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Florida Court of Appeal: Bank may seek attorney’s fees as a condition of loan reinstatement
On May 4, the Florida Court of Appeal, Fourth District, held that a borrower cannot sue a law firm for sending a letter seeking to collect attorney’s fees because the mortgage contract gave the bank the right to seek attorney’s fees from a prior foreclosure action as a condition of reinstating the loan. Previously, a trial court had awarded the borrower attorney’s fees following dismissal of a prior foreclosure action. The bank later brought a new foreclosure action against the borrower concerning the same property, and the law firm representing the bank sent the borrower a reinstatement letter requiring payment of attorney’s fees incurred by the bank in the prior foreclosure action in order to reinstate the loan. The trial court, citing a 2019 decision in U.S. Bank Trust, N.A. v. Leigh, granted summary judgment in favor of the law firm on the grounds that “the law firm was entitled to immunity under the litigation privilege because the Florida Consumer Collection Practices Act (FCCPA) claim was based on the reinstatement letter the law firm sent during the foreclosure proceedings” and because the borrower lacked standing.
On appeal, the Court of Appeal agreed with the law firm that it was entitled to collect attorney fees and costs and that the borrower lacked standing to bring his FCCPA claim. According to the Court of Appeal, a provision in the mortgage contact included language that “if the borrower defaulted and the lender accelerated the loan, the borrower would have the right to reinstate the loan if certain conditions were met.” Among these conditions was that the borrower would agree to “pay all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys’ fees.” Applying the rationale of Leigh, the Court of Appeal found “that the law firm did not violate the FCCPA because it sought to recover a legitimate expense it was entitled to recover pursuant to a contract, that being the expense of attorney’s fees the lender incurred in the prior foreclosure action.”
FDIC, HUD announce New Mexico wildfire disaster relief
On May 9, the FDIC issued FIL-19-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of New Mexico affected by wildfires and straight-line winds that began on April 5. In the guidance, the FDIC writes that, in supervising institutions affected by the wildfires, it will consider the unusual circumstances those institutions face. The guidance suggests that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC will also consider relief from certain reporting and publishing requirements.
Separately, on May 6, HUD announced disaster assistance available to certain counties impacted by the New Mexico wildfires and straight-line winds, providing foreclosure relief and other assistance to affected homeowners. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program also allows homeowners with damaged property to finance the repair of their existing single-family homes. Furthermore, HUD is allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies and Tribes.
CFPB exposes private loan servicers’ unfair practices
On May 5, the CFPB discussed examination findings related to private student loan servicers’ alleged failure to follow through with promised loan offers or modifications. The Bureau directed servicers found to have breached their commitments to make “significant remediation amounts” for failing to make promised payments to customers. The Bureau found some servicers offered financial incentives to recruit new customers, but then failed to make the promised payments. In certain instances, servicers’ systems failed to identify customers who earned incentives, and in others, payments were denied based on terms that were not included in the original deal, the Bureau claimed. The Bureau also found that while many servicers offered payment relief options to pause or reduce payments to customers impacted by the Covid-19 pandemic, at least one servicer failed to deliver promised refunds to customers who modified their agreements to allow them to backdate forbearance after making a payment. The Bureau documented two examples of servicers committing unfair acts or practices in this space in its recent spring Supervisory Highlights (covered by InfoBytes here) and warned servicers that it is “closely monitoring” companies that break the law.
Agencies instruct servicers to pause foreclosures while HAF assistance is available
On May 6, the Secretaries of HUD, Department of Veterans Affairs, Department of Agriculture, and Treasury announced that servicers of federally-backed mortgages should pause pending foreclosure proceedings while assistance is available under the Homeowner Assistance Fund (HAF). President Biden’s American Rescue Plan established HAF to provide approximately $10 billion in financial support for families affected by the Covid-19 pandemic. According to the announcement, pausing pending proceedings is considered “a vital step towards keeping families in their homes as they receive assistance through the HAF program and is consistent with Congress’s intent in putting in place the HAF program to protect vulnerable homeowners.” The Secretaries encourage homeowners and servicers to continue collaborating on loss mitigation options so that homeowners eligible for assistance can choose “the best path to staying in their homes and fully utilize available resources.” They also “strongly encourage servicers to offer these loss mitigation options to borrowers who are struggling to make their mortgage payments, including those who are eligible for HAF funding.” The announcement further noted that, among other things, Treasury is urging HAF program administrators to ensure that their programs expedite handling of applications from homeowners with pending foreclosure proceedings, and to develop expedited procedures for handling homeowners with immediate threats to housing stability, in addition to supporting homeowners who may benefit from the agencies’ loss mitigation options.
Special Alert: Breaking down the proposed CRA overhaul
The federal banking agencies last week announced their highly anticipated proposal to revamp and modernize regulations implementing the Community Reinvestment Act. The proposal may significantly impact the compliance obligations of large banks, which the proposal generally defines as those with assets greater than $2 billion, while granting smaller banks the option of continuing to comply under the existing framework. The proposal aims to bring to a close the CRA reform process that began more than a decade ago, and was marked most recently by the OCC’s decision to pull back its 2020 regulatory overhaul (as covered by InfoBytes here).
District Court partially certifies data breach suit
On May 3, the U.S. District Court for the District of Maryland granted in part and denied in part certification of eight class actions against a hotel corporation (defendant) alleging that it misled consumers regarding a major breach of customers’ personal information. According to the opinion, the plaintiffs filed suit after allegedly learning that the defendant took more than four years to discover the breach and took nearly three months to notify customers of their exposed information. The defendant discovered the breach in September 2018 when a consulting company contracted, to provide data security services reported an anomaly pertaining to a guest information database. In total, the breach impacted approximately 133.7 million guest records associated with the U.S., including an estimated 47.7 million records associated with the bellwether states. The defendant argued that certification should be denied because not all of the class members demonstrated that they suffered an injury, which the court rejected, noting that the plaintiffs do not need to demonstrate that every class member has standing at the class certification stage. The size of the certified classes based on an overpayment theory was decreased, because the court agreed with the defendants’ argument that the plaintiffs were too broad in seeking to include all customers who were affected by the breach, rather than those who only “bore the economic burden.” The court also declined to certify one class seeking only injunctive or declaratory relief, stating that “[w]ithout any direction as to the nature of the injunction sought, besides a request for further discovery, plaintiffs’ motion goes no further than requesting that defendants discontinue their current practices with respect to the [personally identifiable information] at issue.”
CFPB fines bank $10 million over garnishment practices
On May 4, the CFPB announced a consent order against a national bank for allegedly engaging in unfair and deceptive acts or practices in violation of the CFPA by processing out-of-state garnishment orders against its customers’ bank accounts. According to the consent order, since August 2011, the respondent allegedly garnished approximately 3,700 out-of-state accounts. Customers whose accounts were garnished paid at least $592,000 in garnishment fees, the CFPB contended. The respondent allegedly, among other things, misrepresented to customers that their rights to have certain funds exempted from garnishment were governed by the law of the issuing court’s state when, actually, in most states, customers’ own state laws applied. The respondent also allegedly unfairly required customers to “direct” it not to contest garnishment orders and to waive the bank’s liability for its actions regarding the out-of-state garnishment orders, which prevented customers from pursuing legal claims against the respondent for improperly handling garnishment notices. Additionally, the respondent allegedly deceptively represented to customers that since they signed a deposit agreement that included broad language directing respondent not to contest the legal process, customers waived their right to hold the respondent liable for improperly responding to garnishment notices. Under the terms of the consent order, the respondent must, among other things: (i) refund $592,000 in garnishment-related fees to harmed customers; (ii) establish a compliance plan designed to ensure that its garnishment-related conduct pertaining to out-of-state garnishment notices and state exemptions complies with all applicable federal consumer financial laws; (iii) cease communicating to customers that they have purportedly waived any rights regarding garnishment notices as a result of entering into respondent’s deposit agreement; and (iv) pay a $10 million civil penalty to the Bureau.
SEC advises companies on Ukraine-related disclosure obligations
On May 3, the SEC Division of Corporation Finance released a sample letter advising companies that they should provide “detailed disclosure[s]” if they have direct or indirect operations in Russia, Belarus or Ukraine or if they trade securities in Russia or are affected by financial sanctions imposed on Russia. Companies should also report any other related uncertainties caused by the conflict in Ukraine, and disclose supply chain disruptions, cybersecurity risks, and volatility related to commodity trading prices. Additionally, companies should report whether they rely on goods or services sourced in Russia or Ukraine (or in certain cases, countries supporting Russia) as well as any business relationships or assets based in Russia, Belarus, or Ukraine. “The sample comments do not constitute an exhaustive list of the issues that companies should consider,” the Division said. “As always, companies should evaluate whether they have experienced or been impacted by matters characterized as potential risks and, if so, update disclosures accordingly.”
California governor orders state to create blockchain regulatory framework
On May 4, the California governor issued an executive order calling on the state to create a transparent and consistent framework for companies operating in blockchain, cryptocurrency, and related financial technologies. This framework, the governor stated, should harmonize federal and California laws and balance innovation with consumer protection. The executive order outlined several priorities, including:
- The framework should include input from a range of stakeholders for potential blockchain applications and ventures;
- The Department of Financial Protection and Innovation (DFPI) should engage in a public process, including with federal agencies, to “develop a comprehensive regulatory approach to crypto assets harmonized with the direction of federal regulations and guidance” and should “exercise its authority under the California Consumer Financial Protection Law (CCFPL) to develop guidance and, as appropriate, regulatory clarity and supervision of private entities offering crypto asset-related financial products and services” in the state;
- DFPI should publish consumer protection principles that include model disclosures, error resolution, and other criteria, and “seek input from stakeholders and licensees in order to publish guidance for California state-chartered banks and credit unions”;
- DFPI should engage in actions to protect consumers, including initiating enforcement actions to enforce the CCFPL, enhancing its review of consumer complaints related to crypto asset-related financial products and services and working with companies to remedy such complaints, and publishing consumer education materials;
- GovOps should issue a request for innovative ideas to explore opportunities for deploying blockchain technologies that address public-serving and emerging needs; and
- Members of the Governor's Council for Postsecondary Education should “identify opportunities to create a research and workforce environment to power innovation in blockchain technology, including crypto assets” to “expose students to emerging opportunities.”
The governor emphasized that while blockchain technology over the past decade “has laid the foundation for a new generation of innovation, spurring a rise in entrepreneurialism in sectors including financial technology,” among others, its impact “is both uncertain and profound” and carries risks and legal implications.
Agencies overhaul CRA requirements
On May 5, the Federal Reserve Board, FDIC, and OCC (collectively, “agencies”) issued a joint notice of proposed rulemaking (NPRM) on new regulations implementing the Community Reinvestment Act (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. According to the NPRM, the “CRA encourages banks to help meet the credit needs of the local communities in which they are chartered, consistent with a bank’s safe and sound operations, by requiring the Federal banking regulatory agencies to examine banks’ records of meeting the credit needs of their entire community, including low- and moderate-income neighborhoods.” The agencies are, among other things, proposing to:
- Expand access to credit, investment, and banking services in low- and moderate-income (LMI) communities to promote community engagement and financial inclusion. The proposal would also evaluate bank lending to small businesses and farms with gross annual revenues of $250,000 or less to maintain focus on the borrowers with the greatest need;
- Adapt changes to update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models;
- Use a retail lending volume screen and metric-based performance ranges to evaluate a bank’s retail lending volumes. CRA evaluations of retail lending and community development financing will include public benchmarks for greater clarity and consistency. The proposal would also clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities;
- Tailor CRA evaluations and data collection to recognize differences in bank size and business models. Smaller banks would continue to be evaluated under the existing CRA framework with the option of being evaluated under aspects of the proposed framework; and
- Maintain a unified approach across agencies and incorporate stakeholder feedback.
The agencies also released a Fact Sheet describing key elements of the proposal. Acting Comptroller of the Currency, Michael J. Hsu, called the issuance of the joint NPRM an “important milestone” in bringing the three federal banking agencies back together to develop a uniform approach for addressing inequalities in credit access and other financial services. Fed Governor Lael Brainard pointed out that “[t]he last major revisions to the CRA regulations were made in 1995.” “The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right,” she stressed. CFPB Director Rohit Chopra, who voted in favor of the NPRM as an FDIC board member, said the proposal “better effectuates Congressional directives intended to ensure that the needs of historically underserved individuals and communities are adequately met,” but reminded policymakers that it is also important “to consider whether nonbank mortgage lenders should also be required to better meet the needs of the communities they serve.” Treasury Secretary Janet Yellen similarly applauded the release of the NPRM. Comments on the NPRM are due August 5.
A Buckley Special Alert is forthcoming.