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OFAC has released and will publish on May 10 an interim final rule to amend the Reporting, Procedures and Penalties Regulations (the “Regulations”), to require electronic filing of certain submissions to OFAC and to describe and modify certain reporting requirements related to blocked property and rejected transactions. In particular, the rule would require use of the electronic OFAC Reporting System for submission of reports related to blocked property and rejected transactions, remove the mail option for certain other types of OFAC submissions, describe reports OFAC may require from financial institutions for transactions that meet specified criteria, and add a reporting requirement for any blocked property that is unblocked or transferred.

Additionally, OFAC is clarifying the scope of the reporting requirement for rejected transactions, in part to respond to comments received on the interim final rule OFAC published on June 21, 2019 to amend the Regulations. The interim final rule also modifies the procedures for requests relating to property that is blocked in error and updating the Regulations with respect to the availability of information under the Freedom of Information Act (FOIA) for certain categories of records.

The rule also clarifies that persons may submit a petition for administrative reconsideration to seek removal of a person or property from the List of Specially Designated Nationals and Blocked Persons or any other list of sanctioned persons maintained by OFAC. OFAC is also adding a description of reports OFAC may require financial institutions to provide about transactions that meet specified criteria to aid in the identification of blocked property. Finally, OFAC is making several technical and
conforming edits.

The rule will become effective 90 days after publication (August 8, 2024). Comments on the interim final rule will be accepted for 31 days after publication (through June 10, 2024).

Yesterday, FinCEN issued an Advisory to assist financial institutions in detecting potentially illicit transactions related to Islamic Republic of Iran-backed terrorist organizations. The Advisory highlights the means by which certain terrorist organizations receive support from Iran and describes several typologies these terrorist organizations use to illicitly access or circumvent the international financial system to raise, move, and spend funds. It also provides red flags that may assist financial institutions in identifying related suspicious activity.

Recent events have underscored Iran’s involvement in and financing of terrorist activity in the region. Iran seeks, among other goals, to project power by exporting terrorism throughout the Middle East and beyond by financing a range of regional armed groups, some of which are U.S.-designated Foreign Terrorist Organizations or Specially Designated Global Terrorist organizations. These terrorist organizations include Lebanese Hizballah, Hamas, the Palestinian Islamic Jihad, the Houthis, and several Iran-aligned militia groups in Iraq and Syria.

FinCEN requests that financial institutions reference this advisory in SAR field 2 and the narrative by including "IRANTF-2024-A001" and selecting SAR field 33(a) when filing SARs related to matters discussed in the Advisory.

• Advisory FIN-2024-A001

Our monthly check of the Federal Reserve Board's archive of Community Reinvestment Act evaluations shows that the Reserve Banks issued 15 evaluations in April 2024. Twelve of those evaluations were rated "Satisfactory." We congratulate Cedar Rapids Bank and Trust Company, Cedar Rapids, Iowa; Manufacturers and Traders Trust Company, Buffalo, New York; and Opportunity Bank of Montana, Helena, Montana, on their CRA evaluations, which were rated "Outstanding."

The CFPB has announced it has taken action against Chime Financial for failing to give consumers timely refunds when their accounts were closed. Thousands of consumers waited for weeks or even months for balance refunds after closing their accounts — a failure that inflicted significant financial harm on consumers who did not have access to critical funds to help make ends meet. In some cases, consumers had to seek expensive forms of credit to cover bills that were due. The CFPB’s order requires Chime to provide at least $1.3 million in redress to consumers it harmed, and pay a $3.25 million penalty into the CFPB’s victims relief fund.

Chime Financial is a nonbank company headquartered in San Francisco. The company partners with banks to offer financial products, including checking accounts, savings accounts, and credit cards. Chime has $1.5 billion in annualized revenue. Approximately seven million consumers make $8 billion in transactions using Chime cards each month. It is not publicly owned, and relies, in large part, on investments through venture capital firms.

In most instances, when consumers’ checking and savings accounts are closed, Chime automatically refunds remaining balances by check. Until 2021, Chime’s policy, reflected in consumer account agreements, was to process and mail refund checks within 14 days of an account’s closure. But the CFPB found that Chime:

• Failed to timely provide consumer refunds: Chime failed to issue consumer refunds within the 14 days promised by its policy, including thousands of instances in which Chime did not get refunds to consumers within 90 days.
• Deprived consumers of needed funds to meet their responsibilities: Chime’s slow response in returning consumer funds prevented thousands of consumers from accessing their money – sometimes for months on end. Consumers who did not have access to their funds were often unable to pay for basic living expenses, and likely had to use or search for expensive credit alternatives, such as credit cards or payday loans.

Under the CFPB’s order (click HERE), Chime must:

• Pay at least $1.3 million in redress: Chime must pay at least $1.3 million in redress to harmed consumers. Generally, a harmed consumer will receive at least $150 in redress if, after 14 days from account closure, they still had a minimum unrefunded balance of $10.
• Pay $3.25 million in penalties: Chime will pay $3.25 million in penalties to the CFPB’s victims relief fund.
• Provide timely refunds: Chime must come into compliance with the law, including providing refund checks on closed accounts within a reasonable period.

The Federal Reserve Board has reported that First Citizens Bank of Butte, Butte, Montana, has entered into a formal agreement with the Federal Reserve Bank of Minneapolis and the Montana Division of Banking and Financial Institutions, to address deficiencies identified in the most recent examination of the bank conducted by the Division and the Reserve Bank relating to the bank's risk management and compliance with applicable federal laws, rules, and regulations relating to BSA/AML compliance.

On Tuesday, the United States designated Dmitry Yuryevich Khoroshev, a Russian national and a leader of the Russia-based LockBit group, for his role in developing and distributing LockBit ransomware. This designation is the result of a collaborative effort with the U.S. Department of Justice, Federal Bureau of Investigation, the United Kingdom’s National Crime Agency, the Australian Federal Police, and other international partners.

Concurrently, the Department of Justice is unsealing an indictment and the Department of State is announcing a reward offer for information leading to the arrest and/or conviction of Khoroshev. The United Kingdom and Australia are also announcing the designation of Khoroshev.

For identification information on Khoroshev, see BankersOnline’s May 7, 2024, OFAC Update.

The U.S. Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), has announced it has extended its foreclosure moratorium for borrowers with FHA-insured mortgages in Maui County, HI, through January 1, 2025. FHA took this action due to the extent of the devastation from the wildfires, the reduced capacity for borrowers to access needed resources, and the unique challenges associated with the geographic location of Maui. The extension will provide affected borrowers more time to obtain federal, state, and local assistance, to work with a HUD-certified housing counselor, and/or to rebuild without the added burden of dealing with foreclosure actions. FHA’s foreclosure moratorium for Maui County has been in place for eight months and was set to expire on May 6, 2024.

With this extension, FHA is instructing mortgage servicers that they must not initiate new, or continue with existing, foreclosure actions on FHA-insured single family forward mortgages and Home Equity Conversion Mortgages for properties located in Maui County.

OFAC has announced the formal launch of its new OFAC Sanctions List Service (SLS) application. SLS is now the primary application OFAC will use to deliver sanctions list files and data to the public.

SLS includes support for all OFAC legacy and modern sanctions list data files. While certain sanctions list data are now hosted within the SLS cloud, existing links to OFAC list files remain functional through URL redirects.

The Sanctions List Service application incorporates the traditional OFAC Sanctions List Search tool which will continue to be available at https://sanctionssearch.ofac.treas.gov/.

The FDIC, Federal Housing Finance Agency, NCUA, and OCC have issued a Joint Press Release announcing that the FDIC, the OCC, and the FHFA have adopted a Notice of Proposed Rulemaking (NPR) to address incentive-based compensation arrangements, as required under section 956 of the Dodd-Frank Act (section 956). The NCUA is expected to take action on the NPR in the near future. The U.S. Securities and Exchange Commission (SEC) has included a rulemaking to implement section 956 on its rulemaking agenda. This NPR is intended to advance stakeholder engagement needed to develop a final incentive-based compensation rule.

The NPR re-proposes the regulatory text previously proposed in June 2016, and seeks public comment in the preamble on certain alternatives and questions.

Section 956 requires the appropriate Federal regulators—the FDIC, the Board of Governors of the Federal Reserve System (FRB), the OCC, the NCUA, the FHFA, and the SEC—to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at certain financial institutions that have $1 billion or more in assets. Once the NPR is adopted by all six agencies, it will be published in the Federal Register with a comment period of 60 days following publication. Until then, each agency acting on the NPR will make it available on their respective website, and will accept comments. If any of the six regulators specified by section 956 fails to join in the rulemaking, the rulemaking will not go forward.

The proposed rule includes prohibitions intended to make incentive-based compensation arrangements more sensitive to risk. These include a prohibition on incentive-based compensation arrangements that do not include risk adjustment of awards, deferral of payments, and forfeiture and clawback provisions. The prohibitions also emphasize the important role of sound governance and risk management control mechanisms. These prohibitions would help safeguard covered institutions from the types and features of incentive-based compensation arrangements that encourage inappropriate risks. The recordkeeping and disclosure requirements in the proposed regulatory text would assist the appropriate Federal regulator in monitoring and identifying areas of potential concern at covered institutions.

Comments received on this NPR and those previously submitted on the 2016 NPR will further inform efforts to address incentive-based compensation arrangements, as required under section 956.

The CFPB has announced actions taken yesterday against Pennsylvania Higher Education Assistance Agency (PHEAA) and National Collegiate Student Loan Trusts (the Trusts) for multi-year servicing failures. Trusts purchase and securitize student loans, and PHEAA services the loans. The CFPB alleges that the defendants failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency. The CFPB yesterday filed proposed stipulated final judgments, which, if entered by the court, would require the Trusts and PHEAA to pay $400,000 and $1.75 million in penalties, respectively, to the CFPB’s victims relief fund. They would also pay nearly $3 million in redress to harmed borrowers.

During the leadup to the financial crisis, there was a boom in subprime-style student lending. Student lenders worked with investment bankers to turn student loans into securities. The National Collegiate Student Loan Trusts were an infamous example of this type of securitization. They are a group of fifteen securitization trusts organized under Delaware law. The Trusts acquire, pool, and securitize student loans, which they then service. As of February 2024, the Trusts collectively held approximately 163,000 private student loans with approximately $907 million in outstanding balances.

Pennsylvania Higher Education Assistance Agency, which is commonly known as American Education Services or AES, is a student loan servicer with its principal office in Harrisburg, Pennsylvania. As of December 2023, PHEAA serviced a portfolio of student loans worth roughly $17.8 billion. It has been the primary servicer for active loans held by the National Collegiate Student Loan Trusts since at least 2006.

This is the CFPB’s second public enforcement action against the National Collegiate Student Loan Trusts. The CFPB earlier filed a lawsuit against this web of investment vehicles alleging, among other things, that the Trusts brought improper debt collection lawsuits for private student loan debt that they could not prove was owed or that was too old to sue over. The Trusts claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In March 2024, the United States Court of Appeals for the Third Circuit ruled the National Collegiate Student Loan Trusts are covered persons under the Consumer Financial Protection Act. That case remains pending in federal court.

In yesterday's case, the CFPB alleges that the defendants violated the Consumer Financial Protection Act. The CFPB’s complaint alleges that from 2015 until 2021, thousands of borrower requests—often seeking forms of payment relief—went unanswered. These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.

The defendants failed to properly respond to borrower requests for years, including during the COVID-19 pandemic. Thousands of borrowers sent requests during the pandemic seeking forbearance on loans held by the National Collegiate Student Loan Trusts. However, many of those requests were mishandled. Specifically, the defendants harmed consumers by:

• Failing to ensure responses to borrower requests
• Failing to provide accurate information to borrowers
• Incorrectly denying forbearance requests

If entered by the court, the orders would require:

• Payment of nearly $3 million in redress to borrowers
• Correct outstanding requests
• Pay fines totaling $2.15 million

RELATED DOCUMENTS:

• The CFPB's Complaint
• Proposed Stipulated Final Judgment and Order as to the National Collegiate Student Loan Trusts
• Proposed Stipulated Final Judgment and Order as to Pennsylvania Higher Education Assistance Agency