FinCen and CFPB Issue Important Guidance

December 11, 2020 at 9:28 am Leave a comment

Hello, folks. 

After a week in which relevant news was in short supply, regulators rushed out potentially important changes yesterday. FinCen issued updated guidance encouraging financial institutions to participate in networks in which information about potential money laundering and terrorist financing activities can be shared without fear of violating federal law. The CFPB finalized new qualified mortgage regulations which would be extremely significant but for the fact that they are most likely DOA once a Biden-appointed CFPB Director takes office. 

Under Section 314 (b) of the US Patriot Act, financial institutions are authorized to create networks of banks and certain non-banks – such as casinos and money transmitters – to share information about suspected money laundering and terrorist financing activities. If the proper rules are followed, financial institutions have a safe harbor from liability, but over the years, FinCen has issued guidance narrowly interpreting this authority. Yesterday, FinCen issued updated guidance repealing these previous rulings. In his speech announcing the changes, FinCen Director Kenneth A. Blanco highlighted the following changes:

  • Financial institutions may share under Section 314(b) information relating to activities that they suspect may involve possible terrorist financing or money laundering.  This includes, but is not limited to, information about activities they suspect involve the proceeds of a specified unlawful activity (SUA).  Importantly, our guidance clarifies that:
  • Financial institutions do not need to have specific information that these activities directly relate to proceeds of an SUA, or to have identified specific proceeds of an SUA being laundered.
  • Financial institutions do not need to have made a conclusive determination that the activity is suspicious.
  • Financial institutions may share information about activities as described, even if such activities do not constitute a “transaction.”  This includes, for example, an attempted transaction, or an attempt to induce others to engage in a transaction.  This clarification is significant and addresses some uncertainty with sharing incidents involving possible fraud, cybercrime, and other predicate offenses when financial institutions suspect those offenses may involve terrorist acts or money laundering activities.
  • In addition, the guidance notes that there is no limitation under Section 314(b) on the sharing of personally identifiable information, or the type or medium of information that can be shared (to include sharing information verbally).

On another note, Blanco used the speech to urge financial institutions to be as specific as possible when filing Suspicious Activity Reports (SARs) related to COVID-19 schemes. 

As for the CFPB, it finalized regulations which replace the GSE Patch with a new regulation which classified a qualified mortgage based on its interest rate. As it was succinctly put in yesterday’s press release, “a loan receives a conclusive presumption that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. A loan receives a rebuttable presumption that the consumer had the ability to repay if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points.” A second regulation finalized by the Bureau would classify mortgages as qualified if they are retained by the financial institution for at least 36 months and meet certain other requirements. Since the first regulation to which I referred does not become mandatory until July 1, 2021, and the latter rule doesn’t take effect for 60 days, both proposals represent little more than a wishlist on the part of the departing leadership. This is too bad – there’s a lot of good arguments in favor of replacing existing regulations which tie qualified mortgage status to a DTI cap with an APOR approach. 

Enjoy your weekend with a special shoutout to you Jet fans out there. The amazing thing about the Jets isn’t that they lose so much – but that they continue to find such creative ways to do so. I’m never going to turn off the last two minutes of a Jets game again. 

Entry filed under: COVID-19, Mortgage Lending, Regulatory. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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