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FFIEC Approves Revised Regulation Z Interagency Examination Procedures
In late December, The Federal Financial Institutions Examination Council's (FFIEC) Consumer Compliance Task Force approved revised interagency examination procedures for Regulation Z, Truth in Lending. The new procedures reflect changes to rules implementing the Credit Card Accountability Responsibility and Disclosure Act, as well as revisions required by the Dodd-Frank Act, including an increased threshold for exempt consumer credit transactions.
Michigan Enacts Several Foreclosure-Related Bills
In late December, Michigan enacted several bills related to certain of the state's foreclosure rules. HB 4542 and 4543 alter and extend through the end of 2012 Michigan's pre-foreclosure notice and mediation procedures. Among the changes is a shift from mandatory to optional filing of a one-time pre-foreclosure notice publication. The new laws also (i) make clear that a borrower's housing counselor may initiate a pre-foreclosure mediation on the borrower's behalf, (ii) extend to thirty days the time for a borrower or housing counselor to respond to a pre-foreclosure notice, and (iii) allow foreclosure by advertisement before the end of the 90-day stay period if a borrower fails to return a completed financial package within sixty days of the pre-foreclosure notice. Additionally, pre-foreclosure notices mailed on or after February 1, 2012 must (i) provide certain detailed contact information related to scheduling mediation, (ii) state the length of the redemption period, and (iii) include certain statements regarding responsibility for property damaged during the redemption period. Finally, HB 4544, among other things, reduces to six months the redemption period on non-agricultural properties over three acres when the amount claimed due exceeds two-thirds of the original mortgage balance.
New York Limits Exemptions for Mortgage Licensing and Registration Requirements
On January 4, the New York Department of Financial Services (DFS) published a final rule eliminating certain exemptions to the state's mortgage licensing and registration requirements. The rule narrows the definition of "exempt organization" by excluding nonbanking subsidiaries of bank holding companies, including, for example, subsidiaries acting as insurance, escrow, or title companies. Such subsidiaries now will be required to either register or become licensed with the DFS before soliciting, negotiating, placing, processing or making mortgage loans. Newly covered entities must file an application for licensure or registration by April 3, 2012 and complete such processes by July 2, 2012. The rule allows the DFS Superintendent to adjust the compliance dates.
Texas Finance Commission Adopts New Rules Regarding Mortgages and Consumer Credit
On December 30, the Finance Commission of Texas published two sets of rules impacting (i) mortgage lenders and servicers, (ii) credit access businesses, and (iii) debt management companies. The first set of rules reorganizes mortgage-related regulations to republish as Chapter 76 all regulations previously published as Chapter 79 of the Texas Administrative Code. This set of rules also establishes certain new regulations as Chapter 79 to implement SB 17 regarding residential mortgage loan servicers. Among the new rules are those to establish registration and bonding requirements for servicers.
The second set of rules includes two that implement HB 2594 and HB 2592, which require the Commission to establish licensing for credit access businesses that provide payday loans or title loans, and to design new consumer notice disclosure and notice requirements for such firms. These regulations, among other things, set up a process for provisional licenses and a transition period to allow businesses to continue operating while obtaining a full license. Another rule sets new requirements related to standard payoff statement forms for mortgage servicers responding to requests from title insurance companies. Finally, this set of rules revises credit counseling standards for debt management service providers to remove certain obsolete language.
For a copy of the rules as proposed, click here.
FTC Obtains Agreement from Payment Processor to Prohibit Use of New Payment Method
On January 5, the FTC announced a settlement with a payment processor and two of its principals that will prohibit the company from using a new payment method, through which accounts were debited without account-holder consent. The FTC alleged that the company actively promoted the method as a way to avoid scrutiny associated with other payment methods, and ignored red flags - such as payment-rejection rates exceeding 80 percent - that its merchant customers were seeking to defraud account-holders. As a result, according to the FTC, consumers incurred significant costs, including for overdraft fees. In addition to banning the use of this payment process, the settlement requires, among other things, that the company monitor client return rates and investigate rates exceeding 2.5 percent.
Final FCPA Enforcement Action for 2011 Provides Useful Benchmarks for Anti-corruption Compliance Program Reviews
On December 29, Deutsche Telecom and Magyar Telekom settled FCPA enforcement matters with the US DOJ and SEC for a combined sanction exceeding $95 million. Part of the resolution recited specified minimum compliance program elements that Magyar Telekom is required to institute. BuckleySandler's most recent FCPA Update describes the settlement fully and links to a list of these anti-corruption program elements, which are useful for counsel structuring a corruption risk assessment or compliance program review.
Florida AG Seeks to Advance Unfair and Deceptive Foreclosure Case
On December 30, Florida Attorney General Pam Bondi (AG) filed a motion in the Fourth District Court of Appeal seeking to advance the state's investigation into whether certain law firms engaged in misconduct while foreclosing on Florida homeowners. In April, the appeals court ruled that the AG did not have authority to subpoena records from one of the law firms under investigation. The state cannot appeal that decision to the Florida Supreme Court unless it is certified as an issue of great public importance. Therefore, the AG has asked the Fourth District to certify to the state supreme court as such an issue the question of whether the creation of invalid assignments of mortgages by a law firm and subsequent use of such documents to foreclose constitutes an unfair and deceptive practice under Florida law that may be investigated by the AG.
Tenth Circuit Confirms MERS Has Authority to Foreclose
Recently, the U.S. Court of Appeals for the Tenth Circuit affirmed separate lower court rulings that Mortgage Electronic Registration Systems, Inc. (MERS) had authority to foreclose under Utah law even though the notes at issue had been sold by the original lenders and securitized. Commonwealth Property Advocates v. Mortgage Elec. Reg. Sys, Inc., Nos. 10-4182, 10-4193, 10-4215, 2011 WL 6739431 (10th Cir. Dec. 23, 2011). In each of the underlying cases, the deed of trust contained the usual language naming MERS as the "nominee" for both the original lender and the lender's "successors and assigns," and providing MERS with authority "to foreclose and sell the Property" on behalf of those entities. The plaintiff (a firm that acquired title to each of the properties from delinquent borrowers) based its challenge to MERS' authority to foreclose on a Utah statute providing that the "transfer of any debt secured by a trust deed shall operate as a transfer of the security therefor." Utah Code Ann. § 57-1-35. According to the Plaintiff, the statute meant that sale and securitization of the notes deprived "original 'nominees,' such as MERS," of any right to exercise any power under the deeds of trust absent authorization by the new owners of the debt, i.e., the security-holders. The Tenth Circuit, relying on prior Utah and federal-court decisions, rejected that argument. It held that the statute merely codifies the well-established rule that a lender's transfer of a note also transfers that lender's interest in the associated security instrument. The statute in no way impacted MERS' explicit authority under the deeds of trust to continue to act as the "nominee" of each successive buyer of the note and to foreclose on each such buyer's behalf.
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.
Connecticut Supreme Court Confirms MERS Assignee Has Standing to Foreclose
On December 13, the Connecticut Supreme Court held that state law conferred standing on the holder of a promissory note to foreclose on a borrower and that a mortgage naming Mortgage Electronic Registration Systems, Inc. (MERS) mortgagee, as nominee of the original lender, was valid. RMS Residential Properties, Inc. v. Miller, No. SC 18746, 2011 WL 6033011 (Conn. Dec. 13, 2011). The borrower executed a promissory note to the lender and conveyed a mortgage deed to MERS as nominee of the lender. After the borrower failed to make a single payment, the mortgage was assigned to the plaintiff RMS, which also became holder of the promissory note before it commenced the foreclosure action. In affirming the trial court's grant of summary judgment in favor of the plaintiff, the Court rejected the borrower's argument that the plaintiff lacked standing as a mere holder of the note. The Court also rejected the borrower's contention that the mortgage was void because MERS was not the original lender or the party secured by the mortgage. The Court found that the mortgage made clear that the lender named MERS mortgagee and that to hold such mortgages void would frustrate the intentions of both mortgagors and mortgagees.