Capitol Comments
August 2012
C A P I T O L C O M M E N T S A U G U S T 2 0 1 2 Page 17
Recent News
When there is a deadline associated with an item, you will see this graphic:
FinCEN advisory on Mexican financial institution transactions in U.S. currency
FinCEN issued an Advisory (FIN-2012-A006[i]) reminding financial institutions of previously-published information concerning regulatory restrictions imposed on Mexican financial institutions for transactions in U.S. currency. In 2010, FinCEN issued an Advisory (FIN-2010-A007[ii]) informing financial institutions of the then-recently enacted restrictions.
OCC announces enforcement actions related to SCRA
The OCC announced enforcement actions[iii] against Capital One, N.A., and Capital One Bank (USA), N.A., for violations and compliance deficiencies related to the Servicemembers Civil Relief Act (SCRA).
Comment: Is your bank doing these actions the banks above were required to do:
First, the enforcement actions require the banks to improve their policies and procedures for determining whether servicemembers who request certain benefits provided by the SCRA are eligible for such benefits, ensuring that the SCRA benefits are calculated correctly, and verifying the military status of servicemembers prior to seeking or obtaining a default judgment.
Second, the enforcement actions require the banks to ensure the retention of accurate and complete records that document the basis for decisions regarding servicemembers’ eligibility for SCRA benefits or protections, and to develop and implement a comprehensive SCRA training program for employees.
Third, the enforcement actions require the banks to establish robust oversight of and controls over their third-party vendors that provide marketing, sales, delivery, servicing, and fulfillment of services for the banks’ financial products, such as credit card accounts, mortgage loans, motor vehicle finance loans, and consumer loans and lines of credit.
The OCC’s actions also require the banks to engage an independent firm to identify all servicemembers who were eligible for SCRA benefits or protections and who were financially harmed by the banks’ violations of the SCRA.
CFPB releases web tool for delinquent student loan borrowers
CPFB partnered with the U.S. Department of Education to release a new web tool[iv] for borrowers who have fallen behind on their student loan payments. The tool is intended to help borrowers understand their options, communicate effectively with their servicer or debt collector, and work to bring their loans out of default or delinquency.
Comment: Be mindful of changes in transaction patterns based on your customers, products and services, and geographic locations. (FinCEN’s Advisory (FIN 2011-A009[v]) on narcotics and bulk currency may be helpful in determining whether a bank’s geographic region is in a narcotics or bulk currency corridor.) If you suspect a transaction involves funds derived from illegal activity designed to evade BSA, lacks business, or apparent legal purpose, you may be required to file a SAR. If you bank receives or offers services in connection with bulk cash shipments, you should have policies and procedures that mitigate the risks posed.
FDIC unveils regulatory calendar
As a part of its ongoing Community Bank Initiatives, the FDIC is developing a regulatory calendar[vi] to help community banks stay up-to-date on changes in federal banking laws, regulations, and supervisory guidance. The calendar will summarize regulatory developments and highlight key dates to facilitate industry comment and compliance. A draft of the calendar is available on the FDIC Web site. See the FDIC’s Press Release.[vii]
Comment: Capitol Comments has contained a regulatory calendar for several years. We strive to list only those regulatory items that are relevant to community banks. We applaud the FDIC for doing this, and we hope the other bank regulatory agencies follow suit or, better yet, that they collaborate on a joint calendar.
CFPB explains why mortgage disclosure proposal is 1,099 pages
Click here[viii] to see the CFPB’s explanation of why it took 1,009 pages to propose a mortgage disclosure.
Comment: As has been suggested by others, it may very well require 1,099 pages to propose the three page disclosure, but maybe that is indicative of simplification amendments needed to TIL and RESPA.
CFPB blog—Free foreclosure help is available
The CFPB wrote a blog, entitled Foreclosure help is free, and scams are expensive,[ix] directed to those having trouble paying their mortgages saying that the CFPB will help get them get connected to a HUD-approved housing counselor at no cost.
Independent foreclosure review deadline: December 31, 2012
Borrowers seeking a review of their mortgage foreclosures under the federal banking agencies' Independent Foreclosure Review[x] now have until December 31, 2012, to submit their requests.
FinCEN Advisory on suspicious activity related to mortgage loan fraud
FinCEN issued an Advisory (FIN-2012-A009[xi]) to highlight activity related to mortgage loan fraud so that financial institutions may better assist law enforcement when filing SARs. The Advisory, which consolidates certain information from previously issued FinCEN reports, contains examples of common fraud schemes and potential "red flags" for activity related to mortgage loan fraud.
CFPB: Potential conflicts of certain state gift card laws
Federal law, as set forth in the EFTA Reg. E, generally prohibits the sale of a gift card that expires sooner than five years after the card is issued, or five years after the date when funds were last loaded onto the card. Under the EFTA and Regulation E, the CFPB is required to respond to such requests for determinations about potential conflicts between federal and state laws. The CFPB received requests about unclaimed property laws in Maine and Tennessee. The EFTA requires the CFPB to evaluate not only whether state law is inconsistent with federal law, but also whether it is more protective of consumers than federal law. Today, the CFPB issued a notice[xii] summarizing the relevant federal and state laws, explaining the factors that the CFPB will consider when making its determinations, and asking members of the public to weigh in with their views about whether provisions of unclaimed property laws in Maine and Tennessee relating to gift cards are inconsistent with federal law or provide consumers greater protection than federal law.
CFPB requests lawsuits where it can file amicus briefs
The CFPB posted a blog[xiii] saying that it is looking for cases with one or more important legal questions about the interpretation or application of a federal consumer financial protection statute or regulation that the CFPB interprets and enforces. The blog stated that strong candidates are typically cases that have been or will soon be filed in a federal court of appeals or state supreme court.
Comment: Although the CFPB’s website lists six amicus briefs[xiv]—four on Truth in Lending (TIL) and two on the Fair Debt Collection Practices Act (FDCPA), in June, Capitol Comments reported on a seventh brief that was filed in the case of Freeman v. Quicken. Interestingly, the Court held for Quicken despite the joint CFPB and Department of Justice amicus brief[xv] supporting Freeman’s claim.
All four of the briefs filed in TIL cases involved whether consumers who wish to rescind their loan must notify lenders of the rescission within three years of receiving their loan, or whether instead consumers must sue their lenders within the three-year period. The CFPB opined that the consumer need only send the notice. In the first FDCPA brief filed, the CFPB argues that activity surrounding foreclosure is not immune from FDCPA. In the other FDCPA brief, the CFPB argues that the FDCPA generally bars debt collectors from contacting third parties in connection with the collection of a debt even if the third party does not actually realize that the contact relates to debt collection. The brief additionally argues that a defendant who wins an FDCPA suit may recover costs from the plaintiff only if the plaintiff brought suit in bad faith and for the purpose of harassment.
Basel III comment period extended
The federal banking regulators announced[xvi] they extended the comment period until October 22, 2012, on three notices of proposed rulemaking that would revise and replace the agencies’ current capital rules.
Comment: It is imperative that community bankers comment on this proposal. This complex and cumbersome proposal threatens the future profitability of consumer banks. Timely action to contact your Member of Congress is needed. The risk weightings are excessive. The proposal ignores the existence of the Allowance for Loan and Lease Losses in providing a buffer for both identifiable and anticipated exposure in the loan portfolio. Community banks will be required to hold additional capital to compensate for volatility in interest rates—with severe penalties for falling below mandated capital levels. A full exemption for community banks is needed. Rarely has an issue so inflamed community bankers.
Longtime OCC Chief Counsel Julie Williams to retire
After 19 years as Chief Counsel of the Office of the Comptroller of the Currency, Julie Williams announced she will step down on September 30, 2012 and plans to retire from federal service at the end of the year.
Comment: Ms. Williams has always been a tough but fair regulator. She will be missed.
CFPB partners with Cornell to create consumer web site
The CFPB has partnered with Cornell University, which has launched a project called Regulation Room[xvii] as part of the Cornell e-Rulemaking Initiative, to get consumers opinion on the CFPB’s new proposed mortgage servicing rules.
FinCEN: Compliance by loan and finance company subsidiaries of federally regulated banks
FinCEN issued a Ruling (FIN-2012-R005[xviii]) to clarify the requirements under FinCEN's regulations for loan and finance companies that are subsidiaries of financial institutions subject to the same regulations applicable to the parent financial institution and examinations of a Federal functional regulator for compliance with the anti-money laundering and counter-terrorist financing obligations the Bank Secrecy Act ("BSA"). In the Ruling, FinCEN determined that a loan or finance company that: 1) is a subsidiary of a financial institution subject to these regulations, including at least anti-money laundering program ("AML") and suspicious activity reporting ("SAR") requirements; 2) is required to comply with the AML and SAR regulations applicable to the parent financial institution; and 3) is subject to examination by the Federal functional regulator of the parent financial institution, is deemed to comply with FinCEN's regulations at 31 CFR 1029.
Comment: A loan or finance company is a "subsidiary" of a financial institution if the company is controlled by the parent financial institution. See, e.g., 12 CFR 5.34[xix] regarding Operating Subsidiaries of National Banks.
CFPB bulletin on credit card add on products
Credit card issuers market various “add-on” products to card users, including debt protection, identity theft protection, credit score tracking, and other products that are supplementary to the credit provided by the card itself. CFPB Bulletin 2012-06[xx] outlines the Bureau’s expectation that institutions under its supervision and their service providers offer such products in compliance with Federal consumer financial law. The CFPB contends it will take all necessary steps to ensure that consumers are protected from deceptive sales and marketing practices, including those resulting from failures to adequately disclose important product terms and conditions, or other violations of federal consumer financial protection laws.
Comment: Remember, that the CFPB writes rules that affect all banks, but they only supervise those over $10 billion in assets. This bulletin comes on the same day that the CFPB announced[xxi] its first public enforcement action—an order requiring Capital One Bank to refund to customers nearly $140 million and pay a $25 million penalty for deceptive marketing tactics pressuring or misleading consumers into paying for “add-on products.”
Dodd-Frank Act (DFA) agency actions
Note to the Reader: This section is devoted to matters relating directly to the Dodd-Frank Act. In this section, we will report on both proposed and final rulemaking. We don’t usually report on proposed rulemaking because readers can confuse the proposals with final rules; however, an exception will be made with respect to selected rules proposed in response to the Dodd-Frank Act. Please be aware that rules listed as proposed have not been adopted by the regulators. We encourage you to comment on proposals.
Recent DFA final rules adopted:
Fed: Final rule amending debit interchange fee regulation
The Federal Reserve Board announced the approval of a final rule[xxii] that amends the provisions in Regulation II (Debit Card Interchange Fees and Routing) that permit a debit card issuer subject to the interchange fee standards to receive a fraud-prevention adjustment. The final rule revises provisions that are currently in effect as an interim final rule.
The amendments permit an issuer to receive or charge an amount of no more than 1 cent per transaction (the same amount currently permitted) in addition to its interchange transaction fee if the issuer develops and implements policies and procedures that are reasonably designed to take effective steps to reduce the occurrence of, and costs to all parties from, fraudulent electronic debit transactions. The amendments set forth fraud-prevention aspects that an issuer’s policies and procedures must address and require an issuer to review its policies and procedures at least annually, and update them as necessary in light of their effectiveness, cost effectiveness, and changes in the types of fraud, methods used to commit fraud, and available fraud-prevention methods. An issuer must notify its payment card networks annually that it complies with the Board’s fraud-prevention standards. Finally, the amendments provide that an issuer that is substantially noncompliant with the Board’s fraud prevention standards is ineligible to receive or charge a fraud-prevention adjustment and set forth a timeframe within which an issuer must stop receiving or charging a fraud-prevention adjustment.
Comment: This rule is effective October 1,
2012.
CFPB: Banks with fewer than 100 international transmissions per year not subject to new requirements
In its final rule[xxiii], the CFPB concluded that institutions that consistently conduct 100 or fewer international remittance transfers per year do not provide transfers in the “normal course of business” and therefore are not subject to the new requirements. However, if a company that provided 100 or fewer remittance transfers in the previous year provides more than 100 remittance transfers in the current year, the rule provides a reasonable transition period to come into compliance.