Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Nevada Supreme Court Holds that HOA "Superpriority" Statute Does Not Violate Due Process, Declines to Follow 9th Circuit
On January 26, in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage, No 68630, (Nev. Jan 26, 2017), the Nevada Supreme Court reaffirmed its interpretation of the state statute granting priority lien status to unpaid condo assessments (Nev. Rev. Stat. § 116.3116 et seq.); specifically that foreclosure of such liens extinguishes prior-recorded mortgages. The Nevada Supreme Court declined to follow a 2016 ruling by the Ninth Circuit holding that the statute violates the Due Process Clause of the 14th Amendment. Rather, the Nevada Supreme Court stated that the Due Process Clause protects individuals from state actions, and a foreclosing HOA cannot be deemed to be a state actor. In doing so, the court specifically notes that “[w]e acknowledge that the Ninth Circuit has recently held that the Legislature's enactment of NRS 116.3116 et seq. does constitute state action. . . . However, for the aforementioned reasons, we decline to follow its holding.”
Supreme Court Holds that Sue-and Be-Sued Clause Does Not Create Automatic Federal Jurisdiction in Suits Involving Fannie Mae
On January 18, in Lightfoot v. Cendant Mortgage Corp., No. 14-1055, the Supreme Court of the United States unanimously held that Fannie Mae’s sue-and-be sued clause does not grant federal courts jurisdiction over all cases involving Fannie Mae. In reaching its conclusion, the Court found that the clause, which authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal,” was distinct from other sue-and-be-sued clauses previously considered to confer jurisdiction. Unlike other clauses, which referred to suit in federal court without qualification, the Fannie Mae clause authorized suit in “any court of competent jurisdiction.” Accordingly, the Court concluded that “[i]n authorizing Fannie Mae to sue-and-be-sued ‘in any court of competent jurisdiction, State or Federal’ it permits suit in any state or federal court already endowed with subject-matter jurisdiction over the suit” and thus a suit involving Fannie Mae does not automatically create federal jurisdiction.
On January 23, the CFPB announced that it had entered consent orders (2017-CFPB-0004 , 2017-CFPB-0005), against two affiliated mortgage servicers, claiming the companies had misled homeowners seeking foreclosure relief. One of the respondent companies is alleged to have, among other things, burdened consumers with excessive and unnecessary paperwork demands in response to foreclosure relief applications thereby violating both RESPA and the Dodd-Frank Act’s prohibition on deceptive acts or practices. The Bureau is therefore requiring the company to pay an estimated $17 million to compensate affected consumers and to pay a civil penalty of $3 million.
As for the second respondent, the CFPB alleged that it failed to consider payment deferment applicants for foreclosure relief options, misled consumers about the impact of deferring payments, charged certain borrowers for credit insurance that should have been cancelled, prematurely cancelled credit insurance for other borrowers, provided inaccurate information to credit reporting agencies, and failed to investigate consumer disputes. Finding violations under RESPA, FCRA, and various “deceptive acts or practices,” the Bureau is requiring the second company to refund approximately $4.4 million to consumers and to pay a civil penalty of $4.4 million.
On January 19, the CFPB initiated an enforcement action against a U.S. bank alleging it mislead consumers regarding its overdraft services. In a complaint filed with the United States District Court for the District of Minnesota, the Bureau claims the bank created an application process that obscured fees and made an optional opt-in overdraft service appear to be mandatory for both new and existing consumers. Furthermore, the complaint alleges that the bank relied on overdraft fee revenue to a greater degree than most other banks its size and recognized that the opt-in rule could negatively impact its business by virtue of reducing overdraft revenue. The CFPB seeks “redress for consumers, injunctive relief, and penalties.”
On January 20, the Ninth Circuit issued an opinion affirming the U.S. District Court for the Central District of California’s 2014 order enforcing the investigative demands against three tribal lending entities. The investigative demands are centered on determining whether small-dollar online lenders or other persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, provision, or collection of small-dollar loan products, in violation the Dodd-Frank Act and other Federal consumer financial laws. According to the opinion, the court claims that in “the Consumer Financial Protection Act, a generally applicable law, Congress did not expressly exclude tribes from the Bureau’s enforcement authority” and thereby, the tribes cannot claim tribal sovereign immunity.
Nation's Biggest Bank Agrees to $55 Million Settlement with DOJ Regarding Allegations of Discriminatory Lending Practices
On January 18, the DOJ filed a lawsuit in the United States District Court for the Southern District of New York accusing a national bank of discriminating against minorities in home lending. According to the government’s complaint, the DOJ alleges, among other things, that the bank “failed to adequately monitor for and fully remedy the effects of race and national origin disparities in APR” and did not “maintain adequate data to determine whether it was discriminating” before ending its wholesale lending practice in late 2009. Two days later, on January 20, the bank agreed to settle the matter and will pay $55 million, while denying any wrong doing. The bank maintains its view that the DOJ’s case is based on legacy allegations that concern pricing decisions of independent third-party brokers. The details of the settlement have not been released as of the publication date of this post.
Global Money Service Business Settles Alleged AML and Consumer Fraud Allegations; Fined $586 Million in Settlement
On January 19, the DOJ announced that it had entered into Deferred Prosecution Agreement with a global money services business regarding allegations the company failed to maintain effective anti-money laundering program and aiding and abetting wire fraud. The announcement claims that between 2004 and 2012, the company “violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.” Under the terms of the Agreement, the business must forfeit $586 million and “implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.”
In a related case, the company also agreed to a consent order with the FTC to resolve parallel allegations by the FTC in a complaint filed on January 19 in the U.S. District Court for the Middle District of Pennsylvania. The complaint alleges that the company’s conduct violated Section 5 of the FTC Act and the Telemarketing Sales Rule.
Prudential Regulators Fine Mortgage Company Over "Significant Deficiencies" in Foreclosure-Related Services
On January 24, the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency filed an amended Consent Order fining a foreclosure services provider $65 million for “improper actions” conducted by the company’s predecessor. The fine replaces all obligations to complete the “Document Execution Review” required in the original 2011 consent order between the same agencies and the servicer’s predecessor. In the 2011 order, the agencies claimed, among other things, that the predecessor company’s actions resulted in significant deficiencies in the foreclosure-related services it provided to mortgage servicers.
On January 10, the FTC filed a complaint against an online company that owns three “free credit report” websites as well as three individuals connected to the company with claims that they illegally lured consumers to their websites. The scheme, as alleged in the complaint, made use of Craigslist ads promoting non-existent or unauthorized apartments and houses for rent as the means of encouraging consumers to request additional information, which would then prompt them to click on a link to one of the three websites owned by the company to get a “free” credit check. The consumers allegedly were then enrolled in a credit monitoring service, supposedly without their knowledge or consent. The company has purportedly accrued millions of dollars using this method. On January 11, the U.S. District Court for the Northern District of Illinois entered a temporary restraining order against the defendants.
On January 10, a California-chartered finance company with its principal place of business in Manila, Philippines filed an action to enjoin the CFPB from, among other things, disclosing the existence of an investigation of the plaintiff and taking any action against the plaintiff unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). The action was prompted, in part, by the recent PHH v. CFPB decision in which the court held that the CFPB’s single director leadership structure is unconstitutional and, thus, that the agency must operate as an executive agency supervised by the President. Here, the John Doe plaintiff argues that because the CFPB has requested review of the PHH decision, the court’s remedy in regarding the CFPB’s structure has not taken effect and thus agency is operating in violation of the Constitution. Therefore, plaintiff asserts, the CFPB can take no further action against it—including publication of the CFPB’s investigation of plaintiff or initiation of enforcement action against plaintiff.
We note, that on the same day the plaintiff filed its complaint, the court issued an order reflecting its decision that the plaintiff be able to proceed in its action against the CFPB under a pseudonym. In so doing, the court noted that where a company has filed an action to protect against the government’s disclosure of its identity, it would be “counterintuitive that a court should require that same company to disclose its identity in the parallel court proceedings.” Judge Rudolph Contreras of the U.S. District Court for the District of Columbia has given the CFPB until Jan. 25 to respond to the company’s complaint and motion to proceed under a pseudonym.