Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On November 8, the Supreme Court heard oral arguments in Bank of America Corp. v. City of Miami, addressing whether the Fair Housing Act permits Miami to sue mortgage lenders as an “aggrieved person” for alleged racial discrimination in the sale, rental, and financing of housing. The questions presented to the Court for decision are whether (i) the language in the Fair Housing Act that limits standing to sue to “aggrieved person[s]” means that Congress meant to impose a more narrow standing requirement than that in Article III of the Constitution; and (ii) the proximate cause standard in the Fair Housing Act requires that the plaintiffs show more than the possibility that the defendants could have foreseen the harm that occurred through a chain of consequences.
Supreme Court Hears Oral Arguments On Whether Federal Jurisdiction Exists Based on Presence of Fannie Mae as a Party
The Supreme Court heard oral arguments in Lightfoot v Cendant Mortgage Corp., the latest in a line of cases assessing the boundaries of the jurisdiction of the federal courts over Federal agencies and instrumentalities. In Lightfoot, the questions before the Court are whether (i) the phrase "to sue and be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal" in Fannie Mae's charter confers original jurisdiction on the federal courts over every case brought by or against Fannie Mae, pursuant to 12 U.S.C. § 1723a(a); and (ii) the majority’s decision in Am. Nat'l Red Cross v. S.G., 505 U.S. 247 (1992) (5-4 decision), should be reversed.
On November 2, the CFPB, in partnership with the New York Attorney General, filed a lawsuit in a federal district court against the leaders of a debt collection operation based out of Buffalo. The lawsuit alleges that defendants operate a network of companies that harass and/or deceive consumers into paying inflated debts or amounts they may not owe. The Bureau is seeking to shut down the operation and to obtain compensation for victims and a civil penalty against the companies and partners.
On November 3, the CFPB filed a lawsuit in federal district court against a Virginia pawnbroker for deceiving consumers about the actual annual cost of its loans. In its Complaint, the CFPB alleges both TILA violations and unfair, deceptive, or abusive acts or practices under Dodd-Frank and the CPA. The complaint seeks monetary relief, injunctive relief, and penalties. The CFPB coordinated its investigation with the Virginia Attorney General’s office – which filed its own lawsuit against the same pawnbrokers back in July 2015 for violations of the Virginia Consumer Protection Act.
On October 19, the Ninth Circuit, in an opinion by Judge Kozinski, held that merely enforcing a security interest is not “debt collection” under the federal Fair Debt Collection Practices Act (“FDCPA”). Ho v. ReconTrust Co., Case: 10-56884 (Oct. 20, 2016). In so holding, the Ninth Circuit disagreed with earlier decisions by the Fourth and Sixth Circuits, creating a split that might eventually be resolved by the U.S. Supreme Court. See e.g. Piper v. Portnoff Law Associates Ltd., 396 F.3d 227, 235-36 (3d Cir. 2005); Wilson v. Draper & Goldberg PLLC, 443 F.3d 373, 378-79 (4th Cir. 2006); Glazer v. Chase Home Finance LLC, 704 F.3d 453, 461 (6th Cir. 2013).
In Ho, a borrower sued several foreclosure firms after she defaulted on her mortgage loan, alleging that the defendant-companies had violated the FDCPA by sending her default notices stating the amounts owed. The district court dismissed that claim, finding the trustee was not a debt collector engaged in debt collection under the FDCPA. On appeal, the Ninth Circuit affirmed the dismissal. The Court observed that a notice of default and a notice of sale may state the amounts due, but they do not in fact demand payment. Moreover, in California, deficiency judgments are not permitted after a non-judicial foreclosure sale, so no money can be collected from the homeowner. Notably, the notices complained of in Ho are required by California law prior to exercising the right to non-judicial foreclosure.
In an opinion issued Thursday in Bartram v. U.S. Bank Nat'l Ass'n, Nos. SC14-1265, SC14-1266, SC14-1305, 2016 Fla. App. LEXIS 16236 (Dist. Ct. App. Nov. 3, 2016), the Florida Supreme Court ruled that a mortgagee is not precluded by the five-year statute of limitations for filing a subsequent foreclosure action based on payment defaults occurring subsequent to the dismissal of the first foreclosure action, as long as the alleged subsequent default occurred within five years of the subsequent foreclosure action. In so holding, the Court affirmed the lower appellate court's decision and reinstated litigation.
The dispute in Bartram began with a 2006 foreclosure lawsuit against Bartram after he stopped making payments on his mortgage. In April 2011, with Bartram's suit still pending, his ex-wife filed a declaratory judgment action to quiet title to the property, naming her ex-husband, the bank and the homeowners’ association as defendants. When the original foreclosure suit against Bartram was dismissed on procedural grounds one month later, he sought declaratory judgment that the 5-year statute of limitations had passed. Specifically, he argued that the limitations period began to run when he defaulted in January 2006 and the bank accelerated the loan. Although the trial court sided with Bartram, the Florida Fifth District Court of Appeal reversed the ruling and certified the question to the Florida Supreme Court. Florida’s high court narrowly construed the question, framing the issue as: “Does acceleration of payments due under a residential note and mortgage with a reinstatement provision in a foreclosure action that was dismissed . . . trigger application of the statute of limitations to prevent a subsequent foreclosure action by the mortgage based on payment defaults occurring subsequent to dismissal of the first foreclosure suit?” As noted above, the Florida Supreme Court held it does not.
On September 26, the U.S. Court of Appeals for the Second Circuit ruled that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by prohibiting merchants from directing customers to use other, less costly forms of payment. The appeals court reversed based on the lower courts definition of the market as limited to the “core enabling functions provided by networks which allow merchants to capture, authorize, and settle transactions for customers who elect to pay with their credit or charge card.” According to the decision, this definition was too limited in this case, because the credit card network derived its market share from cardholder satisfaction, providing “no reason to intervene and disturb the present functioning of the payment‐card industry.” The court noted that the outcome in this case is different than in previous credit card exclusionary rule cases because here, the payment clearing network and the card issuing function are completely integrated, meaning that the issuer and the network are the same company.
District Court Denies Motion to Dismiss, Rules Compliance Officers Responsible for AML Program Failures
On January 8, the U.S. District Court of Minnesota ruled that individual officers of financial institutions may be held responsible for ensuring compliance with anti-money laundering laws under the Bank Secrecy Act (BSA). U.S. Dep’t of Treasury v. Haider, No. 15-cv-01518, WL 107940 (Dist. Ct. Minn. Jan. 8, 2016). In May 2015, the defendant filed a motion to dismiss the U.S. Department of the Treasury’s December 2014 complaint against him. The Treasury’s complaint alleged that the defendant failed in his responsibility as the Chief Compliance Officer for an international money transfer company to ensure that “the Company implemented and maintained an effective AML program and complied with its SAR-filing obligations.” The complaint sought a $1 million judgment against the defendant and enjoined him from working for, either directly or indirectly, any “financial institution” as defined in the BSA. In his motion to dismiss, the defendant contended that the Treasury’s complaint should be dismissed because, among other reasons, 31 U.S.C. § 5318(a) permits the imposition of a penalty for AML program failures against an entity, not an individual. However, the District Court of Minnesota dismissed the motion, ruling that the BSA’s more general civil penalty provision, § 5321(a)(1), could subject a partner, director, officer, or employee of a domestic financial institution to civil penalties for violations “of any provision of the BSA or its regulations, excluding the specifically excepted provisions.” Judge David Doty further opined, “Because § 5318(h) is not listed as one of those exceptions, the plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like [the defendant], who was responsible for designing and overseeing [the company's] AML program.” The defendant also challenged the Treasury’s complaint on the bases that (i) the request for injunctive relief was time barred by the applicable statute of limitations; (ii) FinCEN should not have been permitted to receive and publicly use grand jury information; and (iii) FinCEN violated his due process rights. For various reasons, the District Court declined to decide on such issues or to dismiss materials based on the arguments presented.
- APPROVED Webcast: Introducing Mogy — APPROVED’s licensing technology solution
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Christopher M. Witeck and Moorari K. Shah to discuss "The latest in vendor management regulations" at a Mortgage Bankers Association webinar
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference