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SEC Announces Katherine Martin as Associate Director in Office of International Affairs
On November 30, the SEC named Katherine Martin as Associate Director in its Office of International Affairs. In her new role, Martin will “oversee the development of the SEC’s policy on cross-border regulatory matters, including its participation in multilateral standard-setting bodies and its bilateral dialogues with foreign authorities.” Martin previously served at the SEC as Assistant Director in the Office of International Affairs, Senior Special Counsel in the Office of Clearance and Settlement in the Division of Trading and Markets, Assistant Chief Counsel in the Division of Economic and Risk Analysis, and a Senior Counsel in the Office of International Affairs. Prior to joining the SEC over a decade ago, Martin worked as an associate in private practice.
New York DFS Requires Mortgage Originator to Surrender License for Exam Cheating Scheme
On November 19, the New York DFS announced a consent order with a nonbank mortgage originator to resolve allegations that its employees engaged in a scheme to cheat on state-required continuing education courses and exams. Specifically, the DFS alleged that at least 20 Mortgage Loan Originators (MLOs), including the Chief Executive Officer and former Chief Operating Officer, encouraged compliance staff to take required continuing education courses and exams on their behalf. Furthermore, the MLOs “shared information acquired during licensing exams with . . . senior management, despite the fundamental obligation of test-takers to preserve the confidentiality of all such information.” The DFS’s examination of the mortgage originator revealed additional state banking law violations, including (i) failing to provide mandatory disclosures on more than 100 subprime loans; (ii) misstating applicable late fees on at least three loans; (iii) failing to maintain the minimum line of credit; and (iv) underreporting its total New York revenue in its 2010 and 2011 Volume of Operations Report. The settlement requires the mortgage originator to immediately surrender its mortgage banker’s license and its status as an exempt mortgage servicer in New York, and pay a civil money penalty in the amount of $1 million.
California DBO Reaches Settlement with Mortgage Lender regarding Affiliate Settlement Service Fees
On November 19, the California DBO announced a settlement with a residential retail mortgage lender to resolve allegations that, from September 30, 2009 through January 21, 2014, it overcharged consumers for a settlement service fee to cover third-party services, and also failed to disclose that the third-party servicer was an affiliated business and that some of its services were performed by the lender’s employees. Additionally, the DBO alleged that the company did not provide examiners with the necessary documentation to account for the full third-party settlement service fee. To resolve Federal and State compliance violations, the company will pay an estimated $2.8 million of combined restitution to more than 70,000 borrowers across the country, and $7.4 million in administrative penalties to participating states where the company is licensed. The settlement requires the company to revise its policies and procedures and, by December 31, 2015, provide adequate training on those revisions to management, mortgage loan originators, and support staff.
California DBO Orders California-based Lender to Pay Restitution to California Borrowers
On November 18, the California DBO announced that a California-based lender fulfilled its obligation to pay nearly $1 million of restitution to more than 7,000 California consumers and $1 million to the DBO in penalties to resolve allegations that the company used deceptive marketing practices to steer consumers into personal loans exceeding $2,500. California state law limits interest rates at about 30% for loans less than $2,500, but there is no such limit above that amount. According to the DBO, the lender advertised that it provided personal loans of “up to” $2,600, $5,000, or $10,000; in reality, the lender did not offer loans less than $2,600. The lender allegedly told consumers that they could “give back the amount they did not want in the form of a prepayment,” without disclosing that it could then charge borrowers unlimited interest rates since the loan was greater than $2,500. Per the February 5 settlement, in addition to the restitution and penalty fees, the lender must, among other things, ensure that its non-mortgage and non-auto loan ads disclose, in a “clear and conspicuous manner,” that the minimum loan amount is $2,600, that there is a state law interest rate cap on loans of less than $2,500, and that it is lower than the rate charged by the lender.
Fannie Mae Updates Servicing Guide; GSEs Update the Uniform Closing Dataset
On November 25, Fannie Mae issued Servicing Guide Announcement SVC-2015-14 to reveal recent updates to the Servicing Guide. Specifically, Fannie Mae updated guidance relating to 10 areas, including but not limited to: (i) the Remittance of Property (Hazard) Insurance Loss Proceeds for Short Sales; (ii) Pledge of Servicing Rights and Transfers of Interest in Servicing Compensation; (iii) Timeline Requirements for HAMP Expanded “Pay for Performance” Incentive Notices; (iv) Early Delinquency Counseling Requirements; and (v) the removal of the Borrower Notification Sample Letter Exhibit.
In separate November 17 announcements, Fannie Mae and Freddie Mac (collectively the GSEs) revealed updates to the Uniform Closing Dataset, developed as part of the Uniform Mortgage Data Program to facilitate lender submission of the Closing Disclosure Form under the new TILA/RESPA regulations. The updates revise Appendix A: Closing Disclosure Mapping to the MISMO and Appendix H: UCD Delivery Specification and include: (i) newly added data points; (ii) changes to conditionality for several data points; (iii) changes/additions to the enumerated values; and (iv) updates to conditionality details.
FTC Announces Settlement with Ohio Auto Dealers
On November 24, the FTC announced that two Ohio auto dealers agreed to settle FTC charges that they deceived consumers with misleading advertisements. Specifically, the FTC alleged that the auto dealers violated the FTC Act and the Consumer Leasing Act by failing to adequately disclose key terms regarding car lease offers, such as (i) the total payment amount due at signing; (ii) whether a security deposit was required; and (iii) credit score requirements. The proposed settlement order will remain in effect for 20 years and prohibits the defendants from advertising misleading lease or financing terms. The defendants are barred from advertising a payment amount, or that any initial payment is required, without disclosing the following: (i) that the transaction is a lease; (ii) the total amount due at consummation or delivery; (iii) the number of payments, their amounts, and timing; (iv) whether or not a security deposit is required; and (v) that consumers may need to pay an extra fee at the end of the lease based on the difference between the vehicle’s residual value and the value at the end of the lease. Finally, the proposed settlement also requires the defendants to “clearly and conspicuously disclose all qualifications or restrictions on a consumer’s ability to obtain the advertised terms.”
FinCEN Re-opens Comment Period for Final Rule Imposing Fifth Special Measure against FBME Bank Ltd.
On November 27, FinCEN published in the Federal Register a Notice to re-open the comment period for its previously issued Final Rule imposing the fifth special measure against FBME Bank Ltd. (FBME). On August 27, the day before the Rule was scheduled to take effect, the United States Court for the District of Columbia Court granted FBME’s motion for a preliminary injunction and enjoined the Final Rule from taking effect. On November 6, the Court granted the Government’s motion for voluntary remand to allow for further rulemaking proceedings. FinCEN’s most recent Federal Register Notice to re-open the comment period for the Final Rule solicits additional comments “particularly with respect to the unclassified, non-protected documents that support the rulemaking and whether any alternatives to the prohibition of the opening or maintaining of correspondent accounts with FBME would effectively mitigate the risk to domestic financial institutions.” Comments are due by January 26, 2016.
UK Serious Fraud Office Issues First Deferred Prosecution Agreement with Johannesburg-based Financial Group
On November 30, the United Kingdom’s Serious Fraud Office (SFO), working with the DOJ and SEC, entered into a deferred prosecution agreement (DPA) with a Johannesburg-based financial group under the U.K.’s Bribery Act of 2010 regarding payments by two former employees that were allegedly made to bribe members of the Tanzanian government. The DPA represents the SFO’s first-ever DPA and the first use of Section 7 of the Bribery Act, failure of commercial organizations to prevent bribery, by any U.K. prosecutor. As part of this DPA, the financial group agreed to pay a combined $32.2 million in sanctions to the U.K. and Tanzania, and to cover the SFO’s litigation and investigation costs. The DPA also requires the financial group’s continued cooperation with authorities and the implementation of certain recommendations from its independent compliance consultants.
In addition to the DPA, the financial group agreed to pay $4.2 million to the SEC to settle charges related to the failure to disclose the underlying bribe payments in the bank’s offering documents and statements to potential investors. In light of the financial group’s cooperation with the SFO and the DPA, the DOJ reportedly closed its own investigation without bringing independent charges.
Notably, in one of the first examples of the SEC implementing its plan to make more defendants admit to the allegations against them as part of resolutions, the financial group agreed to the facts underlying the SEC charges.
Special Alert: CFPB Issues Guidance Regarding Preauthorized Debit Transactions Under the Electronic Fund Transfer Act and Regulation E
On November 23, 2015, the Consumer Financial Protection Bureau (“CFPB”) released Compliance Bulletin 2015-06 (“Bulletin”), which provides industry guidance on the Electronic Fund Transfer Act (“EFTA”) and Regulation E requirements for obtaining consumer authorizations for preauthorized electronic fund transfers (“EFTs”). The CFPB issued this Bulletin, in part, because it observed during its examinations that some companies are not fully complying with the EFTA and Regulation E. Principally, this Bulletin addresses two areas of concern: (i) obtaining the customer’s authorization for preauthorized EFTs over the telephone; and (ii) providing a copy of the authorization to the customer.
Regarding the first issue, the Bulletin reasserts and expands upon previous guidance provided by the Board of Governors of the Federal Reserve System. The CFPB acknowledges that companies may receive a consumer’s authorization over the telephone, provided that the requirements contained in the Electronic Signatures in Global and National Commerce Act (“ESIGN Act”) for electronic records and signatures are met. Specifically, the Bulletin states that Regulation E may be satisfied if the consumer signs or similarly authenticates the authorization orally, including by entering a code into his or her telephone keypad or by the company recording and retaining the consumer’s oral authorization, so long as in both circumstances the consumer’s intent to sign the electronic record is captured. Importantly, the CFPB confirms that the ESIGN Act’s limited restriction on the use of oral recordings as electronic records—which are not allowed where the law requires that information be provided to a consumer in writing—does not apply to the preauthorization requirements of the EFTA and Regulation E, as set forth in 12 CFR § 1005.10(b), because neither requires that companies provide a writing to consumers when obtaining such authorizations. The CFPB also reminds companies that the recording of consumer conversations must comply with applicable state law.
Next, the Bulletin summarizes the EFTA and Regulation E requirement that persons that obtain an authorization for a preauthorized EFT must provide the consumer with a copy of the terms of the authorization, in either written or electronic form. The copy should contain the “important terms” of the authorization. Per the Bulletin, “important terms” include the recurring nature of the preauthorized EFTs, and the amount and timing of the payments that the customer agreed to make. The CFPB also confirms that as an alternative to providing a copy of the authorization, the company may provide a confirmation form containing the same important terms. Finally, the CFPB notes that it “encourages” companies that obtain a consumer’s authorization to provide a copy of such authorization before the company initiates the first preauthorized transfer.
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Questions regarding the matters discussed in this Alert may be directed to any BuckleySandler attorney with whom you have consulted in the past.
CFPB Files Notice of Charges Against Online Payday Lender
On November 18, the CFPB announced an action against a Delaware-based online payday lender and its CEO for alleged violations of the Truth in Lending Act and the Electronic Fund Transfer Act, and for engaging in unfair or deceptive acts or practices. Specifically, the CFPB alleges that, from May 2008 through December 2012, the online lender (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the lender’s authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges. The case will be tried by an Administrative Law Judge from the CFPB’s Office of Administrative Adjudication.