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  • Decades-Old Fraud Case Settled After Over 12 Years

    Courts

    On February 10, the New York Attorney General’s office announced it had reached a settlement in a securities fraud suit filed in 2005 by then-Attorney General Eliot Spitzer. The lawsuit was filed after the company admitted to engaging in improper reinsurance transactions that materially misrepresented loss reserves and misstated underwriting results. The original settlement in 2006 resulted in the company paying $1.6 billion to settle the matter; however, the two individuals involved refused responsibility for the transactions. Now, over 12 years later, and after the two defendants’ arguments were “substantially rejected by the New York Supreme Court, the New York Supreme Court Appellate Division, First Department and the New York Court of Appeals,” the defendants have acknowledged their role in the transactions and agreed to collectively relinquish over $9.9 million they had received as performance bonuses from 2001 through 2004.

    Courts Consumer Finance Fraud Securities State Attorney General

  • CFPB Releases Second Webinar on New HMDA Rule

    Lending

    On February 14, the CFPB announced the availability of a second Webinar on the New Home Mortgage Disclosure Act (HMDA) Rule (amending Regulation C), a Rule that was itself finalized in late 2015 but that is predominantly not effective until January 1, 2018, or later. The new Webinar, with audio and closed-captioning over a slide-deck, focuses solely on identifiers and other “data points,” including the race and ethnicity of an applicant or borrower, which must be collected under the New HMDA Rule. In August 2016, the CFPB released an initial Webinar on the same Rule, covering a broader range of topics and without the focus on data points in the newer Webinar.

    In addition, the Bureau has now made available a one-page chart to summarize the options a financial institution has for collecting and reporting ethnicity and race information under current Regulation C, Regulation C effective January 1, 2018, and the Bureau’s Official Approval Notice (issued on September 23, 2016). All of the above-mentioned resources and many more related materials (such as an unofficial transcript we prepared of the initial Webinar) can also be found in Buckley Sandler’s HMDA Resource Center.

    Lending Consumer Finance CFPB HMDA Regulation C

  • FDIC Issues Guidance to Facilitate Recovery in Areas of Louisiana Affected by Severe Weather

    Agency Rule-Making & Guidance

    On February 14, the FDIC issued guidance (FIL-9-2017) intended to provide regulatory relief to financial institutions and to facilitate recovery in areas of Louisiana affected by recent severe storms, tornadoes, high winds, and flooding. A current list of designated areas—where damage assessments are currently underway—is available at www.fema.gov. Among other things, the guidance encourages banks to “work constructively with borrowers experiencing difficulties” due to weather-related damage by considering “[e]xtending repayment terms, restructuring existing loans, or easing terms for new loans.” Such flexibility, the FDIC instructs, can both “contribute to the welfare of the local community” and also “serve the long-term interests of the lending institution.” The FDIC is also considering “regulatory relief from certain filing and publishing requirements.”

    Agency Rule-Making & Guidance Disaster Relief FDIC Mortgage Modification Mortgages

  • Federal Judge Sentences Hacker to Eight Years for Cyber Heists that Caused More than $55 Million in Losses

    Courts

    On February 10, the United States Attorney for the Eastern District of New York announced that the Honorable Kiyo A. Matsumoto levied an eight year prison sentence against a Turkish citizen charged with organizing and carrying out three cyber-attacks on global financial institutions between 2011 and 2013 which resulted in more than $55 million in losses. Last March, the defendant pleaded  guilty to “computer intrusion conspiracy, access device fraud conspiracy, and effecting transactions with unauthorized access devices.” Specifically, the defendant and his associates were alleged to have repeatedly hacked into debit card processing systems, manipulated account balances, stole customers’ PINs, and transferred that information to associates who then encoded debit cards with the stolen data in order to make fraudulent ATM withdrawals. The DOJ further alleged that the hackers targeted databases companies maintained for prepaid debit cards and effectively eliminated the card accounts’ withdrawal limits in what are called “unlimited operations.” The defendant was also ordered to pay $55,080,226.14 in restitution as part of his sentence. 

    Courts Privacy/Cyber Risk & Data Security Financial Crimes

  • CFPB Temporarily Enjoined from Naming Company Under Investigation

    Courts

    On February 17, U.S. District Judge Rudolph Contreras issued an Order granting in part a motion filed by a unnamed "John Doe" recipient of a CFPB civil investigative demand (CID) for an injunction preventing the Bureau from disclosing its identity pending its petition to the Court of Appeals for a stay of the CID. Specifically, Judge Contreras ordered that: “Defendants are ENJOINED, until March 3, 2017” from “publicly disclosing the identify of Plaintiff John Doe Company, by taking actions including, but not limited to, the public filing of either the civil investigative demand . . . or the Director’s Decision and Order [denying] Plaintiff’s Petition" to set aside the CID. 

    As previously covered by InfoBytes, the John Doe company filed an action against the CFPB back in January seeking to enjoin the Bureau from, among other things, disclosing the existence of an investigation and taking any action against the company unless and until the CFPB is constitutionally structured. The company argued, among other things, that the agency should not be able to identify it as the target of an investigation as publication of the company’s name would bring “irreparable harm” as it tries to defend itself against any enforcement action. Immediately following the District Court's ruling against the company, it lawyers filed a Notice of Appeal with the U.S. Court of Appeals for the D.C. Circuit to try to stop the agency from moving forward.

    Courts Consumer Finance CFPB Enforcement John Doe v CFPB Single-Director Structure

  • New York Attorney General Announces Settlements Over Data Collection Practices

    State Issues

    On February 9, the New York Attorney General’s (NYAG’s) office announced two settlements with mobile app developers who allegedly omitted information about their data collection practices in their privacy policies. While the investigation revealed that neither developer misused their customers’ personal information or improperly disclosed such information to third parties, the NYAG’s office determined that both companies failed to properly disclose the fact that they had collected the information as required by law. Both companies have agreed to add privacy policies to their apps.

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

  • CFPB to Explore “Alternative Data” as Means to Measure the “Credit Invisible”

    Consumer Finance

    On February 16, the CFPB published a Request for Information seeking information about the “use or potential use” of “alternative data” and/or modeling techniques that might help increase access to credit for consumers who otherwise lack sufficient credit history. As explained by the Bureau in a press release, and as previously covered by InfoBytes, millions of Americans have insufficient credit history to produce a credit score. Accordingly, the Bureau is seeking public feedback on the benefits and risks of utilizing alternative sources of information–such as bills for mobile phones and rent payments–that may be used to make lending decisions involving consumers whose lack of credit history might otherwise exclude them from lending opportunities.

    In prepared remarks delivered at a field hearing on alternative data, CFPB Director Richard Cordray noted, among other things, that "equal access to credit means even more if overall access to credit is expanded and not constrained by lingering uncertainty about how regulators intend to apply fair lending laws. So we have crafted this Request for Information to help us better understand whether and how such uncertainty may be hindering credit access for disadvantaged populations. We also want to learn more about how the Consumer Bureau might reduce that uncertainty while holding fast to the anti-discrimination principles that are the cornerstones of federal law."

    Consumer Finance Lending CFPB Cordray Credit Scores

  • House Financial Services Committee Chairman Called for End of CFPB; Senate Banking Committee Ranking Member Responds

    Federal Issues

    In a February 10 blog post, House Financial Services Committee Chairman Jeb Hensarling called for the abolition of the CFPB, and recommended that the President “immediately fire CFPB Director Richard Cordray.” Specifically, Rep. Hensarling expressed his belief that the CFPB is “arguably the most powerful, least accountable agency in U.S. history,” and his concern that the agency “defines its own powers and can launch investigations without cause, imposing virtually any fine or remedy, devoid of due process.” For these reasons, Rep. Hensarling  stated  he believes that “even with good policy, the CFPB would still be unconstitutional.” Ultimately, he argued that the CFPB “must be functionally terminated,” which he said could be achieved by ending the Bureau’s funding through a reconciliation bill.

    The same day, Senate Banking Committee Ranking Member Sherrod Brown issued a statement responding to Rep. Hensarling’s proposal to abolish the Dodd-Frank Act. Senator Brown’s response noted, among other things, that “71 percent of Americans approve of the [CFPB]’s mission,” and that “[t]he Hensarling proposal would transform the Bureau from an effective watchdog into a toy poodle.”

    Federal Issues Consumer Finance CFPB Dodd-Frank House Financial Services Committee Senate Banking Committee Single-Director Structure

  • District Court Upholds CFPB CID Targeting the Marketing of “Contracts for Deed”

    Courts

    On February 17, a U.S. District Court held that home sellers who use contracts for deed are required to comply with CFPB Civil Investigative Demands (CIDs) asking for information about possible illegalities in selling or collecting residential property purchase loans. CFPB v Harbour Portfolio Advisors, LLC et al., [Order] No. 16-14183 (E.D. Mich. Feb. 17, 2017). Specifically, the Court found that the Bureau is not “plainly lacking” in jurisdiction to look into contracts for deed, and the CIDs were not unduly burdensome.

    Back in November, the CFPB had petitioned the court to enforce CIDs served on Respondents. At issue before the Court was whether the Bureau’s investigative authority extends to the selling, marketing, and servicing of a financial product called an Agreement for Deed (“AFD”), otherwise known as a “contract for deed” or a “land installment contract.” Respondents thereafter petitioned the Bureau to set aside the CIDs, offering three reasons why the CIDs should not be enforced: (i) the CFPB exceeded its authority in issuing the CIDs; (ii) the companies had not been given fair notice that contracts for deed could be covered by federal financial consumer protection laws; and (iii) the CIDs were unduly burdensome and should be modified.

    Each of these three arguments was rejected by the court: (i) as to the Bureau’s authority, the court found that objection premature, noting that the Bureau need only establish a “plausible reason” to believe the companies might have information related to violations of the federal financial consumer protection laws; (ii) the court similarly held the “fair notice” argument to be premature at the investigation stage; and (iii) in rejecting Respondent’s arguments that the burden of compliance was excessive, the court noted that the CFPB was entitled to documents that “will help the Bureau develop a complete understanding of Respondents’ practices and operations” and that Respondents’ assertions about the cost of compliance and the burden on its few employees were not corroborated.

    Courts Consumer Finance CFPB Compliance

  • Legislation Introduced in Both Houses Seeking to Curb Authority of the CFPB and Other Financial Regulators

    Federal Issues

    On February 14, Senator Mike Rounds, a member of the Senate Banking Committee, introduced S. 365, which seeks to amend the Consumer Financial Protection Act of 2010 to bar the transfer of funds from the Board of Governors of the Federal Reserve System to the CFPB. The bill also would require the CFPB to turn over all penalties it obtains to the United States Treasury. Sen. Rounds also reintroduced the “Taking Account of Institutions with Low Operation Risk (TAILOR) Act” (S. 366)–a bill intended to ease regulatory burden on local banks and credit unions. Specifically, the TAILOR Act would require financial regulators to take into consideration the risk profile and business models of individual financial institutions and tailor those regulations accordingly. The TAILOR Act also would require regulators–including the OCC, the Fed, the FDIC, the NCUA and the CFPB–to conduct a review of all regulations issued since the 2010 passage of the Dodd-Frank Act and revise any regulations that do not conform to the TAILOR Act’s requirements. In addition, the regulatory agencies would be required to provide an annual report to Congress outlining the steps they have taken to tailor their regulations.

    On February 15, Senator David Perdue (R-Ga.), along with Sens. John Barrasso (R-Wyo.), John Boozman (R-Ark.), Ted Cruz (R-Tex.), Steve Daines (R-Mont.), Mike Enzi (R-Wyo.), Joni Ernst (R-Iowa), John Hoeven (R-N.D.), Johnny Isakson (R-Ga.), Ron Johnson (R-Wis.), John Kennedy (R-La.), Mike Lee (R-Utah), Rand Paul (R-Ky.), Marco Rubio (R-Fla.), and Thom Tillis (R-N.C.), have introduced legislation S. 387 to amend the Consumer Financial Protection Act so that the CFPB would be subject to the regular appropriations process.

    Senator Ted Cruz and Representative John Ratcliffe also introduced legislation in their respective chambers that would abolish the CFPB. The pair of bills–S. 370  and H.R. 1031–would “eliminate the Consumer Financial Protection Bureau by repealing title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Consumer Financial Protection Act of 2010.” As explained by Senator Cruz in a joint press release, the proposed legislation would give “Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth.”

    Federal Issues Consumer Finance CFPB Congress Dodd-Frank Senate Banking Committee

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