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SEC Finalizes Rule To Adopt Updated EDGAR Filer Manual
Recently, the SEC issued a final rule to update its EDGAR system to support changes to the disclosure, reporting, and offering process for asset-backed securities. Specifically, EDGAR will be revised to update Volume I: General Information, Volume II: EDGAR Filing, and Volume III: N-SAR Supplement. The EDGAR system is scheduled to reflect the updates on October 20.
Fannie Mae Appoints Executive Vice President, General Counsel, and Corporate Secretary
On October 20, Fannie Mae announced that, effective November 10, Brian Books would serve as its executive vice president, general counsel, and corporate secretary. Prior to his appointment, Brooks was the vice chairman and chief legal officer of OneWest Bank, where he “advised executive management and the board of directors on all key legal, risk, and strategic issues, developed and implemented strategies to manage litigation and government inquiries, and led the bank’s compliance with regulatory orders on mortgage servicing and foreclosures.” Additionally, Brooks has over 20 years of experience in the legal and business industry including serving as a managing partner at O’Melveny & Meyer before serving as OneWest Bank’s Vice Chairman and chief legal officer.
SEC Appoints Marc Wyatt As Deputy Director Of National Exam Program
On October 20, the SEC appointed Marc Wyatt as the Deputy Director of the agency’s Office of Compliance and Inspection Examinations (OCIE). In September 2012, Wyatt joined the SEC as a senior specialized examiner with a concentration on examinations of advisers to private equity funds and hedge funds. In his new role working with the OCIE staff, Wyatt will oversee the examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies, and transfer agents. Prior to joining the SEC, Wyatt served as Stark Investments’ chief executive, in addition to spending time at Merrill Lynch UK and at Alex. Brown as a senior investment banker.
Fannie Mae Provides New Appraisal Tool For Lenders
On October 20, Fannie Mae announced that its proprietary appraisal and analysis application, Collateral Underwriter, will become available to lenders in early 2015. Currently, Fannie Mae uses the tool to “analyze appraisals when a lender delivers a loan,” and the Agency anticipates that by providing greater certainty around repurchase rise, the tool will help “lenders expand access to mortgage credit.” Ultimately, Collateral Underwriter will allow lenders to evaluate the appraisal of a loan, address any potential issues, and then close and deliver the loan to Fannie Mae.
NYDFS Addresses Concerns Regarding Loan Servicer's Noncompliance Issue
On October 21, New York DFS’s Superintendent Lawsky issued a letter to a large loan servicer institution regarding its systems and processes, most significantly the practice of backdating letters to borrowers. As a result of the alleged backdating issue, Lawsky’s letter highlights the servicer’s failure to meet state and federal agreements concerning its communication timing with borrowers on requests for mortgage modifications or the initiation of foreclosure proceedings. According to the letter, potentially hundreds of thousands of borrower letters were incorrectly dated. The NYDFS alleged that one letter in particular contained a time lapse of nearly a year: “[The servicer’s] system shows that [it] sent a borrower a pre-foreclosure dated May 23, 2013, stating that the borrower was in default and at risk of foreclosure. Yet, a conflicting notice record in [the servicer’s] system indicates that the notice was created on April 9, 2014.” The NYDFS stresses the urgency the servicer must take to remedy these issues by fixing its systems, and notes that it “intends to take whatever action is necessary to ensure that borrowers are protected.”
Massachusetts Suit Against Fannie and Freddie Dismissed
On October 21, a federal judge dismissed the claims brought by the State AG that the GSEs violated state law by putting limits on the sale of pre- and post-foreclosure homes. Commonwealth v. Fed. Hous. Fin. Agency, No. 14-12878-RGS, 2014 BL 295733 (D. Mass. Oct. 21, 2014). In this case, the State argued that the GSEs violated a state law by refusing to sell homes in foreclosure to nonprofit organizations who intended to restructure the loan and sell or rent the property back to the original homeowner at a lower price. The 2012 state law forbids banks and lenders from refusing to consider offers from legitimate buyback programs solely because the property will be resold to the former homeowner. The judge dismissed the lawsuit agreeing with the FHFA, conservator of the GSEs, that the Housing and Economic Recovery Act of 2008 (HERA) allows the FHFA to enforce restrictions under its conservatorship mandate authorized by Congress. Further, the judge noted that “Congress, by enacting HERA's Anti-Injunction Clause, expressly removed such conservatorship decisions from the courts' oversight.” The State is expected to appeal the decision.
Third Circuit Upholds Dismissal of Pay-to-Play Class Action
Recently, the U.S. Court of Appeals for the Third Circuit upheld a lower court’s decision to dismiss a class action lawsuit against a large financial institution for allegedly violating Section 8 of RESPA. Riddle v. Bank of America Corp., No. 13-4543 (3rd Cir. Oct. 15, 2014).The complaint, originally filed in 2012, alleged that, between 2005 and 2007, the defendant profited hundreds of millions of dollars from illegal referrals from private insurance companies. The plaintiffs failed to prove that the defendant engaged in fraudulent concealment that the plaintiffs relied upon. As a result, the Third Circuit dismissed the plaintiffs’ claim, citing the expiration of the one-year statute of limitations. The court noted, “the clock has run on the plaintiffs’ RESPA claims, and despite ample opportunity, they are unable to create a triable fact that they are entitled to equitable tolling.”
Third Circuit Reverses Lower Court Decision, Rules Envelope Revealing Consumer's Account Number Violates the FDCPA
Recently, the U.S. Court of Appeals for the Third Circuit reversed a lower court’s holding that the disclosure of a consumer’s account is not a “benign” disclosure and, therefore, violates the FDCPA. Douglass v. Convergent Outsourcing, No. 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014). In this case, a debt collector sent a consumer a dunning letter in a window envelope, and the consumer’s account number was visible through the window. The consumer brought a claim under § 1692f(8) of the FDCPA, which bars debt collectors from using any language or symbol other than the collector’s address on any envelope sent to the consumer. The debt collector contended that the claim must fail because the account number was “benign language” that was not prohibited by § 1692f(8) of the FDCPA. The Third Circuit held that even if “benign language” was exempt from § 1692f(8)’s prohibition (a question that the court declined to decide), the consumer’s account number was not benign. In particular, the court noted that the disclosure of the account number threatened the consumer’s privacy because it was a “core piece of information pertaining to the status as a debtor and the debt collection effort.”
Webinar Recap: The CFPB's Expanding Oversight of Auto Finance, Part I
On October 1, 2014, Buckley Sandler hosted a webinar, The CFPB’s Expanding Oversight of Auto Finance, Part One. Through an examination of the Consumer Financial Protection Bureau’s (CFPB) authority, recent enforcement activities, and discussion of the exam process, John Redding, Michelle Rogers, andMarshall Bell explored the different areas of the auto finance industry coming into the CFPB’s focus.
Buckley Sandler will present The CFPB’s Expanding Oversight of Auto Finance, Part Two on October 30, 2014.
Explaining the Larger Participant Rule
Since its creation, the CFPB has held statutory authority to supervise nonbank institutions who are “a larger participant of a market for other consumer financial products or services.” On September 17, 2014, the CFPB proposed a rule defining a market for “automobile financing” and “larger participants” within that market. Under this proposed rule:
- A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes:
- Credit granted for the purpose of purchasing an automobile
- Refinancings
- Automobile leases
- Purchases of extensions of credit and leases
- An “automobile” includes any self-propelled vehicle used primarily for a consumer purpose for on-road transportation, except for certain identified vehicle types, including recreational vehicles, motor scooters and limited others
- Affiliates are included in calculations but dealers are excluded
Supervisory & Enforcement Activities & Trends
Our attorneys noted that potential fair lending issues resulting from dealer “reserve” (also known as “participation”), which is the amount paid based on the difference between the buy rate and contract rate, remains the CFPB’s top area of focus in auto finance at this time, though the CFPB is expected to expand its focus beyond fair lending in the near future. They identified ancillary products, debt collection, and credit reporting as likely areas of CFPB expansion and noted that while the CFPB does not have authority to enforce the Sevicemembers’ Civil Relief Act (SCRA), the Bureau may rely on its Unfair, Deceptive, Abusive Acts and Practices (UDAAP) authority in seeking to extend its authority with respect to SCRA claims. The panelists went on to identify specific areas of CFPB interest under each area of enforcement.
Outlining the Exam Process
Each panelist is experienced in working with the CFPB, including in the examination context. They offered their insights on working with the CFPB to negotiate modifications of timing and scope of examination requests, educating examiners on business operations, and responding to Potential Action and Request for Response (PARR) and Notice and Opportunity to Respond and Advise (NORA) letters. Our panelists stated that ECOA exams of creditors are one of the most common CFPB examinations in the auto finance industry, reviewing the following three aspects of transactions:
- Buy rates
- Mark up
- Underwriting decisions
The exam process may include:
- Initial information request/ “first day letter”
- Request for transactional data
- Discussions to clarify exam scope, responsibilities, resources and document control
- Presentations of key operational processes
- Statistical testing to detect potential disparities on a prohibited basis in underwriting outcomes, buy rates or “mark up”
- Notification of alleged violations or concerns may be communicated by:
- “Soft exit” meeting or formal exit meeting
- PARR/NORA letter
- Written examination report
- Informal discussion
- A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes:
Special Alert: Lessons Learned from Arab Bank's U.S. Anti-Terrorism Act Verdict
On September 22, 2014, following a two-month trial, a federal jury in the Eastern District of New York ruled in favor of a group of 297 individual plaintiffs in a civil suit accusing Arab Bank PLC, headquartered in Amman, Jordan, of supporting terrorism. Linde vs. Arab Bank PLC, No. 1:04-CV-2799 (E.D.N.Y. filed July 2, 2004).
In summary, the plaintiffs alleged that Arab Bank was liable under the U.S. Anti-Terrorism Act, 18 U.S.C. § 2331, et seq. (the “ATA”), for the deaths and/or severe injuries resulting from acts in international terrorism that occurred between 2001 and 2004, because the bank had processed and facilitated payments for Hamas and other terrorist or terrorist-related organizations, their members, the families of suicide bombers, or Hamas front organizations.
What this means for financial institutions, particularly foreign banks that increasingly face the potential reach of U.S. laws and plaintiffs, remains to be seen. But there are three take-aways worthy of immediate consideration.
Click here to view the full special alert.