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FinCEN Reminds Financial Institutions about E-Filing Reports
On March 7, FinCEN issued a notice reminding institutions that they must use FinCEN’s new electronic reports to file most Bank Secrecy Act Reports, including Suspicious Activity Reports, Currency Transaction Reports, Registration of Money Services Business, and Designation of Exempt Person Reports. In February 2012, FinCEN issued a final notice requiring electronic filing of most reports by July 1, 2012. Shortly thereafter, FinCEN made available new formats for those reports, which all institutions must begin using by April 1, 2013. The new forms will support the agency’s enforcement efforts. For example, FinCEN Director Jennifer Shasky Calvery explained recently that in 2012 more than 23 percent of SAR filers selected “other” as the type of suspicious activity. The new form expands the number of options for type of activity being reported from 21 to 70 and adds a text field, allowing filers to described activities more accurately. FinCEN warned that companies that fail to comply with the electronic filing mandate may be subject to civil money penalties.
U.K. FSA Seeks Comments on New Consumer Credit Regulatory Regime
On March 6, the U.K. Financial Services Authority (FSA) issued a consultation paper (CP) to outline the regulatory regime for consumer credit markets after its regulatory powers transfer to the Financial Conduct Authority (FCA). The FCA is a new regulatory body that will succeed the FSA later this year, and will assume regulatory responsibility over the U.K.’s consumer credit and retail markets regulatory responsibilities. In addition to those markets, the FCA also will regulate conduct in wholesale markets, supervise the trading infrastructure that supports retail and wholesale markets, and prudentially regulate firms not regulated by the new Prudential Regulatory Authority. The CP outlines (i) the supervision of and reporting by covered firms, (ii) the interim permission for OFT license holders to continue operations, (iii) the supervision of credit advertising being subject to the Financial Services and Markets Act financial promotions regime, (iv) prudential requirements for debt management firms, (v) the Consumer Credit Act provisions that survive under the new FCA credit regime, and (vi) the sources of funding for the regime. Comments on the proposal are due by May 1, 2013.
U.K. OFT Takes Broad Action against Payday Lenders
On March 6, the U.K. Office of Fair Trading (OFT) announced that it will institute enforcement actions and seek to revoke the licenses of payday lenders that do not change certain business practices within 12 weeks. The action applies to the leading 50 payday lenders who account for 90 percent of the U.K. payday market. The OFT action comes in a final report on a broad payday lending investigation, which revealed widespread irresponsible lending and a failure to comply with the standards set out in the OFT’s Irresponsible Lending Guidance. The OFT also proposed to refer the payday lending market to the Competition Commission to investigate competition in that market.
Fannie Announces Hazard Insurance Change for Vacant Properties
On March 6, Fannie Mae issued Servicing Guide Announcement SVC-2013-04, which requires servicers to cancel hazard insurance coverage (for both borrower and lender-placed policies) within 14 calendar days after a property appears on the Vacancy Report in HomeTracker. The policy took effect immediately and applies to all loans where the foreclosure sale occurred or will occur on or after October 1, 2012. For properties foreclosed after that date that have hazard insurance coverage still in place, the servicer must cancel the insurance by March 20, 2013. Fannie Mae also reminded servicers that if a policy is cancelled prematurely and damages are found, the servicer will be required to make Fannie Mae whole for any losses or fees relating to the property damages.
FinCEN Proposes Third-Party Filing of FBAR Reports
On Mach 5, FinCEN published a notice and request for comment on proposed changes to the Foreign Bank and Financial Accounts Report (FBAR) to standardize it with other BSA electronically filed reports and allow for a third party preparer to file the report. FinCEN is seeking public comments by May 6, 2013.
State Law Update: Georgia Eliminates Double Taxation on Auto Leases
On March 5, Georgia enacted HB 266, which, among other things, eliminates a monthly sales tax on auto leases. The bill responds to a 2012 overhaul of the state’s tax code that mistakenly created a double tax on car leases, requiring payment of a Title Ad Valorem Tax of 6.5% to be paid by both lessees and purchasers of motor vehicles in the state, as well as the monthly sales and use tax to be paid by lessees. This additional tax had the effect of making motor vehicle leases less attractive than purchases, and at the same time likely would have resulted in lower overall taxes payable to the state. The bill also allows the Georgia Department of Revenue to decide whether and how to regulate “buy here, pay here” dealers. If the Department does create such rules, it has discretion to provide those dealers a larger discount from the normal title tax. The bill took effect immediately.
Second Circuit Reinstates MBS Suit, Easing Standing Hurdle for Investors
On March 1, the U. S. Court of Appeals for the Second Circuit held that an investor plaintiff may be able to assert claims on behalf of a class for securities in which it had not invested, and additionally found that the investor had alleged sufficient facts of abandoned mortgage underwriting standards to survive defendants' motion to dismiss. N.J. Carpenters Health Fund v. The Royal Bank of Scot. Grp., PLC, No. 12-1701, 2013 WL 765178 (2d Cir. Mar. 1, 2013). An investor claimed on behalf of a putative class that the offering documents for six mortgage-backed securities (MBS) materially misrepresented the standards used to underwrite the loans. The district court initially dismissed the case as to five of the trusts, holding that the investor could not bring claims on securities in which it had not invested. The investor amended its complaint and focused on the one trust in which it had invested. The district court then held that the allegations were not specific enough to the loans at issue, and that the risks were sufficiently disclosed and known at the time of the transaction. After the district court's rulings, the Second Circuit held in another case, NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), that where an issuer had issued multiple securities under the same shelf registration statement, an investor who invested in at least some of those securities could, on behalf of a putative class, bring claims on securities in which it had not invested so long as all of the relevant claims involved "the same set of concerns." On appeal in the instant case, the Second Circuit held that in light of its decision in NECA-IBEW, the investor had standing to bring its claims as to all six of the original MBS. The court also held that the "allegations in the complaint-principally, that a disproportionately high number of the mortgages in a security defaulted, that rating agencies downgraded the security's ratings after changing their methodologies to account for lax underwriting, and that prior employees of the relevant underwriter had attested to systematic disregard of underwriting standards-state a plausible claim that the offering documents" violated the 1933 Securities Act. The court remanded the case for further proceedings.
Maryland's Highest Court Holds Auctions that Charge Admission Fee are Private Sales
On March 1, the Court of Appeals of Maryland, answering a question of law certified to it by the U.S. Court of Appeals for the Fourth Circuit, held that the sale of repossessed automobiles at an auction where individuals had to pay a refundable $1,000 cash deposit was a “private sale”, and not a “public auction,” under the provisions of Maryland’s Creditor Grantor Closed End Credit Act (CLEC). Gardner v. Ally Fin. Inc., Misc. No. 10, 2013 WL 765013 (Md. Mar. 1, 2013). The court determined, based on legislative history, that one purpose of 1987 amendments to the CLEC was to protect the debtor against “favored buyer private sales that are not . . . commercially reasonable.” The court held that although the sale of the automobiles in this case was publicly advertised and open to the public for competitive bidding, the admission fee, which was charged to all participants, even those who merely wanted to observe the proceedings, “obscured transparency” and “shielded the process used to sell [the] cars from observation and, thus, could not constitute a ‘public auction’ under CLEC.” Thus, the court held that the creditors were subject to the more stringent post-sale disclosure requirements required for “private sales” under the CLEC.
FHFA Outlines 2013 Objectives for Fannie Mae and Freddie Mac
On March 4, FHFA Acting Director Edward DeMarco sketched out the FHFA’s plans for Fannie Mae and Freddie Mac (the Enterprises) in 2013. These measures implement the Strategic Plan issued in February 2012 that identified three goals for the Enterprises: (i) build a new infrastructure for the secondary market, (ii) contract the Enterprises’ presence in the secondary market, and (iii) maintain foreclosure prevention activities. In 2013, the FHFA expects to support its first goal by creating an independent business entity that will serve as a securitizing platform. To continue contracting the Enterprises’ presence, the FHFA (i) has asked each Enterprise to conduct risk sharing transactions to meet a target of $30 billion of unpaid principal balance in credit risk sharing transactions, (ii) plans to continue increasing guarantee fees, (iii) aims to reduce multifamily business volume by 10 percent, and (iv) plans to sell five percent of the less liquid portion of the enterprises retained portfolios. Finally, on foreclosure prevention, the FHFA expects to (i) enhance the post-delivery quality control practices and transparency associated with the new representation and warranty framework, and (ii) work to complete representation and warranty demands for pre-conservatorship loan activity. In addition to making strides on the three prongs of its Strategic Plan, the FHFA plans to (i) update master policies and formulate eligibility standards for mortgage insurance, and (ii) develop a set of aligned standards for force placed insurance.
Federal Court Holds Borrowers Must Allege Sufficient Basis To Exercise TILA Three-Year Right of Rescission
On February 28, 2013, the U.S. Court of Appeals for the Fourth Circuit held that a borrower failed to state sufficient facts to avail herself of TILA’s extended three-year right to rescind her mortgage. Wolf v. Federal Nat’l Mortg. Assoc., No. 11-2419, 2013 WL 749652 (4th Cir. Feb. 28, 2013). Nearly three years after refinancing her loan, and just a few days before the scheduled foreclosure sale, the borrower attempted to rescind her mortgage loan pursuant to TILA, based on arguments that the original lender under-disclosed certain material finance charges. The district court held that the borrower’s TILA claims were untimely because she failed to file a lawsuit within the three-year deadline. Since the district court’s decision was issued, the Fourth Circuit held in another case, Gilbert v. Residential Funding LLC, 678 F.3d 271 (4th Cir. 2012), that a borrower need not file a lawsuit seeking rescission within the three-year deadline but instead must only notify the lender that she is exercising her rescission right. The Fourth Circuit reasoned that, in light of Gilbert, the borrower’s claim had not necessarily expired and the relevant question centered on whether she had adequately alleged facts that the three-year deadline applied. The Fourth Circuit found that the borrower’s allegations amounted to bare assertions and presented no facts as to why the charges were unreasonable. The court also rejected the borrower’s argument that the lender had inadequately disclosed the right to rescind. Accordingly, the Fourth Circuit affirmed the district court’s ruling – on different grounds – and dismissed the TILA claims. The Fourth Circuit also held that the borrower had failed to state claims for fraud, defamation, breach of the implied covenant of good faith and fair dealing, and a claim that the assignment was invalid, thus invalidating the foreclosure sale.