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DOJ and OCC Reach Consent Agreement With Bank Over Alleged SCRA Violations
On September 29, the DOJ and OCC announced separate settlement agreements with a major U.S. bank regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ’s complaint alleged that the bank repossessed vehicles owned by active duty servicemembers without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected servicemembers whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected servicemembers and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation. The bank also agreed to pay a $60,000 civil penalty. The DOJ acknowledged that the bank had in 2014, prior to the investigation, taken steps to ensure SCRA compliance with a full-scale review of its portfolio to identify servicemembers for SCRA protection, and had previously and voluntarily commenced efforts to compensate any affected borrowers. In the OCC consent order, the OCC found errors and deficiencies by the bank in four areas: (i) applying the 6% interest rate cap; (ii) filing accurate military status affidavits; (iii) repossessing servicemembers automobiles while they were on active duty; and (iv) implementing its SCRA compliance program. Under the consent order for a civil money penalty, the bank agreed to pay a civil money penalty of $20 million, to create a remediation plan for affected servicemembers, and to bolster its SCRA-related policies and procedures.
House Considers Further Narrowing FDIC Scope on Brokered Deposits
On September 27, the House Financial Institutions and Consumer Credit Subcommittee heard testimony on HR 4116, a bill that would affect how the FDIC determines the amount of deposits at insured banks that qualify as “brokered deposits.” The Federal Deposit Insurance Act currently requires larger premiums for banks with higher ratios of brokered deposits as compared to traditional deposits. This bill would exclude reciprocal deposits from the definition of brokered deposits where the condition of the institution at its most recent examination was adjudged either good or outstanding, or where the total reciprocal deposits of the institution do not exceed either $10 billion or 20% of its total liabilities. This narrowed scope of brokered deposits would come on the heels of the FDIC’s decision to exclude smaller community banks from including reciprocal deposits are brokered deposits announced earlier this year.
OCC Hints At AML Guidelines to Come
On September 28, OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance for banks to manage AML/BSA risks in their foreign correspondent banking relationships.
NCUA Settles MBS Case with Foreign Bank
A foreign bank has agreed to pay $1.1 billion to settle lawsuits brought in Kansas and California in 2011 by the National Credit Union Administration Board (NCUA) as the liquidating agent for two corporate credit unions. The lawsuit centered on claims that the bank sold faulty mortgage-backed securities, contributing to the failures of the two credit unions during the financial crisis.
New York Hedge Fund Enters Into Fourth-Largest FCPA Enforcement Action of All Time
On September 29, a New York-based publicly-traded hedge fund agreed to pay approximately $412 million to the DOJ and SEC to resolve related criminal and civil charges of violating the FCPA in connection with the bribery of high-level government officials across Africa. This is the fourth-largest FCPA enforcement settlement of all time, and the first time a hedge fund has been held accountable for violating the FCPA. In the criminal case, the hedge fund entered into a three-year deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA, falsification of books and records, and failure to implement adequate internal controls. The hedge fund agreed to pay a criminal penalty of approximately $213 million, and to retain a compliance monitor for three years. The DPA’s Statement of Facts describes bribes paid to government officials in the Democratic Republic of Congo (Congo) and Libya to help the hedge fund obtain special access and preferential prices for investment opportunities in government controlled-mining sectors in Congo, and secure an investment from the Libyan Investment Authority, Libya’s sovereign wealth fund. In parallel proceedings, the hedge fund agreed to pay $199 million to the SEC and entered into an Administrative Order Instituting Cease-and-Desist Proceedings to settle the FCPA civil charges. The SEC’s allegations covered Libya, Chad, Niger, and the Congo, and alleged that the fund used intermediaries, agents, and business partners to corruptly influence foreign officials. The Order found that the hedge fund executives ignored red flags and corruption risks and permitted the corrupt transactions to proceed. Both the fund’s CEO and CFO agreed to settle related allegations, without admitting or denying the findings. The CEO agreed to pay nearly $2.2 million to the SEC in the settlement, and a penalty will be assessed against the CFO at a future date.
Tenth Circuit Reverses District Court Ruling, Allows Credit Union To Pursue Lawsuit Against Mortgage Lender For Misappropriating Loan Funds
Recently, the United States Court of Appeals for the Tenth Circuit reversed a district ruling allowing a Texas-based credit union to sue against a mortgage lender. In 2003, the credit union’s predecessor in interest entered into a funding service agreement with the mortgage lender which originated 26 mortgage loans to individual borrowers. The credit union alleged that the mortgage lender and its closing agents wrongfully induced the predecessor to fund loans to “straw borrowers” as a vehicle to misappropriate $14 million in loan proceeds. In 2007, the credit union and its predecessor in interest entered into a purchase and assumption agreement (PAA). According to the Court, when two parties to a contract agree to its terms, as pursuant to the PAA, a third party cannot object. Further, the Court noted that, because of the PAA, the credit union had all rights to pursue claims on behalf of the predecessor in interest. A district court had previously ruled that the credit union was not a proper plaintiff and dismissed the case. The dismissal was reversed. Security Service FCU v. First American Mortgage Funding, LLC, No. 13-1133 (10th Cir. Nov. 4, 2014).
CFPB Updates TILA-RESPA Integrated Disclosure Rule Compliance Guide
On September 8, the CFPB released an updated Small Entity Compliance Guide for its TILA-RESPA Integrated Disclosure Rule, which becomes effective next August. The updates include information on where to find additional resources on the rule, additional clarification on questions relating to the Loan Estimate and 7 day waiting period, and additional clarification on questions relating to the timing for revisions to the Loan Estimate. The new guides follow a recent webinar hosted by the CFPB and the Federal Reserve Board to address rule implementation.