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Fourth Circuit Affirms Marital Privilege Does Not Apply to Emails Exchanged Using Employer's Computer
On December 13, the U.S. Court of Appeals for the Fourth Circuit held that the marital privilege does not protect information included in emails exchanged via a spouse’s employer-owned computer and network. United States v. Hamilton, No. 11-4847, 2012 WL 6200731 (4th Cir. Dec. 13, 2012). In an appeal of his criminal conviction on bribery charges, a Virginia lawmaker argued that the email evidence used to convict him was admitted in violation of the marital communications privilege. That common law privilege generally protects privately made communications between spouses. On appeal, the court extended by analogy the U.S. Supreme Court’s holding in Wolfe v. United States, 291 U.S. 7 (1934) to modern technology and held that the lawmakers use of his employer’s computer to send the allegedly privileged communications constituted a voluntary disclosure of the communications, thus waiving the privilege. The court explained that the district court did not err in admitting the communications based on its reasoning that the lawmaker did not take any steps to protect the communications in question, even with knowledge that his employer had in place a policy that permitted the employer to inspect emails stored on its system. As the court explained, the lawmaker was required to acknowledge his employer’s policy each time he logged-on to his work computer, and therefore had no reasonable expectation of privacy. After dispensing with the lawmakers’ other claims on appeal, the appeals court upheld the district court’s conviction.
State Law Update: Michigan Excludes Certain Loans from State Mortgage Laws, Extends Loan Modification Program
On December 22, Michigan Governor Rick Snyder signed three bills—SB 1283, SB 1284, and SB 1285—to exclude from state mortgage laws, including its predatory lending law and loan originator licensing act, any loan transaction in which the proceeds are not used primarily for a personal, family, or household purpose. The changes took effect immediately. On December 28, the Governor executed SB 1172, which extends until June 30, 2013 a law enacted in 2009 to create a residential mortgage loan modification program. The program provides for a 90-day moratorium before a mortgage lender may pursue a non-judicial foreclosure against a delinquent borrower, during which time the borrower must be given an opportunity to modify the loan. Under prior law the program was scheduled to sunset on December 31, 2012.
OCC Issues Alert on DDoS Cyber Attacks
On December 21, the OCC issued Alert 2012-16, which provides a general description of recent distributed denial of service (DDoS) attacks directed at national banks and federal savings associations, along with risk mitigation information and references to related risk management guidance. The alert also reiterates the OCC’s expectations that banks should (i) be prepared to provide timely and accurate communication to their customers regarding Web site problems, risks to customers, precautions customers can take, and alternate delivery channels that will meet customer needs, (ii) consider the recent DDoS attacks and concurrent fraud against customer accounts as part of their ongoing risk management program, (iii) incorporate information sharing with other banks and service providers into their risk mitigation strategies, (iv) report DDoS attack information to law enforcement authorities and notify their supervisory office, and (v) voluntarily file a Suspicious Activity Report if a DDoS attack affects critical information of the institution including customer account information, or damages, disables or otherwise affects critical systems of the bank.
CFPB Proposes Revised Remittance Transfer Rule
On December 21, the CFPB proposed revisions to the remittance transfer rule it finalized earlier this year and already once modified. The proposed revisions follow a November 2012 bulletin from the CFPB in which it stated its intent to pursue a fast-track rulemaking to delay the effective date of the rule while addressing certain industry-raised concerns. The proposed revised rule would (i) provide increased flexibility and guidance with respect to the disclosure of taxes imposed by a foreign country’s central government, as well as fees imposed by a recipient’s institution for receiving a remittance transfer in an account, (ii) require disclosure of foreign taxes imposed by a country’s central government, but would eliminate the requirement to disclose taxes imposed by foreign regional, provincial, state, or other local governments, and (iii) require a provider to attempt to recover funds without bearing the cost of funds that cannot be recovered, when the provider can demonstrate that the consumer provided an incorrect account number and certain other conditions are met. The proposed rule also would push back the effective date of the remittance transfer rule from February 7, 2013, to 90 days after the revised rule is finalized. The CFPB is accepting comments on the delayed effective date for 15 days following publication in the Federal Register, and it is accepting comments on the substantive revisions for 30 days following publication in the Federal Register.
OCC Semiannual Risk Perspective Highlights Risks Facing Banking Industry
On December 20, the OCC published its Semiannual Risk Perspective for fall 2012, which provides details on risks facing the banking industry. Based on data as of June 30, 2012, the semiannual report highlights risks in (i) the operating environment, (ii) the condition and performance of the banking system, (iii) funding, liquidity, and interest rate risk, and (iv) regulatory actions. Among the many findings reported by the OCC were: (i) threats to business models from low rates, sluggish economic growth, and the historic volume of new banking regulations, remain high, (ii) underwriting standards remain under pressure as banks compete aggressively for limited, high-quality lending opportunities, (iii) credit quality improvement in bank portfolios is stabilizing, (iv) compliance and reputation risks remain high as banks struggle to maintain investments consistent with higher market and regulatory standards, and (v) Bank Secrecy Act and anti-money laundering risks also are increasing as criminals become more sophisticated.
President Signs ATM Disclosure Bill and CFPB Privilege Bill
On December 20, President Obama signed two bills impacting bank supervision and compliance. These bills were sent to the President after the Senate approved both measures on December 11. The first, H.R.4014, amends the Federal Deposit Insurance Act to protect information submitted to the CFPB as part of its supervisory process. For more information about these issues, please see our recent Special Alert. The second bill, H.R. 4367, amends the Electronic Fund Transfer Act to remove the requirement that ATMs have an attached placard disclosing fees. The amended law requires only that fees be disclosed on the ATM screen.
NMLS Publishes 2013.1 Release Portfolio
On December 21, the NMLS announced that NMLS Release 2013.1 is planned for March 18, 2013. As summarized in the Release Portfolio, the updated systems will (i) allow state agencies to invoice licensees for various fees, (ii) provide money transmitters the ability to submit periodic reports regarding authorized agents, (iii) allow state regulators to adopt the newly created Uniform State Test Component in lieu of existing State-specific Test Components to satisfy the SAFE Test State Component Requirement, and (iv) display through NMLS Consumer Access self-reported disciplinary actions for federally registered mortgage loan originators.
HUD Issues Mortgagee Letters Regarding Flood Zone and Small Supervised Lender Reporting Requirements
Last month, HUD issued Mortgagee Letter 2012-28, which restates and updates guidance regarding flood zone requirements for FHA-insured mortgages. The letter states that, effective February 9, 2012, (i) FHA will require all mortgagees to obtain a flood zone determination on all properties and to retain evidence that clearly indicates that the flood zone determination service is for the life of the loan, and (ii) properties within a designated Coastal Barrier Resource System unit will not be eligible for an FHA-insured mortgage. The letter attaches a chart demonstrating the Flood Zone Requirements within a given scenario. A second letter, Mortgagee Letter 2012-29, advises supervised lenders of the method by which they should submit their call reports in place of audited financial statements, as permitted by prior HUD guidance.
FDIC Obtains Jury Verdict and Settlement in Separate Actions in California District Court Against Former Bank Officers and Prohibition Order Against Bank CEO
On December 7, the FDIC, as receiver of a failed bank, obtained a jury verdict in its favor in the U.S. District Court for the Central District of California against a group of former bank officers. FDIC v. Van Dellen, No. 10-CV-04915, Doc. 596 (C.D. Cal. Dec. 7, 2012). On December 12, the former chief executive officer of the same bank settled a separate FDIC civil action and consented to an order of prohibition from further participation in the banking industry. FDIC v. Perry, No. CV 11-5561 (C.D. Cal. Dec. 12, 2012); In re Perry, No. FDIC-12-642e. In the first case, the FDIC sued the group of former officers, alleging that, in pursuit of bonuses for high loan origination volumes, the officers approved homebuilder loans to unqualified borrowers. The jury found that the former officers breached their duty of care and acted negligently in approving 23 loans and awarded approximately $169 million in damages to the FDIC. In a separate action against the former CEO of the same bank, the FDIC alleged that the CEO was negligent in allowing the bank to generate mortgage loans in 2007 which the bank was then unable to sell, allegedly resulting in $600 million in losses to the bank. The CEO settled the FDIC’s claims for $12 million, $1 million of which is to be paid from personal funds and the remainder from insurance funds. In addition, the CEO consented to an FDIC order prohibiting him from further participation in the conduct of any financial institution or organization.
California Federal District Court Holds Force-Placed Insurance Claims Not Preempted by National Bank Act
On December 11, the U.S. District Court for the Northern District of California refused to preempt under the National Bank Act claims that a mortgage lender breached its contract by force-placing a backdated flood insurance policy on the borrower’s property. Ellsworth v. U.S. Bank, No. C 12-02506, 2012 WL 6176905 (N.D. Cal. Dec. 11, 2012). The borrower brought a putative class action against his lender and flood insurer on behalf of himself and similarly situated borrowers, alleging that the lender and insurance company overcharged him for a temporary force-placed flood insurance policy that was backdated, and for which the lender received a kickback from the insurer. The lender and insurer moved to dismiss on the grounds that the borrower’s claims are preempted by the National Bank Act and barred by California’s filed rate doctrine and the voluntary payment doctrine, and that the borrower failed to state a claim. The court held that the borrower’s claims are not preempted by the National Bank Act because they are at their core about practices—the alleged kickbacks and backdating—rather than fees. Further, the court held that claims based on overcharging due to the alleged kickback scheme are not a challenge to the rates of the premiums, but rather the allegedly unlawful conduct, and therefore are not barred by the filed rate doctrine. The court also declined to dismiss based on the defendants’ attempts to apply the voluntary payment doctrine and arguments the borrower failed to state a claim, and denied defendants’ motions to dismiss.