House Committee Members Express Concerns About Operation Choke Point

On April 8 the House Financial Services Committee held a hearing with the general counsels of the federal banking agencies regarding, among other things, Operation Choke Point, the federal enforcement operation reportedly intended to cut off from the banking system certain lenders and merchants allegedly engaged in unlawful activities. Numerous committee members from both sides of the aisle raised concerns about Operation Choke Point, as well as the federal government’s broader pressure on banks over their relationships with nonbank financial service providers, including money service businesses, nonbank lenders, and check cashers. Committee members asserted that the operation is impacting lawful nonbank financial service providers, who are losing access to the banking system and, in turn, are unable to offer needed services to the members’ constituents. The FDIC’s Richard Osterman repeatedly stated that Operation Choke Point is a DOJ operation and the FDIC’s participation is limited to providing certain information and resources upon request. Mr. Osterman also asserted that the FDIC is not attempting to, and does not intend to, prohibit banks from offering products or services to nonbank financial service providers operating within the law, and that the FDIC’s guidance is clear that banks are neither prohibited from nor encouraged to provide services to certain businesses, provided they properly manage their risk. Similarly, the OCC’s Amy Friend stated that the OCC wants to ensure that banks conduct due diligence and implement appropriate controls, but that the OCC is not prohibiting banks from offering services to lawful businesses. She stated the OCC has found that some banks have made a business decision to terminate relationships with some nonbank providers rather than implement additional controls.


Washington Amends Provisions Impacting Non-Depository Institutions

Recently, the state of Washington enacted SB 6134, which amends numerous provisions related to the supervision of non-depository institutions. The bill clarifies the statute of limitations applicable to certain violations by non-depository institutions by providing that enforcement actions for violations of the Escrow Act, the Mortgage Broker Practices Act, the Uniform Money Services Act (UMSA), the Consumer Loan Act, and the Check Cashers and Check Sellers Act (CCSA) are subject to a five-year statute of limitations. In addition, the bill provides that licensees under the CCSA and the UMSA that conduct business in multiple states and register through the NMLS must submit call reports to the Department of Financial Institutions. The changes take effect June 12, 2014.


Check Cashing Company, Executives Plead Guilty To AML Charges

On November 5, the DOJ announced that a New York check cashing company and its owner pleaded guilty to violating the Bank Secrecy Act in connection with more than $19 million in check-cashing transactions by willfully failing to maintain an effective anti-money laundering program. The plea agreement requires the company to forfeit over $3 million and the owner to pay nearly $1 million in restitution for related tax violations; neither party has yet been sentenced. The DOJ alleges that over a two-year period the company cashed checks written on accounts of shell corporations. The shell corporations and the corresponding bank accounts on which the checks were written were established in the names of foreign nationals, many of whom were no longer in the United States. The check cashing company and its owner allegedly failed to obtain any identification documents or information from the individuals presenting the checks, filed false currency transaction reports (CTRs) that stated the checks were cashed by the foreign nationals who set up the shell corporations, and in certain CTRs, failed to indicate the full amount of cash provided to the individuals. Related charges remain pending against additional defendants. These cases are being prosecuted by, among others, the DOJ’s Money Laundering and Bank Integrity Unit, which investigates and prosecutes complex, multi-district and international criminal cases involving financial institutions and individuals who violate the money laundering statutes, the Bank Secrecy Act and other related statutes.


State Law Update: Oregon Updates Check Cashing Regulations, Adopts Rules Allowing Bank Interest Rate Swaps

Recently, the Oregon Department of Consumer and Business Services published final rules to update certain rules applicable to check cashing businesses. The adopted regulations simplify reporting requirements and reduce the data that licensees must include in annual reports. In the same publication, the Department adopted temporary rules granting Oregon commercial banks authority to engage in interest rate swap transactions as intermediary with and on behalf of the bank’s customers, provided the bank receives prior written approval from the Director of the Department of Consumer and Business Services and other specified conditions are satisfied.

POSTED IN: Banking, Consumer Finance, State Issues