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  • Federal Reserve Board fines national bank $8.6 million for legacy mortgage documentation deficiencies

    Federal Issues

    On August 10, the Federal Reserve Board (Board) announced a settlement with a national bank for legacy mortgage servicing issues related to the improper preparation and notarization of lost note affidavits. Under the consent order, the Board assessed an $8.6 million civil money penalty for alleged safety and soundness violations under Section 8 of the Federal Deposit Insurance Act. The Board emphasized that the bank’s servicing subsidiary replaced the documents with properly executed and notarized affidavits and, as of September 2017, the subsidiary no longer participated in the mortgage servicing business. The Board also announced the termination, due to “sustainable improvements,” of a 2011 enforcement action against the national bank and its subsidiary related to residential mortgage loan servicing.

    Federal Issues Enforcement Civil Money Penalties Mortgages FDI Act

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  • CFPB settles unauthorized payday loan allegations

    Federal Issues

    On August 10, the CFPB announced a settlement with multiple defendants that allegedly made unauthorized payday loans. The settlement results from a 2014 complaint that alleged, among other things, that the defendants accessed consumer checking accounts to illegally deposit the proceeds of payday loans and withdraw related fees without consumer consent. The stipulated final judgment and order, among other things, (i) imposes a penalty of up to approximately $69 million if the defendants fail to fully comply with the operative terms of the settlement; (ii) prohibits the defendants from performing similar activities in the future; and (iii) assesses a civil money penalty of $1, in part based on the defendants’ inability to pay.

    On July 23, as previously covered by InfoBytes, a court approved a stipulated final judgment and order against one of the defendants, who neither admitted nor denied the Bureau’s allegations, for a civil money penalty of $1 (based, in part, on his inability to pay) and agreement to fully cooperate with the Bureau.

    Federal Issues CFPB Enforcement Payday Lending

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  • Georgia Attorney General reaches settlement with mortgage company to resolve allegations concerning unauthorized third-party fees

    State Issues

    On August 1, the Georgia Attorney General announced a settlement with a New Jersey-based mortgage company to resolve allegations that it charged unauthorized fees to Georgia consumers in violation of the state’s Fair Business Practices Act. According to the Attorney General’s office, the company allegedly marketed various third-party products and services, such as insurance products and home warranty programs, for certain mortgages it serviced and added the charges for these products and services to consumers’ monthly mortgage bills without their knowledge. Under the settlement terms, the company is required to (i) comply with the Fair Business Practices Act; (ii) refrain from soliciting third-party products and/or services to Georgia consumers; (iii) cease all billing for the alleged third-party products and services; (iv) notify consumers currently being billed for the alleged third-party products and services that the remainder of their contracts may be cancelled without penalty; (v) pay $25,000 in restitution; and (vi) pay $50,000 to the Attorney General’s office to go towards fees, penalties, investigation and litigation costs, and future consumer protection and education costs.

    State Issues State Attorney General Enforcement Fees Consumer Finance Settlement

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  • FDIC releases June enforcement actions

    Federal Issues

    On July 27, the FDIC announced a list of orders of administrative enforcement actions taken against banks and individuals in June. The 12 orders include “four Section 19 orders; one civil money penalty; one removal and prohibition order; one prompt corrective action directive; three terminations of consent orders; one termination of prompt corrective action directive; and one modification of removal and prohibition order.” The civil money penalty order relates to violations of the Flood Disaster Protection Act by a Mississippi-based bank for allegedly failing to obtain flood insurance coverage on seven loans secured by buildings located, or to be located, in a special flood area at or before loan origination or renewal. There are no administrative hearings scheduled for August 2018. The FDIC database containing all 12 enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Flood Disaster Protection Act

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  • Federal Reserve fines Kentucky-based bank $4.75 million for FTC Act violations

    Federal Issues

    On July 26, the Federal Reserve Board (Board) announced a settlement with a Kentucky-based bank for allegedly violating section 5 of the FTC Act regarding its offering of deposit account add-on products to consumers. According to the consent order, the bank marketed certain add-on products to accountholders, including an identity protection product, and represented that all benefits of the products would be effective upon enrollment when in actuality, certain benefits needed to be individually activated after enrollment. The Board alleges the bank charged the enrolled accountholders fixed monthly fees for the full benefits of the products without adequately disclosing to accountholders how to receive all the associated benefits. In addition to the $4.75 million the bank must pay in restitution, the consent order also requires the bank to, among other things (i) submit written plans to strengthen the oversight of the compliance management program and enhance the consumer compliance risk management program; (ii) hire an independent auditor to verify the restitution has been made; and (iii) submit quarterly progress reports regarding compliance with the consent order.

    Federal Issues Federal Reserve Enforcement Settlement Consumer Finance

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  • Georgia Department of Banking and Finance issues cease and desist over licensing violation involving bitcoin

    State Issues

    On July 26, the Georgia Department of Banking and Finance (Department) announced the issuance of a cease and desist order against a bitcoin trading platform. According to the Department, the company allegedly engaged in the sale of payment instruments and money transmissions without first acquiring a valid license or applicable exemption in violation of the state’s financial institutions code. Licensure requirements in the state apply to persons engaged in transactions involving virtual currency.

    State Issues State Regulators Licensing Enforcement Bitcoin

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  • OCC releases recent enforcement actions

    Federal Issues

    On July 20, 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. The new enforcement actions include cease and desist orders, civil money penalty orders, removal/prohibition orders, and terminations of existing enforcement actions. Two of the more notable actions by the OCC covered in this report are discussed below.

    On May 31, the OCC issued a consent order against an international investment bank’s federal branches located in Stamford, Miami, and New York, which identified alleged deficiencies in the branches’ Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance programs. The alleged deficiencies include failure to adopt and implement adequate BSA/AML compliance programs and failure to file timely Suspicious Activity Reports. Among other things, the consent order requires the branches to (i) develop and implement an ongoing BSA/AML risk assessment program; (ii) adopt an independent audit program to conduct a review of the bank’s BSA/AML compliance program; (iii) submit a written progress report within 30 days after the end of each calendar quarter that details actions undertaken to ensure compliance with the consent order’s provisions; and (iii) ensure each branch has permanent, experienced BSA officers responsible for compliance functions. The bank has neither admitted nor denied the OCC’s findings, and a civil money penalty was not assessed against the branches.

    In addition, on June 18 the OCC issued an order terminating a 2016 consent order against a national bank following the OCC’s determination that the bank had successfully completed the consent order’s requirements for complying with provisions of the Servicemembers Civil Relief Act.

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Bank Compliance SARs SCRA

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  • CFPB Succession: Kraninger testifies before Senate Banking Committee; Bureau nominates Paul Watkins to lead Office of Innovation

    Federal Issues

    On July 19, the Senate Banking Committee held a confirmation hearing for Kathy Kraninger on her nomination as permanent director of the CFPB. Prior to the hearing, the White House issued a fact sheet asserting that “Kraninger has the management skills and policy background necessary to reform and refocus the Bureau.” In her written testimony Kraninger shared four initial priorities: (i) the Bureau should be fair and transparent, utilize a cost benefit analysis to facilitate competition, and effectively use notice and comment rulemaking to ensure the proper balance of interests; (ii) the Bureau should work closely with other regulators and states to “take aggressive action against bad actors who break the rules by engaging in fraud and other illegal activities”; (iii) data collection will be limited to what is needed and required under the law and measures will be taken to ensure the protection of the data; and (iv) the Bureau will be held accountable to the public for its actions, including its expenditure of resources.

    Chairman of the Committee Senator Mike Crapo, R-Idaho, remarked in his opening statement that he hoped Kraninger “will be more accountable to senators on this Committee than Director Cordray was” but that he had “the utmost confidence that she is well-prepared to lead the Bureau in enforcing federal consumer financial laws and protecting consumers in the financial marketplace.” Conversely, Senator Elizabeth Warren, D-Mass., released a staff report prior to the hearing detailing Kraninger’s tenure at OMB and identifying her participation in several alleged management failures in the current administration.

    During the hearing, Kraninger received questions covering a range of topics, including whether she would appeal last month’s ruling by a federal judge in New York that the CFPB’s structure was unconstitutional. (See previous InfoBytes coverage on the ruling here.) Kraninger responded that constitutionality questions are “not for me in this position to answer.” However, Kraninger did comment that “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” Kraninger also commended recent efforts by the OCC to encourage banks to make small-dollar loans, discussed plans to consult Bureau staff on the use of the disparate impact theory in enforcement, and stated she will seek to promote the agency’s regulatory views through formal rulemaking instead of through enforcement.

    On July 18, acting Director of the CFPB Mick Mulvaney announced the selection of Paul Watkins to lead the Bureau’s new Office of Innovation. The Office of Innovation—a recent addition to the Bureau—will focus on policies for facilitating innovation, engage with entrepreneurs and regulators, and review outdated or unnecessary regulations. Specifically, the Office of Innovation will replace what was previously known as Project Catalyst, which was—as previously discussed in InfoBytes—responsible for facilitating innovation in consumer financial services. Prior to joining the Bureau, Watkins worked for the Arizona Attorney General and helped launch the first state regulatory sandbox for fintech innovation. (See previous InfoBytes coverage on Arizona’s regulatory sandbox here.) Earlier in May, Mulvaney announced at a luncheon hosted by the Women in Housing & Finance that the Bureau is working to build its own regulatory sandbox program, and last year the agency took steps to make it easier for emerging technology companies to comply with federal rules by issuing its first “no action letter.”

    Federal Issues CFPB Succession Fintech Regulatory Sandbox Senate Banking Committee CFPB Enforcement

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  • Federal Reserve issues enforcement actions against New York branch of Pakistani bank, former bank employee

    Federal Issues

    On July 12, the Federal Reserve Board released an enforcement action taken against a Pakistani bank’s New York branch concerning deficiencies in the branch’s Bank Secrecy Act/anti-money laundering (BSA/AML) compliance program. Under the terms of the written agreement, the branch is required to (i) submit a written governance plan to strengthen the board of director’s oversight of BSA/AML compliance; (ii) retain an independent third party to conduct a BSA/AML compliance review; (iii) submit a revised, written compliance program that complies with BSA/AML requirements; (iii) submit an enhanced, written customer due diligence program plan; and (iv) submit a revised program to ensure compliant suspicious activity monitoring and reporting. On a parallel basis, the Federal Reserve terminated an enforcement action taken against the branch in 2013.

    The Federal Reserve also issued a separate enforcement action against a former bank employee for engaging in unsafe or unsound banking practices by concealing an unreconciled balance using improper accounting practices. The consent order of prohibition prohibits the former employee from, among other things, participating in any manner in the conduct of the affairs of any insured depository institution, holding company, or subsidiary of an insured depository institution.

    Federal Issues Federal Reserve Enforcement Bank Secrecy Act Anti-Money Laundering Bank Compliance

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  • CFPB settles with Kansas-based company and part-owner for debt collection violations

    Consumer Finance

    On July 13, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner for using a network of debt collection agencies (the Agencies) that allegedly engaged in improper debt collection tactics in violation of the prohibitions in the Consumer Financial Protection Act (CFPA) on engaging in unfair, deceptive, or abusive acts or practices (UDAAPs) and on providing substantial assistance to others engaging in such practices. The Bureau also alleged that the company, acting through the Agencies, violated the Fair Debt Collection Practices Act (FDCPA). According to the consent order, the Kansas-based company and its part-owner had “knowledge or a reckless disregard” of the illegal debt collection tactics used by the Agencies, including misrepresenting the amount the consumer actually owed and falsely threatening consumers and their families with lawsuits. In its findings and conclusions, the CFPB alleges that, after reviewing the Agencies’ practices, the company’s “compliance personnel recommended terminating the Agencies because of the Agencies’ illegal collection acts and practices, but [the company and its part-owner] continued placing accounts with the Agencies” and selling debts to one of the Agencies. In addition, the Bureau alleges the company and its part-owner provided operational assistance to the Agencies, such as (i) drafting and implementing policies and procedures that falsely implied compliance with federal laws; (ii) defending the Agencies’ practices when original creditors raised concerns about collection tactics; and (iii) preventing compliance personnel from conducting effective reviews of the Agencies. The order imposes a civil money penalty judgment of $3 million against the Kansas-based company and $3 million against the part-owner but the full payment is suspended subject to the company paying a $500,000 penalty and the part-owner paying a $300,000 penalty. In addition to the penalties, the company is prohibited from continuing the illegal behavior and must create and submit to the Bureau a comprehensive compliance plan, while the part-owner is permanently restrained from acting as an officer, director, employee, agent or advisor of, or otherwise providing management, advice, direction or consultation to, any individual or business that collects, buys, or sells consumer debt. 

    Consumer Finance CFPB Settlement Enforcement

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