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Federal Reserve Board Announces BSA/AML Compliance Action
On October 17, the Federal Reserve Board released a cease and desist order against a foreign bank and its New York branch over alleged BSA/AML compliance failures. After entering into a Written Agreement in June 2012 that required the branch to improve compliance with BSA/AML in connection with the branch’s bulk cash transactions business line, the Federal Reserve Bank of New York conducted an examination to assess the effectiveness of the branch’s BSA/AML compliance program in other business lines. This examination identified an alleged failure of the branch to maintain an adequate risk-based compliance program to mitigate the BSA/AML risks associated with the branch’s foreign correspondent accounts. The order requires the bank and the branch to (i) retain an independent consultant to assess, and prepare a compliance report on, the branch’s compliance with the BSA/AML requirements, (ii) submit an enhanced BSA/AML compliance program, (iii) submit an enhanced customer due diligence program and an enhanced suspicious activity reporting program, and (iv) retain an independent consultant to conduct a suspicious activity review of U.S. dollar transactions cleared over a six month period in 2012. In addition, the bank’s board and the branch management must jointly submit a written management oversight plan.
Fannie Mae, Freddie Mac Issue Guidance Regarding CFPB Mortgage Servicing Rules
On October 11, Fannie Mae issued Servicing Guide Announcement SVC-2013-20 and Freddie Mac issued Bulletin 2013-21 to update their delinquency management and default prevention servicing requirements in response to the CFPB’s new mortgage servicing rules. These updated servicing requirements, which are effective for servicing activities completed on or after January 10, 2014, align with the CFPB’s final rules implementing the mortgage servicing provisions of RESPA and TILA. The policy changes announced by Fannie Mae and Freddie Mac include updates specific to mortgages secured by primary residences, as well as updates that apply to all mortgages. The servicing requirements affected by these policy changes, include, but are not limited to, (i) borrower inquiries and error resolution, (ii) written acknowledgement of a Borrower Response Package, (iii) early intervention and communication with delinquent borrowers, (iv) the evaluation of mortgage loan modification plans and the appeal process for the denial of such, (v) foreclosure referral and postponement, and (vi) pre-foreclosure reviews.
Fannie Mae Updates Standard Deed-In-Lieu of Foreclosure Requirements
On October 17, Fannie Mae issued Servicing Guide Announcement SVC-2013-21, which revises servicers’ responsibilities in finalizing standard deed-in-lieu of foreclosures (DILs). Servicers now must (i) complete a final interior property inspection no more than two business days following the receipt of the executed deed and all related documents, (ii) not complete final acceptance of the executed DIL until after they have received the results of the final property inspection, (iii) submit the case into HomeSaver Solutions Network (HSSN), regardless of the transition option chosen, to complete final acceptance of the DIL, and (iv) submit the REOgram within 24 hours of the date the servicer completes final acceptance of the executed DIL. The announcement also excludes from the three-month transition option program eligibility criteria the following requirements: (i) that at least three payments have been made since origination or since the last modification, (ii) that the loan is not 12 or more months delinquent when referred to Fannie Mae for transition option consideration, and (iii) that the borrower is not involved in an active bankruptcy proceeding. Finally, the announcement informs servicers that they are no longer required to ensure that a borrower will assign and transfer any rents to Fannie Mae and will collect rental income.
Nevada AG Announces RMBS Agreement
On October 17, Nevada Attorney General (AG) Catherine Cortez Masto announced that she had finalized an agreement with a financial institution that requires the financial institution to pay $11.5 million, without admitting fault, to resolve the AG’s investigation into the financial institution’s role in purchasing and securitization of subprime, Alt-A, and payment option adjustable rate mortgages. The investigation focused on whether certain lenders had deceived borrowers about the actual interest rate and payments on their loans, and had originated loans with multiple risk features that led to approval of loans without proper consideration of the borrowers’ ability to repay. The investigation also examined the extent to which the financial institution was aware of the lenders’ allegedly deceptive practices when it bought the loans, and whether the financial institution facilitated these lending practices by financing and purchasing such loans. In addition to the monetary penalty, the agreement stipulates that the financial institution will: (i) only finance, purchase, or securitize subprime mortgage loans in Nevada if it has engaged in a review of such loans and determined that the loans comply with the Nevada Deceptive Trade Practices Act and (ii) not securitize loans where upon review it has reason to believe that the lender has not adequately disclosed to the borrowers the existence of an initial teaser rate, the potential for negative amortization on a loan, the maximum adjusted interest rate or payments, and the potential for payment shock if payments increase after a loan reset or recast.
Massachusetts Finalizes Debt Collection and Loan Servicing Rule
On October 17, the Massachusetts Division of Banks released final regulations intended to parallel and supplement new mortgage servicing requirements promulgated by the CFPB and included in National Mortgage Servicing Settlement. The new regulations generally (i) prohibit third-party mortgage servicers from initiating a foreclosure when an application for a loan modification is in process, (ii) require that third-party mortgage servicers ensure that a creditor has the right to foreclose and that any foreclosure-related documents are properly prepared and executed based on personal knowledge, and (iii) mandate that third-party servicers provide a single point of contact for a borrower, follow detailed loan modification procedures, communicate with borrowers in a timely manner, and establish policies and procedures that ensure effective monitoring and oversight of certain third party providers (e.g., law firms, foreclosure firms, etc.). The new regulations also, among other things, (i) amend the definition of “debt collector” to include active debt buyers, (ii) clarify the definition of net worth for debt collectors, (iii) expand the limitations on contact with a consumer by a debt collector to include cellular telephone and text messaging, and (iv) add significant events of a debt collector and third party loan servicer that must be reported. The new requirements are effective immediately.
State Regulators Proposes Changes to Uniform Licensing Forms and Mortgage Call Report
On October 11, the State Regulatory Registry (SRR) proposed changes to (i) the uniform NMLS company, branch, and individual licensing forms developed by state regulators and used by all states through NMLS and (ii) the NMLS Mortgage Call Report (MCR). The proposal incorporates public comments received following an initial April 2013 proposal. The proposed licensing form changes would, among other things, (i) allow a company to designate more than one branch manager within an industry, (ii) revise business activity on company and branch forms, and (iii) collect other trade names on company and branch forms by agency and not by state. Changes to the NMLS licensing forms and certain changes to the format of the MCR are expected to be implemented in March 2014. The proposal notes that given expected changes to HMDA reporting requirements, the SRR will propose substantive changes to the MCR in 2014 with an expected implementation timeframe in 2015. Comments on the proposed changes are due by November 11, 2013.
New York Bankers File Suit To Block Local Responsible Banking Law
On October 11, the New York Bankers Association filed a complaint in the U.S. District Court for the Southern District of New York to block a local ordinance that requires banks doing business with the city to report certain information about their banking and lending activities. In May 2012, the New York City Council approved, over the Mayor’s veto, an ordinance that establishes a Community Investment Advisory Board (CIAB) with authority to collect certain information from deposit banks. The information the CIAB is directed to collect relates to each deposit bank’s efforts to, among other things, (i) meet small business credit needs, (ii) conduct consumer outreach and other steps to provide mortgage assistance and foreclosure prevention, and (iii) offer financial products for low and moderate-income individuals throughout the city. The ordinance also directs the CIAB to (i) perform an assessment on whether such deposit banks are meeting the credit, financial, and banking services needs throughout the city, and (ii) publish the assessment and the information collected from each deposit bank. The results of these evaluations may be considered to determine whether a deposit bank is eligible to receive some of the city’s more than $6 billion worth of deposits.
The New York Bankers Association argues that in allowing the CIAB to collect information to assess the banking needs of certain residents and businesses, the ordinance grants the CIAB regulatory powers that are not relevant to the quality and pricing of the services that banks provide to the city. The Association argues that the ordinance converts the city from a market participant to an examiner and regulator of banks. As such, the ordinance conflicts with and is preempted by federal and state laws that exclusively regulate federal and state chartered depository institutions. The complaint asks the court to declare the ordinance invalid and preempted by state and federal law, and to enjoin the city from implementing the ordinance.
Former Maxwell Technologies Executive Indicted on FCPA Charges
On October 15, the DOJ filed an indictment against a Swiss national and former executive at Maxwell Technologies—a U.S.-based energy storage and power-delivery company—for alleged violations of the FCPA. The DOJ claims that over a more than six-year period the former executive engaged in a conspiracy to make and conceal payments to Chinese government officials in order to obtain and retain business, prestige, and increased compensation for his company. This individual action follows a 2011 action by the DOJ and the SEC against the company based on the same allegations and which the company agreed to resolve for $13.65 million.
EU Working Group Advises Companies On Obtaining Consent For Cookies
On October 8, the EU’s Article 29 Data Protection Working Party, which represents all 28 data protection authorities of the EU countries, released a document to provide guidance to website operators for obtaining consent for use of cookies on their websites. The guidance notes that implementation of the e-Privacy Directive that requires such consent varies by member state, and that practices for obtaining user consent for storage of or access to cookies also vary. The Working Party therefore identifies the main elements of valid consent, implementation of which would ensure compliance with each member state’s implementation of the directive: (i) specific information, (ii) timing, (iii) active choice, and (iv) freely given. The document provides further detail on each of the elements.
FINRA Report Reviews Broker-Dealer Industry Conflicts Of Interest
On October 14, FINRA released a report on conflicts of interest in the broker-dealer industry, stating that the report is intended to identify potential problem areas and highlight effective conflicts management practices that may go beyond current regulatory requirements. The report identifies the components of an effective conflicts management framework, which include, for example (i) identifying and managing conflicts on an ongoing basis through an enterprise-level approach that is scaled to the size and complexity of a firm's business, (ii) establishing new product review processes that provide independent perspectives and identify potential conflicts raised by new products, (iii) minimizing conflicts in compensation structures between customer and broker or firm interests where possible, and (iv) including "best-interest-of-the-customer" standards in codes of conduct that apply to brokers' personalized recommendations to retail customers.