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New York Financial Regulator Obtains Settlement on AML Charges
On August 14, the New York Superintendent of Financial Services announced the resolution of recent charges that a British bank and its U.S. subsidiary engaged in deceptive and fraudulent misconduct in order to move substantial funds on behalf of client Iranian financial institutions that were subject to U.S. sanctions. While the details of the settlement have not been released, the Superintendent stated that the bank must (i) pay a civil penalty of $340 million to the New York State Department of Financial Services (DFS), (ii) install a monitor for a term of at least two years who will report directly to DFS and who will evaluate the money-laundering risk controls in the New York branch and implementation of appropriate corrective measures, (iii) allow DFS examiners to be placed on site at the bank, and (iv) permanently install personnel within its New York branch to oversee and audit the bank’s offshore money-laundering due diligence and monitoring program.
New York Banking Regulator Orders Bank to Defend License Over Money Laundering Allegations
On August 6, the New York Department of Financial Services (NY DFS) ordered the U.S. subsidiary of a British bank to appear on August 15 to respond to allegations of money laundering that, if true, could cost the bank its license to conduct business in New York. The order alleges that the bank engaged in deceptive and fraudulent misconduct in order to move at least $250 billion through its New York branch on behalf of client Iranian financial institutions in contravention of U.S. sanctions. While the bank acknowledges that it has been conducting a historical review of its money laundering compliance, and that it has voluntarily disclosed that review to federal agencies, it argues that the NY DFS is misinterpreting the transactions at issue and strongly refutes the allegations.
State Law Update: North Carolina Overhauls Banking Statute
On June 21, North Carolina Governor Bev Perdue signed Senate Bill 816, which rewrites substantial portions of the states banking laws. The bill derives from a Joint Legislative Study Commission report, which found several deficiencies in the states existing state banking laws. In particular, the report found that the states banking laws (i) needed to be modernized in the wake of the Dodd-Frank Act and other changes in federal law, (ii) encouraged banks to avoid the burden of the banking law by forming holding companies under the more liberal standards of the North Carolina Business Corporation Act, and (iii) failed to address changes in banks capital needs. To remedy these and other issues, the bill revises several parts of the existing law, including: (i) the size and composition of the Banking Commission, (ii) the rules regarding bank governance, powers, and operations, and (iii) the framework for bank supervision and liquidation.
Tenth Circuit Permits Trade Group Challenge to New Mexico Fair Credit Reporting Act
On May 7, the U.S. Court of Appeals for the Tenth Circuit published an opinion that a trade group has standing to sue the Attorney General of New Mexico over that state’s credit reporting and identify theft requirements. Consumer Data Industry Assoc. v. King, No. 11-2085, 2012 WL 1573563 (10th Cir. May 7, 2012). In 2010, New Mexico enacted the Fair Credit Reporting and Identity Security Act, which, among other things, requires consumer reporting agencies (CRAs) to oblige a consumer’s request to remove credit report information resulting from identify theft until told otherwise by a court or the requesting consumer. The Consumer Data Industry Association challenged the law on behalf of its members, arguing that the state law is preempted by the federal Fair Credit Reporting Act (FCRA). Under FCRA, a CRA can deny a consumer request to remove information based on identify theft if the CRA reasonably determines that the request is fraudulent or erroneous. The district court held that the CDIA failed to prove redressability and therefore lacked constitutional standing to sue. The Tenth Circuit vacated the district court holding and ordered further proceedings. It found that federal courts consistently have found a case or controversy in suits between private parties subject to enforcement and the state entity responsible for enforcement and that if a plaintiff faces a credible threat of enforcement, redressability is established. Here, the court held, the threat of enforcement faced by the CDIA members is sufficient to provide standing to sue for both injunctive and declaratory relief.
State Courts Requiring More Proof to Obtain Affidavit Judgments in Debt Collection Cases
On April 30, the Tennessee Court of Appeals ruled that affidavits submitted as evidence of a debt were inadmissible under the business records exception to the hearsay rule and judgment against the debtor was thus reversed because, absent such evidence, the creditor could not establish the existence or amount of debt. LVNV Funding, LLC v. Mastaw, M2011-00990-COA-R3-CV, 2012 WL 1534785 (Tenn. Ct. App. Apr. 30, 2012). The court found that the affidavits, which had been prepared specifically for the litigation in order to show existence and ownership of debt, did not incorporate by reference or otherwise summarize or interpret documents that are prepared in the normal course of regularly conducted business activity and therefore did not qualify for the business records exception to the hearsay rule. As another example of increased documentation requirements for debt collectors, new rules went into effect earlier this year in Maryland, where its Court of Appeals adopted rule changes that, effective January 1, 2012, similarly require debt buyers to provide more proof before being allowed to obtain affidavit judgments against consumers to recover debts. The new rules require additional information from debt buyers, including better proof of an existing debt or interest owed on a debt, and proof from the debt buyer that they own the debt they are trying to collect.
Ohio Creates Supplier Right to Cure Under State's Consumer Sales Practices Act
On April 2, Ohio enacted a law that permits a supplier to provide a consumer a cure offer no later than 30 days after the consumer files an action against the supplier alleging a violation of the Consumer Sales Practices Act. House Bill 275, which takes effect July 3, 2012, establishes the timeline and procedures for an offer and details the allowable limits of the offer. A consumer who chooses not to accept a cure offer is prohibited from recovering treble damages, court costs, and attorney fees following any successful legal action if a court or arbitrator awards the consumer actual economic damages that are not greater than the value of the remedy included in the cure offer. The new law also establishes procedures for determining and disputing attorney fees during the cure offer process.
Washington Expands Servicemember Protections
On March 7, Washington Governor Christine Gregoire signed Senate Bill 5627 which expands protection for members of the state National Guard. The law expands the definition of “military service” to include servicemembers called to service by the governor for more than thirty consecutive days. This change is designed to provide National Guard members activated by the governor the same protections already provided under state law to servicemembers called to federal service by the President or the Secretary of Defense. This law becomes effective June 7, 2012.
Illinois AG Files Suit Alleging Improper Recording of Mortgage Assignments
On February 2, Illinois Attorney General Lisa Madigan filed a lawsuit in Cook County Circuit Court alleging that a Florida-based company that prepares documents for use in default servicing and foreclosure actions filed faulty documents with Illinois county recorders. According to a press release issued by the Attorney General, the defendant processes and records mortgage assignments that are used in foreclosure proceedings by some of the largest mortgage lenders and servicers. The defendant's activities in Illinois purportedly violate the state consumer protection statutes, and are alleged to have contributed to the state's mortgage crisis. The state is seeking an order requiring that the company (i) review and correct all documents it unlawfully created and recorded in Illinois, (ii) disgorge all financial gains obtained in connection with the allegedly unlawful practices, and (iii) pay civil penalties.
WEBINAR: An Insider's View of Dealing with State Attorneys General - Insights for Financial Services Firms
Please Join Us for STAGE Network's First Webinar of 2012: An Insider's View of Dealing with State Attorneys General - Insights for Financial Services Firms
Special Guest: Hon. Patrick C. Lynch, former Rhode Island Attorney General and former President of the National Association of Attorneys General.
This webinar will feature a discussion, led by Mr. Lynch, on how to proactively interact with State Attorney General offices to build relationships and open up effective channels of communication.
It will also include practical advice on responding to Civil Investigative Demands. This discussion will be led by Benjamin Klubes of BuckleySandler LLP and Raymond Banoun of Cadwalader, Wickersham & Taft LLP, both of whom have extensive experience dealing with state and federal law enforcement and regulatory agencies on behalf of clients.
When: January 18, 2012 at 2:30 ET
Click here to view the full announcement and agenda.
Indiana Department of Financial Institutions Adopts Emergency Rule on Mortgage Lender and Originator Licensing
On December 15, the Indiana Department of Financial Institutions (DFI) adopted an emergency rule updating Title 750, Article 9 of the Indiana Administrative Code (IAC), which regulates mortgage lenders and originators. First, the amendments expanded the stated purpose of Title 750, Article 9 to conform the regulation of mortgage lending practices not only to state and federal laws, rules and regulations but also to policies and guidance from state and federal authorities. Second, non-profit organization employees who exclusively originate mortgages are exempt from state educational, testing, background or licensing standards and requirements unless otherwise required by the Consumer Financial Services Bureau. Third, the rule amended the IAC to specify that an expunged criminal conviction is not considered, for licensing purposes, a conviction resulting in an automatic denial or revocation of a mortgage lender or originator's license; however, the DFI director may still consider the underlying crime or facts of that expungement for licensing eligibility. Fourth, the rule revised Article 9's revocation and suspension provisions so that they are uniform with all state consumer credit laws. Finally, the rule made changes to Article 9's pre-licensing testing, licensing qualification and renewal and regulatory reporting provisions.