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  • G-7 Releases Follow-Up Report on Fundamental Elements for Cybersecurity Assessment

    Privacy, Cyber Risk & Data Security

    On October 13, G-7 finance ministers and central bank governors released a report titled G-7 Fundamental Elements for Effective Assessment of Cybersecurity in the Financial Sector to provide guidance on G-7 countries’ (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) expectations for effective cybersecurity assessments for the financial sector. The non-binding fundamental building blocks contained within the report build upon guidance issued last year by G-7, and provide tools for institutions to evaluate the performance and assessment of cybersecurity practices. (See previous InfoBytes coverage here.) In the current report, G-7 outlines five desirable outcomes organizations can strive to achieve when developing cybersecurity capabilities, along with five assessment components assessors can use when developing effective practices for cyber risk management.

     “Cybersecurity, particularly in the financial sector, is a top priority for the United States, and we are pleased to work with the members of the G-7 to advance a common approach that enhances resiliency," Treasury Secretary Steven T. Mnuchin stated in a press release announcing the report. “Technology has become the global engine driving innovation and economic growth, and it provides a channel for the financial sector to engage customers and counterparties. However, this trend brings increased cyber risk, which is real, dynamic, and evolving.”

    Privacy/Cyber Risk & Data Security Department of Treasury G-7

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  • Federal Agencies Offer Consumer Relief Measures Following Recent Natural Disasters

    Lending

    On October 13, the Department of Veterans Affairs (VA) released two circulars (here and here) describing measures mortgagees may employ to provide relief to VA home loan borrowers affected by recent California wildfires and Hurricane Nate. Referencing the VA’s guidance on natural disasters, the VA’s recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.

    Separately, on October 17, the Federal Reserve Board, FDIC, National Credit Union Administration, and OCC released a joint notice under the Financial Institutions Reform, Recovery, and Enforcement Act that temporarily eases appraisal requirements for real estate-related financial transactions in areas impacted by recent hurricane disasters. The four agencies will allow appraisal exceptions, provided that financial institutions determine, and obtain documentation related to, the following: (i) the property involved is located in a major disaster area; (ii) there exists a binding commitment to fund the transaction within 36 months of the date the area was declared a major disaster; and (iii) “the value of the real property supports the institution’s decision to enter into the transaction.” The expiration date for exceptions in each area covered by the notice is three years after the date the President declared the area to be a major disaster area.

    As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.

    Lending Disaster Relief Mortgages Foreclosure FIRREA Federal Reserve Department of Veterans Affairs FDIC NCUA OCC Consumer Finance

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  • FDIC Chairman Discusses Role of Research in Preventing Consumer Harm

    Federal Issues

    On October 13, FDIC Chairman Martin J. Gruenberg spoke at the Seventh Annual FDIC Consumer Research Symposium in Arlington, Virginia. In prepared remarks, Gruenberg discussed his views on the importance of engaging with the independent research community to better understand “consumers’ capabilities, knowledge, and preferences for financial services, as well as their experiences in the financial services market.” According to Gruenberg, the FDIC’s current supervisory approach focuses on methods to “identify, address, and mitigate the risk of consumer harm” at supervised financial institutions, and include the following: (i) an examination process to evaluate whether an institution minimizes the risk of consumer harm by having appropriate policies and procedures and other measures in place to ensure its products and services are compliant with applicable law; (ii) a process to identify how consumers use the information in the context of a given product when establishing which disclosures to prioritize in a risk-based exam; and (iii) a system to analyze data collected through Call Reports, HMDA, and the Community Reinvestment Act designed to identify potential areas of risk and gain insight into supervised institutions’ operations.

    Additionally, Gruenberg noted that research helps the FDIC identify opportunities to expand consumers’ access to mainstream financial services. According to recent FDIC data, 7 percent of households are unbanked and an additional 19.9 percent are underbanked—in total, 90 million Americans, or about 27 percent of households. The data, Gruenberg emphasized, “is regularly cited by financial institutions, non-profit organizations, and public officials as providing a basis for understanding the scope of economic inclusion challenges in their communities and as a starting point for considering approaches that can enhance economic inclusion.”

    Federal Issues FDIC Consumer Finance Bank Compliance

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  • FTC, State AGs Announce Nationwide Crackdown Against Student Loan Debt Relief Scams

    Lending

    On October 13, in partnership with 11 states and the District of Columbia, the FTC announced a federal-state law enforcement initiative to combat deceptive student loan debt relief scams. According to the FTC, “Operation Game of Loans” targets companies that engage in practices that harm student loan borrowers, such as allegedly (i) charging illegal upfront fees; (ii) making false or misleading statements promising, among other things, debt relief, loan forgiveness, reduced interest rates, and credit repair services; (iii) pretending to be affiliated with the government or loan servicers; (iv) engaging in deceptive marketing practices; (v) pocketing consumer fees rather than applying the money towards student loan balances; and (vi) charging consumers for document preparation services that are readily available to consumers for free. According to a press release issued by the FTC, the initiative “encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”

    That same day, as part of “Operation Game of Loans,” Attorney General Lisa Madigan announced a lawsuit against a pair of entities (defendants) accused of allegedly violating Illinois law by charging upfront fees for services guaranteed to “lower monthly student loan payments, improve credit scores, get students out of default, and negotiate tax and student loan debt adjustments.” The complaint further alleges that not only do the defendants lack the ability to provide the advertised services, they also allegedly impersonate students to gain access to students’ Federal Student Aid IDs (the federal government prohibits entities from accessing federal student aid websites even if authorized by the borrower), and fail to refund consumers—as promised—if they fail to provide debt relief. The complaint seeks injunctive relief, restitution, and civil penalties.

    Lending Agency Rule-Making & Guidance FTC State AG Student Lending Debt Settlement Enforcement Debt Relief

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  • OCC Issues Updated List of Permissible Activities for Banks and Federal Savings Associations

    Agency Rule-Making & Guidance

    On October 13, the OCC issued an update to its list of permissible activities for national banks, federal savings associations, and operating subsidiaries that are engaged in “the business of banking.” Activities Permissible for National Banks and Federal Savings Associations, Cumulative updates the list of permissible activities for banks, reflects precedent not previously included or issued since the last edition, streamlines certain entries for readability, and includes certain OCC interpretive letters and corporate decisions issued after the Dodd-Frank Act transferred responsibility from the Office of Thrift Supervision to the OCC. While the update consolidates existing guidance, the OCC stated that “OCC precedent remains applicable until rescinded, superseded, or revised,” and banks should not rely solely on the update for guidance but “should review the authorities cited and other relevant precedent before engaging in an activity.” Furthermore, according to an OCC-issued press release, “[i]ndividual OCC-regulated institutions may be precluded from engaging in otherwise permissible activities based on safety and soundness or other supervisory reasons.”

    Agency Rule-Making & Guidance OCC OTS Bank Supervision

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  • Seventh Circuit Upholds Ruling that Excludes Insurance Coverage for Overdraft Fees

    Courts

    On October 12, the U.S. Court of Appeals for the Seventh Circuit affirmed an Indiana District Court’s 2016 ruling, agreeing that an insurance company does not bear the responsibility for covering a bank’s $24 million class action settlement under a policy provision that excludes coverage for any case involving fees. In upholding the lower court’s decision, the three judge panel concluded that the insurance company had no duty to defend or indemnify the bank on the basis that the underlying overdraft fee claims fall under “Exclusion 3(n)” in the bank's professional liability insurance policy, which states that the insurance company “shall not be liable for [l]oss on account of any [c]laim . . . based upon, arising from, or in consequence of any fees or charges.” Class claims alleging that the bank manipulated its debit processing to “maximize overdraft revenue” by charging purportedly excessive fees to consumers who overdraw their checking and savings accounts triggered the exclusion. The panel also noted that an insurance company’s decision to include fee exclusions in banking liability policies is designed to prevent the “moral hazard” of allowing banks to “freely create other customer fee schemes” knowing they could easily secure coverage.

    Courts Appellate Seventh Circuit Overdraft Class Action Settlement Litigation

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  • Pennsylvania Issues Reminder to Fintech Companies of Licensing Requirements

    FinTech

    On October 6, prompted by the “evolving technological innovations that impact the financial services sector” and the rise of “technology focused companies offering financial services via new delivery mechanisms,” the Pennsylvania Department of Banking and Securities (Department) issued a reminder of the Department’s “long-standing position” that all persons offering financial services to the consumers of the Commonwealth of Pennsylvania must be licensed by the Department and comply with consumer protection requirements before conducting business with Pennsylvania consumers. “The Department regulates financial transactions based upon the transaction offered or delivered, not the method of delivery,” and as a result, fintech companies must comply with all applicable statutes and regulations.

    Fintech State Issues Licensing Compliance Consumer Finance

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  • HUD Secretary Carson Testifies at House Financial Services Committee Hearing, Discusses Use of FCA Against FHA Lenders

    Federal Issues

    On October 12, Secretary of HUD, Ben Carson, testified at a hearing before the House Financial Services Committee. The hearing entitled “The Future of Housing in America: Oversight of the Department of Housing and Urban Development,” provided an update on HUD’s vision for federal housing policy and touched upon topics such as the conservatorship of Fannie Mae and Freddie Mac, the agency’s role in hurricane disaster relief, and regulatory reform efforts. In his written testimony, Carson reaffirmed his personal interest, and that of the President Trump’s Administration, in working with the Committee on housing finance reform, specifically referencing the FHA mortgage insurance program and Ginnie Mae mortgage-backed security guaranty as “vital components” of the housing finance system. Towards the end of the three-hour-long hearing, Carson was asked by Representative Dave Trott (R-MI) about the federal government’s “unprecedented” use of the False Claims Act (FCA) as a means to “impose outrageous penalties against lenders for immaterial defects” in HFA loan originations, which, according to Rep. Trott, is turning lenders away from FHA lending and is resulting in increased costs to borrowers. Carson stated that his staff is already engaged in discussions with the DOJ staff and is “committed to getting that resolved, because it’s ridiculous, quite frankly.” Carson added, “I’m not exactly sure why there had been such an escalation previously, but the long-term effects of that escalation is obviously providing fewer appropriate choices for consumers, and that’s exactly the opposite of what we should be doing.”

    Federal Issues HUD House Financial Services Committee DOJ False Claims Act / FIRREA Mortgages FHA

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  • New York AG, Auto Dealers Reach Settlement Over Advance Fee Allegations that Triggered Inflated Vehicle Prices

    State Issues

    On October 12, New York Attorney General Eric T. Schneiderman announced separate settlements (here and here) with two auto dealer groups to resolve allegations that they violated state and federal law by charging upfront fees for “after-sale” credit repair and identity theft protection services, which were provided by a third party, and bundling those fees into vehicle sale or lease prices. According to the settlements, the groups—which have neither admitted nor denied the allegations—are required to pay affected consumers more than $900,000 in restitution and pay a $135,000 fine to the state. The settlements also prohibit the groups from selling or marketing credit repair or identity theft protection services and require that consumers be informed—both orally and in writing—of any other “after-sale” products.

    State Issues State AG Auto Finance Consumer Finance Settlement Enforcement

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  • OCC Policy Outlines CRA Evaluation Process and Impact of Discriminatory Practices

    Agency Rule-Making & Guidance

    On October 12, the OCC issued OCC Bulletin 2017-40 announcing the release of its Policies and Procedures Manual 5000-43 (PPM 5000-43), which outlines the OCC’s policy and framework for how the agency determines Community Reinvestment Act (CRA) ratings when there’s evidence of discriminatory or other illegal credit practices directly related to a supervised financial institution’s CRA lending activities. First, PPM 5000-43 requires a “logical nexus” between the assigned ratings and the evidence of discriminatory or other illegal practices to ensure that the CRA evaluation “does not penalize a bank for compliance deficiencies or illegal credit practices unrelated to its CRA lending activities.” Second, the OCC examiners will give “full consideration” to any remedial actions the institution has already taken to address such discriminatory or other illegal credit practices to ensure that the CRA rating “does not penalize a bank for compliance deficiencies or illegal credit practices that have been, or are substantially being, addressed by the bank.”

    Agency Rule-Making & Guidance OCC CRA Lending Consumer Finance Fair Lending

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