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House Passes Private Flood Insurance Bill by Unanimous Vote
On April 28, the U.S. House of Representatives passed the Flood Insurance Market Parity and Modernization Act (H.R. 2901) by a unanimous vote of 419-0. The bill, which was introduced in June 2015 by Rep. Dennis Ross, R-Lakeland, and co-sponsor Patrick Murphy, D-Jupiter, is intended to encourage the use of private flood insurance. The bill, among other changes:
(i) Amends the definition of “private flood insurance” to, among other changes, remove the requirements that a private flood insurance policy include deductibles, exclusions, conditions, cancellation provisions, and mortgage interest (i.e., loss payee) clauses comparable to National Flood Insurance Program (“NFIP”) policies. The amended definition of “private flood insurance” would only require that the policy (1) be issued by an insurance company that is approved to provide insurance in the state where the building is located, and (2) provide flood insurance in compliance with that state’s laws.
(ii) Removes amendments made by the Biggert-Waters Flood Insurance Reform Act that required the federal banking agencies to adopt regulations requiring lenders to accept private flood insurance policies if they met the definition of “private flood insurance,” and replaces such provisions with a definition of the minimum amount of private flood insurance necessary to satisfy the mandatory purchase requirements (which is the same as the minimum amount of NFIP insurance necessary to satisfy the mandatory purchase requirements--i.e., coverage that is at least equal to the insurable value of the building, the outstanding principal balance of the loan, or the maximum coverage available under the NFIP);
(iii) Requires federal agency lenders (i.e., federal agencies that make direct loans secured by improved real estate or a mobile home) to accept private flood insurance policies meeting the scaled-back definition of “private flood insurance” as long as such policies provide the minimum amount of required insurance;
(iv) Requires Fannie Mae and Freddie Mac to accept private flood insurance policies meeting the scaled-back definition of “private flood insurance” as long as (a) such policies meet Fannie Mae and Freddie Mac’s requirements relating to the financial strength of the private insurance company, and (b) the financial strength requirements do not affect or conflict with state laws, regulations, or procedures regulating the business of insurance; and
(v) Ensures that borrowers who purchase private flood insurance policies will not lose eligibility for subsidies under the NFIP as long as coverage remains continuous.
Although the bill has received support from a broad range of industry and consumer groups, some believe that it may undermine the ability to ensure that the terms of private flood insurance policies provide sufficient protection.
California Court of Appeals Rules on Evidentiary Standard for Attributing an eSignature to the Signer
On April 22, the California Court of Appeals, Second District, reversed a trial court decision denying a defendant employer’s petition to compel arbitration pursuant an electronically signed arbitration agreement with an employee. Espejo v. S. Cal. Permanente Med. Grp., No. BC562377 (Cal. App. Apr. 22, 2016). In the proceedings below, the employer offered declarations describing its electronic contracting procedures with employees. The procedures described in one of those declarations included an email sent to the plaintiff at the email address he provided, which included a hyperlink to a landing page where he could access his employment agreements for review and execution. After clicking on the link, the employee then had to a log in using unique credentials securely provided to the plaintiff by the employer. Once logged in, the plaintiff was presented various employment agreements (including the agreement containing the arbitration clause) and had to manually type in his name to sign the agreements. Upon signing the agreement, the employer’s system finalized the document by imprinting the date, time, and the IP address from which the plaintiff electronically signed the agreements. The employer’s declarant further stated that the plaintiff’s name could have only been typed into the signature pages of the agreements by someone using the plaintiff’s unique user name and password. In opposition to this evidence, the plaintiff only stated that he did not recall executing the agreement containing the arbitration clause and denied that the employer had met its burden to attribute the signature to him under the state UETA. Due to a procedural issue, the declaration described above was excluded from evidence, and the trial court denied the motion to compel arbitration. On appeal, the appellate court concluded that the trial court erred in excluding the declaration. The court then went on to hold that the employer had properly authenticated the signature on the employment agreements as the plaintiff’s signature, citing the standards for attributing signatures under the state UETA (which may include a demonstration of the efficacy of a security procedure applied to determine the person to which the electronic signature is attributable). The court relied upon the statements in the declaration detailing the security procedures applied by the employer, which showed that only someone using the unique credentials of the plaintiff could have entered his name on the signature line of the agreements, as well as the date, time and IP address stamps associated with the executed agreements. The appellate court contrasted its holding here with another California state court decision, Ruiz v. Moss Bros. Auto Group, Inc. 232 Cal. App. 4th 836 (Cal. App. Dec. 23, 2014), in which the party moving to compel arbitration failed to adequately demonstrate that the electronic signature belonged to the employee. In Ruiz, the employer’s declaration in support of its motion to compel arbitration only stated that the arbitration agreement was “presented to all [] employees” and “each employee is required to log into the company’s HR system, using his or her ‘unique login ID and password,’ to review and sign the employee acknowledgment form.” The court noted the contrast between the conclusory statements offered in Ruiz with the step-by-step declaration offered in this case, which described in detail how the agreement was given to the plaintiff, how he accessed it with his unique credentials, and how only someone using those credentials could have entered the plaintiff’s name into the agreement.
DOJ Closes FCPA Investigation into Onshore, Rig-based Well Servicing Contractor Without Prosecution; SEC Negotiations Continuing
On April 28, an onshore, rig-based well servicing contractor with operations in the United States, Mexico, and Russia announced that the DOJ had closed its investigation into possible violations of the FCPA in relation to the company’s Mexico operations and declined prosecution. The company stated that it is still in negotiations with the SEC regarding possible violations involving the company’s Russian business. The company has been under investigation by the SEC and DOJ since 2014, when the company made a voluntary disclosure to both agencies about the Mexico allegations.
California Department of Business Oversight Issues Interpretive Guidance on SB 197
On April 27, the California Department of Business Oversight (Department) responded to a December 2, 2015 letter from the Equipment Leasing and Finance Association (ELFA) requesting interpretive guidance regarding the implementation of SB 197 (an Act to amend the California Finance Lender Law (CFLL) by adding Sections 22602, 22603, and 22604 to the California Financial Code). SB 197 authorizes licensed finance lenders to compensate unlicensed persons in connection with the referral of one or more prospective borrowers to the licensee for commercial loans if certain conditions are met such as interest rate limitations and ability to repay requirements. SB 197 expressly prohibits certain acts by an unlicensed person receiving compensation from a licensed lender in connection with commercial loans.
The Department’s April 27 letter sets forth the following guidance regarding SB 197 and the administration of the CFLL:
- Scope of SB 197: The Department advised that a licensed lender compensating a licensed broker for referrals is not an activity subject to SB 197. Furthermore, the Department confirmed that SB 197 does not apply to unlicensed brokers or other unlicensed persons who are not compensated for the referral of borrowers to a licensed finance lender. The Department, however, left open the possibility that there may exist circumstances where “lender referral fees or brokerage commissions are being included in the sale of equipment,” which would bring such compensation within the scope of SB 197.
- Jurisdiction/Scope of Licensing: ELFA asked several questions regarding the licensing of certain entities under the CFLL based on different scenarios. Although the Department declined to determine whether the hypothetical scenarios triggered licensure, the Department advised:
Lending to California citizens, or brokering loans on behalf of California citizens, are facts suggesting the lending or brokering activity is occurring in this state. We would look at other factors, such as whether a lender or broker solicits borrowers in California (directly or indirectly), and whether brokering on behalf of California borrowers is of a continuous nature. If the lender or broker's business activity has sufficient contact with California, then licensure would be required.
- Brokers and Exempt Lenders: The Department also advised that if a broker is not brokering loans made by a CFLL licensed lender, then the CFLL does not apply. In other words, if the lender is subject to CFLL licensure, then the broker would also be subject to the CFLL. Conversely, if the lender is exempt from the CFLL, such as a bank, then the lender would not be making CFLL loans and the broker would not be subject to the CFLL or need a CFLL license. This means, as noted above, SB 197 would not apply to referral arrangements utilized by either a lender or broker that is not subject to the CFLL. In determining whether a broker is required to be licensed, the Department noted that while a CFLL licensee is responsible for ensuring it is in compliance with the CFLL, a licensee may nonetheless rely on the broker’s written representations with respect to meeting certain exemptions (g., brokering five or fewer commercial loans in a 12-month period) from licensure because the Department recognized that the CFLL licensee may not have any practical means of verifying this information.
While the Department focused on ELFA’s questions regarding SB 197, which related to the commercial equipment lease finance sector, it appears the Department’s guidance may be broadly applied to all lenders engaging in business in California, including CFLL licensees, exempt entities, and unlicensed persons.
CFPB Monthly Complaint Report Highlights Issues Related to Mortgages
On April 26, the CFPB issued its latest installment of reports covering consumer complaints. According to this month’s report, the CFPB has, as of April 1, handled more than 859,000 complaints across all products, with mortgage complaints accounting for approximately 223,100, making it the second most-complained about product after debt collection. Key findings from the report include the following: (i) approximately 51% of mortgage-related complaints relate to consumers encountering problems when they were having difficulty making payments, such as facing prolonged loss mitigation review processes and receiving conflicting and confusing foreclosure notifications during loss mitigation assistance review; (ii) consumers facing issues involving transfers of their loan to another servicer without being properly informed of the transfers; (iii) loan servicers allegedly providing confusing and contradictory information regarding reinstatement amounts, charges and fees, and interest rates; (iv) loan servicers delaying the release of insurance claim funds allocated to property damages despite consumers having provided all required documentation; and (v) consumers facing prolonged and confusing loan origination processes, resulting in the loss of favorable interest rates and the expiration of rate locks. Consistent with past reports, this month’s issue lists the top 20 most-complained-about companies for mortgage-related complaints, as well as the top ten most-complained-about companies across all financial products. Finally, with more than 118,000 complaints submitted from the state’s consumers as of April 1, the report identifies California as its geographical spotlight, noting that complaints from the state have “generally followed the national trend.”
CFPB to Host Field Hearing on Arbitration
On May 5, the CFPB will host a field hearing on arbitration in Albuquerque, New Mexico. Last October, the CFPB assembled its Small Business Review Panel to review proposals to limit pre-dispute arbitration agreements for consumer financial products and services, signaling preliminary stages of the anticipated proposed rulemaking. The May 5 hearing will be the CFPB’s third field hearing on arbitration; the first was in March 2015 and the second in October 2015.
CFPB Releases Draft Payback Playbook, Aims to Aid Student Borrowers
On April 28, the CFPB released a draft set of student loan disclosures, the Payback Playbook. Outlining repayment options for student loan borrowers, the Payback Playbook is intended to help borrowers effectively manage their monthly payments and avoid default. The Payback Playbook will be available on borrower’s monthly bills, in regular email communications from student loan servicers, or when borrowers log into their accounts. The Payback Playbook for most borrowers would summarize three personalized repayment options, while borrowers who are at risk of default or have missed a payment will receive a “single option with personalized instructions written in plain language describing how to lower their monthly payment.” The CFPB held a press call during which Director Cordray addressed the key objectives of the Payback Playbook, including: (i) aid federal student loan borrowers by personalizing income-driven repayment plans and providing a chart of action to ensure that consumers understand their right to an affordable payment plan; (ii) address the “growing disconnect between borrowers searching for affordable loan payments and [the] nation’s student loan default problem”; and (iii) address consumers’, student loan servicers’, consumer advocates’, and borrowers’ “most urgent problems.”
CFPB Takes Action Against Law Firm, its Partners, and Debt Buyer for Alleged FDCPA Violations
On April 25, the CFPB issued separate consent orders to a New Jersey-based law firm and two of the firm’s partners and a New Jersey-based debt buyer for alleged violations of the FDCPA and the Dodd-Frank Act. According to the CFPB, between 2009 and 2014, the law firm, which specializes in retail debt collection litigation, filed lawsuits on behalf of the debt buyer without having “sufficient documentation” to support “the original contracts underlying the alleged debts, documentation of the consumer’s alleged obligation, or the chain of title evidencing that the debt buyer actually owned the debt and thus had standing to sue the consumer.” The CFPB alleges that, among other things, (i) the law firm relied on an automated system and non-attorney staff to complete the initial review of data submitted by the debt buyer regarding consumers’ debt accounts; (ii) the debt buyer failed to require that the law firm complete an account-level review of the documents it submitted prior to filing suit; (iii) neither the debt buyer nor law firm obtained sufficient documentation evidencing the alleged debt and its transactional history; and (iv) the debt buyer and law firm collected debts and filed suits based on unreliable data. The CFPB further contends that the named partners had “managerial responsibility for the Firm and materially participated in the conduct of its debt-collection litigation practices.” In addition to the $1 million civil money penalty imposed on the law firm and the two partners and the $1.5 million civil money penalty imposed on the debt buyer, the consent orders prohibit the firm, the two named partners, and the debt buyer from filing suits or threatening to file suits without substantial evidence that the debt is accurate and enforceable and from using deceptive affidavits, including those that misrepresent the type of documentation reviewed and that the review was conducted by the actual person signing the affidavit.
OCC Reminds Banks of Records Obligations
On April 27, the OCC issued Bulletin 2016-13 to remind banks of their obligations pertaining to the maintenance of records, records retention, and examiner access to records. According to the bulletin, communications technology recently made available to banks could “prevent or impede OCC access to bank records through certain data deletion or encryption features.” The OCC’s bulletin reminds banks that (i) pursuant to 12 U.S.C. § 481 and 12 U.S.C. § 1464(d)(1)(B)(ii), the OCC has full and unimpeded access to a bank’s books and records; and (ii) communications technology should not be used to limit an examiner’s access to bank records. The bulletin further cautions that, while some chat and messaging platforms claim the ability to permanently delete internal communication, the OCC believes that the “permanent deletion of internal communications, especially if occurring within a relatively short time frame, conflicts with OCC expectations of sound governance, compliance, and risk management practices as well as safety and soundness principles.”
NTIA Seeks Input on the Internet of Things
Recently, the National Telecommunications and Information Administration (NTIA) published a request for public comment regarding the current technology and policy landscape of the Internet of Things (IoT). (IoT is the broad umbrella term that seeks to describe the connection of physical objects, infrastructure, and environments to various identifiers, sensors, networks, and/or computing capability.) The notice includes a list of 28 questions ranging from which definition of IoT should the NTIA use to examine its landscape to how the government should address or respond to privacy concerns about IoT. The questions are divided into seven sections: (i) general; (ii) technology; (iii) infrastructure; (iv) economy; (v) policy issues; (vi) international engagement; and (vii) additional issues. Comments are due by May 23, 2016.