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WBK Industry News - Federal Regulatory Developments

Civil Monetary Penalties to Increase Significantly

Civil money penalties assessed for violations of numerous federal statutes and regulations are set to increase significantly by August 1, 2016. This adjustment is the result of Section 701 of the Bipartisan Budget Act of 2015, which is entitled the “Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015” (the “Act”). The adjustments apply to civil money penalties covered by the Federal Civil Penalties Inflation Adjustment Act of 1990, which was amended by the Act. The Act requires federal agencies to publish interim final rules with initial penalty adjustment amounts by July 1, 2016, with new penalty levels to take effect no later than August 1, 2016. Going forward, agencies must annually update the civil monetary penalties starting January 15, 2017 and each year thereafter. In the event a violation took place prior to the effective date of the new penalty level, and the agency assesses a penalty after the effective date, the new penalty level will apply.

Because many agencies have not adjusted their civil monetary penalties recently, the Act directs agencies to make an initial “catch up adjustment.” This “catch up adjustment” is a single adjustment applying the cost-of-living percentage based on the difference between the Consumer Price Index (“CPI”) in October 2015 and the CPI in October of the year the agency’s penalties were established or last adjusted, based on additional guidance in a White House Memorandum for the Heads of Executive Departments and Agencies. The “catch up adjustment” may not exceed 150 percent of the pre-adjustment penalty amount (or range) in place on November 2, 2015 (the date the Act was passed). The 150 percent limitation is on the amount of the increase; therefore, the adjusted penalty level(s) will be up to 250 percent of the level(s) in effect on November 2, 2015.

A civil monetary penalty is any monetary assessment levied for a violation of a federal civil statute or regulation, assessed or enforceable through a civil action in federal court or an administrative proceeding. This does not include a penalty levied for violation of a criminal statute, or fees for services, licenses, permits, or other regulatory reviews.

Interim rules that may be of particular interest to mortgage lenders have already been published by the CFPB, HUD, VA, NCUA, and FHFA (click to link to the relevant rule). The FDIC yesterday approved their interim rule by vote, but it has yet to be published.

While many of the penalties associated with the CFPB’s statutes and regulations have been updated within the last few years, the penalties associated with both RESPA and the Interstate Land Sales Act (ILSA) have not been adjusted in more than 25 years and therefore are almost doubling. In addition, the CFPB’s maximum penalties under the CFPA (established in 2010) will increase from $1,000,000 to $1,087,450 for willful violations. Under the VA’s rule, maximum penalties associated with lenders that make false certifications in VA’s home loan guaranty program is more than doubling from $10,000 to $21,563, and penalties against persons who commit fraud in federal programs under the Program Fraud Civil Remedies Act is increasing from $5,500 to $10,781.

While the DOJ has not yet issued its interim rule, other agencies with authority to apply False Claims Act penalties have increased the penalties to almost twice its current minimum and maximums ($5,500 and $11,000 increased to $10,781 and $21,563, respectively), and it is expected that the DOJ will do the same.