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Comptroller Curry Named FFIEC Chairman
On April 1, the Federal Financial Institutions Examination Council (FFIEC) announced that Comptroller of the Currency Thomas Curry will serve a two-year term as FFIEC Chairman. The FFIEC also selected Federal Reserve Board Member Daniel Tarullo as Vice Chairman, and announced three new State Liaison Committee members: Michael Mach, Division of Banking Administrator for the Wisconsin Department of Financial Institutions; Lauren Kingry, Superintendent of the Arizona Department of Financial Institutions; and Thomas Candon, Deputy Commissioner of Banking and Securities of the Vermont Department of Financial Regulation. The FFIEC is responsible for prescribing uniform principles, standards, and report forms for the federal examination of financial institutions, and for recommending changes to promote uniformity in the supervision of financial institutions. The FFIEC also conducts schools for federal examiners.
Federal Regulators Clarify Effective Dates for Flood Insurance Amendments
On March 29, the Federal Reserve Board, the FDIC, the OCC, the NCUA, and the Farm Credit Administration issued an interagency statement to clarify the effective dates for changes to the Flood Disaster Protection Act enacted last year in the Biggert-Water Flood Insurance Reform Act (the Act). The statement informs financial institutions that the force-placed aspects of the Act became effective upon enactment, which was July, 6, 2012, while provisions related to private flood insurance and escrow of flood insurance payments do not take effect until the agencies issue regulations. The statement reiterates the OCC’s prior statement that the new flood insurance penalty provisions in the Act took effect immediately and apply to violations that occurred on or after July 6, 2012.
CSBS Urges CFPB to Adopt Rural Designation Petition Process
On April 2, the CSBS released a letter it sent to encourage the CFPB to adopt an additional procedural mechanism for the CFPB to utilize when determining whether an area should be defined as “rural.” The CSBS explains that the Dodd-Frank Act confers Qualified Mortgage benefits on balloon loans if they are made in rural or underserved areas and that the CFPB has elected to utilize the USDA Economic Research Service’s Urban Influence Codes as the basis of their definition of “rural.” The letter identifies inconsistencies with the existing rural classification systems, and suggests that the CFPB adopt a petition process whereby institutions can seek a determination that a specific area be considered rural for purposes of certain Truth in Lending rural requirements.
California Appeals Court Enforces Retail Installment Sales Contract Arbitration Agreement.
On March 27, the California Court of Appeal, First Appellate District, enforced an arbitration agreement in a retail installment sales contract. Vasquez v. Greene Motors, Inc., No. A134829, 2013 WL 1232343 (Cal. Ct. App. Mar. 27, 2013). While the court held that the agreement was “procedurally unconscionable” because the agreement “was imposed on [the Defendant] without the opportunity for negotiation, and was therefore adhesive,” it reversed the lower court’s denial of a motion to compel arbitration. In so holding, the court reasoned that the level of procedural unconscionability was “minimal” and that there was no significant substantive unconscionability. The court held “the only suggestion of substantive unconscionability . . . was the failure of the clause to permit an ‘appeal’ arbitration in the event a buyer sought and was denied injunctive relief,” but that “this asymmetry is mitigated by the provision permitting a second arbitration if a buyer is denied a monetary recovery.” Finding “minimal unconscionability,” the court reversed the trial court order denying the petition to compel arbitration and directed the trial court to order arbitration.
Housing Counselor Survey Alleges Banks Fail to Comply with National Mortgage Settlement.
On April 3, a California borrower advocacy organization published the results of its survey of housing counselors, which the organization claims reveals that problems persist with the implementation of the national servicing settlement’s servicing standards, including with regard to single points of contact, dual tracking, timelines, and documentation. The report also claims that borrowers of color and other groups face additional challenges to obtaining relief under the settlement. The report recommends that (i) the National Mortgage Settlement Monitor and state attorneys general collect, analyze and report the race, ethnicity, gender, and census tract of those who have received assistance and those who have not; (ii) the OCC and the Federal Reserve Board collect, analyze and make public the same data beyond the national settlement, and include all loss mitigation activity; (iii) the CFPB promptly issue a rule to establish new HMDA categories; (iv) the Monitor impose penalties on outliers; (v) the Monitor, the CFPB, and state AGs tighten rules around “complete loan mod app”, servicing transfers, and widows; (vi) regulators prioritize in the revamped Independent Foreclosure Review process principal reduction relief, keeping people in their homes, and restoring wrongful foreclosure victims to their homes by forcing servicers to go back through their files, rescind improper foreclosure sales, and fix mistakes; (vii) authorities provide more financial support for housing counseling and legal services; and (viii) regulators ensure that servicers have sufficient capacity and training to work with homeowners at risk of foreclosure.
CFPB Announces Major Update to Consumer Complaint Database
On March 28, the CFPB released tens of thousands of consumer complaints related to mortgages, student loans, bank accounts and services, other consumer loans, and credit cards. Credit reporting complaints, will be released in the near future. The expanded database is a live database that is updated daily. It includes one million data points, covering approximately 450 companies, and allows users to track, sort, search, and download information. The CFPB has made the data available in formats that allow developers to build applications, conduct analyses, and perform research, and the database includes functionality to let users build their own visualizations, charts and graphs, and embed the data on other websites or share it through social media. The CFPB is encouraging consumers, analysts, developers, data scientists, civic hackers, and companies that serve consumers, to analyze, augment, and build on the public database to develop ways for consumers to access the complaint data or “mash it up” with other public data sets. The CFPB also released a fact sheet about the database, which provides some summary analysis of the data, as well as a “snapshot” report that provides information about the CFPB’s complaint handling process and additional summary presentation of the data. The CFPB also held a field hearing to review the complaint database and solicit public feedback. Consumer groups participating in the event repeatedly stressed the need for more specific data, including the full narrative description of complaints submitted by consumers, while industry representatives continued to caution the regulator about risks associated with unverified data.
FHFA OIG Calls for Oversight of Counterparty Compliance with Consumer Protection Laws
On March 26, the FHFA Office of Inspector General (OIG) issued a report that concludes the FHFA has failed to actively oversee how Fannie Mae and Freddie Mac monitor counterparty compliance with federal and state consumer protection laws. The OIG review found that the FHFA is vulnerable to questions about why it does not have a strategy to monitor the Enterprises’ activities to assess whether they are aligned with the public interest as reflected in federal and state laws and regulations, and that the Enterprises’ failure to pursue seller repurchase demands related to mortgages in default with no material underwriting deficiencies—but that were originated in violation of consumer protection laws—may result in losses to the Enterprises that could be avoided or mitigated. The OIG concludes that given the FHFA’s duty under HERA to ensure that the activities of the Enterprises are consistent with the public interest, the FHFA should develop and implement a risk-based plan to monitor the Enterprises’ oversight of their counterparties’ compliance with contractual requirements, including consumer protection laws. According to the report, the FHFA has begun to put together a plan to address this oversight role.
New Research Suggests Need to Expand Incentives-Based View of Housing Crisis
Recently, researchers from Princeton and the University of Michigan published a paper that examines the role played in the financial crisis by distorted beliefs about house prices, as opposed to the role of poorly designed incentives that may have led institutions to take excessive risks in the housing market. The study tests whether mid-level managers in the mortgage securitization business were fully aware during the boom that housing markets were overvalued and that a large-scale crisis was likely and imminent. Looking at the house transaction activities of mortgage securitization agents, as compared to activities of certain control groups, the researchers found little systematic evidence that the average securitization agent exhibited awareness of problems in overall housing markets and anticipated a broad-based crash. The researchers believe the results suggest that securitization agents may have been subject to sources of belief distortion, such as job environments that foster group think, cognitive dissonance, or other sources of over-optimism. The researchers explain that their study potentially has implications for public policy because, they argue, policy responses to date have derived from an incentive-based view of the problem, and that fixing incentives, e.g. changing the compensation contracts of securitization agents, may be insufficient to prevent another crisis.
Fourth Circuit Holds FCA Statute of Limitations Tolled by Wartime Suspension of Limitations Act
The U.S. Court of Appeals for the Fourth Circuit recently held that the False Claims Act’s (FCA) statute of limitations can be tolled by the Wartime Suspension of Limitations Act (WSLA) in civil qui tam actions in which the government does not intervene. United States v. Halliburton ex rel. Carter, No. 12-1011, 2013 WL 1092732 (4th Cir. Mar. 18, 2013). A former employee of a defense contractor alleged that his employer fraudulently billed the United States for water purification services in Iraq that were never actually performed, and that the practice was consistent with a scheme to routinely bill the government set hours, regardless of actual hours worked. The government declined to intervene in the case, and the district court subsequently dismissed the complaint with prejudice, finding in part that the relator’s complaint was untimely filed after the FCA’s statute of limitations had expired. On appeal, the Fourth Circuit held that the WSLA applies to both civil and criminal fraud claims against the United States, regardless of whether the United States has intervened, and even without a formal declaration of war. Based on those factors, the Fourth Circuit held that the relator’s FCA claims were not time-barred. The court reversed the district court’s decision, and remanded the case for further consideration.
New York Federal Court Holds Dodd-Frank Rule Does Not Bar Late SEC Suits
On March 24, the U.S. District Court for the Eastern District of New York held that a Dodd-Frank Act rule requiring the SEC, within 180 days of notifying a target of the pendency of an investigation, to file an action or obtain an extension of time from an SEC director, does not provide for the dismissal of an enforcement action that does not comply with the rule. SEC v. NIR Group, LLC, No. 11-4723, slip op. (E.D.N.Y. Mar. 24, 2013). In deciding a motion in which the SEC sought to halt discovery into its compliance with the rule, the court explained that the statute does not explicitly provide for dismissal of an enforcement action that does not comply with the 180-day requirement, but that the absence of such a remedy does not render the provision superfluous. The court determined that evidence concerning compliance with the internal deadline is not relevant to the action. For that and other reasons, the court held that the evidence sought was not discoverable.