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OFAC sanctions persons connected to Nicaragua President Ortega; amends Nicaragua sanctions regulations and Ukraine-related general licenses
On July 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13851 against one of Nicaraguan President Ortega’s sons, as well as a second individual and two companies used to allegedly “distribute regime propaganda and launder money.” According to OFAC, the second sanctioned individual created shell companies to launder money from businesses that he operated on behalf of another one of the president’s sons previously designated by OFAC. OFAC also cited to the individual’s alleged involvement on behalf of a chain of sanctioned gas stations controlled by the Ortega family, designating the individual “for being responsible for or complicit in, or for having directly or indirectly engaged or attempted to engage in, a transaction or series of transactions involving deceptive practices or corruption by, on behalf of, or otherwise related to the [Government of Nicaragua (GoN)] or a current or former official of the GoN.” As a result, all property and interests in property of the sanctioned individuals and entities, and of any entities owned 50 percent or more by such persons subject to U.S. jurisdiction, are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from entering into transactions with the sanctioned persons.
Separately, on July 16, OFAC announced amendments (effective July 17) to the Nicaragua Sanctions Regulations, which incorporate the Nicaragua Human Rights and Anticorruption Act of 2018, and, among other things, update the authority citation as well as the prohibited transactions and delegation sections. A general license previously posted on OFAC’s website authorizing certain U.S. government activities related to Nicaragua also has been incorporated. The final rule is effective July 17.
The announcement also extends the expiration date of two Ukraine-related general licenses (GLs). Both GL 13O, which supersedes GL 13N, and GL 15I, which supersedes GL 15H, now expire January 22, 2021, and authorize certain transactions necessary to divest or transfer debt, equity, or other holdings, or wind down operations or existing contracts with a Russian manufacturer previously sanctioned by OFAC in April 2018 (covered by InfoBytes here).
UAE manufacturer settles OFAC, DOJ charges for apparent North Korean sanctions violations
On July 16, a United Arab Emirates cigarette filter and tear tape manufacturer settled OFAC and DOJ charges for apparent violations of the North Korea Sanctions Regulations (NKSR) 31 C.F.R. part 510 and the International Emergency Economic Powers Act (IEEPA). According to OFAC’s release, the company allegedly violated the NKSR by (i) engaging in deceptive practices in order to export cigarette filters to North Korea through a network of front companies in China and other countries; and (ii) receiving three wire transfers totaling more than $330,000 in accounts at a U.S. bank’s foreign branch as payment for exporting the filters. OFAC noted that the conduct leading to the apparent violations included aggravating factors such as (i) the company’s senior manager and customer-facing employee willfully violated the NKSR by agreeing to, among other things, transact with non-North Korean front companies to conceal the North Korea connection despite a company policy that “warned that its banks would not handle transactions with sanctioned jurisdictions” including North Korea; and (ii) the senior manager and customer-facing employee were aware that the filters would be sent to North Korea. OFAC also considered various mitigating factors, including that the company substantially cooperated with OFAC’s investigation and agreed to provide ongoing cooperation. Under the terms of the settlement agreement, the company is required to pay a $665,112 civil monetary penalty to OFAC, which will be deemed satisfied by payment of the fine assessed by the DOJ arising out of the same conduct.
In the parallel criminal enforcement action, the company entered into a deferred prosecution agreement with the DOJ, accepting responsibility for its criminal conduct and agreeing to pay a $666,543.88 fine. According to the DOJ, this is the Department’s first corporate enforcement action for violations of the IEEPA. In addition, the company agreed to, among other things, fully cooperate with any investigation, implement a compliance program designed to prevent and detect any future violations of U.S. economic sanctions regulations, provide quarterly reports to the DOJ regarding the status of compliance improvements, provide OFAC-related training, and annually certify to OFAC that it has implemented and has continued to uphold its compliance-related commitments.
CFPB approves new automatic savings program under CAS Policy
On July 17, the CFPB announced a new Compliance Assistance Statement of Terms Template (CAST Template) under its Compliance Assistance Sandbox (CAS) Policy issued to a company’s program designed to help employees build emergency savings. Specifically, under the approved template, known as “Autosave,” interested employers could help employees build emergency savings by directing a portion of the employee’s pay to an employee-designated account at a financial institution; or if an employee does not designate an account, directing the funds to an “Autosave” account at an employer-designated institution. The Bureau notes that a CAST Template is necessary for this program due to the legal uncertainty around the application of the “compulsory use” prohibition in the Electronic Fund Transfer Act (EFTA), and Regulation E. However, the applicants assert the Autosave program embodies a “reasonable default enrollment method,” which, according to the Bureau, can be consistent with the consumer choice requirements of the EFTA and Regulation E.
Foreclosure relief operation ordered to pay $40,000 penalty in CFPB action
On July 23, the CFPB announced that the U.S. District Court for the Central District of California entered a stipulated final judgment and order against a foreclosure relief services company, along with the company’s president/CEO (defendants), resolving CFPB allegations that the defendants engaged in deceptive and abusive acts and practices in connection with the marketing and sale of purported financial-advisory and mortgage-assistance-relief services to consumers. As previously covered by InfoBytes, in September 2019, the CFPB filed a complaint alleging that since 2014, the defendants violated the Consumer Financial Protection Act (CFPA) and Regulation O by, among other things, making deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, as well as making misleading or false claims about the experience and qualifications of its employees. The Bureau also alleged the defendants’ misrepresentations constituted abusive acts and practices because consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services.
The stipulated final judgment suspends $3 million in consumer redress based upon the defendants’ sworn financial statements and disclosures of material assets that detailed their inability to pay, but orders the defendants to pay $40,000 in civil money penalties. Additionally, the judgment permanently restrains the defendants from offering mortgage relief and financial advisory services and subjects the defendants to certain reporting and recordkeeping requirements.
OCC proposes True Lender rule
On July 20, the OCC issued a proposed rule (see also Bulletin 2020-70) that addresses when a national bank or federal savings association (bank) is the “true lender” in the context of a partnership between a bank and a third party in order to clarify uncertainties about the legal framework that applies. Specifically, the proposed rule amends 12 CFR part 7 to state that “a bank makes a loan when, as of the date of origination, it (i) is named as lender in the loan agreement or (ii) funds the loan.” The OCC notes that the proposal intends to cover situations where the bank “has a predominant economic interest in the loan,” as the original funder, even if it is not “the named lender in the loan agreement as of the date of origination.”
In response, the Conference of State Bank Supervisors (CSBS) issued a statement opposing the proposal, stating that “the true lender doctrine is and should remain a matter of state law.”
As previously covered by InfoBytes, the OCC and the FDIC recently issued final rules clarifying that whether interest on a loan is permissible under federal law is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan, effectively reversing the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision. At the time, both agencies chose not to address the “true lender” issue.
CFPB adjusts annual dollar amount thresholds under TILA regulations
On July 17, the CFPB released the final rule revising the dollar amounts for provisions implementing the Truth in Lending Act (TILA) and amendments to TILA, including the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s ability-to-repay and qualified mortgage (ATR/QM) provisions. The CFPB is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2020. The following thresholds will be effective on January 1, 2021:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- For open-end consumer credit plans under the CARD Act, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $29, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will also remain unchanged at $40;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $22,052, and the adjusted points and fees dollar trigger for high-cost mortgages will be $1,103; and
- The maximum thresholds for total points and fees for qualified mortgages under the ATR/QM rule will be: (i) three percent of the total loan amount for loans greater than or equal to $110,260; (ii) $3,308 for loan amounts greater than or equal to $66,156 but less than $110,260; (iii) five percent of the total loan amount for loans greater than or equal to $22,052 but less than $66,156; (iv) $1,103 for loan amounts greater than or equal to $13,783 but less than $22,052; and (v) eight percent of the total loan amount for loan amounts less than $13,783.
FDIC seeks input on voluntary certification of innovative technologies
On July 20, the FDIC issued a Request for Information (RFI) seeking input on whether a public/private standard-setting partnership and voluntary certification program could be established to (i) promote the efficient and effective adoption of innovative technologies at supervised financial institutions; and (ii) support financial institutions’ efforts to implement innovative models, manage risk, and conduct due diligence of third-party fintech firms. The RFI is being issued as part of the agency’s FDiTech initiative (covered by InfoBytes here), which was established in 2019 to encourage innovation within the banking industry (particularly at community banks), support collaboration for piloting new products and services, eliminate regulatory uncertainty, and manage risks.
The FDIC stated that establishing a standards-setting body, developed by regulators and industry stakeholders, would help promote innovation across the banking sector and streamline the vetting process for fintech partners. The agency noted that a voluntary certification program could assist in standardizing due diligence practices and reduce costs for financial institutions that choose to participate. Additionally, the FDIC emphasized that it “is especially interested in information on models and technology services developed and provided by [fintechs].” Comments are due 60 days after publication in the Federal Register.
District court shuts down operation claiming debt relief for students
On July 20, the FTC announced that the U.S. District Court for the Central District of California issued a final judgment permanently banning defendants in a student loan debt relief operation from telemarketing or providing debt relief services. As previously covered by InfoBytes, in 2019 the FTC charged the defendants with violations of the FTC Act and the Telemarketing Sales Rule (TSR) for allegedly, among other things, (i) charging borrowers illegal advance fees; (ii) falsely claiming they would service and pay down borrowers’ student loans; and (iii) obtaining borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers.
The court’s order granted the FTC’s motion for summary judgment, finding that the defendants received revenues of at least $31.1 million derived unlawfully from payments received from borrowers due to the defendants’ violations of the FTC Act and TSR. Of these revenues, only about $3.1 million had been paid by the defendants to borrowers’ federal student loan servicers, the order stated, although the court noted that the defendants allegedly refunded about $408,089 to consumers. The court imposed a roughly $27.6 million judgment against the defendants as equitable monetary relief, and permanently banned the defendants from offering similar services in the future, including misrepresenting, or assisting others in misrepresenting, any facts materials to a consumer’s decision to purchase financial products or services.
Colorado amends public health order to require certain employees of critical businesses to wear masks, gloves
On July 21, the Colorado Department of Public Health and Environment issued Amended Public Health Order 20-31, which provides requirements for face coverings and gloves. All employees, contractors, and others providing services for critical businesses that interact in close proximity with other employees or with the public must wear a medical or non-medical cloth face covering that covers the nose and mouth, unless this would inhibit the individual’s health. Employers that operate critical businesses should provide employees with non-medical face coverings. Employees, contractors, and others providing services for critical businesses must also wear gloves, as appropriate by industry standards, when in physical contact with customers or goods if gloves are provided by the employer. The order took effect on July 21 and will continue through August 15, unless otherwise suspended or extended.
Texas Supreme Court orders CARES Act certifications in eviction proceedings
On July 21, the Texas Supreme Court issued an order requiring landlords initiating eviction proceeds to issue a sworn statement describing whether the premises at issue is subject to the CARES Act moratorium on evictions, and whether the landlord has provided the defendant with 30 days’ notice to vacate as required by the CARES Act. The order applies to eviction proceedings filed through August 24.