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U.S. Senators Introduce Legislation Seeking to Increase SEC Penalty Amounts
On July 9, U.S. Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) introduced Senate bill 1730, the Stronger Enforcement of Civil Penalties Act of 2015 (SECPA), aimed at increasing the SEC’s ability to combat securities’ laws violations to better protect investors and bolster oversight and accountability. Specifically, the SECPA “increase[es] the statutory limits on civil monetary penalties, directly linking the size of these penalties to the scope of harm and associated investor losses, and substantially raising the financial stakes for repeat securities law violators.” In addition, the legislation calls for expanded penalty authority for violations of previously imposed injunctions or bars, and would categorize individual injunction violations as separate charges.
NY Governor Says Two Additional Mortgage Companies Will Adopt Set of Best Practices to Combat "Zombie Properties"
On July 9, in an ongoing fight to reduce the amount of “zombie properties” within the state, Governor Cuomo announced that two additional mortgage companies will adopt the New York Department of Financial Services (NYDFS) recommended Industry Best Practices, aiming to help combat the economic damage that vacant and abandoned properties cause certain neighborhoods. The Practices ensure that banks and mortgage companies will regularly inspect properties in a delinquent status to determine if they are vacant, and if they are properly maintained and safe. If a property is determined vacant, banks and mortgage companies will report the property to a state registry, ensuring that NYDFS shares the information with local government officials. Local government officials and the NYDFS will then work together to “address and escalate any concerns about maintenance with the bank or mortgage company that is servicing the loan.” Governor Cuomo’s announcement resonates with Superintendent Lawsky’s May 22 remarks concerning NYDFS’s effort to reform the state’s lengthy foreclosure process, which leaves properties in despair and causes economic blight and safety issues. With the two additional companies joining the state’s efforts against zombie properties, lenders representing nearly 70 percent of the New York mortgage lending market have now agreed to adopt the set of best practices.
New Hampshire Passes Legislation to Regulate the Offering of Guaranteed Asset Protection Waivers
On July 6, Governor Maggie Hassan (D-NH) signed into law Senate Bill 119/Chapter 207 to regulate the offering of GAP waivers. The act also amends the terms of Consumer Guarantee Contracts to limit the consumer’s ability to bring an action in a court of law. The act is effective September 4, 2015.
Minnesota Passes Legislation to Exclude Guaranteed Asset Protection Waiver Policies from Insurance Definition
On June 13, Governor Mark Dayton (D-MN) signed into law H.F. 3/Chapter 1, which, in part, excludes Guaranteed Asset Protection (GAP) waiver policies from the definition of insurance. Effective August 1, the act specifies that the GAP waiver statute will not apply to certain insurance law requirements, including those relating to: (i) commercial deals; (ii) a debt cancellation or debt suspension contract; and (iii) credit life, credit accident and health, and credit involuntary unemployment. The act also allows for GAP waivers to be sold for either a single payment or as a monthly periodic payment. Finally, the act includes certain GAP waiver disclosures, such as cancellation of the GAP waiver by the borrower within the free look period, which is no less than 30 days.
CFPB Recommends Consumer Protection Principles for Faster Payment Networks
On July 9, the CFPB issued a set of guiding principles aimed to help private industry better protect consumers as new, faster electronic payment systems continue to emerge. “While American consumers benefit from and make use of these payment systems, there remain opportunities to improve efficiency, reduce transaction costs for consumers, and reduce credit and fraud risks,” the CFPB’s announcements stated. Accordingly, the principles advocate for more secure, transparent, accessible, and affordable networks for consumers, and recommend proposals concerning funds availability, fraud and error resolution, and privacy concerns. The Bureau’s announcement comes as the Federal Reserve is currently engaged in an initiative to improve the U.S. payment systems network.
DOJ Deputy Assistant AG Delivers Testimony at Senate Subcommittee Hearing Regarding Cyber Crime
On July 8, the DOJ’s Deputy Assistant AG, David Bitkower, delivered his testimony before the Senate Judiciary Subcommittee on Crime and Terrorism’s hearing entitled, “Cyber Crime: Modernizing Our Legal Framework for the Information Age.” Bitkower’s testimony focused on two of President Obama’s earlier 2015 legislative proposals regarding the security of online privacy for American citizens and businesses. The first proposal, with an emphasis on the “insider threat,” seeks to amend a provision of the Computer Fraud and Abuse Act (CFAA) – the primary statute the DOJ uses to charge computer crime cases – to ensure that corrupt employees using their authority to access sensitive data for personal gain are not immune from federal punishment. Bitkower noted that recent judicial decisions have impeded the government’s ability to prosecute cases where “serious violations and invasions of privacy” were prevalent. The second legislative proposal would enhance the DOJ’s ability to combat botnets, the networks of computers that are infected with malware and used by criminals to steal personal information, evade detection, and hold computers and computer systems for ransom. The proposed legislation would broaden the categories of crimes committed with botnets that can be enjoined by courts, which, under the current law, are mostly limited financial crimes.
DOJ Sentences Real Estate Developers to Prison for Involvement in Alleged Mortgage Fraud Scheme
On July 8, the DOJ announced the prison sentences of three real estate developers for their roles in an alleged mortgage fraud scheme that resulted in over $27 million dollars in losses. Convicted in November 2014 of wire fraud, bank fraud, and conspiracy, the three individuals “engaged in a scheme in which they facilitated payments to straw buyers as well as the submission of false loan applications on behalf of the straw buyers to secure mortgages to purchase units” in the condominium developments they controlled or managed. Post-sale, the individuals retained profits from the sales and control over the units. According to trial evidence, two of the individuals funneled some of the loan proceeds to shell companies to pay the buyers’ closing cash obligations and mortgage payments. Shell companies were also used to divert over $2 million in fraudulent funds to bank accounts in Switzerland and Liechtenstein. Because the defendants and their co-conspirators were eventually unable to make mortgage payments, dozens of condominium units entered into foreclosure, causing the FHA, Freddie Mac, Fannie Mae, and other private lenders a combined loss of $27.8 million. In addition to the varying prison sentences, U.S. District Judge Seitz ordered each defendant to forfeit over $35 million in fraudulent proceeds and to pay over $21 million in restitution.
FTC Bans Owners of Online Payday Lending Operations from Consumer Lending Industry
On July 7, the FTC entered into settlement agreements with two individuals and the entities they operate seeking to permanently restrict them from doing business in the consumer lending industry. According to the FTC’s complaint filed in September 2014, the defendants allegedly operated an online payday lending scheme using personal financial information purchased from third-party lead generators or data brokers to make unauthorized deposits and withdrawals into consumers’ bank accounts, regardless of whether or not the consumer applied for a payday loan. Once the loan proceeds were placed into the consumers’ accounts, the defendants would withdraw “finance charges” from the accounts on a recurring basis, but would not credit the loans’ principal balances for those payments. Collectively, the defendants issued $28 million in payday loans, and extracted over $46.5 million from consumers’ bank accounts over an 11-month period. In addition to being banned from the consumer lending industry, the proposed agreements also order the defendants to pay approximately $52 million in restitution (subject to certain conditions), dismiss any consumer debt that may be owed, and prohibit the defendants from reporting such debts to any credit reporting agency or benefiting from the collection of customers’ personal information.
CFPB, 47 State AGs, and District of Columbia Announce $216 Million Settlement to Resolve Credit Card Debt-Buying Investigation
On July 8, the CFPB along with 47 state attorneys general and DC announced an agreement with a major bank to resolve allegations that it sold faulty credit card “zombie debts” to third-party debt buyers, which included accounts with unlawfully obtained judgments, inaccurate or paid-off balances, and debts owed by deceased borrowers. The federal and state investigators also claimed that the bank filed deceptive debt-collection lawsuits against borrowers using robo-signed or illegally sworn affidavits to obtain false or inaccurate judgments for unverified debts. Under terms of the consent order, the bank agreed to, among other things, pay (i) $106 million to 47 state attorneys general, (ii) a $30 million civil money penalty to the CFPB, and (iii) provide at least $50 million in restitution to affected borrowers. The bank also agreed to cease collections on more than 528,000 accounts, and require that third-party debt buyers be prohibited from reselling debts purchased from the bank, unless they are sold back to the bank.
In a related announcement, the OCC imposed a $30 million civil money penalty over allegedly illegal non-home debt collection litigation practices and Servicemembers Civil Relief Act (SCRA) compliance practices. The OCC’s action stems from the bank’s practices related to the preparation and notarization of sworn documents used in debt litigation proceedings, and inadequate policies and procedures to ensure compliance with the SCRA.
HUD Finalizes Rule on Affirmatively Furthering Fair Housing
On July 8, HUD issued a final rule aimed at helping communities who receive HUD funding meet their fair housing obligations to provide affordable housing in more communities. The rule equips grantees with various new data and tools to better analyze the state of fair housing within their communities, and assist grantees in setting locally-determined benchmarks. The rule also requires new reports from local communities detailing how HUD funds will be allocated, and provides a phase-in period for grantees to adapt to the new requirements. In conjunction with the issuance of the final rule, HUD also released an Executive Summary, a fact sheet, and FAQs to provide greater clarity and support to grantees.