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Eleventh Circuit Holds Bank Accounts Containing Commingled Criminal, Non-Criminal Funds Are Not Subject to Forfeiture as "Proceeds" of the Crime
On June 12, the U.S. Court of Appeals for the Eleventh Circuit held that bank accounts in which funds traceable to the defendant’s criminal activity were commingled with funds unrelated to such activity were not subject to forfeiture as “proceeds” of the criminal activity. In re Rothstein, Rosenfeldt, Adler, P.A., 2013 WL 2494980, No. 11-10676 (11th Cir. June 12, 2013). The defendant pleaded guilty to violating the Racketeer Influenced and Corrupt Organizations Act by using his law firm to perpetrate a Ponzi scheme over a four-year period. Funds traceable to the criminal activity were deposited in the law firm’s bank accounts, where they were commingled with funds earned from the law firm’s substantial legitimate activities. The trustee of the law firm’s bankruptcy estate appealed a trial court order granting the government’s request that the firm’s bank accounts be forfeited as the “proceeds” of the criminal activity. The Eleventh Circuit reversed, noting that the government must establish the “requisite nexus between the property and the offense,” which requires that the tainted and untainted property be distinguishable “without difficulty.” The government was unable to clearly distinguish between the tainted and untainted funds, in part because of the size and number of transactions in the bank accounts. Because the government could not establish that the bank accounts were the proceeds of the criminal activity, the court remanded to allow the government to pursue forfeiture of “substitute assets.”
CFPB Publishes Additional Mortgage Rule Compliance Guides, Launches Mortgage Rule Implementation Web Page
On June 7, the CFPB published a loan originator rule compliance guide and a mortgage servicing rules compliance guide. As with other prior guides it has released, the CFPB cautioned that the guides are not substitutes for the rules and the Official Interpretations, and that the guides do not consider other federal or state laws that may apply to the origination or servicing of mortgage loans. On June 13, the CFPB announced a new web page that provides, in one location, the various compliance guides and other mortgage rule implementation materials prepared by the CFPB.
Florida Adjusts Consumer Loan Allowable Interest Rate Tiers
On June 10, Florida enacted SB 282, which amends the Florida Consumer Finance Act to increase by $1,000 the tiered principal amounts subject to maximum allowable interest rates. For loans entered after July 1, 2013, lenders can charge for certain consumer loans up to 30 percent interest on the first $3,000, up to 24 percent on $3,001 to $4,000, and up to 18 percent over $4,000. The bill also increases from $10 to $15 the maximum amount that lenders can charge for payments at least 10 days delinquent.
U.S. Supreme Court Refuses to Vacate Arbitrator's Decision Allowing Class Arbitration
On June 10, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not permit a court to vacate an arbitrator’s decision to allow class arbitration where the parties authorized the arbitrator to decide the issue. Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. ___ (2013). In this case, a health insurance company sought to overturn an arbitrator’s holding that the contract between the company and a doctor claiming the insurer failed to fully pay him and similarly situated doctors authorized class arbitration of the claims. The parties agreed that the arbitrator should decide the issue, but in seeking to overturn the decision, the insurer argued that the arbitrator exceeded his authority under the FAA. Citing the narrow standard of judicial review under the relevant FAA provision and the “heavy burden” a party bears under that provision, the Court held that the parties’ agreement to allow the arbitrator to decide the issue of class arbitration of the claims is sufficient to show that he did not exceed his powers. The insurer argued that the Court’s holding in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) that an arbitration panel exceeded its powers when it ordered a party to submit to class arbitration should apply here. The Court rejected that argument, explaining that in Stolt-Nielsen the Court overturned the arbitral decision because it lacked any contractual basis for requiring class procedures, whereas in this case, the arbitrator construed the parties’ contract at their request.
OCC Provides Minority Institutions Flexibility to Raise Capital
On June 11, the OCC revised its policy statement on minority institutions to make it easier for those institutions to raise capital. The OCC acknowledged that minority institutions may be unable to accept equity investment capital from some investors because their status as a minority institution would be jeopardized if the share of minority ownership fell below 50 percent. In response, the revised statement adds discretionary language that allows the agency to continue to treat an existing minority institution as such even if it no longer meets the 51 percent ownership criteria provided that the institution (i) primarily serves the credit and economic needs of the community in which it is chartered and (ii) that community is predominantly minority.
FTC Revises Red Flags Identity Theft Rule Business Guide
On June 12, the FTC issued revised guidance to help firms comply with its Red Flags Rule, which requires covered firms to monitor for and respond to certain “red flag” warnings of customer identify theft. The updated guide reflects changes made to the rule last year to more narrowly define the types of creditor subject to the rule.
NIST Seeks Comments on Cloud Computing Security Document
On June 11, the National Institute of Standards and Technology (NIST) published a draft security document that provides a comprehensive security model to supplement other NIST efforts to develop a standard vocabulary and implementation framework for the integration of cloud-based applications across the government. NIST will accept comments on the draft document through July 12, 2013. Although NIST’s resources are developed for use by federal agencies, they can influence other policy decisions and may serve as a resource for private firms seeking to understand the benefits and risks of cloud technology.
Maine Simplifies Credit Reporting Law
This week, Maine enacted a bill to simplify the state’s credit reporting law. The bill, SP 504, was drafted by the Bureau of Consumer Protection to ease compliance burden primarily by eliminating provisions mirroring the federal Fair Credit Reporting Act (FCRA), and instead incorporating the federal FCRA and its implementing regulations. The bill retains and reorganizes existing additional state credit reporting consumer protections.
Federal Court Holds Opened Emails Not Protected By Stored Communications Act
On June 5, the U.S. District Court for the Northern District of Ohio held that emails the intended recipient opened but did not delete were not covered by the Stored Communications Act because they were not being kept for the purposes of backup protection. Lazette v. Kulmatycki, No. 12-02416, 2013 WL 2455937 (N.D. Ohio Jun. 5, 2013). In this case, an individual alleged, among other things, that her former employer and supervisor violated the Stored Communications Act when the supervisor read numerous emails in the employees personal email account, which the supervisor accessed through the employer-issued mobile device the employee surrendered upon leaving the company. Some of these emails previously had been opened by the intended recipient, while others had not. The court held that emails in the personal account that had been opened first by the intended recipient but not deleted were not in “backup” status or “electronic storage” as those terms are defined in the SCA. The court granted the employer’s motion to dismiss with regard to such previously opened emails. The court declined to dismiss the intended recipient’s claim with respect to the emails which were first opened by the supervisor. The court rejected several other of the employer’s SCA-related arguments, holding that (i) the SCA was not designed only to apply to computer hackers and generally does apply to the supervisor’s actions, (ii) the mobile device was not the “facility” under the SCA, rather the server for the personal email service was the facility, and (iii) the employee did not implicitly consent to having her emails read by not deleting or logging out of the personal account before surrendering the employer-issued mobile device.
CFPB Report Questions Overdraft Practices
On June 11, the CFPB released a white paper with initial findings from its study of bank and credit union overdraft practices. The paper reports that (i) customers who opt-in to overdraft programs pay higher fees and are more likely to have their accounts involuntarily closed, (ii) overdraft practices and costs / closures related to overdraft programs vary widely by institution, and (iii) some policies and practices are not disclosed or are disclosed in a technical manner. The CFPB highlights bank revenue generated by overdraft fees, stating that such fees represent approximately 60 percent of the fee revenue generated by consumer checking accounts, and identifies specific practices the CFPB believes raise questions about whether customers can anticipate or compare the cost of overdrafting, including funds availability and order posting practices. The report is based on a review of institution-level data, and the CFPB plans to review account-level data in order to better understand how differences in bank practices affect customers.