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OFAC sanctions additional Russian oil brokerage firm for doing business with Venezuela
On March 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13850 against a Russian oil brokerage firm for operating in the oil sector of the Venezuelan economy. According to OFAC, following the February 18 designation of a Swiss-incorporated, Russian-controlled oil brokerage and its board chairman and president (covered by InfoBytes here), cargoes of Venezuelan oil allocated to the designated company were charged to the newly sanctioned brokerage firm in order to evade U.S. sanctions. In connection with the designation, OFAC issued Venezuela General License 36A, which authorizes certain transactions and activities otherwise prohibited under E.O.s 13850 and 13857 that are required in order to wind down business with the company. Concurrently, OFAC issued amended FAQ 817 and FAQ 818 to address the significance of OFAC’s designation of the company, and whether there is a wind-down period. OFAC reiterated that “all property and interests in property of [the brokerage firm] that are in the United States or in the possession or control of U.S. persons, and of any entities that are owned, directly or indirectly, 50 percent or more by the designated individual and entity, are blocked and must be reported to OFAC.”
OFAC targets companies for facilitating Iranian petroleum products
On March 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13382 against five United Arab Emirates-based companies for facilitating the Iranian regime’s petroleum and petrochemical sales, which helps to finance Iran’s Islamic Revolutionary Guard Corps-Qods Force. According to OFAC, the sanctions follow similar designations of key revenue sources (covered by InfoBytes here and here). As a result, all property and interests in property belonging to the identified entities subject to U.S. jurisdiction are blocked, and “U.S. persons are generally prohibited from transacting with them.” Moreover, OFAC warned that “foreign financial institutions that knowingly facilitate significant transactions for, or persons that provide material or certain other support to, the persons designated today risk exposure to sanctions that could sever their access to the U.S. financial system or block their property and interests in property under U.S. jurisdiction.”
Appellate court affirms dismissal of RESPA kickback suit
On March 13, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action filed by two consumers (plaintiffs) against a real estate brokerage group (real estate defendant) and a title company (title defendant), (collectively defendants), alleging a kickback scheme in violation of RESPA. The plaintiffs bought a house in 2008 with the help of a real estate agent affiliated with the real estate defendant. The real estate agent told the plaintiffs that the title defendant would provide settlement services, after which the plaintiffs filed an acknowledgment that they understood they could use the title company of their choice for their closing, and that they were not first-time homebuyers. The plaintiffs indicated their approval to use the settlement company selected by the real estate agent. Five years later, the plaintiffs filed suit, claiming that the real estate agent’s referral to the title defendant violated RESPA. The consumers, as lead class members, alleged that a marketing agreement between the defendants provided for payments by the title defendant to the real estate defendant for settlement services referrals. The plaintiffs claimed that the illegal kickback arrangement denied class members of ‘“impartial and fair competition between settlement service[s] providers in violation of RESPA.’”
The district court granted the defendants’ motion for summary judgement, holding that the plaintiffs lacked Article III standing to file suit because they were not overcharged in the settlement of their real estate transaction and did not otherwise show an injury-in-fact. In addition, the court determined that the claim was time-barred under RESPA’s one-year statute of limitations.
On appeal, the 4th Circuit agreed with the district court that the plaintiffs lacked standing, noting that “a statutory violation is not necessarily synonymous with an intangible harm that constitutes injury-in-fact.” The appellate court pointed out that the plaintiffs did not claim to have been overcharged for settlement services, and indeed, the plaintiffs agreed that the settlement service fees were reasonable. The appellate court also rejected the plaintiffs’ assertion that they suffered a concrete injury due to the lack of competition between settlement service providers.
Fed amends internal appeals process
On March 17, the Federal Reserve Board (Fed) published a final policy, which revises the internal appeals process for institutions that receive an adverse material supervisory determination, as well as its policy regarding the Fed’s Ombudsman. As previously covered by InfoBytes, the Fed requested comments on proposed amendments intended to improve and expedite the appeals process. Among other things, the final amendments (i) clarify that Matters Requiring Attention and Matters Requiring Immediate Attention “are appealable material supervisory determinations”; (ii) “permit an institution’s senior management to file an appeal, provided that management informs the institution’s board of directors of their decision to file an appeal and keeps the board informed of the status of the appeal”; (iii) “permit an institution to request an extension of time to file an appeal in appropriate circumstances”; and (iv) “clarify that, at an institution’s request, the initial review panel must schedule a meeting with the institution.” The amendments and final policy are applicable starting April 1, and the final appeals process will apply to all material supervisory determination appeals initiated after that date.
FDIC approves creation of de novo banks; proposes new industrial bank rules
On March 18, the FDIC announced (see here and here) the approval of two deposit insurance applications, which will allow for the creation of two de novo industrial banks. The first approval order will permit a California-based company to originate commercial loans to merchants that process card transactions through the company’s payments system and will operate from a main office located in Utah. The second approval order will permit a Nebraska-based corporation to originate and service private student loans and other consumer loans. The new bank will operate as an internet-only bank from a main office located in Utah. Both companies now await approval from the Utah Department of Financial Institutions.
Separately, on March 17, the FDIC announced that it is seeking comments on a proposed rule that would require certain conditions and commitments for approval or non-objection to certain filings involving industrial banks and industrial loan companies (collectively, “industrial banks”), such as deposit insurance, change in bank control, and merger filings. The proposed rule applies to industrial banks whose parent company is not subject to consolidated supervision by the FRB. The proposed rule would require a covered parent company to enter into written agreements with the FDIC and the industrial bank to: (i) address the company's relationship with the industrial bank; (ii) require capital and liquidity support from the parent company to the industrial bank; and (iii) establish appropriate recordkeeping and reporting requirements.
The proposed rule would require prospective covered companies to agree to a minimum of eight commitments, which, for the most part, the FDIC has previously required as a condition of granting deposit insurance to industrial banks. These include: (i) providing a list of all parent company subsidiaries annually; (ii) consenting to examinations of the parent company and its subsidiaries; (iii) submitting to annual independent audits; (iv) maintaining necessary records; (v) limiting the parent company’s representation on the industrial bank’s board to 25 percent; (vi) maintaining the industrial bank’s capital and liquidity requirements “at such levels deemed appropriate” for safety and soundness; (vii) entering into tax allocation agreements; and (viii) implementing contingency plans “for recovery actions and the orderly disposition of the industrial bank without the need for a receiver or conservator.” Comments on the proposed rule will be due 60 days after publication in the Federal Register.
Proposed CARES Act allows fintechs to make federally backed small business loans
On March 18, Senator Mitch McConnell (R-KY) proposed relief legislation which, among other things, would temporarily allow fintechs to offer “small business interruption loans” for as long as the Covid-19 national emergency is in effect. The “CARES Act” or Corornavirus Aid, Relief and Economic Security Act, would provide nearly $300 trillion in additional funds to the SBA in order to provide emergency government-backed loans. Under the proposal, small businesses eligible for the SBA Section 7(a) loans with 500 or fewer employees, could use the loans to fund, such things as (i) paid sick, medical, or family leave; (ii) group health care benefits; (iii) employee salaries; (iv) mortgage payments; and (v) utilities. In addition, the proposal provides for loan deferment for a year and loan forgiveness for loans used to cover payroll expenses.
Senators urge HUD to withdraw new version of AFFH rule
On March 16, thirty-seven Senators led by Senator Sherrod Brown (D-OH) sent a letter to HUD in response to the agency’s proposed replacement for the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule (proposed rule). As previously covered by InfoBytes, in January, HUD announced that the proposed rule would provide state and local government participants with more straightforward advice “to help them improve affordable housing choices in their community.” The Senators contend, however, that the proposed rule will reverse efforts to make access to housing fair and equitable and “relies on the faulty premise that simply increasing housing supply can address the problems of housing discrimination and segregation.” Among other things, the Senators argue that the proposed rule undermines the following “three core elements of any approach to fair housing”: (i) “detailed, comprehensive analysis of fair housing issues”; (ii) “judicious enforcement”; and (iii) “the public input necessary to ensure that our communities can provide inclusive pathways of opportunity for all Americans.” The Senators request that HUD withdraw the proposed rule and re-implement the 2015 AFFH final rule.
Warren and Brown question CFPB on auto lending policies
On March 12, Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) sent a letter to CFPB Director Kathy Kraninger expressing concerns over the Bureau’s oversight of the auto lending market. The Senators contend that the Bureau has not taken any auto lending enforcement actions since Kraninger became director, despite reports expressing concern with the volume of outstanding auto debt and “auto lenders [] engaging in predatory practices and cutting back safeguards.” The Senators were “particularly concerned with the targeting of subprime consumers by non-bank lenders through indirect financing.” The letter seeks information regarding the Bureau’s plans to “fulfill its mission of stopping abusive practices and protecting consumers from this emerging threat,” including (i) whether the Bureau believes that the “incentive structure” between dealers and lenders in indirect financing can create risks for consumers; (ii) whether the Bureau believes lenders are intentionally charging higher rates because of arrangements with auto dealers; (iii) the types of actions the Bureau would take when it identifies a problematic relationship between a lender and a dealer; and (iv) a list of past enforcement actions by the Bureau against lenders who incentivized dealers to offer consumers a larger loan than the market value of the vehicle. In addition, the letter seeks information on the ways that the Bureau evaluates lender underwriting practices and whether it maintains a database with average LTV ratios, length of loan terms, and related data points for each lender. Finally, the Senators asked for clarifications on how the Bureau would evaluate whether auto lenders are engaging in abusive practices in light of its revised “abusiveness” standard and whether the Bureau has identified fair lending concerns with auto lenders. The letter requests that the Bureau respond to the questions by March 26.
Nevada orders all non-essential businesses to close; certain court activity suspended
On March 18, the Nevada Department of Business and Industry, Financial Institutions Division, ordered all non-essential businesses to close for 30 days as a proactive measure to fight the spread of Covid-19. Effective March 17, the Las Vegas Justice Court suspended issuing Defaults on all civil actions, suspended issuing orders for the examination of a judgment debtor, and suspended the issuance of any Writ of Execution. Any property garnished or attached after March 17, 2020, must be released back to the judgment debtor. The statement also states that a collection agency is deemed a non-essential business at this time. Accordingly, the Nevada Financial Institutions Division recommends to all collection agencies holding a license or registration under Nevada Revised Statutes Chapter 649 to close for 30 days, unless otherwise modified or withdrawn by the Nevada governor.
Arizona attorney general requests financial assistance for Arizona consumers
On March 19, Arizona’s attorney general issued a request for financial and lending institutions to provide temporary relief to their Arizona customers. The governor’s requests for institutions included taking the following actions for at least 90 days: (ii) forbearing or deferring payments on mortgages, automobile loans, and consumer loans; (ii) postponing foreclosures and evictions; (iii) ceasing automobile repossessions; (iv) waiving late fees and default interest for late payments; and (v) halting negative credit reporting.