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Financial Services Law Insights and Observations

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  • CFPB to Host Remittance Rules Webinar, Announces Safe Harbor Countries

    Consumer Finance

    On October 16, the CFPB will host a webinar on the new requirements for remittance transfer providers. The CFPB issued a final remittance rule at the beginning of this year, and subsequently modified the rule to exempt certain institutions from its disclosure requirements. To further assist industry stakeholders with implementation of the remittance rule, the CFPB has also released a list of countries that qualify for the safe harbor exception to the rule’s disclosure requirements. Under the exception, providers may disclose estimates of the amounts to be received in a foreign currency, fees, and taxes for transfers to Aruba, Brazil, China, Ethiopia, and Libya, in lieu of exact amounts. The remittance rule, and its safe harbor exception, becomes effective February 7, 2013.

    CFPB EFTA Remittance Money Service / Money Transmitters

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  • Fannie Mae and Freddie Mac Align Certain Servicing Policies

    Lending

    On October 3, Fannie Mae and Freddie Mac (the Enterprises) issued announcements reflecting their recent effort to comply with an FHFA directive that the Enterprises work together to harmonize certain of their servicing policies and develop a consistent framework for assessing servicer performance. For example, Fannie Mae’s Servicing Guide Announcement SVC-2012-21 and Freddie Mac’s Bulletin 2012-20 include revisions to the Enterprises’ policies and practices regarding performance metrics for assessing servicers’ fulfillment of their duties. The Enterprises also updated servicing policies to harmonize (i) compensatory fee structures, (ii) servicer violations and remedies, and (iii) servicing terminations and transfer of servicing. The effective date of most changes discussed in the announcements is January 1, 2013. However, Fannie Mae announced miscellaneous contractual changes that are effective immediately, including its adoption of New York law as its choice of law provision, and its clarification of certain Servicing Guide sections related to indemnification and electronic records.

    Freddie Mac Fannie Mae Mortgage Servicing FHFA Servicing Guide

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  • Oklahoma Transitions Money Transmitter Licensing to NMLS

    Consumer Finance

    On October 1, Oklahoma began transitioning state-licensed money transmitters to the NMLS. Existing and new licensees must create a company record in the NMLS and begin using the system for new licenses and renewals. The NMLS has issued instructions for new applications as well as company transition requests. Because the Oklahoma State Banking Department cannot receive electronic payments, licensees still must mail fee payments to the Department with a copy of the new or renewal application.

    NMLS Money Service / Money Transmitters

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  • Nevada's Federal District Court Declines to Enforce Browsewrap Arbitration Agreement

    Fintech

    On September 27, the U.S. District Court for the District of Nevada followed other federal courts and held that an arbitration clause within the Terms of Use agreement on Zappos.com was unenforceable given that users were neither provided with notice of the agreement nor an opportunity to affirmatively assent to the agreement. In re Zappos.com, Inc. Customer Data Sec. Breach Litig., No. 12-325, 2012 WL 4466660 (D. Nev. Sep. 27, 2012). Customers sued Zappos in several federal district courts for damages resulting from a security breach of the company’s website. After those actions were consolidated, Zappos filed a motion to compel arbitration based on the argument that by using the website the customers accepted and agreed to its Terms of Use, which included an agreement to arbitrate all claims arising from use of the website, and which were available through a hyperlink on each page of Zappos.com. Such hyperlinked Terms of Use are known as “browsewrap” agreements. The court held that despite the broad federal policy in favor of arbitration, the company had provided no evidence that the customers clicked on, viewed, or expressly manifested assent to the Terms of Use agreement, there was no acceptance of the Terms of Use provisions by customers, and thus those provisions, including the arbitration clause, were unenforceable. Moreover, the court held that because Zappos retained the unilateral right to revise the Terms of Use, the contract was illusory and therefore unenforceable. Accordingly, the court denied Zappos motion to compel arbitration.

    Arbitration Mobile Commerce

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  • Federal Reserve Board Reports on CFPB Consumer Protection Unit

    Consumer Finance

    This week, the Office of the Inspector General (OIG) for the Federal Reserve Board issued an evaluation of the CFPB’s Consumer Response Unit, which is responsible for managing the CFPB’s consumer complaint system. The report provides a concise overview of the CFPB’s consumer complaint process and includes the OIG’s evaluation of that process. Specifically, the OIG concludes that the CFPB’s consumer complaint process is reasonable, generally compliant with the Dodd-Frank Act, and consistent with industry best practices. However, the report also indicates that the CFPB Consumer Response Unit could improve its process by further addressing (i) inaccurate manual data entry of consumer complaints, (ii) inconsistent complaint management system data, (iii) lack of a finalized agency-wide privacy policy, (iv) lack of a comprehensive quality assurance program, and (v) lack of a centralized tracking system for quality assurance reviews.

    CFPB Federal Reserve Consumer Complaints

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  • Fannie Mae Announces Numerous Selling Guide Updates

    Lending

    On October 2, Fannie Mae issued Selling Guide Announcement SEL-2012-10, which updates and clarifies certain Selling Guide policies and procedures. First, the Announcement explains that the Selling Guide has been updated to incorporate prior changes announced in SEL-2012-09 (Updates to Refi Plus and DU Refi Plus) and SEL 2012-03 (Changes to Pricing Terms). Second, effective immediately, lenders must use the higher of the outstanding unpaid principle balance or the modified credit limit when calculating the HCLTV ratio for permanently modified home equity lines of credit. Third, Fannie Mae has removed the limit on the weighted-average coupon of fixed rate mortgage loans in MBS pools that involve a guaranty fee buyup, also effective immediately. Fourth, Fannie Mae has (i) clarified clarify distinctions between inactive and deactivated lenders, (ii) revised document custodian and custodial depository requirements, and (iii) updated the Eligibility Matrix.

    Fannie Mae Mortgage Origination

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  • OCC Refines Consideration of BSA/AML Examination Findings

    Consumer Finance

    On September 28, the OCC issued Bulletin 2012-30 to refine how examiners consider Bank Secrecy Act/Anti-Money Laundering (BSA/AML) examination findings in the FFIEC Uniform Ratings System and the OCC’s risk assessment system for national banks and federal savings associations, and in the Risk Management, Operational Controls, Compliance, and Asset Quality ratings and risk assessment system for federal branches and agencies of foreign banking organizations. To align OCC practices with those of other federal regulators, OCC examiners no longer consider BSA/AML findings when assigning consumer compliance ratings. However, the findings still are considered when assessing overall compliance risk. Additionally, the current practice of considering such findings in the safety and soundness context will continue, and serious compliance deficiencies create a presumption that a bank’s management component rating will be hurt. Similarly, current practices regarding consideration of findings with regard to foreign banks remain applicable.

    Examination OCC Anti-Money Laundering Bank Secrecy Act

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  • State Law Update: California Enacts Additional Mortgage-Related Bills

    Lending

    Last week, California enacted several additional mortgage-related bills. First, AB 1599 requires that a mortgagee, trustee, beneficiary, or authorized agent attach to the already required recorded notice of default and notice of sale, a summary of the information required to be contained in those notices. The notices must include a statement referencing the attached summary, but the summary need not be recorded or published. Second, SB 980 extends until January 1, 2017 the existing prohibition against persons facilitating loan modifications from requiring or accepting pre-performance compensation, requiring collateral to secure payment, or taking power of attorney from the borrower. Finally, AB 2010 requires that reverse mortgage counseling be conducted in person, unless the borrower elected to receive counseling in another manner.

    Foreclosure Mortgage Servicing Reverse Mortgages Mortgage Modification

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  • Federal District Court Holds Federal Law Preempts Massachusetts' Statutory Limits On Hazard Insurance

    Lending

    On September 21, the U.S. District Court for the District of Massachusetts held that the Federal Homeowners Loan Act preempted a Massachusetts law that forbids lenders from requiring borrowers to purchase insurance greater than the replacement cost of the building on the mortgaged property. Silverstein v. ING Bank, fsb, No. 12-10015, 2012 WL 4340587 (D. Mass. Sep. 21, 2012). A borrower brought a putative class action in state court alleging that the bank’s requirement that borrowers purchase insurance equal to the outstanding principal balance on the mortgage violated the state’s limit on mortgage insurance. The bank removed the case to federal court and subsequently moved to dismiss while the borrower moved to remand the case. In denying the motion to remand and granting the bank’s motion to dismiss, the court held that the Massachusetts statute limiting hazard insurance to the replacement cost of the building falls plainly within the illustrative list of preempted state laws provided by the Homeowners Loan Act’s implementing regulations. The court conceded that the borrower could bring common law claims against the bank, but held that the borrower’s attempt to label his clear statutory claims as common law claims failed.

    Class Action Mortgage Insurance

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  • NY AG Files First RMBS Working Group Action, Expects More to Follow

    Securities

    On October 2, the Residential Mortgage-Backed Securities (RMBS) Working Group announced its first legal action. The civil complaint, filed against a major bank by New York Attorney General Eric Schneiderman on behalf of the people of that state, alleges that an underwriter acquired by the bank made fraudulent misrepresentations and omissions in the sale of RMBS to investors. The suit claims that losses resulting from the allegedly fraudulent sales total approximately $22.5 billion to date, but the complaint does not specify the damages sought. In announcing the suit, Attorney General Schneiderman, as well as Acting U.S. Associate Attorney General Tony West and other federal Working Group members, described the coordinated efforts that culminated in this filing. Specifically, Working Group members stressed the assistance provided by the SEC and the FHFA. Indeed, the allegations in the New York Attorney General’s complaint are similar to allegations previously made by the FHFA on behalf of Fannie Mae and Freddie Mac against numerous financial institutions. The allegations also parallel those made by private plaintiffs. On behalf of the RMBS Working Group, which was first announced by President Obama during his 2012 State of the Union address, Mr. Schneiderman has promised more civil, and potentially criminal, enforcement activity against other financial institutions.

    State Attorney General RMBS SEC FHFA DOJ Enforcement

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