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Class action over mortgage modification denial error moves forward
On October 18, the U.S. District Court for the Eastern District of Washington granted in part a national bank’s motion to dismiss, but allowed the plaintiffs’ claim under the Washington Consumer Protection Act (WCPA) to move forward. According to the opinion, in 2011, a national bank denied the plaintiffs’ mortgage modification, and in 2012, the plaintiffs’ home was foreclosed upon. In August 2018, the national bank disclosed that approximately 625 mortgage modification applications were improperly denied due to a calculation error in the bank’s software. The bank informed the plaintiffs of the error, provided a check for $15,000, and after mediation, paid the plaintiffs another $25,000. The plaintiffs filed a class action against the bank, asserting claims for violation of the WCPA and unjust enrichment. The bank moved to dismiss the action, arguing, among other things, that the WCPA claim was an “impermissible attempt to enforce the federal Home Affordable Modification Program (HAMP), which creates no private right of action.” The court disagreed with the bank, determining that while the mortgage modification application was filed pursuant to HAMP, the plaintiffs “do not seek to enforce HAMP.” Instead, the plaintiffs argue that the wrongful denial of their application and failure to disclose the calculation error for three years “constitutes unfair or deceptive conduct in violation of the [WCPA].” The court concluded that the WCPA claim “is not an improper attempt to enforce” HAMP, as HAMP is merely “a ‘component’ of the [WCPA] claim.” The court went on to grant the bank’s motion to dismiss as to the unjust enrichment claim, while granting the plaintiffs’ request to amend their complaint.
OFAC amends Venezuela-related general license
On October 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced General License (GL) 8D, titled “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for Maintenance of Operations for Certain Entities in Venezuela,” which supersedes GL 8C to extend the expiration date through January 22, 2020.
Visit here for additional InfoBytes coverage of actions related to Venezuela.
OCC releases September and October enforcement actions
On October 18, 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 civil money penalty orders, prompt corrective action directives, removal and prohibition orders, and terminations of existing enforcement actions against individuals and banks. Included among the actions is a $100,000 civil money penalty issued against a Louisiana-based bank for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its implementing regulations. The list also includes a $30 million consent order issued against a national bank for allegedly violating the statutory holding period for other real estate owned (previously covered by InfoBytes here).
Treasury convenes Counter-Hizballah International Partnership to prevent illicit financial activity
On October 18, the U.S. Treasury Department announced it had convened the first meeting of the Counter-Hizballah International Partnership (CHIP) involving representatives from over 30 countries. CHIP participants discussed methods to diminish Hizballah’s exploitation of the international financial system to fund terrorist activities and stressed the importance of building momentum and ensuring coordination of efforts. Impact-oriented considerations included: (i) establishing cross-border information sharing among financial intelligence units; (ii) “strengthening terrorism finance risk assessments”; (iii) creating “targeted financial sanctions regimes;” and (iv) prosecuting terrorists and their affiliated financial facilitators.
Find continuing InfoBytes coverage related to Hizballah here.
OCC issues final rule clarifying OREO regulations
On October 22, the OCC published a final rule to clarify and streamline its other real estate owned (OREO) regulations for supervised national banks and to update the regulatory framework for OREO activities at federal savings associations. The final rule—which is being adopted substantially as proposed in the OCC’s notice of proposed rulemaking issued in April (covered by InfoBytes here)—is the first significant revision to OREO regulations in more than 20 years. As noted in the final rule, pursuant to the Dodd-Frank Act, the OCC now supervises federal savings associations. The framework adopted by the final rule is consistent with the Office of Thrift Supervision’s framework formerly in place, and “offers flexibility consistent with provisions in the Home Owners' Loan Act.”
Specifically, the final rule addresses (i) OREO holding periods; (ii) the methods for disposing of OREO; (iii) OREO appraisal requirements; and (iv) permissible OREO expenditures and notification requirements. The final rule also removes outdated capital rules for national banks and federal savings associations, which include provisions related to OREO, and makes conforming technical edits to other rules that reference those capital rules. The final rule takes effect December 1.
Democratic Senators rebuke FHFA’s changes to URLA
On October 16, 19 Democratic Senators wrote to FHFA Director, Mark Calabria, requesting the agency to reconsider its decision to remove the language preference question and housing counseling agency information from the redesigned Uniform Residential Loan Application (URLA), which was originally set to take effect on February 1, 2020. As previously covered by InfoBytes, in August, Fannie Mae and Freddie Mac (GSEs) announced, at the direction of the FHFA, that mandatory use of the redesigned URLA will no longer begin on February 1, 2020. Additionally, the GSE’s noted that FHFA is requiring the removal of the language preference question. The question, along with the home ownership education and housing counseling question, will now be a part of a separate voluntary consumer information form. In response, the Senators argue that the decision to remove the language preference question is arbitrary and could leave “loan servicers without basic communication information about their borrowers” as a voluntary information form may not be used or may not travel with the loan documents. The Senators assert that the language information is “vital” to policymakers and the planned revisions to the URLA were “an important step toward increasing language access throughout the mortgage market.” The letter requests that Director Calabria respond to their concerns by November 18.
FATF discusses terror finance risks, virtual currency regulation, and global AML/CFT deficiencies
On October 18, the U.S. Treasury Department released a public statement issued by the Financial Action Task Force (FATF) following the conclusion of its plenary meeting held October 16-18. Topics discussed by attendees included Iranian terrorist financial risks, guidance related to “stablecoins” and virtual assets, and reports related to anti-money laundering/countering the financing of terrorism (AML/CFT). Specifically, the FATF discussed the re-imposition of countermeasures on Iran as well as enhanced due diligence strategies due to the country’s AML/CFT deficiencies. As previously covered by InfoBytes, the FATF issued a public statement last June that called upon members and urged all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. Assistant Secretary for Terrorist Financing and Financial Crimes Marshall Billingslea issued a statement in Treasury’s press release that “countries will be called upon to impose further financial restrictions to protect the international financial system if Iran hasn’t ratified and fully implemented the key treaties related to fighting money laundering and terrorist financing.”
The FATF also issued a public statement to clarify that standards adopted last June (InfoBytes coverage here) apply to “stablecoins” and their service providers. Additionally, the FATF adopted changes to its methodology on how it will assess whether countries are complying with the relevant requirements. Specifically, the FATF noted in the plenary meeting outcomes that “assessments will specifically look at how well countries have implemented these measures. Countries that have already undergone their mutual evaluation must report back during their follow-up process on the actions they have taken in this area.”
Additionally, the FATF (i) provided an updated report on measures for combating ISIL and Al-Qaeda financing; (ii) called upon all countries to apply countermeasures on North Korea due to ongoing AML/CFT and weapons of mass destruction proliferation financing risks to the international financial system; and (iii) noted it will publish reports by year end related to AML/CFT and counter-proliferation financing legal frameworks for both Russia and Turkey, along with a review of implementation measures undertaken by the countries.
District Court enters final judgment: Only depository institutions can receive OCC fintech charter
On October 21, the U.S. District Court for the Southern District of New York entered a final judgment in NYDFS’s lawsuit against the OCC challenging the agency’s Special Purpose National Bank Charter (SPNB), concluding that the regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits.” As previously covered by InfoBytes, in May the district court denied the OCC’s motion to dismiss the complaint by NYDFS, which argued that the agency’s decision to allow fintech companies to apply for a SPNB is a move that will destabilize financial markets more effectively regulated by the state. The court stated that because the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, the challenge “is ripe for adjudication.” After the May decision, the OCC informed the court that it would be seeking final judgment in the case, and on October 7, each party submitted proposed final orders (available here and here). The proposals were “nearly identical,” according to the court, as both (i) “direct the Clerk of Court to enter final judgment in favor of plaintiff [NYDFS] and close the case,” and (ii) “provide that each party shall bear its own fees and costs.” However, NYDFS proposed “that the regulation be ‘set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,’” while the OCC suggested the regulation only be set aside “‘with respect to all fintech applicants seeking a national bank charter that do not accept deposits, and that have a nexus to New York State…in a manner that would subject them to regulation by [NYDFS].’” The court agreed with NYDFS, concluding that the OCC “failed to identify a persuasive reason to deviate from ordinary administrative law procedure,” which requires “vacatur” of the regulation.
District Court allows claims to proceed against car dealership
On October 17, the U.S. District Court for the District of New Jersey issued an opinion allowing consumer protection claims to proceed against a car dealership related to fees added to vehicle purchase prices, while granting two other related entities’ motions to dismiss. The plaintiff’s complaint against the dealership and related entities alleged that the dealership charged her additional mandatory fees when purchasing the vehicle, required her to spend $3,500 on a service contract in order to obtain financing, and charged interest on the contract even though, the plaintiff alleged, the contract constituted a fee related to the extension of credit and therefore was not subject to interest. These actions, the plaintiff alleged, violated TILA, the Consumer Fraud Act (CFA), the Truth-in-Consumer Contract, Warranty and Notice Act, and the Consumer Service Contract Act (CSCA). According to the plaintiff, the contracts contained cancellation provisions that guaranteed a full refund if a request was submitted within a specified period with a guaranteed 10 percent penalty for each 30-day period for which the refund was unpaid. The plaintiff executed timely refund requests but claimed that the entities failed to refund the fees within the allotted contractual period. In separate motions to dismiss, the entities argued that, while the allegations could be considered contractual breaches, they were not sufficient to constitute violations under the alleged consumer protection statutes. The court agreed and granted the entities’ motions, ruling that their contract language complied with the CSCA and that, although the entities allegedly failed to perform under their contracts, they would only have violated the CFA if they knew at the time the contract was formed that they did not intend to fulfill their contractual duties. Moreover, the court referred to a New Jersey Supreme Court holding, which said that a breach of warranty or contract, “‘is not per se unfair or unconscionable. . .and. . .alone does not violate a consumer protection statute” unless there are “substantial aggravating circumstances.” As such, the court determined, the entities’ alleged breaches of the cancellation provisions were not “‘unconscionable commercial practices’” as required under the CFA. However, the plaintiff can amend her claims.
Moreover, the court ruled that the allegations against the dealership can proceed, and denied the dealership’s bid to send the case to arbitration. According to the court, the dealership’s argument that it never received notices that the plaintiff had initiated arbitration proceedings because of a “clerical error” or a wrong mailing address were unpersuasive, and referred to the American Arbitration Association’s decision to decline “to administer the case due to the failure of [the dealership] to pay the required arbitration fees.”
OCC suggests “administrative solutions” may be available for Madden fix
On October 9, the OCC responded to a letter written by 26 Republican members of the House Financial Services Committee urging the agency to update its interpretation of the definition of “interest” under the National Bank Act (NBA) to limit the impact of the U.S. Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The representatives’ letter (covered by InfoBytes here) argued that Madden deviated from the longstanding valid-when-made doctrine—which provides that if a contract that is valid (not usurious) when it was made, it cannot be rendered usurious by later acts, including assignment—and has “caused significant uncertainty and disruption in many types of lending programs.” The representatives urged the OCC to prioritize a rulemaking to address the issue. In response, the OCC agreed with the letter’s concerns, and stated that “administrative solutions to mitigate the consequences of the Madden decision may be available.” The OCC noted that it has filed amicus briefs in the past, reiterating the view that Madden was wrongly decided, but did not elaborate any further on potential plans for a rulemaking to address the issue.