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  • OFAC sanctions entities for providing support to Iranian petrochemical company

    Financial Crimes

    On September 3, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated six entities, pursuant to Executive Order 13846, for allegedly providing support to a petrochemical company previously designated for “transfer[ing] the equivalent of hundreds of millions of dollars’ worth of exports from the National Iranian Oil Company (NIOC), which helps to finance Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and its terrorist proxies.” According to OFAC, the designated entities “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” the sanctioned petrochemical company by, among other things, (i) selling and purchasing thousands of tons of petrochemicals on behalf of the company; (ii) brokering the sales of petrochemicals for the company; (iii) facilitating the shipment and resale of petrochemical products for the company; and (iv) processing millions of dollars in proceeds of petrochemical sales.

    As a result of the sanctions, all property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated entities may subject them to sanctions and could sever access to the U.S. financial system.

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

  • California DBO investigates auto title lender over out-of-state bank partnership

    State Issues

    On September 3, the California Department of Business Oversight (CDBO) announced a formal investigation into a California auto title lender to determine whether the lender is evading state interest rate caps through a recent partnership with a Utah-based bank. The California Fair Access to Credit Act—enacted in 2019—caps annual simple interest rates on loans between $2,500 and $10,000 made by state-licensed lenders at around 36 percent (covered by InfoBytes here). The CDBO asserts that prior to the new interest rate caps taking effect, the auto title lender frequently made loans carrying interest rates in excess of 100 percent. Rather than reducing its interest rates to comply with the new law, the lender “stopped making state-licensed auto title loans in California,” and instead used “its existing lending operations and personnel” to market and service auto title loans purportedly made by the Utah-based bank. These loans, the CDBO claims, still carry interest rates greater than 90 percent, but because the Utah-based bank is not regulated or supervised by the CDBO it is not subject to the interest rate caps when lending in California. According to the CDBO, its investigation is intended to find out whether the auto title lender’s “role in the arrangement is so extensive as to require compliance with California’s lending laws” and if the arrangement is a “direct effort to evade the Fair Access to Credit Act,” which CDBO contends would be illegal.

    State Issues California CDBO State Regulators Auto Finance True Lender

  • NYDFS issues guidance on mortgage registration fees

    State Issues

    On September 1, NYDFS issued guidance to regulated mortgage lenders and servicers clarifying that mortgagees cannot charge registration fees imposed by municipalities when a mortgage defaults to mortgagors’ accounts. The guidance reminds mortgagees that the state’s mortgage servicing regulation, 3 NYCRR Part 419, allows mortgagees to collect only certain types of fees from a mortgagor, consisting of “attorney’s fees, late and delinquency fees, property valuation fees, and fees for services actually rendered to a mortgagor when such fees are reasonably related to the cost of rendering the service to the borrower.” NYDFS asserts that municipality-required default registration fees do not fall under the specified list and therefore cannot be charged to a mortgagor. The guidance instructs mortgagees to refund any such fees that have been collected, or to reverse any such fees that have been charged to accounts. Moreover, the guidance directs mortgagees to create a log of any registration fee charges and their subsequent corrections for inspection during their next NYDFS examination.

    State Issues NYDFS State Regulators Mortgages Default

  • FTC settles with auto dealers for falsifying consumer financial documents

    Federal Issues

    On September 4, the FTC announced a settlement with group of auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the defendants advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes in August 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.”

    The court-approved settlement requires the defendants to cease all business operations and includes a monetary judgment of over $7 million. Because the defendants are currently in Chapter 7 bankruptcy proceedings, the settlement will make the FTC an unsecured claimant in the bankruptcy proceedings. The settlement also prohibits the bankruptcy trustee from using or selling the consumer information obtained from the defendants’ business activities as part of the bankruptcy liquidation.

    Federal Issues Consumer Finance FTC Auto Finance FTC Act TILA Consumer Leasing Act Bankruptcy

  • FHA issues underwriting guidelines on prior forbearances

    Federal Issues

    On September 10, FHA released Mortgagee Letter 2020-30, which discusses FHA’s underwriting guidelines for mortgages involving borrowers who were previously granted a forbearance. The letter notes that FHA is “expanding its underwriting guidelines” to address situations in which borrowers are seeking new FHA insured financing after being granted a forbearance, due to either a Presidentially Declared major disaster or some other hardship, including the Covid-19 pandemic. The letter specifies that a borrower will be eligible for a new FHA insured mortgage after being granted a forbearance if, among other things, (i) the borrower continued to make regularly scheduled payments and the forbearance plan is terminated; or (ii) for cash-out refinances, the borrower has completed the forbearance and has subsequently made 12 consecutive monthly payments; or (iii) for purchases and no cash-out refinances, the borrower has completed the forbearance and has subsequently made at least three consecutive monthly payments; or (iv) for “Credit Qualifying Streamline” refinances, the borrower has completed the forbearance and has subsequently made less than three consecutive monthly payments; and (v) for all “Streamline refinance” transactions, the borrower has made at least six payments on the FHA insured mortgage being refinanced.

    FHA requires the new underwriting guidelines be implemented for all case numbers assigned on or after November 9.

    Federal Issues Covid-19 FHA Disaster Relief Mortgages Refinance Forbearance

  • DOJ official discusses PPP fraud enforcement

    Federal Issues

    On September 10, in remarks at the Paycheck Protection Program (PPP) Criminal Fraud Enforcement Action press conference, Acting Assistant Attorney General Brian Rabbitt provided an overview of recent PPP enforcement actions and noted that “[m]any financial institutions have been strong partners” in assisting the DOJ with “detecting and investigating potentially fraudulent activity in connection with the PPP.” In addition to partnerships with private institutions, Rabbitt emphasized the agency’s data analytics capabilities as a key component in their ability to bring PPP fraud cases quickly—within six months, the DOJ has charged 57 defendants in at least 19 federal judicial districts. Moreover, Rabbitt discussed commonalities among the cases, including the “defendants’ use of their stolen PPP funds for entirely illegitimate purposes” having nothing to do with the intended relief. In total, according to the DOJ, the current charges against the 57 defendants “involve attempts to steal over $175 million from the PPP” and over $70 million in “actual losses to the federal government.”

    Federal Issues DOJ Covid-19 SBA Fraud Enforcement Financial Crimes

  • Special Alert: California’s new consumer financial protection law expands UDAAP and enforcement authority

    State Issues

    On Monday, August 31, the California Legislature passed Assembly Bill 1864, which enacts the California Consumer Financial Protection Law (CCFPL) and changes the name of the Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI).

    Key takeaways

    • Establishes UDAAP authority for the new DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act. The DFPI also has authority to define UDAAPs in connection with the offering or provision of commercial financing (e.g., merchant cash advance, lease financing, factoring) and other financial products or services to small business recipients, nonprofits, and family farms.

    State Issues State Legislation CDBO UDAAP Consumer Finance Consumer Protection Special Alerts Merchant Cash Advance

  • Court allows certain auto loan claims to proceed

    Courts

    On September 1, the U.S. District Court for the Central District of California determined that certain claims could proceed in a suit alleging a national bank failed to properly refund payments made pursuant to guaranteed asset protection (GAP) waiver agreements entered into in connection with auto loans. According to the plaintiffs’ suit, the bank knowingly collected unearned fees for GAP Waivers and “concealed its obligation to issue a refund on the GAP Waiver fees for the portion of the GAP Waiver’s initial coverage that was cut short by early payoff, and denied any obligation to return the unearned GAP fees.” The bank sought dismissal of the suit, arguing, among other things, that—with the exception of one consumer’s claims—all of the plaintiffs’ contracts include “a condition precedent under which the [p]laintiffs must first submit a written refund request for unearned GAP fees before being entitled to a refund,” which condition was not fulfilled.

    The court dismissed breach of contract claims brought by eight of the 11 plaintiffs, noting that seven of these plaintiffs were not excused from complying with the condition precedent in their contracts with the bank, and had not pled sufficient facts to allege compliance; the court held that the eighth plaintiff’s claim was barred by the statute of limitations. The court allowed the breach of contract claims filed by two plaintiffs whose contracts did not contain condition precedent language to proceed, and allowed the final plaintiff’s breach of contract claim to proceed because the bank did not move to dismiss such. The court kept the declaratory judgment requests intact for the three plaintiffs whose contract claims were allowed to proceed, but determined such plaintiffs could not assert standing under laws of states where they do not reside and did not receive an injury. Further, the court granted the bank’s request to dismiss TILA claims—noting that the statute does not apply to indirect auto lenders like the bank—and tossed claims brought under California’s Unfair Competition Law.

    The bank also asked the court to strike the six class action claims included in the plaintiffs’ first amended complaint. However, the court denied the bank’s request to strike the plaintiffs’ nationwide class allegations calling it premature. “Deciding whether the alleged classes can be maintained is properly done on a motion for class certification because at that point ‘the parties have had an opportunity to conduct class discovery and develop a record,’” the court noted.

    Courts GAP Waivers Auto Finance Consumer Finance State Issues Class Action

  • OCC updates OREO booklet

    Federal Issues

    On September 2, the OCC issued Bulletin 2020-79 announcing the revision of the “Other Real Estate Owned” booklet of the Comptroller’s Handbook. Among other clarifying and technical changes the revised booklet reflects changes to the holding period requirements for federal savings associations under 12 CFR 34, subpart E. Additionally, the booklet has been updated to reflect changes to other regulations and other OCC issuances that have been published since the booklet was last updated in August 2018.

    Federal Issues OCC Comptroller's Handbook

  • FTC seeks $10 million settlement for negative option billing

    Federal Issues

    On September 2, the FTC announced a proposed $10 million settlement with an online education company, resolving allegations the company engaged in negative option marketing and deceptive billing practices in violation of the FTC Act and the Restore Online Shoppers’ Confidence Act. According to the complaint, filed by the FTC in the U.S. District Court for the Central District of California, from 2015 through at least 2018, the company “failed to adequately disclose key terms of memberships to access online education content for children.” Specifically, the company failed to disclose that memberships automatically renewed indefinitely and kept the “ongoing nature of these term memberships only in separately hyperlinked terms and conditions,” with the automatic renewal “buried” in “dense text, in small font and in single-spaced type.” Moreover, the company allegedly created a difficult cancelation process, notwithstanding the promise of “easy cancellation” written in “bold, red text.”

    Under the proposed settlement, the FTC is seeking $10 million in monetary relief and seeks to ban the company from making negative option misrepresentations. Additionally, the proposal would require the company to, among other things, clearly disclose terms of membership and obtain consumers’ informed consent before enrolling them in an automatic billing program.

    Federal Issues FTC FTC Act ROSCA Disclosures Negative Option

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