InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OCC releases enforcement actions data
On September 15, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included in the release is an August 29 formal agreement between the OCC and a Texas-based bank in connection with allegedly unsafe or unsound practices relating to strategic and capital planning, credit risk management, Allowance for Loan and Lease Losses (ALLL) methodology, corporate governance, and internal controls. The agreement requires the bank to: (i) establish a compliance committee to monitor the bank’s progress in complying with the agreement’s provisions; (ii) report such progress to the bank’s board on a quarterly basis; and (iii) develop, implement, and adhere to, among other things, the ALLL Program, the contingency funding plan and any amendments thereto, and the internal audit program and any amendments or revisions thereto.
White House presses regulators on framework for digital assets
On September 16, the White House published a comprehensive framework for the responsible development of digital assets, calling on federal regulators to “provide innovative U.S. firms developing new financial technologies with regulatory guidance, best-practices sharing, and technical assistance.” The framework follows an executive order (E.O.) issued by the Biden administration in March (covered by InfoBytes here), which outlined the first “whole-of-government” strategy for coordinating a comprehensive approach to ensuring responsible innovation in digital assets policy. Consistent with the E.O.’s deadline, nine reports have been submitted to President Biden to date that “call on agencies to promote innovation by kickstarting private-sector research and development and helping cutting-edge U.S. firms find footholds in global markets.” The reports also “call for measures to mitigate the downside risks, like increased enforcement of existing laws and the creation of commonsense efficiency standards for cryptocurrency mining.”
Among other things, the reports (i) direct the Federal Reserve Board to continue its research and experimentation on issuing a central bank digital currency, and request the creation of a U.S. Treasury Department-led interagency working group to support Fed efforts; (ii) encourage the SEC and CFTC to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space”; (iii) urge the CFPB and FTC to address consumer complaints related to unfair, deceptive, or abusive practices in the crypto space; (iv) encourage agencies to issue guidance and rules for addressing current and emergent risks in the digital asset ecosystem; (v) urge agencies and law enforcement to take joint measures to address digital asset risks impacting consumers, investors, and businesses; and (vi) encourage agencies to share data on consumers’ digital asset complaints. To promote access to safe and affordable financial services, the administration said it plans to explore how crypto-related technologies can bolster financial inclusion, and will encourage the adoption of instant payment systems, weigh recommendations for creating a federal framework for non-bank payment service oversight, and prioritize efforts to improve cross-border payment efficiency. Additionally, the administration said it is exploring the possibility of amending the Bank Secrecy Act and other related statutes to “explicitly” apply to digital asset exchanges and non-fungible token platforms, and is considering a legislative request to toughen penalties for unlicensed money transmitters and give the DOJ more jurisdictional digital asset prosecution authority.
The Treasury released three reports addressing the future of money and payment systems, consumer and investor protection, and illicit finance risks in response to the E.O. The reports, The Future of Money and Payments, Crypto-Assets: Implications for Consumers, Investors, and Businesses, and Action Plan to Address Illicit Financing Risks of Digital Assets call on regulators to mitigate crypto-related risks to consumers, investors, and businesses. “Innovation is one of the hallmarks of a vibrant financial system and economy,” Treasury Secretary Janet Yellen said. “But as we have learned painfully from the past, innovation without appropriately addressing the impact of these developments can result in significant disruptions and harm to the financial system and individuals, especially our more vulnerable populations.” The reports examine the future of digital assets and offer recommendations to address consumer and investor protection concerns, combat illicit finance risks, and improve the payments system to support a more competitive, efficient, and inclusive landscape.
The same day, the DOJ also released a report in response to the E.O. The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets examines ways illicit actors exploit digital asset technologies and addresses challenges posed by digital assets to criminal investigations. The report provides recommendations to further enhance law enforcement’s ability to address digital asset crimes, such as strengthening criminal penalties and extending the statutes of limitations for crimes involving digital assets from five to ten years, and identifies three priorities: (i) “expanding to virtual asset service providers the laws preventing employees of financial institutions from tipping off suspects to ongoing investigations”; (ii) “strengthening the law criminalizing the operation of unlicensed money transmitting businesses”; and (iii) “extending the statute of limitations of certain statutes to account for the complexities of digital assets investigations.” The DOJ also launched the Digital Asset Coordinator Network, which will serve as the agency’s primary source for obtaining and disseminating information related to digital assets crimes.
OCC announces Alaska and Puerto Rico disaster relief
On September 19, the OCC issued proclamations (see here and here) permitting OCC-regulated institutions, at their discretion, to close offices affected by flooding in Alaska and Hurricane Fiona in Puerto Rico “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
CFPB examines relationship between high vehicle costs and loan performance
On September 19, the CFPB published a blog post exploring the potential relationship between high vehicle costs and changes in auto loan characteristics and performance, particularly with respect to consumers with near-prime or subprime credit scores. The Bureau reported that the average vehicle price increased over the past two years, particularly throughout 2021, and that data from the Bureau’s Consumer Credit Panel showed that an increase in the size of newly originated auto loans coincided with a spike in vehicle price. The blog post also highlighted a recent Federal Reserve Bank of New York report, which found that higher vehicle prices are a significant factor driving larger loan amounts. “The dollar value of outstanding auto loans increased by $33 billion between the first and second quarters of 2022 to $1.5 trillion outstanding,” the report said, noting that the increase “is due in large part to larger loan originations rather than by an increase in the number of loans.” The Bureau also reported that recent data has shown that delinquency rates, especially for low-income borrowers, has increased over the past year. While the Bureau said it cannot fully infer that the end of pandemic-related stimulus policies or inflationary pressures are possible explanations for the rise in delinquency rates, the agency said it “cannot ignore the relationship between larger loan amounts and increasing interest rates to consumer’s monthly budgets and some consumers’ struggle to stay current on their loans.” The Bureau stressed, however, that while current data provides insight into broad indicators, it “lacks the granularity to isolate specific economic trends or to fully explore the impact on subsets of consumers.” The agency said it will continue to seek data that allows for better visibility in this market and will remain focused on ensuring that the auto lending market is fair, transparent, and competitive.
FDIC announces Arizona disaster relief
On September 15, the FDIC issued FIL-41-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Salt River Pima-Maricopa Indian Community (Arizona) affected by severe storms from July 17-18. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
OCC reports on mortgage performance
On September 15, the OCC released a report on the performance of first-lien mortgages in the federal banking system during the second quarter of 2022, providing information on mortgage performance through June 30. According to the OCC, 97 percent of mortgages were current and performing at the end of the quarter, compared to 95 percent a year earlier. The percentage of seriously delinquent mortgages was 1.5 percent in the second quarter of 2022, compared to 1.8 percent in the prior quarter and 3.8 percent a year ago. The report also found that servicers completed 28,109 modifications in the second quarter of 2022—a decrease of 33.7 percent from the previous quarter. Additionally, of the 28,109 mortgage modifications, 78.2 percent reduced borrowers’ monthly payments and 95.6 percent were “combination modifications,” which are modifications that include multiple actions affecting the affordability and sustainability of the loan, such as an interest rate reduction and a term extension.
FTC proposes rulemaking to combat impersonation fraud
On September 15, the FTC issued a notice of proposed rulemaking (NPRM) to prohibit the impersonation of government, businesses, or their officials. According to the FTC, reported losses due to impersonation fraud spiked at the beginning the Covid-19 pandemic, and more than 2.5 million scams were reported nationwide from the beginning of 2017 through the middle of 2022, with consumers reporting losses of more than $2 billion. These impersonation scams include persons posing as government officials or employees, or persons claiming that they represent well-known businesses or charities who may use “misleading domain names and URLs and ‘spoofed’ contact information’” to create the illusion of legitimacy. The FTC added that scammers are looking for information that can be used to commit identity theft or seek monetary payment, and often request that funds be paid through wire transfer, gift cards, or cryptocurrency.
The NPRM follows an advanced notice of proposed rulemaking issued last December (covered by InfoBytes here), for which the FTC received more than 160 comments from members of the public, as well as a coalition of 49 state attorneys general and many companies and industry organizations. According to the FTC, the NPRM would codify the principle that impersonation scams violate the FTC Act, allowing the Commission to seek civil penalties and recover money from those who violate the rule. Among other things, the NPRM would ban scammers from (i) using government identifiers when communicating with consumers via mail or online; (ii) spoofing government and business email and web addresses “or using lookalike email addresses or websites that rely on misspellings of a company’s name”; or (iii) falsely implying an affiliation with a government or a business by using commonly known terms. The FTC noted that the NPRM would also apply to persons who provide the “means or instrumentalities” for scammers, such as suppliers who manufacture the fake government credentials used by scammers. Additionally, non-profit organizations would be included in the definition of a business under the NPRM, so that the FTC can take action against scammers impersonating charities. Comments on the NPRM are due 60 days after publication in the Federal Register.
FTC aims to protect gig workers from unfair, deceptive, and anticompetitive practices
On September 15, the FTC adopted a new policy statement outlining several issues facing consumers working in jobs that are part of the gig economy. According to the Commission, gig workers face potential harm related to misrepresentations about the nature of the work, diminished bargaining power for transparency, and anticompetitive hurdles resulting in reduced choice. The policy statement “makes clear that the FTC’s authority to enforce both competition and consumer protection law in the gig economy is not affected by how companies choose to classify the consumers who perform gig work.” Specifically, the Commission lists several areas where it will focus its attention on preventing consumer harm: (i) companies will be held accountable for claims and conduct about costs and benefits, including potential earnings, and must be transparent about costs borne by workers; (ii) companies using artificial intelligence or other advanced technologies for pay, performance, and work assignments are required to uphold promises made to workers, and must ensure that any restrictive contract terms do not violate the FTC Act or other statutes; and (iii) companies may be subject to investigations related to potential exclusionary or predatory conduct causing reduced compensation or poor working conditions. Companies that fail to comply with laws governing unfair, deceptive, or anticompetitive practices may be required to pay consumer redress and civil penalties, and may also be ordered to cease their unlawful business practices.
FINRA fines broker dealer for AML failures
On September 9, FINRA settled charges with a broker dealer (respondent) for alleged failures in its anti-money laundering (AML) compliance program. According to the letter of acceptance, waiver, and consent, the respondent allegedly failed to, among other things: (i) establish a reasonably designed AML program; (ii) implement a customer identification program; (iii) reasonably supervise for potentially manipulative trading; and (iv) preserve and maintain certain electronic communications. Additionally, FINRA found that the respondent unreasonably relied on manual reviews of the daily trade blotter to identify market manipulation. FINRA’s order includes alleged violations of FINRA Rule 2010, Rule 3110, Rule 3310(a)-(b) and Rule 4511. FINRA also determined that the respondent violated Securities Exchange Act of 1934 Section 17(a) and Rule 17a-4(b)(4). The respondent agreed to pay a $450,000 civil monetary penalty to FINRA and is prohibited from providing market access for two years.
FTC, CFPB say furnishers must investigate indirect disputes
On September 13, the FTC and CFPB (agencies) filed a joint amicus brief with the U.S. Court of Appeals for the Third Circuit, seeking the reversal of a district court decision that held furnishers of credit information are only obligated to investigate “bona fide” indirect disputes and may choose to decline to investigate other indirect disputes raised by consumers that are deemed frivolous. The agencies argued that this “atextual, judge-made exception” could undermine a key FCRA protection that allows consumers to dispute and correct inaccurate information in their credit reports, leading to a likely increase in consumer complaints related to credit reporting inaccuracies. Under the FCRA, consumers may file a direct dispute with a furnisher or file an indirect dispute with a consumer reporting agency (CRA), which may refer the dispute to the furnisher.
The case involves a direct dispute submitted by a plaintiff to a cable company, requesting an investigation into an allegedly fraudulent delinquent account listed on his credit report. The plaintiff informed the cable company that he was a victim of identity theft and that the account was opened in his name without his authorization. The cable company eventually referred the account to a debt collector (defendant) for collection after the plaintiff failed to provide requested information showing his account was opened due to fraud. An indirect dispute was later filed by the plaintiff with the CRA, which in turn sent the dispute to the defendant as the furnisher of the allegedly inaccurate information. After a second indirect dispute was filed noting the allegedly fraudulent account was the subject of litigation, the defendant removed the account from the plaintiff’s credit report and ceased collections. The plaintiff sued, asserting claims under the FCRA, FDCPA, and Pennsylvania law. The district court granted summary judgment in favor of the defendant, ruling that the plaintiff failed to provide evidence substantiating the basis of his dispute, and that “a furnisher is obligated to investigate only ‘bona fide’ indirect disputes and may therefore decline to investigate any indirect dispute it deems frivolous.”
In urging the appellate court to overturn the decision, the agencies countered in their amicus brief that the text of the FCRA is unambiguous—“furnishers must investigate all indirect disputes.” Nothing in the text suggests that a furnisher can choose not to investigate an indirect dispute if it determines it to be frivolous, the agencies stressed, further noting that if Congress intended to “create an exception for frivolous disputes, it knew how to do so,” and that in other parts of the statute Congress expressly provided that certain frivolous disputes do not need to be investigated.
The amicus brief also pointed out that under the FCRA, consumers are entitled to be notified about the outcome of their disputes, as well as given an opportunity to cure any deficiencies. The district court holding, the agencies said, would circumvent these requirements, thereby undercutting a central remedy under the FCRA that ensures consumers are able to dispute and correct inaccurate information in their credit reports. If furnishers were able to ignore disputes referred to them by CRAs, it could open an unintended loophole that would allow disputes to disappear “into a proverbial black hole,” the agencies asserted, emphasizing that if the district court’s interpretation is affirmed, consumers who submit an indirect dispute that is deemed frivolous by a furnisher may never receive any notice of that determination, and therefore, may never be able to cure any deficiencies or correct erroneous information in their credit reports.
The agencies also challenged whether the exception created by the district court’s ruling is necessary, as the FCRA already provides protections to furnishers from investigating frivolous disputes. Specifically, the statute allows CRAs to determine if a dispute a frivolous before forwarding a dispute to the furnisher. Moreover, furnishers “are not required to conduct an unreasonably onerous investigation into a conclusory or unsubstantiated dispute,” the agencies explained, stating that whether a furnisher has satisfied its obligation to conduct a reasonable investigation is normally a fact-intensive question for trial.
The Bureau noted in an accompanying blog post that it has also filed several other amicus briefs in other pending FCRA cases (previously covered by InfoBytes here) related to consumer reporting obligations.