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MoFo Reenforcement

The Enforcement Blog

Department of Defense Issues New Guidance on Military Lending Act Regulations

Posted in Fair Lending, Military Issues

On August 26, 2016, the Department of Defense (DOD) issued an interpretive rule providing guidance on the DOD’s regulations implementing the Military Lending Act (MLA). Specifically, the interpretive rule aims to clarify certain ambiguities in the DOD’s July 2015 final rule, which significantly expanded the scope of the MLA to cover new types of creditors and new credit products. Presented in a series of questions and answers—19 in total—the interpretive rule by no means resolves all ambiguities present in the July 2015 final rule. The interpretive rule does, however, provide much needed clarity on a handful of issues that are critical to creditors’ compliance with the MLA. In this alert, we offer a high-level summary of some of the most significant issues addressed by the interpretive rule.

Read our client alert.

FDIC Releases Proposed Third-Party Lending Guidance

Posted in Fair Lending, Regulatory Developments

On July 29, 2016, the board of directors of the Federal Deposit Insurance Corporation (FDIC) released a proposal regarding third-party lending guidance (“Proposed Guidance”) as part of a package of materials designed to “improve the transparency and clarity of the FDIC’s supervisory policies and practices.” The Proposed Guidance elaborates on previously issued agency guidance on managing third-party risks and, if finalized, could apply to all FDIC-supervised institutions that engage in third-party lending programs.

Read our client alert.

FTC Announces FinTech Forum on Crowdfunding, Peer-to-Peer Payments

Posted in Events, Mobile Payments, UDAAP

On August 3, 2016, the Federal Trade Commission (FTC) released two items in connection with its series of events on the implications of FinTech for consumers. First, the FTC announced it will be hosting the next event in the FinTech Forum series on October 26, 2016. The event will address crowdfunding and peer-to-peer payments. Second, the FTC posted some key takeaways on its Business Blog from the first event in this FinTech Forum series, held on June 9, 2016, which addressed marketplace lending.

Read our client alert.

What You Need to Know Now About the CFPB’s Debt Collection Proposal

Posted in CFPB, Regulatory Developments, UDAAP

On July 28, 2016, the CFPB issued its outline of proposals under consideration for the regulation of debt collection. This 117-page release, entitled “Small Business Review Panel for Debt Collector and Debt Buyer Rulemaking: Outline of Proposals Under Consideration and Alternatives Considered” (“Outline”), was announced in connection with the CFPB’s field hearing on debt collection in Sacramento, California. The Outline is in preparation for the convening of a Small Business Regulatory Enforcement Fairness Act Panel (“SBREFA Panel”), a process mandated by the Dodd-Frank Act for CFPB rules anticipated to have a significant impact on small businesses. The release kicks off the next step in the CFPB’s promulgation of a final rule, the SBREFA Panel process. The SBREFA Panel meetings are scheduled for late August 2016.

Read our client alert.

CFPB Relies on “Mystery Shoppers” in BancorpSouth Mortgage Discrimination Settlement

Posted in CFPB, Disparate Impact, Enforcement Actions, Fair Lending, Mortgage

CFPB “mystery shoppers,” along with secret recordings, were part of the CFPB’s factual allegations in a recent mortgage discrimination settlement. The DOJ and CFPB announced a settlement with BancorpSouth Bank to resolve alleged violations of the Fair Housing Act and Equal Credit Opportunity Act (ECOA). The complaint alleges that from at least 2011 to 2013, BancorpSouth illegally redlined mortgage loan applicants, denied African Americans loans more often than white applicants, charged African American customers more for loans, and implemented an explicitly discriminatory loan denial policy. The alleged victims lived in predominately minority neighborhoods in Memphis, Tennessee, Arkansas, and Mississippi.

The settlement marks the first time the CFPB has publicly disclosed using “mystery shoppers,” among other novel methods of investigation. The Bureau began investigating BancorpSouth in 2013 after receiving complaints that the bank was violating the Fair Housing Act and ECOA. The CFPB sent African American and white “testers” (sometimes called “mystery shoppers”) to six different BancorpSouth branches to inquire about mortgages. The CFPB conducted matched-pair testing to determine whether BancorpSouth treated African American loan applicants differently than white applicants. According to the CFPB allegations, the results indicated that loan officers treated African American testers less favorably than white testers with similar credit qualifications. Specifically, the CFPB claimed that BancorpSouth officers provided African American testers with information that restricted them to smaller loans.

The BancorpSouth investigation marks the first time that the CFPB has used testers to support a discrimination allegation. The DOJ, U.S. Department of Housing and Urban Development, and various fair housing organizations have used testers to identify discrimination for many years. Courts recognize testing as a reliable investigative tool.

Additionally, the CFPB cited audio recordings of a September 2012 internal meeting at BancorpSouth to support the CFPB’s allegations. According to the complaint, a bank manager instructed loan officers present at the meeting to turn down minority applicants’ mortgage applications quickly.

If the Northern District of Mississippi approves the settlement agreement, BancorpSouth will pay $4 million in direct loan subsidies, $2.78 million to African Americans unlawfully denied or overcharged for loans, $800,000 for community programs and credit repair efforts, and a $3 million penalty.

Senators Ask Banking Agencies to Outline FinTech Oversight

Posted in Regulatory Developments

On July 21, 2016, Senators Sherrod Brown (D-Ohio) and Jeff Merkley (D-Ore.) sent a letter to the heads of five federal agencies requesting that they outline the steps they are taking to “ensure effective oversight” of the FinTech market. In the letter, Senators Brown and Merkley noted that FinTech companies have expanded their presence and products in recent years, emphasizing a statement by the Financial Stability Oversight Council in its recent 2016 annual report that financial innovations “merit special attention from financial regulators who must be vigilant to ensure that new products and practices do not blunt the effectiveness of existing regulations or pose unanticipated risks to markets or institutions.”

Read our client alert.

#ThrowbackThursday: Creditor’s Rights Report

Posted in Regulatory Developments

In September 2005, Morrison & Foerster published the client alert “Creditor’s Rights Report.”

Summary:

Bankruptcy reform is here. When the majority of the provisions from the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” go into effect on October 17, 2005 (certain disclosure rules in the new law are subject to further rule-making by the Federal Reserve Board), abuses in Chapter 7 bankruptcies should decrease, and more debts should be repaid—a good thing, certainly. While celebrating this long-awaited reform, however, creditors need to take steps now to prepare for the impact of this new law and ensure that their own conduct is in compliance with the new requirements.

Click here to read the full alert.

A Closer Look at the CFPB’s Proposed Short-Term Lending Rule

Posted in CFPB, Payday Lending, Regulatory Developments, UDAAP

As we previously reported in our June 3, 2016 client alert, the CFPB has issued a Notice of Proposed Rulemaking for short-term loans. In this follow-up alert, we take a closer look at the Proposed Rule and its implications for consumer lending generally. Although the Proposed Rule is often characterized as a “payday loan rule,” the rule is sweeping in terms of the products covered and the limitations it would impose.

Read our client alert.

EVENT: Master Class – Index Regulation and Outsourcing Index Administration

Posted in Events

Thursday, July 28, 2016

Registration/Breakfast: 8:00 a.m. EDT
Seminar: 8:30 a.m. – 9:30 a.m. EDT

Morrison & Foerster LLP
250 West 55th Street
New York, NY 10019

Please join Morrison & Foerster and Markit at our Master Class in New York City.

With the increased regulation of benchmark indices and index governance in Europe, market participants already are focused on compliance.  Regulation and scrutiny likely will not be limited to indices that are true benchmarks, but may well also affect proprietary indices.  During this joint program, we will discuss:

  • IOSCO and ESMA guidance on indices and proposed EU legislation;
  • Guidance and scrutiny of index governance policies and procedures;
  • Index methodologies and best practices;
  • Outsourcing index maintenance and sponsorship; and
  • Legal, regulatory and business considerations.

For more information, or to register, please click here.

CLE credit is pending for New York and California.

ACH Debit Transactions – Whose Agent Are You?

Posted in CFPB, Enforcement Actions, UDAAP

Tucked away in a seeming innocuous paragraph in a complaint, the CFPB has asserted an extraordinary and potentially far-reaching expansion of its authority.

On June 6, 2016, the CFPB filed an action in a U.S. district court asserting that Intercept Corporation (Intercept) (and each of its owners) engaged in unfair acts and practices in violation of the CFPA. Intercept initiates ACH transactions to consumer accounts on behalf of its merchant-customers. In doing so, Intercept acts as an agent of the merchant-customer, but not as an agent to the consumer whose account is being debited. Nevertheless, the CFPB complaint states that Intercept is a “covered person” under the CFPA because it provides “payments or other financial data processing products or services to consumers[.]” The complaint also states that Intercept processes transactions resulting in the transfer of funds, via the ACH system, from the deposit accounts of consumers to pay for loans and other transactions.

This is not the first complaint/enforcement order in which the CFPB has asserted that a payment processor has engaged in an unfair or deceptive practice, but this is the first action in which the CFPB has asserted that a payment processor is subject to the CFPB’s authority under this novel reading of the definition of a “covered person” under the CFPA.

Read our client alert.