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OCC to Escheat Funds from Foreclosure Review; Agency Terminates Three Consent Orders and Issues Six Amended Orders
On June 17, the OCC announced that, at year-end 2015, it will escheat any remaining uncashed payments made pursuant to the Independent Foreclosure Review Payment Agreement. Despite the IFR Payment Agreement having already resulted in the distribution of over $2.7 billion to more than 3.2 million eligible borrowers, the OCC anticipates that roughly $280 million from OCC-supervised institutions will remain unclaimed by the end of 2015. By escheating the remaining available funds, eligible borrowers and their heirs will have the opportunity to claim the funds. The agency also announced that it terminated foreclosure-related consent orders against three financial institutions because they have complied with the April 2011 orders and the February 2013 amendments to the orders. In addition, the OCC issued amended consent orders to six banks that did not meet all of the requirements of the consent orders by placing restrictions on the following business activities: (i) acquisition of residential mortgage servicing or residential mortgage servicing rights; (ii) new contracts to perform residential mortgage servicing for other parties; (iii) outsourcing or sub-servicing of new residential mortgage servicing activities to other parties; (iv) off-shoring new residential mortgage servicing activities; and (v) new appointments of senior officers in charge of residential mortgage servicing or residential mortgage servicing risk management and compliance. The limitations placed on the financial institutions were based on each bank’s particular circumstances.
Illinois AG Madigan Announces $1 Million Settlement Regarding Company's Management of Foreclosed Properties
On June 3, Illinois AG Madigan announced a $1 million settlement with an Ohio-based company that mortgage lenders hire to manage properties throughout the foreclosure process and ensure that the properties retain their value. The settlement resolves a 2013 lawsuit by Madigan that alleged that the company wrongly deemed homes vacant, and instructed its contractors to shut off utilities, change the properties’ locks and illegally remove residents’ personal belongings even though they actively remained in their homes. Under the settlement, the company agreed to overhaul its business practices by using objective standards to ensure that homes are vacant, such as: (i) requiring its inspectors to support their inspections with photographs and an affidavit; (ii) posting notice to the occupant that the property has been deemed vacant; (iii) not misrepresenting the occupants’ rights to stay in their home, even if they are behind on their mortgage payments and in foreclosure; (iv) increasing its oversight and quality control of its subcontractors; (v) providing consumers with access to a 24-hour hotline for submitting complaints; and (vi) unless the company obtains a court order, not removing any personal property prior to foreclosure.
In addition to the $1 million agreement, which will be paid in restitution to consumers who filed complaints with respect to the company’s business practices, the company agreed to adhere to ongoing monitoring by Madigan’s office to ensure compliance with the settlement.
CFPB Director Issues Decision on First Appeal of an Administrative Enforcement Proceeding
On June 4, CFPB Director Richard Cordray issued a decision on a mortgage lender’s appeal of an administrative law judge’s (ALJ) order concerning alleged RESPA violations with respect to the lender’s mortgage reinsurance business. In his decision, Cordray largely affirmed the ALJ decision and ordered the lender to pay $109 million in disgorgement. Notably, because most of the conduct alleged occurred prior to the CFPB assuming jurisdiction over enforcement of RESPA, Cordray declined to impose a civil money penalty. In addition, Cordray agreed with the ALJ that no statute of limitations applies when the CFPB challenges a RESPA violation in an administrative proceeding, declaring that the statute of limitations applies only to judicial proceedings. Cordray also held that the lender committed a separate violation of RESPA every time it accepted a reinsurance payment from a mortgage insurer, even if the loan with which the payment was associated had already been consummated. This was the first appeal of an administrative enforcement proceeding before the CFPB.
CFPB and Florida AG Obtain Judgment Against Law Group and Corporate Affiliates for "Mass-Joinder" Foreclosure Relief Scam
On May 29, a final order was entered against a law group and its corporate affiliates in an action brought by the CFPB and the State of Florida. The July 2014 complaint alleged that the law group and its affiliates violated Regulation O, or the Mortgage Assistance Relief Services Rule, and Florida state law by convincing consumers to participate in “mass-joinder” lawsuits against their mortgage lenders with the false promise that the suits would result in mortgage modifications or foreclosure relief. More specifically, the defendants’ Regulation O violations included: (i) charging consumers advance fees before obtaining loan modifications for them; (ii) misrepresenting success rates of receiving a loan modification; (iii) deceiving consumers into believing that they would receive legal representation; and (iv) discouraging consumers from making their loan payments and/or communicating with their lenders or servicers. The final order, which follows a temporary restraining order and an asset freeze against the defendants, requires that the defendants pay redress to victims and a total of $16 million in civil and state penalties and cease all business operations. Final orders were issued against the three named individuals in the suit as well.
Regional Bank Agrees to Pay Over $200 Million for Alleged Violations of the False Claims Act
On June 1, a regional bank agreed to pay the United States $212.5 million to resolve allegations that it knowingly violated the False Claims Act by originating and underwriting FHA-insured mortgage loans that did not meet applicable requirements. The bank – through its subsidiary and as a Direct Endorsement Lender in the FHA insurance program – had the authority to approve mortgage loans for FHA insurance without having FHA or HUD review the loan application first. The DOJ Civil Division’s investigation concluded that, from January 2006 through October 2008, the bank, even though it was aware of material deficiencies in its loan origination process, “failed to report even a single deficient mortgage to FHA.” DOJ further concluded that, while the bank profited from its loan process, taxpayers suffered significant losses when the loans defaulted and FHA incurred “substantial losses when it later paid insurance claims on these loans.” The bank admitted to failing to comply with FHA origination, underwriting, and quality control regulations.
FinCEN Levies $75 Million Penalty on International Casino for BSA/AML Lapse
On June 3, FinCEN announced a $75 million civil money penalty against an international casino for alleged “willful and egregious” violations of the BSA. As detailed in the Assessment, the casino (i) failed to develop and implement an AML program; (ii) failed to designate an official BSA officer to oversee compliance requirements of the BSA; and (iii) failed to train employees in adequate recordkeeping, or in identifying, monitoring or reporting suspicious activity – all considered to be critical components of an adequate BSA/AML program. Moreover, FinCen alleges that casino employees “provided detailed instructions” to undercover agents on how to conduct transactions without being properly reported to U.S. authorities. FinCen’s latest action follows a March announcement, when the agency imposed a $10 million civil money penalty against a New Jersey-based casino.
Federal Reserve Orders Two Financial Institutions to Improve BSA/AML Compliance Programs
On June 1, a Boston-based international financial services holding company and its banking subsidiary agreed to address deficiencies in how they manage compliance risks with respect to their BSA/AML compliance program. The Agreement, entered into with the Federal Reserve Bank of Boston and the Massachusetts Division of Banks, requires both entities to submit a written plan outlining their efforts to improve their compliance with OFAC and internal controls, customer due-diligence procedures, and suspicious activity monitoring and reporting, among other things. In addition, the banking subsidiary must hire an independent third-party to review account and transaction activity during a specified period to ensure suspicious activity was properly identified and reported.
In a separate enforcement action, the Federal Reserve Bank of Chicago entered into an agreement on May 26 with an Illinois-based financial services company, requiring the parent company and its banking subsidiary to, among other things, submit written plans to (i) strengthen its BSA/AML compliance risk management program; and (ii) “ensure the identification and timely, accurate, and complete reporting” of suspicious transactions to the appropriate law enforcement and supervisory [banking] authorities.” No civil money penalties were imposed in either enforcement action.
FinCEN Fines Michigan MSB For BSA/AML Violations, Bans Owner From Serving at Any U.S. Financial Institution
On May 29, a Michigan-based money service business (MSB), along with its owner, admitted to repeated violations of the BSA and have agreed to pay FinCEN a civil money penalty in the amount of $12,000. The company violated the BSA in numerous ways, including but not limited to: (i) failing to maintain a sufficient anti-money laundering program; (ii) engaging in high-risk transactions, including wire transfers to Yemen, totaling millions of dollars, without keeping proper records of the transfers or performing due diligence; and (iii) conducting suspicious transactions “with no apparent business or lawful purpose.” According to FinCEN, the MSB failed to monitor the suspicious transactions, had no review process in place, and neglected to file a Suspicious Activity Report or a Currency Transaction Report while operating as a business entity. Furthermore, in addition to the aforementioned MSB, the owner opened an additional MSB in October 2010, containing similar BSA deficiencies. The owner has “agreed to immediately and permanently cease serving as an employee, officer, director, or agent of any financial institution located in the United States or that conducts business within the United States.”
National Bank to Pay $30 Million Civil Penalty to OCC for Alleged SCRA Violations
On May 29, the OCC entered into a consent order with a national bank to resolve allegations that it (i) violated the SCRA; (ii) engaged in unsafe and unsound practices in its efforts to comply with the SCRA; and (iii) engaged in unsafe and unsound practices in regards to its sworn document and collections litigation practices. The OCC claimed that the bank did not comply with the SCRA by failing to: (i) maintain effective policies and procedures; (ii) devote adequate financial, staffing and managerial resources to guarantee the SCRA compliance process was properly administered; and (iii) provide sufficient internal controls, compliance risk management, internal audit, third party management, and training related to its SCRA compliance process. In relation to the sworn document and collections litigation process, the OCC asserted that the bank’s deficiencies in its enterprise compliance risk management function resulted in unsafe and unsound practices, including failure to ensure that affidavits filed in court followed proper notary procedures. Under the terms of the consent order for a civil money penalty, the OCC will collect $30,000,000 from the bank.
CFPB and DOJ Settle With Mortgage Lender for Alleged Discriminatory Mortgage Pricing
On May 28, the CFPB, along with the DOJ, filed a joint complaint against a California-based mortgage lender alleging that the lender violated the Equal Credit Opportunity Act by engaging in a pattern or practice of discrimination from 2006 to 2011 that increased loan prices for African-American and Hispanic borrowers. The DOJ also alleges that the lender violated the Fair Housing Act. According to the complaint, the lender’s mortgage broker compensation policy, which incented discretionary interest rate and fee increases to borrowers, resulted in approximately 14,000 African-American and Hispanic borrowers being charged higher total broker fees on wholesale mortgage loans than non-Hispanic white borrowers. The complaint alleges that the higher fees were not based on the borrowers’ credit risk profile, but rather on the basis of race or national origin. The parties separately filed a proposed consent order which would require the mortgage lender to, among other things, pay $9 million in consumer relief to affected borrowers to resolve the allegations. The proposed consent order is currently pending court approval.