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Fed targets flood insurance violations
On November 10, the Federal Reserve Board (Fed) announced an enforcement action against an Arkansas-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $12,000 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
SEC issues two separate whistleblower awards totaling over $4.3 million
On November 5, the SEC announced two separate whistleblower awards totaling over $4.3 million. According to the first redacted order, the SEC awarded a whistleblower more than $3.6 million for (i) providing information that alerted enforcement staff to misconduct occurring abroad that would otherwise “have been difficult to detect”; (ii) providing “substantial and ongoing assistance” to enforcement staff, including traveling to another country to meet with staff in person at the whistleblower’s own expense and providing “extensive supporting documentation”; and (iii) suffering hardships due to the whistleblowing. The SEC further noted in the order that while the whistleblower’s “ministerial role in the underlying misconduct” was considered, the Commission did not reduce the award for culpability as the whistleblower “took exceptional steps to report the misconduct from abroad and provided extraordinary assistance.”
In the second redacted order, the SEC awarded $750,000 to a whistleblower for providing significant information that led to a successful enforcement action. According to the SEC, while the covered action was already open when the whistleblower provided the original information, the whistleblower’s information caused enforcement staff to investigate different conduct, which ultimately formed the basis for the covered action. The whistleblower also met with Commission staff in person and explained “the likely mechanics of the fraudulent scheme.”
The SEC has now paid approximately $719 million to 112 individuals since the inception of the program.
FinCEN updates FATF-identified jurisdictions with AML/CFT deficiencies
On November 6, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to inform financial institutions of updates to the Financial Action Task Force (FATF)-identified jurisdictions with “strategic deficiencies” in their anti-money laundering and combating the financing of terrorism (AML/CFT) and counter-proliferation financing deficiencies. The advisory notes that in response to the Covid-19 pandemic, FATF gave identified-jurisdictions the option to report their progress at the October 2020 meetings or defer reporting, leaving their February statements in place. Additionally, the advisory reminds members that its February 2020 statement High-Risk Jurisdictions Subject to a Call for Action remains in effect and urges “all jurisdictions to impose countermeasures on Iran and the Democratic People’s Republic of Korea (DPRK) to protect the international financial system from significant strategic deficiencies in their AML/CFT regimes.” The advisory also notes that FATF updated its Jurisdictions under Increased Monitoring document, removing Iceland and Mongolia. The advisory also outlines AML program risk assessment considerations, as well as suspicious activity report filing guidance.
OFAC sanctions Lebanese government official for corruption
On November 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against an individual for being a current or former high-level government official responsible for allegedly being “at the forefront of corruption in Lebanon.” According to OFAC, the sanctioned individual was involved in several projects that “steered Lebanese government funds to individuals close to him through a group of front companies” while serving as Minister of Energy. OFAC also designated the individual “for being a current or former government official, or a person acting for or on behalf of such an official, who is responsible for or complicit in, or who has directly or indirectly engaged in corruption, including the misappropriation of state assets, the expropriation of private assets for personal gain, corruption related to government contracts or the extraction of natural resources, or bribery.” As a result of the sanctions, all property and interests in property of the individual, “and of any entities that are owned, directly or indirectly, 50 percent or more by him, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons, are blocked and must be reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated individual, including “the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person.”
FinCEN renews GTOs covering 12 metropolitan areas
On November 5, the Financial Crimes Enforcement Network (FinCEN) reissued the renewal of its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in the 12 major metropolitan areas covered by the orders. The renewed GTOs are identical to the May 2020 GTOs (covered by InfoBytes here). The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the covered areas. The GTOs do not require reporting for purchases made by legal entities that are U.S. publicly-traded companies.
The renewed GTOs take effect November 5, will extend until May 4, 2021, and cover certain counties within the following areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
FinCEN FAQs regarding GTOs are available here.
2nd Circuit: Payment demand in debt collection letter overshadows validation notice
On November 5, the U.S. Court of Appeals for the Second Circuit reversed a district court’s dismissal of an FDCPA action, concluding that warnings in a defendant’s debt collection letter “could have created the misimpression that immediate payment is the consumer’s only means of avoiding a parade of collateral consequences, thereby overshadowing the consumer’s validation rights.” The defendant sent a debt collection letter to the consumer warning that it was instructed to commence litigation in order to collect a debt. The plaintiff was told he could avoid consequences such as paying attorneys’ fees if he made a payment or made suitable payment arrangements. The letter also contained a validation notice, which apprised the plaintiff of his right to dispute the debt within 30 days. The plaintiff filed a complaint alleging the letter violated the FDCPA because it included language that overshadowed the required disclosure of his right to demand that the debt be validated. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to adequately allege an FDCPA violation based on either (i) “the interaction between the letter’s payment demands and its validation notice,” or (ii) the letter’s statement that the plaintiff may be liable for attorneys’ fees in the event of litigation.
On appeal, the 2nd Circuit disagreed with the district court’s conclusions, holding that the complaint stated an FDCPA violation because, among other things, the letter’s payment demand overshadowed its validation notice. The appellate court found that the complaint also adequately stated an FDCPA violation based on the letter’s statements that the plaintiff “may be liable for attorneys’ fees where no such fees could be recovered.” Furthermore, the appellate court determined that the defendant’s introduction of an unsigned form contract supporting its claim to attorneys’ fees “at most raises a factual dispute about whether [the plaintiff] ever signed a contract providing for attorneys’ fees,” and concluded that this factual dispute should not have been resolved at the motion to dismiss stage.
OCC addresses CRA provisions and FAQs
On November 9, the OCC released Bulletin 2020-99, which discusses key provisions of the June 2020 Community Reinvestment Act (CRA) Rule and includes FAQs. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. The final rule was technically effective on October 1, but the final rule provides for at least a 27-month transition period for compliance based on a bank’s size and business model. Large banks and wholesale and limited purpose banks will have until January 1, 2023 to comply, and small and intermediate banks that opt-in to the final rule’s performance standards will have until January 1, 2024. The Bulletin details the key provisions of the final rule, including the (i) new criteria for designating bank assessment areas, and (ii) varying performance standards by bank type. The Bulletin’s FAQs cover a range of topics including (i) the transition period; (ii) qualifying activities; (iii) activities outside bank assessment areas; (iv) examination administration; and (v) data collection and reporting.
The Bulletin notes that the OCC is conducting outreach to provide banks with more information regarding how the agency will administer the transition to the final rule. Additionally, the Bulletin notes the OCC will issue guidance addressing how the July 2016 Interagency Questions and Answers Regarding Community Reinvestment will apply to activities conducted under the final rule.
Lastly, the Bulletin rescinds OCC Bulletin 2020-3, “Community Reinvestment Act: Notice of Proposed Rulemaking,” and OCC Bulletin 2020-4, “Community Reinvestment Act: Request for Public Input.”
OCC’s Director’s Toolkit updates corporate governance responsibilities
On November 5, the OCC released updates to its Director’s Toolkit to assist directors of national banks and federal savings associations fulfill their corporate governance responsibilities. (See also OCC Bulletin 2020-97.) The revised Director’s Book: Role of Directors for National Banks and Federal Savings Associations (Director’s Book), as well as the new Director’s Reference Guide to Board Reports and Information (Director’s Reference Guide), replace and rescind previously issued OCC publications. In addition to including revisions from the “Corporate and Risk Governance” booklet of the Comptroller’s Handbook (covered by InfoBytes here), the Director’s Book also (i) provides an overview of the agency; (ii) outlines responsibilities for directors as well as management’s role; (iii) “explains basic concepts and standards for safe and sound operation of banks”; and (iv) “delineates laws and regulations that apply to banks.” The Director’s Reference Guide focuses on key areas related to planning, operations, and risk management, and is structured to “provide examples of sources of information, measures, questions to consider, red flags, and references to directors.” The OCC notes that the “types, amount, and frequency of information that directors should receive to effectively perform their duties vary at each bank and continually evolve.”
Agencies issue joint statement on LIBOR transition
On November 6, the OCC, the Federal Reserve Board, and the FDIC issued a statement reiterating that the agencies do not intend to recommend a specific credit-sensitive rate for use in place of LIBOR. The agencies recommend that financial institutions “use any reference rate for its loans that the bank determines to be appropriate for its funding model and customer needs” and emphasize the need for fallback language in lending contracts that provide for the “use of a robust fallback rate if the initial reference rate is discontinued.” The agencies note that examiners will not criticize banks solely regarding their choice of reference rate, including a credit-sensitive rate other than Secured Overnight Financing Rate (SOFR) (the rate recommended by the Alternative Reference Rates Committee). Additionally, the agencies encourage financial institutions to reach out to lending customers to ensure they are prepared for the transition and to consider any technical changes to internal systems that might be needed to accommodate a new reference rate.
As previously covered by InfoBytes, in July, the member agencies of the Federal Financial Institutions Examinations Council (FFIEC) issued a joint statement highlighting several risks that will result from the anticipated cessation of LIBOR at the end of 2021 and discussing the supervisory impacts of the LIBOR transition.
CFPB reports on debt trends for young veterans leaving service
On November 9, the CFPB released a report highlighting credit record trends for young enlisted servicemembers during the first year after separation. According to the CFPB, a large number of these servicemembers become delinquent on debt payments or have severe derogatories appear on their credit records around the time they leave active duty. The report analyzes a sample of 10,872 servicemembers and finds that, for servicemembers who serve at least 7 months, “delinquencies and defaults are between two and 10 times more like to appear on a credit record in the six months after separation as compared to the six months before.” In addition, servicemembers who have negative outcomes show declines in their credit scores just after separation, with recovery not occurring until at least one year after leaving the military. Credit score declines are most severe for those who serve between 7 and 35 months as well as “for those who exit with a Near prime credit score or below, as opposed to a Prime score or better.” Among other things, the report focuses on several categories of young veterans and identifies the following three types of credit accounts to be the most likely sources of delinquencies and defaults: auto loans, credit cards, and personal or retail installment loans. The report also addresses several credit outcomes: credit scores, third-party collections debt (medical and non-medical debt), 90-day delinquencies, and severe derogatory outcomes. While the report’s data does not specifically indicate reasons for a servicemember’s separation, the Bureau reports that part of the cause may be attributed to financial difficulties, and that assisting servicemembers make better financial decisions may increase retention for service branches.