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Department of Education Releases Reports on SCRA Reviews of Major Student Loan Servicers
On May 26, the Department of Education announced the release of reports on its reviews of four major federal student loan servicers, which were conducted to ensure that the servicers adhered to federal law concerning loan interest rates for active-duty servicemembers. Specifically, the Department aspired to determine whether eligible borrowers of eligible Family Federal Education Loans (FFEL) and Direct Loans received the benefit of the 6 percent interest rate cap provided by the SCRA in accordance with applicable statutes and the Department’s regulations and guidance. The reviews considered servicemembers’ SCRA eligibility between 2009 and 2014, and showed that “in less than 1 percent of cases, borrowers were incorrectly denied the 6 percent interest rate cap required by the laws.” In addition to these reviews, the Department will be “expanding its review of compliance with the SCRA and HEA to the Department’s seven non-profit servicers as well as commercial [FFEL] servicers,” with completion expected later this year. The Department’s reviews follow a May 2014 DOJ settlement with one of the four student loan servicers.
DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets
On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.
Brazilian Aircraft Maker in Negotiations to Resolve FCPA Violations
According to its May 19 securities filing, a Brazilian manufacturer of commercial jets has entered into discussions with the DOJ to resolve an FCPA probe launched by the Department in 2010. The government’s investigation stems from allegations that the manufacturer’s sales executives bribed various Dominican individuals who, in exchange, influenced legislators in the Dominican Republic to approve a $92 million contract and financing agreement for aircraft. In its filing, the company stated that a resolution of the investigation would result in fines and other sanctions by the DOJ. The Brazilian government’s criminal case against the manufacturer’s eight sales executives is ongoing.
California-Based Storage Company Agrees to Settle SCRA Claims
On May 15, a San Diego-based storage company entered into a consent order with the DOJ to settle claims that the company’s practice of auctioning off active duty servicemembers’ stored belongings violated the Servicemembers Civil Relief Act (SCRA). As part of the settlement, the storage company will: (i) pay $170,000 in damages to those servicemembers whose stored belongings it sold without obtaining a court order; (ii) implement new SCRA policies and procedures, which are to be approved by the government; and (iii) ensure that those employees who are involved with the enforcement of storage liens receive government approved SCRA training annually.
DOJ Settles with Illinois-Based Lender over Allegations of Discriminatory Lending
On May 7, the DOJ announced a consent order with an Illinois-based lender to settle allegations that the state-chartered bank engaged in a pattern of discriminatory lending, violating the Equal Credit Opportunity Act (ECOA). According to the complaint, from at least January 1, 2011 to March 9, 2014, approximately 1,500 Hispanic borrowers and 700 African-American borrowers paid higher interest rates for their motorcycle loans than white borrowers. The average victim of the bank’s discretionary dealer markup system paid over $200 more during the loan term, allegedly because of their national origin and not because of their creditworthiness. Until March 2014, the lender’s business practice was such that the motorcycle dealers submitted loan applications to the lender, allowing the dealers “subjective and unguided discretion to vary a loan’s interest rate from the price [the lender] initially set.” In March 2014, the lender adopted a new policy that compensated dealers “based on a percentage of the loan principal amount that does not vary based on the loan’s interest rate;” since the implementation of the new policy, no discrimination has been found in the loans analyzed by the United States. Neither admitting nor denying the allegations, the lender voluntarily entered into a consent order with the U.S., agreeing to provide $395,000 in monetary relief to victims of the lender’s alleged practices.
DOJ and International Investment Bank Enter Into Plea Agreement to Resolve LIBOR Manipulation Claims, Bank Agrees to Pay $2.5 Billion Penalty
On April 23, the DOJ announced that an international investment bank and its subsidiary agreed to plead guilty to wire fraud for its alleged conduct, spanning from 2003 through 2011, in manipulating the London Interbank Offered Rate (LIBOR), which is used to set interest rates on various financial products. In addition, the DOJ announced that the bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust claims for manipulating both the U.S. Dollar LIBOR and Yen LIBOR. Under terms of the agreement, the $2.5 billion in penalties will be divided among U.S. and U.K. authorities - $800 million to the Commodity Futures Trading Commission, $775 million to the DOJ, $600 million to the New York Department Financial Services, and roughly $340 million to the U.K.’s Financial Conduct Authority. The authorities also ordered the bank to install an independent compliance monitor.
Former Export-Import Bank Loan Officer Pleads Guilty to DOJ Charges of Accepting Bribes
The DOJ released a statement regarding a plea agreement made with a former loan officer of the Export-Import Bank. According to the DOJ, the former loan officer accepted bribes totaling over $78,000 in exchange for providing favorable action on loan applications. From June 2006 through December 2013, the former loan officer managed the review of credit underwriting for companies and lenders submitting financing applications to the Export-Import Bank and admitted to recommending the approval of unqualified loan applicants on 19 different occasions. In addition, the former loan officer also pleaded guilty to improperly expediting the process of certain applications. The sentencing hearing is scheduled for July 20, 2015.
U.S. Senate Confirms Lynch As Next Attorney General
On April 23, the U.S. Senate confirmed Loretta Lynch to be the next U.S. Attorney General with a 56-43 majority vote, succeeding current Attorney General Eric Holder. With the confirmation, Lynch, who currently serves as the U.S. Attorney for the Eastern District of New York, becomes the first African-American woman to lead the DOJ.
U.S. Files Complaint Against Leading Non-Bank Mortgage Lender For Alleged Improper Underwriting Practices on FHA-Insured Loans After Lender Files Suit Against U.S. Alleging Arbitrary and Capricious Investigation Practices
On April 17, Quicken Loans filed a preemptive lawsuit against the DOJ and HUD in the Eastern District of Michigan against HUD, the HUD-IG, and DOJ, asserting that it “appears to be one of the targets (due to its large size) of a political agenda under which the DOJ is “investigating” and pressuring large, high-profile lenders into paying nine- and ten-figure sums and publicly ‘admitting’ wrongdoing, including conceding that the lenders had made ‘false claims’ and violated the False Claims Act.” Specifically, the complaint alleged that HUD, the HUD-IG, and DOJ retroactively changed the process for evaluating FHA loans, from an individual assessment of a loan’s compliance, taking into account a borrower’s individual situation, the unique nature of each property, and the specific underwriting guidelines in effect, to a sampling method which extrapolates any defects found in a small subset of loans across the entire loan population, contrary to HUD’s prior guidance and in violation of the Administrative Procedures Act. The complaint further alleged that the sampling method used by the government was flawed, and asked for declaratory and injunctive relief against the government’s use of sampling. Quicken also asked the court to rule that the FHA loans it made between 2007-2011 in fact were “originated properly in accordance with the applicable FHA guidelines and program requirements, and pose no undue risk to the FHA insurance fund,” asserting that “HUD reviewed a number of these loans and, except in a few rare instances, either concluded the loans met all FHA guidelines or that any issues were immaterial or had been cured.”
Six days later, the government filed its own lawsuit against Quicken in the District of Columbia seeking damages and civil penalties under the False Claim Act. U.S. v. Quicken Loans Inc, No. 15-0613, (D.D.C. April 23, 2015). The government’s complaint alleges that from September 2007 through December 2011, Quicken knowingly approved loans that violated FHA rules while falsely certifying compliance with those rules. The complaint alleged that Quicken encouraged practices that “allow ‘exceptions’ to HUD’s underwriting requirements, requesting inflated appraisals, manipulating key data, pressuring underwriters to approve loans faster, paying prohibited commission to its underwriters for approved loans, and encouraging underwriters to disregard risks that were evident in the loan files.” The complaint also criticized Quicken’s quality control process, alleging that the lender “underreported the magnitude of underwriting deficiencies, failed to adequately assess compliance with FHA requirements, and failed to disclose Quicken’s underwriting failures to HUD.”
DOJ Submits 2014 Equal Credit Opportunity Act Annual Report to Congress
On April 13, the DOJ released its 2014 Annual Equal Credit Opportunity Act (ECOA) Report highlighting its activities to address credit discrimination. The twenty-page report highlights discrimination lawsuits and settlements in the automobile lending and credit card industry, as well as a consent order resulting from alleged discrimination on the basis of disability and the receipt of public assistance. It also includes information on the DOJ’s work under other federal fair lending laws including the Fair Housing Act (FHA) and the Servicemember Civil Relief Act (SCRA). According to Vanita Gupta, Acting Assistant AG for the Civil Rights Division, in the five years since the Fair Lending Unit was established, the Civil Rights Division has filed or resolved 37 lending matters under the ECOA, FHA, and SCRA. Total settlements in these matters, including enforcement actions from 2014, have resulted in over $1.2 billion in monetary relief for affected borrowers and communities.