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  • Sixth Circuit Affirms Dismissal of ECOA Discrimination Claims

    Consumer Finance

    On August 14, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s dismissal of claims by a borrower of Iraqi origin that a bank violated ECOA when it refused to restructure the borrower’s loan. 16630 Southfield L.P. v. Flagstar Bank, F.S.B., No. 12-2620, 2013 WL 4081909 (6th Cir. Aug. 14, 2013). In this case, a naturalized citizen of Iraqi origin obtained a loan from the bank for use in real estate ventures. When the borrower did not repay the loan in full when it came due, the bank agreed to restructure the loan, but later refused a second request to restructure when the borrower again could not repay on time. The borrower claimed the bank did so without explanation and despite new collateral and a guarantee from the borrower’s wife.  The borrower then sued the bank, alleging that the bank discriminated against him and his family based on their national origin. The court held that the borrower’s national origin does not itself establish the requisite inference of discrimination and the borrower failed to allege other facts sufficient to support that inference. The court explained that despite the borrower’s new collateral and guarantee, “banks often refuse to provide secured loans,” and in this case common sense suggests the bank did so not based on discrimination but because the borrower failed to pay the initial loan on time. Further, the court held that the bank’s refusal to explain its decision does not itself suggest discrimination and the borrower failed to identify any similarly situated individuals whom the bank treated better. The court affirmed the district court’s dismissal.

    Discrimination

  • FTC Announces Consumer Reporting Settlement

    Consumer Finance

    On August 15, the FTC announced that it obtained a settlement from a Certegy Check Services, Inc., a check authorization service company and consumer reporting agency (CRA) that compiles and uses consumers’ personal information to offer retailers assistance in determining whether to accept a consumer’s check. The FTC alleged that the CRA violated the FCRA and the FTC’s Furnisher Rule by failing to (i) follow required dispute resolution procedures, (ii) implement reasonable procedures to ensure the accuracy of information the firm provided to retailers, (iii) create a streamlined process for consumers to obtain free annual reports, and (iv) implement reasonable written policies and procedures regarding the accuracy and integrity of information it furnishes to other CRAs. This is the first FTC action alleging violations of the Furnisher Rule, which took effect on July 1, 2010. To resolve the FTC’s allegations, the CRA, without admitting any violations of the law, will pay $3.5 million and is required to comply with the Furnisher Rule and maintain a streamlined process so that consumers can request their free annual reports.

    FTC FCRA

  • Third Circuit Affirms Disparate Impact Class Certification Denial

    Consumer Finance

    On August 12, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s denial of class certification to a putative class of borrowers who claimed that a bank’s policy that allegedly allowed individual brokers and loan officers to add points, fees, and credit costs to an otherwise risk-based financing rate disparately impacted minority applicants for residential mortgage loans. Rodriguez v. Nat’l City Bank, No. 11-8079, 2013 WL 4046385 (3rd Cir. Aug. 12, 2013). The district court denied class certification following the U.S. Supreme Court’s holding in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) that a policy that allows local units discretion to act can only present a common question if the local units share a common mode of exercising that discretion. The district court did so sua sponte notwithstanding the parties’ joint motion to approve a class settlement. On appeal, the Third Circuit held that the trial court did not overstep its role in denying the class because the parties’ voluntary settlement did not eliminate or avoid the need for a rigorous judicial analysis to ensure that Rule 23 class certification requirements are satisfied. The Third Circuit further held that, in conducting that rigorous analysis, the district court correctly applied Dukes because “the exercise of broad discretion by an untold number of unique decision-makers in the making of thousands upon thousands of individual decisions undermines the attempt to claim, on the basis of statistics alone, that the decisions are bound together by a common discriminatory mode.” As such, the court held that the borrowers failed to meet their burden of demonstrating that the alleged conduct was common to all class members and affirmed the district court’s order denying class certification.

    Class Action

  • FHFA Seeks Comment on Strategies to Reduce Fannie Mae, Freddie Mac Multifamily Role

    Lending

    On August 9, the FHFA sought public input for reducing Fannie Mae’s and Freddie Mac’s presence in the multifamily housing market. In its request for public comment, the FHFA set forth various potential strategies, and is considering (i) placing restrictions on available loan terms (e.g. ceasing providing five-year loan terms), (ii) simplifying and standardizing loan products (e.g. establishing common loan terms, product features, and underwriting requirements), (iii) imposing new limits on property financing (e.g. restricting maximum financing amount), and (iv) imposing new limits on business activities (e.g. prohibiting the purchase of seasoned loans or loan pools). Comments on the proposals are due by October 8, 2013.

    Freddie Mac Fannie Mae

  • Freddie Mac Updates Disaster Assistance, Other Servicing Policies

    Lending

    On August 15, Freddie Mac issued Bulletin 2013-15, which updates and revises many of its servicing requirements, including those related to assistance for borrowers impacted by an eligible disaster. With respect to such impacted borrowers, the Bulletin provides updated requirements related to (i) property protection activities, such as ascertaining the extent of the damage, and, if necessary, securing abandoned properties, (ii) managing the delinquency of a borrower whose mortgaged premises or place of employment was impacted by a disaster, (iii) the addition of the new Disaster Relief Modification for Borrowers who were current or less than 31 days delinquent at the time of a disaster, (iv) streamlined modifications for borrowers who were current or less than 31 days delinquent at the time of a disaster, (v) Trial Period Plan eligibility requirements, (vi) insurance loss settlements, and (vi) credit reporting. The Bulletin also instructs servicers to follow applicable state laws when handling Freddie Mac default legal matters (e.g. foreclosure) and adds a new Guide chapter about when servicers should take advantage of state procedures that allow for quickly completing foreclosures. Further, the Bulletin (i) revises requirements for servicemembers and their dependents, (ii) revises property inspection requirements, (iii) revises requirements for the reimbursement of attorney fees and costs related to contested foreclosures and mediation, expenses incurred for title work, and condominium, homeowners association and Planned Unit Development  assessments in super lien states, (iv) permanently extends the submission time frame for 104SF claims from 30 days to 45 days, and (v) updates unemployment forbearance requirements.

    Freddie Mac Mortgage Servicing Disaster Relief Mortgages Mortgage Modification

  • Illinois Enacts Auto Ancillary Products Bill

    Consumer Finance

    On August 9, Illinois enacted HB 1460, which expands the definition of “service contract” in the state’s Insurance Code to include ancillary auto service contracts – e.g. contracts related to the repair or replacement of tires, repair of certain damage to motor vehicles, or that provide for protective systems applied to a vehicle. By expanding the definition, the new law requires any provider of such ancillary products operating in Illinois to register with the Illinois Department of Insurance, pay an annual registration fee, and to designate an individual for service of process. Ancillary auto product providers also will be subject to, among other things, financial requirements, disclosure rules, and record keeping requirements, and will be subject to examination and enforcement by the Illinois Department of Insurance. The changes take effect on January 1, 2014.

    Auto Finance Ancillary Products

  • HUD Explains Wait and See Approach to Eminent Domain Plans

    Lending

    On August 12, HUD responded to a congressional inquiry about plans announced by certain localities to seize mortgages via eminent domain and potentially refinance them through the FHA. HUD states that while it is concerned about the potential eminent domain actions threatened by some localities, including most recently and aggressively by Richmond, California, HUD also recognizes the “inherent and often indispensable tool” that eminent domain can be for local government to implement public policy. HUD suggests that disputes over this novel proposed use of eminent domain may be a question for the courts and states that, pending further legal and other developments, it does not know whether any new mortgage created out of a seizure would qualify for FHA insurance and cannot currently assess the impact of the seizure of mortgages on the FHA and the broader mortgage market.

    HUD FHA

  • New York Joins Ranks of State AGs Suing Internet Payday Lenders

    Fintech

    On August 12, New York Attorney General (AG) Eric Schneiderman announced a lawsuit against payday lending firms and their owners for allegedly violating the state’s usury and licensed lender laws in connection with their issuing of personal loans over the Internet. The AG claims that the companies charged annual interest rates from 89% to more than 355% to thousands of New York consumers, which rates far exceed the 16% rate cap set by state law. The AG joins the FTC and other state attorneys general who have acted against some of these and other Internet lending companies. Federal and state authorities more generally have been ratcheting up their scrutiny of online lending, and the AG’s action follows an inquiry initiated last week by the New York Department of Financial Services concerning payday lending. The AG states that his investigation began last fall.  He is seeking a court order prohibiting the companies and individuals from engaging in further illegal lending or enforcing existing usurious loan contracts, cancellation of all outstanding loans, restitution for borrowers of all interest collected above the legal limit of 16% interest, disgorgement of profits, and penalties of up to $5,000 per violation for deceptive acts and practices.

    Payday Lending State Attorney General Online Lending

  • Senate Committee Expands Review of Virtual Currency Policies

    Fintech

    On August 12, Senators Tom Carper (D-DE) and Tom Coburn (R-OK), the leaders of the Senate Committee on Homeland Security and Government Affairs, sent a letter to Secretary of Homeland Security Janet Napolitano regarding federal virtual currency policy. The committee reportedly sent similar letters to the DOJ, the Federal Reserve Board, the Treasury Department, the SEC, the CFTC, and the OMB. Citing a federal court’s recent holding that virtual currency Bitcoin is money or currency for the purpose of determining jurisdiction under the Securities Act of 1933, as well as other recent developments related to virtual currencies, the lawmakers seek information about (i) the agencies’ existing policies on virtual currencies, (ii) coordination among federal or state entities related to the treatment of virtual currencies, and (iii) “any plans” “strategies” or “ongoing initiatives” regarding virtual currencies. This recent scrutiny of virtual currencies follows regulatory and enforcement actions taken earlier this year, including guidance issued by FinCEN and federal criminal charges against a digital currency issuer and money transfer system. For a review of those actions and other state and federal regulatory challenges facing emerging payment providers, please see a recent article by BuckleySandler attorney and Ian Spear.

    Department of Treasury DOJ U.S. Senate Virtual Currency

  • New York Considering Virtual Currency Regulations; Issues Subpoenas to Bitcoin-Associated Companies

    State Issues

    On August 12, New York Department of Financial Services (NY DFS) Superintendent Benjamin Lawsky issued a notice of inquiry about the “appropriate regulatory guidelines that [the NY DFS] should put in place for virtual currencies.” The NY DFS notes the emergence of Bitcoin and other virtual currency as the catalyst for its inquiry and states that it already has “conducted significant preliminary work.” That preliminary work includes 22 subpoenas the NY DFS reportedly issued last week to companies associated with Bitcoin. The NY DFS is concerned that virtual currency exchangers may be engaging in money transmission as defined in New York. Under existing New York law, and the laws of a majority of other states, companies engaged in money transmission must obtain a license, post collateral, submit to periodic examinations, and comply with anti-money laundering laws. However, the NY DFS also suggests that regulating virtual currency under existing money transmission rules may not be the most beneficial approach. Instead, it is considering “new guidelines that are tailored to the unique characteristics of virtual currencies.” The NY DFS notice does not provide any timeline for further action on these issues.

    Virtual Currency NYDFS

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