InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FRB Governor Reviews Mortgage Servicing Enforcement Actions
On January 7, Federal Reserve Board (FRB) Governor Sarah Bloom Raskin, in a speech to the Association of American Law Schools, reviewed the status of federal banking regulators’ enforcement responses to what she characterized as the "foreclosure crisis". Governor Raskin described the enforcement actions brought last year by the FRB and other banking regulators against mortgage servicers as “only a start in a comprehensive enforcement response to the foreclosure crisis” and provided a reminder that anticipated monetary penalties for alleged deficient servicing and foreclosure practices are still to come. Further, Governor Raskin identified strong enforcement as a necessary incentive to developing an improved mortgage servicing model.
Illinois Amends Mortgage Originator Licensing Requirements
On January 6, the Illinois Department of Financial and Professional Regulations published amendments to regulations governing mortgage originator licensing. The amendments, which are effective immediately, include an increase in certain fees paid by mortgage loan originators to cover costs incurred by the Department in providing current services. Other amendments include those to (i) reestablish and update license reporting provisions, including through the use of the Nationwide Mortgage Licensing System and Registry, to implement state-law changes required by the federal SAFE Mortgage Licensing Act; (ii) require submission of a purchasing activity report; and (iii) establish a new standard for payment processing by servicers. The purchasing activity report requires annual reporting of (i) the names of originating entities, (ii) dollar amounts for each loan by property address, (iii) dollar amount of Illinois loans contained in a multi-state property portfolio, and (iv) total dollar amount for all Illinois loans purchased.
Freddie Mac, Fannie Mae Announce Unemployment Forbearance Programs
On January 6, Freddie Mac published Bulletin 2012-2, which allows servicers to offer eligible borrowers a short-term unemployment forbearance period, and the possibility of an extended unemployment forbearance period, if needed. On January 11, Fannie Mae followed with Servicer Guide Announcement SVC-2012-01, implementing a substantially similar program. Under the new programs, servicers may suspend or reduce an eligible borrower’s mortgage payments for a period of six months. With approval from Freddie Mac or Fannie Mae, respectively, servicers also may extend the six-month forbearance period for up to an additional six months, provided that the period does not extend beyond a date that would cause the delinquency to exceed twelve months. Further, following an unemployment forbearance period, a borrower may be re-evaluated for a new Home Affordable Modification Program (HAMP) or non-HAMP trial-period plan if the borrower was complying with the terms of the existing trial plan before obtaining unemployment forbearance. Under the Freddie Mac program, servicers must incorporate unemployment forbearance into their operations by February 1, 2012, but servicers have until March 1, 2012 to comply under the Fannie Mae program.
Washington District Court Rules ISP Contract Terms Were Not Reasonably Conspicuous
On January 3, the U.S. District Court for the Western District of Washington denied an Internet service provider’s (ISP) motion to compel arbitration, holding in part that the ISP’s terms of service agreement containing the arbitration clause was not reasonably conspicuous. Kwan v. Clearwire Corp., No. C09-1392JLR, 2012 WL 32380 (W.D. Wash. Jan. 3, 2012). In this case, plaintiffs filed suit on behalf of a putative class against an ISP and its debt-collection vendors for violations of federal and state consumer-protection laws based on the defendants’ repeated attempts to collect payments the ISP claimed it was due under mobile Internet service contracts. The ISP moved to compel arbitration, asserting (i) that its customers are required to acknowledge and agree to certain terms of service, including an agreement to arbitrate disputes, before using the ISP’s services (i.e., a so-called “clickwrap agreement”); and (ii) that the ISP sent to customers order-confirmation e-mails that also included a link to the terms of service (i.e., a so-called “browsewrap agreement”).
Relying on the Second Circuit’s analysis in Specht v. Netscape Comms. Corp., 605 F.3d 17 (2nd Cir. 2002), the court identified as the central issue whether the consumer had notice of and access to the terms and conditions of the contract prior to the conduct that allegedly indicated the consumer’s assent. With regard to the confirmation e-mail, the court found that the e-mail did not contain a direct link to the terms of service but rather a link to the ISP’s homepage that provided subsequent links to the terms of service. Further, the link that was provided in the confirmation e-mail did not appear until the third page of the e-mail. Thus, the court held that access to the terms of service did not constitute sufficient or reasonably conspicuous notice of those terms. However, the court also held that the consumers’ acceptance of terms through the clickwrap agreement would have bound them to the terms of service and the arbitration clause, but that issues of fact exist as to whether the named plaintiffs actually clicked to accept the terms. The court deferred resolution of those issues for a factual hearing, as well as a decision on whether a consumer who specifically declines to accept the terms of service is still bound by those terms by virtue of simply accessing the terms of service.
Oklahoma District Court Dismisses Most Claims in Putative Wrongful Foreclosure Class Action
On January 6, the U.S. District Court for the Western District of Oklahoma dismissed the majority of claims brought by two borrowers seeking to represent a class of borrowers against Bank of America Corporation, Bank of America N.A., and BAC Home Loans Servicing, LP (collectively BAC) for alleged wrongful foreclosure practices. Risener v. Bank of Am. Corp., No. 10-1110 (W.D. Okla. Jan 6, 2012). In this case, the borrowers claim that after their original servicer ceased operations, their loan servicing was assigned to BAC and their loan was inaccurately recorded as being in default. According to the borrowers, multiple attempts to prove that the borrowers were not in default were ignored by the defendants. Further, according to the borrowers, BAC Home Loans Servicing, LP, continued to send default notices and threatened to foreclose, refused to verify the borrowers’ default status, and reported false information about borrowers to credit reporting agencies.
As such, the borrowers allege that defendants (i) violated the Fair Debt Collections Practices Act (FDCPA) by using false, deceptive, or misleading representations in the collection of debts and by failing to provide certain required notices; and (ii) violated the Fair Credit Reporting Act (FCRA) by providing false information to credit reporting agencies and by failing to investigate the disputed default loan status. Agreeing with a recent Georgia decision involving a similar fact pattern, the court held that because the borrowers allege their loan was not in default, BAC could not have been “debt collectors” subject to the FDCPA, because the FDCPA requires a loan to be “in default”, not “allegedly in default.” Further, the borrowers do not allege that Bank of America Corporation or Bank of America, N.A. ever attempted to collect a debt and, therefore, regardless of their status as a debt collector, cannot be found in violation of the FDCPA. With regard to the borrowers’ FCRA claims, the court held that the FCRA does not include a cause of action for the act of providing false information but that borrowers’ claims that BAC Home Loans Servicing failed to investigate were sufficiently supported by the allegations in the complaint and therefore could proceed.
Ninth Circuit Clarifies TILA Delivery Requirements
The U.S. Court of Appeals for the Ninth Circuit recently held that lender compliance with the Truth In Lending Act’s (TILA) delivery obligation requires that the borrower be permitted to keep written copies of the right-to-rescind notice. Balderas v. Countrywide Bank, N.A., No. 10-55064, 2011 WL 6824977 (9th Cir. Dec. 29, 2011). In this case, the borrowers allege that the lender improperly pressured them into a loan and then refused to grant their request to rescind the loan, which allegedly occurred within the three-day rescission period. The borrowers claim that the lender provided defective copies of the Notice of Right to Cancel, which did not include the closing date or the expiration date for the rescission period. TILA requires that when the rescission notice is provided in writing, as it was in this case, the lender must deliver to the borrower two copies including the rescission expiration date. The district court ruled that a copy of the Notice of Right to Cancel attached to the complaint proved that the rescission notice was delivered to the borrowers, and on that basis dismissed the case. The Ninth Circuit disagreed, holding that the Notice of Right to Cancel in the record proves only that borrowers signed the document possessed by the lender. To “deliver” the notice in compliance with TILA requires a “permanent physical transfer from one party to another”; momentary delivery does not suffice. While the document in the record provides the lender with a rebuttable presumption of delivery, it does not prove that two copies were delivered to the borrowers as required. The court held that the borrowers should be permitted to attempt to rebut the presumption and prove their allegations of improper delivery to a trier of fact.
President Obama Appoints Richard Cordray CFPB Director; CFPB Fills Other Top Positions
On January 4, President Obama invoked his office's recess appointment authority and appointed former Ohio Attorney General Richard Cordray as Director of the CFPB. Mr. Cordray had been serving as Assistant Director for Enforcement at the CFPB while his nomination for Director was pending in the Senate. Although approved by the Senate Banking Committee, Mr. Cordray's confirmation had been blocked by lawmakers seeking to make substantive changes to the CFPB, such as replacing the director structure with a five-member commission. Republican senators objected to Cordray's appointment on constitutional grounds. They have argued that because the Senate has been holding "pro forma" sessions during its recess, President Obama lacked the authority to make a recess appointment. Click here for additional explanation from the White House.
On January 6, Mr. Cordray appointed Raj Date as Deputy Director of the CFPB. Most recently, Mr. Date, as Special Advisor to the Treasury Secretary, was responsible for operation of the CFPB pending confirmation of a director. Additionally, Mr. Cordray elevated Kent Markus to Assistant Director of the Office of Enforcement. Mr. Markus had been the CFPB Deputy Assistant Director of the Office of Enforcement.
CFPB Launches Nonbank Supervision Program
On January 5, the CFPB announced the launch of its nonbank supervision program. With a Director now in place, the Obama Administration believes that the CFPB can now exercise authority granted to it by the Dodd-Frank Act to supervise companies that offer or provide consumer financial products or services, but that do not have a bank, thrift, or credit union charter. (Republican senators have expressed disagreement; in their view, the Dodd-Frank Act grants that authority only when a CFPB Director has been confirmed by the Senate.) Nonbank supervision will proceed in two phases, with immediate focus on nonbank mortgage, payday lending, and private education companies, regardless of such a company's size. A second phase will expand supervision to large debt collection, consumer reporting, auto financing, and money-service businesses. The CFPB expects soon to propose a rule defining "larger participants" in those second-phase markets, a predicate to exercising its supervisory authority over such institutions. The CFPB also noted that it may supervise any nonbank whose conduct poses risks to consumers with regard to consumer financial products or services. Rules describing procedural guidelines for exercising that authority will be published in the future.
CFPB Issues Guidance Regarding Treatment of Confidential Supervisory Information
On January 4, the CFPB issued Bulletin 12-01 regarding treatment of privileged and confidential information collected during CFPB's supervisory processes. The Bulletin addresses the concern of supervised institutions that providing attorney-client privileged or work product documents during the supervisory process will waive such privileges with respect to third parties. The CFPB contends in the Bulletin that any privilege would not be waived by obligatory production to the CFPB, and that the CFPB "will not consider waiver concerns to be a valid basis for the withholding of privileged information responsive to a supervisory request." Nonetheless, the Bulletin indicates that the CFPB will give "due consideration" to requests to limit the scope of requests for privileged information, and invites institutions to "memorialize privilege claims when conveying privileged documents" to the CFPB. The Bulletin also clarifies all information obtained in the supervisory process will be exempt from production in response to Freedom of Information Act requests, but that sharing of information between federal and state supervisory and enforcement authorities may be required or appropriate in certain circumstances.
Treasury Publishes Proposed Rule Establishing Assessment Schedule for Large Bank Holding Companies and Certain Nonbank Financial Firms
On January 3, the Treasury Department published a proposed rule to implement Section 155 of the Dodd-Frank Act, which requires Treasury to establish an assessment schedule to cover expenses of the Office of Financial Research and the Financial Stability Oversight Council, as well as the costs of implementing the Federal Deposit Insurance Corporation's orderly liquidation authority. Under the proposal, Treasury would collect assessments twice each year from (i) domestic bank holding companies with total consolidated assets of $50 billion or more, (ii) foreign banking organizations with at least $50 billion in total consolidated assets in U.S. operations, and (iii) nonbank financial companies supervised by the Federal Reserve Board. Treasury proposes to establish a flat rate one month prior to each collection date, and to apply that rate to the total consolidated assets of each covered firm to determine each's assessment. For foreign firms, only total U.S. operations would be considered in calculating the assessment. Treasury expects to (i) finalize the rule before the end of May 2012, (ii) announce the first assessment rate in June 2012, and (iii) collect the first assessment on July 20, 2012.