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National Mortgage Settlement Monitor Issues Implementation Report
On February 21, Joseph Smith, Jr., the Monitor charged with overseeing the borrower relief and servicing standards aspects of the national mortgage servicing settlement, issued an implementation status report. The report states that the servicers subject to the agreement have provided nearly $46 billion of borrower relief to date and that one of the five servicers has been certified as having satisfied its borrower relief obligations under the settlement. The report notes that, effective January 1, 2013, each of the five servicers’ compliance with the servicing standards are being measured against a set of 29 metrics. The report does not provide any initial assessment of servicer compliance, but notes that the Monitor is currently reviewing each servicer’s compliance review report and, after completing a consultation process with each servicer and the Monitoring Committee, the Monitor will file a compliance report during the second quarter of 2013. The report also notes an increase in consumer complaints collected by the Monitor to date, but does not conclude whether the increase is due to greater awareness about the settlement or persistent servicing problems.
FTC Halts Alleged Illegal Consumer Account Billing Operation
On February 20, the FTC announced that it obtained a preliminary injunction in the U.S. District Court for the District of Nevada against a firm and affiliated entities alleged to have debited consumers’ bank accounts and charged their credit cards small amounts, without authorization. Although the FTC does not yet know how the defendants obtained the consumers’ financial information, the FTC states that some consumers had recently applied for payday loans via the Internet. The FTC’s complaint alleges that the firms attempted to conceal the scheme by (i) creating dozens of shell companies to open merchant accounts with payment processors that enable merchants to get customers’ money via electronic banking, (ii) registering more than 230 Internet domain names, often using identity-hiding services and auto-forward features, and (iii) inflating their total number of deposits and lowering their return rates by taking multiple unauthorized debits of a few pennies each, and then immediately refunding them before making a larger debit of about $30. The FTC is seeking, among other things, restitution and a permanent injunction. The FTC was assisted in its investigation by the Utah Department of Commerce’s Division of Consumer Protection and the Arkansas Attorney General Office’s Consumer Protection Division.
CSBS and AARMR Comment on CFPB Mortgage Servicing Transfer Bulletin
On February 20, the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) issued a statement commending the CFPB for its recent guidance regarding mortgage servicing transfers. The statement explains that state regulators, who generally have jurisdiction over state member and non-member banks and non-depository institutions, similarly have identified potential for consumer harm when loans are transferred during the loss mitigation process. CSBS and AARMR strongly encourage state-supervised servicers to familiarize themselves with applicable state requirements, the various federal laws, and the CFPB guidance, and stated that they plan to update state uniform servicing examination procedures through appropriate Multistate Mortgage Committee processes to account for the new CFPB Guidance.
DOJ Charges Community Bank with Discriminatory Pricing of Unsecured Consumer Loans
On February 19, the DOJ announced a settlement with a $338 million Texas community bank to resolve allegations that the bank engaged in a pattern or practice of pricing discrimination on the basis of national origin. Specifically, the DOJ alleged, based on its own investigation and an examination conducted by the FDIC, the bank violated ECOA by charging Hispanic borrowers higher interest rates on unsecured consumer loans compared to the rates charged to similarly situated white borrowers. The consent order requires the bank to establish a $700,000 fund to compensate borrowers who may have suffered harm as a result of the alleged ECOA violations. It also requires that the bank (i) establish uniform pricing policies, (ii) create a compliance monitoring program, (iii) provide borrower notices of non-discrimination, and (iv) conduct employee training. The new requirements apply not only to unsecured consumer loans, but also to all residential single-family real estate construction financing, automobile financing, home improvement loans, and mortgage loans.
New York Federal Court Holds SEC's FCPA Enforcement Theory "Far Too Attenuated" for Jurisdiction
On February 19, the U.S. District Court for the Southern District of New York held that the SEC’s allegations of personal jurisdiction over a former CEO of Siemens’ Argentinian subsidiary – a German citizen with no direct ties to the United States – were “far too attenuated from the resulting harm to establish minimum contacts,” and dismissed the case against him for lack of personal jurisdiction. SEC v. Sharef, No. 11-Civ-9073, 2013 WL 603135 (S.D.N.Y. Feb. 19, 2013). In the underlying case, the SEC alleged that, between 1996 and 2007, Siemens employees approved and paid millions of dollars of bribes to Argentinian government officials throughout the life of a contract with the Argentine government, during the renegotiation of that contract, and during an arbitration proceeding after the contract was canceled. The SEC alleged that the CEO participated in the renegotiation of the contract and “pressured” the CFO to approve the bribes. Applying the due process requirements of minimum contacts and reasonableness set forth in International Shoe v. Washington, 326 U.S. 310 (1945), the court reasoned, “[i]f this Court were to hold that [the CEO’s] support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.” This decision follows another recent decision in the Southern District of New York regarding personal jurisdiction over foreign FCPA defendants. In that case, the court reached the opposite outcome and found that the SEC had alleged personal jurisdiction because the defendants’ alleged conduct was “designed to violate” U.S. securities laws and thus was “directed toward the United States.” SEC v. Straub, No. 11-Civ-9645, 2013 WL 466600 (S.D.N.Y. Feb. 8, 2013). In Sharef, the court distinguished Straub on the basis that the individuals orchestrated a bribery scheme, “and as part of the bribery scheme signed off on misleading management representations to the company’s auditors and signed false SEC filings.”
U.K. FSA Fines Banks for Slow Response to Payment Protection Insurance Customer Complaints
On February 19, the U.K.’s Financial Services Authority announced a fine against three related banks for failing to promptly redress customers lodging complaints about the banks’ payment protection insurance (PPI) product. The FSA states that over a 10 month period, the bank failed to pay redress within the FSA-required 28-day period for nearly a quarter of the banks’ customers who submitted complaints regarding PPI, with some customers waiting over six months for payment. The FSA states that its investigation revealed (i) the banks failed to establish an adequate process for preparing redress payments to send to PPI complainants; (ii) bank staff engaged on the redress process did not have the collective knowledge and experience to ensure that the process worked properly; (iii) the banks failed to effectively track PPI redress payments; (iv) the banks failed to monitor effectively whether they were making all payments of PPI redress promptly and did not gather sufficient management information to identify, in a timely manner, the full nature and extent of the payments failings; and (v) the banks’ approach to risk management when preparing redress payments to send to PPI complainants was ineffective. The FSA has been active in addressing PPI issues. Last month, the FSA and the Office of Fair Trading jointly published final guidance to help prevent the problems associated with PPI recurring in a new generation of products. The FSA’s guidance for payment protection products within its jurisdiction stresses that firms should ensure that product features reflect the needs of the consumers they are targeting. It describes the importance of (i) identifying the target market for protection products; (ii) ensuring that the cover offered meets the needs of that target market; and (iii) avoiding the creation of barriers to comparing, exiting or switching cover.
House Members Reiterate Small Bank Concerns over Basel III
On February 19, House Financial Services Committee members Shelley Moore Capito (R-WV) and Carolyn Maloney (D-NY) sent a letter to the Federal Reserve Board, the OCC, and the FDIC regarding the lawmakers’ concerns about the implementation of Basel III. Citing potential compliance costs and the potential derivative impact on consumers, Representatives Capito and Maloney ask that the agencies carefully tailor the Basel III capital requirements to ensure they are appropriate for community banks. The House and Senate have in recent months placed significant focus on the Basel III rulemakings, with both houses recently holding hearings on the issue and lawmakers previously sending letters to the regulators.
Electronic Transactions Association Releases Resources for Mobile Payment Solutions
On February 19, the Electronic Transactions Association’s (ETA) Mobile Payments Committee released three resources to help firms navigate emerging issues in the mobile payments market. The Committee is an industry-wide task force of representatives from credit card networks, processors, mobile network operators, developers, financial institutions, and device manufacturers. The first resource, “Best Practices and Guidelines for Mobile Payment Solutions,” addresses security, privacy and competition issues relevant to merchants, consumers, federal and state legislators, federal regulators, merchant acquirers, credit card issuers, and infrastructure providers. In the second, a white paper entitled “Beyond the Hype: Mobile Payments for Merchants,” the Committee provides a comprehensive overview of the current state of mobile payments, as well as analysis of the risks and costs for merchants to consider before deploying mobile payments solutions. Finally, the Committee issued a “Mobile Payments Glossary of Terms.”
Washington Federal Court Holds Standard Business Practices Insufficient to Support Arbitration Claim
On February 15, the U.S. District Court for the Western District of Washington held that a cable company could not force arbitration of a dispute by relying only on its standard business practices to support its claim that the plaintiff agreed to arbitrate. Permison v. Comcast Holdings Corp., No. C12-5714, 2013 WL 594304 (W.D. Wash. Feb. 15, 2013). A cable customer with accounts in Colorado and Washington sued the company alleging TCPA violations. The cable company sought to compel arbitration, claiming that “Welcome Kit” materials executed by the customer included an agreement to arbitrate. In support of its motion to compel arbitration with regard to the Colorado accounts, the cable company submitted an affidavit describing its standard business practice, which requires technicians to provide customers with the Welcome Kit, and obtain customer signatures on certain terms and conditions included in the Kit. The court held that reliance on standard business practices is insufficient. Instead, the court stated, the cable company must produce business records or testimony showing that the customer actually received the arbitration agreement and assented to its terms. The court noted that the cable company presented actual evidence with regard to the Washington account, but held that it is not clear whether that contract, and its arbitration clause, impact the customer’s TCPA claims because of imprecise pleading. The court denied the company’s motion to compel arbitration and granted the customer leave to clarify his claims. The court’s holding follows a recent 10th Circuit decision that affirmed a district court’s dismissal of claims based on unrefuted declarations submitted by a TV and internet service provider’s employees concerning its standard practices for entering into agreements provided to customers in writing by the installation technician at the time the services were installed.
House Financial Services Ranking Member Seeks Additional Information Regarding Foreclosure Review Settlements
On February 15, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent an amended set of requests to the Federal Reserve Board and the OCC regarding the recent agreements in principle to end the Independent Foreclosure Review (IFR) established by consent orders issued in April 2011. Ms. Waters asks that, in advance of finalizing the terms of the agreements, the agencies produce by March 1, 2013: (i) policies and procedures about how loan files were to be reviewed by the IFR independent consultants, and any checklists used; (ii) calls or reports from the consultants to the agencies regarding error rates of reviewed files, or errors by analysts conducting the reviews; (iii) guidelines issued by the agencies to any consultant related to interpretation of the remediation framework; (iv) correspondence between the agencies and any consultant with regard to the servicing platform identified as “Loss Mitigation Notes,” and inconsistencies between the reported availability of borrower records provided by such a program and records entered into any other part of the servicing platform; and (v) any proposed plan for future reform or modification of servicing platforms or procedures generated or submitted by any consultant to the agencies. This request follows related requests made by Ms. Waters and other Democratic lawmakers seeking details pertaining to the settlement.