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Financial Services Law Insights and Observations

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  • HUD Issues Final Rule Regarding Sexual Orientation and Gender Equal Access

    Lending

    On January 30, the Department of Housing and Urban Development (HUD) issued a final rule designed to ensure equal access to housing, regardless of sexual orientation, gender identity, or marital status. The rule, which will take effect thirty days after being published in the Federal Register (which publication is likely to occur the week of February 6), will (i) prohibit owners and operators of HUD-assisted housing or housing for which financing is insured by HUD from seeking information from applicants about sexual orientation and gender identity, and require such owners and operators to make housing available without regard to those factors, (ii) prohibit lenders from determining FHA-insured financing eligibility based on sexual orientation or gender identity, and (iii) clarify that otherwise eligible families will have an opportunity to participate in HUD programs, regardless of marital status, sexual orientation, or gender identity. The final rule is substantially similar to the proposed rule published in January 2011.

    HUD

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  • NCUA Issues List of Regulations Subject to Regulatory Review

    Consumer Finance

    On January 30, the NCUA issued a list of regulations to be reviewed in 2012. The NCUA reviews one third of its rules every year to ensure that the regulations are "clearly articulated and easily understood" and that substantive concerns are considered as well. This year, in the spirit of Executive Order 13579 regarding agency regulatory review, the NCUA is seeking comments to help it modify, streamline, expand, or repeal rules that are not required by statute and would not jeopardize safety and soundness. Rules under review this year include, for example, those covering (i) corporate credit unions, (ii) unfair or deceptive acts or practices, (iii) Truth in Savings, (iv) investment and deposit activities, and (v) bank conversions and mergers. The NCUA is accepting comments on the listed regulations through August 3, 2012.

    NCUA

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  • New York Amends Mortgage Origination Law Regarding Payments to Home Improvement Contractors

    Lending

    On January 27, New York enacted AB 8909, which changes the state banking law to exclude from existing payment restrictions certain home improvement loans insured by the Federal Housing Administration (FHA). Current state law prohibits mortgage brokers from directly paying home improvement contractors, which conflicts with FHA guidelines that allow a home improvement contractor to be paid directly by a mortgage broker. Under state law as amended by AB 8909, such direct payment will be permitted for specified FHA loans.

    Mortgage Origination

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  • New Jersey Updates Title Recordation Laws

    Fintech

    On January 17, New Jersey enacted a 2010-2011 session bill, A2565, to modernize the state's title recordation laws to permit the use of electronic documents and to reorganize and streamline the state's recordation requirements. Given that the federal E-sign Act and the New Jersey Uniform Electronic Transactions Act both authorize the acceptance of electronic alternatives to paper documents and encourage the development of systems that accept electronic documents, the bill updates state law to, for example, (i) broaden the definition of "document" and "recorded" to allow for electronic recordation; (ii) delete statutory references to separate sets of books or separate databases for different kinds of documents; (iii) remove requirements for marginal notation of documents; and (iv) require development of standard formats for electronic documents.

    ESIGN

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  • FTC and DOJ Obtain Settlement of Claims Against Debt Buyer

    Consumer Finance

    On January 30, the FTC and the DOJ announced that a Michigan-based debt buyer had agreed to pay a $2.5 million civil penalty to settle allegations of misconduct in connection with the company's debt collection activities. The FTC alleged that the debt buyer violated the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act by, among other things, (i) misrepresenting without substantiation that consumers owed a debt, (ii) failing to disclose that certain time-barred debt did not have to be repaid, (iii) knowingly providing false information to credit reporting agencies, and (iv) failing to investigate disputes raised by credit reporting agencies. In addition to paying the civil penalty, the company must address the failures and misconduct alleged by the FTC. For example, it must inform consumers when a debt is too old to be legally enforceable. Further, the company is prohibited from engaging in certain conduct, such as placing debt on consumer credit reports without notifying the consumer. Concurrent with the announcement, the FTC released a publication to help consumers understand their rights with regard to time-barred debt.

    FTC FDCPA FCRA

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  • SPeRS Announces Release of Updated E-Commerce Compliance Guidelines

    Fintech

    Recently, the Standards and Procedures for Electronic Records and Signatures version 2.0 (SPeRS 2.0) was released. This new version of SPeRS reflects current e-commerce business practices and updates applicable electronic record and signature case law and federal regulatory developments since SPeRS was originally published in 2003. The update also examines nationwide developments in the evolving area of electronic notarization laws. SPeRS is a technology-neutral set of guidelines and strategies for industry use in designing and implementing systems for electronic transactions under the federal Electronic Signatures in Global and National Commerce Act (ESIGN) and state adoptions of the Uniform Electronic Transactions Act (UETA). SPeRS 2.0 updates the groundbreaking guidance contained in SPeRS 1.0, developed by a broad cross-section of leading financial service companies and trade associations. More information about SPeRS is available at www.spers.org.

    ESIGN

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  • Third Circuit Upholds District Court's Order Enjoining Full Enforcement of New Jersey Gift Card Escheat Law

    Fintech

    Recently, the U.S. Court of Appeals for the Third Circuit affirmed the district court's decision to enjoin New Jersey from fully applying and enforcing its gift card escheat law. N.J. Retail Merchs. Assoc. v. Sidamon-Eristoff, No. 10-4551, 2012 WL 19385 (3d Cir. Jan. 5, 2012). Retailers challenged the constitutionality of a 2010 amendment to New Jersey's unclaimed property statute that provided for the custodial escheat of store valued cards (SVCs or gift cards). Under New Jersey's Chapter 25, SVCs are presumed to be abandoned after two years of inactivity and issuers are required to transfer to the state the remaining value on the SVCs at the end of the two-year abandonment period. In addition, issuers are required to obtain the name and address of the purchaser or owner of each SVC issued or sold and, at a minimum, maintain a record of the zip code of the owner or purchaser, and there is a presumption that the address of the owner or purchaser is the same as the address of the place where the SVC was purchased or issued. This latter provision has the effect of causing unused funds to escheat to New Jersey, rather than to the state where the card issuer is domiciled, when the last known address of the purchaser is unknown. In response to challenges under the Supremacy Clause, the Due Process Clause, the Commerce Clause, the Contract Clause, and the Takings Clause of the U.S. Constitution, the Third Circuit upheld the district court's preliminary injunction enjoining the retroactive application of Chapter 25 to SVCs redeemable for merchandise or services that were issued before Chapter 25's enactment. It also upheld the district court's preliminary injunction enjoining the prospective enforcement of the place-of-purchase presumption. The court, however, declined to prospectively enjoin the data collection provision or the two-year abandonment provision, finding that SVC issuers failed to show a reasonable likelihood of success on the merits of these claims and that the data collection provision is severable from the place-of-purchase provision.

    Gift Cards

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  • Obama Administration Announces New Mortgage-Related and Financial Fraud Programs

    Financial Crimes

    On January 27, the U.S. Attorney General officially introduced a special unit that will coordinate federal and state government investigations into residential mortgage-backed securities (RMBS). The unit is being co-chaired by multiple senior officials from the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), as well as New York Attorney General Eric Schneiderman. It will consist of at least fifty-five DOJ attorneys and other investigative staff, and will include the active participation by numerous additional federal and state entities, including the Consumer Financial Protection Bureau. According to a memorandum issued by Attorney General Holder, the working group will focus on, among other things, (i) alleged misrepresentations concerning the quality of mortgages backing the RMBS; (ii) alleged failures by trustees to manage adequately the assets within securitized pools of loans; and (iii) alleged failures by RMBS sponsors to repurchase problematic loans or remit loan proceeds to RMBS trusts. In his remarks introducing the new unit, Attorney General Holder noted that civil subpoenas recently have been issued to eleven financial institutions in connection with this new group's efforts.

    The announcement follows President Obama's January 24 State of the Union Address during which he announced this and other mortgage-related and financial fraud initiatives. In his speech, the President publicly asked the U.S. Attorney General to create a special investigative unit comprised of federal prosecutors and state attorneys general to expand existing government investigations of “the abusive lending and packaging of risky mortgages that led to the housing crisis.”  The President also outlined a plan he will submit to Congress to expand government support for mortgage refinancing. The costs of the program would be covered by a fee imposed on large financial institutions. Finally, the President announced his intention to establish a “Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud,” and called for Congress to enhance statutory penalties for financial fraud. Previously, Securities and Exchange Commission (SEC) Chairman Mary Shapiro wrote to Congress seeking higher fraud penalties (see InfoBytes, December 2, 2011)

    State Attorney General RMBS

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  • CFPB, DOD, FTC, and State AGs Partner to Develop Enforcement Action Database

    Financial Crimes

    On January 25, the CFPB, the Department of Defense, the FTC, and the New York Attorney General announced a partnership to develop the Repeat Offenders Against Military (ROAM) Database to track enforcement actions against entities or individuals engaged in consumer financial frauds against military personnel, veterans, and their families. The database, which should be available by mid-February, will compile publicly available information about completed civil and criminal legal actions and will be accessible and searchable by state attorneys general, U.S. Attorneys, and Judge Advocates from all branches of the armed services. The Consumer Protection Committee of the National Association of Attorneys General already has sent a letter to state attorneys general asking them to populate the new database with their enforcement action information. The FTC noted that the ROAM database will complement its Consumer Sentinel Network, which collects and provides wide access to consumer complaints, including those related to the frauds against servicemembers and their families.

    CFPB FTC Servicemembers State Attorney General

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  • EU Commission Officially Releases Proposed Replacement for Data Protection Directive

    Federal Issues

    On January 25, the European Union Commission officially released a proposed Regulation designed to update and replace the 1995 Data Protection Directive and national laws issued under that directive. This proposal is designed as a regulation rather than a directive, allowing it to take effect without national implementing legislation. Instead, the proposal will be submitted to the European Parliament and member states for adoption and would become effective two years after adoption. Notably, the proposed Regulation contains a "right to be forgotten" provision, which provides individuals the right, under certain circumstances, to seek the erasure of personal data and a halt to further dissemination of such data. Other provisions of the Regulation would (i) require explicit data subject consent for processing, where previously consent could be inferred in some cases; (ii) require data breaches to be reported to the national supervisory authority and, in certain cases, to the data subject; and (iii) provide data subjects the right to file complaints with national data protection authorities and seek judicial remedies, including damages, for violations of the Regulation. An earlier unofficial draft of this regulation was reported in InfoBytes, December 23, 2011. The two proposals are substantially similar, though the officially released version does lower the limits for penalties under the Regulation.

    Privacy/Cyber Risk & Data Security

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