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DOJ announces redlining settlement with Indiana bank
On June 13, the DOJ announced a settlement with an Indiana bank resolving allegations the bank engaged in unlawful “redlining” in Indianapolis by intentionally avoiding predominantly African-American neighborhoods in violation of the Fair Housing Act and ECOA. In the complaint, the DOJ alleges that from 2011 to 2017, among other things, the bank (i) excluded Marion County in Indianapolis and its “50 majority-Black census tracts” from its Community Reinvestment Act assessment area; (ii) did not have any branch locations in majority-Black areas of the county; (iii) did not market in the majority-Black areas of the country; and (iv) had a residential mortgage lending policy that allegedly showed preference to the location of borrowers, not the creditworthiness. Under the settlement agreement, which is subject to court approval, the bank will, among other things, expand its business services and lending to the predominantly African-American neighborhoods in Indianapolis and will invest at least $1.12 million in a special loan subsidy fund to be used to increase credit opportunities in the specified neighborhoods. Additionally, the bank will designate a full-time Director of Community Lending and Development to oversee the continued development of the bank’s lending in the specified areas.
FDIC encourages release for Arkansas and South Dakota borrowers
On June 17, the FDIC issued Financial Institution Letters FIL-32-2019 and FIL-33-2019 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Arkansas and South Dakota affected by severe weather. FIL-32-2019 covers severe storms and flooding caused significant property damage in areas of Arkansas from May 21 through the present and FIL-33-2019 covers severe winter storm, snowstorm, and flooding caused significant property damage in areas of South Dakota from March 13 through April 26.
The FDIC is encouraging institutions to consider, among other things, extending repayment terms and restructuring existing loans to borrowers affected by the severe weather. Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act (CRA) consideration for community development loans, investments, and services in support of disaster recovery.
Find continuing InfoBytes coverage on disaster relief guidance here.
HUD: DACA recipients not eligible for FHA loans
On June 11, Len Wolfson, the Assistant Secretary for Congressional and Intergovernmental Relations at HUD sent a letter to Representative Pete Aguilar (D-CA) specifying that Deferred Action for Childhood Arrivals (DACA) recipients are not eligible for FHA loans. According to the letter, HUD has not implemented any new policies changes during the current Administration with respect to FHA eligibility requirements for DACA recipients. Wolfson asserts that, “Since at least October 2003, FHA has maintained published policy that non-U.S. citizens without lawful residency ‘are not eligible for FHA-insured loans,’” and determination of immigration status is not the responsibility of HUD. Therefore, Wolfson argues, “because DACA does not confer lawful status, DACA recipients remain ineligible for FHA loans.”
Agencies finalize streamlined small-institution reporting
On June 17, the FDIC, the OCC, and Federal Reserve issued the final rule to streamline regulatory reporting for qualifying small institutions to implement Section 205 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The agencies adopted the final rule as proposed in November 2018 (covered by InfoBytes here). The final rule permits depository institutions with less than $5 billion in assets—previously set at $1 billion—that do not engage in certain complex or international activities to file the FFIEC 051 Call Report, the most streamlined version of the Call Reports. Additionally, the rule reduces the existing reportable data items in the FFIEC 051 Call Report by approximately 37 percent for the first and third calendar quarters. The rule also includes similar provisions for uninsured institutions with less than $5 billion in total consolidated assets that are supervised by the Federal Reserve and the OCC. The rule notes that the agencies are also committed to “exploring further burden reduction and are actively evaluating further revisions to the FFIEC 051 Call Report, consistent with guiding principles developed by the FFIEC.” The rule will take effect 30 days after it is published in the Federal Register.
Texas prohibits collection actions and arbitrations on time-barred debt
On June 14, the Texas governor signed HB 996, which prohibits debt buyers from commencing an action against or initiating arbitration with a consumer for the purpose of collecting a consumer debt after the statute of limitations (SOL) has expired. The bill defines “debt buyer” as “a person who purchases or otherwise acquires a consumer debt from a creditor or other subsequent owner of the consumer debt, regardless of whether the person collects the consumer debt, hires a third party to collect the consumer debt, or hires an attorney to pursue collection litigation in connection with the consumer debt.” Additionally, the bill (i) prevents a collection action on a debt that is passed the SOL from being revised by any activity on the debt, including payment; and (ii) requires a debt buyer to provide a specific written notice in the initial collection communication, including a statement that the debt is time-barred and the debt collector would not sue the consumer for it. The bill is effective September 1.
Nevada expands prohibition on credit discrimination
On June 1, the Nevada governor signed SB 311, which expands the state’s prohibition on discrimination against a person who seeks to obtain credit to include race, color, creed, religion, disability, national origin or ancestry, sexual orientation, and gender identity or expression, in addition to the existing law’s current protection of sex or marital status. Additionally, the bill permits an applicant who has no credit history and was/is married to request that the creditor deem the applicant’s credit history to be identical to that of the applicant’s spouse during the marriage; and violation of this provision is deemed to be “discrimination based on marital status.” Lastly, the bill requires the Nevada Commissioner of Financial Institutions to study the nature and extent of any discrimination based on the bill’s protected classes and requires the Division to assist with programs designed to prevent or eliminate such discrimination. The bill is effective October 1.
Texas approves temporary authority to act as a registered mortgage loan originator
On June 10, the Texas governor signed SB 2330, which provides, among other things, for a federally-registered mortgage loan originator (MLO) who does not hold a state license to have temporary authority to act as a state-licensed MLO for a period not to exceed 120 days while their state MLO license application is pending. Subject to certain conditions, a federally-registered MLO who becomes employed by an entity that is licensed or registered in Texas for mortgage loan origination may temporarily act as a state-licensed MLO in the state before their license is issued for up to 120 days if (i) the individual was registered in the Nationwide Mortgage Licensing System and Registry as a loan originator within one year of the state application; or (ii) is licensed by another state or governmental jurisdiction to engage in mortgage loan origination. The bill is effective on November 24.
SEC settles American Depositary Receipts allegations against international bank subsidiary
On June 14, the SEC announced a $42 million settlement with a wholly-owned subsidiary of an international bank to resolve allegations that certain associated persons on its securities lending desk allegedly improperly pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent shares in foreign companies.” According to the SEC, the subsidiary “improperly obtained pre-released ADRs from depositary banks when [the subsidiary] should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.” The SEC asserts that this resulted in an inflated total number of foreign issuer’s tradeable securities and short selling and dividend arbitrage. The SEC alleged that these practices violated the Securities Act of 1933 and claimed that the subsidiary failed to reasonably supervise its securities personnel. The consent order requires the subsidiary to pay more than $24 million in disgorgement, roughly $4.4 in prejudgment interest, and a civil money penalty of approximately $14.3 million. The order acknowledges the subsidiary’s cooperation in the investigation.
9th Circuit reverses dismissal of TCPA class action against social media company
On June 13, the U.S. Court of Appeals for the 9th Circuit overturned the dismissal of a TCPA putative class action against a social media company, concluding the plaintiff adequately alleged the company sent text messages using an automated telephone dialing system (autodialer) in violation of the TCPA and holding that the “debt-collection exception” excluding calls “made solely to collect a debt owed to or guaranteed by the United States” from TCPA coverage is an unconstitutional restriction on speech. The consumer alleged that he that he had received a text message indicating that his account was accessed from an unrecognized device, although he allegedly was not a user of the social media site and never consented to the alerts.
On appeal, the company challenged the adequacy of the TCPA allegations and, alternatively, argued that the TCPA violates the First Amendment. The 9th Circuit concluded the plaintiff plausibly alleged the company’s text message system fell within the definition of autodialer under the TCPA— using the definition from its September 2018 decision in Marks v. Crunch San Diego, LLC. The appellate court rejected the company’s argument that an “expansive reading” of Marks would encapsulate any smartphone within the definition of autodailer and that the definition should not apply to “purely ‘responsive messages’” such as the text messages in question. The appellate court also agreed with the company— citing to the 4th Circuit’s recent decision in AAPC v. FCC, covered by InfoBytes here— that an exclusion under the TCPA that allows debt collectors to use an autodialer to contact individuals on their cell phones when collecting debts owed to or guaranteed by the federal government violates the First Amendment’s Free Speech Clause. However, the appellate court held that the debt collection exception is severable from the TCPA, and, therefore, declined to strike down the law it its entirety as the company requested.
FDIC issues first Consumer Compliance Supervisory Highlights
On June 13, the FDIC released a new publication, Consumer Compliance Supervisory Highlights, intended to provide information and observations related to the FDIC’s consumer compliance supervision activities in 2018. Specifically, the report covers approximately 1,200 consumer compliance examinations conducted by the FDIC in 2018. Overall, the FDIC noted that, “supervised institutions demonstrated strong and effective management of consumer compliance responsibilities.” The report identifies some of the most salient compliance issues identified by the FDIC during 2018, including (i) overdraft programs, which were found to be potentially unfair or deceptive when an institution used an “available balance method,” sometimes resulting in more overdraft fees than were appropriate because the institution assessed a fee when the transaction did not overdraw the account; (ii) RESPA anti-kickback violations, which concerned payments “disguised as above-market payments for lead generation, marketing services, and office space or desk rentals” or as marketing and advertising agreements; and (iii) Regulation E, where certain institutions were found to have incorrectly calculated consumer liability for unauthorized transfers, failed to resolve errors properly, or discouraged consumers from filing error resolution requests. The report also covers issues with skip-a-payment loan programs and the calculation of finance charges and disclosures related to lines of credit.