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House Oversight seeks info from digital asset exchanges, financial regulators
On August 30, the Subcommittee on Economic and Consumer Policy of the House Committee on Oversight and Reform announced that Representative Raja Krishnamoorthi (D-IL), Chair of the Subcommittee, sent letters to the U.S. Treasury Department, SEC, CFTC, and FTC, in addition to five digital asset exchanges, requesting information on how they are combating cryptocurrency-related fraud and scams. According to his letters, Chairman Krishnamoorthi is “concerned about the growth of fraud and consumer abuse linked to cryptocurrencies.” He further added that “[t]he lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers and investors have of the underlying technology make cryptocurrency a preferred transaction method for scammers.” In the letters to the federal agencies, he stated that “the federal government has been slow to curb cryptocurrency scams and fraud,” and that “[e]xisting federal regulations do not comprehensively or clearly cover cryptocurrencies under all circumstances.” In one of the letters to the digital asset exchanges, Krishnamoorthi noted that “cryptocurrency exchanges must themselves act to protect consumers conducting transactions through their platforms.” The letters requested that all recipients provide information to the subcommittee outling “steps they are taking to combat cryptocurrency-related fraud and scams and additional actions that are needed to protect Americans” in order to “help Congress understand what they are doing to protect consumers and inform legislative solutions to bring stability to the digital asset industry.”
FDIC updates risk management, consumer compliance examination policies
Recently, the FDIC updated Section 2.1 of its Risk Management Manual of Examination Policies related to capital. The FDIC noted that since capital adequacy assessments are central to the supervisory process, examination staff “evaluate all aspects of a financial institution’s risk profile and activities to determine whether its capital levels are appropriate and in compliance with minimum regulatory requirements.” This includes examining a financial institution’s capital ratios, risk-weighted assets, regulatory capital requirements, community bank leverage ratios, capital adequacy (including liquidity, earnings, and market risk), and adherence to laws and regulations. The FDIC also announced updates to the Privacy—Telephone Consumer Protection Act section within its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for FDIC examination staff evaluating financial institutions’ compliance with federal consumer protection laws and regulations.
DOJ weighs in on FDIC chair’s powers
Recently, the assistant attorney general for the DOJ’s Office of Legal Counsel opined that the chairperson of the FDIC cannot prevent a majority of the agency’s Board of Directors from presenting items for a vote and decision. The DOJ’s opinion follows a December 2021 conflict among members of the FDIC Board of Directors related to a joint request for information seeking public comment on revisions to the FDIC’s framework for vetting proposed bank mergers. Shortly after the announcement was issued, the FDIC released a statement disputing that any action had been approved. FDIC board member, and CFPB Director, Rohit Chopra released a follow-up statement challenging the view that only the FDIC chairperson has the right to raise matters for discussion in Board meetings, and called for “immediate[]” resolution of the conflict, stating that “[a]bsent a return to legal reality and constructive engagement, board members will need to take further steps to exercise independence from management and to ensure sound governance of the [FDIC].” (Covered by InfoBytes here.)
The DOJ wrote in the opinion that “[t]here is no general or specific source of authority in the [Federal Deposit Insurance Act (FDIA)] that can be read as permitting the Chairperson to prevent a majority of the Board from exercising its statutory responsibilities or otherwise making decisions for the FDIC.” The opinion stated that the FDIA gives the Board “broad governance and decision-making authority” and clarified that while the “power to present matters for Board vote and decision is not explicitly addressed by the Act[,] . . . the Board, not the Chairperson, has the authority to determine how the FDIC should exercise its substantive powers.” Furthermore, the opinion emphasized that the FDIA authorizes the Board to “prescribe bylaws ‘regulating the manner in which its general business may be conducted’ and to prescribe ‘such rules and regulations as it may deem necessary.’” According to the opinion, nothing in the FDIA “can be read as authorizing the Chairperson to prevent a majority of the Board from presenting items to the Board for a vote and decision, and, as far as we are aware, no one has ever taken the position that the [FDIA] authorizes the Chairperson to do so.”
While the opinion emphasized that it does not have the authority “to provide more than a general response,” it stated that the FDIC Bylaws mirror the FDIA in providing that “[t]he management of the [FDIC] shall be vested in the Board of Directors, which shall have all powers specifically granted by the provisions of the [FDIA] and other laws of the United States and such incidental powers as shall be necessary to carry out the powers so granted.” The opinion agreed with the current Board majority’s interpretation “that the delegations of authority to the Chairperson in the Bylaws are best understood as preserving the power of a Board majority to present items for Board decision and vote.” The DOJ noted, however, “that the current Board majority’s understanding of its Bylaws may not be the only possible interpretation,” and pointed out that the FDIC Bylaws can be amended “to eliminate any uncertainty about questions such as the one at issue here.”
The DOJ’s opinion prompted a critical response from House Financial Services Committee Ranking Member Patrick McHenry (R-NC), who said that the “newly released opinion from the Office of Legal Counsel does not change the fact that Democrats’ power grab at the FDIC upended an 88-year tradition of considering the Chair’s agenda on a collegial basis” and pledged that “House Republicans will not be deterred from our investigations into the lawless tactics of rogue Democrat regulators.”
FHFA to review Federal Home Loan Banks system
On August 31, FHFA announced it plans to conduct a comprehensive review of the Federal Home Loan Banks (FHLBanks) starting this fall. “FHFA’s regulated entities function as a reliable source of liquidity and funding for housing finance and community investment,” FHFA Director Sandra L. Thompson said, noting that “[a]s the Federal Home Loan Banks approach their centennial, FHFA will conduct a comprehensive review to ensure they remain positioned to meet the needs of today and tomorrow.” FHFA will host two public listening sessions as well as a series of regional roundtable discussions to review the mission, membership eligibility requirements, and operational efficiencies of the FHLBanks, the statement said. Additionally, FHFA will receive input from stakeholders on the FHLBanks’ role or potential role in addressing housing finance, community and economic development, affordability, and other related issues.
The kick-off listening session will be held in Washington, D.C., on September 29. FHFA seeks feedback in six key areas: (i) FHLBanks’ general mission and purpose in a changing marketplace; (ii) the organization, operational efficiency, and effectiveness of FHLBanks; (iii) FHLBanks’ role in promoting affordable, sustainable, equitable, and resilient housing and community investment; (iv) ways to address the unique needs of rural and financially vulnerable communities; (v) member products, services and collateral requirements; and (vi) membership eligibility and requirements.
HUD updates HECM program
On August 31, HUD issued Mortgagee Letter (ML) 2022-15, which updates the Home Equity Conversion Mortgage (HECM) program. The ML, among other things, modifies the requirements for mortgagees to provide notice to a borrower’s estate following an HECM becoming due and payable due to the death of the last surviving borrower. The ML may be implemented immediately but must be implemented no later than 90 days from the date of this ML for HECMs that become due and payable on or after the publication date of this ML. Additionally, comments are due within 30 days after the date of issuance.
DOE discharges an additional $1.5 billion in student loans
On August 30, the Department of Education announced $1.5 billion in debt relief for 79,000 borrowers who enrolled in a college accused of “routinely [misleading] prospective students by grossly misrepresenting that its credentials would benefit their career prospects and earning potential.” According to a Department investigation aided by significant evidence from the Colorado and Illinois attorneys general, the college engaged in widespread misrepresentations “in order to profit off student debt that burdened borrowers long after [the college] closed.” Borrowers’ student loans will be discharged regardless of whether an individual has applied for a discharge under the borrower defense to repayment program, and without requiring any additional action on behalf of the borrowers. The announcement builds on the previous approval of $130 million in borrower defense discharges for approximately 4,000 borrowers who had attended the college.
The Department also announced that it plans to engage in future rulemaking “to hold career programs accountable for leaving their graduates with mountains of unaffordable debt and poor job prospects,” and said it is planning “new actions to hold accountable institutions that have contributed to the student debt crisis including publishing lists of the worst actors.” With this recent announcement, the Department of Education “has now approved $14.5 billion in discharges for nearly 1.1 million borrowers whose colleges took advantage of them.”
FINRA reminds firms of their obligation to supervise digital signatures
Recently, FINRA issued Regulatory Notice 22-18 reminding member firms of their obligation to supervise for digital signature forgery and falsification. FINRA reported it has received a rising number of reports claiming registered representatives and associated persons have been forging or falsifying customer signatures, as well as those of colleagues or supervisors in some instances. Issues have been flagged in “account opening documents and updates, account activity letters, discretionary trading authorizations, wire instructions and internal firm documents related to the review of customer transactions.” FINRA advised member firms to review outlined methods and scenarios for identifying digital signature forgery or falsification in order to mitigate risk and meet regulatory obligations.
FTC, states sue rental listing platform for fraud
On August 30, the FTC announced a lawsuit, together with the attorneys general from New York, California, Colorado, Florida, Illinois, and Massachusetts, against a rental listing platform and its owners for allegedly charging consumers for false endorsements and fake listings. The complaint, which alleges violations of the FTC Act and various state laws, claims that the defendants used both fake reviews and fake listings to lure consumers to its platform and pay for access to so-called “verified and authentic living arrangement listings.” In particular, one of the individual defendants is alleged to have deceptively promoted the platform “by providing tens of thousands of fake four- and five-star reviews” to app stores. That individual defendant stipulated to the entry of a proposed stipulated final order on the same day, which requires the following: (i) cooperation with the FTC’s ongoing action; (ii) informing the app stores that he was paid to post reviews and identify the fake reviews and when they were posted; (iii) a permanent ban from selling or misrepresenting consumer reviews or endorsements; and (iv) payment of a total of $100,000 to the state AGs.
The action is part of the FTC’s on-going efforts to address fake and deceptive reviews, which include a $4.2 million action taken against an online fashion retailer accused of suppressing negative reviews, and warnings issued in 2021 to more than 700 companies announcing that they may face fines over misleading online endorsements (covered by InfoBytes here and here).
FFIEC releases new HMDA tool
On August 30, the CFPB unveiled the Federal Financial Institutions Examinations Council’s Quarterly Graphs tool, which permits users to view HMDA mortgage loan data and, for the first time, follow mortgage market trends throughout the collection year. According to the CFPB, the new tool integrates currently available quarterly data submitted by financial institutions who report a combined total of at least 60,000 applications and covered loans (excluding purchased covered loans) for the preceding calendar year. The tool provides graphs for an extensive lists of metrics, including loan-to-value ratios, debt-to-income ratios, borrower credit scores, denial rates, interest rates, and total loan costs. The tool also allows users to download graphs in a number of formats, including CSV, XLS, PDF, or custom web link. The tool currently contains data for 2019, 2020, 2021 and the first quarter of 2022, with future quarter data being added as it is available.
FTC sues data broker for unfair sale of sensitive data
On August 29, the FTC announced an action taken against a data broker accused of allegedly selling precise geolocation data from hundreds of millions of mobile devices that can be used to trace individuals’ movements to and from sensitive locations. According to the complaint, the defendant purchases location information from other data brokers and packages it into customized data feeds that match unique mobile device advertising identification numbers with timestamped latitude and longitude locations. These data feeds allow purchasers to identify and track specific mobile device users with no restrictions on usage and puts consumers at significant risk, the FTC claimed, noting that by failing to adequately protect its data from public exposure, consumers may be identified and face substantial injury. Moreover, people are often unaware that their location data is being purchased and shared by the defendant and have no control over its sale or use, the FTC said in its announcement. The complaint alleges the defendant’s unfair sale of sensitive data violates the FTC Act, and seeks a permanent injunction and any additional relief deemed just and proper.