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On March 14, the U.S. District Court for the Western District of North Carolina issued an order certifying a settlement class of individuals who alleged that, while they were subject to Chapter 13 bankruptcy proceedings, a national bank imposed “no-application loan modifications” (NAMs) to their mortgages without consent. The class members claimed that the bank filed payment change notices in their bankruptcy proceedings around the time it sent out the NAM solicitations, which asserted that the mortgage payments had been adjusted to the amount of the proposed NAM payment, even though borrowers had not requested or accepted the changes. As a result, class members’ mortgage loans went into contractual default. According to the class, the bank has since ended the alleged practice. Under the terms of the settlement approved by the court, the bank has agreed to pay approximately $13.8 million into a common fund that will go to class members, account remediation, and attorneys’ fees and costs, as well as to injunctive relief.
On March 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced its decision to sanction six Russian individuals and eight entities, pursuant to Executive Order 13661, for “playing a role in Russia’s unjustified attacks on Ukrainian naval vessels in the Kerch Strait, the purported annexation of Crimea, and backing of illegitimate separatist government elections in eastern Ukraine.” The action complements sanctions imposed the same day by the European Union and Canada as part of a coordinated effort “to counter Russia’s continued destabilizing behavior and malign activities.” As a result, all property and interests in property of the sanctioned individuals and entities, as well as any entities owned 50 percent or more by them, are blocked and U.S. persons are generally prohibited from entering into transactions with them.
Visit here for continuing InfoBytes cover of actions related to Russia and Ukraine.
On March 15, the FTC released its annual report highlighting the agency’s privacy and data security work in 2018. Among other items, the report highlights consumer-related enforcement activities in 2018, including:
- an expanded settlement with a global ride-sharing company over allegations that the company violated the FTC Act by deceiving consumers regarding the company’s privacy and data practices (covered by InfoBytes here).
- a settlement with a global online payments system company to resolve allegations that its payment and social networking service failed to adequately disclose to consumers that transfers to external bank accounts were subject to review and that funds could be frozen or removed based on a review of the underlying transaction (covered by InfoBytes here).
- a settlement with a Texas-based company over allegations that it violated the FCRA by failing to take reasonable steps to ensure the accuracy of tenant-screening information furnished to landlords and property managers (covered by InfoBytes here).
The report also highlighted the FTC’s hearings on big data, privacy, and competition conducted through its Hearings on Competition and Consumer Protection in the 21st Century initiative. (Covered by InfoBytes here and here.)
On March 15, five federal agencies—the FDIC, FHFA, Federal Reserve Board, OCC, and Farm Credit Administration (collectively, the “Agencies”)—adopted an interim final rule amending the agencies’ regulations that require swap dealers and security-based swap dealers under the Agencies’ respective jurisdictions to exchange margin with their counterparties for swaps that are not centrally cleared (Swap Margins Rule). The interim final rule seeks to address the situation where the United Kingdom withdraws from the European Union without a negotiated agreement and entities located in the U.K. transfer existing swap portfolios that face counterparties located in the E.U. over to affiliates located in the U.S. or the E.U. Specifically, the interim final rule provides that certain swaps under this situation will not lose their “legacy” status—will not trigger the application of the Swap Margin Rule—if carried out in accordance with the conditions of the rule. The interim final rule is effective immediately and the Agencies are accepting comments for 30 days after publication in the Federal Register.
DOJ announces $1.59 million settlement with real estate management company for alleged SCRA violations
On March 15, the DOJ announced a $1.59 million settlement with a real estate management company resolving allegations that the company and its entities violated the Servicemembers Civil Relief Act (SCRA) by obtaining unlawful court judgments and charging unlawful lease termination fees. According to the complaint, from 2006 to 2017, the company obtained at least 152 default judgments against 127 “SCRA-protected servicemembers” by failing to accurately disclose their military status in affidavits filed with the court. Additionally, the DOJ alleged that the company wrongfully withheld security deposits and imposed early lease termination fees on servicemembers who sought termination due to qualifying military orders under the SCRA. Under the terms of the settlement, the company will pay (i) nearly $1.5 million to compensate 127 servicemembers who had allegedly unlawful default judgments entered against them; (ii) nearly $35,000 to compensate 10 servicemembers who were charged early lease termination fees; and (iii) a civil money penalty of $62,000. The settlement also requires the company to develop policies and procedures related to SCRA lease terminations and default judgments, conduct SCRA compliance training for employees involved with lease issues, and request that major credit reporting agencies delete trade lines and negative credit information for the affected servicemembers.
On March 12, the U.S. District Court for the Northern District of Illinois granted a national bank’s motion to dismiss a former associate vice president/lending manager’s whistleblower claims that it violated the False Claims Act (FCA) by submitting fraudulent claims and providing false information about loan applications to Fannie Mae and Freddie Mac. The whistleblower alleged that the bank (i) knowingly submitted fraudulent claims for payment to the U.S. government; (ii) told Fannie Mae and Freddie Mac that the applications met underwriting standards; and (iii) later terminated his employment as retaliation for notifying his superiors about the alleged false statements. However, according to the court, the whistleblower failed to sufficiently plead that the bank actually submitted the false claims, did not provide enough specificity as to whom the bank sent the alleged false claims to, and failed to “allege specific facts that link [the bank’s] fraudulent conduct to a claim submitted to the government.” Moreover, the court stated that under the FCA’s public disclosure bar, a whistleblower cannot base his case on allegations raised in prior litigation or publically disclosed information, and identified several similarities between the whistleblower’s allegations and previously disclosed claims. Because the whistleblower’s FCA claims failed, the retaliation claims were also dismissed.
On March 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the introduction of the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA list). The CAPTA list will identify foreign financial institutions that are prohibited from opening or maintaining correspondent or payable-through accounts in the U.S. pursuant to sanctions including the Countering America's Adversaries Through Sanctions Act, North Korea Sanctions Regulations, Iranian Financial Sanctions Regulations, and the Hizballah International Financing Prevention Act of 2015. Certain regulations have also been amended to reflect the issuance of the new list. OFAC notes that the CAPTA list, which is separate from the Specially Designated Nationals List, will identify the specific prohibitions or strict conditions to which foreign financial institutions are subject.
On March 7, the Nebraska governor approved LB 355, which amends various sections of the state’s financial laws, including the Nebraska Residential Mortgage Licensing Act (RMLA). Among other things, the RMLA is being amended to (i) provide requirements for the submission of fingerprints for specified principals of mortgage firm applications; (ii) adopt the transitional licensing process required by federal law, effective November 24, 2019, to allow certain federally-registered mortgage loan originators and mortgage loan originators licensed by another state to temporarily conduct business in Nebraska for up to 120 days after becoming employed by a Nebraska-licensed mortgage firm; (iii) limit the term of inactive mortgage loan originator licensees; and (iv) change the records retention period from three to five years. The amendments take effect September 2019.
On March 13, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of two online short-term rental companies’ (plaintiffs) action challenging the City of Santa Monica’s Ordinance 2535. According to the opinion, Ordinance 2535, which was amended in 2017, imposed four obligations on online platforms hosting rentals: (i) collecting and remitting Transient Occupancy Taxes; (ii) regularly disclosing listings and booking information to Santa Monica; (iii) only booking properties licensed and listed on Santa Monica’s registry; and (iv) refraining from collecting a fee for “ancillary services.” The plaintiffs challenged the Ordinance, arguing that it was preempted by the Communications Decency Act of 1996 (CDA) and it violated the First Amendment by restricting commercial speech, because it required the plaintiffs to monitor and remove third-party content. The lower court dismissed the action concluding the plaintiffs failed to state a claim under the CDA and the First Amendment.
On appeal, the 9th Circuit upheld the lower court’s ruling. The appellate court determined that Ordinance 2535 was not expressly preempted by its terms, nor would it “pose an obstacle to Congress’s aim to encourage self-monitoring of third-party content” under the CDA because it only required the plaintiffs to monitor incoming requests to complete a booking transaction, which is content that is “distinct, internal, and nonpublic.” As for the First Amendment claim, the appellate court concluded that the effect of Ordinance 2535 on its face is to regulate booking transactions, which is “nonexpressive conduct,” rejecting the plaintiffs’ claims that it required them to monitor screen advertisements. Moreover, the appellate court noted that the Ordinance does not target websites that advertise the very same properties but do not process transactions, which underscores the proposition that the Ordinance is only targeting companies that “engage in unlawful booking transactions.”
On March 12, HUD released Mortgagee Letter 2019-05, which alters home warranty requirements for FHA single-family mortgage insurance by removing the policy guidance that required borrowers to purchase ten-year protection plans in order to qualify for certain mortgages on newly constructed single-family homes. The borrower is still required to obtain a one-year warranty, which should commence on the date that title is conveyed to the borrower, the date that construction is completed, or the date that the borrower occupies the house, whichever occurs first. The changes are effective on March 14.
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program