InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB issues Summer 2020 Supervisory Highlights
On September 4, the CFPB released its summer 2020 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of consumer reporting, debt collection, deposits, fair lending, mortgage servicing, and payday lending. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between September and December of 2019. Highlights of the examination findings include:
- Consumer Reporting. The Bureau cited violations of the FCRA’s requirement that lenders first establish a permissible purpose before they obtain a consumer credit report. Additionally, the report notes instances where furnishers failed to review account information and other documentation provided by consumers during direct and indirect disputes. The Bureau notes that “[i]nadequate staffing and high daily dispute resolution requirements contributed to the furnishers’ failure to conduct reasonable investigations.”
- Debt Collection. The report states that examiners found one or more debt collectors (i) falsely threatened consumers with illegal lawsuits; (ii) falsely implied that debts would be reported to credit reporting agencies (CRA); and (iii) falsely represented that they operated or were employed by a CRA.
- Deposits. The Bureau discusses violations related to Regulation E and Regulation DD, including requiring waivers of consumers’ error resolution and stop payment rights and failing to fulfill advertised bonus offers.
- Fair Lending. The report notes instances where examiners cited violations of ECOA, including intentionally redlining majority-minority neighborhoods and failing to consider public assistance income when determining a borrower’s eligibility for mortgage modification programs.
- Mortgage Servicing. The Bureau cited violations of Regulation Z and Regulation X, including (i) failing to provide periodic statements to consumers in bankruptcy; (ii) charging forced-placed insurance without a reasonable basis; and (iii) various errors after servicing transfers.
- Payday Lending. The report discusses violations of the Consumer Financial Protection Act for payday lenders, including (i) falsely representing that they would not run a credit check; (ii) falsely threatening lien placement or asset seizure; and (iii) failing to provide required advertising disclosures.
The report also highlights the Bureau’s recently issued rules and guidance, including the various responses to the CARES Act and the Covid-19 pandemic.
Agencies give guidance on working with borrowers affected by hurricane, wildfires
On September 1, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors (CSBS) issued a joint statement covering supervisory practices for financial institutions affected by Hurricane Laura and the California wildfires. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas.
Additionally, HUD announced it will make disaster assistance available to Louisiana, which will provide foreclosure relief and other assistance to homeowners living in parishes affected by Hurricane Laura. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.
CFPB gives details on e-disclosure tech sprint
On September 1, the CFPB issued new details on its first Tech Sprint, which will cover innovative approaches to adverse action e-disclosures. As previously covered by InfoBytes, the CFPB announced in September 2019 its intention to use Tech Sprints—which had been used by the U.K.’s Financial Conduct Authority seven times since 2016 and resulted in a pilot project on digital regulatory reporting—to encourage regulatory innovation and requested comments from stakeholders on the plan.
The adverse action e-disclosure Tech Sprint will be held October 5-9, 2020 and will ask participating teams to focus on three goals to improve the notices: accuracy, anti-discrimination, and education. More details on the event are available in the CFPB’s problem statement. A link to an application to participate can be found in the problem statement and will be accepted between September 1 through September 11.
CFPB settles with three more lenders on misleading VA advertising
Recently, the CFPB announced settlements (see here, here, and here) with three mortgage lenders for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lenders offer and provide VA guaranteed mortgage loans, and allegedly sent false, misleading, and inaccurate direct-mail advertisements to service members and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleges the advertisements (i) failed to include required disclosures; (ii) stated credit terms that the lenders were not actually prepared to offer; (iii) made “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) gave the false impression the lenders were affiliated with the government. Two of the lenders also allegedly used the name of the consumer’s current lender in a misleading way, and misrepresented that consumers would receive specific escrow refund amounts if they refinanced their mortgages, even though the advertised amounts “were calculated using a methodology that had no bearing on the actual escrow refund amount,” and consumers were often required to fund new escrow accounts upon generating new loans.
In addition, one of the lender’s advertisements represented to consumers that they could “‘[s]kip two payments’ or ‘miss’ two payments by refinancing with the company,” but failed to disclose, among other things, that the skipped or missed payments would be added to the loan’s principal balance.
The consent orders (see here, here and here) impose bans on future advertising misrepresentations similar to those identified by the Bureau, require the lenders to use a compliance official to review mortgage advertisements for compliance with consumer protection laws, and require compliance with certain enhanced disclosure requirements. The Bureau further imposes civil penalties of $225,000, $50,000, and $230,000 respectively against the lenders.
The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In August and July, the Bureau issued consent orders against four other mortgage lenders for similar violations, covered by InfoBytes here and here.
CFPB asks 9th Circuit to enforce Seila CID
On August 31, the CFPB filed a supplemental brief in the U.S. Court of Appeals for the Ninth Circuit, arguing that the formal ratifications of then-Acting Director Mick Mulvaney and current Director Kathy Kraninger, paired with the U.S. Supreme Court’s ruling in Seila v. CFPB, are sufficient for the appellate court to enforce the CID previously issued against the law firm, and that “[s]etting aside the CID at this point would serve no valid purpose.” As previously covered by InfoBytes, in 2017, the CFPB ordered Seila Law to comply with a CID seeking information about the firm’s business practices to determine whether it violated the CFPA, the Telemarketing Sales Rule (TSR), or other federal consumer financial laws when providing debt-relief services or products, but the law firm refused to comply, arguing that the CID was invalid because the CFPB’s structure was unconstitutional. Last year, after the 9th Circuit upheld the CID (covered by InfoBytes here), Seila Law appealed the decision to the Supreme Court. Following the Supreme Court’s opinion in June—which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert)—the Bureau noted that Kraninger formally ratified the agency’s decisions regarding the CID in July.
Among other things, the Bureau highlighted in its brief Seila Law’s argument “that the CID still should not be enforced because at the time this action commenced, the Supreme Court had not yet held invalid the removal provision.” The Bureau countered that any defect in the initiation of this action has been resolved because the CID, and the action to enforce it, “have now been formally and expressly ratified” by two Bureau officials removable at will by the President. The Bureau also asked the 9th Circuit to consider what may happen if the appellate court chooses to ignore the ratifications and rule in favor of Seila Law. According to the Bureau, such a result “could also, depending on the [c]ourt’s reasoning, be used to raise doubts about the validity of other actions the Bureau has taken over the past decade and that a fully accountable Director has now also ratified.” Should the 9th Circuit choose to set aside the CID, the appellate court would not only further delay a “legitimate law-enforcement investigation,” but also “undermine the very Article II authority that the Supreme Court so emphasized in deciding this case,” the Bureau argued.
FinCEN reiterates criminality of unauthorized SAR disclosures
On September 1, the Financial Crimes Enforcement Network (FinCEN) released a statement reiterating that “the unauthorized disclosure of [suspicious activity reports] (SARs) is a crime that can impact the national security of the United States, compromise law enforcement investigations, and threaten the safety and security of the institutions and individuals who file such reports.” FinCEN stated it is aware that a series of articles will be published by various media outlets based on unlawfully disclosed SARs and other sensitive government documents and has referred the matter to the DOJ and the U.S. Treasury Department’s Office of Inspector General.
SEC issues two separate whistleblower awards totaling over $3.75 million
On September 1, the SEC announced a joint award of $2.5 million to two whistleblowers for providing a tip “based largely on highly probative independent analysis of a public company’s filings,” which led to “several successful enforcement actions.” According to the redacted order, (i) the tip was the “underlying source that formed the basis” for the enforcement action; and (ii) the whistleblowers provided “substantial, ongoing assistance,” helping to focus the investigation and conserve the SEC’s time and resources.
Additionally, on August 31, the SEC announced a $1.25 million award to a whistleblower in connection with a successful enforcement action. According to the SEC’s press release, the whistleblower provided “significant information,” which “prompted the agency to initiate a cause examination and bring an enforcement action” resulting in “millions of dollars” being returned to harmed investors. The redacted order states that (i) the whistleblower “expeditiously alerted” the SEC to the potential wrongdoing; and (ii) there was “high law enforcement interests” in the information provided.
These press releases also noted that as of September 1, the SEC has awarded 92 individuals a total of approximately $510 million in whistleblower awards since its first award in 2012.
Fannie and Freddie update Covid-19 Selling FAQs
On September 2, Fannie Mae updated its Covid-19 FAQs for sellers to reflect updates to FHFA’s temporary policy that allows Fannie Mae and Freddie Mac (GSEs) to purchase qualified single-family mortgages in forbearance that meet specific eligibility criteria due to the Covid-19 pandemic (covered by InfoBytes here), and to add a new question covering Covid-19 appraisal flexibilities. On August 27, Freddie Mac updated its Covid-19 selling-related FAQs to include substantially the same new question and response with respect to Covid-19 appraisal flexibilities.
Court certifies RESPA class
On August 28, the U.S. District Court for the District of Maryland certified a class of mortgage borrowers who alleged a national bank (defendant) referred them to a title firm in exchange for free marketing materials pursuant to an undisclosed agreement. In doing so, the court approved a class defined as borrowers who (i) had a loan originated or brokered through the defendant; and (ii) received title and settlement services from the title firm in connection with the closing of their loan. The plaintiffs claimed their payments to the title firm were shared in part with the defendant through their broker, who received free marketing materials in exchange for the referrals in violation of RESPA. Additionally, the plaintiffs alleged that “because of this kickback arrangement, they paid higher costs for their settlement services than they otherwise would have paid.”
The defendant argued, among other things, that the named plaintiffs lacked Article III standing because they did not pay more for settlement services, contending that the title firm’s fees “were based on prevailing market rates in the geographic location and did not depend” on the “alleged kickbacks.” Additionally, the defendant argued that the named plaintiffs are not adequate class representatives because they do not have knowledge sufficient to prove their own claims. The court disagreed, stating the plaintiffs “presented some evidence to corroborate the claim that they were harmed by paying higher fees than they would have absent the alleged RESPA violations,” and that “burdensome individualized scrutiny of each proposed class member’s transaction” was not necessary to establish each violation.
DOJ fines company for circumventing North Korean sanctions
On August 31, the DOJ announced that a company operating in South East Asia has pleaded guilty to “conspiring to launder monetary instruments in connection with evading sanctions on North Korea and deceiving correspondent banks into processing U.S. dollar transactions.” The company admitted and accepted responsibility for the criminal conduct and will pay a $673,714 fine. According to the DOJ, from at least February 2017 until at least May 2018, the company’s dual invoicing practices and false statements concealed the purchase of commodities for North Korean customers, leading to U.S. correspondent banks processing U.S. dollar transactions that would otherwise not have been authorized. Among other things, the company and its co-conspirators admitted to using front companies to “conceal the North Korean nexus,” including utilizing financial cutouts and falsifying shipping records. These actions, the DOJ stated, circumvented the U.S. correspondent banks’ sanction and anti-money laundering filters, which are designed to prevent banks from processing wire transfers on behalf of customers located in North Korea. In addition to paying the financial penalty, the company has agreed to “implement rigorous internal controls” and cooperate fully with the DOJ.