April 21, 2015
Authored by: Bryan Cave
In two recent posts on BryanCavePayments.com, Bryan Cave attorneys have addressed new developments related to the CFPB’s efforts to regulate payday lenders through their banking relationships as well as statements from New York’s top banking regulators suggesting that bank executives should be held personally liable for anti-money laundering violations.
On April 1st (but unfortunately not part of any April Fools joke), John Reveal published a post on the CFPB’s efforts against payday lenders.
In May 2014, the Department of Justice (DOJ) and the FDIC were criticized by the U.S. House of Representatives’ Committee on Oversight and Government Reform in May 2014 Report for using the DOJ’s “Operation Choke Point” to force banks out of providing services to payday lenders and other “lawful and legitimate merchants”. The Committee’s report noted, among other things, that the DOJ was inappropriately demanding, without legal authority, that “bankers act as the moral arbiters and policemen of the commercial world”.
Now the CFPB has announced that it is considering rules that would end “payday debt traps”. At least the CFPB is following standard regulatory processes in doing so rather than trying to regulate payday lenders by punishing their bankers. The CFPB’s announcement, published March 26, 2015 (available here), outlines its proposals in preparation for convening a Small Business Review Panel to gather feedback from small lenders, which the CFPB refers to as “the next step in the rulemaking process”.
The CFPB’s proposal considers payday loans, deposit advance products, vehicle title loans, and certain other loans, and includes separate proposals for loans with maturities of 45 days or less, and for longer-term loans. Broadly speaking, the CFPB is considering two different approaches – prevention and protection – that lenders could choose from.
You can read the rest of John’s post here.
On March 27th, our Payments team published a post on Benjamin Lawsky’s approach to hold bank executives personally liable.
In a speech at Columbia Law School, NYDFS Superintendent Benjamin Lawsky warned that the department may start to hold bank executives personally responsible for their institution’s AML controls. According to Lawsky, the NYDFS may soon extend the same certifications currently required from senior executives regarding banks’ financial statements for their institutions’ transaction monitoring systems. NYDFS’ rules would be modeled after the Sarbanes-Oxley Act, which holds senior executives personally liable for accounting fraud. Lawsky also warned that the NYDFS may start to randomly audit AML systems to determine if they adequately identify suspicious activity.
You can read the rest of the post here.