control Regulations (CACR) to further implement policy changes announced by the Obama Administration on December 17, 2014. The regulatory changes will, among other things, “remove existing restrictions on payment and financing terms for authorized exports and reexports to Cuba of items other than agricultural items and commodities, and establish a case-by-case licensing policy for exports and reexports of items to meet the needs of the Cuban people, including those made to Cuban state-owned enterprises.” Significantly, under the amendments, U.S. depository institutions will be authorized to provide financing for authorized exports and reexports, including issuing a letter of credit. Prior to the amendments, cash-in-advance or third-country financing were the only financing options available for authorized exports.

OFAC issued new FAQs to address the amended CACR, which were published in the Federal Register on January 27, 2016 and are effective immediately.

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FDIC Issues Quarterly Banking Profile for Third Quarter 2015

The FDIC published its most recent Quarterly Banking Profile, summarizing the latest financial results for the banking industry. According to the FDIC’s findings, community banks reported net income of $5.2 billion in the third quarter of 2015, up 7.5% from the previous year. The Profile’s featured article – Financial Performance and Management Structure of Small, Closely Held Banks – indicates that closely held banks are outperforming widely held banks in operational efficiency and financial performance. The FDIC’s research suggests that management structures in which a bank’s managers are members of the ownership group or ownership insiders prove beneficial in that principal-agent problems are minimized because the “manager can be expected to act in the interests of the owners because the manager is an owner.” Although the Profile comments on the disadvantages of the organizational form of closely held banks, including succession issues and difficulty in raising capital, the researchers conclude that the “favorable comparisons between closely held and widely held community banks suggest that the closely held organizational form is by no means an impediment to performance, and may well be one of the keys to the success of closely held banks.”

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POSTED IN: Banking, Federal Issues

CFPB Provides Consumers with Information on Obtaining Credit Reports

On January 27, the CFPB announced that it published its 2016 list of consumer reporting companies. The list includes contact information for the three largest nationwide reporting companies and various specialty reporting companies concentrating on specific geographic market areas and consumer segments. In addition, the list provides consumers with (i) tips on determining which specialty credit reports may be important to review depending upon the particular circumstances, such as applying for a job or a new bank account; (ii) information regarding how companies confirm the identity of the consumer requesting a copy of his or her credit report; and (iii) information on which companies also provide free credit scores. The CFPB also reminds consumers of their legal rights to (i) obtain the information in their credit reports, per the FCRA; and (ii) dispute inaccuracies contained in the report.

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