Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On February 7, the DOJ announced a $750,000 settlement with a New Jersey-based mortgage company resolving allegations that the company violated the Servicemembers Civil Relief Act (SCRA) by foreclosing on homes owned by servicemembers without first obtaining the required court orders. The complaint, which was filed on the same day as the settlement, alleges that between 2010 and 2012 the company foreclosed on six homes of SCRA-protected servicemembers. Under the SCRA, lenders must obtain a court order before foreclosing on a servicemember’s home during, or within one year after, active military service, provided that the mortgage originated before the servicemember’s period of military service. The settlement requires the company to, among other things, (i) pay $125,000 to each affected servicemember; (ii) provide staff training to prevent unlawful foreclosures in the future; and (iii) notify the DOJ of future SCRA complaints.
On January 4, NYDFS and the New York Attorney General announced a joint $9 million settlement with a national student loan servicer to resolve allegations that the servicer, among other things, deceived student loan borrowers about their repayment options and steered them into higher-cost repayment plans. According to a press release issued by the Attorney General’s office, the servicer “steered distressed borrowers away from available income-based repayment plans towards other, more expensive options, thus costing them money and increasing their risk of default.” Additionally, the consent order alleges that the servicer misinformed borrowers—including servicemembers—about their repayment options, such as telling borrowers they were not eligible for Public Service Loan Forgiveness plans when they may have qualified after consolidating their loans. Furthermore, the servicer allegedly (i) improperly processed applications for income-based repayment; (ii) allocated underpayment for certain borrowers to maximize late fees; (iii) improperly processed payments; (iv) failed to accurately report information to credit reporting agencies; (v) failed to “properly recalculate monthly payments for servicemembers when adjusting their interest rates under the Servicemembers’ Civil Relief Act”; (vi) charged improper late fees; and (vii) did not provide borrowers notification of their eligibility for a co-signer release.
The servicer, while neither admitting nor denying the findings alleged by NYDFS and the Attorney General, has agreed to pay $8 million in restitution to New York borrowers and a $1 million fine. Moreover, the servicer has agreed to stop servicing private and federal loans—with the exception of Perkins Loans—over the next five years.
On November 2, the DOJ announced a $95,000 settlement with a credit union resolving allegations that the credit union violated the Servicemembers Civil Relief Act (SCRA) by repossessing vehicles owned by servicemembers without first obtaining the required court orders. According to the complaint, which was filed on the same day the settlement was announced, the DOJ launched an investigation into the credit union’s repossession practices after learning of two private complaints filed against the credit union for alleged SCRA violations. Through the investigation, the DOJ discovered additional violations and that the credit union did not have policies and procedures that addressed non-judicial auto repossessions against servicemembers until August 2014. Under the terms of the settlement, the credit union is required to pay $65,000 to compensate affected servicemembers and a civil money penalty of $30,000. In addition, the company must submit its employee SCRA training materials for approval and complete reporting, record-keeping, and monitoring requirements.
On September 27, the DOJ announced a settlement with a Washington state foreclosure services company resolving allegations that the company violated the Servicemembers Civil Relief Act (SCRA) by foreclosing on homes owned by servicemembers without first obtaining the required court orders. As previously covered by InfoBytes, in November 2017, the DOJ filed a complaint in the Western District of Washington alleging its investigation into the company’s practices uncovered at least 28 unlawful non-judicial foreclosures. The DOJ initiated the investigation following the same court’s dismissal of a private SCRA action brought by a veteran on the ground that it was time-barred.
Under the settlement, each affected servicemember may receive up to $125,000, with a total payout by the company of up to $750,000. The DOJ notes that the company ceased operations in December 2017 and was placed into receivership in March.
On September 19, the California governor signed AB 3212 that provides several benefits and protections to servicemembers under the state’s Military and Veterans Code. The legislation’s protections apply to members of the National Guard, State Military Reserve, and the Naval Militia called to full-time active state service or full-time active federal service, as well as other individuals called to full-time active duty for a period in excess of seven days in any 14-day period. Highlights of the amendments include:
- Extension of Interest Rate Protection. The legislation extends the prohibition on charging an interest rate in excess of six percent on any obligations bearing interest to 120 days after military service. The legislation also extends the six percent interest rate protection for student loans to one year after military service, which previously only applied to mortgage obligations.
- Written response for Good Faith Requests for Relief. The legislation requires that any person who receives a good faith request from a servicemember for relief and believes the servicemember is not entitled to the relief to provide, within 30 days of the request, a written response acknowledging the request. The written response must include (i) the basis for asserting that the request was incomplete or that the servicemember is not entitled to the relief; (ii) information/materials that are missing, if the servicemember’s request was deemed incomplete; and (iii) contact information. If the written response is not provided, the person waives any objection to the request, and the servicemember shall be entitled to the relief requested.
- Extension of the Default Judgment Protection. At any stage in any action or proceeding in which a servicemember is involved, the court may stay an action or proceeding during the period of military service or 120 days thereafter (previously 60 days).
- Inclusion of Motor Vehicles in the Lease Termination Protection. Existing state law allows for the termination of leases of premises that are occupied for dwelling, professional, business, agricultural, or similar purposes by the servicemember, upon entry into military service. The legislation now mirrors the federal Servicemember Civil Relief Act protections for motor vehicle lease termination. Specifically, it provides that a servicemember may terminate a motor vehicle lease after the servicemember’s entry into military service for a period of not less than 180 days. Additionally, it provides for cancelation of leases executed while in a period of military service if the servicemember receives military orders for a change of permanent station from a location in the continental U.S. to a location outside the continental U.S., or from a location in a state outside the continental U.S. to any location outside that state, or to deploy for a period not less than 180 days.
On September 11, the Department of Justice announced a settlement with a Nebraska apartment complex owner resolving allegations that it violated the Servicemembers Civil Relief Act (SCRA) by unlawfully charging lease termination fees for 65 servicemembers. The complaint, which was filed on the same day as the settlement, alleges that between January 2012 and June 2017, the apartment complex owner imposed early lease termination fees, ranging from $78 to almost $1,500, on servicemembers who sought termination due to qualifying military orders under the SCRA. The settlement requires the apartment complex owner, among other things, to (i) pay more than $76,000 in damages to the 65 identified servicemembers; (ii) pay a $20,000 civil money penalty, and (iii) develop policies and procedures related to SCRA lease terminations.
On September 11, the Washington state Attorney General announced the filing of a lawsuit against a towing company for allegedly auctioning off a servicemember’s car while he was deployed, in violation of the Washington Servicemembers’ Civil Relief Act (WSCRA). The complaint argues that the towing company impounded and unlawfully sold a deployed servicemember’s car without first determining the military status of the car’s owner and without obtaining a court order, as required by the WSCRA. The complaint rejects the towing company’s arguments that the responsibility fell on the servicemember’s creditor to redeem the vehicle as the legal owner because the law places the duty for determining military status on the party enforcing the lien. The complaint seeks restitution for the servicemember and a permanent injunction. Additionally, the complaint seeks civil penalties of up to $55,000 for a first offense and up to $110,000 for subsequent offenses, as allowed by the WSCRA.
9th Circuit affirms dismissal of SCRA private action, applies federal four-year catch-all statute of limitations
On July 26, the U.S. Court of Appeals for the 9th Circuit affirmed the dismissal of a private suit alleging a mortgage servicer violated the Servicemembers Civil Relief Act (SCRA) prohibition on foreclosure on the grounds that the claim was time-barred, holding that the federal catchall four-year statute of limitations applies to private suits under the SCRA. The decision results from a 2016 lawsuit filed by a United States Marine veteran (the plaintiff) alleging that the August 2010 foreclosure sale on his home violated section 303(c) of the SCRA as it occurred within nine months of the end of his active military service. While the SCRA does not provide a specific statute of limitations for a private right of action, the defendants moved to dismiss the case as time-barred, arguing that the court should apply the closest state-law analogue to the SCRA. The plaintiff argued that the court should look to the Uniformed Services Employment and Reemployment Rights Act (USERRA) as the most analogous statute, which does not limit the period for filing claims. In response to the plaintiff, the defendants added an alternative argument that the court should apply 28 U.S.C. § 1658(a), which establishes a four-year limitation period for any claims arising from a federal law enacted after 1990, which does not delineate a specific limitations period. The district court granted the motion to dismiss, rejecting the plaintiff’s arguments, and applied the four-year statute of limitations found in the Washington State Consumer Protection Act.
In affirming the dismissal of the plaintiff’s case on an alternate ground, the court noted that while the SCRA’s protection against foreclosure existed prior to 1990, Congress did not add a private right of action until 2010. The court rejected the plaintiff’s argument that the private right of action was “implied” prior to the 2010 because there was no evidence Congress intended to create one under the SCRA’s predecessor, the Soldiers’ and Sailors’ Civil Relief Act. The court held that because a private right of action was not provided until 2010, the four-year catch-all provision of 28 U.S.C. § 1658(a) applied, and the plaintiff’s claim under the SCRA was time-barred.
On July 20, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include cease and desist orders, civil money penalty orders, removal/prohibition orders, and terminations of existing enforcement actions. Two of the more notable actions by the OCC covered in this report are discussed below.
On May 31, the OCC issued a consent order against an international investment bank’s federal branches located in Stamford, Miami, and New York, which identified alleged deficiencies in the branches’ Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance programs. The alleged deficiencies include failure to adopt and implement adequate BSA/AML compliance programs and failure to file timely Suspicious Activity Reports. Among other things, the consent order requires the branches to (i) develop and implement an ongoing BSA/AML risk assessment program; (ii) adopt an independent audit program to conduct a review of the bank’s BSA/AML compliance program; (iii) submit a written progress report within 30 days after the end of each calendar quarter that details actions undertaken to ensure compliance with the consent order’s provisions; and (iii) ensure each branch has permanent, experienced BSA officers responsible for compliance functions. The bank has neither admitted nor denied the OCC’s findings, and a civil money penalty was not assessed against the branches.
In addition, on June 18 the OCC issued an order terminating a 2016 consent order against a national bank following the OCC’s determination that the bank had successfully completed the consent order’s requirements for complying with provisions of the Servicemembers Civil Relief Act.
Maryland expands scope of unfair and deceptive practices under the Maryland Consumer Protection Act, increases maximum civil penalties
On May 15, the Maryland governor signed HB1634, the Financial Consumer Protection Act of 2018, which expands the definition of “unfair and deceptive trade practices” under the Maryland Consumer Protection Act (MPCA) to include “abusive” practices, and violations of the federal Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA). The law also, among other things:
- Civil Penalties. Increases the maximum civil penalties for certain consumer financial violations to $10,000 for the initial violation and $25,000 for subsequent violations
- Debt Collection. Prohibits a person from engaging in unlicensed debt collection activity in violation of the Maryland Collection Agency Licensing Act or engaging in certain conduct in violation of the federal FDCPA.
- Enforcement Funds. Requires the governor to appropriate at least $700,000 for the Office of the Attorney General (OAG) and at least $300,000 to the Office of the Commissioner of Financial Regulation (OCFR) for certain enforcement activities.
- Student Loan Ombudsman. Creates a Student Loan Ombudsman position within the OCFR and establishes specific duties for the role, including receiving, reviewing, and attempting to resolve complaints from student loan borrowers.
- Required Studies. Requires the OCFR to conduct a study on Fintech regulation, including whether the commissioner has the statutory authority to regulate such firms. The law also requires the Maryland Financial Consumer Protection Commission (MFCPC) to conduct multiple studies, including studies on (i) cryptocurrencies and initial coin offerings and (ii) the CFPB’s arbitration rule (repealed by a Congressional Review Act measure in November 2017).
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- 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 to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- 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
- 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