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Financial Services Law Insights and Observations

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  • CFPB Announces First Joint Enforcement Action with State Authorities

    Consumer Finance

    On December 21, the CFPB announced that it obtained an order from a federal district court in Florida that requires a nationwide payday debt relief services company to refund up to $100,000 to consumers who were charged advance fees for promised debt-settlement services that the company never actually rendered. While the amount of the refund obtained through the order is relatively small, the action is notable as the first joint enforcement action by the CFPB and certain state partners. The CFPB was joined in the suit by the attorneys general of New Mexico, North Carolina, North Dakota, and Wisconsin, as well as the State of Hawaii Office of Consumer Protection. Following an investigation into the payday debt solution firm, the CFPB alleged that the company violated the FTC’s Telemarketing Sales Rule, the Dodd-Frank Act, and various state laws, by telemarketing debt-relief services and requesting or receiving fees from consumers for those services before renegotiating, settling, reducing, or otherwise altering the terms of at least one of the consumer’s debts. The CFPB announcement notes that the company cooperated with the CFPB and halted the allegedly illegal operations, and that in addition to the customer refunds the firm will pay a $5,000 civil penalty to the CFPB.

    CFPB Payday Lending State Attorney General Debt Collection

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  • Fair Housing Group Accuses Insurance Company of Redlining

    Consumer Finance

    On December 21, the National Fair Housing Alliance (NFHA) announced that it filed with HUD a housing discrimination complaint against a major insurance company regarding the offering of hazard insurance in a certain geographic area. According to the statement filed in support of its complaint, NFHA alleges that the company refuses to underwrite homeowners’ insurance policies for homes that have flat roofs in the Wilmington, Delaware area, a policy that NFHA charges has a racially disparate impact on African-American and minority communities. Although insurance and insurers are not explicitly covered in the Fair Housing Act, NFHA argues that federal courts have given deference to HUD’s interpretation of the statute, holding that the Fair Housing Act applies to all types of discriminatory insurance practices. NFHA’s complaint is based on its own testing of independent insurance agencies and a single university study of the relationship between roof type and race in the Wilmington area. NFHA claims that its testing of six insurance agencies shows that independent insurance agents were willing to underwrite policies on homes with flat roofs, while agents affiliated only with the insurance company targeted by NFHA cited a company policy that disallowed underwriting policies on such homes. Further, NFHA claims that the university study found a statistically significant relationship between minority populations and homes that have flat roofs, and therefore the “no flat roof policy” disproportionately impacts African-American and minority communities. Moreover, NFHA claims that there is no business justification for such a policy and that the insurance company does not apply the same policy in other cities. Under its fair housing complaint procedures HUD will now conduct its own investigation and determine whether further administrative action is required.

    HUD Fair Housing Disparate Impact Hazard Insurance Redlining

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  • Fourth Circuit Affirms Marital Privilege Does Not Apply to Emails Exchanged Using Employer's Computer

    Courts

    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.

    Privacy/Cyber Risk & Data Security

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  • State Law Update: Michigan Excludes Certain Loans from State Mortgage Laws, Extends Loan Modification Program

    Lending

    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.

    Foreclosure Mortgage Origination Mortgage Servicing Fair Lending Predatory Lending

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  • OCC Issues Alert on DDoS Cyber Attacks

    Consumer Finance

    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.

    OCC Privacy/Cyber Risk & Data Security

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  • CFPB Proposes Revised Remittance Transfer Rule

    Consumer Finance

    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.

    CFPB EFTA Remittance Money Service / Money Transmitters

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  • OCC Semiannual Risk Perspective Highlights Risks Facing Banking Industry

    Consumer Finance

    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.

    OCC

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  • President Signs ATM Disclosure Bill and CFPB Privilege Bill

    Consumer Finance

    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.

    CFPB Examination Nonbank Supervision ATM

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  • NMLS Publishes 2013.1 Release Portfolio

    Consumer Finance

    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.

    NMLS Money Service / Money Transmitters

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  • HUD Issues Mortgagee Letters Regarding Flood Zone and Small Supervised Lender Reporting Requirements

    Lending

    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.

    HUD FHA

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