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  • NIST Publishes Cloud Computing Guidance

    Fintech

    Recently, the National Institute of Standards and Technology (NIST) published a document entitled Cloud Computing Synopsis and Recommendations, which (i) reprises NIST’s definition of cloud computing, (ii) describes cloud computing benefits and open issues, (iii) presents an overview of the major classes of cloud technology, and (iv) provides guidance for organizations assessing cloud computing risks and opportunities. The NIST publication presents a range of factors to be considered as part of the overall business decision to employ cloud technology, including security issues related to data confidentiality and integrity. Although developed for use by federal agencies, the NIST report may influence policy decisions and may be a useful resource for private firms seeking to understand the benefits and risks of cloud technology.

    NIST Privacy/Cyber Risk & Data Security

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  • Federal District Court Allows Interlocutory Appeal of Challenge to FHFA MBS Suit

    Securities

    On June 19, the U.S. District Court for the Southern District of New York granted defendants’ motion to certify an interlocutory appeal from a portion of the court’s earlier denial of their motion to dismiss as untimely the FHFA’s claims under the 1933 Securities Act. Fed. Hous. Fin. Agency v. UBS Americas, Inc., No. 11-5201, 2012 WL 2324486 (S.D.N.Y. June 19, 2012). On May 4, 2012, the court denied, in large part, the defendants’ motion to dismiss the FHFA’s claims alleging that billions of dollars of MBS purchased by Fannie Mae and Freddie Mac were based on offering documents that “contained materially false statements and omissions.” The suit was selected to proceed first among the 18 such suits brought by the FHFA. In this most recent decision, the court reasoned that resolution of issues relating to the timeliness of the claims will “remove a cloud of legal uncertainty that hangs over the other 17 actions in this suite of cases” by clarifying the impact of the Housing and Economic Recovery Act of 2008 on the statute of limitations in the Securities Act of 1933 and, as a consequence, defining the scope of discovery.

    Freddie Mac Fannie Mae RMBS FHFA

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  • CFPB Seeks Additional Private Student Loan Complaints

    Consumer Finance

    On June 13, the CFPB issued a Notice of Request for Information seeking information on existing private student loan complaints collected by state agencies, institutions of higher education, consumer and legal advocates, and lenders. In addition to its general solicitation, the CFPB specifically invited the participation of state attorneys general, schools, and advocacy groups. The responses received by the CFPB will be incorporated into the student loan ombudsman’s report it provides to Congress pursuant to the Dodd-Frank Act. In conjunction with its general solicitation, the CFPB also published the nearly 2,000 comments it received in response to a Notice and Request for Information on private student loans that it issued on November 17, 2011. The CFPB identified the following common themes from the data collected to date in connection with its earlier solicitation: (i) many borrowers report relying on school financial aid offices for information and guidance on which loan products to use, (ii) many borrowers struggling in today’s economy are finding their private student loan debt to be unmanageable, and (iii) many borrowers report finding it difficult to navigate the repayment process.

    CFPB Dodd-Frank Student Lending

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  • Federal Bank Regulators Seek Comment on Three Proposed Regulatory Capital Rules, Finalize Market Risk Rule

    Consumer Finance

    On June 12, the Federal Reserve Board, the OCC, and the FDIC jointly issued three proposed rules, which would implement the risk-based and leverage capital requirements in the Basel III framework and relevant provisions mandated by the Dodd-Frank Act. The first proposed rule would, among other things, (i) raise the minimum regulatory capital levels; (ii) introduce an additional common equity capital buffer; and (iii) adopt a stricter definition of capital. Taken together, these requirements would require banking organizations to increase the quality and quantity of their regulatory capital. The second proposed rule incorporates aspects of Basel II’s Standardized Approach to enhance the risk-sensitivity of a banking organization’s risk-weighted assets calculations. In addition, the second proposed rule sets forth alternatives that would replace the use of external credit ratings, a change required by Section 939A of the Dodd-Frank Act. The third proposed rule would apply to banking organizations that are currently subject to the advanced approaches rule or to the market risk rule, and for the first time, to savings and loan holding companies that meet the relevant size, foreign exposure, and trading activity thresholds. This rule seeks to enhance the risk-based capital rules’ sensitivity to trading risks and also would eliminate the use of external ratings as required by Section 939A of the Dodd-Frank Act. Comments on each of the proposed rules can be submitted through September 7, 2012.

    Concurrent with the proposed rules, the federal regulators released a final rule regarding market risk. By amending the calculation of market risk, the final rule seeks to better characterize the risks facing a particular institution and to help ensure the adequacy of capital related to the institution’s market risk-related positions. The final rule incorporates comments received in response to a January 2011 proposed rule, as well as a December 2011 amended proposed rule, and applies to a banking organization with aggregate trading assets and liabilities equal to 10 percent of total assets, or $1 billion or more. According to the regulators, the most significant change from the proposals relates to the methods for determining the capital requirements for securitization positions. The final rule will impose greater capital requirements on the more subordinate tranches in a securitization because the final rule mechanism to calculate the capital charges on securitization exposures when the underlying pool of assets demonstrates credit weakness was altered to focus on delinquent exposures rather than on cumulative losses. This rule takes effect January 1, 2013.

    FDIC Dodd-Frank Federal Reserve OCC

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  • Tenth Circuit Holds Notice Does Not Extend Three-Year TILA Rescission Right

    Lending

    On June 11, the U.S. Court of Appeals for the Tenth Circuit held that mere notice from a borrower does not extend the three-year period for filing an action for rescission under TILA. Rosenfield v. HSBC Bank, USA, No. 10-1442, 2012 WL 2087193 (10th Cir. Jun 11, 2012). In so holding, the unanimous three-judge panel rejected the position of the amicus brief filed by the CFPB and sided with the defendant-lender and three financial industry trade groups. Relying on Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), the Tenth Circuit emphasized that TILA’s three-year statute of repose was a strict limit on the time for filing suits for rescission. According to the court, an attempt to extend the period by filing a notice within the three-year period would be inconsistent with that strict limit. Furthermore, the court reasoned that adopting the borrower’s position would make TILA enforcement difficult and expensive, all while clouding title on foreclosed homes. This decision deepens an already-existent circuit split between the Ninth Circuit (which took the same approach as the Tenth Circuit) and the Fourth Circuit (which concluded that notice within the three-year period was sufficient). The Eighth and Third Circuits currently are considering the same issue in pending cases.

    TILA

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  • OCC Finalizes Rule to Replace Certain Credit Rating References with Alternative Creditworthiness Standards.

    Consumer Finance

    On June 13, pursuant to Section 939A of the Dodd-Frank Act, the OCC published a final rule with regard to regulations applicable to investment securities, securities offerings, and foreign bank capital equivalency deposits. The final rule is identical to the rule proposed by the OCC in November 2011 and will require national banks to assess whether a security issuer has an "adequate capacity to meet financial commitments under the security for the projected life of the asset or exposure," a standard which may be met if the risk of default by the issuer is low and timely repayment of principal and interest is expected. For federal savings associations, the definition of "investment grade" would cross-reference the requirement established by the FDIC. Simultaneously, the OCC finalized guidance to outline measures (i) banks should put in place to demonstrate they have properly verified their investments, and (ii) institutions should put in place to demonstrate their compliance with due diligence requirements when making investments and reviewing investment portfolios. Specific due diligence factors will depend on the type of security, and firms will need to adjust the depth of due diligence to match the credit quality of the security, its complexity, and the size of the investment.

    FDIC Dodd-Frank OCC

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  • Ninth Circuit Holds Debt Validation Notice That Implicitly Requires Debtor to Dispute Debt in Writing Does Not Violate FDCPA

    Consumer Finance

    On June 8, the U.S. Court of Appeals for the Ninth Circuit held that a debt validation notice does not violate the FDCPA if it only implicitly, rather than expressly, requires a debtor to dispute his or her debt in writing. Riggs v. Prober & Raphael, No. 10-17220, 2012 WL 2054640 (9th Cir. June 8, 2012). In Riggs, a debt collection law firm, in seeking to collect a debt owed to one of its clients, sent a debt validation notice to a debtor which implied that if the debtor wanted to dispute the debt, she would need to do so in writing. The debtor failed to contact the firm and made no payment towards her debt. Instead, after settling an action brought against her by the firm in state court, the debtor filed suit against the firm in federal court, alleging that the firm violated the FDCPA and its California equivalent because it required her to dispute her debt in writing and therefore misrepresented her right to dispute the debt. In affirming the ruling of the district court, the Ninth Circuit acknowledged that the “least sophisticated consumer” could interpret the firm’s debt validation notice to imply that any dispute of the debt must be in writing. Nevertheless, recognizing that the FDCPA itself can be read to imply that a debtor must dispute a debt in writing, the Ninth Circuit held that there is a violation of the FDCPA only where the debt validation notice expressly requires the dispute be in writing.

    FDCPA Debt Collection

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  • FHFA Submits Annual Report to Congress

    Lending

    On June 13, the FHFA submitted to Congress its annual report on its 2011 examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The report rates Fannie Mae and Freddie Mac as “critical supervisory concerns” and states that their continuing credit losses stem primarily from loans originated during 2005-2007. The report cites certain key challenges of Fannie Mae and Freddie Mac, which include (i) the ongoing stress in the national housing market, (ii) the broader economic environment, and (iii) the lack of certainty about the future of Fannie Mae and Freddie Mac. Among other things, the report provides updated information about the Fannie Mae and Freddie Mac portfolios and foreclosure prevention efforts. The report also notes that the financial condition of the Federal Home Loan Banks remained stable, though exposure to private-label mortgage-backed securities continues to impact certain of the Banks.

    Freddie Mac Fannie Mae FHFA

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  • Fannie Mae and Freddie Mac Update Servicing Requirements

    Lending

    On June 13, Freddie Mac published Bulletin 2012-13, which updates multiple servicing requirements in the Single-Family Seller/Servicer Guide. With regard to the state foreclosure timeline, the Bulletin (i) adds several circumstances in which the timeline will be extended for all foreclosure sales completed on or after January 1, 2012, (ii) revises the calculation for compensatory fees associated with exceeding a state foreclosure timeline, and (iii) alters the compensatory fee appeal process. With regard to certain operational procedures, the Bulletin (i) adds a time frame for reimbursement of taxes that were incurred and paid to a taxing authority for non-real estate owned expenses, (ii) allows wire transfers for REO-related remittances, and (iii) clarifies the time frame for submitting modification agreements to document custodians. The Bulletin also makes changes to the Guide related to unemployment forbearance, the quality right party contract performance standard, fraud prevention and reporting, and MERS Rule 14.

    Also on June 13, Fannie Mae published Announcement SVC-2012-10, which updates its notice of data breach and incident response policy to require servicers to provide written notice to Fannie Mae of a data breach in addition to any reporting to consumers or state authorities required under applicable state law. A servicer also must request permission to use Fannie Mae’s name if it intends to refer to Fannie Mae in any notices sent to affected borrowers or regulatory agencies. On the same day, Fannie Mae also published Announcement SVC-2012-11, which updates and clarifies for all mortgages with a foreclosure sale date on or after January 1, 2012, (i) the maximum allowable foreclosure time frames for twelve jurisdictions, (ii) compensatory fee assessments and appeals, and (iii) the preferred method of foreclosure in Montana and Nebraska.

    Foreclosure Freddie Mac Fannie Mae Mortgage Servicing Privacy/Cyber Risk & Data Security

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  • FTC Settles FCRA Charges Against Data Broker

    Fintech

    On June 12, the FTC announced that a data broker agreed to settle charges that it marketed and sold consumer profiles to companies engaged in human resources, background screening, and recruiting without taking steps to protect consumer information as required by FCRA. The FTC claimed that the data broker operated as a consumer reporting agency and violated FCRA when it failed to ensure that the information it compiled and sold would be used only for permissible purposes. The broker also allegedly failed to ensure that consumer information it sold was accurate and failed to inform buyers of their FCRA obligations. Among other things, the settlement requires the data broker to pay an $800,000 civil penalty and prohibits the firm from any future violations of FCRA.

    FTC FCRA Consumer Reporting Privacy/Cyber Risk & Data Security

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