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  • Agencies outline standards for strengthening operational resilience

    Agency Rule-Making & Guidance

    On October 30, the Federal Reserve Board, OCC, and FDIC (agencies) released an interagency paper describing standards and sound practices for increasing operational resilience. (See also the Fed’s release and FDIC FIL-103-2020). The paper, titled Sound Practices to Strengthen Operational Resilience, does not revise existing agency regulations or guidance, but rather provides a “comprehensive approach” for banks to strengthen and maintain operational resilience. According to the agencies, “[r]obust operational risk and business continuity management anchor the sound practices, which are informed by rigorous scenario analyses and consider third-party risks. Secure and resilient information systems underpin the approach to operational resilience, which is supported by thorough surveillance and reporting.” The paper also includes an appendix focused on sound practices for cyber risk management and cybersecurity preparedness. The appendix is aligned to the National Institute of Standards and Technology Cybersecurity Framework and is “augmented to emphasize governance and third-party risk management.” The standards set forth in the paper are intended for large, domestic banks with more than $250 billion in average total consolidated assets, or banks with more than $100 billion in total assets and other risk characteristics.

    Agency Rule-Making & Guidance Federal Reserve OCC FDIC Privacy/Cyber Risk & Data Security Operational Resilience

  • Trade group sues CFPB over payday repeal

    Courts

    On October 29, a national community advocate group filed a complaint against the CFPB challenging the Bureau’s repeal of the underwriting provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Rule). As previously covered by InfoBytes, in July, the CFPB issued a final rule revoking, among other things, the Rule’s (i) provision that makes it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay the loans according to their terms; (ii) prescribed mandatory underwriting requirements for making the ability-to-repay determination; and (iii) the “principal step-down exemption” provision for certain covered short-term loans.

    The complaint alleges that the Bureau’s repeal of the underwriting provisions of the Rule was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” Specifically, the complaint asserts that the Bureau invented a “new evidentiary standard” when it required that evidence supporting the need for the underwriting provisions be “robust and reliable,” which, according to the complaint, is a standard “custom-designed” to repeal the provisions. The complaint further argues that the CFPB “failed to consider the harms that consumers suffer from no-underwriting lending” and relied on analysis and data that was not “previously made available for comment.” The complaint seeks a declaration that the repeal was unlawful and an order requiring the Bureau to “take necessary steps to ensure prompt implementation of the 2017 Payday Lending Rule’s Ability-to-Repay Protections.”

    Courts CFPB Payday Lending Payday Rule Agency Rule-Making & Guidance Administrative Procedures Act

  • Online bank reaches settlement with customers over service disruption

    Courts

    On October 28, the U.S. District Court for the Northern District of California issued an order granting preliminary approval of a putative class action settlement concerning allegations that an online bank’s service disruption prevented customers from accessing their account, including through card purchases and ATM withdrawals. The plaintiffs also claimed that after the service disruption, “some customers reported incorrect account balances and unauthorized charges.” The plaintiffs alleged, among other things, claims for negligence, unjust enrichment, breaches of contract and fiduciary duty, conversion, and violations of several state laws. Following a series of settlement negotiations, the parties entered into an amended settlement identifying the settlement class as “[a]ll consumers who attempted to and were unable to access or utilize the functions of their accounts with [the defendant], as confirmed by a failed transaction or locked card as recorded in [the defendant]’s business records, beginning on October 16, 2019 through October 19, 2019, as a result of the Service Disruption.” Under the settlement, tier one customers who are unable or choose not to provide documentation substantiating their alleged losses can receive up to $25 for verified claims. Tier two customers who can show “‘reasonable documentation’ to substantiate their loss” can receive their verified loss, up to $750. The defendant has agreed to set aside $4 million to cover tier one claims and $1.5 million to cover tier two claims. The defendant is also required to make a minimum payment of $1.5 million in addition to the nearly $6 million it already paid to active customers in connection with the service disruption in the form of $10 “courtesy” payments, as well as credits the defendant issued to customers “who incurred ‘certain transaction fees’” during the service disruption.

    Courts Fees Overdraft Class Action Settlement State Issues

  • NYDFS: Regulated financial institutions must manage climate change-related financial risks

    State Issues

    On October 29, NYDFS issued a letter encouraging state-regulated financial institutions to “prudently manage” climate change-related financial risks. The letter was sent to “all New York-regulated banking organizations, branches and agencies of foreign banking organizations, mortgage bankers and servicers, and limited purpose trust companies (regulated organizations), as well as New York-regulated non-depositories (other than New York regulated mortgage bankers, mortgage servicers, and limited purpose trust companies), including New York regulated money transmitters, licensed lenders, sales finance companies, premium finance agencies, and virtual currency companies (regulated non-depositories).” The letter outlines NYDFS’s expectations for regulated organizations, beginning with changing their governance frameworks, risk management processes, and business strategies to reflect the increasing financial risks of climate change. Regulated non-depositories are expected to conduct risk assessments that consider the “disruptive consequences of climate change” on their customers and in the communities they serve, and should start developing strategic plans to mitigate risk.

    NYDFS encourages institutions to take a “proportionate approach” that reflects the complexity of their business and exposure to financial risks. In addition, when developing their approach to climate-related financial risk disclosures, regulated organizations are also encouraged to consider engaging with the Task Force for Climate-related Financial Disclosures framework and other established initiatives. NYDFS’ press release further notes that it “is developing a strategy for integrating climate-related risks into its supervisory mandate and will engage with regulated organizations and regulated non-depositories, as well as work and coordinate with the Department’s U.S. and international counterparts, to develop effective supervisory practices, as well as guidance and best practices to mitigate the financial risks from climate change within the financial services industry.” 

    State Issues NYDFS State Regulators Climate-Related Financial Risks

  • OFAC sanctions entities for Iranian petrochemical sales

    Financial Crimes

    On October 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13846 against eight entities for their alleged “involvement in the sale and purchase of Iranian petrochemical products brokered by [a petrochemical company]. . .designated by Treasury in January 2020.” The designated entities—based in Iran, China, and Singapore—allegedly aided the petrochemical company’s efforts to process and move funds generated by the sale of these products, which were then used to finance the Iranian regime’s “destabilizing agenda of support to corrupt regimes and terrorist groups throughout the Middle East and, more recently, Venezuela.”

    In addition, OFAC also updated its List of Specially Designated Nationals and Blocked Persons to add additional aliases for an Iraq-based bank that was previously designated, among other things, for being “used by Iran’s Central Bank Governor to covertly funnel millions of dollars on behalf of the IRGC-QF to support Hizballah.”

    As a result, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked, and U.S. persons are also “generally prohibited from engaging in transactions with them.” OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated persons may subject them to sanctions that terminate their access to the U.S. financial system.

    Financial Crimes OFAC Department of Treasury Iran Sanctions Of Interest to Non-US Persons China

  • OFAC warns of sanctions risks for high-value artwork

    Financial Crimes

    On October 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued an art advisory highlighting characteristics and vulnerabilities in the high-value artwork market that pose sanctions risks. The advisory advises “art galleries, museums, private art collectors, auction companies, agents, brokers, and other participants in the art market” of the importance of maintaining risk-based compliance programs to mitigate exposure to sanctions-related violations. The advisory further emphasizes that the “Berman Amendment” to the International Emergency Economic Powers Act and the Trading with the Enemy Act “does not categorically exempt all dealings in artwork from OFAC regulation and enforcement.” According to OFAC, shell companies and intermediaries are often used to remit and receive payments for high-value artwork. The anonymity that these channels provide, OFAC cautions, allows blocked and other illicit persons to cloak their true identities and helps conceal prohibited conduct from law enforcement and regulators.

    The report references previously issued OFAC guidance and discusses a report issued by the U.S. Senate Permanent Subcommittee on Investigations in July (covered by InfoBytes here), which details findings from a two-year investigation related to how Russian oligarchs appear to have used the art industry to evade U.S. sanctions. According to the report, while the art industry is largely unregulated, and, unlike financial institutions, is not subject to the Bank Secrecy Act (BSA) and is not required to maintain anti-money laundering (AML) and anti-terrorism financing controls, sanctions imposed by OFAC do apply to the industry, and U.S. persons are not permitted to conduct business with sanctioned individuals or entities.

    Financial Crimes OFAC Department of Treasury Sanctions Russia Of Interest to Non-US Persons

  • SEC issues two separate whistleblower awards totaling over $38 million

    Securities

    On November 3, the SEC announced a more than $28 million whistleblower award in connection with a successful enforcement action. According to the redacted order, the whistleblower (i) first reported the information internally, which prompted an internal investigation; (ii) saved the SEC time and resources; and (iii) assisted the SEC with testimony and provided identification of a key witness.

    Earlier on October 29, the SEC announced an award of over $10 million to a whistleblower in connection with a successful enforcement action prompted and aided by the whistleblower. The SEC notes that the individual provided “substantial ongoing assistance to [the] SEC,” including “more than a dozen communications with the staff” that helped the SEC “decipher communications, and distill[] complex issues.” According to the redacted order, the individual first raised concerns about the conduct internally, but “after determining the [c]ompany would not remedy the problem,” the individual brought the information to the SEC. The SEC denied two other claimants related to the enforcement action, concluding that the other claimants were not eligible for the award because either (i) the information was not used in and had no impact on the enforcement action; or (ii) there was no record of communications with the claimant and the agency.

    The SEC has now paid approximately $715 million to 110 individuals since the inception of the program.

    Securities SEC Whistleblower Enforcement

  • District Court: National bank agrees to obtain customer consent before Covid-19 forbearance placement

    Courts

    On November 2, the U.S. District Court for the Western District of Virginia entered an agreed order resolving a class of homeowners’ motion for preliminary injunction. The national bank defendant voluntarily agreed it will not place mortgages into Covid-19-related forbearance plans unless a customer or their authorized representative has made the request. The agreed order will remain in place until the court enters either a superseding order or a final judgment in the matter. In addition to not activating Covid-19 forbearances without customer permission, the bank has also agreed to stop extending forbearances for any mortgage customers beyond the originally disclosed terms unless an extension has been requested, or a customer or their authorized representative has failed to respond to attempts made by the bank to determine whether the customer would like to extend the forbearance. At issue are allegations made by the plaintiffs that the bank, among other things, “unilaterally” placed their mortgages into CARES Act forbearance without their consent which negatively impacted their credit reports. The agreement notes that nothing in the order prohibits the bank “from delaying or deferring enforcement of any noteholder’s rights and remedies under the applicable mortgage loan documents,” and that, moreover, the agreement does not concede any disputed issue related to the pending preliminary injunction motion or the plaintiffs’ complaint.

    Courts Covid-19 Mortgages Forbearance CARES Act

  • CFPB finalizes certain debt collection rules

    Agency Rule-Making & Guidance

    On October 30, the CFPB issued (along with blog post from Director Kraninger) its final rule amending Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA), addressing debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The final rule does not include several significant provisions from the proposed rule, including those related to consumer disclosures.  The Bureau states a second “disclosure-focused” final rule will be released in December 2020. This final rule is expected to address the model debt validation notice and time-barred debt disclosures previously proposed by the Bureau. As previously covered by InfoBytes (here and here) the Bureau issued the proposed rule in May 2019 and a supplemental proposed rule in February 2020, addressing time-barred debt disclosures. The final rule is effective November 30, 2021.

    Among other things, the final rule: (i) prohibits a debt collector from calling a consumer about a particular debt more than seven times within seven consecutive days or within seven consecutive days of having had a telephone conversation; (ii) allows consumers to set preferences with debt collectors on certain communications, including communications with third parties and allowing consumers a reasonable way to opt-out of electronic communications; and (iii) clarifies that the FDCPA’s prohibition on harassing, oppressive, or abusive conduct applies to email and text messages. Additionally, the final rule also contains the procedures for state application for exemption from the provisions of the FDCPA.

    Agency Rule-Making & Guidance CFPB FDCPA Regulation F Debt Collection

  • Fed lowers Main Street Lending Program minimum loan size

    Federal Issues

    On October 30, the Federal Reserve Board (Fed) announced an adjustment to the terms of the Main Street Lending Program (MSLP) in order to expand support to smaller businesses during the Covid-19 pandemic. Specifically, the Fed reduced the minimum loan size for the three Main Street facilities from $250,000 to $100,000 and adjusted the associated fees.

    Additionally, the Fed and the U.S. Department of Treasury issued an FAQ clarifying that up to $2 million of Paycheck Protection Program (PPP) loans may be excluded for purposes of determining the maximum loan size under the MSLP. If a borrower has applied for forgiveness, the amount that is eligible for forgiveness may be excluded from the “existing outstanding and undrawn available debt” calculation under the MSLP program. If the borrower has not yet applied for forgiveness, the amount to be excluded from the calculation is the amount that “its principal executive officer has a reasonable, good-faith basis to believe will be forgiven in accordance with applicable PPP requirements.”

    Federal Issues Covid-19 Federal Reserve Department of Treasury SBA

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