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Federal, State Officials Focus on Employee Payroll Cards
On July 11, a group of Democratic Senators urged the CFPB and the Department of Labor to “take swift action” regarding prepaid payroll cards. The Senators expressed concern that workers do not understand the “excessive fees” and “harmful practices” associated with such cards, and suggested that those fees and practices - specifically, those relating to ATM use, balance inquiry, swipe purchases, overdraft, and inactivity, among others – may violate the Electronic Fund Transfer Act and its implementing regulation, Regulation E. The lawmakers asked the CFPB to conduct a study to better understand these fees and their impact on workers, and to clarify through a rulemaking or other supervisory action the options employers must provide to their employees under Regulation E. The Senators’ letter follows reports of an investigation by New York Attorney General Eric Schneiderman into potential state law violations related to employers’ use of payroll cards.
Colorado AG Investigating Foreclosure Law Firm Fees
On July 11, the Denver Post reported that Colorado Attorney General (AG) John Suthers is investigating whether foreclosure law firms are inflating fees that are added to the cost of the foreclosure and mortgage balance, and subsequently are passed on to borrowers, lenders, and investors. The AG has not filed charges against any firms, but has moved to enforce subpoenas his office issued seeking information from numerous law firms about the foreclosure fees they charged. The investigation covers all costs claimed by the firms, including costs related to posting foreclosure notices on homeowners’ doors, which the AG claims substantially exceed the market rate.
California AG Releases Data Breach Report, Proposes Data Security Policy Changes
On July 1, California Attorney General Kamala Harris (AG) released a report analyzing data breaches reported to her office in 2012, the first year companies were required to report to the AG any breach involving more than 500 state residents. The report identifies 131 data breach incidents that put the personal information of 2.5 million individuals at risk. The AG noted that the report is not required by the law, but provides support for the AG’s recommendations to companies, law enforcement agencies, and the legislature about how data security could be improved. Those policy recommendations focus on (i) data encryption, (ii) information security, (iii)notice letters, and (iv) the definition of personal information.
Specifically, the AG claimed that the information for 1.4 million Californians would have been protected if companies had encrypted data, and urges companies to encrypt digital personal information when moving or sending it out of their secure network. The AG pledged to prioritize enforcement investigations of breaches involving unencrypted personal information. The AG’s report notes that a large percentage of breaches surveyed resulted from the failure of information security controls and references requirements under state law to protect the personal information of California residents.
The AG also stated that companies should make their data breach notices to consumers easier to read, and that the state legislature should consider expanding breach notice requirements to cover breaches involving passwords. The AG highlighted a pending bill, SB 46, that would revise the notice requirement’s definition of personal information to require reporting of breaches involving information that would permit access to an online account - user name or email address, in combination with a password or security question and answer. That bill has already passed the state Senate and was approved by the Assembly’s Judiciary Committee. It is scheduled to be considered by the Assembly’s Appropriations Committee on July 3, 2013.
DOD Seeks Input on Military Lending Act Regulations; State AGs Seek Expansion of Covered Loans
Last week, the Department of Defense (DOD) issued an advanced notice of proposed rulemaking to solicit input on potential changes to the definition of “consumer credit” in the regulations that implement the Military Lending Act (MLA). Currently, the MLA regulations cover certain payday, car title, and refund anticipation loans to servicemembers and their dependents. The DOD notice seeks (i) comment on whether the definition of “consumer credit” should be revised to cover other small dollar loans and (ii) examples of alternative programs designed to assist servicemembers who need small dollar loans. Responses to the DOD notice are due by August 1, 2013. On June 24, a bipartisan group of 13 state attorneys general submitted a comment letter urging the DOD to amend the MLA regulations to close loopholes in the definitions of covered loans and to cover any other type of consumer credit loan presenting similar dangers, such as overdraft loans.
New York AG Signals Crackdown on Bank Foreclosure Practices
On June 4, New York Attorney General Eric Schneiderman (AG) announced a lawsuit against a major financial institution for allegedly violating state law by failing to timely file in foreclosure cases “requests for judicial intervention” (RJI), which would trigger court-supervised settlement conferences. The suit seeks to compel the financial institution to file the RJI immediately in all cases in which it has filed a proof of service, and to file an RJI simultaneously with proof of service in all future cases. The suit also seeks (i) to compel the firm to prepare an accounting of interest charges, penalties and fees that accrued beginning 60 days after the filing of proof of service on the homeowner; (ii) to toll and waive all accrued interest charges, fees and penalties that accrued, or will accrue, beginning 60 days after the filing of proof of service on the homeowner; (iii) restitution for interest charges, fees and penalties paid by the homeowner that accrued beginning 60 days after the filing of proof of service on the homeowner; and (iv) damages for homeowners injured by the alleged practices. The suit results from an AG investigation that sampled foreclosure filings in four New York counties, and the AG stated that he is committed to bringing similar actions against other lenders.
State Attorneys General Look Into Recent Data Breach Incident
On May 1, the Connecticut Attorney General, George Jepsen, and the Maryland Attorney General and NAAG President, Douglas Gansler, sent a letter to representatives of a “daily deals” website that recently disclosed a data security incident, seeking additional information about the event. The company publicly reported the incident and stated that no financial information was obtained by the hackers. Nevertheless, the AGs presented numerous information requests, including requests for (i) a detailed timeline of the incident, (ii) the number of individuals affected in each state, (iii) the categories and types of compromised information, (iv) a description of how the company determined that no financial information was compromised, and (v) information about how the company stores, connects, protects, and monitors the various customer data in its possession. Although those experiencing a security breach are often required under state laws to provide this type of information to a state AG, the public release of an AG information request and the joint issuance of a request by multiple state AGs has been less common.
New York AG Plans Suit Over Alleged Violations of National Servicer Settlement
On May 6, New York Attorney General Eric Schneiderman announced his intent to sue two of the five mortgage servicers that entered the National Mortgage Settlement with 49 state attorneys general, the U.S. Department of Justice, and certain federal agencies, alleging numerous violations of the servicing standards established by that agreement. Based on complaints received from borrowers, Mr. Schneiderman alleged that the two companies violated agreed-to loan modification timeline requirements established in the National Mortgage Settlement, including failure to provide acknowledgment of receipt of documentation from a borrower, failure to notify the borrower of missing documentation, and failure to provide a decision on the modification request within 30 days of receiving a complete application. Procedurally, under the National Mortgage Settlement, an individual party such as the New York Attorney General must provide notice of intent to bring an enforcement action for noncompliance to the Monitoring Committee, which has 21 days to determine whether to pursue action on behalf of all the parties to the National Mortgage Settlement. At the conclusion of the 21-day waiting period, if the Monitoring Committee decides not to move forward, the New York Attorney General, and other individual attorneys general, may separately pursue the action.
Housing Counselor Survey Alleges Banks Fail to Comply with National Mortgage Settlement.
On April 3, a California borrower advocacy organization published the results of its survey of housing counselors, which the organization claims reveals that problems persist with the implementation of the national servicing settlement’s servicing standards, including with regard to single points of contact, dual tracking, timelines, and documentation. The report also claims that borrowers of color and other groups face additional challenges to obtaining relief under the settlement. The report recommends that (i) the National Mortgage Settlement Monitor and state attorneys general collect, analyze and report the race, ethnicity, gender, and census tract of those who have received assistance and those who have not; (ii) the OCC and the Federal Reserve Board collect, analyze and make public the same data beyond the national settlement, and include all loss mitigation activity; (iii) the CFPB promptly issue a rule to establish new HMDA categories; (iv) the Monitor impose penalties on outliers; (v) the Monitor, the CFPB, and state AGs tighten rules around “complete loan mod app”, servicing transfers, and widows; (vi) regulators prioritize in the revamped Independent Foreclosure Review process principal reduction relief, keeping people in their homes, and restoring wrongful foreclosure victims to their homes by forcing servicers to go back through their files, rescind improper foreclosure sales, and fix mistakes; (vii) authorities provide more financial support for housing counseling and legal services; and (viii) regulators ensure that servicers have sufficient capacity and training to work with homeowners at risk of foreclosure.
Debate over FHFA Leadership Resurfaces
On March 15, the attorneys general (AGs) for nine states sent a letter to President Obama and Senate leaders seeking the appointment of a permanent director for the FHFA to replace Acting Director Edward DeMarco. The AGs complain that under Mr. DeMarco’s leadership, “Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for homeowners,” identifying the FHFA’s opposition to allowing the entities to offer principal forgiveness as the primary issue. The AGs follow federal lawmakers who made a similar plea last month. Recently, it was reported that the President is considering Representative Mel Watt (D-NC) for the position. During a Senate hearing this week, Senator Bob Corker (R-TN) defended Mr. DeMarco and responded that any nominee for FHFA director should lack political bias and possess technical expertise to help guide Congress through development and implementation of housing reform.
Additional State AGs Join Challenge to Dodd-Frank Act Provisions
On February 13, the plaintiffs in a case challenging portions of the Dodd-Frank Act sought leave to file a second amended complaint to add as plaintiffs the state attorneys general (AGs) of Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas, and West Virginia. Motion for Leave to File Second Amended Complaint, State Nat'l Bank of Big Spring v. Wolin, No 12-1032 (D.D.C., filed Feb. 13, 2013). The new state AGs join the AGs of Michigan, Oklahoma, and South Carolina, who previously joined the suit and claim that the "orderly liquidation authority" (OLA) for financial institutions provided to the Treasury Secretary by the Dodd-Frank Act violates the separation of powers doctrine, as well as the Fifth Amendment's bar against the taking of property without due process. The case also involves private party plaintiffs who, in addition to challenging the OLA, challenge as unconstitutional (i) the formation and operation of the CFPB, (ii) the appointment of CFPB Director Richard Cordray, and (iii) the operation of the Financial Stability Oversight Council. The plaintiffs were due to respond to a pending government motion to dismiss, but asked the court to stay briefing on that motion pending resolution of the motion to file a second amended complaint.