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CFPB sues company for marketing of high-yield CDs
On July 6, the CFPB filed a complaint in the U.S. District Court for the Southern District of New York against a Delaware financial-services company operating in Florida and New York along with its owner (collectively, “defendants”) for allegedly violating the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by making misleading marketing representations when advertising its high yield CD accounts. The Bureau's complaint alleges that since August 2019, the company took more than $15 million from at least 400 consumers. According to the complaint, the defendants engaged in four separate 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) falsely describing the company as a commercial bank and claiming their high yield CD accounts were comparable to a traditional savings accounts with a guaranteed return, when in fact, the company was not a commercial bank, and 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; however, the company did not offer CDs until August 2019, and “consumers’ principals was neither guaranteed nor insured.” Among other things, the Bureau seeks monetary relief, consumer redress, injunctive relief, and a civil money penalty.
Fed enforcement action targets flood insurance
On July 2, the Federal Reserve Board announced an enforcement action against a West Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $24,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
SBA releases PPP borrower information
On July 6, the Small Business Administration (SBA), in conjunction with the Treasury Department, released the business information of certain Paycheck Protection Program (PPP) loan recipients. For any loan over $150,000, the SBA data release includes business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, name of lender, jobs supported, and a loan amount range. For loans under $150,000, the SBA withheld the business names and addresses in the release. The data release also includes overall statistics regarding dollars lent per state, loan amounts, top lenders, and distribution by industry. According to data, the PPP has approved over $4.8 million loans, with the average loan size of approximately $106,000. Currently, there are 5,460 participating lenders.
CFPB announces Consumer Financial Protection Week
On July 6, the CFPB announced the launch of Consumer Financial Protection Week from July 14 through July 17. Over the course of four days, the Bureau is hosting or participating in multiple virtual events, including (i) a tutorial and overview of the HMDA data browser; (ii) a discussion on the Bureau’s supervisory and enforcement prioritized assessment approach; and (iii) a discussion on the Bureau’s Taskforce on Federal Consumer Financial Law.
FHFA extends Covid-19 origination flexibilities to August 31
On July 9, the Federal Housing Finance Agency (FHFA) announced the extension of several loan origination flexibilities put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA has extended until August 31, the following provisions: “(i) alternative appraisals on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) expanding the use of power of attorney and remote online notarizations to assist with loan closings.” The extensions are reflected in updates to Fannie Mae Lender Letters LL-2020-03 and LL 2020-04 and Freddie Mac Guide Bulletin 2020-27.
Federal Reserve announces temporary revisions to Capital Assessment and Stress Testing Reports
On July 8, the Federal Reserve announced revisions to its Capital Assessments and Stress Testing Reports, Form FR Y-14A/Q/M; OMB No. 7100-0341. The temporary revisions implement changes in response to the Covid-19 pandemic, including the incorporation of data related to certain aspects of the CARES Act, the Paycheck Protection Program, and Federal Reserve lending facilities. The changes apply to reports beginning with July 31, 2020, or September 30, 2020, as-of dates. Additionally, the Federal Reserve has temporarily revised the submission frequency of FR Y–14Q, Schedule H (Wholesale) from a quarterly basis to a monthly basis for Category I–III firms, effective July 31, 2020.
FHA expands Covid-19 loss-mitigation options
On July 8, the FHA announced additional home retention measures to assist homeowners with FHA-insured mortgages who are financially impacted by the Covid-19 pandemic. According to Mortgagee Letter 2020-22, effective immediately, mortgage servicers are able to offer a new suit of loss mitigation “waterfall” options to homeowners whose mortgages were current or less than 30 days past due as of March 1. ML 2020-22 updates existing options previously outlined in ML 2020-06 (covered by InfoBytes here) and introduces several new measures including (i) a standalone partial claim, not to exceed the 30 percent maximum statutory value; (ii) an owner-occupant loan modification (for homeowners who do not qualify for a standalone partial claim) that will modify the rate and term of the existing mortgage at the end of the Covid-19 forbearance period; (iii) a combination partial clam and loan modification (for homeowners who are ineligible for either of the first two options); and (iv) a FHA Home Affordable Modification Program combination loan modification and partial claim with reduced documentation, which may include principal deferment and is for homeowners who are ineligible for the other home retention solutions. ML 2020-22 also provides that borrowers who do not currently occupy their FHA-insurance single family property may obtain a modification to their mortgage rates and terms under a Covid-19 non-occupant loan modification.
Kansas issues executive order regarding vehicle registration
On July 8, the Kansas governor issued Executive Order No. 20-55, which amends provisions in Kansas law related to drivers’ license and vehicle registration during the state of disaster emergency. Among other things, the executive order extends the deadline for new Kansas owners that have purchased a new or used motor vehicle on or after January 1, 2020, to make an application for vehicle transfer, certificate of title, and registration. The applicable deadline depends upon when the motor vehicle was purchased.
Pharmaceutical company settles FCPA-related bribery charges with SEC
On July 2, a Boston-based global pharmaceutical company agreed to pay over $21 million to settle claims by the SEC that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, Turkish and Russian subsidiaries of the pharmaceutical company made payments to foreign government officials in those countries to obtain various types of favorable treatment for the pharmaceutical company’s primary drug, including prescription approvals. Specifically, the SEC alleged that from 2010 to 2015, the Turkish subsidiary made payments to a consultant who passed a portion of the funds on to government officials; the Turkish subsidiary also allegedly made payments to “improperly influence” health care providers (HCPs) to make decisions in favor of the pharmaceutical company. Additionally, the SEC claimed that from 2011 to 2015, Russian government health officials received improper payments from the Russian subsidiary in order to influence regional healthcare budget allocations for the primary drug and to increase the number of approved prescriptions. The SEC asserted that the two subsidiaries maintained false books and records of these improper payments, which the pharmaceutical company’s internal accounting controls failed to detect or prevent. As a result, according to the SEC, due to the pharmaceutical company’s lack of an effective anti-corruption compliance program and inadequate internal accounting controls, it was “unjustly enriched by over $14 million.” The SEC also claimed that two additional subsidiaries in Brazil and Colombia failed to maintain accurate books and records regarding third-party payments.
In entering into the administrative order, the SEC considered the pharmaceutical company’s cooperation and remedial efforts, including efforts to (i) strengthen and expand its global compliance organization; (ii) enhance third-party payment related policies and procedures; (iii) revamp engagement and oversight of HCPs; (iv) improve internal audit functions; (iv) conduct “proactive compliance market reviews”; and (v) improve employee anti-corruption training.
Without admitting or denying wrongdoing, the pharmaceutical company consented to a cease and desist order, and agreed to pay a $3.5 million civil money penalty and approximately $17.9 million in disgorgement and pre-judgment interest.
3rd Circuit: Filed-rate doctrine precludes borrowers’ fraud claims
On July 1, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of a class action challenging the lender placed insurance practices of a mortgage servicer, concluding that the filed-rate doctrine blocked the claims. According to the opinion, borrowers from North Carolina and New Jersey filed suit against their reverse mortgage lender and insurance company, alleging the lender and insurer colluded to overcharge consumers for lender placed insurance in violation of TILA, the federal Racketeer Influenced and Corrupt Organizations Act (RICO), and various state laws. Specifically, the plaintiffs asserted that the insurance company charged an insurance rate, which was appropriately filed with state regulators, that was higher than the mortgage lender paid. The plaintiffs asserted the insurer then returned a portion of the profits back to the lender in order to induce continued insurance business. The district court dismissed the action, holding that the filed-rate doctrine blocked the claims.
On appeal, the 3rd Circuit agreed with the lower court. The appellate court emphasized that under the filed-rate doctrine, there is no distinction between “challenging a filed rate as unreasonable and…challenging an overcharge fraudulently included in a filed rate.” Because the plaintiffs sought damages in connection with the alleged overcharge of insurance premiums, the appellate court concluded that the plaintiffs were “functionally challeng[ing] the reasonableness of rates filed with state regulators.” Moreover, the appellate court noted that if the court were to award damages to the plaintiffs, the court would essentially be “giving these borrowers a better price for [lender placed insurance] than other [] borrowers using a different lender,” but the same insurer. Thus, because the insurance rate was appropriately filed with the state regulators, the appellate court had no ability to decide whether the rate was “unreasonable or fraudulently inflated,” because the claims were precluded by the filed-rate doctrine.