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  • Senate Confirms Multiple Nominees

    Federal Issues

    On March 29, the U.S. Senate confirmed President Obama’s three nominees for the FDIC Board of Directors: Martin Gruenberg, Thomas Hoenig, and Jeremiah Norton. However, the Senate did not confirm Mr. Gruenberg as Chair of the FDIC or Mr. Hoenig as the Vice Chair. Instead, Mr. Gruenberg will continue to serve as Vice Chair and will lead the board in an acting capacity. Thomas Curry was confirmed to serve as Comptroller of the Currency.  As such, he will also sit on the FDIC Board, as he has in an independent position since 2004. The Senate also confirmed (i) Maurice Jones to be the Deputy Secretary of the Department of Housing and Urban Development, (ii) Christy Romero as Special Inspector General for the Troubled Asset Relief Program, (iii) Mary John Miller to serve as the Under Secretary for Domestic Finance at the U.S. Treasury Department, and (iv) Jon Leibowitz to another seven year term as Federal Trade Commission Chairman. Two nominees to the Federal Reserve Board, Jerome Powell and Jeremy Stein, remain pending in the Senate.

    FDIC

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  • DOJ Reaches FCPA Settlement With Medical Device Company

    Federal Issues

    On March 26, the U.S. Department of Justice (DOJ) announced it had reached a settlement with a medical device company to resolve allegations that the company and its subsidiaries made improper payments in violation of the Foreign Corrupt Practices Act (FCPA). DOJ alleges that Biomet, its subsidiaries, employees, and agents made illegal payments to publicly-employed health care providers in Argentina, Brazil, and China in exchange for business with certain hospitals in those countries and then falsely recorded the payments on its books to conceal the true nature of the payments. The deferred prosecution agreement requires Biomet (i) to pay a $17.28 million criminal penalty, (ii) to implement a robust compliance program and internal controls, and (iii) to retain an outside compliance monitor for 18 months. Separately, Biomet agreed to disgorge $5.4 million of profits and interest to resolve parallel civil charges brought by the SEC.

    FCPA

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  • Federal Banking Regulators Propose Joint Revisions to Leveraged Finance Guidance

    Consumer Finance

    On March 26, the Federal Reserve Board, the FDIC, and the OCC proposed revisions to the interagency leveraged finance guidance issued in 2001. Leveraged finance transactions are characterized by a borrower with a degree of financial or cash flow leverage that significantly exceeds industry norms as measured by various debt, cash flow, or other ratios. According to the agencies, the guidance needs to be revised given increasing leveraged lending volumes, deteriorating underwriting practices, limited protection of debt agreements, aggressive capital structures and repayment prospects, and less than satisfactory management information systems. Specifically, the agencies believe that the guidance should be updated to refocus attention on the following five key areas: (i) establishing a sound risk-management framework, (ii) underwriting standards, (iii) valuation standards, (iv) pipeline management, and (v) reporting and analytics. The agencies are accepting comments on the proposed guidance through June 8, 2012.

    FDIC Federal Reserve OCC

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  • FTC Finalizes Consumer Privacy Recommendations, Notes Mobile Issues

    Federal Issues

    On March 26, the FTC released an anticipated report on consumer privacy, calling on all companies to adopt certain practices to protect consumers’ private information. The final report outlines three basic principles: (i) “privacy by design”, (ii) simplified choice, and (iii) increased transparency. Though the report and recommended practices do not carry the force of law, the FTC encourages adoption of the recommendations to support innovation and commerce while improving consumer protection. The report also serves as a blueprint for what the FTC is seeking in federal privacy legislation. Pending congressional action, the FTC will continue to employ its existing enforcement authority to address unfair or deceptive practices, including practices that violate self-regulatory programs. Further, the FTC intends to support implementation of the framework by focusing on several substantive topics and stakeholder groups, including (i) do not track, (ii) mobile services, (iii) data brokers, (iv) large platform providers, and (v) industry codes of conduct. For example, the FTC will focus on mobile services by updating guidance about online advertising disclosures, including holding a workshop on model mobile disclosures on May 30, 2012. It also calls on mobile service providers to establish industry standards that address data collection, transfer, use, and disposal, particularly for location data.

    FTC Privacy/Cyber Risk & Data Security

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  • CFPB Files Amicus in TILA Rescission Case

    Consumer Finance

    The CFPB announced today that it recently filed an amicus brief in the U.S. Court of Appeals for the Tenth Circuit in a case involving the Truth in Lending Act (TILA) right to rescind a transaction, Rosenfield v. HSBC Bank, No. 10-1442 (10th Cir.). The CFPB argued that borrowers who do not receive the material disclosures required by TILA can rescind the transaction as long as they notify the lender of the cancellation within three years of consummation, even if they do not file suit within the three-year period. The CFPB urged the Tenth Circuit to reject the view of the majority of courts that the borrower must both notify the lender and file suit within three years.  Citing both the statute and the CFPB’s implementing Regulation Z, the CFPB argued that the holding in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), that the right to rescind expires completely after three years, simply means that “consumers [must] exercise their rescission right by providing notice to their lender within three years of obtaining the loan,” and that consumers could file suit after three years if the lender failed to honor the rescission notice. As an indication of the Bureau’s intense interest in this issue, it noted that it plans to file amicus briefs on the same question in at least three other circuits in which briefing is still pending.

    CFPB TILA

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  • Fannie Mae Reminds Servicers About Documentation Request Limits

    Lending

    On March 21, Fannie Mae issued a notice reminding servicers that in processing a borrower request for a foreclosure prevention alternative evaluation, servicers may only request limited documentation from a borrower. Specifically, a servicer may only request (i) a completed Uniform Borrower Assistance Form (Form 710), (ii) income documentation as outlined in Form 710 based on income type, (iii) hardship documentation as outlined in Form 710 based on hardship type, and (iv) a Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower. Servicer requests for additional documentation are limited only to instances in which the servicer must reconcile inconsistencies in the documentation provided by the borrower, but such instances should be rare. Further, servicers may not request federal income tax returns unless the borrower is self-employed or the borrower has rental income, as outlined in Form 710.

    Fannie Mae

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  • FHFA IG Releases Results of Three Reviews

    Lending

    On December 2, the Organisation for Economic Co-operation and Development (“OECD”) released a report that analyzed more than 400 bribery cases worldwide, from February 1999 to June 2014, involving companies or individuals from the 41 signatory countries to the OECD Anti-Bribery Convention who were involved in bribing foreign public officials. The OECD concluded that "most international bribes are paid by large companies, usually with the knowledge of senior management.” The OECD found that bribes are generally paid to win contracts from state-owned or controlled companies in advanced economies, rather than in the developing world, and most bribe payers and takers are from wealthy countries. Notably, almost two-thirds of the cases occurred in just four sectors: extractive (19%), construction (15%), transportation and storage (15%), and information and communication (10%). Furthermore, the bribes were offered most often to employees of state-owned enterprises (27%), followed by customs officials (11%), health officials (7%), and defense officials (6%). The OECD report revealed that the time needed to resolve cases has increased over time, from around two years on average for cases concluded in 1999 to just over seven years today.  According to the OECD, “this may reflect the increasing sophistication of bribers, the complexity for law enforcement agencies to investigate cases in several countries or that companies and individuals are less willing to settle than in the past.”  The OECD’s bribery report can be found here.

    Freddie Mac Fannie Mae

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  • FDIC Approves Proposed Rule to Amend Large Bank Pricing Assessment System

    Consumer Finance

    On December 3, Transparency International released its 2014 Corruption Perceptions Index (CPI). The CPI ranks 175 countries based on the perception of public sector corruption and found that more than two-thirds of the countries had a score below 50 on a scale from 0 to 100 which shows that the levels of bribery and corruption in the public sector are still perceived to be very high. Denmark is at the top of the list with a CPI score of 92. The United States was 17th with a score of 74 but scored lower than numerous other G20 countries, including Australia, Germany, Japan, and the United Kingdom. China had one of the biggest falls, dropping four points from 40 in 2013 to 36 in 2014, despite the fact that its government launched an anti-corruption campaign targeting corrupt public officials. Transparency International called on countries where public sector corruption is limited to stop encouraging it elsewhere by doing more to prevent money laundering and to stop secret companies from hiding corruption.  The 2014 CPI can be found at here.

    FDIC

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  • Arizona Alters Financial Institution and Loan Originator Licensing Provisions

    Lending

    On December 4, Asem Elgawhary, a former vice president of Bechtel Corporation, pled guilty in federal district court in Maryland to mail fraud, conspiracy to commit money laundering, and obstruction and interference with the administration of the tax laws for his role in a kickback scheme to manipulate the bidding process for state-run power contracts in Egypt. From 1996 to 2011, Elgawhary was the general manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egypt’s state-owned electric company.  PGESCo helped the Egyptian electric company select subcontractors by soliciting bids and awarding contracts for power projects. Elgawhary admitted to taking $5.2 million in kickbacks from three power companies to give them an unfair advantage in the bidding process. The power companies and their consultants paid the kickback payments into various off-shore and Swiss bank accounts under the control of Elgawhary.  Elgawhary, a dual United States and Egyptian citizen, was indicted in February 2014 and is due to be sentenced on March 23, 2015.

    It is worth noting that this case was not brought under the FCPA.  The DOJ did not allege that Elgawhary was a Egyptian government official or that PGESCo, while a joint venture between Bechtel and the Egyptian state-owned electric company, was a state-owned enterprise for FCPA purposes.  The case, though, follows in the footsteps of similar prosecutions of foreign government officials who received bribes and shows the U.S. government’s increasing willingness to police foreign recipients of bribes, even if those bribes are only commercial bribes.

    Mortgage Origination

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  • Eighth Circuit Limits Reach of FDCPA

    Consumer Finance

    On March 16, the U.S. Court of Appeals for the Eighth Circuit rejected a lawsuit under the Fair Debt Collection Practices Act (FDCPA) that was premised on pleadings filed in an unsuccessful state court collection action. Hemmingsen v. Messerli & Kramer, P.A., No. 11-2029, 2012 WL 878654 (8th Cir. Mar. 16, 2012). Plaintiff debtor successfully defended against a collection lawsuit in state court and thereafter commenced an FDCPA action for harassment, false or misleading representations in the state court action, and unfair practices. The claims were based upon defendant debt collection counsel’s summary judgment motion and supporting affidavit; the factual allegations in these documents were deemed unsupportable by the state court when it dismissed the collection lawsuit. A federal district court dismissed the FDCPA action on the ground that representations in the motion and affidavit in the collection action were made to the state court, and not to the plaintiff as required by the FDCPA. On appeal, the Eighth Circuit rejected this broad FDCPA defense and instead embraced a “case-by-case” approach. The court held that these particular FDCPA claims failed because evidence introduced in federal court provided some factual support for the pleadings filed in the state court action.

    FDCPA

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