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OCC announces 2023 assessment schedule
On December 1, the OCC released its 2023 assessment schedule. Among other things, the OCC noted that it would reduce the rates in the general assessment fee schedule and maintain assessment rates from 2022 for the independent trust and independent credit card fee schedules. The changes include reductions by 40 percent for all banks on their first $200 million in total balance sheet assets, and a 20 percent reduction for balance-sheet assets above $200 million and up to $20 billion. The OCC also noted that it is not adjusting the assessment rates for inflation. Additionally, the OCC said that it will increase the hourly fee for special examinations from $155 to $161. The OCC also highlighted that assessments are due March 31 and September 30, based on Call Report information as of December 31 and June 30. The OCC further explained that the schedule continues to include a surcharge for national banks, federal savings associations, and federal branches and agencies of foreign banks that require increased supervisory resources.
HUD increases FHA loan limits for 2023
On December 1, HUD announced the 2023 loan limits for Single Family Title II Forward and Home Equity Conversion Mortgage (HECM) insurance programs. (See also Mortgagee Letter 2022-20 and Mortgagee Letter 2022-21). For FHA case numbers assigned on or after January 1, 2023, the maximum loan limits for FHA forward mortgages will increase in 3,222 counties and remain unchanged in 12 counties. The HECM maximum claim amount will also increase from $970,800 to $1,089,300.
FHFA announces 2023 conforming loan limits
On November 29, FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2023 by Fannie Mae and Freddie Mac from $647,200 to $726,200 (the 2022 CLL limits were covered by InfoBytes here). In most high-cost areas, the maximum loan limit for one-unit properties will be 1,089,300. According to FHFA, due to generally rising home values, “the CLLs will be higher in all but two U.S. counties or county equivalents.” A county-specific list of 2023 conforming loan limits for all counties and county-equivalent areas in the U.S. can be accessed here.
CFPB denies crypto lender’s petition to set aside CID
On November 22, the CFPB denied a petition by a cryptocurrency lender to set aside a civil investigative demand (CID) issued by the Bureau last December. According to the Bureau, the lender (which states on its website that it is licensed by various state regulators to engage in consumer lending and money transmitting) and its affiliates market a range of products, including interest-accruing accounts and lines of credit. The CID informed the lender that a company representative was required to provide oral testimony at an investigational hearing into whether the lender's conduct is subject to federal consumer financial law, whether the lender had violated the Consumer Financial Protection Act and Regulation E, and whether an enforcement action would be in the public interest.
The lender petitioned the Bureau in March to modify or set aside the CID, arguing, among other things, that the Bureau lacks authority to investigate its Earn Interest Product because the SEC had previously made clear in a different matter (covered by InfoBytes here) that interest-bearing crypto lending products like the lender’s Earn Interest Product are securities. Accordingly, the lender contended that the Earn Interest Product fell outside of the Bureau’s jurisdiction. Furthermore, the lender asserted that in light of the SEC’s action, it stopped offering its Earn Interest Product to new U.S. customers and “began working to implement other changes by which current users would no longer earn interest on new funds in their Earn Interest Product accounts.”
In rejecting the lender’s arguments, the Bureau said that lender “is trying to avoid answering any of the Bureau’s questions about the Earn Interest Product (on the theory that the product is a security subject to SEC oversight) while at the same time preserving the argument that the product is not a security subject to SEC oversight. This attempt to have it both ways dooms [the lender’s] petition from the start.” The Bureau also emphasized that unresolved facts related to the lender’s Earn Interest Product make it impossible to determine whether any of the challenged conduct is subject to an exclusion from the Bureau’s authority under the CFPA or an exemption to Regulation E. The Bureau further noted that courts have established that the recipient of a CID cannot challenge an agency investigation by contesting facts that the agency might find, at least in situations “where the investigation is not patently outside the agency’s authority.”
District Court issues judgment against company for marketing fake high-yield CDs
On December 9, the U.S. District Court for the Southern District of New York entered a final stipulated final judgment and order against a Delaware financial-services company operating in Florida and New York along with its owner (collectively, “defendants”) for engaging in deceptive acts under the Consumer Financial Protection Act related to its misleading marketing representations when advertising high-yield healthcare savings CD accounts. As previously covered by InfoBytes, the Bureau’s 2020 complaint alleged that defendants engaged in deceptive acts or practices by: (i) falsely representing that consumers’ deposits into the high yield CD accounts would be used to originate loans for healthcare professionals, when in fact, the company never used the deposits to originate loans for healthcare professionals, never sold a loan to a bank or secondary-market investor, and never entered into a contract with a buyer or investor to purchase a loan; (ii) concealing the company’s true business model by falsely representing that the consumers’ deposits, when not being used to originate healthcare loans, would be held in an FDIC- or Lloyd’s of London-insured account or a “cash alternative” or “cash equivalent” account, when in reality, consumers’ deposits were, among other things, invested in securities; (iii) misleading consumers into believing that the accounts their funds were being deposited into functioned like traditional savings accounts when in fact, consumers’ deposits were actively traded in the stock market or used in securities-backed investments; and (iv) falsely representing that past high yield CD accounts allegedly paid interest at rates between 5 percent and 6.25 percent prior to 2019 when in fact, the company did not offer CDs until August 2019, and “consumers’ principals was neither guaranteed nor insured.” The complaint noted that since August 2019, the company took more than $15 million from at least 400 consumers.
The settlement provides for a comprehensive consumer redress plan that would require defendants to refund approximately $19 million to approximately 400 depositors. Further, pursuant to the order, the defendants are required to return the money that each affected consumer deposited into a certain account in a manner consistent with the advertised terms of the product, namely, the principal along with an average per year interest rate of about 6 percent. The proposed order also permanently bans the defendants from engaging or assisting others in any deposit taking activities and requires defendants to pay a civil money penalty to the Bureau in the amount of $391,530.
OCC revises civil money penalty manual
On November 29, the OCC announced revisions to its civil money penalty (CMP) manual. Specifically, the OCC revised the CMP matrix, which is a tool used to guide the OCC’s decision making in assessing CMPs. The revised CMP matrix, applicable to OCC-regulated institutions, allows for sufficient differentiation among varying levels of misconduct or by institution size, and includes updated mitigating factors to provide a stronger incentive for banks to fully address underlying deficiencies. The OCC also announced a revised Policies and Procedures Manual (PPM) for assessing CMPs. This version replaces the November 13, 2018, version conveyed by OCC Bulletin 2018-41, “OCC Enforcement Actions: OCC Enforcement Action Policies and Procedures Manuals.” Highlights of the PPM include, among other things; (i) revised mitigating factors of self-identification, remediation or corrective action, and restitution: (ii) increased scoring weight of mitigating factors; and (iii) a revised table titled “Suggested Action Based on Total Matrix Score and Total Assets of Bank.” The OCC further noted that the CMP matrix is not a substitute for sound supervisory judgment, and said the OCC may depart from the matrix suggestions when appropriate and when based on the specific facts and circumstances of each matter. The OCC will begin using the revisions on January 1, 2023.
CSBS says FDIC board nominees lack state bank regulatory expertise
On November 29, the Conference of State Bank Supervisors sent a letter to Senator Sherrod Brown (D-OH), Chairman of the Senate Banking Committee, and Rep. Pat Toomey (R-PA), Ranking Member of the House Financial Services Committee, to express their disappointment that none of the nominees to the FDIC Board of Directors have state bank supervisory experience. Last month, President Biden nominated Martin Gruenberg, who has been serving as acting chairman, to serve as chair and member of the board, and in September, Travis Hill and Jonathan McKernan were nominated to fill the board’s two vacant seats (covered by InfoBytes here and here). At the time of the announcement, CSBS President and CEO James M. Cooper issued a statement encouraging the U.S. Senate to ask nominees how they intend to work with state bank regulators. Cooper reiterated in his follow-up letter that the FDI Act requires that at least one board member have state bank supervisory experience, especially since having the Comptroller of the Currency seated on the board represents the interest of national banks. According to Cooper, fulfilling this statutory requirement “can only be met by a person who has worked in state government as a supervisor of state-chartered banks, and as the legislative history notes, [is] someone with ‘state bank regulatory expertise and sensitivity to the issues confronting the dual banking system.’” Cooper asked that the slate of nominees confirmed by the Senate includes at least one individual who fulfills this requirement.
The following day, during the Senate Banking Committee’s nomination hearing, Republican senators questioned Gruenberg’s role in a dispute between Democratic board members and former Chairwoman Jelena McWilliams related to a joint request for information seeking public comment on revisions to the FDIC’s framework for vetting proposed bank mergers. McWilliams eventually announced her resignation at the end of last year (covered by InfoBytes here). Senator Pat Toomey (R-PA) called Gruenberg’s participation in the dispute “very disturbing,” and expressed concerns that his actions, along with some of his colleagues, “really undermines the [] FDIC and could have lasting implications.” Gruenberg countered that under the FDI Act, “the authority of the agency explicitly is vested in the board of directors, and the majority of the board has the authority to place items before the board.”
Some Republican senators also raised concerns with Gruenberg’s past involvement in Operation Choke Point, with Senator Steve Daines (R-MT) requesting that Gruenberg commit to actively preventing FDIC employees from “criticizing, discouraging or prohibiting banks from lending or doing business with any industries or customers that are operating in accordance with the law.” Gruenberg agreed to do so, saying this has been the FDIC’s policy. The FDIC’s current approach to cryptocurrency was also addressed, while Senator Cynthia Lummis (R-WY) took issue with the fact that none of the board nominees fulfill the Biden administration’s push for diversity and inclusion.
FTC takes action against debt relief operation
On November 30, the FTC announced an action against three individuals and their affiliated companies (collectively, “defendants”) for allegedly participating together in a credit card debt relief scheme since 2019. The FTC alleged in its complaint that the company violated the FTC Act and the Telemarketing Sales Rule (TSR) by using telemarketers to call consumers and pitch their deceptive scheme, falsely claiming to be affiliated with a particular credit card association, bank, or credit reporting agency and promising they could improve consumers’ credit scores after 12 to 18 months. The defendants also allegedly misrepresented that the upfront fee, which in some cases was as high as $18,000, was charged to consumers’ credit cards as part of the overall debt that would be eliminated, and therefore consumers would not actually have to pay this fee. The District Court for the Middle District of Tennessee granted the Commission’s request to temporarily shut down the scheme operated by the defendants and froze their assets. The complaint requests, among other things, a permanent injunction to prevent future violations of the FTC Act and the TSR by the defendants.
Senators demand answers on collapsed cryptocurrency exchange; NYDFS seeks tougher crypto approach
On November 16, Senator Elizabeth Warren (MA-D) and Senator Richard Durbin (IL-D) sent a letter to the ex-CEO and his successor of a cryptocurrency exchange that filed for bankruptcy. In the letter, the senators requested a series of files from the cryptocurrency exchange, including copies of internal policies and procedures regarding the relationship between the firm and its affiliated crypto hedge fund. The senators stated that the cryptocurrency exchange’s customers and Americans “fear that they will never get back the assets they trusted to [the cryptocurrency exchange] and its subsidiaries.” Additionally, the senators argued that “the apparent lack of due diligence by venture capital and other big investment funds eager to get rich off crypto, and the risk of broader contagion across the crypto market that could multiply retail investors’ losses, ‘call into question the promise of the industry.’” The senators emphasized that “the public is owed a complete and transparent accounting of the business practices and financial activities leading up to and following the cryptocurrency lending firm's collapse and the loss of billions of dollars of customer funds.” Among other things, the senators asked the cryptocurrency exchange to provide requested information by November 28, including: (i) complete copies of all the firm’s and its subsidiaries’ balance sheets, from 2019 to the present; (ii) an explanation of how “a poor internal labeling of bank-related accounts” resulted in the firm’s liquidity crisis; (iii) a list of all the firm’s transfers to its affiliated crypto hedge fund; (iv) copies of all written policies and procedures regarding the relationship between the firm and its affiliated crypto hedge fund; and (v) an explanation of the $1.7 billion in the firm’s customer funds that were allegedly reported missing.
The same day, NYDFS Superintendent Adrienne Harris participated in a “fireside chat” before the Brooking Institute’s event, Digital asset regulation: The state perspective - Effective regulatory design and implementation for virtual currency. During the chat, Harris expressed her support for a national framework similar to what New York has because she believes that “it is proving itself to be a very robust and sustainable regime.” Harris also discussed NYDFS priorities regarding digital assets for the future, stating that crypto companies can expect more guidance on a number of key regulatory issues. Specifically, Harris disclosed that NYDFS will “have more to say on capitalization,” and “on consumer protection, disclosures, advertising … [and] complaints, making sure these companies have an easy way for consumers to complain.” She also warned that NYDFS will “bolster and broaden” its authority, adding that there is “lots of work for us to do to make clear the expectations that we have already, and to make sure that the things we have on the books equip us well to keep up with this marketplace.”
Senators Warren and Sheldon Whitehouse (D-RI) also sent a letter to the DOJ asking that the former CEO and any complicit company executives be held personally accountability for wrongdoing following the cryptocurrency exchange’s collapse.
On December 13, the House Financial Services Committee will hold a hearing to discuss the cryptocurrency exchange’s collapse and the possible implications for other digital asset companies.
FDIC releases October enforcement actions
On November 25, the FDIC released a list of administrative enforcement actions taken against banks and individuals in October. During the month, the FDIC made public ten orders consisting of “one consent order; one amended and restated consent order; one personal cease and desist order; three orders to pay civil money penalties; two Section 19 orders; and two orders terminating consent orders.” Among the orders is an order to pay a civil money penalty imposed against a Mississippi-based bank related to 128 alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank failed to obtain the required flood insurance or obtain an adequate amount of insurance coverage, at or before loan origination, for all structures in a flood zone. The order requires the payment of a $320,500 civil money penalty.
The FDIC also issued a consent order to a New York-based bank, which alleged that the bank had unsafe or unsound banking practices relating to weaknesses in the Bank’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Program. The bank neither admitted nor denied the alleged violations but agreed to, among other things, increase its supervision, direction, and oversight of AML/CFT personnel and its AML/CFT program.