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OFAC announces Hong Kong-related designations
On December 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added 14 Chinese citizens to the Specially Designated Nationals List. The individuals were designated under Executive Order (E.O.) 13936, which was issued by President Trump in July and, among other things, targets and authorizes the imposition of sanctions on persons who materially assist, sponsor, or provide financial, material, or technological support to activities contributing to the undermining of Hong Kong’s democracy and autonomy. Additionally, E.O. 13936 states that “[a]ll property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, . . .are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in” with any foreign person identified to have engaged in the aforementioned activities.
Treasury submits Hong Kong Autonomy Act report to Congress
On December 11, the U.S. Treasury Department released a report submitted to Congress pursuant to Section 5(b) of the Hong Kong Autonomy Act (the Act), which was enacted on July 14. The Act requires that the Secretary of State submit to Congress a report (Section 5(a) Report) that includes (i) “an identification of the foreign person”; and (ii) “a clear explanation for why the foreign person was identified and a description of the activity that resulted in the identification.” The Secretary submitted the Section 5(a) Report on October 14, which identified 11 foreign persons that OFAC designated pursuant to Executive Order 13936 on August 7. The Act requires Treasury to submit the Section 5(b) report between 30 and 60 days of the Section 5(a) submission, detailing any foreign financial institution (FFI) that knowingly conducts a significant transaction with a foreign person identified by the Secretary in the Section 5(a) Report. The 5(b) Report notes that Treasury has no information on any FFIs that have conducted significant transactions with the designated foreign persons, after conducting “regular searches of all available sources of information, including classified and unclassified holdings.” Treasury notes that it will continue to monitor for new activity that meets the criteria and engage with foreign governments and FFIs to ensure they “they understand the reporting requirements and sanctions risks under the [the Act].”
Maryland extends restrictions on repossessions and residential foreclosures
On December 17, 2020, the governor of Maryland issued an executive order that further prohibits certain repossessions, suspends foreclosures of occupied residential property absent adherence to specific procedural protections, including those provided by the federal CARES Act. The foreclosure suspension is in effect until the “re-start date,” which is either (1) January 31, 2021, or (2) such later date as established by the commissioner of financial regulation, not to be more than 30 days after the state of emergency is terminated.
Fed will maintain federal funds rates due to Covid-19 effects
On December 16, the Federal Reserve Board stated it intends to keep the target range for the federal funds rate at zero to 0.25 percent until the unemployment rate lowers and inflation has risen to two percent steadily. While the Board notes that “[o]verall financial conditions remain accommodative,” and “[e]conomic activity and employment have continued to recover,” the Covid-19 pandemic has still caused tremendous economic hardship that has left overall economic levels “well below their levels at the beginning of the year.” According to the Board, the Federal Open Market Committee (FOMC) is seeking to achieve maximum employment and inflation at the rate of two percent over the longer run before adjusting the current monetary policy. Additionally, the Board notes that it will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month. FOMC will monitor the economic outlook and is prepared “to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
Fed extends temporary repurchase agreement facility through September 2021
On December 16, the Federal Reserve Board announced extensions of its temporary U.S. dollar liquidity swap lines, as well as the temporary repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility), through September 31, 2021. As previously covered by InfoBytes, the FIMA Repo Facility was established in March in response to the Covid-19 pandemic to allow central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York to enter into repurchase agreements with the Federal Reserve to temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. While the FIMA Repo Facility was originally extended through March 31, 2021 (covered by InfoBytes here), the Board states that a “further extension . . . will help sustain recent improvements in global U.S. dollar funding markets by serving as an important liquidity backstop.”
Minnesota regulator issues telework guidance
On December 15, the Minnesota Commerce Department issued guidance regarding non-depository financial institution telework. The guidance provides that if the licensed location is still offering financial products or services, employees can work from home to perform tasks as long as the following are met: (i) transactions are tied to the licensed/registered location; (ii) consumers are not physically going to an unlicensed location (e.g., employee’s home); (iii) no physical records are maintained at the unlicensed location; and (iv) the employee is able to maintain the company’s data security policies and standards while working remotely.
Court: Lender does not owe PPP fees to law firm
On December 15, the U.S. District Court for the District of Arizona issued an order dismissing an action against a California bank over whether a law firm is entitled to a portion of the fees paid by the Small Business Administration (SBA) to lenders making loans under the Paycheck Protection Program (PPP). According to the order, the law firm argued that it assisted a borrower in applying for a PPP loan from the bank and was therefore entitled to collect an agent fee. The court was unpersuaded and dismissed the action, concluding that the CARES Act—which created the PPP—“undermines, rather than supports” the law firm’s position. While “the statute affirmatively obligates the SBA Administrator to pay processing fees to lenders that make PPP loans,” it “does not create an affirmative obligation on the part of the SBA Administrator, or anybody else, to pay a fee to agents who assist borrowers in applying for PPP loans,” the court ruled. Instead, the statute “‘merely establishes that there can be a ceiling on the amount of such fees if they are collected.’” The court’s decision follows rulings issued by other federal courts, which have also dismissed similar agent fee actions (covered by InfoBytes here, here, and here). The order states that to date, every court that has addressed this question has concluded that PPP lenders do not have a mandatory obligation to pay fees to agents assisting borrowers with their PPP loan applications.
FinCEN clarifies financial crime information sharing program
On December 10, FinCEN Director Kenneth A. Blanco spoke at the Financial Crimes Enforcement Conference hosted by the American Bankers Association and American Bar Association to discuss the importance of information sharing in identifying, reporting, and preventing financial crime. Specifically, Blanco addressed recently updated guidance designed to provide additional clarity on FinCEN’s information sharing program under Section 314(b) of the USA PATRIOT Act, which provides financial institutions “the ability to share information with one another, under a safe harbor provision that offers protections from civil liability, in order to better identify and report potential money laundering or terrorist financing.”
FinCEN provided three main clarifications:
- While financial institutions may share information about suspected terrorist financing or money laundering, they “do not need to have specific information that these activities directly relate to proceeds of [a specified unlawful activity (SUA)], or to have identified specific laundered proceeds of an SUA.” FinCEN also stated that a conclusive determination that an activity is suspicious does not need to be made in order for a financial institution to benefit from the statutory safe harbor. Furthermore, information may be shared “even if the activities do not constitute a ‘transaction,’” such as “an attempted transaction, or an attempt to induce others engage in a transaction.” FinCEN added that there is no limitation under Section 314(b) on the sharing of personally identifiable information and no restrictions on the type of information shared or how the information can be shared, including verbally.
- “An entity that is not itself a financial institution under the Bank Secrecy Act [(BSA)] may form and operate an association of financial institutions whose members share information under Section 314(b),” FinCEN noted, adding that this includes compliance service providers.
- An unincorporated association of financial institutions governed by a contract between its members “may engage in information sharing under Section 314(b).”
In prepared remarks, Blanco reiterated, among other things, that companies should be specific in describing the activity they see in their suspicious activity reports (SAR), and discussed FinCEN’s Advance Notice of Proposed Rulemaking issued in September (covered by InfoBytes here), which solicited comments on questions concerning potential regulatory amendments under the BSA. Blanco also highlighted recent FinCEN’s advisories and guidance related to Covid-19 fraud (covered by InfoBytes here, here, and here) and encouraged the audience to review the agency’s dedicated Covid-19 webpage.
Court denies arbitration bid in tribal loan usury action
On December 10, the U.S. District Court for the Middle District of Florida denied a motion to compel arbitration filed by a collection company and its chief operations officer (collectively, “defendants”), ruling that the arbitration agreements are “unconscionable” and therefore “unenforceable” because of the conditions under which borrowers agreed to arbitrate their claims. According to the order, the plaintiffs received lines of credit from an online lending company purportedly owned by a federally recognized Louisiana tribe. After defaulting on their payments, the defendants purchased the past-due accounts and commenced collection efforts. The plaintiffs sued, alleging the defendants’ collection efforts violated the FDCPA and Florida’s Consumer Collection Practices Act (FCCPA) because the defendants knew the loans they were trying to collect were usurious and unenforceable under Florida law. The defendants moved to compel arbitration based on the arbitration agreement in the tribal lender’s line-of-credit agreement, and filed—in the alternative—motions for judgment on the pleadings.
The court ruled, among other things, that while the plaintiffs agreed to arbitrate all disputes when they took out their online payday loans, the “proposed arbitration proceeding strips Plaintiffs of the ability to vindicate any of their substantive state-law claims or rights,” and that, moreover, “the setup is a scheme to hide behind tribal immunity and commit illegal usury in violation of Florida and Louisiana law.” The court also granted in part and denied in part the defendants’ motions for judgment on the pleadings. First, in denying in part, the court ruled that because the “tribal choice-of-law provision in the [tribal lender’s] account terms is invalid,” the plaintiffs’ accounts are subject to Florida law. Therefore, because Florida law is applicable to the plaintiffs’ accounts, they present valid causes of action under the FDCPA and FCCPA. The court, however, ruled that the plaintiffs seemed to “conflate Defendants’ communications to facilitate the collection of the outstanding debts with a communication demanding payment,” pointing out that FDCPA Section 1692c(b) only punishes that latter, which “does not include communications to a third-party collection agency.”
Agencies provide no-action relief to facilitate transfers of certain legacy swaps
On December 11, the Federal Reserve Board and the OCC issued a joint statement addressing the ability of a covered swap entity to service cross-border clients. (See also OCC Bulletin 2020-108.) As previously covered by InfoBytes, the Fed, OCC, FDIC, FHFA, and Farm Credit Administration adopted an interim final rule (IFR) in 2019 to amend the Swap Margin Rule to assist covered swap entities preparing for the United Kingdom’s withdrawal from the European Union. The IFR addresses the situation where the withdrawal occurs without a negotiated agreement and entities located in the UK transfer existing swap portfolios that face counterparties located in the EU over to affiliates located in the US or the EU. Specifically, the IFR provides that certain swaps under this situation will not lose their “legacy” status—will not trigger the application of the Swap Margin Rule—if carried out in accordance with the conditions of the rule. The OCC notes that the absence of an agreement between the UK and the EU that addresses passporting rights (defined in the joint statement as the “EU’s system of cross-border authorizations to engage in regulated financial entities) would result in UK entities losing the ability to continue servicing their EU clients when the transition period expires.
The joint statement explains that the Fed and OCC “will not recommend that their respective agencies take action if a covered swap entity is a party to a legacy swap that was amended under [certain] conditions.” The no-action relief is applicable to the transfer of legacy swaps completed by the later of January 1, 2022, or one year after the expiration of EU passporting rights, unless amended, extended, terminated, or superseded, and is intended “to provide certainty to covered swap entities currently operating in the affected jurisdictions as to the legacy status of transferred swaps in light of the uncertainty regarding whether the EU will agree to a free trade agreement granting UK companies passporting rights related to financial services.”