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4th Circuit: Disgorgement calculation lacks necessary casual connection between profits and violations
On April 27, the U.S. Court of Appeals for the Fourth Circuit held that a district court’s disgorgement calculation for a banker found in contempt of a consent order rested on “an erroneous legal interpretation of the terms of the underlying consent order” and “lacked the necessary causal connection” between profits and a violation. As previously covered by InfoBytes, the banker settled RESPA and state law allegations with the CFPB and the Maryland Attorney General concerning his participation in a mortgage-kickback scheme. The 2015 final judgment order banned the defendant from participating in the mortgage industry for two years but did not prohibit him “from acting solely as a personnel or human-resources manager for a mortgage business operated by a FDIC-insured banking institution. . . .” In 2018, the banker was held in civil contempt for violating the final judgment order, and the district court ordered the disgorgement of over half-a-million dollars of his contemptuous earnings. The banker appealed the contempt finding and disgorgement.
On appeal, the 4th Circuit first held that the district court properly found the banker in violation of the consent order, determining among other things that, while the final judgment order did not broadly prohibit his participation in the mortgage industry, there was sufficient evidence that he “continued to communicate impermissibly with third-party businesses engaged in settlement services” and that he failed to follow various reporting requirements, such as uploading the consent order to a national registry and notifying regulators of a change in residence and business activity. However, the 4th Circuit found that the district court erred in its approach to calculating disgorgement because it assumed that “managing the business was improper and set out identifying [the banker’s] profits from his business because any such profit was contemptuous income.” (Emphasis in the original.) Holding that the district court’s view relied on an overbroad interpretation of the consent order and lacked the causal connection between the banker’s profits and a violation, the 4th Circuit vacated the disgorgement order and remanded the case to the district court to reassess the disgorgement calculation based on the banker’s more limited conduct that did not comply with the order.
Student loan servicer settles public service loan relief suit
On April 24, a proposed class of borrowers and a national student loan servicer agreed to settle a lawsuit, which alleged the servicer failed to inform the borrowers of a loan forgiveness program for public service employees. The proposed settlement, which was granted final court approval in October, settles the one remaining deceptive acts and practices claim under a section of the New York General Business Law after the U.S. District Court for the Southern District of New York dismissed the rest of the borrowers’ claims last July. The court noted in its order that it did not agree with the servicer’s argument that the claims were preempted by the federal Higher Education Act (HEA), stating that the borrowers “do not seek to impose state law ‘disclosure requirements’ on federal student loans,” but instead “seek to hold [the servicer] liable for affirmative misrepresentations made in the course of performing its duties under various contracts.” According to the court’s order, language under the HEA “does not express the ‘clear and manifest purpose of Congress’ to preempt such claims.”
While the servicer denies any allegations of wrongful conduct and damages, it has agreed to, among other things, put in place enhancements to identify borrowers who may qualify for Public Service Loan Forgiveness and “distribute comprehensive and accurate information about how to qualify, which are meaningful business practice enhancements.” The servicer will also fund a $2.25 million education and counseling program for student loan borrowers in public service.
Illinois issues executive order amending and reissuing remote notarization and witnessing guidelines
On April 30, the Illinois governor issued an executive order amending and reissuing guidelines relating to remote notarization and witnessing. The guidelines are extended through May 29, 2020.
Illinois Department of Financial and Professional Regulation extends deadline for submission of financial statements for certain money transmitter licensees
On April 30, the Illinois Department of Financial and Professional Regulation issued guidance to persons or entities licensed pursuant to the Transmitter of Money Act (TOMA) regarding the submission of financial documents. TOMA licensees who are required to submit financial documents for renewal for the calendar year 2020 are granted an extension of 180 days after the licensee’s fiscal year for the submission of financial statements. All other requests for an extension of time will be considered on a case-by-case basis.
Oregon regulator issues guidance for debt buyers and collectors
On April 30, the Oregon Department of Consumer and Business Services, Division of Financial Regulations issued Bulletin No. DFR 2020-14 to provide guidance to state-regulated debt buyers and collection agencies on reasonable measures they could take consistent with the governor’s April 17 executive order preventing garnishment of CARES Act stimulus checks (covered here). The guidance encourages entities to take active measures to help debtors affected by Covid-19, including: (i) offering payment accommodations like deferrals; (ii) waiving certain fees; (iii) temporarily suspending collection activities for debtors with significant hardships; and (iv) stopping collection activity for debts whose only income source is exempt.
Nevada governor temporarily stays garnishment and executions on funds
On April 30, Nevada Governor Steve Sisolak issued an executive order temporarily staying garnishment on all funds. The order also applies to property garnishment and executions on funds, and specifically protects against garnishment of stimulus paychecks. The order is valid for the duration of the state of emergency declared on March 12.
Massachusetts securities regulator extends temporary relief for corporations and financial professionals
On April 30, the Massachusetts Securities Division extended an emergency notice announcing temporary relief from signature and notarization requirements for corporate filings and financial professionals (previously covered here). The extension will be in place until May 31 unless otherwise amended.
Illinois extends closure of nonessential businesses
On April 30, the governor of Illinois issued an executive order that continues a previous stay at home order. The order requires nonessential businesses activities and operations to cease, with limited exceptions, such as operating exclusively through employees working at their own residences. Essential businesses may remain open, but are required to evaluate whether employees can work from home, and are required to comply with social distancing and other health-related requirements while operating. A wide range of financial institutions and their affiliates are considered essential businesses. The order took effect on March 1.
Alaska governor signs remote notarization bill into law
On April 30, the Alaska governor signed into law H.B. 124, which amends Alaska’s notarization law to permit remote notarization. The amendments set forth the requirements for conducting remote notarization, including the selection of technologies to perform the remote notarization and record keeping requirements.
Michigan Department of Insurance and Financial Services extends insurance guidance
On April 30, the Michigan Department of Insurance and Financial Services (DIFS) issued a bulletin extending Bulletin 2020-12-INS for the period of time that Executive Order 2020-59, and any subsequent executive order that reaffirms or clarifies the measures in Executive Order 2020-59, remains effective. Bulletin 2020-12-INS provides that all claims must continue to be processed and paid in a timely manner. Additionally, insurers are expected to make all required filings with the DIFS. Entities and persons regulated by the DIFS also must comply with all applicable statutory and regulatory deadlines and requirements, unless such are expressly waived or modified by the DIFS, including applicable filing deadlines. Companies that experience difficulties meeting deadlines or requirements are urged to contact the DIFS immediately.