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  • Florida judge rules borrower failed to establish RESPA private right of action

    Courts

    On February 20, a federal judge for the U.S. District Court for the Southern District of Florida issued an opinion and order against a borrower after a two-day bench trial, finding that the borrower failed to establish a private right of action for any of her alleged RESPA violations. According to the opinion, one of the defendants, a mortgage company, initiated foreclosure proceedings against the borrower for failing to pay required insurance and tax associated with her reverse mortgage. During this period, the mortgage company purchased force-placed insurance through an insurance intermediary company to protect its collateral for the reverse mortgage. When the borrower later brought the account current, the mortgage company dismissed the foreclosure complaint. However, the borrower filed a suit against the mortgage company for failing to “advance insurance premiums on her behalf through an escrow account” and against the second defendant, an insurance company, for procuring a policy that “tortiously interfered” with her business relationship with the mortgage company. Specifically, the borrower alleged the procedure used to obtain the force-placed rates violated Florida Insurance Code Section 626.916, and were, therefore, “not bona fide and reasonable under RESPA.”

    However, the judge ruled that none of the borrower’s claims created a private right of action under RESPA, and furthermore, the borrower could not “bootstrap Section 626.916 through another cause of action.” Additionally, the judge noted that counsel for the borrower was unable to provide case law authority to support the “proposition that [the borrower’s] RESPA claim could be premised on a Florida statue which lacked a private right of action.” Concerning the borrower’s allegations of tortious interference against the insurance company, the judge concluded that the claim failed to show that the insurance company “intentionally or unjustifiably” interfered with her relationship with the mortgage company.

    Courts State Issues RESPA Mortgages Reverse Mortgages Foreclosure Force-placed Insurance

  • Texas State Securities Board issues order halting unregistered cryptocurrency trading operation

    Securities

    On February 26, the Texas State Securities Board (Board) issued an emergency cease and desist order (order) to an unregistered cryptocurrency trading operation for allegedly targeting investors through fraudulent and materially misleading online advertisements and offering unregistered securities for sale. According to the order, the company purportedly—in addition to intentionally seeking to mislead the public by promoting high-return investment opportunities—failed to disclose risks associated with cryptocurrency mining, promised investors it would comply with “all relevant laws and regulations,” and claimed that its fund directors were regulated by the Cayman Islands. The Board further asserted the company failed to disclose the true identities of its Code of Ethics Association members responsible for “contract law, due diligence and corporate law,” and instead, created the impression it was associated with attorneys and judges, including U.S. Supreme Court Justice Ruth Bader Ginsburg. Under the terms of the order, the company, among other things, is prohibited from engaging in the sale of securities in the state until the security is registered with the SEC or exempt from registration under the Texas Securities Act, and cannot act as a securities dealer until it complies with the same.

    Securities Digital Assets State Issues Cryptocurrency Enforcement SEC Fintech

  • Alabama extends right of redemption period

    State Issues

    On February 22, Alabama enacted HB 90, which amends the Code of Alabama section relating to the right of redemption on residential property. The amendment provides for a one-year right of redemption period after the foreclosure sale date. Alabama requires a mortgagee to mail a notice of a mortgagor’s right of redemption at least 30 days prior to the foreclosure sale, and the amendment allows the mortgagee to use the proof of mailing of the notice as an affirmative defense to any notice requirement action. Finally, the amendment reduces the time all actions related to the notice requirement must be brought from two years to one year after the date of foreclosure.

    State Issues Mortgages Foreclosure Redemption State Legislation

  • Virginia district judge holds RESPA early intervention requirements confer private right of action

    Courts

    On February 20, a judge for the U.S. District Court for the Western District of Virginia ruled that the early intervention requirements of RESPA allow for a private right of action to pursue claims against loan servicers. According to the opinion, consumers filed a complaint against a mortgage servicer for allegedly violating RESPA’s early intervention requirements under Regulation X, Section 1024.39, which require the servicer to “establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency” and promptly inform the borrower of potential loss mitigation options. The servicer filed a motion to dismiss the action for failure to state a claim, arguing that Section 1024.39 does not provide a private right of action. In denying the motion to dismiss, the court concluded that the CFPB adopted Section 1024.39 pursuant to Section 6 of RESPA, which expressly provides a private right of action and therefore, Section 1024.39 had been intended to convey a private right of action as well.

    Courts RESPA Mortgages State Issues Mortgage Servicing Loss Mitigation

  • Texas Supreme Court says borrowers must arbitrate with payday lender

    Courts

    On February 23, the Texas Supreme Court affirmed a state appeals court panel decision which found that borrowers’ claims in a class action alleging a payday lender’s wrongful use of the criminal justice system to collect unpaid debts were subject to an arbitration agreement in their loan contracts with the payday lender. According to the opinion, the borrowers entered into loan contracts with the payday lender and used postdated checks as security for the loans. The payday lender deposited the postdated checks after the borrowers defaulted on their payment obligations, which resulted in the checks being returned for insufficient funds. The borrowers were then charged by the State of Texas for the issuance of bad checks and the charges were ultimately dismissed. The borrowers filed a class action lawsuit against the payday lender alleging the wrongful use of the criminal justice system to collect on their unpaid loans and asserted violations of, among other things, the Deceptive Trade Practices Act and Consumer Protection Act. The trial court denied the payday lender’s motion to compel arbitration because the court found that the class action allegations related to the use of the criminal justice system and not the underlying loan contract, and that the payday lender waived its right to arbitration by invoking the judicial process. Upon appeal, the panel versed the trial court’s decision. In affirming the appeals court panel holding, the Texas Supreme Court agreed that the class action suit was “factually intertwined with the loan contracts” and therefore, the arbitration provision applied and there was insufficient evidence to support the trial court’s holding that the payday lender waived its right to arbitrate.

    Courts State Issues Arbitration Payday Lending

  • NYDFS releases new updates to cybersecurity regulation FAQs

    Privacy, Cyber Risk & Data Security

    On February 21, the New York Department of Financial Services (NYDFS) updated its answers to FAQs relating to 23 NYCRR Part 500, which was last updated in December 2017. As previously covered in InfoBytes, 23 NYCRR Part 500 took effect March 1, 2017, and establishes cybersecurity requirements for banks, insurance companies, and other financial services institutions. This week’s updates to the FAQs add the following guidance:

    • Due to increasing cybersecurity risks facing financial institutions, NYDFS “strongly encourages all financial institutions, including exempt Mortgage Servicers, to adopt cybersecurity protections consistent with the safeguards and protections of 23 NYCRR Part 500”;
    • Not-for-profit mortgage brokers are Covered Entities under the cybersecurity regulation;
    • Covered Entities, when acquiring or merging with a new company, must conduct a factual analysis of how the cybersecurity regulation applies to the acquisition or merger.  In addition, NYDFS emphasized that Covered Entities must have in place serious due diligence processes and ensure cybersecurity is a priority; and
    • Health Maintenance Organizations and continuing-care retirement communities are Covered Entities and must comply with the cybersecurity regulation requirements.

    As previously covered in InfoBytes, on January 22, NYDFS issued a reminder to all NYDFS-regulated banks, insurance companies, and other financial services institutions that the deadline to file cybersecurity certifications of compliance was February 15.

    Privacy/Cyber Risk & Data Security NYDFS State Issues 23 NYCRR Part 500

  • 10th Circuit upholds TCPA statutory damages as uninsurable under Colorado law

    Courts

    On February 21, the U.S. Court of Appeals for the 10th Circuit affirmed a district court’s decision that under Colorado law, an insurance company had no duty to indemnify and defend its insured against TCPA claims seeking statutory damages and injunctive relief. According to the appellate opinion, the FTC and the states of California, Illinois, North Carolina, and Ohio sued a satellite television company for violations of the TCPA, Telemarking Sales Rule (TSR), and various state laws for telephone calls made to numbers on the National Do Not Call Registry (FTC lawsuit). The FTC lawsuit sought statutory damages of up to $1,500 per alleged violation and injunctive relief. The defendant requested that its insurer defend and indemnify it for the claims pursuant to existing policies. The insurance company filed a complaint for declaratory judgment, seeking a declaration that it need not defend or indemnify the company in the FTC lawsuit. The district court determined that there was no coverage for several reasons, including: (i) that the statutory TCPA damages were a “penalty,” rendering them uninsurable under Colorado law; and (ii) that the injunctive relief sought did not qualify as damages under the policies’ definition. The 10th Circuit Court of Appeals affirmed both holdings, concluding that no coverage existed. 

    Courts TCPA Tenth Circuit Appellate Damages Insurance FTC Telemarketing Sales Rule State Issues

  • Coalition of state attorneys general urge Department of Education to reject accreditor’s application

    State Issues

    On February 20, Massachusetts Attorney General Maura Healey, along with 20 other state attorneys general and the Executive Director of the Hawaii Office of Consumer Protection, issued a letter to U.S. Department of Education (DOE) Secretary Betsy DeVos in opposition to an application submitted by the Accrediting Council for Independent Colleges and Schools (ACICS) to regain its status as a nationally recognized accreditor. According to Healey’s letter, which was submitted in response to the DOE’s January request for comments concerning ACICS’ application, “ACICS’ systemic accreditation failures and refusal to fulfill its obligations to students and taxpayers have enabled predatory schools to ruin the lives of hundreds of thousands of students. . . . Given the gravity of these failures, the Department should not grant any application for recognition made by ACICS without verifying that ACICS has corrected every deficiency and complied with all Departmental requirements effectively and consistently.” As previously covered in InfoBytes, this is not the first time that state attorneys general have reached out to the DOE concerning ACICS’ actions. The DOE upheld the decision to terminate ACICS’ recognition in December 2016.

    State Issues Student Lending NYDFS State Attorney General Department of Education

  • Alabama attorney general establishes cybercrime lab

    State Issues

    On February 14, the Alabama Attorney General’s Office announced the establishment of the Cybercrime Lab, which was created in partnership with the U.S. Secret Service, the Federal Bureau of Investigation, U.S. Department of Homeland Security Investigations, the Alabama Fusion Center, the Alabama Office of Prosecution Services, and U.S. Attorney Louis Franklin. In addition to supporting cyber-related investigations in areas such as network intrusions and data breaches conducted by law enforcement in Alabama at the federal, state, and local levels, the Cybercrime Lab will provide assistance to agencies seeking access to digital evidence. Alabama Attorney General Steve Marshall commented that his office also has new resources for reporting suspected debit/credit card skimming devices.

    State Issues State Attorney General Data Breach Privacy/Cyber Risk & Data Security

  • District Court sanctions bankruptcy law firm for allegedly harming consumers and auto lenders

    Consumer Finance

    On February 12, following a four-day trial, the U.S. Bankruptcy Court for the Western District of Virginia entered a memorandum opinion to sanction and enjoin a national consumer bankruptcy law firm and its local partner attorneys (defendants) for “systematically engag[ing] in the unauthorized practice of law, provid[ing] inadequate representation to consumer debtor clients, and promot[ing] and participat[ing] in a scheme to convert auto lenders’ collateral and then misrepresent[ing] the nature of that scheme.” According to a DOJ press release, the combined order was entered in two actions consolidated for trial brought by the DOJ’s U.S. Trustee Program. The actions concern a Chicago-based law firm that offered legal services via its website to financially distressed consumers and allegedly had “non-attorney ‘client consultants’” engage in the unauthorized practice of law and employ “high-pressure sales tactics” when encouraging consumers to file for bankruptcy relief. Among other things, the defendants allegedly (i) refused to refund bankruptcy-related legal fees to clients for whom the firm failed to file bankruptcy cases; (ii) failed to have in place oversight and supervision procedures to prevent non-attorney salespeople from practicing law; and (iii) partnered with an Indiana-based towing company to implement a scheme that would allow clients to have their bankruptcy-related legal fees paid if they transferred vehicles “fully encumbered by auto lenders’ liens” to the towing company without lienholder consent. Under the “New Car Custody Program,” the towing company allegedly claimed rights to the vehicles, sold the vehicles at auction, paid the client’s bankruptcy fees to the defendants, and pocketed the proceeds. According to the release, this program “harmed auto lenders by converting collateral in which they had valid security interests,” and exposed clients to “undue risk by causing them to possibly violate the terms of their contracts with their auto lenders as well as state laws.”

    Under the terms of the order, the court sanctioned the defendants $250,000, imposed additional sanctions totaling $60,000 against the firm’s managing partner and affiliated partner attorneys, ordered the defendants to disgorge all funds “collected from the consumer debtors in both bankruptcy cases,” and revoked the defendants’ privileges to practice in the Western District of Virginia for various specified periods of time. The court also sanctioned the towing company and “ordered the turnover of all funds it received in connection” with the program. The towing company did not respond to the filed complaints.

    Consumer Finance DOJ Bankruptcy Auto Finance State Issues Courts

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