On January 21, the SEC announced a settlement with a credit rating agency in connection with its rating of certain commercial mortgage-backed securities (CMBS). The ratings agency agreed to pay the SEC more than $58 million for allegedly (i) misrepresenting its conduit fusion CMBS ratings methodology; (ii) publishing a “false and misleading article purporting to show that its new credit enhancement levels could withstand Great Depression-era levels of economic stress;” and (iii) failing to maintain and enforce internal controls regarding changes to its surveillance criteria. In a separate administrative order, the SEC instituted a litigated administrative proceeding against the former head of the agency’s CMBS Group for “fraudulently misreprent[ing] the manner in which the [ratings agency] calculated a critical aspect of certain CMBS ratings in 2011.”
As previously reported in our Special Alert on January 20, the CFPB finalized certain amendments to its TRID rule, which combines the mortgage disclosures consumers receive under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Significant amendments include: (i) allowing three business days for providing a revised Loan Estimate after an interest rate is locked (instead of the current same day requirement and the original proposal’s one business day requirement); and (ii) permitting the inclusion of certain information about construction loans on the Loan Estimate. The final rule, as amended, takes effect August 1. For more information, please visit our TRID Resource Center.
On January 22, the CFPB and Maryland Attorney General announced an enforcement action against two banks, as well as a former loan officer and his wife, for alleged violations of RESPA and state law. The complaint filed in the District of Maryland alleges that loan officers at the banks accepted leads and marketing assistance from a title company in exchange for the referral of settlement service business to the title company. The parties filed Stipulated Final Judgments and Orders, under which one bank will pay approximately $10.8 million to consumers and $24 million in penalties, and the other bank will pay $300,000 to consumers and $600,000 in penalties. The individual loan officer and his wife will pay a combined $30,000 penalty.
On January 21, the Committee on Financial Services, in a voice vote, agreed to a new oversight plan that identifies the areas that the Committee and its subcommittees plan to oversee during the 114th Congress. Notable sections of the oversight plan include: (i) examining the governance structure and funding mechanism of the CFPB; (ii) reviewing recent rulemakings by the CFPB and other agencies on a variety of mortgage-related issues; (iii) examining the effects of regulations promulgated by Dodd-Frank on community financial institutions; and (iv) examining proposals to modify the GSEs.
On January 27, FHFA Director Mel Watt is scheduled to testify before the House Committee on Financial Services. The hearing, scheduled to begin at 10am, will be the first for the Committee in the 114th Congress.
On January 15, the FDIC announced Charles Yi as the agency’s new general counsel. Previously, Yi served as staff director and chief counsel on the Senate Committee on Banking, Housing, and Urban Affairs, as Deputy Assistant Secretary for Banking and Finance at the Department of Treasury, and as Counsel for the Committee on Financial Services of the U.S. House of Representatives. Richard Osterman, who has served as acting General Counsel, will return to his previous position as Deputy General Counsel.
On January 13, the CFPB published a report based on results from its recent survey of consumers who had recently taken out new mortgages. The survey, jointly conducted by the CFPB and the FHFA, found that (i) almost half of consumers who take out a mortgage fail to shop around prior to application; (ii) three out of four consumers only apply with one lender or broker; (iii) 70% of consumers report relying on their lender or broker to get information about mortgages; and (iv) consumers who are knowledgeable about the mortgage process are more likely to shop around for loans. Along with the survey results, and as part of the CFPB’s Know Before You Owe initiative, the Bureau unveiled an interactive online tool called “Owning a Home,” which is designed to inform consumers shopping for a mortgage. The tool takes the borrower from the start of the home-buying process — with a guide to loan options, terminology, interest rates and costs — to the closing table with a closing checklist.
On January 14, the CFPB issued a press release seeking public comments on its “Safe Student Account Scorecard.” The scorecard is a tool for colleges and universities to solicit information on the fees and features of financial products before selecting a financial institution partner. It would enable colleges and universities to evaluate the costs and benefits of financial products based on a variety of different factors including fees, product features, sales and marketing practices, and how much financial institutions earn for each account opened. The Bureau is interested in receiving comments from students, parents, colleges and universities, and financial institutions by March 16, 2015.
On January 12, President Obama announced new privacy initiatives to combat identity theft, enhance consumer security, and improve data privacy online and in the classroom. His main legislative proposals call for (i) a Personal Data Notification & Protection Act, which would specify the obligations that companies have when a consumer’s personal information has been exposed, establish a 30-day notification requirement following a company’s discovery of a data breach, and criminalize illicit overseas trade in identities; (ii) a Consumer Privacy Bill of Rights; and (iii) increased protections for data collected from students. The President called for Congressional support, saying privacy is not a partisan issue.
On January 13, President Obama visited the National Cybersecurity and Communications Integration Center to announce a variety of legislative and administrative proposals, many of which were updates to his 2011 Cybersecurity Legislative Proposal, designed to confront cybersecurity threats. These updated proposals, he stated, would promote better cybersecurity information sharing between the government and the private sector and enhance collaboration and information sharing within the private sector. To encourage and facilitate such sharing, private companies that share cyber threat information while conforming to privacy protection requirements would receive liability protection. In addition, the President asked that law enforcement be given better tools and authority to fight cybercrime. These tools would include measures that criminalize the overseas sale of stolen financial information like credit card and bank account numbers, updates to the Racketeering Influenced Corrupt Organizations Act that would apply it to cybercrimes, and reforms to the Computer Fraud and Abuse Act to ensure that insignificant conduct does not fall within the scope of the statute, while making clear that it can be used to prosecute insiders who abuse their ability to access information by using it for their own purposes. In addition, the President announced a White House Summit on Cybersecurity and Consumer Protection, to be held at Stanford University on February 13, 2015.
On January 15, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced a final rule amending its Cuban Assets Control Regulations (CACR) to reflect policy changes previously announced by President Obama on December 17. The amendments (i) allow U.S. financial institutions to maintain correspondent accounts at Cuban financial institutions; (ii) allow U.S. financial institutions to enroll merchants and process credit and debit card transactions for travel-related and other transactions consistent with the CACR; (iii) increase the limit of remittances to $2,000 from $500 per quarter; and (iv) under an expanded license, allow U.S. registered brokers or dealers in securities and registered money transmitters to process authorized remittances without having to apply for a specific license. In addition, OFAC released a FAQ sheet to help explain the new amendments, which are effective January 16.
On January 15, the Federal Reserve and the FDIC issued a joint press release making available the public sections of resolution plans of firms with less than $100 billion in qualifying nonbank assets. The Dodd-Frank Act requires that certain banking institutions periodically submit resolution plans to the Federal Reserve and the FDIC describing the bank’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company. The public portions of these “living wills” are available on the Federal Reserve and FDIC websites.
On January 14, the OCC released its schedule of workshops for directors of national community banks and federal savings associations. The OCC examiner-led workshops provide practical training and guidance to directors of national community banks and federal savings associations to support the safe and sound operation of community-based financial institutions. The four workshops planned are (i) “Building Blocks for Directors,” (ii) “Risk Governance,” (iii) “Compliance Risk,” and (iv) “Credit Risk.” Each workshop costs $99.00. Registration is required.
On January 13, the OCC released a paper entitled, “An Opportunity for Community Banks: Working Together Collaboratively.” The paper describes how community banks can pool resources to “obtain cost efficiencies and leverage specialized expertise.” The paper explores the benefits of collaboration and outlines how community banks can structure collaborative arrangements. The paper cites examples of ways that community banks can, and already do collaborate, including: (i) networking, or exchanging information and ideas; (ii) jointly purchasing materials or services; (iii) sharing specialized team or staff members; and (iv) jointly providing and/or developing products and services.
On January 13, the SEC announced its Office of Compliance Inspections and Examinations’ examination priorities for 2015. The examination priorities cover a wide range of financial institutions and focus on three areas: (i) protecting retail investors, especially those saving for or in retirement; (ii) assessing market-wide risks, including cybersecurity compliance and controls; and, (iii) using data analytics to identify signals of potential illegal activity. As to the risks to retail investors, the SEC noted that such investors are being sold products and services that were formerly characterized as alternative or institutional, including private funds, illiquid investments, and structured products. In addition, financial services firms are offering information, advice, products, and services to help retail investors plan for retirement. The SEC intends to assess the risks to retail investors that can arise from these trends.