Top Story Compliance Related

The FDIC, Federal Reserve Board, NCUA, and OCC have jointly announced they are requesting comment on a proposal to update their requirements for supervised institutions to establish, implement, and maintain effective, risk-based, and reasonably designed anti-money laundering and countering the financing of terrorism (AML/CFT) programs. The amendments are intended to align with changes concurrently proposed by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), most of which result from the Anti-Money Laundering Act of 2020 (AML Act).

The proposed amendments would require supervised institutions to identify, evaluate, and document the regulated institution’s money laundering, terrorist financing, and other illicit finance activity risks, as well as consider, as appropriate, FinCEN’s published national AML/CFT priorities. Additionally, and consistent with the AML Act, the proposal would mandate that the duty to establish, maintain, and enforce the AML/CFT program remain the responsibility of, and be performed by, persons in the United States who are accessible to, and subject to the oversight and supervision by, the relevant agency. The proposal also supports institutions’ consideration of innovative approaches to meet compliance obligations.

Comments on the proposal are due 60 days after the date of publication in the Federal Register.

• Interagency Statement on the Issuance of the AML/CFT Program Notices of Proposed Rulemaking
• FDIC FIL-42-2024
• OCC Bulletin 2024-19

The Treasury Department on Friday reported that OFAC has exposed the identity of two members of a Russian government-related hacktivist group, and imposed sanctions on them. OFAC designated Yuliya Vladimirovna Pankratova and Denis Olegovich Degtyarenko, two members of the Russian hacktivist group Cyber Army of Russia Reborn (CARR) for their roles in cyber operations against U.S. critical infrastructure. These two individuals are the group’s leader and a primary hacker, respectively.

For identification information on Pankratova and Degtyarenko, see BankersOnline’s July 19, 2024, OFAC Update.

The Federal Reserve Board has reported it has addressed consumer compliance breakdowns by Green Dot, fining the firm $44 million for numerous unfair and deceptive practices and a deficient consumer compliance risk management program.

The Board found that Green Dot violated consumer law in its marketing, selling, and servicing of prepaid debit card products, and its offering of tax return preparation payment services. For example, Green Dot failed to adequately disclose the tax refund processing fee for tax preparation services offered on a third party's website. The firm also blocked access to accounts of legitimate customers receiving unemployment benefits and lacked reasonable policies and procedures to help those customers cure those blocks. In addition, Green Dot did not maintain effective consumer compliance risk management and anti-money laundering programs.

For additional details and a link to the Board's consent order, see "Green Dot fined $44M for UDAP violations and deficient compliance program," in BankersOnline's Penalties webpages.

On Friday, the Federal Reserve Board announced it has executed a consent cease and desist order with Jiko Group, Inc., San Francisco, California, a registered bank holding company that owns and controls Mid-Central National Bank, Wadena, Minnesota, and various non-bank subsidiaries that develop and service technology platforms and provide broker-dealer services.

The order was issued following the October 30, 2023, supervisory inspection of and recent communications to Jiko issued by the Federal Reserve Bank of San Francisco, which identified significant deficiencies in the financial condition of the holding company, including capital planning, earnings, strategic planning, cash flow, and liquidity, which Jiko has begun to take steps to address.

The NCUA yesterday reported that its Board has approved a proposed rule on incentive-based compensation and a revised proposed rule on succession planning. The NCUA Board also approved maintaining the current interest rate ceiling for federal credit unions at 18 percent.

The proposed rule on incentive-based compensation is required under section 956 of the Dodd-Frank Act, which requires federal financial institutions regulators, including the NCUA, to issue joint regulations or guidelines requiring disclosure and reporting of compensation at financial institutions with more than $1 billion in assets. The rule was adopted by the FDIC, the FHFA, and the OCC on May 6. The Federal Reserve Board and the SEC have not approved the joint rulemaking yet. Once the notice of proposed rulemaking 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 proposed rule will make it available on their respective websites and accept comments.

The NCUA Board also approved a proposed rule that would require boards of directors at federally insured credit unions to establish and adhere to processes for succession planning. This new proposed rule modifies the 2022 proposal based on the public comments received and upon further consideration of the issues.

The FFIEC has released the 2024 Census flat file, which incorporates the boundary changes from OMB Bulletin 23-01.

The Treasury Department yesterday reported that OFAC has designated and identified as blocked property a dozen persons and vessels, respectively, that have played a critical role in financing the Houthis’ destabilizing regional activities as part of the network of Sa’id al-Jamal.

Treasury also reported that OFAC sanctioned the Abdul Karim Conteh Human Smuggling Organization (Karim HSO), a transnational criminal organization (TCO) based in Tijuana, Mexico.

For the names and identification information of the designated parties and blocked vessels, see this July 18, 2024, BankersOnline OFAC Update.

Five federal agencies — the CFPB, FDIC, Federal Reserve, NCUA, and OCC — yesterday jointly announced final guidance addressing reconsiderations of value (ROVs) for residential real estate transactions. The guidance advises on policies and procedures that financial institutions may implement to allow consumers to provide financial institutions with information that may not have been considered during an appraisal or if deficiencies are identified in the original appraisal.

ROVs are requests from a financial institution to an appraiser or other preparer of a valuation report to reassess the value of residential real estate. Deficiencies identified in valuations, either through an institution's valuation review processes or through consumer-provided information, may be a basis for financial institutions to question the credibility of the appraisal or valuation report.

The guidance offers examples of ROV policies and procedures that a financial institution may implement to help institutions identify, address, and mitigate discrimination risk; describes the risks of deficient residential real estate valuations; and explains how financial institutions may incorporate ROV processes into risk management functions. The agencies finalized the guidance largely as proposed, with the addition of clarifying edits based on public comments received on the proposed guidance published in July 2023.

The guidance is final as of the date it is published in the Federal Register.

• Federal Register notice: Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations.

The OCC has released a list of 11 enforcement actions taken against national banks and federal savings associations and individuals currently and formerly affiliated with OCC-supervised financial institutions.

• The amended cease and desist order previously announced against Citibank, N.A., Sioux Falls, South Dakota.
• A cease and desist order against CNB Bank & Trust, N.A., Carlinville, Illinois, for violations of 12 CFR 21.21 (BSA/AML compliance program), 31 CFR 1020.210 (Customer Due Diligence), and 1020.220 (Customer Identification Program) as well as unsafe or unsound practices relating to the bank’s BSA/AML compliance, and failure to correct previously reported BSA/AML compliance problems.
• A formal agreement with Lincoln FSB of Nebraska, Lincoln, Nebraska, for unsafe or unsound practices, including those relating to strategic planning, liquidity risk management, contingency funding planning, interest rate risk management, and board oversight and corporate governance.
• A cease and desist order against Summit National Bank, Hulett, Wyoming, for unsafe or unsound practices including those related to capital and strategic planning, liquidity risk management, transactions with affiliates, and the bank’s BSA/AML compliance program, and violations including of 12 CFR 21.21 (BSA/AML compliance program).
• Orders of prohibition against the following individuals:
  • Cindy M. Flores, former branch operations associate manager at a Fargo, North Dakota, branch of Wells Fargo Bank, N.A., Sioux Falls, South Dakota, for misappropriating at least $47,600 by diverting funds from customer deposit accounts
  • Randall David Ditzer, former banking center team lead relationship banker at a Prairie Village, Kansas, branch of BOKF, N.A., Tulsa, Oklahoma, for making unauthorized withdrawals from the accounts of an elderly bank customer and depositing the funds into his own accounts.
  • Aaliyah Shaheed, former digital banking representative for Varo Bank N.A., Draper, Utah, who worked remotely from Charlotte, North Carolina, for improperly accessing and modifying customer account information, which resulted in approximately $21,700 of fraudulent transfers.
  • Kathryn Thomure (now known as Kathryn Makler), former business banking specialist at a Farmington, Missouri, branch of U.S. Bank, N.A., Cincinnati, Ohio, for making false representations on two Paycheck Protection Program loan applications to the U.S. Small Business Administration and receiving a loan for approximately $29,300.
  • Valeria Martinez Vazquez, former branch relationship banker at Zions Bancorporation, N.A., Salt Lake City, Utah, for misappropriating approximately $11,100 from a customer’s account.
  • Andre Jackson, former relationship banker at a Kenmore, New York, branch of Bank of America N.A., Charlotte, North Carolina, for misappropriating at least $8,000 in cash from the bank.
  • Cordia Shedde McDonald, former associate banker at a New Rochelle, New York, branch of JPMorgan Chase Bank, N.A., Columbus, Ohio, for misappropriating at least $10,000 in cash from the bank.

The CFPB yesterday announced a proposed interpretive rule explaining that many paycheck advance products, sometimes marketed as “earned wage” products, are consumer loans subject to the Truth in Lending Act. The guidance, according to the Bureau, will ensure that lenders understand their legal obligations to disclose the costs and fees of these credit products to workers. The CFPB also published a report examining employer-sponsored paycheck advance loans. The report finds that workers using these employer-sponsored products take out an average of 27 such loans per year and that the typical employer-sponsored loan carries an annual percentage rate (APR) over 100%.

The proposed interpretive rule explains how existing law applies to this emerging product market, and replaces a 2020 advisory opinion that addressed a very specific paycheck advance product that is not common in the real market. The proposed interpretive rule makes clear that many paycheck advance products – whether provided through employer partnerships or marketed directly to borrowers – trigger obligations under the federal Truth in Lending Act. In addition, the CFPB’s proposed interpretive rule makes clear that:

• Many loan costs are finance charges: Fees for certain “tips” and expedited delivery meet the Truth in Lending Act’s standard for being finance charges. When the paycheck advance product is no-fee and truly free to the employee, many requirements would not apply.
• Borrowers must receive key disclosures: Among other requirements, earned wage lenders must provide workers with appropriate disclosures about the finance charges. Clear disclosures help borrowers understand and compare loan options, sharpens price competition, and ultimately benefits companies that offer competitive products.

The CFPB encourages the public to submit comments on this interpretive rule to inform whether additional clarifications are needed. Comments will be accepted until August 30, 2024.