Financials Friday: Bank of America Faces Fed Scrutiny for Alleged Anti-Money Laundering Failings; Texas Judge Stymied in Moving Lawsuit Against CFPB Rule; Mortgage Lenders Sue Equifax in Monopoly Case; Regulator Launches Inquiry into Junk Fees; Visa, Mastercard Reach Settlement in Antitrust Class Action

Published on May 31, 2024

Financials Friday: Bank of America Faces Fed Scrutiny for Alleged Anti-Money Laundering Failings; Texas Judge Stymied in Moving Lawsuit Against CFPB Rule; Mortgage Lenders Sue Equifax in Monopoly Case; Regulator Launches Inquiry into Junk Fees; Visa, Mastercard Reach Settlement in Antitrust Class Action

Federal Reserve finds AML failings at Bank of America, considers sanctions. Fed officials have found such serious AML lapses at Bank of America (BAC) that the central bank is considering fines and other sanctions that might include a joint action with the Office of the Comptroller of the Currency (OCC), the regulator for national banks.

The Fed discovered lapses in the bank’s basic AML controls more than a year ago in an ongoing probe, although the company has insisted that its systems satisfy federal rules, according to  sources familiar with the probe. Federal AML rules require costly recordkeeping, and some Bank of America executives think the Fed is fixated on inconsequential parts of the rules, said the sources.

“Bank of America thinks the regulators are being nit-picky with basic AML compliance and not focused on the proactive, cool stuff that the bank does to fight human trafficking, wildlife crimes,” said one industry source familiar with the probe.

Bank of America’s AML struggles have contributed to some churn in personnel, said the sources.

William Fox, the longtime AML compliance chief at Bank of America, retired about 18 months ago but he was brought back last summer to help fix problems identified by the Fed, according to two sources.

“I retired (again) from Bank of America as of April 30,” Fox said in an emailed statement, declining to comment further. Paul Dougherty, former head of AML compliance at 5/3 Bank, has replaced Fox, according to sources. Marcy Hingst, a former deputy to Fox, left to become chief legal officer at Huntington Bank in August.

The Fed and DOJ declined to comment. Dougherty and Hingst didn’t respond to requests for comment.

CFPB late fee rule in venue limbo. The Fifth Circuit Court of Appeals has, for the second time, decided to stay a decision by Mark Pittman, a federal judge in Texas, to transfer fees to the U.S. District Court for the District of Columbia for a lawsuit against the Consumer Financial Protection Bureau’s rule capping credit card late.

The plaintiffs, including the U.S. Chamber of Commerce, the country’s largest business lobbyist, and banking trade organizations, filed their lawsuit in Texas, where the Fifth Circuit is known to be antagonistic toward administrative rulemaking and the CFPB, in particular. Earlier this week, Pittman granted the CFPB’s request to move the case to D.C., but the plaintiffs immediately filed a petition to block the decision. The Fifth Circuit agreed on Wednesday to delay the transfer until June 18 and ordered the CFPB to respond to the plaintiffs’ petition for a writ of mandamus by June 6.

The dispute over where to hold the proceedings reflects a larger debate over forum or venue “shopping,” in which parties seek to litigate cases in courts they think will be most favorable to them.

In his decision granting the transfer earlier this week, Pittman cautioned, “Venue is not a continental breakfast; you cannot pick and choose on a plaintiffs’ whim where and how a lawsuit is filed.” That said, he noted that the “court in no way intends for this transfer analysis to serve as a commentary on judge shopping or forum shopping. These concerns are irrelevant to this court’s venue analysis.”

Mortgage lenders sue Equifax for monopolizing electronic verification of income and/or employment services market. First Financial Lending and Greystone Mortgage, two real estate financing companies, brought an antitrust action against credit reporting giant Equifax (EFX) on Tuesday for holding monopoly power in the market for electronic verification of income and/or employment (VOIE) services. Electronic VOIE services differ from credit checks in that they offer information about a consumer’s ability to make rental or loan payments in the future rather than their payment history.

The plaintiffs allege that Equifax controls nearly the entire market for these services, as well as 40% of essential payroll data, thanks to the acquisition of a company called TALX in 2007 and subsequent anticompetitive conduct to avoid competition with new entrants.

This conduct allegedly includes multiyear exclusive deals with large payroll software providers and employers like ADP and Walmart, with whom Equifax supposedly shares a portion of its monopoly profits. It also includes an acquisition spree that Equifax pursued after a consent order that it entered with the FTC upon its purchase of TALX came to an end in 2018.

Equifax now boasts of having a trove of data. According to its website, Equifax has active income and employment records from more than 3.1 million employers, as well as more than 670 million records for verifications of income and employment.

The complaint further notes that Equifax Verification Services, the subsidiary that controls its VOIE business line, produces almost $2 billion in profits per year, or about 40% of Equifax’s overall profits annually.

“Equifax has used its monopoly power to raise prices to supracompetitive levels, causing purchasers of Electronic VOIE Services, including the Plaintiff Class, to suffer antitrust injury in the form of overcharges,” the complainants state. “Equifax’s Scheme has also denied purchasers a meaningful choice in a provider of Electronic VOIE Services, even though alternatives would charge less and do a better job of protecting consumers’ data privacy.”

Equifax didn’t reply to a request for comment. The company wrote in its 10-K filing for 2023 that “[c]ompetition in the Verification Services market, for both the U.S. and key International segments of Australia, Canada and the U.K., includes employers who manage verifications in-house, lenders who obtain verifications directly from employers, and other online and offline verification companies, such as Experian, Thomas & Company and niche providers.”

CFPB launches inquiry into mortgage closing junk fees. The CFPB on Thursday launched a public inquiry into junk fees that increase mortgage closing costs. The move follows an analysis released in April that found that closing costs have risen in recent years, including by more than 36% from 2021 to 2023.

“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”

In a request for information, the agency is focusing on which fees are subject to competition, how fees are set and who profits from them, and how fees are changing and how they affect consumers. The comment period will remain open for 60 days.

Visa, Mastercard reach $197.5 million settlement in antitrust class action. Visa (V) and Mastercard (MA) have reached an agreement to pay $197.5 million to settle class action claims that they fixed the fees that consumers are charged at ATMs when they withdraw cash. The settlement follows a previous agreement the plaintiffs reached in which Chase (JPM), Wells Fargo (WFC) and Bank of America agreed to pay nearly $67 million.

If approved by a court in Washington, D.C., the new settlement will end years of litigation that began in 2011. Last month, the Supreme Court denied Visa and Mastercard’s request to review class certification.

Mastercard declined to comment. Visa didn’t respond to a request for comment.