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FTC Provides Annual Financial Acts Enforcement Report to CFPB and Federal Reserve
On June 9, the FTC announced that it has provided to the CFPB its 2014 Annual Financial Acts Enforcement Report. The report highlights the FTC’s enforcement, research, rulemaking, and policy development activities with respect to the Truth in Lending Act (Regulation Z), the Consumer Leasing Act (Regulation M), and the Electronic Fund Transfer Act (Regulation E). Areas detailed within the report include enforcement actions related to non-mortgage credit, including auto finance and payday lending, mortgage loan advertising, and forensic audit scams; and consumer and business outreach related to truth in lending requirements. The report, submitted on May 29, will be used to prepare the CFPB’s Annual Report to Congress. The FTC also submitted a copy of the report to the Federal Reserve Board.
FCC Chairman Circulates Proposal to Strengthen Consumer Protection Under the TCPA; Open Meeting Scheduled For June 18
On May 27, the FCC released a fact sheet outlining Chairman Wheeler’s proposal for a series of rulings under the Telephone Consumer Protection Act (TCPA) that he asserts will better protect American consumers from unsolicited robocalls, spam text messages, and telemarketing calls. If adopted, the proposal would, among other things: (i) give consumers the right to revoke their consent to receive robocalls and robotexts at any reasonable time and in any reasonable way; (ii) authorize carriers to offer robocall-blocking or “Do Not Disturb” technologies to consumers; and (iii) require robocallers to stop calling a number when it has been reassigned to a new subscriber. Responding to multiple petitions that “sought clarity on how the Commission enforces” the TCPA, the proposal aims to “close loopholes and strengthen consumer protections already on the books.” The Chairman’s proposal is scheduled to be voted on at the Open Commission Meeting on June 18.
South Carolina Passes Legislation to Create the Guaranteed Asset Protection Act, Effective Immediately
On June 1, Governor Nikki Haley (R-SC) signed into law Senate Bill 441, enacting the Guaranteed Asset Protection Act and instituting a framework under which guaranteed asset protection (GAP) waivers may be offered in South Carolina. As outlined in SB 441, a GAP waiver is “a contractual agreement in which a creditor agrees for a separate charge to cancel or waive all or part of amounts due on a borrower’s finance agreement in the event of a total physical damage loss or unrecovered theft of the motor vehicle.” Effective June 5, SB 441 prohibits the creditor from conditioning the terms of an extension of credit upon the borrower’s purchase of a GAP waiver and requires the creditor to disclose the terms of the GAP waiver “in easily understandable language,” including the purchase price, the procedures for obtaining GAP waiver benefits, and a statement that the purchase of a GAP waiver is optional.
Special Alert: CFPB Consent Order Applies Loan Originator Compensation Rule to Marketing Services Agreements
On June 5, the CFPB announced a consent order against Guarantee Mortgage Corporation, resolving allegations that the company paid loan originators based on the terms of their mortgage loans in violation of the Loan Originator Compensation Rule (the “LO Comp Rule”). Since inheriting responsibility for the LO Comp Rule in 2011, the CFPB has devoted substantial resources to revising the rule and enforcing its provisions. During that same period, the CFPB brought several actions enforcing the prohibition on referral fees in the Real Estate Settlement Procedures Act (“RESPA”), including an action against Lighthouse Title, Inc. that created considerable uncertainty about the Bureau’s view of marketing services agreements (“MSAs”).
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
- Clinton R. Rockwell, (310) 424-3901
CFPB Director Issues Decision on First Appeal of an Administrative Enforcement Proceeding
On June 4, CFPB Director Richard Cordray issued a decision on a mortgage lender’s appeal of an administrative law judge’s (ALJ) order concerning alleged RESPA violations with respect to the lender’s mortgage reinsurance business. In his decision, Cordray largely affirmed the ALJ decision and ordered the lender to pay $109 million in disgorgement. Notably, because most of the conduct alleged occurred prior to the CFPB assuming jurisdiction over enforcement of RESPA, Cordray declined to impose a civil money penalty. In addition, Cordray agreed with the ALJ that no statute of limitations applies when the CFPB challenges a RESPA violation in an administrative proceeding, declaring that the statute of limitations applies only to judicial proceedings. Cordray also held that the lender committed a separate violation of RESPA every time it accepted a reinsurance payment from a mortgage insurer, even if the loan with which the payment was associated had already been consummated. This was the first appeal of an administrative enforcement proceeding before the CFPB.
CFPB and Florida AG Obtain Judgment Against Law Group and Corporate Affiliates for "Mass-Joinder" Foreclosure Relief Scam
On May 29, a final order was entered against a law group and its corporate affiliates in an action brought by the CFPB and the State of Florida. The July 2014 complaint alleged that the law group and its affiliates violated Regulation O, or the Mortgage Assistance Relief Services Rule, and Florida state law by convincing consumers to participate in “mass-joinder” lawsuits against their mortgage lenders with the false promise that the suits would result in mortgage modifications or foreclosure relief. More specifically, the defendants’ Regulation O violations included: (i) charging consumers advance fees before obtaining loan modifications for them; (ii) misrepresenting success rates of receiving a loan modification; (iii) deceiving consumers into believing that they would receive legal representation; and (iv) discouraging consumers from making their loan payments and/or communicating with their lenders or servicers. The final order, which follows a temporary restraining order and an asset freeze against the defendants, requires that the defendants pay redress to victims and a total of $16 million in civil and state penalties and cease all business operations. Final orders were issued against the three named individuals in the suit as well.
U.S. House Passes Amendment To Ban DOJ's Use of Disparate Impact Claims
On June 3, the U.S. House of Representatives passed an amendment to H.R. 2578, the Fiscal Year 2016 Commerce, Justice, and Science Appropriations Act. The amendment, passed in a 232-196 vote, would prohibit the DOJ from using funds to prosecute and obtain legal settlements from lenders, landlords, and insurers in discrimination suits based on the disparate impact legal theory. This legislative development comes as the U.S. Supreme Court is expected to rule later this summer in Texas Dept. of Housing v. Inclusive Communities Project, which challenges the disparate impact theory in mortgage lending under the Fair Housing Act
Regional Bank Agrees to Pay Over $200 Million for Alleged Violations of the False Claims Act
On June 1, a regional bank agreed to pay the United States $212.5 million to resolve allegations that it knowingly violated the False Claims Act by originating and underwriting FHA-insured mortgage loans that did not meet applicable requirements. The bank – through its subsidiary and as a Direct Endorsement Lender in the FHA insurance program – had the authority to approve mortgage loans for FHA insurance without having FHA or HUD review the loan application first. The DOJ Civil Division’s investigation concluded that, from January 2006 through October 2008, the bank, even though it was aware of material deficiencies in its loan origination process, “failed to report even a single deficient mortgage to FHA.” DOJ further concluded that, while the bank profited from its loan process, taxpayers suffered significant losses when the loans defaulted and FHA incurred “substantial losses when it later paid insurance claims on these loans.” The bank admitted to failing to comply with FHA origination, underwriting, and quality control regulations.
FinCEN Levies $75 Million Penalty on International Casino for BSA/AML Lapse
On June 3, FinCEN announced a $75 million civil money penalty against an international casino for alleged “willful and egregious” violations of the BSA. As detailed in the Assessment, the casino (i) failed to develop and implement an AML program; (ii) failed to designate an official BSA officer to oversee compliance requirements of the BSA; and (iii) failed to train employees in adequate recordkeeping, or in identifying, monitoring or reporting suspicious activity – all considered to be critical components of an adequate BSA/AML program. Moreover, FinCen alleges that casino employees “provided detailed instructions” to undercover agents on how to conduct transactions without being properly reported to U.S. authorities. FinCen’s latest action follows a March announcement, when the agency imposed a $10 million civil money penalty against a New Jersey-based casino.
Federal Reserve Orders Two Financial Institutions to Improve BSA/AML Compliance Programs
On June 1, a Boston-based international financial services holding company and its banking subsidiary agreed to address deficiencies in how they manage compliance risks with respect to their BSA/AML compliance program. The Agreement, entered into with the Federal Reserve Bank of Boston and the Massachusetts Division of Banks, requires both entities to submit a written plan outlining their efforts to improve their compliance with OFAC and internal controls, customer due-diligence procedures, and suspicious activity monitoring and reporting, among other things. In addition, the banking subsidiary must hire an independent third-party to review account and transaction activity during a specified period to ensure suspicious activity was properly identified and reported.
In a separate enforcement action, the Federal Reserve Bank of Chicago entered into an agreement on May 26 with an Illinois-based financial services company, requiring the parent company and its banking subsidiary to, among other things, submit written plans to (i) strengthen its BSA/AML compliance risk management program; and (ii) “ensure the identification and timely, accurate, and complete reporting” of suspicious transactions to the appropriate law enforcement and supervisory [banking] authorities.” No civil money penalties were imposed in either enforcement action.