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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.
FTC Amends Telemarketing Sales Rule, Bans Payment Methods Used by Scammers
On November 18, the FTC announced that it approved, by a 3-1 vote, final amendments to the Telemarketing Sales Rule (TSR) that ban telemarketers from using certain payment methods that are commonly used by scammers. Per the amendments, telemarketers are prohibited from (i) using specific types of checks and “payment orders” that are remotely created by the telemarketer or seller and which permit direct access to consumers’ bank accounts; (ii) receiving payments through traditional “cash-to-cash” money transfers, which allow scammers to easily obtain consumer funds anonymously and without the ability to reverse the transaction; and (iii) accepting as payment “cash reload” mechanisms. The FTC concluded that the aforementioned payment methods constituted abusive practices because they caused or were likely to cause “substantial injury to consumers that is neither reasonably avoidable by consumers nor outweighed by countervailing benefits to consumers or competition.” Finally, according to the FTC, “the amendments address changes in the financial marketplace to ensure consumers remain protected by the TSR’s antifraud provisions, but are narrowly tailored to allow for innovations with respect to other payment methods that are used by legitimate companies.”
House Passes Bills that Impact CFPB Mortgage and Auto Lending Policies
On November 18, the U.S. House of Representatives passed by voice vote H.R. 1210 and H.R. 1737, both of which will affect CFPB policies governing the mortgage and auto lending industries. The “Portfolio Lending and Mortgage Access Act” – H.R. 1210 – would amend the Truth in Lending Act to create a safe harbor from certain requirements for depository institutions making residential mortgage loans held in portfolios. Specifically, the bill permits loans that appear on a depository institution’s balance sheet to be treated as a Qualified Mortgage subject to certain limitations, thus permitting such loans to fall under the Ability-to-Repay Rule’s safe harbor provisions. The “Reforming CFPB Indirect Auto Finance Guidance Act” – H.R. 1737 – would invalidate CFPB Bulletin 2013-02, which provides guidance to indirect auto lenders regarding compliance with federal fair lending laws.
In anticipation of the two bills passing the House, the White House released two separate statements voicing the Administration’s opposition to both.
Federal Reserve Announces Plan to Redistribute Unclaimed Foreclosure Settlement Funds
On November 19, the Federal Reserve announced a plan to redistribute unclaimed funds from the Independent Foreclosure Review Payment Agreement (Agreement). Under the Agreement, borrowers whose homes were in any state of the foreclosure process in 2009 or 2010 received payment from Federal Reserve -regulated servicers, resolving allegations of improper mortgage servicing and foreclosure practices. The Fed’s recently announced plan gives borrowers who have yet to cash or deposit their original check until December 31, 2015 to request a replacement check; all checks must be deposited by March 31, 2016. In an effort to distribute the maximum amount of funds to borrowers affected by alleged deficient servicing and foreclosure practices, the Federal Reserve will instruct the paying agent company to redistribute the remaining funds after March 31, 2016 to the borrowers who did cash or deposit their original checks.
Second Circuit Upholds District Court Decision, Applies New York's Six-Year Limitations Period on Contractual Claims
On November 16, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a leading global bank’s complaint against a nonbank mortgage lender alleging breach of contractual obligations to repurchase mortgage loans that violated representations and warranties. Deutsche Bank Nat’l Trust Co. v. Quicken Loans Inc., No. 14-3373 (2nd Cir. Nov. 16, 2015). The bank, under its right as Trustee of the loans, alleged that the lender breached aspects of representations and warranties contained in a 2006 Purchase Agreement, including those related to (i) borrower income; (ii) debt-to-income ratios; (iii) loan-to-value and combined loan-to-value ratios; and (iv) owner occupancy. The bank’s complaint also alleged that it sent the lender a series of notification letters between August 2013 and October 2013 demanding cure or repurchase of the loans, which the lender allegedly failed to do without justification. The bank challenged the District Court’s decision by arguing that New York’s six-year statute of limitations on contractual claims did not apply because the terms of the representations and warranties contained an “Accrual Clause” placing future obligations on the lender. However, the Second Circuit upheld the District Court’s ruling, concluding that the bank’s Accrual Clause only constituted a procedural demand and did not delay the accrual of the cause of action. Specifically, the Second Circuit found that the representations and warranties guaranteed the characteristics and quality of the loans at the time the loans were sold in 2006. As such, the six-year statute of limitations “began to run on the date the [representations and warranties] became effective and were either true or false at that time.” The Second Circuit also found that the Housing and Economic Recovery Act (HERA), which in part delays accrual of claims brought by the Federal Housing Finance Agency (FHFA), did not apply. Because FHFA only filed the summons in state court, and the Trustee filed the federal complaint and prosecuted the action, the Second Circuit found the case was not “brought” by FHFA and thus HERA did not apply.