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OCC Issues Large Bank Recovery Guidelines
On September 29, the OCC released final guidelines establishing standards for recovery planning for large OCC-regulated institutions. The guidelines, which are not applicable to community banks, are designed to provide “a comprehensive framework for evaluating the financial effects of severe stress that may affect a covered institution and options it may take to remain viable under such stress.” Pursuant to the guidelines, an institution “should develop and maintain a recovery plan that is specific to that covered bank and appropriate for its individual size, risk profile, activities, and complexity, including the complexity of its organizational and legal entity structure.” OCC examiners will begin to assess an institution’s recovery plan for appropriateness and adequacy. The guidelines, which contain various compliance dates, become effective January 1, 2017.
FTC Announces $1.3 Billion Judgment Against Payday Lenders
On October 4, the FTC announced a $1.3 billion judgment against defendants responsible for operating an allegedly deceptive payday lending scheme. The judgment is the result of 2012 complaint in which the FTC alleged that the defendants engaged in deceptive acts or practices in violation of Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. According to the FTC, the defendants claimed that they would charge consumers the loan amount and a one-time finance fee. However, the court found that the defendants “made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan.” The $1.3 billion order is the largest litigated judgment the FTC has obtained to date.
CFPB Settles With Online Lender
On September 27, the CFPB entered into a consent agreement with a California-based online lender for allegedly misrepresenting, among other things, the fees charged, the loan products that were available to consumers, and whether the loans would be reported to credit reporting companies. As part of the agreement, the CFPB indicated that the lender would be required to include the correct finance charge and annual percentage rate in all of its online disclosures, and must test those disclosures annually to ensure accuracy and compliance with the Truth in Lending Act. As a result, the lender will be required to pay $1.83 million in consumer redress as well as $1.8 million as a civil penalty.
CFPB Reaches Agreement With Title Lender
On September 26, the CFPB entered into a consent agreement with a Georgia-based automobile-title lender and its affiliates, based on allegations that the lender violated the Unfair and Abusive prongs of the Consumer Financial Protection Act. The CFPB alleged that the lender “lur[ed] consumers into costly loan renewals by presenting them with misleading information about the deals’ terms and costs.” The CFPB specifically indicated the lender’s use of a “Payback Guide” that focused the consumer’s attention on the monthly payment, and not on the total cost of the transaction, including the costs to roll over the loan to an additional period, materially interferes with the consumer’s ability to understand the terms of the transaction. The CFPB also alleged that the lender committed unfair debt-collection practices by visiting consumers’ homes, references, and places of employment, and revealing information about past-due debt to third parties, including neighbors, roommates, family members, supervisors, and co-workers. Under the terms of the consent order, the lender is prohibited from using the Payback Guide and from encouraging consumers to exceed the original term of repayment. The order also prohibits the lender from making in-person visits to collect payments. Under the agreement, the lender must pay $9 million as a civil penalty to the CFPB.
CFPB Sues Credit Repair Company in Federal Court
On September 22, the CFPB filed a complaint in federal district court against a credit repair company, claiming that the company charged consumers a series of illegal fees, including a fee to access the consumer’s credit report, a fee to set up the consumer’s account, and a monthly fee that continues to accrue until the consumer affirmatively cancels the service. The CFPB also alleged that the company misrepresented the cost and effectiveness of its services, stating that it could “remove virtually any negative information from a consumer’s credit report,” and that it raises customer’s credit scores by an average of more than 100 points, without proper substantiation for either claim. The CFPB alleged that the company’s actions violate the Telephone Sales Rule, and the deceptive prong of the Consumer Financial Protection Act.
Revised MLA Examination Procedures Released
On September 29, the Federal Reserve released the interagency examination procedures for the DOD’s Military Lending Act (MLA) final rule published in July of 2015. Also on September 29, the CFPB released its own examination procedures under the final rule, providing guidance as to how the CFPB will conduct reviews under what will be a broader scope of coverage under the MLA, including credit cards, deposit advance products, overdraft lines of credit (not traditional overdraft services), and certain types of installment loans. The final rule goes into effect on Monday, October 3 for most extensions of consumer credit to active duty servicemembers and their dependents.
Fed Proposal Would Modify Stress Tests for Large, Noncomplex Bank Holding Companies
On September 26, the Federal Reserve released a proposed rule that would essentially remove bank holding companies defined to be “large and noncomplex” from the qualitative portion of annual Comprehensive Capital Analysis and Review (CCAR) assessment process (“stress tests”). Under the proposed rule, large and noncomplex bank holding companies are those with total consolidated assets of at least $50 billion, but less than $250 billion, less than $10 billion in foreign exposure, and less than $75 billion in average nonbank assets. Currently, the Fed applies the CCAR process to bank holding companies with more than $50 billion in total consolidated assets. Fed Governor Daniel Tarullo indicated that the Fed was also considering adoption of a “stress capital buffer” approach for larger, global systemically important banks (GSIB). The new approach would replace the uniform 2.5-percent capital conservation buffer, and would instead require GSIBs to retain capital “equal to the maximum decline in a firm's common equity tier 1 capital ratio under the severely adverse scenario of the supervisory stress test before the inclusion of the firm's planned capital distributions.”
Fed Proposes Restrictions on Financial Holding Companies' Physical Commodities Activities
On September 23, the Federal Reserve released a proposed rule outlining new risk-based capital and other regulatory requirements for banks that transact in physical commodities. Among other things, the proposed rule would require financial holding companies to retain additional capital if the company is engaged in activities involving commodities for which existing laws impose certain environmental liability. The rule also looks to accomplish the following: (i) to restrict the amount of physical commodity trading activity firms may conduct; (ii) to rescind authorizations that allow firms to engage in physical commodity activities involving power plants; (iii) to remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and (iv) to establish reporting requirements on the nature and extent of firms' physical commodity holdings and activities. In the memo discussing the proposal, the Fed indicated that it was addressing circumstances where “damages can exceed the market value of the physical commodity involved in the catastrophic events, and can exceed the committed capital and insurance policies of the organization.” The deadline to submit comments is set at December 22.
DOJ Teams Up With OFAC to Bring Enforcement against Chinese Front Company
On September 26, the DOJ announced charges against a Chinese trading company and its executives for conspiracy to violate the International Emergency Economic Powers Act (IEEPA), and to defraud the United States; as well as for conspiracy to launder monetary instruments through U.S. financial institutions. The criminal complaint alleges that the company served as a third-party payer, using an illicit network of front companies, financial facilitators, and trade representatives to purchase sugar and fertilizer for a banking entity based in North Korea that OFAC had designated as a Specially Designated National (SDN) in 2009. The civil forfeiture complaint seeks forfeiture of funds spread out across 25 different bank accounts located in China and connected to the affairs of the company. In addition, OFAC imposed sanctions on the company, which is located near the North Korean border and openly worked with the SDN banking entity after 2009.
DOJ Settles False Claims Act Lawsuit Over HUD and FHA Mortgages
On September 29, the DOJ announced a settlement with a large regional bank, whereby the bank agreed to pay $83 million to resolve allegations that it violated the False Claims Act by originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable FHA requirements. In addition to underwriting defects, the DOJ alleged deficiencies in the bank’s quality control function, especially during periods of increased loan volume, as well as failures to adequately self-report loans with material defects. The settlement is not an admission of liability by the bank. BuckleySandler represented the bank in this matter.