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On March 29, the Department of Veterans Affairs (VA) issued Circular 26-19-10, encouraging relief for VA borrowers impacted by severe storms and flooding in Iowa. Among other things, the Circular encourages loan holders to (i) extend forbearance to borrowers in distress because of the severe storms and flooding; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular is effective until April 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief here.
On March 29, the SEC and the United Kingdom (UK) Financial Conduct Authority (FCA) signed two updated Memoranda of Understanding (MOU) to continue their cooperation and information sharing with respect to the “effective and efficient oversight of regulated entities across national borders.” The MOUs will come into force on the date EU legislation ceases to have direct effect in the UK, should the UK withdraw from the EU.
The first MOU is a supervisory arrangement covering regulated entities operating across national borders. The MOU—originally signed in 2006—includes updates to increase the scope of covered firms under the MOU to include firms that carry out derivatives, credit rating, and derivatives trading repository businesses. The update will reflect “the FCA’s assumption of responsibility from the European Securities and Markets authority for overseeing credit rating agencies and trade repositories in the event of the UK’s withdrawal from the EU.”
The second MOU—originally signed in 2013—provides a supervisory cooperation and exchange of information framework related to the supervision of covered entities operating within the alternative investment fund industry. The updates ensure that covered entities including investment advisers, fund managers, and private funds “will be able to continue to operate on a cross-border basis without interruption” in the event of a withdrawal.
On March 29, the CFPB published its Consumer Response Annual Report, providing a review of the Bureau’s complaint process and a description of complaints received from consumers from across all 50 states and the District of Columbia between January 1 and December 31, 2018. According to the report, the Bureau handled approximately 329,800 consumer complaints. Of these complaints, roughly 80 percent were submitted to companies for review and response, 14 percent were referred to other regulatory agencies, and four percent were determined to be incomplete. The top categories, representing approximately 89 percent of all complaints, were credit or consumer reporting, debt collection, mortgages, credit card, and checking or savings complaints. The Bureau also received complaints related to: (i) student, personal, and payday loans; (ii) money transfers and virtual currency; (iii) vehicle finance; (iv) prepaid cards; (v) credit repair; and (vi) title loans. As reported by the CFPB, the majority of consumers who submitted complaints indicated that they first tried to resolve their issues with the companies.
On March 28, the Federal Reserve Board released a report titled, “Dodd-Frank Act Stress Test 2019: Supervisory Stress Test Methodology,” which details the models and methodologies the Board will use for 2019 stress tests. The release is intended to “increase the transparency of [the Board’s] stress tests without compromising [its] ability to test the resiliency of the nation's largest banks.” Specifically, the report provides more information than in years past on the models that are used to project bank losses, including (i) ranges of loss rates for loans that are grouped by distinct risk characteristics; (ii) examples of portfolios with hypothetical loans with projected loss rates; and (iii) enhanced descriptions of models.
On March 29, the CFPB announced that the HMDA Modified Loan Application Registers (LARs) data is available for 2018. Specifically, the Modified LARs contain loan level information for 2018 on HMDA filers, covering approximately 5,400 financial institutions. This is the first release in which the additional data required by the 2015 HMDA rule is available. Later this year, additional information will be published, including a complete loan level dataset.
On April 2, the FDIC issued Financial Institution Letter FIL-19-2019 (Technology Service Provider Contracts), which describes examiner observations about gaps in financial institutions’ contracts with technology service providers (TSPs) that may require financial institutions to take additional steps to manage business continuity and incident response. Although not specifically referenced in FIL-19-2019, this latest FDIC guidance echoes themes set forth in the FDIC’s Office of Inspector General (OIG) Audit Report released in 2017 (covered in Infobytes here). Specifically, examiners noted contractual deficiencies in recent reports of examination, including failing to: (i) adequately define rights and responsibilities regarding business continuity and incident response, or provide sufficient detail to allow financial institutions to manage those processes and risks; (ii) consistently require TSPs to maintain a business continuity plan, establish data recovery standards, and commit to contractual remedies if the TSP missed a data recovery standard; (iii) sufficiently detail the TSP’s security incident responsibilities such as notifying the financial institution, regulators, or law enforcement; and (iv) clearly define key terms used in contractual provisions relating to business continuity and incident response.
FIL-19-2019 further stresses that supervised institutions are required to comply with the Interagency Guidelines Establishing Information Security Standards promulgated pursuant to the GLBA, which among other things sets forth expectations for managing TSP relationships through contractual terms and ongoing monitoring. The FDIC references prior guidance establishing regulatory expectations, including: (i) Guidance for Managing Third-Party Risk (FIL-44-2008, issued June 6, 2008); and (ii) the Business Continuity Booklet set forth in the FFIEC IT Examination Handbook, which was updated in February 2015 to include a new appendix specific to managing service provider risks (Appendix J: Strengthening the Resilience of Outsourced Technology Services). FIL-19-2019 also contains a reminder to depository institutions that the Bank Service Company Act requires depository institutions to provide written notice to their respective federal banking agency of contracts or relationships with TSPs that provide certain services, including check and deposit sorting and posting, computation and posting of interest, preparation and mailing of checks or statements, and other clerical, bookkeeping, accounting, statistical, or similar functions such as data processing, Internet banking, or mobile banking services.
On March 27, the FTC announced it had entered into two stipulated orders for permanent injunction and monetary judgment (see here and here) against an office supply company and its California-based tech-support services vendor (defendants) for allegedly violating the FTC Act by selling computer repair and technical services to consumers who were told the company’s software program had detected malware symptoms on their computers. According to the FTC’s complaint, from approximately 2009 to November 2016, the defendants allegedly used a software program marketed as a “PC Health Check Program”—among other names—to “facilitate the sale of computer repair services to . . . retail customers.” The program, which claimed to detect malware symptoms on consumers’ computers, actually based the results on answers to questions consumers were asked at the beginning of the program, including whether the computer had issues with displayed pop-up ads or other problems, ran slow, received virus warnings, or crashed often. The FTC claimed the scan had no connection to the malware symptoms results and that, since at least 2012, the defendants allegedly knew that the program falsely reported malware symptoms but continued to reward store managers and employees who generated sales from the program until late 2016. The proposed order imposes a combined $35 million monetary judgment, bans the office supply company from making misrepresentations concerning the security or performance of consumers’ electronic devices, and requires the company to ensure that existing and future software providers do not engage in the prohibited conduct. The order also prohibits the vendor from misrepresenting or helping others to misrepresent the performance or detection of security issues on consumers’ electronic devices.
On March 27, the White House released a Memorandum on Federal Housing Finance Reform, which directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Specifically, the memo states that the U.S. housing finance system is “in urgent need of reform,” as taxpayers are “potentially exposed to future bailouts” and programs at HUD have outdated operations and are “potentially overexposed to risk.” The President directs the Treasury and HUD to create specific plans addressing a number of reforms “as soon as practical.” Among other things, the directives include:
- Treasury to reform GSEs. With the ultimate goal of ending the conservatorships, the memo directs Treasury to develop proposals to, among other things, (i) preserve access to 30 year fix-rate mortgages for qualified homebuyers; (ii) establish appropriate capital and liquidity requirements for the GSEs; (iii) increase private sector participation in the mortgage market; (iv) evaluate the “QM Patch” with the HUD Secretary and CFPB Director; and (v) set conditions necessary to end conservatorships.
- HUD to reform programs. In addition to outlining specific objectives, the memo directs HUD to achieve three goals: (i) ensure that the FHA and the Government National Mortgage Association (GNMA) assume the primary responsibility for providing housing finance support for low income or underserved families; (ii) improve risk management, program, and product design to reduce taxpayer exposure; and (iii) modernize the operations of the FHA and GNMA.
Similarly, on March 26 and 27, the Senate Banking Committee held a two-part hearing (here and here) on housing finance reform. The hearing reviewed the legislative plan released by Chairman Mike Crapo (R-ID) in February. As previously covered by InfoBytes, the plan would, among other things, end the GSEs conservatorships, make the GSEs private guarantors, and allow other nonbank private guarantors to enter the market. Additionally, the plan would (i) restructure FHFA as a bipartisan board of directors, which would charter, regulate, and supervise all private guarantors; (ii) place a percentage cap on all outstanding mortgages for guarantors; and (iii) replace current housing goals and duty-to-serve requirements with a fund intended to address housing needs of underserved communities. In his opening statement at the hearing, Crapo said that, “approximately 70 percent of all mortgages originated in this country are in some way touched by the federal government” and “the status quo is not a viable option” for the housing finance market. Ranking Member Sherrod Brown (D-Ohio) emphasized that “any changes we consider must strengthen, not weaken, our ability to address the housing challenges facing our nation and make the housing market work better for families.”
Over the two days, the Senators and witnesses discussed the positive objectives of Crapo’s plan while recognizing hurdles that exist in implementing housing finance reform. While many Senators and witnesses expressed support for a requirement that private guarantors serve a national market, others suggested that regionalized or specialized guarantors could have advantages, including reaching underserved markets. Many Democrats stressed the importance of keeping a catastrophic government guarantee in place, while Republicans emphasized the need for legislative reforms to be implemented as soon as possible. With respect to equal access for small lenders, Senators discussed the concern over credit unions being able to sell loans in a multiple guarantor market.
On March 28, HUD announced that it charged a world-wide social media platform with violating the Fair Housing Act (FHA) by allowing advertisers to exclude certain protected classes from viewing housing-related ads. According to the charges, the social media platform collects information about its users and sells advertisers the ability to target housing-related advertisements to people who “share certain personal attributes and/or are likely to respond to a particular ad.” Specifically, HUD alleges that the platform first allows advertisers to use tools to select attributes of users who they would like to include or exclude from viewing their advertisements. These attributes include attributes such as, “women in the workforce,” “foreigners,” “Puerto Rico Islanders,” or “Christian.” HUD also alleges that the platform allows advertisers to draw a “red line” around specific areas on a map to exclude people who live there from seeing a particular ad. In a subsequent phase, HUD alleges that the platform groups users by shared attributes to create a target audience most likely to engage with the ad, even if the advertiser would prefer a broader audience, which, according to HUD, inevitably creates “groupings defined by their protected class.” HUD alleges that the data collection and targeted ad processes function “just like an advertiser who intentionally targets or excludes users based on their protected class” in violation of the FHA. HUD is seeking an injunction, damages for any aggrieved persons, and civil money penalties against the platform.
On March 26, the FTC announced settlements issued against four separate operations for allegedly placing billions of illegal robocalls to consumers selling auto warranties, debt-relief services, home security systems, veterans’ charities and Google search results services. The actions are part of the FTC’s ongoing efforts to combat illegal robocalls. According to the FTC, the companies—along with several of their affiliates and leaders—allegedly violated the FTC Act and the Telemarketing Sales Rule (TSR), including its Do Not Call provisions.
Proposed settlements issued against two related operations and their leaders—who, according to the FTC’s complaint, developed and enabled a software dialing platform that resulted in more than one billion robocalls—ban the defendants from engaging in telemarketing activities utilizing an autodialer, and imposes judgements ranging from $1 million to $2.7 million, of which two are fully suspended due to the defendants’ inability to pay. The FTC also reached a final settlement against defendants who allegedly placed robocalls to pitch fake debt-relief services promising lowered credit card interest rates and interest payment savings. The order permanently bans the defendants from engaging in telemarketing and debt-relief services, and imposes a $3.15 million judgment, which will be suspended following the turnover of available assets. Separately, the FTC reached a proposed settlement with a defendant who allegedly used robocalls promoting fake veterans’ charities to solicit donations, which he eventually sold for his own benefit. The proposed order bans the defendant from engaging in telemarketing services or soliciting charitable contributions, prohibits him from making future misrepresentations, and imposes a $541,032 monetary judgment, which will also be suspended following the turnover of available assets. Finally, the FTC announced proposed settlements against three defendants (see here, here, and here) whose Florida-based operations allegedly violated the TSR by falsely claiming to represent Google and making threats and promises to businesses concerning search results and page placements. The terms of the proposed settlements, among other things, ban the defendants from deceptive sales practices, and require the defendants to disclose their identities during telemarketing sales calls. Monetary judgements imposed against the defendants and their companies range from $1.72 million to $3.62 million, and will be partially suspended due to their inability to pay.
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Buckley Webcast: The future of the Community Reinvestment Act
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Buckley Webcast: Amendments to the CFPB's proposed debt collection
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- APPROVED Webcast: State and SAFE Act licensing requirements for banks
- John C. Redding to discuss "TCPA compliance in the era of mobile" at the Auto Finance Risk Summit
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: Data breach litigation and biometric legislation
- Buckley Webcast: Trends in e-discovery technology and case law
- 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 "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium