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Speaker of the U.S. House of Representatives Set to Resign at End of October
On September 25, the Speaker of the U.S. House of Representatives, Rep. John Boehner (R-OH) issued a statement announcing that he will resign both his Speakership and congressional seat on October 30. No announcement has been made addressing who will replace Boehner as Speaker of the House.
FIFA Investigation Ensnares President Blatter
After months of speculation about potential legal ramifications for FIFA President Joseph (“Sepp”) Blatter, the Office of the Attorney General of Switzerland announced that Mr. Blatter is the subject of criminal proceedings in that country. The allegations include criminal mismanagement related to a contract with the Caribbean Football Union that was purportedly against the interests of FIFA, as well as misappropriation related to a payment to the President of the Union of European Football Associations (UEFA). The Office of the Attorney General also reported that Mr. Blatter was interrogated and his offices were searched.
Previous FCPA Scorecard coverage of this investigation can be found here.
European Union Advocate General Calls For High Court to Rule U.S.-EU Data Sharing Program Invalid
In an opinion that has the potential to seriously disrupt how U.S. companies can share data from Europe, on September 23, Advocate General (AG) Yves Bot of the Court of Justice of the European Union (CJEU) declared that the existing framework governing that exchange of data fails to “ensure an adequate level of protection of the personal data which is transferred to the United States from the European Union.” This is because that framework, in AG Bot’s view, contains holes that can allow access to European’s personal data by the NSA and other U.S. security agencies. “[T]he law and practice of the United States allow the large-scale collection of the personal data of citizens of the [EU] which is transferred under the [framework] without those citizens benefiting from effective judicial protection.” And while the FTC and private dispute resolutions have the power to monitor possible breaches of the framework by private companies, neither has the power to monitor possible breaches by U.S. security agencies.
The EU’s 1995 Data Protection Directive (“Directive”) requires that the transfer of personal data from an EU country to another country take place only if the other country ensures an adequate level of data protection. For the past 15 years, per a 2000 decision by the European Commission, U.S. companies participating in the U.S.-EU Safe Harbor Framework for personal data protection have been deemed to be compliant with that requirement. AG Bot’s opinion, however, calls that 2000 decision invalid. “To my mind, the existence of a [Commission] decision” on the sufficiency of a country’s personal data protection regime “cannot eliminate or even reduce” the powers of each EU member state’s Data Protection Authority, under Article 28 of the Directive, to independently assess the sufficiency of that country’s personal data protection regime. This opinion thus turns the power back over to individual EU countries to assess U.S. companies’ personal data protections, potentially leading to a fractured and technologically daunting state of digital commerce in Europe.
Negotiations are underway for a new U.S.-EU Safe Harbor Framework, but if AG Bot’s opinion is followed, no Framework would prevent country-by-country determinations of the sufficiency of a U.S. company’s personal data protections.
Owner of Mortgage Company Sentenced to Serve More Than 11 Years for Role in $64 Million Mortgage Fraud Operation
On September 24, the DOJ released a statement regarding the sentencing of the owner of a Florida mortgage company for allegedly organizing a mortgage fraud scheme. In July 2015, the owner, along with his business partner and a senior underwriter for the mortgage company, pleaded guilty to the mortgage fraud scheme that resulted in $64 million in losses to the FHA. The August 2014 indictment stated that the three individuals edited borrowers’ loan applications, altering important information so that they appeared to be qualified for FHA loans when, in fact, they were not. As a result of the September sentencing, the owner of the company will pay more than $64 million in restitution and forfeit $8 million in illegal profits. The owner’s business partner was sentenced to serve 41 months in prison; in addition, he will pay more than $7 million in restitution and forfeit $400,000 in illegal profits. The company’s underwriter will pay more than $24 million in restitution and serve 51 months in prison. A total of 24 defendants were charged in the case, which was jointly investigated by the HUD-OIG and the DOJ.
CFPB and DOJ Fine Savings Association Over Alleged Mortgage Redlining Practices
On September 24, the CFPB and DOJ announced a joint enforcement action against a federally-chartered savings association, alleging that the lender excluded predominantly minority neighborhoods from its mortgage lending business. The consent order, subject to court approval, would require the lender to, among other things, (i) pay $25 million in various subsidies to assist minority borrowers; (ii) provide a total of $2.25 million, over a five-year period, to local initiatives providing assistance and consumer education to residents in the excluded neighborhoods; and (iii) pay a $5.5 million civil money penalty.
Legislation Seeking Better Transparency in Federal Agency Settlements Passes Unanimously in U.S. Senate
On September 21, Senate Bill 1109, the Truth in Settlements Act, passed in the U.S. Senate with amendments by unanimous consent and has now been referred to the U.S. House of Representative’s Committee on Oversight and Government Reform for consideration. Originally introduced in January 2014 and sponsored by Elizabeth Warren (D-MA), the Truth in Settlements Act would require federal agencies to post online, in a searchable format, a list of each covered settlement agreement, criminal or civil, with payments totaling $1 million or more. The list would entail, among other things, (i) the names of the settling parties and the amount each must pay; (ii) a description of the claims each party settled; (iii) whether a portion of the settlement amount is tax-deductible; and (iv) any actions the settling parties must take under the settlement agreement in lieu of payment. If enacted, the bill would require agencies to publicly explain via written statement why confidentiality is justified for certain instances. The bill, co-sponsored by Senators James Lankford (R-OK) and Tammy Baldwin (D-WI), aims to provide greater transparency and oversight regarding settlements reached by federal enforcement agencies.
CFPB Sets Date for Second Field Hearing on Arbitration
On September 22, via blog post, the CFPB announced that it will host its second field hearing addressing pre-dispute arbitration agreements in various consumer financial contracts. Scheduled for October 7, 2015, the hearing will take place in Denver, Colorado and feature remarks from CFPB Director Richard Cordray, testimony from consumer groups, industry representatives, and members of the public. Previous InfoBytes coverage on arbitration can be seen here.
SEC Penalizes Investment Adviser over Inadequate Cyber-Risk Program Prior to Data Breach
On September 22, the SEC ordered a Missouri-based investment adviser to pay a $75,000 penalty, settling allegations that the investment adviser failed to implement required written cybersecurity policies and procedures prior to a data breach affecting the firm’s clients. According to the SEC, in July 2013, the investment adviser’s third party-hosted web server was hacked by a then unknown source compromising the personally identifiable information of more than 100,000 individuals. Subsequent investigations determined that the breach originated in China, and, to date, the firm’s clients have suffered no financial injury. In addition to the $75,000 penalty, the firm was censured and agreed to cease and desist from committing or causing any future violations of the Safeguards Rule.
To coincide with the announcement, the SEC also issued an Investor Alert, “Identity Theft, Data Breaches, and Your Investment Accounts,” which provides actions retail investors can take to protect their investment accounts in the event of a data breach or identity theft.
CFPB Spotlights Mortgage Complaints in Latest Monthly Report
On September 22, the CFPB published the third volume of its monthly consumer complaints report, examining mortgage complaints received through its complaint database. In its latest snapshot report, the CFPB revealed that it has received more than 190,000 mortgage complaints as of September 1, 2015, making mortgage the most-complained-about financial product. Specifically, the report finds that ongoing questions persist with respect to (i) how consumers can prevent foreclosure; (ii) how and when to make payments when mortgage loans are transferred to a different servicer; and (iii) how to ensure accurate payment on mortgage loans. According to the CFPB, as of September 1, 2015, over 700,000 complaints have been handled since the consumer complaint database’s inception.
CFPB Publishes Final Rule Amending Various Annual Dollar Threshold Adjustments
On September 21, the CFPB issued a final rule amending certain dollar thresholds for provisions implementing amendments in Regulation Z, which implements the Truth in Lending Act (TILA), under the CARD Act, HOEPA, and ATR/QM. The CFPB is required to adjust based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2015. For 2016, the minimum interest charge disclosure threshold will remain unchanged. Permissible penalty amounts will remain $27 for the first late payment; however, for each subsequent violation within the following six months, the allowed penalty amount will decrease from $38 to $37. Similarly, the CFPB is adjusting the combined points and fees trigger-threshold for compliance with HOEPA to $1,017. Lastly, to satisfy the underwriting requirements under the ATR/QM rule, a covered transaction will not be considered a QM unless the combined points and fees do not exceed 3 percent of the total loan amount for a loan greater than or equal to $101,749; $3,052 for a loan amount greater than or equal to $61,050 but less than $101,749; 5 percent of the total loan amount for a loan greater than or equal to $20,350 but less than $61,050; $1,017 for a loan amount greater than or equal to $12,719 but less than $20,350; and 8 percent of the total loan amount for a loan amount less than $12,719.
The rule becomes effective on January 1, 2016.