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The FDIC on Friday announced a settlement with Bank of England, England, Arkansas, for violations of Section 5 of the Federal Trade Commission Act (Section 5), the Real Estate Settlement Procedures Act (RESPA), the Fair Credit Reporting Act (FCRA), and the Home Mortgage Disclosure Act (HMDA). The bank has stipulated to the issuance of an Order to Pay Civil Money Penalty (CMP) in the amount of $1.5 million. In addition, nine former employees of the Bank of England have stipulated to individual enforcement actions. Based on the FDIC’s findings, the bank made $1.9 million in remediation to over 900 harmed consumers.

Section 5 prohibits banks from engaging in unfair or deceptive acts or practices. The FDIC determined that the bank, through one of its loan production offices (LPOs), violated Section 5 by misrepresenting to consumers that they would be able to skip multiple loan payments when refinancing a Department of Veterans Affairs (VA) mortgage loan. The FDIC also determined that loan officers’ or LPO’s misrepresented to consumers their relationship with the VA. Bank of England was also fined $129,800 in October 2021 for similar deceptive activity alleging a relationship with the VA.

The FDIC also determined that the bank failed to provide consumers with firm offers of credit and required disclosures as required by the FCRA, and the bank failed to report accurate data on its 2021 loan application register in violation of HMDA.

The nine enforcement actions against former Bank of England employees were announced in January.

The CFPB has announced is has sued SoLo Funds, Inc., a fintech company that operates a nationwide website and mobile-application based peer-to-peer lending platform through which consumers can obtain small-dollar, short-term loans. SoLo markets its lending platform to consumers as a consumer-friendly alternative to high-cost, short-term loans.

The Bureau sued SoLo for deceiving borrowers about the total cost of loans. Despite advertising zero-interest loans or 0% APR loans, SoLo’s use of dark patterns ensures that almost every borrower pays a fee, in the form of a “tip” or “donation.” The CFPB is seeking, among other things, injunctions against SoLo to prevent future violations, monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty.

According to the Bureau's complaint, Since at least 2018, SoLo has operated a digital lending platform through which consumers can obtain short-term loans. The maximum SoLo loan amount is $575, and the minimum is $20. SoLo brokers loans between consumer borrowers and investors. SoLo requests consumers pay fees to lenders and to SoLo, which the company refers to as “tips” and “donations,” respectively. SoLo services and collects on loans brokered through its platform. While SoLo claims fees paid to lenders and the company are voluntary, the CFPB alleges that is not the case. When consumers reach the part of the application that asks them to pay a fee to SoLo, consumers only see options for what percentage to give—none of the options is zero. SoLo also informs prospective lenders of the fee they will receive from a consumer to fund a loan. The result is that consumers who do not pay a fee to lenders are unlikely to get their loans funded. In fact, as of December 31, 2022, only 0.5% of funded loans did not include a fee paid to the lender by the borrower.

The CFPB alleges that SoLo has violated the Consumer Financial Protection Act and the Fair Credit Reporting Act. The company deceives borrowers about the cost of credit, uses dark patterns to trick borrowers, services and collects on loans that are void and uncollectible, and does not have procedures to assure the maximum possible accuracy of its consumer reports. The CFPB’s lawsuit against SoLo seeks a stop to alleged unlawful conduct, forfeiture of ill-gotten gains, redress payments to harmed consumers, and imposition of a civil money penalty

On Monday, as part of the Treasury Department's Counter Fentanyl Strike Force, FinCEN, in partnership with the IRS Criminal Investigation (CI), announced a new initiative to combat the illicit trafficking of fentanyl into the United States. The “Promoting Regional Outreach to Educate Communities on the Threat of Fentanyl” (or PROTECT) series of FinCEN Exchange sessions will be held through the remainder of 2024 in U.S. cities that are highly impacted by the opioid epidemic.

The series is specifically designed to work with regional and local banks who are deeply connected to their communities and offer unique perspectives on the opioid crisis, and will focus on how law enforcement can best support their efforts to monitor activity that may be tied to the illicit trafficking of fentanyl. At these exchanges, federal officials brief on information critical to tracking these illicit financial flows, including typologies and red-flag indicators of fentanyl-related activity, and discuss what types of information are particularly valuable when financial institutions report suspicious activity.

The PROTECT series is being launched in collaboration with other government partners, including the Drug Enforcement Administration, Homeland Security Investigations, Customs and Border Protection, the U.S. Secret Service, the Federal Bureau of Investigation, the Department of Justice Money Laundering and Asset Recovery Section, various U.S. Attorney’s Offices, and local law enforcement agencies.

The Boston event in the PROTECT series was conducted on Monday, bringing federal agencies and law enforcement authorities from the Boston area together with representatives from the financial industry for a discussion on ways to deepen collaboration and enhance the value of suspicious activity reporting to counter illicit fentanyl trafficking. FinCEN and law enforcement representatives highlighted the significant value that Suspicious Activity Reports contribute to law enforcement efforts to combat fentanyl trafficking, and financial institutions shared their observations on money laundering flows and tactics used by narcotraffickers and their enablers.

The FDIC has issued FIL-24-2024 with guidance to help financial institutions and facilitate recovery in areas of Iowa affected by severe storms and tornadoes from April 26–27, 2024.

The OCC has posted a list and schedule of workshops designed to meet the needs of new directors, experienced directors, and senior management of national community banks and federal savings associations wishing to review fundamentals or get critical updates. Two series of workshops have been scheduled throughout the year:

• Basic Series, which includes Building Blocks (1.5 days in person or 3 hour virtual workshop)
• Risk Management Series, which comprises:
  • Risk Governance (1 day in person or 3 hours virtually)
  • Credit Risk (1 day in person or 3 hours virtually)
  • Operational Risk (1 day in person or 3 hours virtually)
  • Compliance Risk (1 day in person or 3 hours virtually)
  • Capital Markets (1/2 day in person)

The schedule of the workshops and online registration are available on the OCC's website.

The Associated Press reports the U.S. Supreme Court on Thursday rejected an attack on the constitutionality of the CFPB's funding mechanism. The justices ruled 7 to 2 that the funding method prescribed in the Dodd-Frank Act does not violate the Constitution, reversing a lower court. Justice Clarence Thomas wrote the majority opinion; justices Samuel Alito and Neil Gorsuch dissented.

The case was brought by payday lenders who object to a Bureau rule that limits their ability to withdraw funds directly from borrowers’ bank accounts. It’s among several major challenges to federal regulatory agencies on the docket this term for a court that has for more than a decade been open to limits on their operations.

Unlike most federal agencies, the consumer bureau does not rely on the annual budget process in Congress. Instead, it is funded directly by the Federal Reserve, with a current annual limit of around $600 million. The federal appeals court in New Orleans, in a novel ruling, held that the funding violated the Constitution’s appropriations clause because it improperly shields the CFPB from congressional supervision. Thomas reached back to the earliest days of the Constitution in his majority opinion to note that “the Bureau’s funding mechanism fits comfortably with the First Congress’ appropriations practice.”

The SCOTUS decision reverses the judgment of the Court of Appeals for the Fifth Circuit and remands the case for further proceedings consistent with SCOTUS's opinion.

The Federal Trade Commission has released its 2023 Annual Report outlining the agency’s work to protect consumers and promote competition.

FDIC Chairman Martin J. Gruenberg testified yesterday before the Senate Committee on Banking, Housing, and Urban Affairs. In his remarks, Gruenberg said his top priority is addressing workplace culture issues at the FDIC, and listed several actions that are being taken to address recommendations in a third-party review of the agency's culture, the results of which were released last week.

Those remarks were followed by discussions of the state of the banking industry, condition of the Deposit Insurance Fund, bank receiverships, resolutions under Title II of the Dodd-Frank Act, efforts to strengthen the regulation and supervision of banks, and other regulatory initiatives.

The OCC has reported that Acting Comptroller of the Currency Michael J. Hsu testified yesterday on the OCC's priorities before the House Committee on Financial Services.

In his testimony, Hsu discussed the OCC’s work to guard against complacency, adapt to digitalization, manage climate-related financial risk, and promote fairness in banking. He also provided an overview of the state of the federal banking system and recent key regulatory developments.

• Oral statement
• Written testimony

The Securities and Exchange Commission this morning announced its adoption of amendments to Regulation S-P to modernize and enhance the rules that govern the treatment of consumers’ nonpublic personal information by certain financial institutions. The amendments update the rules’ requirements for broker-dealers (including funding portals), investment companies, registered investment advisers, and transfer agents (collectively, “covered institutions”) to address the expanded use of technology and corresponding risks that have emerged since the Commission originally adopted Regulation S-P in 2000.

The rule will become effective 60 days after publication in the Federal Register, with compliance dates detailed in the rule.

• Fact sheet

The Treasury Department has announced that OFAC has imposed sanctions on two Russian individuals and three Russia-based entities for facilitating weapons transfers between Russia and the Democratic People’s Republic of Korea (DPRK) to promote U.S. government objectives to disrupt and expose arms transfers between the DPRK and Russia and to build upon sanctions imposed by the Department of the Treasury and the Department of State related to DPRK-Russia arms transfers, including the transfer and testing of DPRK-origin ballistic missiles for Russia’s use against Ukraine.

For identification information on the designated individuals and entities, see BankersOnline’s May 16, 2024, OFAC Update.

The FFIEC has made the 2024 edition of A Guide to HMDA Reporting: Getting it Right! available for download.

Yesterday, the Department of the Treasury reported that OFAC targeted the Ortega-Murillo regime’s repression of the Nicaraguan people and its ability to manipulate the gold sector and profit from corrupt operations. OFAC imposed sanctions on three Nicaragua-based entities, the Training Center of the Russian Ministry of Internal Affairs in Managua (RTC); Compania Minera Internacional, Sociedad Anónima (COMINTSA); and Capital Mining Investment Nicaragua, Sociedad Anónima (Capital Mining), pursuant to Executive Order (E.O.) 13851, as amended.

Treasury also reported that OFAC sanctioned Ali Yagoub Gibril and Osman Mohamed Hamid Mohamed, pursuant to Executive Order (E.O.) 14098, for leading the Rapid Support Forces’ (RSF) war campaign in the Darfur region of Sudan, which has caused civilian casualties, including children.

For identification information on the designated entities and individuals, see BankersOnline’s May 15, 2024, OFAC Update.

The OCC and the Federal Reserve Board have announced a joint public meeting on the proposal by Capital One Financial Corporation, of McLean, Virginia, to acquire Discover Financial Services, of Riverwoods, Illinois. The proposal includes the merger of Discover Bank, of Greenwood, Delaware, into Capital One, National Association, of McLean, Virginia.

The purpose of the public meeting is to collect information from a wide range of stakeholders as the agencies evaluate the applications. By law, the agencies are required to evaluate:

• the convenience and needs of the communities to be served by the combined organization;
• each insured depository institution’s performance under the Community Reinvestment Act;
• competition in the relevant markets;
• the effects of the proposal on the stability of the U.S. banking or financial system;
• the financial and managerial resources and future prospects of the companies and banks involved in the proposal; and
• the effectiveness of the companies and banks in combating money laundering activities.

The public meeting will be held virtually on July 19, 2024, at 9:00 a.m. EDT. Members of the public seeking to present oral comments must register by 12:00 p.m. EDT on June 28, 2024, through the online registration webpage, which will be posted on the Board’s Capital One-Discover Application Reading Room by May 28, 2024. Further information and requirements to present, as well as registration information to view the public meeting, are available HERE.

The agencies also announced that they are extending the public comment period for the applications to give interested parties additional time to comment. Comments on the applications will now be accepted through July 24, 2024.

The Department of Housing and Urban Development yesterday announced it has entered into a Conciliation Agreement with Rocket Mortgage, LLC, resolving allegations that Rocket Mortgage denied a mortgage loan application based on race because the home being purchased was located within the Tribal boundaries of a federally recognized reservation.

The agreement stems from a complaint filed by a couple applying for a mortgage to purchase a single-family home within the boundaries of the Flathead Indian Reservation in St. Ignatius, Montana. Rocket Mortgage denied the loan application. As a result, complainants allege they were forced to pay a higher interest rate and accept a loan from another lender on less-favorable terms. The agreement resolves the complaint with Rocket Mortgage. It secures $65,000 compensation for complainants, requires Rocket Mortgage to provide fair lending training to its employees, and requires Rocket Mortgage to abide by fair lending requirements for applicants seeking residential mortgage credit located within the boundaries of a Native American reservation. Additionally, Rocket Mortgage will invest at least $30,000 to provide financial support for programs that improve housing conditions, consumer financial literacy and education, outreach and homeownership education or counseling for Native Americans. Rocket Mortgage also agreed to conduct outreach through its website and social media platforms describing the company’s broad range of financing options available to eligible applicants whose loans are secured by property located within the boundaries of Native American reservations.

The CFPB yesterday announced it has distributed more than $384 million to about 191,000 consumers harmed by Think Finance, a Texas-based online lender that deceived borrowers into repaying loans they did not owe.

The funds came from the CFPB's victims relief fund, which has now distributed more than $1 billion to consumers harmed by scams, fraud, and other illegal practices. The fund is a unique tool that helps the CFPB make harmed consumer whole when lawbreakers are unable to fully compensate their victims.

In November 2017, the CFPB filed suit against Think Finance, alleging that the company deceived consumers into repaying loans they did not owe. Think Finance illegally collected on loans that were void under state laws governing interest rate caps and lender licensing requirements. The company misrepresented to consumers that they owed money on these loans, made electronic withdrawals from consumers’ bank accounts, and sent letters demanding payment.

Federal Reserve Financial Services reported yesterday that a new study has revealed consumers made more payments in 2023 than in previous years, continuing the trend of rising payment transactions since 2020. The 2024 Diary of Consumer Payment Choice (Diary), now in its eighth consecutive year, is a survey conducted to understand the evolving role of cash in the U.S. economy. Findings show amid increased payments, cash’s share decreased in favor of credit and debit cards, but overall cash use has remained stable as consumers continued to hold more cash than they did before 2020 as both a store-of-value (up 53 percent) and in their pockets, purses or wallets as a backup payment instrument (up 23 percent).

The findings also show a growing generational divide among those using cash versus electronic payments. Consumers younger than age 55 used cash for just 12 percent of payments in 2023, compared to 22 percent for those age 55 and older. Notably, for the first time in Diary history, cash was not the most-used instrument for smaller-value payments of $25 or less. Prior to the pandemic, consumers aged 18 to 24 used cash for about one in three payments. Starting in 2020, the ratio shifted to about one in seven payments as this population opted instead for credit and debit cards. This change in cash usage among younger demographics may carry significant long-term implications as the U.S. population continues to age.

The Treasury Department reports that OFAC has designated one Russian individual and three Russia-based companies involved in an attempted sanctions evasion scheme in which an opaque and complex supposed divestment could have unfrozen more than $1.5 billion worth of shares belonging to U.S.-designated Russian oligarch Oleg Vladimirovich Deripaska.

In June 2023, Deripaska coordinated with Russian national Dmitrii Aleksandrovich Beloglazov, the owner of Russia-based financial services firm Obshchestvo S Ogranichennoi Otvetstvennostiu Titul (Titul), on a planned transaction to sell Deripaska’s frozen shares in a European company. Within weeks of this coordination, Russia-based financial services firm Aktsionernoe Obshchestvo Iliadis (Iliadis) was established as a subsidiary of Titul. In early 2024, Iliadis acquired Russia-based investment holding company International Company Joint Stock Company Rasperia Trading Limited (Rasperia), which holds Deripaska’s frozen shares.

Yesterday, Beloglazov, Titul, and Iliadis were designated pursuant to E.O. 14024 for operating or having operated in the financial services sector of the Russian Federation economy. Rasperia was designated pursuant to E.O. 14024 for being owned or controlled by, or having acted or purported to act for or on behalf of, directly or indirectly, Iliadis.

For identification information on Beloglazov, Titul, Iliadis, and Rasperia, see BankersOnline’s May 14, 2024, OFAC Update.

Has it really been five years since the first set of inflation adjusted thresholds for Regulation CC funds availability? It must be true, because the Federal Reserve Board and the Consumer Financial Protection Bureau yesterday issued the second quinquennial set of adjustments, with a compliance date of July 1, 2025, a little over 14.5 months from now. Here are the new amounts, based on the regulatory formula for adjustments and a 21.8 percent increase in the CPI-W between July 2018 and July 2023:

• The "next day" minimum availability amount will increase from $225 to $275
• The cash withdrawal amount in § 229.12(d) will increase from $450 to $550
• The new account, large deposit threshold, and repeatedly overdrawn thresholds in § 229.13 will increase from $5,525 to $6,725
• The civil liability minimum and maximum for individuals actions in § 229.21(a)(2)(i) will increase from $100 and $1,100 to $125 and $1,350
• The civil liability maximum for class action in § 229.21(a)(2)(ii)(B) will increase from $552,500 to $672,950 or 1 percent of the bank's worth, whichever is less.

Will we still be using checks five years from now? The next 5-year adjustment announcement is scheduled for the spring of 2029, with a compliance date of July 1, 2030. Will the rest of Regulation CC be updated by then?

Compliance and operations officers who recall the first such announcement that increased the Regulation CC dollar amounts as of July 1, 2020, should also remember that § 229.18(e) requires that changes to funds availability policies that are favorable to consumers (all of these dollar amount changes are favorable) require a notice to affected consumer account holders no later than 30 days after the changes are effective, even if mandated by the regulation.

ABC News has reported a federal judge in Texas has issued a temporary nationwide injunction delaying the effective date of the CFPB's rule reducing the maximum late fee on credit card accounts.

The CFPB's rule would have become effective May 14, 2024, had the temporary injunction not been issued.

The FDIC has sent email notices announcing that it will host four seminars in 2024 (the first on May 30, from 2:00 to 3:30 pm ET) on the final rule governing use of Official Signs and Advertising Statement, Misrepresentations of Insured Status, and Misuse of FDIC’s Name or Logo for bank staff, bank officers, and other stakeholders. The first seminar will be held via Microsoft (MS) Teams on May 30, 2024. The dates for the remaining three seminars will be announced at a later date.

The sessions will offer a broad overview of the final rule that amended Part 328 of the FDIC’s regulations. The FDIC amended its regulations governing use of the official FDIC sign and advertisement statements to reflect how depositors do business with banks today, including through digital and mobile channels. The rule also clarified the FDIC’s regulations on misrepresentations of deposit insurance coverage. The final rule is intended to help consumers understand when they are interacting with an FDIC-insured bank and when their funds are protected by the FDIC’s deposit insurance coverage.

The rule became effective on April 1, 2024, and has a compliance date of January 1, 2025. The sessions are ideal for bank employees and other Part 328 stakeholders looking for further information and guidance on the new final rule.

During the presentation on the final rule, FDIC staff will cover:

• Requirements for all FDIC-insured institutions’ use of FDIC official signs. This includes a new FDIC official digital sign for bank websites, apps, and ATMs, as well as updates to the advertising statement.
• Clarifications on the prohibitions against misrepresentations of deposit insurance coverage and misuse of the FDIC’s name and logo, which apply to any person, including banks and non-bank entities.

During the seminar, FDIC staff will also discuss some of the questions that have been raised by bankers, trade associations, technology companies, vendors, and others.

The FDIC has issued two Financial Institution Letters to help financial institutions and facilitate recovery in areas affected by tornadoes and other severe weather.

• FIL-23-2024: Guidance in areas of Nebraska affected by severe storms, straight-line winds, and tornadoes
• FIL-22-2024: Guidance in areas of Ohio affected by tornadoes

The Department of the Treasury on Friday reported that the Financial Stability Oversight Council had released its Report on Nonbank Mortgage Servicing. The report documents the growth of the nonbank mortgage servicing sector and the critical roles that nonbank mortgage servicers play in the mortgage market. It identifies certain key vulnerabilities that can impair servicers’ ability to carry out these critical functions and describes how these vulnerabilities could amplify shocks to the mortgage market and pose risks to financial stability. The report includes the Council’s recommendations to enhance the resilience of the nonbank mortgage servicing sector, drawing on existing authorities of state and federal regulators and also encouraging Congress to act to address the identified risks. The report was drafted by Council member agencies in coordination with the Government National Mortgage Association (Ginnie Mae).

State regulators and federal agencies have taken steps in recent years to mitigate the risks posed by the rising share of mortgages serviced by NMCs, but the combination of various state requirements and limited federal authorities to impose additional requirements do not adequately and holistically address the risks described in the Council’s report. Stress in the sector could harm mortgage borrowers and, more broadly, disrupt the provision of financial services and impair the ability of the financial system to support economic activity. The Council made several recommendations to address the risks posed by nonbank mortgage servicers identified in the report.

• Statement of Acting Comptroller of the Currency Michael J. Hsu
• Statement of CFPB Director Rohit Chopra
• Remarks by Secretary of the Treasury Janet L. Yellen
• Statement of FHFA Director Sandra L. Thompson

FinCEN has announced it has joined the Securities and Exchange Commission (SEC) in jointly proposing a new rule that would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs). The proposal is designed to prevent illicit finance activity involving the customers of investment advisers by strengthening the anti-money laundering and countering the financing of terrorism (AML/CFT) framework for the investment adviser sector.

This proposed rulemaking complements a separate FinCEN proposal in February 2024 to designate RIAs and ERAs as “financial institutions” under the Bank Secrecy Act (BSA) and subject them to AML/CFT program requirements and suspicious activity report (SAR) filing obligations, among other requirements. That proposal cites a Treasury risk assessment that identified that the investment adviser industry has served as an entry point into the U.S. market for illicit proceeds associated with foreign corruption, fraud, tax evasion, and other criminal activities. Together, these proposals aim to prevent illicit finance activity in the investment adviser sector and further safeguard the U.S. financial system.

The rule, if adopted, would require RIAs and ERAs to, among other things, implement a CIP that includes procedures for verifying the identity of each customer to the extent reasonable and practicable and maintaining records of the information used to verify a customer’s identity, among other requirements. The proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds. Comments on the proposal will be accepted for 60 days following publication in the Federal Register.

• Fact Sheet on proposal
• Publication and comment period update: Scheduled for publication in the 5/21/2024 Federal Register, with comments accepted through 7/22/2024.

The CFPB has announced its release of a new Issue Spotlight report, "Credit Card Rewards" finding consumers encounter numerous frustrations with credit card rewards programs.

The report indicates that consumer complaints include that rewards are often devalued or denied even after program terms are met and that credit card companies focus marketing efforts on rewards, like cash back and travel, instead of on low interest rates and fees. Consumers who carry revolving balances complain they often pay far more in interest and fees than they get back on rewards and credit card companies often use rewards programs as a “bait and switch” by burying terms in vague language or fine print and changing the value of rewards after people sign up and earn them. New problems have been created by the growth of co-brand credit cards and rewards programs where consumers can transfer miles or points to merchants.

The Federal Reserve Board has reported its release of a summary of the exploratory pilot Climate Scenario Analysis (CSA) exercise that it conducted with six of the nation's largest banks.

The summary describes how these banks are using climate scenario analysis to explore the resiliency of their business models to climate-related financial risks. Participating banks took a wide range of approaches in this exercise to consider the possible implications of different physical and transition risk scenarios. The exercise highlighted data gaps and modeling challenges that arise when estimating the financial impacts of highly complex and uncertain risks over various time horizons.

The banks that participated in the exercise were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

The exercise was exploratory in nature and does not have capital consequences. Drawing on lessons learned from the exercise, the Board will continue to engage with participating banks regarding their capacity to measure and manage climate-related financial risks.

The CFPB has announced that 118,101 consumers who were deceived by LendUp Loans LLC will receive checks in the mail in the next few days.

LendUp Loans, headquartered in Oakland, California, offered single-payment and installment loans to consumers online and marketed itself as an alternative to payday lenders. A central component of LendUp’s marketing and brand identity was the “LendUp Ladder.” The company told consumers that by repaying loans on time and taking free courses through its website, consumers would move up the “LendUp Ladder” and receive lower interest rates on future loans and access to larger loan amounts. Tens of thousands of customers climbed the “LendUp Ladder” and still failed to qualify for larger loan amounts and continued to be offered similar or higher interest rates compared to previous loans.

The checks were scheduled to be sent through Epiq Systems yesterday. The total distribution amount is $39,833,748.87 and the money will come from the CFPB’s victims relief fund.

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).

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."

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

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 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 Federal Reserve Board has released the results of its April 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices, which addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the first quarter of 2024.

Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the first quarter. Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.

Banks also responded to a set of special questions about changes in lending policies and demand for CRE loans over the past year. For all CRE loan categories, banks reported having tightened all queried lending policies, including the spread of loan rates over the cost of funds, maximum loan sizes, loan-to-value ratios, debt service coverage ratios, and interest-only payment periods.

For loans to households, banks reported that lending standards tightened across some categories of residential real estate (RRE) loans while remaining unchanged for others on balance. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened and demand weakened.

While banks, on balance, reported having tightened lending standards further for most loan categories in the first quarter, lower net shares of banks reported tightening lending standards than in the fourth quarter of last year across most loan categories.

The FDIC has released the report from the independent third-party review of allegations of sexual harassment and other interpersonal misconduct at the FDIC and management’s response to that harassment and misconduct, and the independent third-party assessment of the FDIC’s workplace culture. The independent third-party review was conducted by Cleary Gottlieb and overseen by the Special Committee of the FDIC Board of Directors.

As detailed in the report, the independent review found that, for far too many employees and for far too long, the FDIC has failed to provide a workplace safe from sexual harassment, discrimination, and other interpersonal misconduct. It further found that management’s responses to allegations of misconduct, as well as the culture and conditions that gave rise to them, have been insufficient and ineffective.

“Today’s report establishes the urgent imperative of a culture transformation at the FDIC led by those with the leadership capacity to effectuate that change,” said Special Committee co-chair Jonathan McKernan. “The report marks an important first step towards healing, repair, and sustainable change at the FDIC. Fostering an environment that promotes a safe, respectful, and inclusive workplace is fundamental to achieving the agency’s mission.”

Cleary Gottlieb was asked to conduct a review of allegations of sexual harassment and other interpersonal misconduct at the FDIC and management’s response to such harassment and misconduct, as well as the FDIC’s workplace culture. Cleary Gottlieb was not asked, nor did it assess, whether particular individuals within the FDIC, such as the Chairman, should be removed or otherwise disciplined for alleged misconduct. Any decisions on that subject can only be by those who have the requisite authority and following the appropriate process.

The May 3, 2024, issue of FDIC Consumer News has been posted, with an article on "Your Business, Your Deposits." The article includes sections on:

• Things to know about small business accounts
• Payments from customers
• Deciding on whether the separate consumer and business deposit accounts
• Varying protections for consumer versus commercial accounts
• Watching out for scams targeting businesses

Federal Reserve Financial Services yesterday released the results of studies indicating that U.S. businesses and consumers are rapidly adopting digital, faster and instant payment services, according to studies released today by Federal Reserve Financial Services. Digital wallet use saw especially strong growth in 2023 — efficiency-focused businesses increased their use by 31% over the prior year, and convenience-minded consumers experienced a 32% increase.

These changes, particularly consumers’ use of digital wallets and online banking, are leading to increases in instant and faster payment use cases such as bill payment, mobile wallet funding and defunding, account-to-account transfers, and immediate payroll for employees.

Overall, 86% of businesses and 74% of consumers said they used faster or instant payments in 2023, and most (74% of businesses and 79% of consumers) reported looking to their financial institution to provide these services. Other key findings:

• Younger consumers are leading the move to digital, faster and instant payments. More than half of Generation Z (ages 18-25) and millennials (26-41) now use digital wallets, and 80% of these younger consumers say it is important to be able to make payments by mobile device.
• One in four (25%) consumers are challenged by the slow speed of payments and prefer to have better options for instant money movement to help manage personal finances.
• Businesses are using faster/instant payments because it helps them reduce cost (48%) and provides flexibility to pay and be paid as customers prefer (39%). Additionally, 35% appreciate the 24/7 nature of instant payment services.
• Businesses say key use cases that benefit from instant payments include business-to-business (92%), business-to-person (71%) and account-to-account (40%). Many businesses also believe instant payments will be useful for digital wallet funding/defunding (50%) and earned wage access (25%).

Full reports:

• Business Research Brief
• Consumer Research Brief
  

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.

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