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CFPB Orders Nonbank Mortgage Lender to Pay $2 Million Penalty for Deceptive Advertising and Kickbacks
On February 10, the CFPB announced a consent order with a Maryland-based nonbank mortgage lender, ordering the lender to pay a $2 million civil money penalty, in part for allegedly failing to disclose its financial relationship with a veteran’s organization to consumers. According to the consent order, the CFPB alleged that the lender, whose primary business is originating refinance mortgage loans guaranteed by the VA, paid a veteran’s organization a fee to be named the “exclusive lender” of the organization and that failing to disclose this relationship in marketing materials targeted to the organization’s members constituted a deceptive act or practice under the Dodd-Frank Act. The CFPB further alleged that, because the veteran’s organization urged its members to use the lender’s products in direct mailings from the lender, call center referrals, and through the organization’s website, the monthly “licensing fee” and “lead generation fees” paid to the veteran’s organization and a third party broker company as part of marketing and referral arrangements constituted illegal kickbacks in violation of RESPA. In addition to the civil penalty, the consent order requires the lender to end any deceptive marketing, cease deceptive endorsement relationships, submit a compliance plan to the CFPB, and comply with additional record keeping, reporting, and compliance monitoring requirements.
CFPB Details Complaints About Reverse Mortgages
On February 9, the CFPB released a report detailing complaints associated with reverse mortgages. According to the report, a high volume of complaints concern requests for changes to loan terms, issues related to loan servicing, and foreclosure activities. The report covers approximately 1,200 complaints received from December 1, 2011 through December 31, 2014. The report also notes that “[s]ince the CFPB began accepting reverse mortgage complaints in December, 2011, HUD has issued more than 10 policy changes to the HECM [Home Equity Conversion Mortgage] program.” One of these policy changes, effective after March 2, 2015, will require lenders to conduct financial assessments of prospective borrowers prior to approving the loan. The change is expected to decrease defaults due to non-payment of real estate taxes and insurance for loans originated after March 2.
White House Unveils New Federal Cybersecurity Agency
On February 10, the White House announced it will establish the Cyber Threat Intelligence Integration Center (CTIIC). In prepared remarks, Lisa Monaco, Assistant to the President for Homeland Security and Counterrorism, revealed that the CTIIC will be responsible for integrating intelligence about cyber threats, providing analysis to policymakers and operators, and support the work of existing Federal government Cyber Centers, network defenders, and local law enforcement agencies. The set-up of the agency will operate under the auspices of the Director of National Intelligence.
DOJ and North Carolina AG Settle First-Ever Federal Discrimination Suit Involving Auto Lending
On February 10, the DOJ, along with the U.S. Attorney’s Office for the Western District of North Carolina and the North Carolina AG, announced the settlement of the federal government’s discrimination suit involving two “buy here, pay here” auto dealerships. According to the DOJ, this is the federal government’s first-ever settlement involving discrimination in auto lending. Filed in January 2014, the settlement resolves a lawsuit alleging that two North Carolina-based auto dealerships violated the federal Equal Credit Opportunity Act by “intentionally targeting African-American customers for unfair and predatory credit practices in the financing of used car purchases.” The North Carolina AG further alleges that the auto dealerships’ lending practices violated the state’s Unfair and Deceptive Trade Practices Act. The terms of the settlement require the two dealerships to revise the terms of their loans and repossession practices to ensure that “reverse redlining” ceases to exist; required amendments include: (i) setting the maximum projected monthly payments to 25% of the borrower’s income; (ii) omitting hidden fees from required down payment; (iii) prohibiting repossession until the borrower has missed at least two consecutive payments; and (iii) providing better-quality disclosure notices at the time of the sale. Also required by the settlement agreement, the two auto dealerships must establish a fund of $225,000 “to compensate victims of their past discriminatory and predatory lending."
DOJ Reaches Agreement With Leading Mortgage Servicers Over Servicemember Foreclosures
On February 9, the DOJ announced a $123 million settlement with five national mortgage servicers for allegedly violating sections of the SCRA. Specifically, the DOJ alleges that the mortgage servicers subjected over 900 service members to unlawful non-judicial foreclosures between January 1, 2006 and April 4, 2012. Under the SCRA portion of the 2012 National Mortgage Settlement, the five mortgage servicers will reimburse millions of dollars to service members who should have been protected from foreclosure, as per Section 533 of the SCRA, which “prohibits non-judicial foreclosures against service members who are in military service or within the applicable post-service period, as long as they originated their mortgages before their period of military service began.” The mortgage servicers are cooperating with the Justice Department to compensate service members affected by the alleged non-judicial foreclosures.
DOJ Settles False Claims Act Allegations Against Pharmaceutical Manufacturer
On February 11, the DOJ announced a $7.9 million settlement with a Delaware-based pharmaceutical manufacturer for allegedly violating the False Claims Act by engaging in a kickback scheme with a pharmacy benefits manager corporation. The pharmaceutical manufacturer denies the DOJ’s allegations that it paid $40 million to a pharmacy benefits manager corporation in exchange for “sole and exclusive” recommendation of a certain drug. According to the two whistleblowers, both former employees for the accused pharmaceutical manufacturer, the accused manufacturer paid the pharmacy benefits manager “through price concessions on [other] drugs.” Under the whistleblower provision of the False Claims Act, the two former employees will receive a combined payment of $1,422,000.
SEC Proposes Hedging Disclosure Rule
On February 9, the SEC issued a proposed rule implementing Section 955 of the Dodd-Frank Act. The rule would require directors, officers, and other employees of public companies to disclose in proxy and information statements whether they use derivatives and other financial instruments to offset or “hedge” against the decline in equity securities granted by the company as compensation, or held, directly or indirectly, by employees or directors. The proposed rule would apply to equity securities of a public company, its parent, subsidiary, or any subsidiary of any parent of the company that is registered with the SEC under Section 12 of the Exchange Act. Public comments will be accepted for 60 days following publication in the Federal Register.
Dallas Fed President Proposes Changes in Fed Governance
On February 11, Richard W. Fisher, outgoing President of the Federal Reserve Bank of Dallas, delivered remarks before the Economic Club of New York in New York City. In his remarks, he outlined four proposals to address concerns regarding the Fed’s independence and of critics who feel too much authority is concentrated in the New York Fed. His four proposals: (i) Rotate the Vice Chairmanship of the FOMC (currently the NY Fed President is the FOMC’s permanent vice-chair); (ii) supervise and regulate systemically important financial institutions (SIFIs) by Federal Reserve Bank staff from a district other than the one in which the SIFI is located; (iii) grant Federal Reserve Bank Presidents an equal number of votes as Fed Governors, with each getting six votes, and this would replace the current system where the NY Fed gets a permanent vote and the remaining 11 Reserve Banks get four votes, with Cleveland and Chicago voting every two years and the remaining Reserve Banks voting every three years; and (iv) require the Chair of the Federal Reserve hold a press conference after every FOMC meeting. Currently, the Chair holds a press conference every quarter.
Federal Banking Regulators Testify on "Regulatory Relief"
On February 10, officials from federal and state banking authorities – the Fed, FDIC, NCUA, OCC, and the CSBS – testified at a U.S. Senate Banking Committee on ways the agencies can provide “regulatory relief” to community banks and credit unions, which disproportionately incur burdens to implement the rules and provisions of the Dodd-Frank Act. Specifically, officials from each of the federal banking agencies detailed current initiatives and proposals that would provide less burdensome compliance costs.
HUD Secretary Defends FHA in House Testimony
On February 11, HUD Secretary Julián Castro delivered remarks at the U.S. House Financial Services Committee (HFSC) hearing, “The Future of Housing in America: Oversight of the Federal Housing Administration.” In his testimony, Castro stressed that FHA did not cause the housing crisis, but actually saved the market stating, “FHA stepped in and stepped up to fill the void created when private capital retreated – work that independent economists say prevented a further collapse in home prices.” Looking forward, Castro noted that FHA’s challenge will be to make homeownership more affordable, and he emphasized the importance of improving underwriting standards and strengthening the agency’s Mutual Mortgage Insurance Fund.