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Top Story Compliance Related


CFPB files action against Burlington Financial Group

The CFPB has announced it has filed a proposed order in federal district court against Burlington Financial Group and its owners and executives, Richard Burnham, Katherine Burnham, and Sang Yi, for allegedly deceiving consumers into hiring the company to lower or eliminate credit-card debts and improve consumers’ credit scores.

The CFPB also filed a joint complaint against the company and its owners and executives with the Attorney General for the State of Georgia.

The CFPB alleges that Burlington Financial violated the Telemarketing Sales Rule and the Consumer Financial Protection Act through deceptive marketing and operation of its debt-relief credit-repair services. The company advertised to potential customers, through direct mailers and third-party lead generators, that its so-called “debt validation” program used a legally vetted process to eliminate debt. The company’s marketing materials stated that their debt-reduction program takes between 8 to 12 months, but the CFPB’s investigation found that the company failed to produce any evidence showing that it had invalidated, eliminated, or lowered any of its customers debt.

The CFPB’s investigation also found that the company encouraged its customers to stop paying their debts, thereby causing customers to suffer additional consequences, such as collection lawsuits and damaged credit scores. Meanwhile, for its services, the company charged its customers upfront fees of 40% of the debt amount owed, with an average cost of $21,000 per customer or $552 in monthly payments.

The CFPB also alleges that Burlington Financial Group violated the TSR and CFPA by telling customers that it could restore their credit scores and that it had a “credit restoration team.” The CFPB’s investigation found that these claims are false or unsubstantiated. For example, the company did not obtain its customers’ original credit scores prior to enrollment into their program – nor did the company track its customers credit scores during or after their departure from the program. In contrast to the company’s marketing materials, the CFPB found that many of its customers showed their actual credit scores worsened as a result of using the company’s services.

The proposed order would:

  • Permanently ban Burlington Financial and its owners and executives from telemarketing any consumer financial product or service and from offering, marketing, selling, or providing any financial-advisory, debt-relief, or credit-repair service;
  • Require Burlington Financial and its owners and executives to pay a total civil money penalty of $150,001, of which $15,000 will be remitted to the State of Georgia; and
  • Impose a judgment for redress of at least $30 million to be suspended upon payment of the $150,001 civil money penalty.


CFPB Report on 2020 law violations

The Bureau has issued its Summer 2021 Supervisory Highlights, a report on legal violations identified by the Bureau’s examinations in 2020. The report also highlights prior CFPB supervisory findings that led to public enforcement actions in 2020 resulting in more than $124 million in consumer remediation and civil money penalties.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has the authority to supervise large banks, thrifts, credit unions with assets over $10 billion, and certain nonbanks for compliance with Federal consumer financial law. Bureau-supervised nonbanks include mortgage companies, private student lenders, and payday lenders, as well as nonbanks the Bureau defines through rulemaking as “larger participants” of other consumer financial markets as defined by Bureau rules.

According to the Bureau's press release, there were four particularly concerning findings in the report:

  • Consumer reporting companies accepted consumer data from unreliable furnishers. CFPB examiners found that consumer reporting companies are accepting information from companies that furnish consumer data, even though there were ample signs that these furnishers were unreliable.
  • Redlining. Examiners observed discouragement of people in minority neighborhoods from applying for credit by, among other things, locating offices in almost exclusively majority-white neighborhoods, only using pictures of white people in direct mail marketing campaigns, and publishing loan officer headshots of almost exclusively white people. Examiners noted these practices lowered the number of applications from minority neighborhoods relative to other comparable lenders.
  • Foreclosure issues. Examiners found several violations of the mortgage servicing rules in Regulation X, including instances of some servicers making the first notice or filing for foreclosure when it was prohibited. For example, some servicers filed for foreclosure before they had evaluated borrowers’ appeals, and some servicers had failed to notify their foreclosure counsel to stop all legal filings at the time that the servicer received a completed loss mitigation application. Examiners also found that some servicers engaged in a deceptive act or practice when they represented to borrowers that they would not initiate a foreclosure action until a specified date, but nevertheless initiated foreclosures prior to that date.
  • Student loan borrowers misled about Public Service Loan Forgiveness. Examiners found significant problems in how student loan servicers informed consumers about the Public Service Loan Forgiveness (PSLF) program. For example, examiners found servicers misled consumers to believe they could not access PSLF if they had older loans under the Federal Family Education Loan Program (FFELP), even though they could access PSLF by consolidating FFELP loans into Direct Loans.


Unregistered broker-dealer pays $2.75M penalty

The Securities and Exchange Commission has announced that Neovest Inc., a provider of an order and execution management system (OEMS) that facilitates electronic trading, has agreed to pay a $2.75 million penalty for its failure to register as a broker-dealer in violation of the federal securities laws. This is the SEC’s first case charging an OEMS provider for operating as an unregistered broker-dealer.

According to the SEC’s order, Neovest, a subsidiary of JPMorgan Chase & Co., operates an OEMS that allows customers to route orders for stocks and options to more than 360 customer-selected destination brokers for execution. The SEC’s order finds that prior to being acquired by JPMorgan Chase, Neovest engaged in this activity through its registered broker-dealer, Neovest Trading Inc. The order finds that although Neovest withdrew its broker-dealer registration after it was acquired, it continued to operate the OEMS as an unregistered broker-dealer by, among other things, participating in the order-taking and order-routing process and soliciting customers and destination brokers through the firm’s website and direct outreach at industry conferences and trade shows. Neovest played a role in determining the routing options that were available to its customers by entering into agreements with the destination brokers. According to the order, in exchange for its OEMS services, Neovest also continued to receive transaction-based compensation by having payments from destination brokers redirected to J.P. Morgan Securities LLC, a registered broker-dealer, which then transferred the proceeds to Neovest.


Environmental crimes – money laundering

The Financial Action Task Force (FATF) has posted a report on money laundering from environmental crimes. Environmental crime—such as forestry crime, illegal mining and waste trafficking—is an extremely profitable criminal enterprise, generating billions in criminal gains each year. It fuels corruption, and converges with many other serious and organized crimes, such as tax fraud, drug trafficking and forced labor. This report identifies methods that criminals use to launder proceeds from environmental crime, but also identifies tools that governments and private sector can apply to disrupt this activity.


FDIC outlines modified approach to Resolution Planning Rule

The FDIC has outlined a modified approach to implementing its rule requiring certain insured depository institutions (IDIs) to submit resolution plans to facilitate resolution under the Federal Deposit Insurance Act. The modified approach applies to IDIs with $100 billion or more in total assets, extends the submission frequency to a three-year cycle, streamlines content requirements, and places enhanced emphasis on engagement with firms.

The modified approach preserves key content requirements that have helped FDIC staff develop resolution strategies for IDIs, but exempts filers from other content requirements that have been less useful or are obtainable through other supervisory channels. On a case-by-case basis, the FDIC also plans to exempt filers from certain content requirements based on its evaluation of how useful or material the information would be in planning to resolve each IDI.

Each filer covered under the statement will receive a letter from the FDIC that specifies exempted plan content and the due date for the next filing. Resolution plans will be submitted in two groups, with the first group consisting of IDIs whose top tier parent company is not a U.S. global systemically important bank or a category II banking organization. The second group will be all other IDIs with $100 billion or more in total assets. For institutions with less than $100 billion in total assets, the moratorium on submission of IDI plans announced in November 2018 remains in effect.


FTC orders 7-Eleven to divest stores

The Federal Trade Commission has announced that 7-Eleven, Inc. and Marathon Petroleum Corporation have agreed to divest hundreds of stores used to sell gasoline and diesel fuel in 293 local markets across 20 states to settle Commission charges that 7-Eleven’s acquisition of Marathon’s Speedway subsidiary violated federal antitrust laws. 7-Eleven consummated the acquisition on May 14, 2021, even though the company knew the acquisition violated Section 7 of the Clayton Act and Section 5 of the FTC Act.

A subsidiary of the Tokyo-based Seven & i Holdings Co., Ltd., 7-Eleven owns, operates, and franchises approximately 9,000 convenience stores in the United States, making it the largest U.S. convenience store chain. Almost half of 7-Eleven’s stores also sell fuel. Marathon operates a vertically integrated refining, marketing, retail, and transportation system for petroleum and petroleum products. Prior to closing, Marathon controlled Speedway, which operates almost 4,000 retail fuel outlets across the United States.

Under the terms of the proposed consent order, 7-Eleven, Inc. and Marathon are required to divest 124 retail fuel outlets to Anabi Oil, comprising 123 Speedway outlets and one 7-Eleven outlet. They are also required to divest 106 retail fuel outlets to Cross America Partners, comprising 105 Speedway outlets and one 7-Eleven outlet. And they must divest 63 Speedway retail fuel outlets to Jacksons Food Stores. To remove impediments that could prevent the buyers from competing vigorously in these markets, the proposed order also prohibits 7-Eleven from enforcing any noncompete provisions as to any franchisees or employees working at or doing business with the divested assets.


Victims of student loan scheme to receive FTC checks

The Federal Trade Commission has announced it is is sending checks totaling more than $316,000 to 10,689 people who lost money to a student loan debt relief scheme. A complaint filed by the FTC in March 2020 alleged SLAC (which also used the name Aspyre), Navloan, and Student Loan Assistance Center, and their owner, Adam Owens, falsely told consumers that, for an upfront fee of $699 and a monthly fee of $39, the defendants would permanently lower or eliminate student loan debt. In reality, the payments could change every year, and loan forgiveness was not guaranteed for any consumer. The FTC also alleged that the defendants paid consumers for positive reviews on the Better Business Bureau website and failed to disclose those payments.

As part of a settlement with the FTC, the defendants agreed to pay funds that are being used to send payments to affected consumers.


2021 list of distressed or underserved geographies

The FFIEC reports the Federal Reserve Board and the FDIC have announced the availability of the 2021 list of distressed or underserved nonmetropolitan middle-income geographies. These are geographic areas where revitalization or stabilization activities are eligible to receive CRA consideration under the community development definition. Distressed nonmetropolitan middle-income geographies and underserved nonmetropolitan middle-income geographies are designated by the agencies in accordance with their CRA regulations.


FATF 4th virtual plenary concludes

The Treasury Department reported Friday that the Financial Action Task Force has concluded its fourth virtual plenary since the start of the ongoing COVID-19 pandemic. The FATF advanced its core work on virtual assets, proliferation finance, digital transformation, and peer member assessments. Actions include:

  • adoption of guidance on proliferation financing risk and mitigation
  • completion of a second 12-month review on AML/CTF obligations in the virtual assets sector
  • report on the financing of racially and ethnically motivated violent extremism
  • report on money laundering risks from conservation crimes
  • adoption of the mutual evaluation reports on Japan and South Africa


HUD proposes to reinstate 2013 FHA Discriminatory Effects Standard

In 2020, HUD published a rule titled “HUD's Implementation of the Fair Housing Act's Disparate Impact Standard." Prior to the effective date of the 2020 rule, the U.S. District Court for the District of Massachusetts issued a preliminary injunction in Massachusetts Fair Housing Center v. HUD, staying HUD's implementation and enforcement of the rule. Consequently, the 2020 Rule never took effect. After reconsidering the 2020 Rule, HUD is proposing to recodify its previously promulgated rule titled, “Implementation of the Fair Housing Act's Discriminatory Effects Standard,” which, as of the date of publication of this Proposed Rule, remains in effect due to the preliminary injunction. HUD believes the 2013 Rule better states Fair Housing Act jurisprudence and is more consistent with the Fair Housing Act's remedial purposes.

HUD's proposal to recodify the 2013 rule has been published at 86 FR 33590 in this morning's Federal Register. Comments on the proposal are due by August 24, 2021.


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