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  • Florida Energy Company Owner Pleads Guilty to Conspiracy to Violate the FCPA in Venezuelan Bribery Scheme

    Financial Crimes

    On October 11, the DOJ announced that the co-owner of several Florida-based energy companies pleaded guilty to FCPA charges that he conspired to bribe foreign officials in exchange for obtaining contracts from a Venezuela’s state-owned energy company. In his plea, the defendant admitted to conspiring with two other individuals from 2008 through 2014 to bribe purchasing analysts employed by the energy company through cash payments and other entertainment in order to win contracts for their companies. In total, ten individuals have now pleaded guilty in connection with the scheme.    

    This investigation has been a collaboration between the DOJ, ICE-HSI, and IRS-Criminal Investigation Division. Previous FCPA Scorecard coverage of the investigation can be found here.

    Financial Crimes DOJ FCPA Bribery International

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  • OCC Acting Comptroller Shares Thoughts on Opportunities to Reduce Regulatory Burdens

    Federal Issues

    On October 5, OCC Acting Comptroller of the Currency Keith Noreika spoke before the 2017 Midsize Bank Coalition of America Chief Risk Officer Meeting to discuss opportunities for regulatory reform.

    According to Noreika, one area of concern relates to the adverse effect arbitrary asset thresholds pose to the annual stress test requirements required under the Dodd-Frank Act because the burden “is not commensurate with the systemic risks presented by an institution.” Given the amount of diversity in the business models of banks who have around $10 billion in assets, “regulators need the ability and authority to tailor their supervision to the unique risks presented by individual banks.” Noreika suggested an approach that would give federal banking agencies the authority to tailor statutory stress testing requirements without an asset threshold, thus reducing the risk of banks growing beyond the threshold to offset increased costs or staying below the threshold to avoid unwelcome scrutiny.

    Noreika also urged for interagency harmonization of guidance and policies to avoid conflicting regulatory guidance when addressing cybersecurity issues.

    Additionally, Noreika addressed the CFPB’s arbitration rule as an example of the need to work “to ensure regulation is balanced and appropriate by speaking up when we see proposed rules that may adversely affect the business of banking, have systemic effects, or result in perverse unintended consequences.” Noreika stated that prior to the publication of the final arbitration rule, the OCC requested access to the data the CFPB used to develop and support the rule in order to conduct an independent review. However, it was not until after the rule was published that the CFPB made the data available. According to OCC findings, the rule will adversely impact consumers by increasing costs. Community banks, Noreika noted, will also bear the burden of increased legal costs from defending lawsuits.

    Finally, Noreika commented that banks continue to face challenges when trying to implement Bank Secrecy Act compliance programs and adapt to new requirements under TRID, HMDA, and the Military Lending Act.

    Federal Issues Agency Rule-Making & Guidance OCC Bank Compliance Dodd-Frank Stress Test Arbitration CFPB Privacy/Cyber Risk & Data Security

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  • CFPB Takes Action Against Debt Relief Companies for Allegedly Violating the TSR and Claiming to be Affiliated With the Federal Government

    Consumer Finance

    On October 12, the CFPB announced the filing of a complaint in the U.S. District Court for the District of Maryland against two companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. According to the complaint, the defendants allegedly engaged in abusive and deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by purportedly (i) charging advance fees for debt-relief services before altering the terms of the consumers’ debts or achieving promised results; (ii) misrepresenting the abilities of their debt-relief and credit-repair services; (iii) failing to disclose to consumer that if they stopped making payments on debts enrolled in the service they may be subject to collections or lawsuits from creditors that could increase the overall amount of money owed due to fees and interest; and (iv) misrepresenting an affiliation, endorsement, or sponsorship with the federal government by using direct mailers designed to look like an official government notice.

    Consumer Finance CFPB Debt Relief Enforcement CFPA Telemarketing Sales Rule UDAAP

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  • Coalition of State Attorneys General Urge Credit Reporting Agencies to Offer No-Fee Credit Freeze

    Privacy, Cyber Risk & Data Security

    On October 10, a coalition of 37 state attorneys general sent letters (here and here) to the CEOs of two major credit reporting agencies (CRAs), urging them to stop charging fees to consumers seeking credit freezes as a measure to protect against identity theft in light of a third CRA’s massive data breach. On September 15, as previously reported in InfoBytes, 34 state attorneys general sent a letter to the breached CRA’s legal counsel requesting it disable fee-based credit monitoring services. The October 10 letters note that currently seven states prohibit CRAs from charging fees to consumers for credit freezes and at least two other states have proposed legislation that would require CRAs to offer free credit freezes.

    Privacy/Cyber Risk & Data Security State AG Consumer Finance

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  • Fannie Mae and Freddie Mac Update Servicing Guides

    Lending

    On October 11, Fannie Mae and Freddie Mac announced updates to their respective Servicing Guides.

    Fannie Mae. Servicing Guide Announcement SVC-2017-09 highlights recent updates to the Servicing Guide, including topics related to the management of electronic transactions such as: (i) confirmation that sellers and servicers may originate, service, and modify loans using electronic records (electronic promissory notes require special approval); (ii) streamlined language clarifying requirements for the accuracy of information in electronic records; (iii) specification that paper records are not required for recorded mortgages and deeds of trust; (iv) clarification that all electronic signatures must comply with ESIGN, UETA, and other applicable laws; and (v) the removal of requirements for document custodians from the Servicing Guide that were duplicative of requirements set forth in Fannie Mae’s Requirements for Document Custodians. Additional updates address changes made to the reimbursement of foreclosure sale publication costs for costs incurred on or after January 1, 2018, and specific guidance for servicers pertaining to mortgage liens (to be implemented by December 1, 2017).

    Freddie Mac. Freddie Mac issued Bulletin 2017-22 announcing servicing updates concerning (i) modifications to imminent default evaluation and process requirements (jointly developed with Fannie Mae) that will take effect July 1, 2018; and (ii) provisions under the Servicemembers Civil Relief Act (SCRA) related to compliance time frames for servicers when responding to, or submitting requests for, interest rate reductions, along with updates that take effect February 1, 2018, concerning Guide Exhibit 71 used by servicers to report eligible SCRA interest rate subsidized loans. The updates also eliminate the manual property condition certificate process and modify time frame requirements for cancelling property insurance policies on real estate owned properties.

    Lending Agency Rule-Making & Guidance Fannie Mae Freddie Mac Mortgage Servicing Electronic Signatures ESIGN UETA SCRA

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  • Russia Weighs Risks of Cryptocurrencies; President Putin Seeks Regulations

    FinTech

    On October 10, the First Deputy Governor of Russia’s Central Bank reportedly announced plans to block websites selling bitcoin and other forms of cryptocurrency. Citing unreasonably high risks and the need to protect investors from the “dubious” currencies, the Central Bank’s concerns were echoed by President Vladimir Putin who reportedly stressed that risks associated with the use of cryptocurrencies include money laundering, tax evasion and funding for terrorism. However, President Putin issued a call for cryptocurrency regulation rather than a broad ban and stressed the need to utilize international experience when establishing rules.

    Last September, as previously reported in InfoBytes, several Chinese regulators reportedly announced plans to ban the commercial trading of bitcoin and other cryptocurrencies in the country.

    Fintech Bitcoin Cryptocurrency International

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  • CFPB Publishes Updated TRID Small Entity Compliance Guide; ABA Submits Comments on CFPB’s Proposal to Fix TRID’s “Black Hole” Issue

    Lending

    On October 6, the CFPB released an updated version of its TILA-RESPA Integrated Disclosure Rule (Final Rule) small entity compliance guide. The updated guide reflects amendments issued July 7, previously discussed in a Buckley Sandler Special Alert, that the CFPB made to the Final Rule. The guide also provides a version log to outline incorporated changes.

    Separately, on October 10, the American Bankers Association (ABA) issued a comment letter regarding the CFPB’s proposal to address an aspect of the Final Rule concerning a “black hole” issue that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances. (See previous InfoBytes coverage here.) The proposal was issued August 11, the same day the CFPB published the Final Rule. In its letter, the ABA requested additional clarification on certain areas of the proposal, but stated that it supports the removal of the “four-business-day limit for providing Closing Disclosures for purposes of resetting tolerances” because it “is an effective and very efficient approach to addressing the ‘black hole’ problem while preserving adequate consumer protections that will avoid bait-and-switch tactics or unjustified fee increases.” Furthermore, the ABA believes, “the use of [Closing Disclosures], whether initial or corrected, as a vehicle for correcting and ‘re-baselining’ fee disclosures, is a straightforward approach to returning regulatory order and compliance clarity on this provision.”

    Lending Agency Rule-Making & Guidance CFPB ABA TRID Compliance

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  • U.S. Government Revokes Certain Sanctions on Sudan Following Review Period of Sudanese Policies and Actions

    Financial Crimes

    On October 6, the U.S. Government announced, effective October 12, the revocation of certain economic sanctions against Sudan and the Government of Sudan (GOS) as a recognition of sustained positive actions in connection with efforts to cease hostilities, improve humanitarian access, promote regional stability, and address the threat of terrorism. As previously covered in InfoBytes, the announcement follows a joint review conducted by the Secretary of State, the Secretary of the Treasury, the Director of National Intelligence, and the Administrator of the U.S. Agency for International Development that began in January 2017 as required by Executive Order 13761 and amended by Executive Order 13804. The Secretary of State issued a contemporaneous report concluding that, despite GOS’ demonstrated improvement in the areas that led to the issuance of Executive Order 13761, there remain a range of concerns. As such, while the comprehensive sanctions program has been lifted, certain sanctions and trade restrictions remain in place. Specifically:

    • the national emergency, established in Executive Order 13067 with respect to Sudan, remains in effect;
    • U.S. sanctions related to the conflict in Darfur, pursuant to Executive Order 13400, remain in place;
    • The U.S. Government maintains the authority to designate Sudanese persons according to other relevant sanctions authorities; and
    • Sudan remains on the list of state sponsors of terrorism, which will continue to impose restrictions on certain dealings involving Sudan, including U.S. foreign assistance and restrictions on defense exports and sales.

    Following revocation of the sanctions, U.S. persons will no longer be banned from engaging in most transactions previously prohibited by the Sudanese Sanctions Regulations (31 C.F.R. Part 538).

    The U.S. Treasury Department’s Office of Foreign Assets Control also released updated FAQs to answer questions related to the revocation, along with a new general license that authorizes certain transactions.

    Financial Crimes Sanctions OFAC Department of Treasury Department of State Executive Order

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  • Ninth Circuit Claims California Licensing Law Violates Dormant Commerce Clause

    Courts

    On October 10, the U.S. Court of Appeals for the Ninth Circuit handed down an opinion concerning alleged violations of certain California statutes by an Ohio-based mortgage servicer (plaintiff). The panel held that the plaintiff is likely to prevail in its bid for a court order blocking the enforcement of the state’s financial code by certain California district attorneys because the law violates the Dormant Commerce Clause—a legal doctrine that prohibits states from unduly burdening interstate commerce. The defendants allege that the plaintiff violated Section 12200 of the California Financial Code, which requires a prorater—a person who is compensated for receiving monies from debtors and distributing the funds to creditors—to obtain a California prorater license and be incorporated in the state before conducting business on an interstate basis. The panel determined that “[t]his form of discrimination between in-state and out-of-state economic interests is incompatible with a functioning national economy, and the prospect of each corporation being required to create a subsidiary in each state is precisely . . . [what] the Dormant Commerce Clause exists to prevent.” Consequently, the panel vacated the district court’s order denying a preliminary injunction, and remanded for further proceedings.

    The panel also affirmed the district court’s ruling that the plaintiff was required to disclose in its mail solicitations to homeowners that it “lacked authorization from lenders,” and opined that the plaintiff would most likely not prevail in its effort to challenge allegations that it violated sections of the California Business and Professions Code on a First Amendment basis. The First Amendment, the panel reasoned, “does not generally protect corporations from being required to tell prospective customers the truth.”

    Finally, in a portion of the opinion in which one of the circuit judges dissented, the panel reversed a district court’s order dismissing both cases under Younger v. Harris “because the cases had proceeded beyond the ‘embryonic stage’ in the district court before the corresponding state cases were filed.” Judge Montgomery—who otherwise joined the opinion with respect to the Dormant Commerce Clause and First Amendment questions—argued that the district court's dismissal under Younger should have been upheld because “[b]oth cases arrived in federal court…as a preemptive strike by [the plaintiff] to enjoin state district attorneys from enforcing state statutes in state court.”

    Courts Appellate Licensing Ninth Circuit

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  • Treasury Report Calls for Extensive Regulatory Relief to Capital Markets

    Federal Issues

    On October 6, the U.S. Treasury Department published a report that focuses on capital market oversight and outlines challenges and recommendations to reduce regulatory burdens. The report, “A Financial System That Creates Economic Opportunities: Capital Markets,” is the second in a series of four the Treasury plans to issue in response to President Trump’s Executive Order 13772, which mandated a review of financial regulations for inconsistencies with promoted “Core Principles.” (See Buckley Sandler Special Alert here.) The report notes that while certain capital market regulatory framework elements function well, there remain significant challenges. Specifically, the report recommends—among other things—reducing fragmentation, overlap, and duplication in the U.S. regulatory structure. This includes focusing on effecting changes to promote efficiency and more clearly defining regulatory mandates that would allow agencies to issue joint rulemaking and foster coordination. 

    Treasury’s recommendations focus primarily on market regulations but also build upon themes identified in the first report published in June 2017, which primarily focused on solutions for providing relief to banks and credit unions. The second report identifies recommendations, actions, and associated “Core Principles” within the following categories:

    • “promoting access to capital for all types of companies, including small and growing businesses, through reduction of regulatory burden and improved market access to investment opportunities”;
    • “fostering robust secondary markets in equity and debt”;
    • “appropriately tailoring regulations on securitized products to encourage lending and risk transfer”;
    • “recalibrating derivatives regulations to promote market efficiency and effective risk mitigation”;
    • “ensuring proper risk management for [central counterparties] and other financial market utilities because of the critical role they play in the financial system”;
    • “rationalizing and modernizing the U.S. capital markets regulatory structure and process”; and
    • “advancing U.S. interests by promoting a level playing field internationally.”

    A fact sheet accompanying the report further highlights Treasury’s recommendations to streamline regulations.

    Federal Issues Department of Treasury Securities Capital Requirements Risk Management

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