HIGHLIGHTS FROM Q2 2017:

• 46 total actions were levied against financial institutions by federal, state, and local regulators in Q2 2017. A total of 287 actions have been issued over the last five quarters, the highest being the 72 actions issued in Q4 2016. As was the case in Q4 2016 and Q1 2017, the frequency of actions in Q2 2017 are generally on par with that of the same quarter in the prior year, despite the expectations of some that the pace of enforcement would decrease significantly due to the change in administration.
• State and local regulators were involved in 11 actions, or 24% of all actions, surpassing the Federal Deposit Insurance Corporation as the most frequent actors in the period. State regulators have posted a slight increase in percentage of total actions from 23% that were initiated in Q1 2017.
• Regulators most commonly used Settlements and Formal Agreements/Consent Orders to enforce regulatory requirements, issuing 12 of each for 52% of the total Q2 2017 actions. The next most commonly used methods of enforcement were Civil Money Penalties and Lawsuits, which occurred nine times each in Q2 2017 for 39% of the total actions. While the frequency of both Settlements and Formal Agreements/Consent Orders have decreased since Q2 2016, the frequency of Lawsuits and Civil Money Penalties have increased since the same time last year.
• 26% of actions were the result of unfair or deceptive acts or practices in the last five quarters or 85 out of 327 total enforcement occurrences, followed by improper mortgage loan practices at 18% or 58 out of 327 total enforcement occurrences.
• Over $22.5 billion in monetary fines, penalties, or borrower restitution was ordered for improper mortgage lending practices over the last five quarters, with $937 million coming in Q2 2017. This is nearly twice the amounts levied for the next most frequent infraction in Q2 – which was Securities, Commodities, or FX violations for $506 million.

Q2 2017 SUMMARY

The number of regulatory enforcement actions decreased in Q2 2017 from Q1 2017, as seen in Figure 1, to a level comparable to the frequency observed in Q2 2016. 67% of enforcement actions were issued by the five major federal agencies, with 10 from the Federal Deposit Insurance Corporation (FDIC), seven from the Consumer Financial Protection Bureau (CFPB), five from the Federal Reserve Bank (FRB), and four each from the Office of the Comptroller of the Currency (OCC) and Department of Justice (DOJ) (see Figure 2) — the third-highest proportion of actions from the five major federal agencies observed in the last five quarters. State or local regulators were involved in a total of 11 actions, surpassing the FDIC as the most frequent actors in the period. The CFPB’s actions centered around unfair, deceptive, or otherwise improper mortgage practices or other consumer lending practices in violation of Truth in Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA), and Fair Credit Reporting Act 2 (FCRA), while the FDIC, the OCC, and the FRB issued actions for violations of rules and regulations including Bank Secrecy Act (BSA)/Anti-Money Laundering (AML), compliance with capital adequacy requirements, the National Flood Insurance Program, and general governance deficiencies.

STATE AND LOCAL REGULATORS AND Q2 LEGAL ACTIONS UPDATE

Regulators have continued to resort to litigation as a means of enforcement into the second quarter of 2017, matching the first quarter’s nine lawsuits. Three of these lawsuits were filed by the CFPB, including their suit against mortgage servicer Ocwen Financial for alleged violations of FCRA, RESPA, TILA, and other deficiencies in servicing. An additional four suits were brought by state attorneys general or other local regulators.

Special thanks to contributors Caitlin Cremin and Siwen Tang.