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  • CFPB plans to reconsider payday rule

    Agency Rule-Making & Guidance

    On January 16, the CFPB announced plans to reconsider its final rule addressing payday loans, vehicle titles loans, and certain other extensions of credit (previously covered in a Buckley Sandler Special Alert) by engaging in a rulemaking process. While the announcement was made on the effective date of the final rule, most provisions do not require compliance until August 19, 2019. However, the deadline for submitting a preliminary approval to become a registered information system is April 16, 2018. The Bureau noted that it will consider waiver requests from potential applicants.

    Notably, this marks the second recent announcement in which the agency refers to itself as “the Bureau of Consumer Financial Protection,” instead of the more-commonly used “Consumer Financial Protection Bureau.” Both titles are used in the text of the Dodd-Frank Act, though the sections of the Dodd-Frank Act authorizing creation of the CFPB used the “Bureau of Consumer Financial Protection” naming convention.  The agency also previously updated its mission statement located at the bottom of each release.

    For more InfoBytes coverage on the latest CFPB changes, click here.

    Agency Rule-Making & Guidance CFPB Succession CFPB Payday Lending

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  • New York Senate bill proposes replacing online lending task force with study

    State Issues

    On January 8, the New York State Senate Committee on Rules voted to amend legislation to authorize the New York Department of Financial Services (NYDFS) to conduct a study about online lending. The original legislation, S6593A, signed into law by Governor Cuomo on December 29, 2017, created a seven-person task force responsible for analyzing online lending activity in the state. The proposed amendments to this legislation, S07294 and A8938, which would be effective immediately if passed by both houses of the New York legislature and signed into law, remove the requirement for a task force, and instead authorize NYDFS to direct the study and produce a public report with recommendations prior to July 1. According to the amendments, the study should analyze (i) lending practices of the online lending industry and primary differences between online lenders and traditional lenders; (ii) types of credit products available online; (iii) a review of available complaints, actions and investigations related to online lenders; and (iv) a survey of existing state and federal laws that apply to the online lending industry. 

    State Issues NYDFS Consumer Finance Lending State Legislation

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  • City of Philadelphia’s discriminatory lending lawsuit moves forward

    Lending

    On January 16, a federal judge in the U.S. District Court for the Eastern District of Pennsylvania denied a national bank’s motion to dismiss the City of Philadelphia’s (City) claims that the bank engaged in alleged discriminatory lending practices in violation of the Fair Housing Act (FHA). As previously covered in InfoBytes, the City filed a complaint in May of last year against the bank alleging discrimination under both the disparate treatment and disparate impact theories. The City asserted that the bank’s practice of offering better terms to similarly-situated, non-minority borrowers or refusing to make loans in minority neighborhoods has led to foreclosures and vacant homes, which in turn, has resulted in a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services. In support of its motion to dismiss, the bank argued, among other things, that the City’s claim (i) is time barred; (ii) improperly alleges the disparate impact theory; and (iii) fails to allege proximate cause as required by a recent U.S. Supreme Court ruling (see previous Special Alert here).

    While the court expressed “serious concerns about the viability of the economic injury aspect of the City’s claim with regard to proximate cause,” the court found that the bank “has not met its burden to show why the City’s entire FHA claim should be dismissed.” Consequently, the court held that the case may proceed to discovery beyond the two-year statute of limitations period for FHA violations in order to provide the City an opportunity to prove whether the bank’s policy caused a racial disparity that constituted a violation continuing into the limitations period.

    Lending State Issues Fair Lending Redlining FHA U.S. Supreme Court Disparate Impact Mortgages

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  • Supreme Court to review whether SEC’s ALJ appointment process is constitutional

    Courts

    On January 12, the U.S. Supreme Court announced it had granted a writ of certiorari in Lucia v. SEC—a case which challenges the SEC’s practice of appointing administrative law judges (ALJs) and moves the Court to consider whether the ALJ appointment practice violates the Appointments Clause (Clause) of the Constitution. In Lucia, the petitioner—against whom an ALJ had issued sanctions, imposed a lifetime securities ban, and fined $300,000—appealed the decision to the D.C. Circuit Court of Appeals, and argued that ALJs are officers of the United States and therefore subject to provisions of the Clause, including the requirement that officers be appointed by the president, the head of a department, or a court of law. However, the D.C. Circuit upheld the ALJs sanctions and ruled that ALJs are not “inferior officers” subject to the Clause. In his petition for certiorari, the petitioner claimed that because he was subjected to a “trial before an unconstitutionally constituted tribunal,” the ALJ’s decision should be dismissed or a new hearing granted.

    Notably, last November, the Solicitor General of the United States submitted a brief on behalf of the SEC to the Supreme Court, arguing that the SEC views in-house judges as officers of the U.S. government—not mere employees—who are subject to the Clause. Additionally, on November 30, the SEC ratified the appointment of its ALJs to resolve “any concerns that administrative proceedings presided over by its ALJs violate the Appointments Clause.”

    A decision by the Court may resolve a split between the D.C. Circuit, which has ruled that ALJs are not “inferior officers” of the U.S. government, and the Tenth and Fifth Circuits, which disagreed and ruled separately that ALJs are officers.

    See also previous Lucia coverage in an InfoBytes blog post and a Special Alert concerning the effect a decision in Lucia may have on the ongoing litigation in PHH v. CFPB.

    Courts SEC ALJ U.S. Supreme Court PHH v. CFPB

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  • Agencies adjust civil penalties for inflation

    Agency Rule-Making & Guidance

    On January 12, the CFPB published a final rule adjusting upward the maximum amount of each civil penalty within their jurisdictions, as required by the Inflation Adjustment Act. As explained in the rule, the new maximum penalty amounts for 2018 are calculated by multiplying the corresponding 2017 penalty by a “cost-of-living adjustment” multiplier—which for 2018 has been set by the OMB at 1.02041—and then rounding to the nearest dollar. The new penalty amounts apply to civil penalties assessed after January 15, 2018.

    In addition, the FDIC, the OCC, and the Federal Reserve recently issued similar Civil Penalty Inflation Adjustment notices.

    Agency Rule-Making & Guidance CFPB OCC FDIC Civil Money Penalities

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  • Fed terminates foreclosure enforcement actions, fines five banks CMPs

    Lending

    On January 10, the Federal Reserve Board (Fed) announced the termination of ten enforcement actions for legacy mortgage loan servicing and foreclosure processing activities, along with the issuance of more than $35 million in combined civil money penalties (CMPs) against five of the ten banks. Combined with penalties previously assessed against other supervised firms (see previous InfoBytes coverage here), the Fed’s mortgage servicing enforcement actions have totaled approximately $1.1 billion in penalties. The CMPs assessed against the five banks range from $3.5 million to $14 million. 

    According to the Fed, the termination of the ten enforcement actions is a result of “evidence of sustainable improvements in the firms’ oversight and mortgage servicing practices.” Under the terms of the previously issued consent orders, in addition to the CMPs, the banks were required to (i) improve residential mortgage loan servicing oversight, and (ii) correct deficiencies in residential mortgage loan servicing and foreclosure processing for banks with Fed supervised-mortgage servicing subsidiaries.

    The Fed also announced the termination of two related joint enforcement actions (see here and here) with the OCC, FDIC and FHFA (a party to only one of the actions) against key mortgage servicing service providers. According to the announcement, the terminations were a result of proof of “sustainable improvements” in the companies’ foreclosure-related practices.

    Lending Mortgages Mortgage Servicing Foreclosure Enforcement Federal Reserve

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  • Real estate broker and nephew of former UN Secretary-General pleads guilty to FCPA charges

    Financial Crimes

    On January 5, 2018, the Department of Justice announced that a real estate broker and nephew of former UN Secretary-General, pleaded guilty to charges that he tried to bribe a Qatari official in connection with a sale of a high rise building complex in Vietnam. He pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA before U.S. District Judge Edgardo Ramos of the Southern District of New York. He was charged with his father, who was an executive at a South Korean construction company, and an arts and fashion blogger in December 2016. 

    In his guilty plea, the nephew admitted to joining a conspiracy to make $2.5 million in bribe payments to a Qatari official between February 2014 and May 2015 in an effort to sell the South Korean construction company-owned buildings in Vietnam, which were worth $800 million. The nephew admitted that he andhis father agreed to pay $500,000 to a Qatari official to persuade the official to use the Qatari sovereign wealth fund to purchase the building. The $500,000 was then transferred to the arts and fashion blogger, who posed as an agent for the foreign official, but instead of passing the payment to the foreign official, he double-crossed his codefendants and stole the $500,000. 

    Although the scheme involved a South Korean construction company and a Qatari foreign official, the Indictment alleged that the nephew qualified as a “domestic concern” pursuant to 15 USC 78dd-2(h)(1) because he was a lawful permanent resident of the United States and resided in New Jersey at the time. 

    The nephew faces up to five years in prison on each count. The blogger previously pleaded guilty to charges of wire fraud and money laundering for his role in the scheme, and was sentenced to 42 months in prison. The father has been charged, but not yet arrested.

    Financial Crimes DOJ FCPA Bribery

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  • FDIC releases winter 2017 Supervisory Insights

    Federal Issues

    On January 10, the FDIC released its Winter 2017 Supervisory Insights (see FIL-5-2018), which contains articles discussing credit management information systems and underwriting trends. The first article, “Credit Management Information Systems: A Forward-Looking Approach,” discusses, among other things, how financial institutions can incorporate forward-looking metrics to assist in identifying future issues. The article also emphasizes the importance of effective risk management programs which contain policies and procedures that support strategic decision making by senior management and board members responsible for overseeing lending activities. The second article, “Underwriting Trends and Other Highlights from the FDIC’s Credit and Consumer Products/Services Survey,” shares the recent credit survey results from examinations of FDIC-supervised financial institutions. The survey indicates that risk may be increasing in the industry based on reports of credit concentrations, increases in potentially volatile funding sources, and more “out-of-area lending.” In addition, the winter issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.

    Federal Issues FDIC Banking Bank Supervision Risk Management

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  • Federal Reserve Publishes Stress Test, CCAR FAQs

    Agency Rule-Making & Guidance

    On January 8, the Federal Reserve Board (Fed) published an updated set of questions and answers to assist financial institutions in complying with the Dodd-Frank Act-mandated stress tests (DFAST) and Comprehensive Capital Analysis and Review (CCAR). According to the Fed, the FAQs are designed to provide answers concerning DFAST and CCAR reporting requirements and related guidance, and generally cover applicable questions that have been asked by covered financial institutions since August 1, 2017. The Fed instructs financial institutions that CCAR projections should only reflect new accounting standards if the standards were implemented prior to December 31 of the previous calendar year. For material business changes occurring in the fourth quarter of a year, financial institutions should discuss any changes that may materially impact the institution’s capital adequacy and funding profile in their CCAR filings. The Fed will review the information when making modelling projections and may request additional information. The Fed also explains the circumstances in which a bank is required to issue replacement capital to stay in compliance with its capital plan.

    Agency Rule-Making & Guidance Federal Reserve Stress Test CCAR Dodd-Frank

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  • Ninth Circuit: payday lenders not vicariously liable under TCPA for text messages

    Privacy, Cyber Risk & Data Security

    On January 10, the U.S. Court of Appeals for the Ninth Circuit affirmed that three payday lenders and two marketing companies (together, the defendants) did not indirectly violate the Telephone Consumer Protection Act (TCPA) by accepting marketing help from a separate lead generator company that used a program to send text-messaged advertisements. In upholding the district court’s decision, the three judge panel concluded that “it is undisputed” that the defendants did not enter into a contract with the lead generator company, and further, that the lead generator company did not act as their agent or purported agent. The plaintiff-appellant that received the text-messaged advertisement—which directed consumers who clicked on the link within the message to a loan application website controlled by one of the defendants—filed a putative class action complaint, certified by the district court, against the defendants to allege that they were vicariously liable for sending the text messages in violation of the TCPA. Specifically, the plaintiff-appellant claimed the defendants ratified the lead generator company’s actions when they accepted leads even though they knew the leads were being generated through text messages. The district court granted summary judgments for all the defendants, and ruled they were not vicariously liable for the lead generator company’s actions, and that additionally, the plaintiff-appellant failed to present evidence that defendants had actual knowledge that the texts were being sent in violation of the TCPA. The appellate panel also noted that because one of the defendants—a contracted lead provider—had “no ‘knowledge of facts that would have led a reasonable person to investigate further,’ . . . [the defendant] cannot be deemed to have ratified [the] actions and therefore is not vicariously liable.”

    Privacy/Cyber Risk & Data Security Courts Ninth Circuit Appellate TCPA Payday Lending

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