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HUD issues mortgagee letter extending interim procedures relating to FHA Section 232 approved mortgages
On July 31, 2020, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 2020-25, which extends interim procedures regarding site access issues related to Section 232 mortgage insurance applications during the Covid-19 pandemic (previously covered here). The guidance provides temporary modifications pertaining to third-party site inspections for Section 232 FHA-insured healthcare facilities with effective dates within 60 days of the issuance of the mortgagee letter. The letter also provides guidance on other aspects relating to Section 232 properties, including regarding Property Capital Needs Assessments, appraisals, Section 232 Phase 1 Environmental Site Assessments, asbestos surveys, and radon testing, among other things.
On July 28, the CFPB issued a request for information (RFI) seeking input on ways to create a regulatory environment that expands credit access and ensures consumers and communities are protected from discrimination with respect to any aspect of a credit transaction. The RFI seeks comments to “identify opportunities to prevent credit discrimination, encourage responsible innovation, promote fair, equitable, and nondiscriminatory access to credit, address potential regulatory uncertainty, and develop viable solutions to regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) and Regulation B.” The RFI is in lieu of a symposium previously planned for this fall on topics related to ECOA. Information received will assist the Bureau in exploring ways to address regulatory compliance challenges, prevent unlawful discrimination, and foster innovation. Among other things, the Bureau seeks comments on ways to provide clarity under ECOA and/or Regulation B related to: (i) disparate impact analysis; (ii) meeting the credit needs of borrowers with limited English proficiency; (iii) special purpose credit programs; (iv) affirmative advertising to disadvantaged groups; (v) small business lending, particularly minority and women-owned firms; (vi) the prohibition of discrimination on the basis of a sexual orientation or gender identity; (vii) the scope of federal preemption of state law; (viii) situations in which “creditors seek to ascertain the continuance of public assistance benefits in underwriting decisions”; (ix) credit underwriting decisions based in part on models using artificial intelligence or machine learning; and (viii) adverse action notices. Comments on the RFI are due 60 days after publication in the Federal Register.
The same day, Director Kathy Kraninger published a blog post outlining Bureau priorities for ensuring a more inclusive financial system. In addition to the RFI, Kraninger discussed (i) the usefulness of the consumer complaint system in identifying cases of discrimination and fair lending violations; (ii) examinations and enforcement actions; (iii) the Bureau’s request for legislative authority to compensate whistleblowers; and (iv) education efforts focusing on consumers’ rights in the financial marketplace, including those related to disparities in student loan outcomes.
On July 29, the California, Illinois, and New York attorneys general filed an action in the U.S. District Court for the Northern District of California challenging the OCC’s valid-when-made rule, arguing the rule “impermissibly preempts state law.” As previously covered by a Buckley Special Alert, on June 2 the OCC issued a final rule designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision. The “true lender” rule provides that “[i]nterest on a loan that is permissible under [12 U.S.C. 85 for national bank or 12 U.S.C 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.”
The attorneys general argue in their complaint that the rule is “contrary to the plain language” of section 85 (and section 1463(g)(1)) and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the complaint asserts that the OCC disregarded congressional procedures for preemption by failing to perform a case-by-case review of state laws and not consulting with the CFPB before “preempting such a state consumer-protection law.” The attorneys general further contend that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule essentially enabling “‘rent-a-bank’ schemes.” The result of the OCC’s actions, according to the attorneys general, is a rule that would allow “predatory lenders to evade state law by partnering with a federally chartered bank to originate loans exempt from state interest-rate caps.” These structures “have long troubled state law-enforcement efforts,” according to the complaint, and the rule will exacerbate these issues by “decreas[ing] licensing fees received by the States and increase[ing] the cost and burden of future supervisory, investigative, and law-enforcement efforts by the States.”
The complaint requests the court declare that the OCC violated the Administrative Procedures Act in issuing the rule and hold the rule unlawful.
On July 28, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an FDCPA action claiming a collection agency (defendant) unfairly reported debts separately to a consumer reporting agency (CRA) instead of aggregating all of them into one debt. According to the opinion, the plaintiffs each defaulted on multiple medical services from their healthcare provider. The defendant eventually reported each debt separately to a consumer reporting agency. An amended complaint was filed alleging the defendant violated FDCPA Section 1692f by using unfair or unconscionable means to collect a debt because the debts were reported separately rather than aggregated together. The district court granted the defendant’s motion to dismiss, ruling that the argument was “unsupported by the FDCPA’s prohibition of ‘unfair or unconscionable’ means to collect a debt.” The plaintiffs appealed, arguing that they owed a single debt to the healthcare providers.
On appeal, the 7th Circuit examined how the FDCPA defines a “debt,” and determined that its use in the statute is on a “per-transaction” basis”—which meant that the separate debts did not comprise a “single debt” under the FDCPA. The appellate court also determined that none of the eight examples of “unfair or unconscionable to collect or attempt to collect” a debt in the FDCPA addressed the “separate-versus-aggregate reporting of debts.” Thus, the 7th Circuit concluded, “It is reasonable, and not at all deceptive or outrageous, for a collector to report individually debts that correspond to different charges, thereby communicating truthfully how much is owed on each debt.” Moreover, the appellate court noted that “[s]ome consumers may prefer to have their debts reported in a way that conceals debt-specific information, like how much is owed on individual debts, when specific debts were incurred, and which debts are stale. Those consumers may be willing to forego the more detailed information on their credit reports if the aggregated reporting increases their credit scores. But a preference does not necessarily equal an injustice, partiality, or deception.”
On July 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $824,314 settlement with a Pennsylvania-based cookware coating manufacturer for 74 apparent violations of the Iranian Transactions and Sanctions Regulations. According to OFAC, between November 2012 and December 2015, two of the company’s foreign subsidiaries allegedly sold coatings intended for customers in Iran and engaged in trade-related transactions with Iran, despite changes to OFAC’s Iran sanctions program, which prohibited such transactions. In addition, OFAC stated that in 2013, once the company realized that these sales may be problematic, some of its U.S. employees devised and facilitated a plan to continue sales from the two subsidiaries by using third-party distributers and avoiding referencing Iran on documentation.
In arriving at the settlement amount, OFAC considered various mitigating factors, including that the apparent violations were non-egregious and (i) the company voluntarily disclosed the violations and cooperated with the investigation; and (ii) the company has undertaken significant remedial efforts to address the deficiencies and minimize the risk of similar violations from occurring in the future, including appointing compliance monitors and outside counsel, making changes to its leadership, and adopting compliance and training policies.
OFAC also considered various aggravating factors, including that the company (i) failed to implement appropriate compliance policies “commensurate with selling to a high-risk jurisdiction such as Iran”; (ii) took “affirmative steps” to help the foreign subsidiaries continue to sell to Iran through indirect channels even though it knew the sales were problematic; and (iii) senior management, including U.S. employees, had actual knowledge of the conduct leading to the alleged violations and continued to facilitate transactions with Iran.
On July 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against two Islamic State of Iraq and Syria (ISIS) financial facilitators based in Syria and Turkey for allegedly providing financial and logistical support to ISIS. OFAC noted that these sanctions coincide with the thirteenth meeting of the Counter ISIS Finance Group, which coordinates efforts to isolate ISIS from the international financial system and eliminate revenue sources. As a result of the sanctions, all property and interests in property of the designated individuals within U.S. jurisdiction must be blocked and reported to OFAC. OFAC further noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and warned foreign financial institutions that if they knowingly facilitated significant transactions for any of the designated individuals, they may be subject to U.S. correspondent account or payable-through account sanctions.
On July 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against one individual and nine entities for providing significant investment support to the Syrian government. OFAC noted that, among other things, the designated individual and his companies knowingly provided “significant financial, material, or technological support to, or knowingly engag[ed] in a significant transaction with, the Government of Syria (including any entity owned or controlled by the Government of Syria) or a senior political figure of the Government of Syria.” As a result, all property and interests in property belonging to the designated persons and subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC further noted that its regulations “generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated persons,” and warned that non-U.S. persons that engage in transactions with the designated persons may expose themselves to designation. OFAC also referenced a previously published Fact Sheet (covered by InfoBytes here), which highlights the most pertinent exemptions, exceptions, and authorizations for humanitarian assistance and trade under the Syria, Iran, Venezuela, North Korea, Cuba, and Ukraine/Russia-related sanctions programs to ensure humanitarian-related trade and assistance reaches at-risk populations through legitimate and transparent channels during the global Covid-19 pandemic.
On July 27, the CFTC announced an approximately $9 million whistleblower award to a claimant who reported “specific, credible and timely” information that led to a successful Commodity Exchange Act (CEA) enforcement action. The associated order notes that the claimant voluntarily provided original information leading to the opening of an investigation and the enforcement action, and was under no “legal obligation” to provide the information. The order does not provide any other significant details about the information provided or the related enforcement action. The CFTC has awarded approximately $120 million to whistleblowers since the enactment of its Whistleblower Program under the Dodd-Frank Act, and whistleblower information has led to nearly $950 million in monetary relief.
On July 28, the SEC announced the creation of the Event and Emerging Risks Examination Team (EERT), which will “proactively engage with financial firms about emerging threats and current market events.” Specifically, the new team will be held in the agency’s Office of Compliance Inspections and Examinations (OCIE) and will work collaboratively with OCIE’s exam staff in regional offices to, among other things, (i) ensure that firms are “better prepared” to address existing threats and emerging risks; and (ii) provide expertise and support in response to market events that place investor assets at risk, such as cyber-security or operational resiliency concerns.
On July 27, the U.S. Court of Appeals for the Third Circuit determined that the Commonwealth of Pennsylvania may pursue claims against a student loan servicer under the Consumer Financial Protection Act (CFPA) despite a concurrent action brought against the servicer by the CFPB. The appellate court also held that the Commonwealth’s claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law are not preempted by the federal Higher Education Act (HEA). The decision results from a lawsuit filed by the Commonwealth claiming the servicer, among other things, originated risky, high-cost student loans, steered borrowers into forbearance, failed to properly inform borrowers about income-driven repayment options, made misrepresentations related to cosigner release, and misapplied borrower payments. Because the CFPB filed a lawsuit alleging similar claims against the servicer nearly nine months prior to the Commonwealth’s suit, the servicer argued that under the applicable provision of the CFPA, the Commonwealth could not file a concurrent suit. The district court disagreed and denied the servicer’s motion to dismiss.
In addressing whether a concurrent suit is permitted, the appellate court noted, “that the clear statutory language of the [CFPA] permits concurrent state claims, for nothing in the statutory framework suggests otherwise.” With respect to whether the applicable provision of the HEA expressly and impliedly preempts the Commonwealth’s suit, the 3rd Circuit stated that the statute only expressly preempts claims “based on failures to disclose information as required by the statute,” and not claims “based on affirmative misrepresentations.” Thus, because the Commonwealth’s claims were based on alleged affirmative misrepresentations and misconduct, it affirmed the district court’s ruling that the Commonwealth’s case may proceed. The 3rd Circuit highlighted, however, a circuit split over whether the HEA impliedly preempts state-law claims, pointing to the 9th Circuit’s holding that “allowing state law causes of action to proceed would conflict with the purpose of uniformity.” The 3rd Circuit’s decision joins those issued by the 7th and 11th Circuits, which both rejected the argument that uniformity was an intended purpose of the HEA.
The CFPB and the defendants filed with the district court in May dueling motions for summary judgment in the concurrent CFPB action, but the court has yet to issue a ruling on those motions.
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- H Joshua Kotin and Jessica M. Shannon to discuss "TILA/RESPA mortgage servicing rules" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)
- Amanda R. Lawrence to discuss "New privacy legislation: Preparing for a major source of class action and enforcement activity going forward" at the American Conference Institute Consumer Finance Class Actions, Litigation & Government Enforcement Actions
- Sherry-Maria Safchuk and Lauren Frank to discuss "New CFPB interpretation on UDAAP" at a California Mortgage Bankers Association Mortgage Quality and Compliance Committee webinar
- Daniel P. Stipano to discuss "High standards: Best practices for banking marijuana-related businesses" at the ACAMS AML & Anti-Financial Crime Conference
- Daniel P. Stipano to discuss "Wait wait ... do tell me! Where the panelists answer to you" at the ACAMS AML & Anti-Financial Crime Conference
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference