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FHA Updates Initial and Annual Lender Certification Language
On August 1, HUD announced that FHA updated its lender-level certification statements. Pursuant to the Single Family Housing Policy Handbook 4000.1, all lenders seeking FHA approval must complete the Initial Certification as part of the online application process, and all FHA-approved lenders must complete the Annual Certification at each fiscal year’s end thereafter. As outlined in FHA INFO 16-51, use of the revised certifications is mandatory beginning August 1, 2016. After that date, all new LEAP recertification packages will reflect the revised Annual Certification statements, and all lenders applying anew for FHA approval must complete the revised Initial Certification statements. FHA INFO 16-51 further notes that the revised language “may also affect some in-process applications.” FHA released separate documents for supervised/non-supervised mortgagees and investing and government mortgagees to outline the changes implemented. The changes included in the certification statements range from rewording, reformatting, and the refining of policy citations to adding instructions, new requirements, and certain exemptions/qualifiers.
UK Law Society Releases Practice Note Regarding eSignature for Contracts
On July 25, the Law Society of England and Wales released a practice note on the use of electronic signatures when executing commercial contracts in a business context. Developed by a joint working party of the Law Society, the City of London Law Society, and leading City law firms, the practice note is intended to provide industry participants with greater clarity on the relevant laws surrounding the use of e-signatures on commercial contracts. According to Law Society Company Law Committee chairperson Elizabeth Wall, the practice note “will help the industry get comfortable with electronic signatures and embrace the practice benefits of e-signing.”
CA Governor Signs Bill to Amend the California Vehicle Code
On July 25, California Governor Edmund Brown signed into law Assembly Bill (AB) 516. The bill amends or repeals various sections of the California Vehicle Code, and adds Section 4456.2. Pursuant to new section 4456.2, the Department of Motor Vehicles (Department) is required to develop a system for dealers and lessor-retailers to electronically report the sale of a vehicle before it is delivered to the purchaser. The bill outlines minimum requirements for the new dealer reporting system, including assignment of a unique report-of-sale number to each transaction, which must be displayed on the report of sale forms and any temporary license plate. The new system must be ready for operational use no later than January 1, 2019. In addition, AB 516 increases the document processing charge that a dealer may impose on the purchaser or lessee of a vehicle. Specified fee changes will also take effect January 1, 2019.
OFAC Issues Two Findings of Violation for Alleged Violations of Foreign Narcotics Kingpin Sanctions Regulations
On August 2, OFAC issued Findings of Violation (here and here) to two insurance companies for alleged violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598. The findings of violation relate to a non-U.S. insurance company that issued insurance policies to persons subsequently designated as SDNs. The insurance policies were serviced by a U.S. insurance company, which collected insurance premiums from the SDNs and remitted the premiums to the non-U.S. company. Neither company identified the designations until a separate company assumed responsibilities for servicing the policies. OFAC asserted that as large and commercially sophisticated companies providing insurance products and services, they “failed to implement controls and measures to ensure [they] could identify, block and report insurance policies, premiums, or claims payments in which an OFAC sanctioned person(s) had an interest.”
Two Companies Reserve Hundreds of Millions of Dollars for Potential FCPA Settlements
Second quarter SEC filings revealed substantial financial reserves set aside by two companies, each under investigation for alleged FCPA violations for over half a decade. If they end up reflecting the size of the ultimate settlements reached, the reserves, totaling hundreds of millions of dollars, would represent some of the largest FCPA enforcement settlements ever reached by the Justice Department.
According to its July 29 Form 6-K/A filing with the SEC, a Brazilian aircraft manufacturer has recognized a $200 million loss contingency in connection with its discussions to settle the DOJ’s investigation into allegations that the manufacturer’s sales executives bribed various Dominican individuals who, in exchange, influenced legislators in the Dominican Republic to approve a $92 million contract and financing agreement for aircraft. The manufacturer also disclosed that a final settlement is likely to include a deferred prosecution agreement and the imposition of an independent monitor to oversee the manufacturer’s compliance with the terms of an agreement. The related criminal case by the Brazilian government against eight of the manufacturer’s sales executives is still ongoing.
On August 2, a publicly-traded hedge fund revealed in its Form 10-Q filing with the SEC that it has raised its FCPA investigation reserve to over $414 million from the $200 million accrued in the prior quarter. The hedge fund disclosed that it was raising the reserve based on ongoing discussions to resolve the matter with the SEC and DOJ.
Former President of Guatemala Soccer Federation Pleads Guilty in FIFA Investigation
On July 29, the DOJ announced that the former president of the Guatemala soccer federation pleaded guilty to racketeering conspiracy and wire fraud conspiracy charges. The individual was the president of the Guatemala soccer federation from 2009 to 2015. The former president’s guilty plea came in response to allegations that he received bribes in exchange for awarding media and marketing rights to a Florida company for the Guatemalan national soccer team’s World Cup qualifying games. The bribes, totaling hundreds of thousands of dollars, were transmitted from U.S. bank accounts. As part of the plea, the former president agreed to forfeit $350,000 and could be sentenced to a maximum of 20 years for each count.
The guilty plea came as part of the U.S. government’s investigation into corruption in international soccer. 42 individuals and entities have been charged thus far in the investigation, which has been ongoing since May 2015, and the former president is the sixteenth person to plead guilty.
Special Alert: CFPB Proposes Amendments to Know Before You Owe/TRID Rule
On Friday, the CFPB issued its much anticipated proposal to amend the KBYO/TRID rule. The CFPB crowded dozens of proposed changes into the almost 300 page proposal, most of which are highly technical and require careful examination. As the Bureau has signaled since its intention to issue amendments was first announced, the proposal is not intended “to revisit major policy decisions” because “[t]he Bureau is reluctant to entertain major changes that could involve substantial reprogramming of systems so soon after the October 2015 effective date or to otherwise distract from industry’s intense and very productive efforts to resolve outstanding implementation issues.” However, it has “proposed a handful of substantive changes where it has identified a potential discrete solution to a specific implementation challenge.”
If finalized, the amendments should resolve a number of significant ambiguities that have generated concerns about the liability of lenders and purchasers of mortgage loans and hampered loan sales, particularly the so-called “Black Hole” that can arise when closing is unexpectedly delayed. However, because it is unclear in most cases whether the Bureau intends the amendments to apply only prospectively and because the amendments would not alter the provisions for “curing” errors, these liability concerns will remain for loans originated prior to the effective date of the amendments. Furthermore, because the industry has been forced to make loans since October 2015 despite these ambiguities, it will be necessary in many cases to revise existing systems and practices to comply with the amended rule. Finally, in some cases, the Bureau seems to have gone beyond resolving ambiguities and is instead seeking to make targeted policy changes to the rule.
Although the proposed amendments are too voluminous and technical to be summarized comprehensively, we have highlighted a number of the more significant proposed changes below. Note that the CFPB specifically requested feedback on a number of the issues addressed in the proposal. Comments are due on or before October 18, 2016.
Click here to view the full Special Alert.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Melissa Klimkiewicz, (202) 349-8098
- Kathryn L. Ryan, (202) 349-8008
- Steve vonBerg, (202) 524-7893
Special Alert: CFPB Releases Outline of Proposed Rule for Third Party Debt Collectors
On July 28, the CFPB announced that it is considering proposing a rule to “overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.” The CFPB released several related documents, including a report on third-party debt collection operations and an outline of the proposal (the “Outline”) that will be presented to a panel of small businesses pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA). Under the SBREFA process, the CFPB first seeks input from a panel of small businesses that likely will be subject to the forthcoming rule. A report regarding the input of those reviewers is then created and considered by the CFPB before issuing its proposed rule.
While the CFPB’s earlier Advanced Notice of Proposed Rulemaking posed questions regarding collections by creditors and first party collectors, the Outline only addresses proposals for third party collectors (i.e., collectors operating in their own name when collecting on behalf of others including debt buyers and collection law firms). Based on remarks by Director Cordray, the CFPB is expected to address first party collections separately. That said, in practical terms the outline in effect would impose certain new compliance obligations on creditors.
The Outline’s proposals for third party collections notably include (i) requirements to obtain and review information substantiating consumer debts to be collected; (ii) requirements regarding the transfer of information when consumer debts are transferred; (iii) revisions and additions to the debt validation notice; (iv) required disclosures when collection communications are made in connection with time-barred debt (as well as a prohibition on filing suit in connection with time-barred debt); and (v) limits to the contacts and contact attempts made in connection with a debt. These and other requirements proposed in the Outline are discussed further below.
Click here to view the full Special Alert.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- John P. Kromer, (202) 349-8040
- Jeffrey P. Naimon, (202) 349-8030
- Walter E. Zalenski, (202) 461-2910
- Marshall T. Bell, (202) 461-2997
CFPB Monthly Complaint Snapshot Highlights Credit Card Issues
On July 26, the CFPB released its most recent monthly complaint report, which provides a high-level snapshot of consumer complaint trends. The current report highlights credit card complaints. According to the report, between July 21, 2011 and July 1, 2016, the CFPB handled approximately 97,100 credit card-related complaints, making credit cards the fourth most complained about product. The report identifies billing disputes, identity theft/fraud/embezzlement, and “other” complaints as the three most common types of credit card-related complaints. The report states that, with respect to complaints related to credit decisions, consumers frequently complain about difficulty in understanding initial application decisions and servicing changes (such as interest rate adjustments and credit limit reductions). Credit card complaints described in the report also include (i) confusion over payment allocation relating to promotional and deferred interest balances; (ii) frustration with late fees and additional costs; and (iii) difficulty understanding the terms and conditions of rewards and obtaining benefits.
With respect to consumer complaints generally, the report’s “Geographic spotlight” section focuses on Washington and the Seattle metro area. The report notes that, as of July 1, Washington consumers have submitted 18,900 complaints, with approximately 11,000 of those from Seattle consumers. At 29%, mortgage loans are the most-complained-about product in Washington, with debt collection and credit reporting trailing at 27% and 15%, respectively. Across all products and throughout the nation, the CFPB has handled approximately 930,800 complaints.
GAO Releases Report on Mortgage Servicing
On July 25, the GAO released a report titled “Mortgage Servicing: Community Lenders Remain Active under New Rules, but CFPB Needs More Complete Plans for Reviewing Rules.” At the request of the House Committee on Financial Services, the GAO report outlines and analyzes the effect of the CFPB’s 2013 mortgage-servicing rules and the banking regulators’ implementation of the Basel III framework on credit unions and community banks’ (collectively, community lenders) mortgage servicing activities. Specifically, the GAO report examines (i) community lenders’ participation in the mortgage servicing market, as well as the potential effect of the new mortgage servicing rules on them; (ii) the potential impact that the Basel III framework could have on community lenders’ decisions to hold or sell Mortgage Servicing Rights (MSR); and (iii) regulators’ processes for estimating the impact of the new regulations.
Overall, the GAO report suggests that community lenders’ decisions to sell or hold MSRs likely will not be affected by the new capital treatment of MSRs under the Basel III framework because their concentration of MSRs is limited: “Most representatives of community banks said that regulatory changes to the capital treatment of MSRs did not require them to sell MSRs or raise additional capital.” Although officials from two community banks with larger concentrations of MSRs suggested that “the rules would prevent the bank from growing as much as it would like,” the GAO concludes that community lenders’ participation in MSR sales is based on several factors other than MSR capital treatment, including volatility in the value of MSRs, compliance risk, and interest rates and prepayments.
According to the report, the new mortgage servicing regulations increased compliance costs for community lenders, but have yet to affect adversely their participation in the mortgage servicing market. In fact, the GAO found that, between 2008 and 2015, the share of mortgages serviced by community lenders doubled. The report states that community lenders continue to service mortgage loans held in portfolio or hold MSRs, despite the increase in regulatory requirements and compliance costs, because such activities generate income and help them to maintain strong customer relationships. Regarding profitability, representatives from one credit union noted that “servicing mortgages provides it with the opportunity to develop borrowers into full members with checking and savings accounts and car loans.” Community lenders further highlighted the significance of working directly with customers encountering errors or difficulty during the loss mitigation process: “Representatives at several industry associations and community lenders [told the GAO] that community banks and credit unions preferred to retain MSRs even if they sold the mortgages in the secondary market because they were able to maintain close customer contact should issues arise.” The report recognizes that, for community lenders servicing 5,000 or fewer mortgages, the CFPB’s exemptions for small servicers and creditors were helpful to their businesses and customers. Still, some community lenders reported having to adjust their business practices to manage increased compliance costs, highlighting increases in fees and interest rates, as well as changes to product offerings.
Pursuant to the Dodd-Frank Act, the CFPB must retrospectively review the effectiveness of its mortgage servicing rules by January 2019. According to the report, as of April 2016, the CFPB’s plans for retrospective review are incomplete because agency officials determined that, among other things, it was “too soon to identify the relevant data and because the agency wanted the flexibility to design the most effective method to analyze the rules.” The report states that, without having finalized a review plan, including outlining its proposed methodologies for seeking public input, the CFPB risks not having sufficient time to complete an effective review. As such, the GAO recommends that the CFPB “complete a plan to identify the outcomes [it] will examine to measure the effects of the regulations, including the specific metrics, baselines, and analytical methods to be used.”