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On June 16, the U.S. Court of Appeals for the Fifth Circuit held that a plaintiff borrower’s requested damages in a foreclosure lawsuit did not exceed the federal jurisdictional threshold amount of $75,000, and sent the case back to Texas state court. The plaintiff sued the financial institution in state court after it sought a nonjudicial foreclosure on his house, asserting violations of the Texas Debt Collection Act, breach of the common-law duty of cooperation, fraud, and negligent misrepresentation. The suit was removed to the U.S. District Court for the Northern District of Texas, with the defendant arguing that the suit automatically stayed its nonjudicial foreclosure sale, thus putting the value of the house ($427,662) as the amount in dispute, instead of the plaintiff’s requested relief of $74,500. The plaintiff moved to remand the case to state court on the premise “that the amount in controversy could not exceed the stipulated maximum of $74,500.” The district court denied the plaintiff’s motion, ruling that it “had to measure the amount in controversy ‘by the value of the object of the litigation,’” and not by what the plaintiff’s complaint says the damages were not to exceed.
In reversing and remanding the case to state court, the 5th Circuit concluded that, because the defendant did not show that the automatic stay brought the house’s value into controversy, it “failed to establish by a preponderance of the evidence that the amount in controversy exceeded $75,000.” The appellate court agreed with the plaintiff’s assertion that the house was simply collateral and “thus irrelevant to the amount in controversy,” writing that “[i]t is well-settled that neither the collateral effect of a suit nor the collateral effect of a judgment may count toward the amount in controversy.” The 5th Circuit also determined that the plaintiff expressly stipulated in both his original state-court petition and in a declaration “that he is seeking total damages not to exceed $74,500,” and that this stipulation is legally binding.
On March 28, the OCC announced the launch of Dallas REACh, which expands the OCC’s Project REACh (Roundtable for Economic Access and Change) efforts to Dallas, Texas, representing the agency’s fourth regional effort. As previously covered by InfoBytes, in 2020, the OCC launched this initiative to promote greater financial inclusion of underserved populations. According to the OCC, Project REACh brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations who will identify and reduce barriers to accessing capital and credit. The OCC further noted that Dallas REACh “will organize and initiate formal efforts to reduce financial barriers that include low rates of affordable homeownership, poor access to capital for minority-owned and small businesses, and underinvestment into trusted community institutions, such as minority depository institutions.” According to remarks by acting Comptroller of the Currency Michael J. Hsu at the launch of Dallas REACh, the agency is “excited to expand our efforts into the Dallas community, supporting local leaders, banks, and businesses as they discuss needs and work to address impediments to financial inclusion.”
On March 3, the U.S. District Court for the Western District of Texas preliminarily approved a $4.75 million class action settlement resolving claims between a pharmacy benefits manager and consumers in six different proposed class actions filed in Texas and California. The court also conditionally certified a nationwide settlement class and a California settlement subclass. According to the memorandum in support of the plaintiffs’ motion for preliminary approval of the settlement, plaintiffs claimed the company acted negligently by failing to implement reasonable safeguards for protecting customers’ personally identifiable information and preventing a 2021 data breach, which exposed their sensitive, protected health information. The plaintiffs also alleged that the company breached California privacy and consumer protection laws. If the settlement is granted final approval, the company will be required to create a $4.75 million settlement, and “develop, implement, and maintain a comprehensive information security program that is reasonably designed to protect the security, integrity and confidentiality” of customers’ personal data. The company may also be responsible for a portion of attorneys’ fees, costs, and service awards.
On February 18, the Texas attorney general issued two Civil Investigative Demands (CIDs) to a video streaming company that focus on the company’s potential facilitation of human trafficking and child privacy violations, as well as other potential unlawful conduct. According to the CIDs, the company allegedly violated section 140A.002, Civil Racketeering Related to Trafficking of Persons, of the Texas Civil Practice and Remedies Code. The CID orders to company to: (i) provide answers and documents in response to the CID; (ii) preserve documents and/or other data which relate to the subject matter or requests of the CID; and (iii) consult the AG prior to processing or making copies of hard-copy documents or electronically stored information in response the CID.
On December 31, the Texas Department of Banking, Department of Savings and Mortgage Lending, Office of Consumer Credit Commissioner, and Credit Union Department issued amendments related to home equity lending to specify requirements for electronic disclosures. With respect to oral and electronic loan applications, one of the provisions “provides that a home equity loan closing must occur at least 12 days after the owner ‘submits a loan application to the lender,’” and “explains that a loan application may be submitted electronically in accordance with state and federal law governing electronic disclosures, with references to the UETA and the E-Sign Act.” Additionally, among other things, the provisions describe Texas Constitution, Article XVI, Section 50’s applicability to out-of-state financial institutions. The amendments are effective January 6.
Recently, the Texas Finance Commission promulgated amendments to regulations governing residential mortgage licensees. Specifically, rules applicable to (i) licensed Mortgage Loan Companies under the Residential Mortgage Loan Company Licensing and Registration Act, Tex. Fin. Code Ann. § 156.001 et seq., and (ii) licensed Mortgage Bankers and Mortgage Loan Originators (MLOs) under the Mortgage Banker Registration and Residential Mortgage Loan Originator Act and the Texas Fair Enforcement for Mortgage License Act, Tex. Fin. Code Ann. § 157.001 et seq., included several substantive updates.
The amendments to rules governing Mortgage Loan Company licensees include:
- 7 TAC 80.300, which provides in part that a “primary contact person” instead of the qualifying individual will receive any notice of examination.
- 7 TAC 80.101, .102, .105-.107, which sets forth new sponsorship requirements for MLOs, clarifies renewal procedures, and implements a 10-day notice requirement for any material changes made to a licensee’s Form MU1.
- 7 TAC 80.203, .204, .206, which sets forth new requirements for advertising, records storage, office locations, branch offices, and administrative offices, including requirements for licensees engaging in remote work.
- 7 TAC 80.2, which updates references to definitions.
The amendments to rules governing Mortgage Banker and Mortgage Loan Originator licensees include:
- 7 TAC 81.300, which provides in part that a “primary contact person” instead of the qualifying individual will receive any notice of examination.
- 7 TAC 81.101-.111, which sets forth new sponsorship requirements for MLOs, clarifies renewal procedures, implements a 10-day notice requirement for any material changes made to a licensee’s Form MU4, details new background check procedures for MLOs, and provides new criteria for reviewing an MLO applicant’s criminal history.
- 7 TAC 81.203, .204, .206, which sets forth new requirements for advertising, records storage, office locations, branch offices, and administrative offices, including requirements for licensees engaging in remote work.
- 7 TAC 81.2, which updates references to definitions.
These amendments are effective on November 4, 2021. It is recommended Mortgage Company, Mortgage Banker, and MLO licensees in Texas review the amendments to these new rules.
On September 17, the New Jersey Bureau of Securities (Bureau) announced a cease and desist order against a blockchain-based marketplace company for allegedly selling unregistered securities in the form of interest-earning crypto-asset accounts that raised approximately $14 billion. According to the Bureau, the company funded its cryptocurrency lending operations and proprietary trading partially through unregistered securities sales, in violation of the New Jersey Securities Law. The company allegedly solicited investments by depositing certain eligible cryptocurrencies into investors’ accounts at the company and pooling these cryptocurrencies together to fund its income generating activities, including lending and trading operations. According to the order, the company’s website fails to disclose that its product is not currently registered with any federal or state securities regulator, even though it is subject to such requirements. The Bureau also notes that this is the “second time in less than two months that the Bureau has taken action against a cryptocurrency firm for selling unregistered securities in New Jersey.” (Covered by InfoBytes here.)
The same day, the Texas State Securities Board issued a notice of hearing to determine whether to issue a proposal for decision for the entry of a cease and desist order against the company for allegedly violating the Securities Act by offering and selling securities in Texas without being registered as dealers or agents, among other things.
On June 10, the Texas Department of Banking issued Industry Notice 2021-03, which notifies supervised Texas state-charted banks that they “may provide customers with virtual currency custody services, as long as the bank has adequate protocols in place to effectively manage the risks and comply with applicable law.” The Department noted that Texas state-chartered banks have long provided customers with safekeeping and custody resources through secure storage of assets, which is a critical role in the banking business. “While custody and safekeeping of virtual currencies will necessarily differ from that associated with more traditional assets the [Department] believes that the authority to provide these services with respect to virtual currencies already exists pursuant to Texas Finance Code §32.001,” the notice provided. In addition, the type of virtual currency a bank chooses to utilize will depend on that bank’s expertise, risk appetite, and business model. The notice also pointed out that the Department determined that custody services may be offered by a Texas state-chartered bank in a capacity that is fiduciary or non-fiduciary. A non-fiduciary capacity will allow the bank to act “as a bailee, taking possession of the customer’s asset for safekeeping while legal title to that asset remains with the customer.” Alternatively, in its fiduciary capacity, the bank will have oversight to control virtual currency assets as it would any other type of asset held in such capacity. The notice warned, however, that if a bank is offering virtual currency services, bank management must conduct due diligence and carefully examine the risks involved in offering a new product or service through a methodical risk assessment process.
Texas updates guidance for credit access businesses, continuing to urge them to work with consumers and allowing employees to work remotely
On April 15, the Texas Office of the Consumer Credit Commissioner updated its advisory bulletin (as described here, here, here, here, here, and here) urging credit access businesses to continue to work with consumers during the Covid-19 crisis. Among other measures, the regulator asks licensees to increase consumer communication regarding the effects of Covid-19 on the business’ policies (including communication procedures), work out modifications for payment difficulties, and review policies for fees, late charges, delinquency practices, and repossessions. The guidance also: (i) reminds licensees of legal requirements for using electronic signatures, and (ii) continues to permit licensees to conduct activity from unlicensed locations, subject to certain conditions. The guidance is in effect through May 31, 2021, unless withdrawn or revised.
Texas updates guidance related to regulated lenders, continuing to urge them to work with borrowers and allowing employees to work remotely
On April 15, the Texas Office of the Consumer Credit Commissioner updated its advisory bulletin (previously covered here, here, here, here, here, and here) urging regulated lenders to continue to work with borrowers during the Covid-19 crisis. Among other measures, the regulator asks licensees to increase borrower communication regarding the effects of Covid-19 on the lender’s policies (including communication procedures), work out modifications for payment difficulties, review policies for fees, late charges, delinquency practices, and repossessions, and that certain mortgages may be covered by federal foreclosure moratoriums. The guidance also: (i) reminds licensees of legal requirements for using electronic signatures, and (ii) continues to permit licensees to conduct activity from unlicensed locations, subject to certain conditions. The guidance is in effect through May 31, 2021, unless withdrawn or revised.
- Buckley Webcast: State supervision, enforcement, and multistate coordination
- Benjamin W. Hutten to discuss “Latest on AML regulations and impact of economic sanctions” at a Mortgage Bankers Association webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar