CFPB monthly snapshot highlights money transfer complaints

By Katalina M. Bianco, J.D.

The latest Consumer Financial Protection Bureau monthly complaint snapshot indicates that consumers continue to experience issues when attempting to solve problems with disputed money transfer transactions. This month, the CFPB’s snapshot also highlights trends in complaints from Pennsylvania.

 

"Since opening our doors in 2011, we have handled over one million complaints from consumers about their problems with financial products and services," said CFPB Director Richard Cordray. "Not only have we achieved substantial relief for consumers, but hearing directly from consumers is fundamental to our mission. We can better protect all consumers because of what we learn from those who have submitted complaints and shared their experiences with us."

 

Money transfer complaints. As of Sept. 1, 2016, the CFPB has handled approximately 6,900 money transfer complaints. In the current snapshot, the bureau reports that consumers complained about:

• trouble accessing funds: consumers complained of holds being placed on their accounts by money transfer service providers without an explanation; 
• problems resolving errors: sellers describe several scenarios where they do not receive payments after sending the item to the buyer; and 
• fraud: complaints about fraud comprised 41 percent of the overall complaints. A common complaint submitted by consumers is that they send money to a seller but do not receive the items they purchased in return.

 

National complaint overview. For August 2016, debt collection was the most-complained-about financial product or service. Of the 28,651 complaints handled by the CFPB in July, there were 9,746 complaints about debt collection. The second most-complained-about consumer product was credit reporting, which accounted for 5,123 complaints. The third most-complained-about financial product or service was mortgages, accounting for 4,310 complaints.

 

In a month-to-month comparison, complaints about debt collection submitted to the CFPB rose 50 percent between July and August 2016. While there were 6,488 debt collection complaints submitted to the bureau in July, the CFPB received 9,746 debt collection complaints in the month of August.

 

Maine, Nebraska, and Idaho experienced the greatest year-to-year complaint volume decreases from the June to August 2016 period versus the same time period 12 months before; with Maine down 36 percent, Nebraska down 19 percent, and Idaho down 15 percent.

 

Finally, the top three companies that received the most complaints from April through June 2016 were credit reporting companies Equifax, Experian, and TransUnion.

 

Pennsylvania focus. This month’s report provides an overview of complaints from Pennsylvania and the Philadelphia metro area. As of Sept. 1, 2016, consumers in Pennsylvania have submitted 34,700 complaints, with 24,100 of them coming from the Philadelphia metro area. The CFPB found that:

1. debt collection is the most complained-about product or service;
2. the rate of mortgage complaints in Philadelphia is slightly higher than the national rate, accounting for 26 percent of complaints as opposed to the national rate of 25 percent; and
3. the three most complained-about companies by consumers from Pennsylvania were Equifax, TransUnion, and Wells Fargo.

Blog post. The bureau added a related post to its blog advising consumers of the importance of speaking up when they have complaints. The post stresses the importance of consumer complaints to the bureau's supervision.

 

"Complaints play a central role in everything we do," the CFPB blogged. "They help us identify and prioritize problems for potential action. We turn your complaints into action to improve the marketplace."

For more information about the CFPB's monthly complaint snapshot, subscribe to the Banking and Finance Law Daily.

Should CFPB require bank mortgage loan originators to pass SAFE Act exam?

By Thomas G. Wolfe, J.D.

Should the Consumer Financial Protection Bureau require bank mortgage loan originators to pass the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) mortgage competency and ethics exam? The Community Home Lenders Association, Inc. (CHLA) answers that question with a resounding “yes.”

Recently, in a letter to CFPB Director Richard Cordray, the CHLA renewed its “long-standing recommendation” that the CFPB should take action to require all bank mortgage loan originators to pass the SAFE Act exam. Underscoring the Dodd-Frank Act’s requirement that all mortgage loan originators must be “qualified,” the CHLA’s Sept. 20, 2016, letter urges the CFPB to begin implementing a universal SAFE Act exam “at least on loan originators that work for the large banks (over $10 billion in assets)—the banks that are subject to CFPB primary enforcement.”

Referencing the CFPB’s recent enforcement action and $100 million fine imposed against Wells Fargo Bank for creating unauthorized deposit and credit card accounts, the CHLA contends that safeguards are needed for bank mortgage loan originators. According to the CHLA, while non-bank lenders’ licensed mortgage loan originators must comply with the SAFE Act and its ethics requirements, 95 percent of bank and other depository institution registered mortgage loan originators “have never even taken the SAFE Act test—and there are more than a thousand registered bank/DI loan originators that actually failed the test but are still registered and permitted to originate mortgages.”

Heighten scrutiny. In addition to its suggestion that the CFPB could begin the SAFE Act initiative with large banks, the CHLA asserts that the CFPB should “heighten scrutiny” of bank mortgage loan originator training programs to ensure full compliance with the Dodd-Frank requirement that all mortgage loan originators be qualified.

Moreover, the CHLA letter maintains that if the CFPB were to require registered bank and depository institution mortgage originators to pass the SAFE Act exam and to participate in sound training programs, this would also serve to instill consumer confidence in the area.

For more information about bank mortgage loans, subscribe to the Banking and Finance Law Daily.

California sets time frame for reviewing identity theft claims

By Andrew A. Turner, J.D.

The recently enacted California Identity Theft Resolution Act sets strict time limits for reviewing claims of identity theft in place of existing law that had no time frame for an investigation or notification to creditors. The legislation is intended to enhance protections for victims who may be subjected to collection activities based on fraudulent debt. The law (Ch. 376) takes effect Jan. 1, 2017.

The legislation amends the state’s Consumer Credit Reporting Agencies Act and the Rosenthal Fair Debt Collection Practices Act to mandate that debt collectors engage in necessary due diligence to determine that a debt actually belongs to the named debtor.

The amended law requires a debt collector to notify a credit reporting agency (CRA) that a debt is disputed within 10 days of receiving that information from the debtor. The debt collector must additionally send the results of its investigation to the consumer within 10 business days after concluding the review.

A debt collector may recommence debt collection activities only after completion of a review and upon making a good faith determination that the information does not establish that the debtor is not responsible for the specific debt in question.

A debt collector that does not recommence collection activities must notify the creditor, no later than 10 business days after making its determination, and if it furnished adverse information to a CRA, the collector must notify the CRA to delete that information no later than 10 business days after making its determination. The legislation also prohibits a creditor from selling a consumer debt to a debt collector if the creditor has received notice that the debt collector has terminated debt collection activities.

Current law. Under the state’s existing laws, a debt collector must stop collecting a debt if the alleged debtor provides the collector with specified information showing that the debtor is a victim of identity theft. However, there are no prescribed time frames for debt collectors to investigate or provide notice of investigations concerning accounts connected to identity theft.

For more information about identity theft, subscribe to the Banking and Finance Law Daily.

Cybersecurity regulation proposed for New York financial services companies

By J. Preston Carter, J.D., LL.M.

A proposed regulation would require New York banks, insurance companies, and other financial services institutions regulated by the State Department of Financial Services to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of the state’s financial services industry. In a press release announcing the proposal, Governor Andrew M Cuomo called it a "first-in-the-nation" regulation that would protect New York State from the ever-growing threat of cyber-attacks.

"New York, the financial capital of the world, is leading the nation in taking decisive action to protect consumers and our financial system from serious economic harm that is often perpetrated by state-sponsored organizations, global terrorist networks, and other criminal enterprises," said Cuomo. "This regulation helps guarantee the financial services industry upholds its obligation to protect consumers and ensure that its systems are sufficiently constructed to prevent cyber-attacks to the fullest extent possible."

A fact sheet accompanying the announcement listed five core cybersecurity functions that each financial institution’s cybersecurity program must perform:

1.	identification of cyber risks;
2.	implementation of policies and procedures to protect unauthorized access/use or other malicious acts;
3.	detection of cybersecurity events;
4.	responsiveness to identified cybersecurity events to mitigate any negative events; and
5.	recovery from cybersecurity events and restoration of normal operations and services.

Regulated financial institutions must also:

• adopt a written cybersecurity policy, setting forth policies and procedures for the protection of their information systems and nonpublic information;
• designate a qualified individual to serve as Chief Information Security Officer, responsible for overseeing and implementing the institution’s cybersecurity program and enforcing its cybersecurity policy; and
• have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third parties.

Prior to proposing the regulation, the Department of Financial Services surveyed nearly 200 regulated banking institutions and insurance companies to obtain insight into the industry's efforts to prevent cybercrime, the Governor’s press release noted. The proposed regulation (23 NYCRR Part 500) is subject to a 45-day notice and public comment period before its final issuance.

For more information about cybersecurity for financial services institutions, subscribe to the Banking and Finance Law Daily.

Supreme Court review petitions come from both sides of bankruptcy debt collection issue

By Richard Roth

Does a debt buyer’s bankruptcy court proof of claim on a time-barred consumer debt violate the Fair Debt Collection Practices Act? Consumers and a debt collector have, in two separate cases, asked the Supreme Court to decide whether the Bankruptcy Code provides a consumer’s sole remedy and, if not, whether the proof of claim misrepresents the nature and legal status of the debt.

Consumers in three consolidated cases have asked the Supreme Court to review a decision by the U.S. Court of Appeals for the Seventh Circuit that none of the FDCPA consumer protection provisions were violated (see Owens v. LVNV Funding, LLC). The petition was filed as Owens v. LVNV Funding, LLC, Dkt. No. 16-315.

In Midland Funding, LLC v. Johnson, Dkt. No. 16-348, the debt collector is challenging an adverse ruling by the U.S. Court of Appeals for the Eleventh Circuit (Johnson v. Midland Funding, LLC). Midland Funding asserts, first, that the Bankruptcy Code blocks the consumer’s FDCPA suit and, second, that if the suit is not blocked, the Act was not violated.

The basic facts in the cases are the same—the consumers filed for bankruptcy relief, a debt collector filed a proof of claim on a debt it had purchased from an earlier creditor, and the claim was disallowed because the statute of limitations had run out. The proofs of claim all accurately stated the origin of the debt, the date of the last transaction, and the date of the last payment—information that would disclose a statute of limitations defense.

Contradictory precedents. The Seventh Circuit decided in Owens that there could be no FDCPA violation under these circumstances. The proofs of claim were not deceptive, misleading, unfair, or unconscionable because they were completely accurate and because the consumers were protected in bankruptcy by both their own attorneys and the trustee. In fact, the Bankruptcy Code assumes that creditors will file claims on stale debts and that those claims will be disallowed, the Seventh Circuit said.

In Johnson, the Eleventh Circuit was considering a narrower issue. It had previously decided that a proof of claim on a stale debt could constitute a misrepresentation (Crawford v. LVNV Funding, LLC), but it had not decided whether the Bankruptcy Code and the FDCPA conflicted in a manner that permitted only one of them to apply.

There was no irreconcilable conflict between the Code and the FDCPA because they have different scopes, different goals, different coverage, and can be interpreted in a way that allows them to coexist, the Eleventh Circuit decided. Arguments by the debt collector that the Bankruptcy Code displaced the FDCPA and by the consumer that the stale debt could not be a bankruptcy claim both were rejected.

The Bankruptcy Code permits debt collectors to fil claims on time-barred debts, the Eleventh Circuit said, but does not require them to do so. A debt collector that chooses to file such a claim opens itself up to the consequences.

Standing. With review requests coming from both sides of the issue, the existence of a conflict among the circuits seems clear. This could influence the Court to grant certiorari in one or both of the cases.

However, there potentially is an additional issue in both appeals. In light of the Supreme Court’s recent decision in Spokeo, Inc. v. Robins, can the consumers establish an injury in fact that gives them constitutional standing to sue, or is filing a proof of claim on a stale debt “a bare procedural violation” that is not actionable?

For more information about the Fair Debt Collection Practices Act, subscribe to the Banking and Finance Law Daily.

CFPB emphasizes student loan debt problems for minority borrowers

By Richard A. Roth, J.D.

African-American and Latino students tend to borrow more to finance their education, attend more expensive for-profit colleges, and default on their loans more frequently, a Consumer Financial Protection Bureau entry says. Part of the problem arises from the effect that the recession had on these communities and the slow rate at which they have recovered, according to authors Aissa Canchola and Seth Frotman.

The blog cites a recent study that revealed 90 percent of African-American students and 72 percent of Latino students leave school with student loans, as opposed to 66 percent of white students and 51 percent of Asian-Americans. Student loan debt can perpetuate income inequality by making it harder for students to invest in their future. This can reduce the lifetime wealth of minority communities, the bureau says.

More than 25 percent of borrowers are behind on their federal student loan payments, the CFPB says. There even is evidence of “higher rates of student loan defaults and delinquencies in ZIP codes populated primarily by minorities with higher income levels.”

The blog emphasizes that the bureau wants to hear from borrowers who are having difficulty with their student debts and that all federal student loan borrowers have the right to an income-based repayment plan.
For more information about student loans, subscribe to the Banking and Finance Law Daily.

Busy week for CFPB enforcement: Wells Fargo, Bridgepoint Education

By Katalina M. Bianco, J.D.

 

The Consumer Financial Protection Bureau charged Wells Fargo Bank, N.A. with UDAAP violations stemming from the bank's widespread practice of secretly opening up two million unauthorized deposit and credit card accounts. Citing the bank's illegal cross-selling practices, the bureau hit Wells Fargo with its largest penalty to date: $100 million. 

 

The CFPB noted that the bank’s cross selling practices of offering many consumer financial products and services would have been "common and accepted business practice" if it were based on "efforts to generate more business from existing customers based on strong customer satisfaction and excellent customer service." However, the bureau found that the bank had compensation incentive programs for its employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking, and the bank failed to monitor the implementation of these programs with adequate care. Therefore, the CFPB determined that the bank engaged in unfair, deceptive, or abusive acts or practices.

 

Consent order. In addition to the $100 million fine, payable to the CFPB’s Civil Penalty Fund, under the terms of a consent order, Wells Fargo must also pay full refunds to consumers, which are expected to total $2.5 million and hire an independent consultant to conduct a thorough review of its sales procedures.

 

OCC action. The Office of the Comptroller of the Currency also took action against Wells Fargo, requiring the bank to pay a $35 million civil money penalty and restitution to customers who were harmed by the bank’s unsafe or unsound sales practices. In assessing the civil money penalty, the OCC noted a number of factors came into play, including the bank’s failure to develop and implement an effective enterprise risk management program to detect and prevent the unsafe or unsound sales practices, and the scope and duration of the practices. Under a separate Cease and Desist Order, Wells Fargo must provide restitution to customers who were harmed by the bank’s unsafe or unsound sales practices and also take steps to correct the deficiencies in the bank’s risk management and oversight of the bank’s sales practices. Wells Fargo was ordered to pay another $50 million to the city and county of Los Angeles.

 

Cordray remarks. Commenting on the bureau’s action, CFPB Director Richard Cordray said, "Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences." In a press call, Cordray added, "Unchecked incentives can lead to serious consumer harm" and that the bank’s practices were "violation of trust and an abuse of trust."

 

Commitment to customers. In response to the regulators' actions, Wells Fargo issued a statement that it "reached these agreements consistent with our commitment to customers and in the interest of putting this matter behind us."

  

Waters calls for criminal penalties. Representative Maxine Waters (D-Calif), Ranking Member of the Committee on Financial Services, expressed her concern that financial penalties may not be enough to deter future fraudulent practices, and called on the City and County of Los Angeles, as well as federal financial regulators, to refer all relevant information to the Department of Justice. Waters encouraged the DOJ to pursue criminal cases wherever warranted.

 

Bridgepoint Education, Inc. California-based Bridgepoint Education, Inc., has agreed to settle charges that it deceived students about the amount of their student loan payments. Bridgepoint will refund the roughly $5 million in principal and interest that students already have paid, discharge another $18.5 million in unpaid debt—the entire amount that students currently owe the company—and pay an $8 million civil penalty, the Consumer Financial Protection Bureau has announced. Bridgepoint operates under the names Ashford University and University of the Rockies.

The CFPB’s investigation was assisted by the California Attorney General and the Department of Education.

 

Consent order. The CFPB charges that Bridgepoint’s financial aid advisors gave incorrect payment information to students who needed private education loans. According to the consent order, advisors misrepresented to loan applicants that students normally made loan payments of only $25 per month. As a result, students did not know the accurate cost of their loans and were required to make larger payments than they expected.

 

In addition to the monetary relief, Bridgepoint has agreed to:

 

• require all new students or current students who change programs to use a specified financial aid disclosure tool before they enroll, in order to make costs clear; 
• cease any further misrepresentations; and 
• remove any derogatory information about outstanding student loans from students’ credit files and halt further reports.

 

While it agreed to settle the CFPB’s charges, the company did not admit any wrongdoing.

 

For more information about CFPB enforcement actions, subscribe to the Banking and Finance Law Daily.

CFPB’s proposed small-dollar loan rule lacks ‘product safety,’ Pew article says

By Thomas G. Wolfe, J.D.

In his article for The Pew Charitable Trusts, “The CFPB’s Proposed Payday Loan Regulations Would Leave Consumers Vulnerable,” author Nick Bourke maintains that while the Consumer Financial Protection Bureau’s proposed rule to regulate small-dollar loans provides certain consumer protections, the proposal falls short. In particular, Bourke’s Sept. 7, 2016, article asserts that the CFPB’s draft rule focuses on “the process of issuing a loan rather than on establishing product safety standards.” Moreover, the rule would “discourage banks and credit unions from entering this market and offering lower-cost alternatives,” he contends.

Bourke, the Director of The Pew Charitable Trusts, indicates that the CFPB’s proposal would “accelerate the shift toward installment lending that is already under way in this market.”

Findings, critique. On one hand, the CFPB’s rule would strongly encourage payday and auto title lenders “to give borrowers more time to repay loans in smaller installments, rather than large lump-sum payments,” Bourke points out. On the other hand, the proposal “fails to provide standards for affordable payments or reasonable loan lengths that are sufficiently clear to ensure the safety of this credit for consumers,” he states.

Bourke emphasizes that, under the CFPB’s current proposal:

• the skewed focus on underwriting fails to fully address the harm to consumers of high-cost installment lending because, among other things, “unlike mainstream creditors, payday and auto title lenders have access to borrowers’ checking accounts and car titles to improve their ability to collect” on the loans;

• this power by creditors over “financially fragile consumers” makes the high-cost, small-dollar loans “inherently dangerous;” and

• while the rule’s “conditional exemptions” would allow lenders to use their own methods for evaluating a borrower’s ability to repay a loan, the permitted alternatives are “unlikely to make better credit widely available.”

Recommendations. Based on these findings, the Pew article recommends that the CFPB “take firmer steps” to prevent small-dollar loans from “becoming dangerous or abusive” by:

• limiting the time period in which lenders can retain access to a borrower’s checking account;

• subjecting lenders with high default rates to “greater levels of scrutiny;”

• setting “clear product safety standards”—including a “5 percent payment option;” and

• enabling banks and credit unions to provide “safer, lower-cost small-dollar credit.”

For more information about proposals by the Consumer Financial Protection Bureau, as well as critiques of them, subscribe to the Banking and Finance Law Daily.

Bank to pay over $35 million for luring customers into paying for credit card extras

By Andrew A. Turner, J.D.

The First National Bank of Omaha (FNBO) has agreed to pay over $35 million to settle claims that the bank engaged in deceptive marketing and billing of customers for credit card add-on products. This is the eighth action the Consumer Financial Protection Bureau has taken in coordination with another regulator to address illegal practices with respect to credit card add-on products and the 12th action the CFPB has taken in total to address these practices.

FNBO entered into separate consent orders with the CFPB and the Office of the Comptroller of the Currency. The CFPB ordered the bank to repay $27.75 million to approximately 257,000 consumers and pay a $4.5 million civil penalty to the CFPB’s Civil Penalty Fund. The OCC assessed a $3 million civil penalty against the bank for restitution to customers who were unfairly billed for identity theft protection they did not receive

CFPB Director Richard Cordray commented, “First National Bank of Omaha violated the trust of its customers by illegally signing them up for credit card add-on products. The CFPB's track record, and this result today, shows strong and consistent action against credit card companies that dupe consumers into buying a product they do not want.”

CFPB’s enforcement action. The CFPB alleged that FNBO violated provisions of the Consumer Financial Protection Act governing unfair and deceptive acts or practices by using deceptive marketing tactics to lure consumers into accepting credit card debt-cancellation “add-on” products and by charging consumers for credit monitoring services they never received.

The CFPB’s consent order with FNBO pertains to the bank’s allegedly unfair billing practices from 1997 to 2012 and its allegedly deceptive enrollment practices from 2010 to 2012 until the CFPB’s supervisory exam at that time. Among other things, the CFPB claimed that FNBO:

• disguised the fact that it was selling consumers an add-on product;

• distracted consumers into making the relevant purchases;

• failed to disclose to consumers their “ineligibility” for the add-on products;

• hindered consumers from obtaining the benefits of the debt-cancellation products;

• made the cancellation of the add-on products difficult; and

• billed consumers for credit monitoring services that FNBO did not provide.

In addition to the monetary redress and civil penalty totaling $32.25 million, the CFPB’s consent order prohibits FNBO from marketing any debt-cancellation or credit-monitoring add-on products until the bank submits a compliance plan to the CFPB.

OCC’s enforcement action. The OCC alleged that FNBO violated Section 5 of the Federal Trade Commission Act by billing consumers for identity-theft protection products from December 1997 to July 2013 even though the consumers did not receive the full benefit of these credit monitoring and/or “credit report retrieval services” products.

Under the OCC’s Stipulation and Consent Order, the $3 million civil penalty imposed on FNBO includes restitution to consumers for the full amount that they paid for the identity-theft protection products plus any associated over-limit fees, overdraft fees, or finance charges the consumers incurred on their card accounts.

For more information about illegal credit card practices, subscribe to the Banking and Finance Law Daily.

Financial CHOICE Act ‘major step in the right direction,’ says Heritage Foundation

By J. Preston Carter, J.D., LL.M.

"The Financial CHOICE Act is a major step in the right direction for the U.S. economy," according to a paper written by Norbert J. Michel, at The Heritage Foundation. In his Backgrounder paper—Money and Banking Provisions in the Financial CHOICE Act: A Major Step in the Right Direction—Michel cites as the core component of the proposed reform a regulatory off-ramp, a provision that gives regulatory relief to banks that choose to hold higher equity capital.

This provision exempts banks from "onerous regulations" of the Dodd-Frank Act if they meet a higher capital ratio, says Michel. There is little justification for heavily regulating firms that absorb their own financial risks, he added. Higher capitalized banks do exactly that, Michael said, lowering the likelihood of taxpayer bailouts.

Other key points in the proposal, according to Michel, include: replacing the Dodd–Frank Act’s orderly liquidation authority with an improved bankruptcy process for large financial firms; improving the Federal Reserve Board’s emergency lending authority; and improving the Fed’s regular operating procedures, essentially by adopting the text of the 2015 Fed Oversight Reform and Modernization Act.

A discussion draft of the bill was released in June by House Financial Services Committee Chairman Jeb Hensarling (R-Texas).

For more information about the Dodd-Frank Act, subscribe to the Banking and Finance Law Daily.

Regulators clarify supervisory expectations for correspondent banking

By Lisa M. Goolik, J.D.

The Treasury Department, in coordination with the Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency, has released a joint fact sheet that outlines the regulators’ supervisory expectations and enforcement processes with respect to anti-money laundering and sanctions in the area of correspondent banking. The “Joint Fact Sheet on Foreign Correspondent Banking” describes the expectations of federal regulators, the supervisory examination process, and the use of enforcement actions.

AML requirements. Financial institutions must comply with the AML requirements set forth in the Bank Secrecy Act (BSA), as well as sanctions programs administered by the Office of Foreign Assets Control. Depository institutions that maintain correspondent accounts for foreign financial institutions (FFI) are required to establish “appropriate, specific, and risk-based due diligence policies, procedures, and processes that are reasonably designed to assess and manage the AML risks inherent with these relationships.”

Accordingly, U.S. depository institutions must monitor transactions related to correspondent accounts to detect and report suspicious activities. These policies, procedures, and processes will depend on the level of risk posed by the correspondent FFI.

Clarified expectations. According to the fact sheet, the federal regulators expect U.S. depository institutions to have “robust BSA and OFAC compliance programs that include appropriate customer due diligence so that the institutions have a clear understanding of FFI risk profiles and expected account activity.”

In addition, while there is no general requirement under existing regulations for U.S. depository institutions to conduct due diligence on the individual customers of FFIs, the regulators do expect depository institutions to obtain and review sufficient information about their FFI relationships, including the types of customers the FFI serves and the markets in which the FFI is active.

Examination process. The regulators believe that the examination process “is integral to the process of ensuring compliance with the BSA and OFAC sanctions programs.” To that end, the regulators employ a risk-based approach to supervision that guides the scoping, planning, and transaction testing portions of federal depository institutions’ BSA and OFAC examinations. The approach allows the regulators to appropriately allocate supervisory resources based on money laundering and terrorist financing risks.

Notably, the supervisory process is not one of “zero tolerance”—95 percent of BSA/AML deficiencies found in the examination process are resolved through the supervisory process. Most deficiencies are resolved after they are brought to the attention of a depository institution’s management through the issuance of confidential reports of examination and supervisory letters that contain specific language communicating supervisory findings to the institution.

Enforcement actions. Enforcement actions are “an extension of the supervisory process and are used to address more serious deficiencies, or situations where deficiencies have not been corrected in the course of the supervisory process,” states the fact sheet. Enforcement tools include: informal memoranda of understanding, or formal, public, written agreements, and cease-and-desist orders. The regulators are required to use their cease-and-desist authority when an institution fails to establish or maintain a BSA compliance program or fails to correct any problem with the program previously reported to the institution.

In addition, when institutions fail to take corrective action within a reasonable amount of time or when serious violations or unsafe or unsound practices or breaches of fiduciary duty have been identified, the regulators may also assess civil money penalties.

For more information about the Bank Secrecy Act, subscribe to the Banking and Finance Law Daily.

Cheetah reinvents the legal research process: interview with Wolters Kluwer's Dean Sonderegger

In the September/October issue of AALL Spectrum, Wolters Kluwer's Vice President of Legal Markets & Innovation, Dean Sonderegger, discusses the capabilities of the new Cheetah research platform and how Wolters Kluwer is reinventing the legal research process.

"The new platform came out of the mouths of customers," Sonderegger says. "The secret sauce is that our editorial team will organize the content and highlight the essential pieces . . . The result is that practitioners are able to move through primary content more efficiently."

Read the full interview with Dean here.

CFPB snapshot: Consumers unhappy with ‘cornerstone financial tool’

By Katalina M. Bianco, J.D.

Deposit accounts are a "cornerstone financial tool," and the Consumer Financial Protection Bureau has highlighted consumer complaints about deposit accounts and services in its monthly complaint snapshot. The August 2016 report (Vol. 14) indicates that consumers continue to experience problems managing their accounts. It also spotlights complaints coming from the state of Ohio.

 

"Deposit accounts are an essential component of millions of consumers’ financial lives," said CFPB Director Richard Cordray. "Consumers who are eligible for a deposit account should be able to get one and use it effectively."

 

The CFPB publishes a monthly complaint report that spotlights complaints received by the bureau. Considering that the CFPB draws from consumer complaints when targeting areas for rulemaking, the complaint reports can be an indication of the bureau's future focus.

 

Spotlight category. Complaints submitted to the CFPB under the spotlight category of bank accounts and services cover deposit account products and services offered by banks, credit unions, and nonbank companies. There are more than 200 million deposit accounts open nationwide, and as of Aug. 1, 2016, the CFPB had handled approximately 94,200 bank account or service complaints. According to the bureau’s report, consumers complain about:

• difficulties opening accounts, including reporting data being used for screening new accounts;
• overdraft fees stemming from confusion about the availability of funds deposited; and
• financial institutions’ error resolution procedures, particularly prolonged response times and lack of provisional credit when reporting unauthorized transactions.

National overview. As of Aug. 1, 2016, the CFPB has handled approximately 954,400 complaints nationally. Highlights from the monthly snapshot include the following.

 

• For July 2016, debt collection was the most-complained-about financial product or service, followed by credit reporting and mortgages. 
• In a year-to-year comparison examining the three-month time period of May to July, student loan complaints showed the greatest increase—64 percent—of any product or service.
• Alaska, Wyoming, and Colorado experienced the greatest year-to-year complaint volume increases from May to July 2016 period versus the same previous time period 12 months earlier.
•  The three companies that received the most complaints from March through May 2016 were credit reporting companies Equifax, Experian, and TransUnion.

Spotlight Ohio. The monthly CFPB snapshot highlights Ohio and the Columbus metro area. According to the bureau’s report, as of Aug. 1, 2016, consumers in Ohio have submitted 29,400 of the 954,400 complaints the CFPB has handled, with 6,500 of them coming from the Columbus metro area. In this geographical area:

 

• debt collection is the most complained about product or service;
• complaints relating to mortgages are lower than the national rate; and
• the three most complained about companies by consumers from Ohio were Equifax, TransUnion and Experian.

 For more information about the CFPB's monthly complaint snapshots, subscribe to the Banking and Finance Law Daily.