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11/22/2023

FDIC designated reserve ratio for 2024

This morning, FDIC published [88 FR 81417] a Federal Register notice that its Board of Directors has set the Designated Reserve Ratio (DRR) for the Deposit Insurance Fund at 2 percent for 2024, unchanged from 2023.

11/22/2023

Treasury announces $4.3B in settlements with virtual currency exchange Binance

The Department of the Treasury has announced that it has, through FinCEN, OFAC, and IRS-CI, taken unprecedented action to hold Binance Holdings Ltd. and its affiliates accountable for violations of the U.S. anti-money laundering and sanctions laws that protect American national security and the integrity of the international financial system. Binance is the world’s largest virtual currency exchange, responsible for an estimated 60% of centralized virtual currency spot trading.

Binance settled with FinCEN and OFAC for violations of the Bank Secrecy Act and apparent violations of multiple sanctions programs. The violations include failure to implement programs to prevent and report suspicious transactions with terrorists — including Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad (PIJ), Al Qaeda, and the Islamic State of Iraq and Syria (ISIS) — ransomware attackers, money launderers, and other criminals, as well as matching trades between U.S. users and those in sanctioned jurisdictions like Iran, North Korea, Syria, and the Crimea region of Ukraine. By failing to comply with AML and sanctions obligations, Binance enabled a range of illicit actors to transact freely on the platform. These settlements are part of a global agreement simultaneous with Binance’s resolution of related matters with the Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC).

FinCEN's settlement agreement assesses a civil money penalty of $3.4 billion, imposes a five-year monitorship, and requires significant compliance undertakings, including to ensure Binance’s complete exit from the United States. This settlement is the largest penalty in U.S. Treasury and FinCEN history.

OFAC’s settlement agreement assesses a penalty of $968,618,825 and requires Binance to abide by a series of robust sanctions compliance obligations, including full cooperation with the monitorship overseen by FinCEN, in settlement of Binance's potential liability for 1,667,153 apparent violations of multiple OFAC-administered sanctions programs. The settlement amount reflects OFAC’s determination that the Apparent Violations were not voluntarily self-disclosed and that Binance’s conduct was egregious. The settlement amount also reflects Binance’s settlements with the Department of Justice (DOJ), the Financial Crimes Enforcement Network (FinCEN), and the Commodity Futures Trading Commission (CFTC).

To ensure that Binance fulfills the terms of its settlement — including that it does not offer services to U.S. persons — and to ensure that illicit activity is addressed, Treasury will retain access to books, records, and systems of Binance for a period of five years through a monitor. Failure to live up to these obligations could expose Binance to substantial additional penalties, including a $150 million suspended penalty, which would be collected by FinCEN if Binance fails to comply with the terms of the required compliance undertakings and monitorship. The Settlement Agreement also explicitly states that in the event OFAC determines that a material breach of, or misrepresentation in, the agreement has occurred, including due to a failure to perform the Compliance Commitments of the Settlement Agreement, OFAC may, following notice to Binance, seek to impose on Binance an additional penalty up to the statutory maximum of over $592 Billion.

As noted, OFAC took this action concurrently with DOJ, FinCEN, and the CFTC. Binance’s obligation to pay $898,618,825 of the settlement amount for its Apparent Violations will be deemed satisfied by payment to DOJ for the ITSR violations arising out of the same pattern of conduct during the same period of time.

The Justice Department announced that, as part of its plea agreement to settle criminal charges, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total financial penalty of $4,316,126,163. Binance separately has also reached agreements with the CFTC, FinCEN, and OFAC, and the Department will credit approximately $1.8 billion toward those resolutions.

11/22/2023

Board orders 3rd-party review of FDIC’s workplace culture

The FDIC's Board of Directors yesterday announced the establishment of a special committee of the Board to oversee an independent third–party review of the agency’s workplace culture. The Board appointed Directors Jonathan McKernan and Michael J. Hsu to co–chair this special committee and issued the following statement:

“All employees at the FDIC need to feel safe and able to speak out if they are subject to, witness or encounter inappropriate behavior in the workplace. Sexual harassment, discrimination, and other misconduct are totally unacceptable and have no place at the FDIC.

“The FDIC Board is committed to fostering an environment and culture that promotes a safe, fair, and inclusive workplace for all FDIC employees. The Board supports taking all actions necessary to identify and address the root cause of the problem and to promote accountability. Today, the FDIC Board unanimously approved the creation of an independent special committee of the Board, co–chaired by FDIC Directors Michael J. Hsu and Jonathan McKernan to oversee a third–party, agency–wide review. The co–chairs may appoint up to three additional non–voting members, likely from outside the FDIC, to join the special committee to advise and promote a diversity of views. The review will be fully independent and those conducting it will report directly and exclusively to the special committee.

“This is a top priority for the FDIC Board Members. While this important work is underway, we recognize and appreciate the nearly 6,000 professionals who work at the FDIC, advancing its important mission of maintaining the stability and public confidence in the nation’s financial system.”

Related statements by:

11/22/2023

CFPB approves pilot disclosure for construction loans

The CFPB has posted a blog article announcing the agency has approved an application from the Independent Community Bankers of America (ICBA) that marks the first step for piloting disclosures for construction loans. Under this program, the CFPB authorizes parameters for in-market testing of alternatives to required disclosures.

The ICBA applied under the program for a template covering the CFPB’s Know Before You Owe Disclosures. In particular, the ICBA asked to test certain adjustments to the existing mortgage disclosures in the unique context of construction loans, for which the CFPB’s disclosures were not primarily designed. The application noted that, in particular, many first-time homebuyers in rural areas build their homes instead of buying existing homes, and consequently, the challenges of using the current disclosures in the construction loan context may impact rural areas more acutely. The CFPB solicited comments on the ICBA’s application in February and made a decision to approve the template after reviewing the public feedback.

The CFPB waiver template issued to the ICBA indicates that the ICBA application aims to increase the availability of affordable single-close construction-to-permanent loans, i.e., a loan transaction that combines a construction phase loan with a permanent mortgage loan once the home is built, and employs a single closing and single set of closing costs. ICBA believes that consumer understanding of construction loans would be improved by disclosures that ICBA views as more specifically tailored to such loans, and that more community banks would offer such loans if they could use such disclosures. ICBA further believes its proposed alternative LE and the CD will more fully disclose all the various components of a single-close construction-to-permanent loan. In an attachment to the Application, ICBA described in detail its proposed changes to the LE and CD for construction loans.

Individual lenders can apply for approval to test the alternative disclosures for construction loans. In deciding whether to approve individual lender applications, the CFPB will carefully evaluate a lender’s plan to test the effectiveness of these disclosures. The CFPB looks forward to reviewing any lender applications.

11/22/2023

FinCEN Exchange on Russia's attempts to evade export controls

FinCEN yesterday reported on its November 16 virtual FinCEN Exchange — co-hosted by OFAC and the Department of Commerce's Bureau of Industry and Security (BIS) — to discuss attempts by Russia to evade export controls. The Exchange included representatives from small- to mid-size financial institutions, law enforcement, and government agencies.

FinCEN Exchanges enhance law enforcement feedback and help financial institutions more effectively implement their anti-money laundering programs. This FinCEN Exchange exemplified the ongoing U.S. Government effort to further constrain and prevent Russia from accessing the international financial system and conduct economic activity to fund its invasion of Ukraine.

FinCEN listed information it has issued on this topic to provide red flags to assist financial institutions in identifying suspected illicit activity:

FinCEN continues to encourage all financial institutions to register under USA PATRIOT Act Section 314(b) and to form associations to engage in voluntary information sharing [see 31 C.F.R. 1010.540]. Section 314(b) information sharing can reveal networks of illicit activity that no single financial institution can detect alone, compounding the benefits for both the financial institution and law enforcement. In fiscal year 2023, there were more than 7,600 314(b) registered financial institutions, making extensive network analysis possible.

11/21/2023

MLA temporary file upload issue reported

There is a notice on the Department of Defense’s Military Lending Act website that some multiple record request files that were uploaded to the MLA website between 4 p.m. EST on November 14 and 2 p.m. EST on November 15 did not get processed. Senders will need to re-upload their files if they were not processed.

11/21/2023

Kraken charged for operating unregistered

On Monday, the Securities and Exchange Commission reported it has charged Payward Inc. and Payward Ventures Inc., together known as Kraken, with operating Kraken’s crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.

According to the SEC’s complaint, since at least September 2018, Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Kraken intertwines the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law. Kraken’s alleged failure to register these functions has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.

The SEC’s complaint also alleges that Kraken’s business practices, deficient internal controls, and poor recordkeeping practices present a range of risks for its customers. Kraken allegedly commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash. Kraken also allegedly commingles its customers’ crypto assets with its own, creating what its own auditor had identified as “a significant risk of loss” to its customers.

In February of this year, Kraken agreed to cease offering or selling securities through crypto asset staking services or staking programs and pay a civil penalty of $30 million. [Editor's note: According to The Motley Fool, “staking” is the way many cryptocurrencies verify their transactions, and it allows participants to earn rewards on their holdings; crypto staking involves committing one's crypto assets to support a blockchain and confirm transactions.]

11/21/2023

New funding for small business tech assistance program

Today, the Treasury Department announced the approval of 20 additional state awards under the State Small Business Credit Initiative (SSBCI) Technical Assistance Grant Program, totaling more than $50.8 million. These awards will be used to provide legal, accounting, and financial advisory services to eligible small businesses applying for the SSBCI capital program and other government small business programs.

11/21/2023

Prehired LLC ordered to shut down, provide over $30M in relief to borrowers

The CFPB and eleven states on Monday announced that Prehired, LLC will provide more than $30 million in relief to student borrowers for making false promises of job placement, trapping students with “income share” loans that violated the law, and resorting to abusive debt collection practices when borrowers could not pay. The CFPB partnered with Washington, Delaware, California, Oregon, Minnesota, Illinois, South Carolina, North Carolina, Massachusetts, Virginia, and Wisconsin to bring the enforcement action against Prehired and two affiliated companies (Prehired Recruiting, LLC and Prehired Accelerator, LLC). The order approved by the U.S. Bankruptcy Court for the District of Delaware requires Prehired to cease all operations, pay $4.2 million in redress to consumers that were affected by its illegal practices, and voids all of its outstanding income share loans, valued by Prehired at nearly $27 million.

Prehired was a Delaware-based company that operated a 12-week online training program claiming to prepare students for entry-level positions as software sales development representatives with “six-figure salaries” and a “job guarantee.” Prehired offered students income share loans to help finance their costs of the program. Today’s order also names two affiliated companies, Prehired Recruiting and Prehired Accelerator, that pursued collection on defaulted income share loans.

In July 2023, the states and the CFPB sued Prehired to void the illegal loans and facilitate consumer redress. The states and the CFPB alleged that Prehired:

  • Deceived borrowers by claiming its loans were not loans: Prehired’s marketing falsely claimed that its loans did not create a debt because the loan was contingent on job placement with a yearly salary over $60,000. But the company also deceptively buried terms in the loan that required graduates to pay even if they never got a job.
  • Kept borrowers in the dark about key loan information: Prehired hid important loan terms from borrowers, including the amount financed, finance charges, and the loans’ annual percentage rate.
  • Tricked consumers with deceptive debt collection practices: Prehired Recruiting and Prehired Accelerator pushed borrowers into converting their income share loan into a revised “settlement agreement” that required them to make payments even if they had not found a job, and which contained more burdensome dispute resolution and collection terms. Prehired Recruiting and Prehired Accelerator also falsely represented the amount of debt owed by consumers and stated Prehired could collect more than the consumer legally owed.
  • Sued students in a faraway location: Prehired Recruiting filed debt collection lawsuits in a jurisdiction far away from where the consumers lived and were not able to be physically present when they executed the financing contract. Many consumers were unaware that Prehired Recruiting could file an action in Delaware because Prehired’s income share loans did not provide for venue in Delaware or the consumers had little or no opportunity to review or negotiate that provision.

Related:

11/20/2023

IRS interest rates to remain unchanged

The Internal Revenue Service has announced that its interest rates will remain the same for the calendar quarter beginning January 1, 2024. For individuals, the rate for overpayments and underpayments will be 8% per year, compounded daily.

Here is a complete list of the new rates:

  • 8 percent for overpayments (payments made in excess of the amount owed), 7 percent for corporations
  • 5.5 percent for the portion of a corporate overpayment exceeding $10,000
  • 8 percent for underpayments (taxes owed but not fully paid)
  • 10 percent for large corporate underpayments

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points.

11/20/2023

Iran-aligned militias in Iraq sanctioned

On Friday, the Treasury Department announced that OFAC was designating six individuals affiliated with the Iran-aligned militia group (IAMG) Kata’ib Hizballah (KH) based in Iraq. Trained, funded, and supported by Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), KH is behind a spate of recent attacks against the United States and partners in Iraq and Syria following the attacks by Hamas against Israel. The U.S. Department of State was also designating Kata’ib Sayyid al-Shuhada (KSS) and KSS leader Hashim Finyan Rahim al-Saraji. KSS, another Iraq-based IAMG that receives support from the IRGC, has planned and been involved in attacks against U.S. personnel in Iraq and Syria.

For the names and identification information of the designated parties, see the November 17, 2023, BankersOnline OFAC Update.

11/20/2023

CFPB releases report to Congress

The CFPB has released its Semi-Annual Report to Congress for the period beginning October 1, 2022 and ending March 31, 2023.

11/20/2023

CFPB orders Toyota Motor Credit to pay $60M

This morning, the CFPB announced it has ordered Toyota Motor Credit Corporation to pay $60 million in consumer redress and penalties for operating an illegal scheme to prevent borrowers from cancelling product bundles that increased their monthly car loan payments. The company is alleged to have withheld refunds or refunded incorrect amounts on the bundled products and knowingly tarnished consumers’ credit reports with false information. The CFPB ordered Toyota Motor Credit to stop its unlawful practices, pay $48 million to harmed consumers, and pay a $12 million penalty into the CFPB’s victims relief fund.

Toyota Motor Credit Corporation is the United States-based auto-financing arm of the Toyota Motor Corporation, and is headquartered in Plano, Texas. It is one of the largest indirect auto lenders in the United States, with nearly five million customer accounts and more than $135 billion in assets as of October 2022.

Toyota Motor Credit provides financing for consumers buying cars through Toyota dealerships, and also offers optional products and services sold with the vehicles. Dealerships often sell the products and services as a bundled package to consumers and then add them onto car loan contracts. Bundled products include Guaranteed Asset Protection (GAP), which covers the difference (or gap) between the amount a consumer owes on an auto loan and what their insurance pays if the vehicle is stolen, damaged, or totaled. Toyota Motor Credit also offers Credit Life and Accidental Health (CLAH) coverage, which covers the remaining balance if a borrower dies or becomes disabled, and vehicle service agreements, which reimburse borrowers for parts and service beyond what is covered by the manufacturer warranty. The cost of the bundled products, financed by Toyota Motor Credit, averaged between $700 and $2,500 per loan. Including these products in a vehicle sale or lease can significantly increase the loan amount, monthly payment, and finance charge. Toyota Motor Credit profits from the sale of these products by collecting more finance charges on the increased loan amount.

The Bureau alleges that thousands of consumers complained to Toyota Motor Credit that dealers had lied about whether these products were mandatory, included them on contracts without the borrowers’ knowledge, or rushed through paperwork to hide buried terms. Nevertheless, Toyota Motor Credit devised a scheme to retain the revenue from these products by making it extremely cumbersome to cancel, and then failed to provide proper refunds for consumers who succeeded in cancelling. The company also falsely told consumer reporting companies that borrowers had missed payments, and it failed to correct consumer reporting errors it knew were wrong.

Toyota Motor Credit’s alleged actions violated the Consumer Financial Protection Act’s prohibition against unfair and abusive acts and practices, as well as the Fair Credit Reporting Act and its implementing regulation. Today’s order describes in detail how the company is alleged to have harmed consumers, including by:

  • Directing consumers to a dead-end cancellation hotline: Toyota Motor Credit prevented many consumers from cancelling product bundles by making the process unreasonably difficult. Consumers who wanted to cancel over the phone were directed to a “retention hotline” operated by employees whose primary objective was to dissuade such cancellations. Between 2016 and 2021 alone, Toyota Motor Credit funneled more than 118,000 consumer calls through this hotline. Representatives on the hotline were instructed to keep promoting the products until a consumer had verbally requested to cancel three times, at which point the representatives would tell the consumer that it was only possible to cancel by submitting a written request.
  • Delaying refunds by applying them to principal payments: Instead of issuing a refund check or lowering the monthly payment amount upon a consumer’s cancellation of bundled products, Toyota Motor Credit applied the refund amount as an additional payment toward principal, reducing the number of monthly payments. Applying the refund in this way effectively delayed the return of the consumer’s money until the end of the sale or lease agreement term. The company used this fact to discourage cancellations, telling consumers on the retention hotline that their monthly payments would not decrease and that they would not receive direct refunds.
  • Withholding refunds or providing inaccurate refund amounts: Toyota Motor Credit failed to refund prepaid GAP and CLAH premiums to consumers who paid off the loan or ended the lease before the end of the contract. Toyota Motor Credit also relied on faulty calculations which resulted in incorrect refunds for consumers who canceled their vehicle service agreements.
  • Furnishing false data to consumer reporting companies: Toyota Motor Credit falsely reported customer accounts as delinquent for failure to make monthly account payments even though customers had already returned leased vehicles, and the company did not promptly correct the negative information it had sent to consumer reporting companies even though it knew it was wrong. Toyota Motor Credit also failed to maintain reasonable policies and procedures to ensure payment information it sent to consumer reporting companies was accurate.

11/20/2023

2024 Pricing for Federal Reserve payment services announced

The Federal Reserve Board on Friday announced pricing, effective January 2, 2024, for payment services the Federal Reserve Banks provide to banks and credit unions, such as the clearing of checks, automated clearing house (ACH) transactions, and wholesale payment and settlement services.

By law, the Federal Reserve must establish fees to recover the costs, including imputed costs, of providing payment services over the long run. The Federal Reserve expects to recover 103 percent of actual and imputed expenses in 2024, including the return on equity that would have been earned if a private-sector firm provided the services. Overall, the Reserve Banks estimate that the price changes for 2024 will result in a 1.8 percent average price increase for established, mature services.

The Reserve Banks will maintain the previous year's fee schedule for its FedNow® Service, inclusive of discounts. Other information on the FedNow Service, including pricing and implementation costs, is available in the Federal Register notice for payment services costs.

11/20/2023

Virtual hearing scheduled on proposed Retirement Security Rule

The Department of Labor's Employee Benefits Security Administration (EBSA) will hold a virtual public hearing via WebEx on December 12 through December 13, 2023, continuing (if necessary) on December 14, 2023, for the public to provide input on the Department's proposed Retirement Security Rule: Definition of an Investment Advice Fiduciary.

Requests to testify at the hearing must be submitted by November 29, 2023. For further information, see the EBSA's Federal Register notice published at 88 FR 80648 this morning.

11/17/2023

NCUA amends Incidental Powers regulation

The NCUA's Board has announced it has approved a final rule amending its Incidental Powers regulation (12 CFR Part 721) to amend the charitable donation accounts section to add "war veterans' organizations" to the definition of a "qualified charity" that a federal credit union can donate to using a charitable donation account.

The amendment will become effective 30 days after publication in the Federal Register.

Publication and effective date information: Published 11/21/2023 at 88 FR 80950, with an effective date of 12/21/2023.

11/17/2023

OFAC sanctions added companies and vessels transporting Russian oil

Yesterday, the Department of the Treasury announced that OFAC has imposed sanctions on three entities and identifying as blocked property three vessels that used Price Cap Coalition service providers while carrying Russian crude oil above the Coalition-agreed price cap. This action underscores Treasury’s commitment, alongside its international partners, to responsibly reducing oil revenues that the Russian government can use to bankroll its invasion of Ukraine.

For the names and identification information of the designated entities and vessels, see this BankersOnline OFAC Update. Look for the sanctions program tag “RUSSIA-EO14024.”

11/17/2023

FDIC issues final rule on special assessment

The FDIC has announced its Board of Directors has approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund (DIF) associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.

The Federal Deposit Insurance Act (FDI Act) requires the FDIC to take this action in connection with the systemic risk determination announced on March 12, 2023. Currently, the FDIC estimates that of the total cost of the failures of Silicon Valley Bank and Signature Bank, approximately $16.3 billion was attributable to the protection of uninsured depositors.

The FDIC is adopting, as final, the proposed special assessment, with clarifications to promote transparency and a modification to allow for corrective amendments to estimated uninsured deposits associated with the FDIC’s review of an institution’s reporting methodology.

Under the final rule, the FDIC will collect the special assessment at an annual rate of 13.4 basis points beginning with the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024) with an invoice payment date of June 28, 2024, and will continue to collect special assessments for an anticipated total of eight quarterly assessment periods. The base for the special assessment is equal to an insured depository institution’s (IDI’s) estimated uninsured deposits for the December 31, 2022 reporting period, adjusted to exclude the first $5 billion in estimated uninsured deposits from the IDI, or at the banking organization level for IDIs that are part of a holding company with one or more subsidiary IDIs.

It is estimated that a total of 114 banking organizations will be subject to the special assessment, and no banking organizations with total assets under $5 billion will pay the special assessment, based on data for the December 31, 2022 reporting period.

11/17/2023

OCC enforcement actions announced

The OCC has released its November 2023 list of enforcement actions. Included are:

  • A Formal Agreement with Heritage Bank, National Association, Spicer, Minnesota, for unsafe or unsound practices, including those relating to capital and strategic planning, timely and adequate credit review, ongoing monitoring of the credit portfolio, and liquidity risk management.
  • A Consent Order against United Fidelity Bank, FSB, Evansville, Indiana, for engaging in unsafe or unsound practices, including those relating to corporate governance and enterprise risk management, credit underwriting and administration, liquidity risk management, and interest rate risk management.
  • A Consent Order against Vast Bank, National Association, Tulsa, Oklahoma, for engaging in unsafe or unsound practices, including those relating to capital ratios, capital and strategic planning, project management, books and records, liquidity risk management; interest rate risk management, information technology controls, risk management for new products, and custody account controls.
  • An Order of Prohibition against Andrew Leseberg, a former loan processor at The Citizens National Bank, N.A., Greenleaf, Kansas, for stealing, embezzling, or otherwise misappropriating aspproximately $16,050, at a loss or risk of loss to the bank.
  • A Notice of Charges for an Order of Prohibition against a former financial advisor for Citibank, N.A., Sioux Falls, South Dakota, who is alleged to have solicited an elderly customer to invest, and the customer did invest, more than $200,000 in a company the former financial adviser co-owned; received at least $99,000 in direct payments from the company; and falsely represented that she was following, and would follow, policies prohibiting this conduct.

11/16/2023

FDIC updates RMS Manual

The FDIC has updated its Risk Management Manual of Examination Policies (RMS).

The November 2023 update affects Section 14.1 (Civil Money Penalties) to incorporate various technical and clarifying edits.

11/16/2023

FTC cleans up after cramming scheme

The Federal Trade Commission reports it has obtained orders with the four remaining individual defendants and their affiliated companies in a mobile cramming scheme that the agency says bilked consumers out of more than $100 million through bogus charges added to their mobile phone bills.

The proposed settlements with Darcy Michael Wedd and Phwoar, LLC.; Fraser Robert Thompson and Ocean Tactics, LLC; Erdolo Levy Eromo and Erdi Development LLC; and Michael Pajaczkowski, Concise Consulting, Inc., and MMJX Consulting, Inc., resolve the FTC’s charges related to the MDK Media mobile cramming scheme. The FTC in 2015 reached settlements with six other individual defendants and affiliated companies. The FTC’s case against the remaining defendants was then put on hold pending the outcome of related criminal charges brought by the U.S. Attorney’s Office for the Southern District of New York. These actions resulted in criminal sentences against Wedd, Thompson, Eromo, and Pajaczkowski, with the last case resolved in July 2023.

In the complaint first announced in 2014, the FTC charged that the defendants used deceptive practices, including fake websites with bogus offers of “freebies” or gift cards, to trick consumers into providing their mobile phone numbers. The defendants then placed monthly subscription fees for a variety of “services” on consumers’ mobile phone bills without their authorization—a practice known as mobile cramming.

The subscriptions typically cost consumers $9.99 or $14.99 per month, which renewed automatically each month. The defendants made it difficult for consumers to dispute charges. Some consumers were crammed for multiple months and, even after significant effort, were unable to obtain a full refund.

Under the proposed settlements, Wedd, Thompson, Eromo, and Pajaczkowski, as well as their related companies are prohibited from placing any charges on any telephone bills, from making any misrepresentations about any product or service, and from engaging in any unfair billing practices. In addition, they are prohibited from using or benefiting in any way from the customer data they collected through this scheme and are required to destroy any remaining customer data.

Many consumers who were impacted by the defendants’ practices received refunds through settlements the FTC and the Consumer Financial Protection Bureau reached with the four major mobile carriers, AT&T, T-Mobile, Sprint and Verizon, related to mobile cramming charges that were placed on customers’ bills without their authorization. The mobile carriers discontinued such third-party billing practices following the actions by the FTC and other state and federal agencies to crack down on cramming.

11/16/2023

OFAC sanctions notorious narcotics trafficker

Yesterday, in cooperation with the government of Costa Rica, OFAC designated Gilbert Hernan de Los Angeles Bell Fernandez (Bell), a Costa Rican narcotics trafficker, known not only for the volume of drugs he moves but the violence with which he operates, who has played a significant role in Costa Rica’s recent transformation into a major narcotics transit hub.

For Bell's identification information, see the November 15, 2023, BankersOnline OFAC Update.

11/16/2023

CFPB orders Enova to pay $15M and restitution for unfair practices

The CFPB yesterday announced it has ordered online lender Enova International Inc. to pay a $15 million penalty for widespread illegal conduct including withdrawing funds from customers’ bank accounts without their permission, making deceptive statements about loans, and cancelling loan extensions. Enova paid a $3.2 million penalty to the CFPB in 2019, and was ordered to cease its illegal conduct. For violating that order and continuing to break the law, Enova is now banned from offering certain consumer loans, must provide redress to the consumers it harmed, and is required to tie executive compensation to the company’s compliance with federal consumer financial protection laws.

Enova is a publicly traded nonbank lender headquartered in Chicago, Illinois. Enova extends or arranges unsecured installment loans and lines of credit to consumers in 37 states through its CashNetUSA- and NetCredit-branded subsidiaries. Up until 2022, Enova also extended unsecured payday loans to consumers through its CashNetUSA-branded subsidiaries.

After taking action against Enova in 2019, the CFPB investigated Enova’s compliance with the 2019 order. The investigation found that the company was continuing to engage in illegal behavior, affecting more than 111,000 consumers. The Bureau found that Enova—

  • Withdrew funds without borrowers’ consent: Enova withdrew or tried to withdraw funds from consumers’ accounts without having obtained their express informed consent as required by the 2019 order. In some cases Enova used bank account information it had purchased from online lead generators, overwriting the bank account information that borrowers had authorized Enova to use.
  • Backtracked on loan extensions: Enova cancelled loan extensions it had granted to certain consumers and in most instances debited such consumers’ bank accounts for the full loan payment instead of only a smaller loan extension fee, in violation of the 2019 order.
  • Deceived borrowers with false statements and omissions: Enova failed to tell consumers who had been granted a loan extension that making an interim partial payment would result in cancellation of the loan extension and misrepresented the amount that Enova would charge to consumers who made such an interim partial payment. Enova also misrepresented the due date for certain loan payments, that consumers could skip certain loan payments, and the amounts due on certain loans.
  • Failed to provide consumers copies of signed authorizations: Enova initiated recurring electronic fund transfers from consumers’ bank accounts without providing the consumer with a copy of a signed authorization identifying the particular bank account that the consumer had authorized for such transfers, in violation of the 2019 order.

The current consent order requires Enova to:

  • Stop offering certain short-term loans: For seven years, Enova is prohibited from offering or providing closed-end consumer loans that must be substantially repaid within 45 days.
  • Stop its illegal practices: Enova is prohibited for engaging in certain practices, including initiating attempts to debit funds from a consumer’s account without having obtained the consumer’s express informed consent and failing to honor loan extensions granted to consumers.
  • Reform executive compensation: Enova’s executive compensation policies and agreements must consider the actions taken by the executive to ensure that the executive’s business or department complies with the order and federal consumer financial law.
  • Provide redress to consumers: Enova must provide redress to all consumers whose accounts Enova debited without their express informed consent, including by returning to those consumers all unlawfully debited amounts and associated fees, costs, and interest.
  • Pay a civil penalty: Enova will make a civil penalty payment of $15 million to the CFPB victims relief fund.

For a link to the CFPB's Consent Order, see "Enova ordered to pay $15 million for illegal conduct and violating 2019 order" in the BankersOnline Penalties pages.

11/15/2023

FHFA reports 2024 multifamily loan purchase caps

The Federal Housing Finance Agency (FHFA) has announced that the 2024 multifamily loan purchase caps for Fannie Mae and Freddie Mac (the Enterprises) will be $70 billion for each Enterprise, for a combined total of $140 billion to support the multifamily market.

The FHFA will require that at least 50 percent of the Enterprises’ multifamily businesses be mission-driven, affordable housing. In addition, for 2024, loans classified as supporting workforce housing properties in Appendix A of the Conservatorship Scorecard will be exempt from the volume caps. All other mission-driven loans remain subject to the volume caps. To ensure the Enterprises continue to provide sufficient liquidity and support in the multifamily mortgage market, FHFA will continue to monitor the multifamily mortgage market and will increase the caps if necessary. However, to prevent market disruption, if FHFA determines that the actual size of the 2024 market is smaller than was initially projected, FHFA will not reduce the caps.

11/15/2023

FHA increases allowable fees for inspections of vacant homes

The Federal Housing Administration has announced it has increased the allowable property inspection fee limits for property inspections of single-family homes associated with defaulted FHA-insured mortgages. These inspections are a crucial component of servicers’ preservation and protection of properties. They also safeguard neighborhoods from blight arising from inadequately maintained unoccupied homes.

With the updates announced yesterday, FHA is increasing fees for certain allowable inspection categories, making its fee limitations consistent with those in use by other industry participants. FHA intends to evaluate allowable parameters for other property preservation expenses in the future.

11/15/2023

U.S. and UK take action against Hamas leaders and financiers

Yesterday, the Treasury Department announced that OFAC had imposed its third round of sanctions targeting Hamas-affiliated individuals and entities since the October 7 Hamas terrorist attacks on Israel. This action designated key Hamas officials and the mechanisms by which Iran provides support to Hamas and Palestinian Islamic Jihad (PIJ). Yesterday’s designations were coordinated with action by the UK and are aimed at protecting the international financial system from abuse by Hamas and their enablers. The U.S. Department of State concurrently designated a leader of PIJ’s military wing.

For the names and identification information of the designated parties, see this BankersOnline OFAC Update.

11/14/2023

Registration for OCC symposium on tokenization open

The Office of the Comptroller of the Currency (OCC) has announced that registration is open for its symposium on the tokenization of real-world assets and liabilities on February 8, 2024, at its headquarters in Washington, D.C.

The symposium will include panel discussions among thought leaders, academics, community groups, and the banking industry on tokenization and is open to the public for in-person or virtual attendance.

The event will feature opening remarks from Acting Comptroller of the Currency Michael J. Hsu and keynote remarks from Hyun Song Shin, Economic Adviser and Head of Research at the Bank for International Settlements (BIS). The symposium will also include moderated panel discussions to explore the legal foundations for digital asset tokens, tokenization use cases, and risk management and control considerations. There will also be a panel discussion of academic papers on tokenization.

Registration is required for in-person attendance at the symposium and is open until January 22, 2024, or until full, whichever occurs first. For security reasons, in-person attendees will be subject to screening and must present a valid government-issued identification to enter the building. The symposium will also be livestreamed.

11/14/2023

CFPB distributing about $241,000 to 845 consumers

This week, 845 former Student Aid Institute (SAI) consumers will receive checks in the mail in response to a lawsuit filed against Frank Ronald Gebase Jr., the founder, owner, and operator of Processingstudentloans, a student loan debt-relief company that illegally withdrew hundreds of thousands of dollars from the bank accounts of former SAI consumers without their authorization. The total distribution amount is $240,994.00, and the money is from the CFPB’s victims relief fund.

Payments were sent on November 13, 2023, through RUST Consulting.

11/14/2023

New thresholds for applicability of Regs M & Z to consumer loans and leases

The CFPB and the Federal Reserve Board have announced the dollar thresholds used to determine whether certain consumer credit and lease transactions in 2024 are subject to certain Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) requirements.

Based on the annual percentage increase in the CPI-W as of June 1, 2023, Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) generally will apply to consumer credit transactions and consumer leases of $69,500 or less in 2024. However, private education loans and loans secured by real property, such as mortgages, are subject to Regulation Z (Truth in Lending) regardless of the amount of the loan.

These changes have been posted to the BankersOnline Regulations pages.

11/14/2023

Bureau increases cap for credit bureau charges to a consumer

The CFPB has issued a final rule to be effective January 1, 2024, to establish the maximum allowable charge for disclosures during 2024 by a consumer reporting agency to a consumer under section 609 of the Fair Credit Reporting Act. The CFPB is amending Appendix O to Regulation V, to set the maximum allowable charge at $15.50 for 2024.

BankersOnline has updated Appendix O to Regulation V in its Regulations pages to reflect this change.

11/14/2023

Agencies increase threshold for smaller loan exemption from HPML appraisals

The CFPB, Federal Reserve, and OCC have announced that the 2024 threshold for whether higher-priced mortgage loans are subject to special appraisal requirements will increase from $31,000 to $32,400.

BankersOnline has added comment 35(c)(2)(ii)-3.xi to Regulation Z in its Regulations pages to reflect this change.

11/13/2023

SEC charges former CEOs of tech startup with falsifying documents

The Securities and Exchange Commission has announced charges against Jake Soberal and Irma Olguin, Jr., the former co-CEOs of Fresno, California-based private technology services startup Bitwise Industries Inc., for misleading investors about the company’s finances. Soberal and Olguin have agreed to resolve the charges against them.

The SEC's complaint alleges that Soberal and Olguin made material misrepresentations and falsified documents concerning Bitwise’s cash position and historical financial performance while raising approximately $70 million from investors in 2022. Soberal and Olguin allegedly created and provided investors with falsified bank records and a fake audit report that showed, respectively, inflated cash balances and higher revenues than Bitwise actually generated. Soberal and Olguin’s alleged misrepresentations and falsified materials painted Bitwise as a healthy, growing business with favorable financial performance. In reality, and as Soberal and Olguin allegedly knew, Bitwise faced constant cash shortages and was often on the brink of failure because it was unable to generate sufficient funds from its operations. As alleged, Soberal and Olguin’s scheme came to light in May 2023 when Bitwise failed to make payroll and abruptly furloughed—and then terminated—all of its hundreds of personnel.

“In one instance, the defendants allegedly conspired to send a purported screenshot to investors of a company bank account showing a cash balance of $23.4 million. In actuality, the account had only $325,100 in it. That’s not a bank error—that’s fraud, and the SEC is taking action to hold the defendants accountable,” said Monique C. Winkler, Regional Director of the SEC’s San Francisco Regional Office.

Soberal and Olguin have each agreed to the entry of a partial judgment, subject to court approval, imposing permanent and conduct-based injunctions as well as an officer and director bar, and reserving the issues of disgorgement, prejudgment interest, and a civil penalty for further determination by the court.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of California (USAO) has announced criminal charges against Soberal and Olguin.

11/13/2023

Fed to publish its proposal to lower interchange fee cap tomorrow

The Federal Reserve Board has scheduled the publication of its proposal to lower the cap on debit card interchange fees for larger issuers for tomorrow. Comments on the proposal will be due within 90 days (by February 12, 2024).

11/10/2023

FTC publishes proposed trade rule on junk fees

The Federal Trade Commission yesterday published [88 FR 77420] its proposed trade rule on "junk" fees. Comments will be accepted through January 8, 2024.

11/10/2023

Fed Board posts November 2023 Supervision and Regulation Report

The Federal Reserve Board issues semiannual Supervision and Regulation Reports summarizing banking conditions and the Board's supervisory and regulatory activities in conjunction with semiannual testimony before Congress by the Board's Vice Chair for Supervision. The November 2023 Report was released yesterday.

11/10/2023

FDIC Board to meet November 16

The FDIC has issued a Sunshine Act notice of its next scheduled Board of Directors meeting, to be held at 10:00 a.m. EST on November 16, 2023. The meeting will be open to public observation by webcast only.

Among the items for discussion on the agenda are:

  • Final Rule on Special Assessment pursuant to systemic risk determination
  • Briefing on the semiannual update of the Restoration Plan
  • Designated Reserve Ratio for 2024

11/10/2023

SBA EID loans available in Washington

The Small Business Administration has announced that small nonfarm businesses in Clallam, Grays Harbor, Island, Jefferson, Kitsap and Mason counties in the state of Washington are now eligible to apply for low‑interest federal disaster loans from the SBA. These loans offset economic losses because of reduced revenues caused by drought in Clallam and Jefferson counties that began September 12.

Small nonfarm businesses, small agricultural cooperatives, small businesses engaged in aquaculture and most private nonprofit organizations of any size may qualify for Economic Injury Disaster Loans of up to $2 million to help meet financial obligations and operating expenses which could have been met had the disaster not occurred. These loans have an interest rate of 4 percent for businesses and 2.375 percent for private nonprofit organizations, a maximum term of 30 years and are available to small businesses and most private nonprofits without the financial ability to offset the adverse impact without hardship. No interest accrues for the first year.

11/10/2023

FHFA proposes update of HECM assignment claims eligibility

On Thursday, the Federal Housing Administration (FHA) announced it has posted for industry feedback a proposed update to its Home Equity Conversion Mortgage (HECM) assignment claims eligibility policy. The proposal enables certain categories of due and payable HECMs that were previously ineligible for assignment to be assigned to HUD, enabling servicers to obtain earlier resolution of these loans through HUD’s assignment claims process. This change will support servicer liquidity and strengthen the HECM market for senior homeowners who use a HECM to age in place.

FHA is seeking industry feedback on its proposal through December 11, 2023.

11/09/2023

MLA system maintenance on November 11

There is a notice on the Department of Defense's Military Lending Act (MLA) website indicating that the site is scheduled for system maintenance on Saturday, November 11, 2023, and will not be available from 6:00 p.m. until 9:00 p.m. PST (9:00 p.m. to midnight EST).

11/09/2023

CFPB orders Citibank to pay $25.9M for illegal discrimination

On Wednesday, the CFPB announced it has ordered Citibank, N.A. (Citi) to pay $25.9 million in fines and consumer redress for intentionally and illegally discriminating against credit card applicants the bank identified as Armenian American.

According to the CFPB's consent order, from 2015 through 2021, Citi singled out for discrimination applicants for certain credit card products, based on their surnames, whom it suspected of being of Armenian descent, in violation of the Equal Credit Opportunity Act, Regulation B, and the Consumer Financial Protection Act (CFPA). Citi supervisors conspired to hide the discrimination by instructing employees not to discuss the discriminatory practices in writing or on recorded phone lines. Citi employees also lied about the basis of denial, providing false reasons to denied applicants, also in violation of ECOA, Regulation B and the CFPA. Under Wednesday’s order, Citi will pay $1.4 million to harmed consumers along with a $24.5 million penalty.

The CFPB reported that Citi treated Armenian Americans as criminals who were likely to commit fraud. From at least 2015 through 2021, Citi targeted retail services credit card applicants with surnames that Citi employees associated with Armenian national origin as well as applicants in or around Glendale, California. The bank specifically targeted surnames ending in “-ian” and “-yan.” Nicknamed “Little Armenia,” Glendale is home to approximately 15% of the Armenian American population in the U.S.

The Bureau said that Citi managers trained and directed employees to take part in the bank’s plan to single out Armenian Americans applying for retail services credit cards because of stereotypes Citi projected onto an entire nationality.

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