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  • Germany’s Largest Bank Agrees to Fix Foreign Exchange Activities Controls and Volcker Rule Compliance Program, Fined Nearly $157 Million

    Federal Issues

    On April 20, the Federal Reserve issued two separate enforcement actions against a major German global bank and its subsidiaries for allegedly failing to have appropriate controls to ensure that the bank’s foreign exchange activities (Covered FX Activities) were in compliance and also allegedly failing to have an adequate compliance program to ensure its traders abided by the Volcker Rule’s requirements. The combined sanctions total almost $157 million in civil money penalties.

    Covered FX Activities. According to the Fed’s cease and desist order, the Board of Governors’ investigation, covering October 2008 through October 2013, found deficiencies in the bank’s governance, risk management, compliance, and audit policies and procedures. Specifically, FX traders communicated through chatrooms with traders at other financial institutions, but due to deficient policies and procedures, the bank failed to detect and address such “unsafe and unsound conduct.” Under the terms of the order, the bank is required to submit the following: (i) a written plan to improve senior management’s oversight of the bank’s compliance with applicable U.S. laws and regulations and applicable internal policies in connection with its foreign exchange activities; (ii) an enhanced written internal control and compliance program designed to monitor and detect potential misconduct; and (iii) a written plan to improve its compliance risk management program with applicable U.S. laws and regulations with respect to foreign exchange activities. In addition, the bank must pay a $136.9 million civil money penalty.

    Volcker Rule. That same day the Fed also issued a consent order to the bank for allegedly failing to establish a compliance program reasonably designed to ensure and monitor compliance with Volcker Rule requirements. The Volker Rule prohibits insured depository institutions and affiliates from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund. The  consent order’s findings were based on a Volcker Rule CEO attestation, “which identified the existence of weaknesses in the [bank’s] Volcker Rule compliance program, including, among other things, certain governance, design, and operational deficiencies across key compliance pillars and the design of reporting mechanisms.” Moreover, the Board of Governors’ determination was based on, among other things, (i) “significant” gaps in the bank’s compliance program which resulted in deficiencies in the scope of independent testing efforts; (ii) “significant” weaknesses in the bank’s demonstrable analyses “showing that its proprietary trading is not to exceed the reasonably expected near term demands of clients, customers, or counterparties—[referred to as “RENT-D”]—required for permitted market-making activities,”; and (iii) weakness in the bank’s metrics reporting and monitoring process which, when combined with the aforementioned, “limited the [b]ank’s ability to adequately monitor trading activity.” Under the terms of the consent order, the bank is required to submit a written plan to improve senior management’s oversight of the firm’s compliance with Volcker Rule requirements. It must also submit enhanced written internal controls and compliance risk management program measures. These submissions are in addition to paying a $19.71 million civil money penalty.

    Federal Issues Enforcement Bank Compliance Volcker Rule Sanctions Federal Reserve

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  • CFPB Fines Servicemember Auto Lender for Violating Consent Order


    On April 26, the CFPB  issued a second consent order against an Ohio-based auto lender, specializing in extending credit to servicemembers, for violating an earlier 2015 consent order issued by the Bureau (see previous InfoBytes summary). The 2015 order required, among other things, that the lender to pay restitution of over $2 million to affected consumers in addition to a $1 million civil money penalty for allegedly engaging in unfair, abusive, and deceptive debt collection practices. The 2017 consent order claims the lender violated the earlier order by failing to provide the required consumer redress or the redress plan consistent with the 2015 consent order. The Bureau contends that the lender issued worthless account “credits” to settled-in full accounts and to consumers whose debts were discharged in bankruptcy, and failed to provide the appropriate redress to consumers making payments under settlement agreements. The consent order requires that the lender: (i) pay an additional $1.25 million civil money penalty; (ii) pay $718,900 to the Bureau, which will be sent as refunds to consumers; (iii) issue $372,157 in account credits to consumers who have account balances, in addition to properly crediting consumers making payments under settlement agreements; and (iv) pay $75,000 in redress-administration costs to the Bureau.

    Lending CFPB UDAAP Enforcement Debt Collection

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  • OCC Announces March 2017 Enforcement Actions

    Federal Issues

    On April 20, the Office of the Comptroller of the Currency (OCC) released a list of enforcement actions taken against national banks, federal savings associations, and former institution-affiliated parties in March. The actions include orders for civil money penalties (CMPs), restitution, and prohibition. Among the actions, a California bank was fined $58,000 for violations of the Flood Disaster Protection Act, as well as the former Chairman, CEO, and President of a Wisconsin bank was banned from banking and ordered to pay a CMP of $100,000 and $1.6 million in restitution due to breaches of fiduciary duty and unsafe or unsound practices involving bank-paid personal expenses and excessive compensation.

    Federal Issues OCC Enforcement

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  • California Joins 49 States and the District of Columbia in Settlement with Global Money Services Business

    Consumer Finance

    On April 12, California Attorney General Xavier Becerra announced that California has joined a multistate settlement between state attorneys general from 49 states and the District of Columbia and a global money services business to resolve allegations that scammers used the company’s wire transfer services to defraud consumers (see previous InfoBytes post). Under the terms of the settlement, California consumers who made a wire transfer during the period of January 1, 2004 through January 19, 2017, may be eligible for a share of more than $65 million in refunds. As previously covered in InfoBytes, on January 19 of this year, the global money services business entered into a Deferred Prosecution Agreement with the DOJ and FTC requiring, among other things, the business to pay $586 million in refunds to consumers to settle allegations that the company had failed to maintain an effective anti-money laundering program and aided and abetted wire fraud.

    Consumer Finance State AG Enforcement DOJ FTC

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  • California Department of Business Reaches $1.4 Million Settlement with Michigan-Based Mortgage Lender and Servicer


    On April 10, the California Department of Business Oversight (DBO) announced a settlement with a California-licensed mortgage lender and servicer—whose principal place of business is based in Michigan—resolving allegations that the company violated California’s statutory restriction on per diem interest. California law prohibits lenders from “charging interest on mortgage loans prior to the business day that immediately precedes the day the loan proceeds are disbursed.” Pursuant to the consent order, the allegations against the company arose from two regulatory examinations conducted by DBO in2011 and 2013, whereby the company—in order to avoid an enforcement action—agreed to cooperate fully with DBO’s request for audits, to refund per diem overcharges, and to consent to the issuance of the final order to pay refunds, penalties, and discontinue further violations. The terms of the consent order include $293,127 in refunds previously provided to approximately 3,400 borrowers for loans funded between August 2011 and May 2015, as well as future restitution to additional borrowers identified in required self audits of loans made between from June 2015 through February 2018. The order further requires the company to pay an additional $1.1 million in penalties for identified overcharges, as well as $125 for each additional violation discovered in the self audits.

    Lending State Issues Enforcement Mortgage Lenders

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  • SEC Announces Investigation Concerning Alleged $6.7 Million Michigan Real Estate Scheme


    On March 30, the SEC announced charges against a Michigan pastor, his company, and business associate (Defendants) for allegedly cheating church members, retirees, and laid-off autoworkers out of approximately $6.7 million by convincing them to invest in a “successful” real estate scheme. The complaint alleges the pastor presented the investment opportunity at churches nationwide and through media outlets using “faith-based rhetoric” and guaranteed high returns. The Defendants—who were never registered to sell investments—raised the money from more than 80 investors who were told their money would be kept in qualified IRAs and could be rolled over tax-free. However, investors stopped receiving agreed-upon interest payments, and to date, Defendants owe more than 40 Michigan-based investors $2 million in past due promissory notes and also allegedly have obligations to investors outside the State of Michigan. The complaint claims violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, and seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions.

    Securities Mortgage Fraud SEC Enforcement

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  • FTC Releases 2016 Annual Highlights

    Privacy, Cyber Risk & Data Security

    On March 28, the FTC released its 2016 Annual Highlights Report, which outlines the agency’s ongoing efforts over the past year to protect consumers and promote competition. Acting Chairman Maureen K. Olhausen stated, “2016 was a historic year for the FTC. We obtained almost $12 billion in redress for consumers, and took action in more than a dozen merger cases to preserve competition.” Key highlights in four sections—enforcement, policy, education, and stats and data—covered multiple sectors such as health care, technology, and other consumer products and services. Regarding enforcement highlights in 2016, the report covered a range of administrative and court actions related to, among other things, privacy and data security issues, particularly in the mobile marketplace, as well as the Commission’s largest false advertising settlement in its history with a global auto manufacturer. The policy section of the report highlights eight amicus briefs filed on topics such as reverse payments and the FDCPA, as well as its efforts to provide guidance and recommendations on topics such as sharing economy platforms, big data, and fraud. The education section covers topics such as consumer guidance on fraud, scams, and deceptive business practices prevention, and notes that it published almost 200 blog posts for consumers. Notably, according to the stats and data section of the report, the FTC received more than three million consumer complaints in 2016, consisting of 858,090 debt collection complaints, 503,967 “other” complaints, and 406,578 imposter scam complaints.

    Privacy/Cyber Risk & Data Security FTC FinTech Enforcement Consumer Complaints

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  • FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in February 2017


    On March 31, the FDIC released its list of administrative enforcement actions taken against banks and individuals in February. Several of the consent agreements included on the list seek civil money penalties for, among other things, violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Other violations cited in the enforcement actions relate to unsafe or unsound banking practices, breaches of fiduciary duty, and violations of the Bank Secrecy Act. There are no administrative hearings scheduled for April 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.

    Courts Consumer Finance Enforcement FDIC Flood Insurance

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  • OCC Announces February 2017 Enforcement Actions

    Privacy, Cyber Risk & Data Security

    On March 17, the Office of the Comptroller of the Currency (OCC) released a list of administrative enforcement actions taken against banks and bank officers in February. Several of the reported actions included payment of civil money penalties (CMPs) for, among other things, violations of the Federal Trade Commission Act, Bank Secrecy Act (BSA) deficiencies, and unsafe or unsound practices by institution-affiliated parties for breaches of fiduciary duty. Among the actions containing CMPs a Tennessee bank fined $1 million for deficiencies related to billing practices with regard to an identity protection product consumers paid for but never received, and a California bank fined $1 million for continuous non-compliance with a 2010 Consent Order for BSA deficiencies including “inadequate risk assessment process[es], inadequate system of internal controls, inadequate suspicious activity monitoring and reporting process[es], inadequate customer due diligence and enhanced due diligence programs, ” as well as having a “BSA/AML independent audit [that] failed to identify . . . significant internal control weaknesses.”

    Privacy/Cyber Risk & Data Security Agency Rulemaking & Guidance OCC Enforcement

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  • CFPB Fines National Credit Reporting Company $3 Million for Alleged Deceptive Practices

    Consumer Finance

    On March 23, the CFPB ordered a nationwide credit reporting company and its subsidiaries to pay $3 million for allegedly deceiving consumers about how credit scores they marketed and sold were used by lenders. The consent order claims the company developed its own proprietary credit scoring model (PLUS Score), which was used to generate credit scores from information in a consumer’s credit file. The company then allegedly deceptively marketed and sold the “educational” credit score as the same type of score lenders use to make credit decisions, when in fact lenders did not use the scores. Moreover, there were instances of significant discrepancies between the “educational” credit scores that the company sold to consumers and the actual credit scores used by the lenders. The Bureau also alleges the company—up until March 2014—violated the Fair Credit Reporting Act (FCRA) by requiring consumers to view advertisements before they could access their credit reports. Pursuant to the consent order, the company must pay a $3 million civil money penalty, truthfully inform consumers about the nature of the credit scores it sells, and develop and implement an effective compliance management system to ensure its advertising practices comply with federal consumer laws. As previously reported in InfoBytes, earlier this year the CFPB issued consent orders against two different nationwide credit reporting companies for similar allegations.

    Consumer Finance CFPB Consumer Reporting Agency Enforcement

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