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Financial Services Law Insights and Observations

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  • HUD Announces REO Agreement with Bank, Fair Housing Organizations

    Lending

    On June 6, HUD announced an agreement to resolve an administrative complaint filed last year by the National Fair Housing Alliance (NFHA) and numerous individual fair housing organizations alleging that a national bank engaged in discriminatory practices with regard to real estate owned (REO) properties. The complaint was one of several that followed an investigation conducted by the fair housing groups, which allegedly revealed that REO properties in predominantly minority neighborhoods are more likely to have maintenance problems and are less likely to have a “For Sale” sign than properties in predominantly white neighborhoods. The report suggested that poor maintenance practices and other alleged neglect can result in properties being vacant for longer periods and can increase the likelihood that a property eventually will be purchased by an investor at a discounted price, as opposed to an owner-occupier. Under the conciliation agreement, the bank will invest $39 million in 45 communities to support homeownership, neighborhood stabilization, property rehabilitation, and housing development. The bank also will (i) use a revised Real Estate Broker Procedure Manual and property inspection checklist, (ii) implement an enhanced training program for real estate brokers and agents who list REO properties, and bank staff responsible for managing REO properties, and (iii) extend the amount of time that individual REO properties will be available exclusively for purchase by an owner-occupant or a non-profit organization.

    HUD Fair Housing REO Enforcement

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  • CFPB Plans Credit Card Arbitration Survey

    Fintech

    On June 6, the CFPB released a notice and request for comment on its plan to conduct a new survey related to its ongoing study of arbitration agreements. A supporting document submitted with the notice includes the initial survey questions proposed by the CFPB. The CFPB plans to contact 1,000 credit card holders to evaluate their awareness of card agreement dispute resolution provisions, and their “assessments of such provisions.” The CFPB stated that the survey will seek information regarding card holders’ perceptions and valuations of arbitration and litigation, but will not gather data regarding respondents’ post-fact satisfaction with arbitration or litigation proceedings. Comments on the proposed survey are due by August 6, 2013.

    Credit Cards CFPB Arbitration

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  • Oregon Supreme Court Rulings Allow Nonjudicial Foreclosures to Proceed

    Lending

    On June 6, the Oregon Supreme Court issued a pair of rulings resolving issues around the role of MERS in the non-judicial foreclosure process and allowing such foreclosures to move forward. In Brandrup v. ReconTrust Company, N. A. S060281, slip op. (Oregon Jun. 6, 2013) and Niday v. GMAC Mortgage LLC, SC S060655, 2013 WL 2446524 (Oregon Jun. 6, 2013), the court answered a series of certified questions related to the role of an electronic mortgage registry as the beneficiary listed on trust deeds and applied those answers to the appeal of a state foreclosure action. The court held that, under the Oregon Trust Deed Act: (i) a mortgage registry that is neither a lender nor successor to a lender may not be a beneficiary of a trust deed; (ii) a mortgage registry is not eligible to serve as beneficiary where the trust deed provides that the registry holds only the legal title to the interests granted by the borrower, but, if necessary to comply with law or custom, the registry has the right to exercise any or all of those interests; (iii) assignments of a trust deed that result from the transfer of the secured obligation are not required to be recorded; and (iv) a mortgage registry cannot hold and transfer legal title to a trust deed as nominee for the lender, after the note secured by the trust deed is transferred from the lender to a successor or series of successors. The court also explained that, “even if MERS lacks authority to act as the trust deed's beneficiary, it may have authority to act on behalf of the beneficiary if it can demonstrate that it has an agency relationship with the beneficiary and that the agency agreement is sufficiently expansive.” The court added that this would apply equally to the issue of the registry’s authority to foreclose the trust deed. Effectively allowing nonjudicial foreclosures involving MERS as the beneficiary on trust deeds to proceed, the Court stated that “[i]n either case, MERS' authority to act as the beneficiary's agent depends on who succeeded to the lender's rights, whether those persons manifested consent that MERS act on their behalf and subject to their control, and whether MERS has agreed to so act.”

    Foreclosure Mortgage Servicing

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  • New York AG Signals Crackdown on Bank Foreclosure Practices

    Lending

    On June 4, New York Attorney General Eric Schneiderman (AG) announced a lawsuit against a major financial institution for allegedly violating state law by failing to timely file in foreclosure cases “requests for judicial intervention” (RJI), which would trigger court-supervised settlement conferences. The suit seeks to compel the financial institution to file the RJI immediately in all cases in which it has filed a proof of service, and to file an RJI simultaneously with proof of service in all future cases. The suit also seeks (i) to compel the firm to prepare an accounting of interest charges, penalties and fees ­that accrued beginning 60 days after the filing of proof of service on the homeowner; (ii) to toll and waive all accrued interest charges, fees and penalties that accrued, or will accrue, beginning 60 days after the filing of proof of service on the homeowner; (iii) restitution for interest charges, fees and penalties paid by the homeowner that accrued beginning 60 days after the filing of proof of service on the homeowner; and (iv) damages for homeowners injured by the alleged practices. The suit results from an AG investigation that sampled foreclosure filings in four New York counties, and the AG stated that he is committed to bringing similar actions against other lenders.

    Foreclosure State Attorney General Enforcement

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  • CFPB Updates TILA, ECOA Examination Procedures

    Lending

    On June 4, the CFPB released new TILA and ECOA examination procedures, which were updated to incorporate certain of the CFPB mortgage rules finalized in January 2013 that address appraisals, escrow accounts, and mortgage loan originator compensation and qualifications. Parts of the Regulation Z (TILA) amendments took effect June 1, 2013, while the majority of the changes to both Regulation Z and Regulation B (ECOA) take effect in January 2014. The CFPB explained that the procedures will help financial institutions and mortgage companies understand how they will be examined under the new requirements that, among other things: (i) set qualification and screening standards for loan originators, (ii) prohibit steering incentives, (iii) prohibit “dual compensation,” (iv) extend the required duration of an escrow account on higher-priced mortgage loans, (v) prohibit mandatory arbitration, (vi) require lenders to provide appraisal reports and valuations, and (vii) prohibit single premium credit insurance.

    CFPB Examination TILA Mortgage Origination Compliance ECOA

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  • FTC Sues Payment Processor for Assisting Allegedly Fraudulent Credit Card Debt Relief Operation

    Fintech

    On June 5, the FTC announced that it has added a payment processor as a defendant in an existing suit against a debt relief firm that the FTC alleges operated a credit card interest rate reduction scam. The FTC claims that the debt relief firm cold-called consumers and charged them up-front fees for promises of credit card interest rate reductions that the firm never obtained. The FTC charges that the payment processor knew, or consciously avoided knowing, the supposedly illegal nature of the operation and facilitated allegedly deceptive and abusive telemarketing acts or practices in violation of the Telemarketing Sales Rule. The FTC also alleges that the processor ignored the “alarmingly high” chargeback rates.

    FTC Payment Systems Enforcement

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  • New York AG Obtains Health Care Credit Card Settlement

    Fintech

    On June 3, AG Schneiderman announced an agreement with a credit card issuer to resolve an investigation into alleged consumer protection concerns arising from the offering of credit cards through medical care providers. The AG cited a Health Care Bureau investigation that found the health care provider application process is often rushed and occurs when treatment is set to begin, resulting in consumers feeling pressured into applying for the card and being charged the full amount for treatment in advance of receiving services. The AG claimed that, in many instances, providers failed to inform consumers of the terms of the card and represented that the account had “no interest,” when it carried retroactive interest of 26.99% if not paid in full during a promotional period. Other consumers allegedly thought that they were signing up for an in-house, no-interest payment plan directly with their provider, or a line of credit with 0% interest. Under the agreement, the issuer will establish an appeals fund for certain card holders who disputed a claim and were denied, which could result in refunds or credits of up to $2 million to approximately 1,000 card holders. The issuer also must implement consumer protection and compliance measures, including, among others: (i) offering a three-day “cooling off” period, such that no transaction over $1,000 can be charged within three days of an initial application, (ii) adding a set of “Transparency Principles” to provider contracts to ensure that providers accurately describe card terms, and implementing other health care provider training and oversight measures, (iii) revising promotional interest rate and other disclosures, and (iv) standardizing complaint management procedures.

    Credit Cards Enforcement

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  • FDIC Announces Enforcement Action Against Debit Card Issuer, Affiliated Service Provider

    Fintech

    On May 31, the FDIC announced enforcement actions against a California bank and an affiliated service provider for alleged unfair and deceptive practices in the marketing and servicing of a prepaid reloadable MasterCard. According to the FDIC, the service provider’s website contained a number of misrepresentations while omitting other information. Specifically, the FDIC claimed that the firm deceptively advertised free online bill pay, promoted features that were not available to cardholders, and charged fees that were not clearly disclosed. Additionally, the service provider’s ACH error resolution procedures imposed additional, undisclosed requirements on card holders. Neither the bank nor the service provider admitted the allegations, but they agreed to establish a restitution fund of approximately $1.1 million for over 64,000 card holders, and pay civil money penalties of $600,000 and $110,000, respectively. The consent orders (i) direct both entities not to engage in further violations of law, (ii) establish specific corrective actions, and (iii) require enhanced compliance management systems and periodic reporting to the FDIC. The bank is further required to strengthen its oversight of third parties.

    FDIC Prepaid Cards Enforcement

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  • Oregon Expands Foreclosure Mediation Program

    Lending

    On June 4, Oregon enacted SB 558, which creates a foreclosure mediation program for judicial foreclosures. In 2012, Oregon enacted a law that required for nonjudicial foreclosures that a beneficiary (i) enter into mediation with a grantor for the purpose of negotiating a foreclosure avoidance measure, and (ii) notify a grantor if they are not eligible for any foreclosure avoidance measure or if the grantor has not complied with the terms of a foreclosure avoidance measure. The new law expands that program to cover judicial foreclosures and makes changes to the structure of the overall mediation program.

    Foreclosure Mortgage Servicing

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  • SEC Chairman Names Chief Counsel

    Securities

    On June 3, the SEC Chairman Mary Jo White appointed Robert E. Rice as Chief Counsel. Mr. Rice previously served as a federal prosecutor in the Southern District of New York. Most recently he was head of governance, litigation, and regulation for the Americas, and the global co-head of the governance, litigation, and regulation operating committee for an international financial institution.

    SEC

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