On May 16, the Financial Crimes Enforcement Network (FinCEN) issued an administrative ruling providing 90-day exceptive relief from the Beneficial Ownership Rule for financial institutions with respect to certain financial products and services, established before May 11, 2018, that automatically rollover or renew. The 90-day exception is retroactively effective on May 11, 2018, and will expire on August 9, 2018. Prior to this exceptive ruling, representatives of covered financial institutions had expressed concerns to FinCEN about their ability to collect the required information for such products. FinCEN stated that such concerns are appropriate and granted the 90-day exceptive relief to allow for further consideration.
On May 23, the Office of the Comptroller of the Currency (OCC) issued OCC Bulletin 2018-14 (Bulletin), in which the OCC encouraged national banks and federal savings associations to offer responsible short-term, small-dollar installment lending to help meet the credit needs of their customers. In the Bulletin, the OCC stated that it “encourages banks to offer responsible short-term, small-dollar installment loans, typically two to 12 months in duration with equal amortizing payments, to help meet the credit needs of consumers.” The Bulletin sets forth three core lending principles that banks should consider when offering short-term, small-dollar installment lending products and six “reasonable policies and practices” specific to short-term, small-dollar installment lending. The Bulletin will allow national banks and federal savings associations to compete directly with payday lenders for short-term, small dollar installment credits.
The Bulletin represents another step in a significant policy change for the OCC. In October 2017, the OCC rescinded its guidance, issued during the Obama administration, which discouraged the offering of deposit advance products on the grounds that continuing the guidance would have subjected banks to potentially inconsistent regulatory direction and undue burden as they prepared to comply with the CFPB’s final rule titled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Payday Rule). The Payday Rule’s underwriting requirements, which have a compliance date in August 2019, generally apply to consumer loans with maturities shorter than 45 days or longer-term loans that involve balloon payments. In the Bulletin, the OCC stated that it intends to work with the CFPB as it reconsiders the Payday Rule to ensure that OCC-supervised banks can responsibly engage in consumer lending, including lending products covered by the Payday Rule.
On May 18, the OCC and the Board of Governors of the Federal Reserve System announced that they have extended the public comment period for proposed modifications to the standards for U.S. top-tier bank holding companies identified as global systemically important bank holding companies and certain of their insured depository institution subsidiaries. The proposed modifications were published in the Federal Register on April 19, 2018, and we described them in the April 18 edition of the Roundup. The original deadline was extended by approximately one month from May 18 to June 25.
The CFPB issued updated versions of the small entity compliance guides and the guides to the loan estimate and closing disclosure (Guides) for the TILA-RESPA integrated disclosure rule. The Guides were updated for both the 2018 TILA-RESPA Rule (2018 Rule) as well as the 2017 TILA-RESPA Rule (2017 Rule). The 2018 Rule removes the requirement that in order for a creditor to use the Closing Disclosure to reset tolerances, there must be fewer than four business days between the time the creditor is required to provide the Closing Disclosure reflecting the revised estimate and consummation. The new rule allows creditors to reset tolerances using the Closing Disclosure without regard to four business days, so long as the creditor provides the consumer with the Closing Disclosure reflecting the revised estimate within three business days of receiving the information sufficient to establish that the changed circumstance or triggering event has occurred. The 2018 Rule becomes effective 30 days after its publication in the Federal Register. In addition, the CFPB updated the Guides to include the 2017 Rule. The 2017 Rule made a number of amendments, including but not limited to, the application of escrow closing notices and partial payment disclosure requirements, clarification of partial exemptions for certain housing assistance loans, and clarification of the application of good faith to third-party, non-affiliate settlement service charges and for tolerances in integrated disclosures. The 2017 Rule was made effective 60 days after its publication in the Federal Register and compliance was made optional until October 1, 2018, when it becomes mandatory for any application received on or after that date. The updated Guides, quick reference materials, and other resources related to the 2018 and 2017 Rules can be found on the CFPB’s website.
Enforcement & Litigation
On May 16, the Securities and Exchange Commission (SEC) announced the settlement of charges against two broker-dealers, Chardan Capital Markets LLC (Chardan) and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), for failing to report suspicious sales of billions of penny stock shares, and against the anti-money laundering (AML) officer of Chardan for aiding and abetting those violations. The SEC alleged violations of the Exchange Act and an SEC financial recordkeeping and reporting rule, and the settlements with Chardan, ICBCFS and the AML officer involved monetary fines ($1 million, $860,000, and $15,000 respectively), censures, and cease-and-desist agreements. Additionally, the AML officer agreed to industry and penny-stock bars for a minimum of three years. On the same day, the Financial Industry Regulatory Authority (FINRA), as part of a broader inquiry into ICBCFS’s AML program, announced that ICBCFS had consented to an entry of findings against it for systemic AML compliance failures, including its failure to have in place a reasonable AML program to monitor and detect suspicious transactions, in addition to other violations. As part of this settlement, FINRA fined ICBCFS $5.3 million.
On May 8, the Federal Trade Commission (FTC) announced that the U.S. District Court for the Central District of California granted its request to preliminarily enjoin affiliated California-based debt relief companies from continuing operations, and to freeze their assets. In its complaint, the FTC alleged that the companies violated Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), by deceiving consumers and falsely promising they could help consumers avoid foreclosure and lower mortgage payments. The FTC alleged that the companies would sell consumers their loan modification services by telling consumers they had a “99% success rate” and guaranteeing results regardless of the consumers’ individual situations. View the Enforcement Watch blog post.
On May 8, the Sixth Circuit affirmed dismissal of a Telephone Consumer Protection Act (TCPA) claim against Bristol-Myers Squibb and Pfizer. As the Sixth Circuit noted at the start of its opinion in Health One Medical Center, Eastpointe P.L.L.C. v. Mohawk, Inc. et al., “[s]ome questions seem to arise only in class-action lawsuits.” Here, the key question was whether third parties Bristol-Myers Squibb and Pfizer had “sent” the faxes challenged by the plaintiff even though they had no knowledge of the faxes and played no role in sending them. The Sixth Circuit’s analysis of the statutory text of the TCPA and the Federal Communications Commission’s (FCC) guidance instructs companies facing potential derivative liability for the acts of agents and others. View the LenderLaw Watch blog post.
At the MBA Annual Convention, hundreds of bank CEOs, directors, and senior management decision-makers will gather for educational programs, networking events, and the annual election of association leadership. Goodwin’s Financial Industry partner Samantha Kirby and counsel Matt Dyckman will present the “Regulators’ Changing Views on Bank Board of Directors and Governance: Roles, Responsibilities, and Emerging Trends” program at the convention on Tuesday, June 5.
There has been lots of buzz about the EU General Data Protection Regulation (GDPR), which enters into full force on May 25. The GDPR will significantly reshape the global data protection landscape for businesses that process EU personal data, adding new data breach reporting obligations and imposing extensive record keeping and vendor management rules. After all the preparation, prognostications and cautionary tales, what impact will the GDPR really have on data privacy and cybersecurity? Goodwin invites you to join us in London for a panel discussion featuring top privacy and cybersecurity experts – including Bruno Gencarelli, Head of International Data Flows and Protection for the European Commission, and Stephen McCartney, EU Director of Privacy for Pearson plc, along with members of Goodwin’s global Privacy & Cybersecurity team. Topics will include: How ready are the regulators? Is “substantial” compliance good enough? Will the enforcers tread lightly or carry a big stick? What steps do you take when you’ve had a breach? Will there be an EU-UK Privacy Shield, and what’s next for cross-border transfers? For registration information, please click here.