Regulatory Bulletin October 2016


If it walks like a duck…

HeaderWelcome to the October 2016 WALKS LIKE A DUCK ISSUE. Here we begin by going back to basics. Wake up and smell the coffee! Never put yourself in position to be made an example of! “When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.” Confucius “If words of command are not clear and distinct, if orders are not thoroughly understood, the general is to blame.” Sun Tzu If it walks like a duck… In recent months regulatory decisions and penalties have been handed down seriously penalizing financial institutions large and small. This month one of our nation’s largest institutions has been hit with a huge penalty, had it’s senior officer grilled before congress, causing the board of directors to hold him another responsible to the point of cancelling bonuses. And just as we were about to go to press another penalty was handed down. What does this tell us? It makes clear that not only have the rules been changed, but they are going to be enforced. It is past the time of warning shots across the bow. Ships are going to be hit and a few careers will be sunk. Long past are the days when you could wrap yourself in good intentions and be certain that you would get another chance. The regulatory climate is changed. Intent is no longer good enough, now you must be clearly avoiding instances of “unintended consequences.” And you are expected to be pro-active in evaluating your programs, making modifications and where appropriate recompensing customers who have been affected. And if this isn’t enough, consider these words often attributed to Albert Einstein, “Insanity is doing the same thing over and over and expecting different results.”


Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts

HeaderEarlier this month the Consumer Financial Protection Bureau (CFPB) fined Wells Fargo Bank, N.A. $100 million for the illegally opening unauthorized deposit and credit card accounts. Under pressure to meet sales targets and achieve compensation incentives, employees boosted sales figures by covertly opening accounts. The accounts were funded by transfers from authorized accounts without consumers’ knowledge or consent. In the end the bank determined that more than two million deposit and credit card accounts were opened without customer authorization. According to the bank’s own analysis, employees opened more than two million questionable deposit and credit card accounts. The direct cost to Wells Fargo will $50 million to Los Angeles, $35 million penalty to the Office of the Comptroller of the Currency and $100 million fine to the CFPB’s Civil Penalty Fund as well as full restitution to all victims. Specifically Wells Fargo was accused of: Opening deposit accounts and transferring funds without authorization Applying for credit card accounts without authorization Issuing and activating debit cards without authorization Creating phony email addresses to enroll consumers in online-banking services “Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” said CFPB Director Richard Cordray. “Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed. 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.” Note the Language of the CFPB Enforcement: Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. Today’s order goes back to Jan. 1, 2011. Among the things the CFPB’s order requires of Wells Fargo: • Pay full refunds to consumers: Wells Fargo must refund all affected consumers the sum of all monthly maintenance fees, nonsufficient fund fees, overdraft charges, and other fees they paid because of the creation of the unauthorized accounts. These refunds are expected to total at least $2.5 million. Consumers are not required to take any action to get refunds to which they are entitled. • Ensure proper sales practices: Wells Fargo must hire an independent consultant to conduct a thorough review of its procedures. Recommendations may include requiring employees to undergo ethical-sales training and reviewing the bank’s performance measurements and sales goals to make sure they are consistent with preventing improper sales practices. • Pay a $100 million fine: Wells Fargo will pay a $100 million penalty to the CFPB’s Civil Penalty Fund. Today’s penalty is the largest the CFPB has imposed to date. The full text of the CFPB’s Consent Order can be found at:


More Bad News for Wells Fargo – OCC Assesses Penalty and Orders Restitution for Violations of the Servicemembers Civil Relief Act

HeaderFor the second time this month Wells Fargo was penalized by the authorities, this time The Office of the Comptroller of the Currency (OCC). A civil money penalty of $20 million was assessed and Wells Fargo Bank, N.A., was ordered to make restitution to servicemembers who were harmed by the bank’s violations of the Servicemembers Civil Relief Act (SCRA). The OCC found that between approximately 2006 and 2016, the bank violated three separate provisions of the SCRA. The bank failed to: (i) provide the 6-percent interest rate limit to servicemember obligations or liabilities incurred before military service; (ii) (ii) accurately disclose servicemembers’ active duty status to the court via affidavits prior to evicting those servicemembers; and (iii) (iii) obtain court orders prior to repossessing servicemembers’ automobiles. The $20 million penalty reflects a number of factors, including the duration and frequency of violations, the financial harm to the servicemembers, deficiencies and weaknesses in the bank’s SCRA compliance program and ineffective compliance risk management. The penalty will be paid to the U.S. Treasury. Restitution must be made to Servicemembers who were financially harmed as a result of the violations. In addition, the order requires the bank to “take corrective action to establish an enterprise-wide SCRA compliance program to detect and prevent future SCRA violations.” The Department of Justice’s Civil Rights Division issued a separate order today related to the bank’s repossession-related SCRA violations in a related action. Related Links • Consent Order for the Assessment of a Civil Money Penalty (PDF) • Cease and Desist Order (PDF)


News on Regulation B and the New Uniform Residential Loan Application (URLA)

HeaderOfficial approval was released by the Consumer Financial Protection Bureau (CFPB) regarding the new URLA as well as collection and reporting of HMDA data about race and ethnicity. The approval goes into effect January 1, 2017. Lenders can begin using the new form and data collection at January 1, 2017 and they become mandatory January 1, 2018. The one year gap is provided for lenders to become accustomed to the required changes. The issue: From January 1, 2017 through December 31, 2017 lenders will have the option of using the new form. The form will provide options for applicants to disaggregate race and ethnicity in ways previously not available. However, the new HMDA reporting rules will not take effect until 2018. Lenders will have certain options as to how to report, depending on the information provided by the applicant. It will be essential that lenders plan for these changes and provide policy direction to originators and other employees so that information is recorded accurately and consistently. If you have not already planned for these changes, now is the time to do so. Contact Kevin Kane at FRC, 203.521.2345 if you need guidance on this matter or assistance in training employees. A link to the issued final rule can be found at:


Wells Fargo’s Board Taking Back Money

HeaderBut is it too late? Last week, as criticism of Wells mounted in the public, press and Senate pressure extended from the executive to the board level. Company directors felt the need to take action and beyond announcing formal investigation into the bank’s sales practices late Tuesday, the company’s directors reported that CEO Stumpf would forfeit $41 million worth of stock awards, receive no bonus for 2016 and would forgo his salary until the inquiry is completed. It was further announced that Carrie L. Tolstedt would take immediate retirement. Ms. Tolstedt, was formerly senior executive vice president of community banking. As head of the unit where the fake accounts had been created, she will not receive a severance, will get no bonus for this year, will be denied $19 million in stock grants. In addition she will forgo enhancement to her retirement pay. On paper the Wells Fargo board is well populated, responsive and has significant representative diversity. The membership includes responsible people with excellent background who, when measured against the salaries of the line employees who have been terminated, are very well compensated. But the response to this debacle was late in coming and could reflect poorly on the current members. The OCC’s publication, THE DIRECTOR’S BOOK, establishes the responsibilities of directors. Of the nine responsibilities enumerated, the first five are: • Provide Oversight • Establish an Appropriate Corporate Culture • Comply With Fiduciary Duties and the Law • Select, Retain, and Oversee Management • Oversee Compensation and Benefits Arrangements Had the board not taken the actions mentioned and obviously reserved the right to proceed further, it is clear that they could have been judged further remiss in their duties Ms. Sheila C. Bair, former chairwoman of the Federal Deposit Insurance Corporation commented in a recent interview, “Culture and tone at the top are exactly what the board should be looking at.” Ms. Bair, now president of Washington College in Chestertown, MD expressed her opinion that the bank board was remiss in failing to initially view this episode as employee misconduct rather than a failure of leadership. This is a lesson that needs to be brought home to leadership in banks of all different sizes and scales. The current regulatory climate will not allow management to hide behind the shield of fiscal necessity. If pressure is applied to employees to improve fiscal performance then the leadership will be expected measure and control the consequences, intended or otherwise. There is no excuse for employees violating law, regulation or bank policy and there must be consequences for negative behavior, but at the same time board and management must be in control of the corporate culture. If you are a director or senior manager of a financial institution today, you must be constantly testing your institution’s direction to make sure you are not veering off course. If you need guidance, don’t wait for a visit from your regulators or the CFPB. Make full use of your internal structures, and if you have questions, by all means, get them answered. If you need guidance, call Kevin Kane at FRC, 203.521.2345.


Educational Note: FRC’s Kevin Kane will be leading Community Reinvestment Act Compliance Seminars this fall. Attendees will be eligible for CRE and CRCM credits. Watch for the bulletins announcing dates and locations.



New Word on Americans with Disabilities Act (ADA)

HeaderFinancial institutions are considered “public accommodations” subject to Title III of the ADA and its implementing regulations. That’s the law, going back to 1990. Banks are required to provide accessible facilities and to take steps to communicate effectively with customers with disabilities. That means that financial institutions must provide, without charge, “appropriate auxiliary aids and services” to ensure “effective communication” with individuals who have a speech, hearing, or vision disability. This is enforced by the Department of Justice’s Disability Rights Division. Remedies for failure to comply may include monetary damages, injunctive relief, attorneys’ fees and costs, and civil penalties. Civil penalties run to $50,000 for an initial violation and $100,000 for any subsequent violation. Private actions may by brought for injunctive relief as well as attorney’s fees and costs. On top of that, no institution wants its reputation soiled by being known as discriminating against the disabled. Not only is barrier free physical access required, but also the ADA covers internet access to accounts. This includes EIT or electronic information technology wherever it may be, including atms, websites and mobile devices of visually and hearing impaired individuals. Here is where is starts to get complicated. Because of the technical issues involved and the fluid nature of the state of technology, it is best to get advice from an experienced professional and confer with your attorney in developing your plan. The ABA has done an excellent review of the current state of affairs and members are advised to familiarize themselves in the context of their individual situations. The basic thrust is that public accommodations must be made to provide effective communication with customers having hearing, vision or speech disability. The only exceptions are if the steps would fundamentally alter the nature of the goods or services or the measures would impose and “undue burden.” The definition of an undue burden is subjective and in the end is determined on a case-by-case basis. Factors to consider include: • The type and expense an action versus the resources available; • The number of persons involved; • The effect of the burden on the institution; and • The resources of the parent company, if any. On the other hand, these rules are regularly enforced on numerous small business with far less resources than most financial institutions and it’s not likely that a court or the DOJ would look kindly on institution that claimed that the cost of website modification was excessive. However, due to the resources of most financial institutions (particularly in contrast to other small businesses that must comply with the ADA), it is unlikely that DOJ or a court would conclude that website accessibility modifications would cause an undue burden to a bank. While it is not likely that the DOJ will publish proposed Title III regulations until 2018, it is clear that the Title II rulemaking will have a significant impact on the website accessibility standards ultimately promulgated under Title III. The submission date for public comments on the have been extended from August 8, 2016 to October 7, 2016, giving extended time to review and respond to 123 questions posed. The Proposed Standard Web Content Accessibility Guidelines (WCAG) 2.0, level AA is an internationally recognized technical standard developed by the Worldwide Web Consortium The proposed guiding principles: perceivable, operable, understandable, and robust, will require banks to: • Provide text alternatives for non-text content; • Provide captions, audio descriptions, and other alternatives for multimedia; • Create content that can be presented in different ways without losing meaning; • Make it easier for users to see and hear content; • Make all functionality available from a keyboard; • Avoid content that causes seizures (e.g., mandate a threshold of less than three flashes); • Provide users enough time to read and use content; • Help users navigate and find content (e.g., use headings and labels); • Make text readable and understandable; • Make content appear and operate in predictable ways (e.g., require consistent navigation of the web pages); • Help users avoid and correct mistakes (e.g., provide clear error messages identifying the location of the error and suggestions for correcting it); and • Maximize compatibility with current and future user tools. In order to be prepared, now is the time to take the following steps: 1. Adopt an accessibility policy and standard (preferably WCAG 2.0, level AA). 2. Audit your website for accessibility. Best done by an expert to determine your current status relative to WCAG 2.0 level AA. 3. Establish responsibility (individual or committee) to oversee electronic information technology (EIT) accessibility issues and review new technology when available. 4. Prepare the website team. The in-house team must understand the proposed and anticipated standard (number 1 above) and bank stakeholders must understand the risks for non-compliance from DOJ and private litigants. 5. Direct departments to create an implementation plan. a. Identify all EIT in use and assess accessibility. b. Plan to overcome inaccessible EIT situations. c. Develop interim accessibility alternatives. 6. Create an accessibility webpage with information on accessibility and a process for reporting website access problems and getting help. 7. Review vendor contracts to ensure they require accessibility. 8. Schedule and conduct annual audits for conformance with WCAG 2.0, level AA. If you need assistance, contact Kevin Kane at FRC, 203.521.2345.

CFPB Fines Titlemax Parent Company $9 Million for Luring Consumers Into More Costly Loans

HeaderLender Also Illegally Exposed Borrowers’ Debt Information to Employers, Friends, and Family This month The Consumer Financial Protection Bureau (CFPB) today took action against TitleMax parent company TMX Finance LLC for luring consumers into costly loan renewals by presenting them with misleading information about the deals’ terms and costs. The lender also used unfair debt collection tactics that illegally exposed information about debts to borrowers’ employers, friends, and family. The Bureau ordered TMX Finance to stop its unlawful practices and pay a $9 million penalty. “TMX Finance lured consumers into more expensive loans with information that hid the true costs of the deal,” said CFPB Director Richard Cordray. “They then followed up with intrusive visits to homes and workplaces that put consumers’ personal information at risk. Today we are making it clear that these actions were unacceptable and illegal.” TMX Finance, of Savannah, Ga., is multi-state auto title lenders, with more than 1,300 storefronts in 18 states. TMX Finance offers title and personal loans through a host of state subsidiaries under the names TitleMax, TitleBucks, and InstaLoan. Single-payment auto title loans are usually due in 30 days, with some carrying an annual percentage rate of up to 300 percent. To qualify for the loan, a consumer must bring in a lien-free vehicle and its title as collateral. The CFPB order addresses a period from July 21, 2011 to the present. Specifically, the Bureau found that TMX Finance Presented consumers with misleading information about loan terms and exposed information about consumers’ debts to co-workers, neighbors, and family members. The Enforcement Action requires TMX to stop abusive loan-repayment policies, stop intrusive visits to consumers’ homes or workplaces and Pay a $9 million penalty to the CFPB’s Civil Penalty Fund. A copy of the CFPB’s order against TMX Finance is at:

CFPB Sues Credit Repair Company for Misleading Consumers and Charging Illegal Fees

HeaderDon’t let YOUR reputation get tangled up with people like this. The is CFPB Alerting Consumers About Potentially Misleading Credit Repair Services SEP 23, 2016 Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) filed a lawsuit in federal district court yesterday against the credit repair company Prime Marketing Holdings, LLC, which allegedly charged consumers a series of illegal advance fees as well as misrepresented the cost and effectiveness of its services. The CFPB is seeking to halt the company’s harmful conduct and to obtain relief for consumers, including refunds of fees paid to the defendant. The Bureau is also releasing a consumer advisory today with tips for consumers who are working to improve their credit history or who are dealing with credit repair services. “We are taking action against Prime Marketing Holdings for luring consumers with misleading claims about its ability to repair credit files and then charging illegal fees,” said CFPB Director Richard Cordray. “We are also alerting consumers to watch out for problematic credit repair practices. All consumers have a right to a free annual credit report and to dispute inaccurate information. This is a key step to building and maintaining good credit.” Prime Marketing Holdings is a credit repair company that is incorporated in Delaware with an office in Van Nuys, Calif. Prime Marketing Holdings has operated under various names including Park View Credit, National Credit Advisors, and Credit Experts. Since 2014, Prime Marketing Holdings has marketed, offered, and provided credit repair services to consumers across the country. Some credit repair services promise to improve consumers’ credit scores by challenging items on their credit reports, regardless of whether the information is accurate. According to the CFPB complaint, Prime Marketing Holdings lured consumers with misleading, unsubstantiated claims that it could remove virtually any negative information from their credit reports and could boost credit scores by significant amounts. The company attracted customers through its website and sales calls, at times targeting consumers who had recently sought to obtain a mortgage, loan, refinancing, or other extension of credit. The company would then charge consumers a variety of illegal advance fees for its services. The Bureau’s complaint alleges that the company violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act’s prohibition on deceptive acts and practices in the marketing and promotion of its services. The company also allegedly violated the Telemarketing Sales Rule by charging illegal advance fees and making deceptive statements. Specifically, the complaint alleges that the defendant: Charged illegal advance fees Misled consumers about the costs of their services Failed to disclose limits on “money-back guarantee Misled consumers about the benefits of their services Under the Dodd-Frank Act, the CFPB can take action against institutions or individuals engaged in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws. The complaint filed yesterday seeks monetary relief, injunctive relief, and penalties. The Bureau’s complaint is not a finding or ruling that the defendant has actually violated the law. The lawsuit filed September 22, 2016 is available at:

CFPB Cracks down on Failure to Disclose APR Are you properly disclosing and requiring proper disclosure on purchased loans?

HeaderCFPB Sues Five Arizona Title Lenders for Failing to Disclose Loan Annual Percentage Rate to Consumers On September 21, 2016 the Bureau Alleged Lenders Did Not List Required Annual Percentage Rate in Online Loan Advertisements “WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) sued five title lenders operating in Arizona — Auto Cash Leasing, LLC; Interstate Lending, LLC; Oasis Title Loans, LLC; Phoenix Title Loans, LLC; and Presto Auto Loans, Inc. — for failing to disclose the annual percentage rate in online advertisements about title loans. The Bureau alleges that the companies advertised a periodic interest rate for their loans without listing the corresponding annual percentage rate. The CFPB filed five individual administrative lawsuits seeking civil monetary penalties and administrative orders requiring the companies to correct their practices. Auto Cash Leasing, LLC, formed in 1999, Interstate Lending, LLC, formed in 2005, Oasis Title Loans, LLC, formed in 2013, Phoenix Title Loans, formed in 2013, and Presto Auto Loans, Inc., formed in 2002, all offer vehicle title loans to consumers. All five lenders were formed in Arizona, operate in Arizona, and market their services to consumers online. Auto title loans are secured loans for which the title to a vehicle serves as collateral. A borrower who cannot repay an initial title loan must reborrow or risk losing the title to their vehicle. From at least July 6, 2016, the CFPB alleges that the five lenders violated the Truth in Lending Act by advertising loan interest rates on their websites without advertising a corresponding annual percentage rate. For example, one lender advertised on its website a monthly interest rate but failed to include the legally required annual percentage rate for the loan. In its online advertisement, another lender asked consumers to take its advertised rate and multiply it by 12, but did not inform consumers that the calculated number is the annual percentage rate. A Notice of Charges initiates proceedings in an administrative forum, and is similar to a complaint filed in federal court. This case will be tried by an Administrative Law Judge from the Bureau’s Office of Administrative Adjudication, an independent adjudicatory office within the Bureau. The Administrative Law Judge will hold hearings and make a recommended decision regarding the charges, and the director of the CFPB will issue a final decision, which may be appealed to a federal court. The Notice of Charges is not a finding or ruling that the respondents have actually violated the law. The Bureau’s Rules of Practice for Adjudication Proceedings provide that the CFPB may publish the actual Notice of Charges ten days after the company is served. If allowed by the hearing officer, the charges will be available on the CFPB website after that date.”

Are you in the Student Lending arena? Beware of Huge consequences for Lender inattention to UDAP Rules.

HeaderConsumer Financial Protection Bureau Takes Action Against Bridgepoint Education, Inc. for Illegal Student Lending Practices Don’t let this happen to your institution. On September 12, 2016 the CFPB announced Order of Full Relief and Refunds for All Private Loans Made by the School The Consumer Financial Protection Bureau (CFPB) today took this draconian action against for-profit college chain Bridgepoint Education, Inc. for deceiving students into taking out private student loans that cost more than advertised. The Bureau is ordering Bridgepoint to discharge all outstanding private loans the institution made to its students and to refund loan payments already made by borrowers. Loan forgiveness and refunds will total over $23.5 million in automatic consumer relief. Bridgepoint must also pay an $8 million civil penalty to the Bureau. “Bridgepoint deceived its students into taking out loans that cost more than advertised, and so we are ordering full relief of all loans made by the school,” said CFPB Director Richard Cordray. “Together with our state partners, we will continue to be vigilant in rooting out illegal practices facing student borrowers in the for-profit space.”  In addition to the penalties Bridgeport is ordered to Halt illegal practices and Remove negative loan information from borrowers’ credit reports. The CFPB’s order can be found at:


HeaderOnline Lender Did Not Help Consumers Build Credit or Access Cheaper Loans, As It Claimed This month the Consumer Financial Protection Bureau (CFPB) took action against online lender Flurish, Inc., doing business as LendUp, for failing to deliver the promised benefits of its products. The CFPB found that the company did not give consumers the opportunity to build credit and rovide access to cheaper loans, as it claimed to consumers it would. The Bureau has ordered the company to provide more than 50,000 consumers with approximately $1.83 million in refunds. The company will also pay a pay $1.8 million to the CFPB’s Civil Penalty Fund. “LendUp pitched itself as a consumer-friendly, tech-savvy alternative to traditional payday loans, but it did not pay enough attention to the consumer financial laws,” said CFPB Director Richard Cordray. “The CFPB supports innovation in the fintech space, but start-ups are just like established companies in that they must treat consumers fairly and comply with the law.” LendUp’s conduct violated multiple federal consumer financial protection laws, including the Truth in Lending Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the CFPB found that the company: • Misled consumers about graduating to lower-priced loans • Hid the true cost of credit • Reversed pricing without consumer knowledge • Understated the annual percentage rate • Failed to report credit information In addition to the refunds and civil penalty LendUp is required to: • End deceptive loan practices. • End unlawful advertisements • Ensure accuracy of pricing. The full text of the CFPB’s consent order is available at:

Do You know that the CONSUMER FINANCIAL PROTECTION BUREAU publishes a Monthly Complaint Snapshot?

HeaderThis month’s snapshot is on money transfers. Take a look at this month’s report and come back to the CFPB website each month to keep abreast of complaints that will be the hot topics. Complaint Report can be found at:

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