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Financial Services Law Insights and Observations

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  • CFPB Submits First Annual FDCPA Report to Congress

    Consumer Finance

    On March 20, the CFPB submitted to Congress its first annual report on the administration and enforcement of the Fair Debt Collections Practices Act (FDCPA). The CFPB inherited the annual reporting function as part of the Dodd-Frank Act’s transfer to the CFPB of the primary regulatory responsibility for the FDCPA. Prior to this report, the FTC prepared the annual report, and this year it submitted a letter to the CFPB detailing its efforts under the FDCPA. The report, as informed by the FTC letter, provides (i) a brief background on the FDCPA, (ii) a summary of consumer complaints about the debt collection industry, (iii) a description of the CFPB’s FDCPA supervision authority, including its rulemaking to expand that authority by defining “larger participant” nonbanks, (iv) an outline of recent FTC and CFPB enforcement activity and amicus briefs filed against entities engaged in debt collection, including ongoing non-public investigations of debt collection practices, and (v) each regulator’s FDCPA-related research and policy initiatives.

    CFPB FTC FDCPA

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  • FDIC Approves Proposed Rule Regarding Enforcement of Subsidiary and Affiliate Contracts

    Consumer Finance

    On March 20, the FDIC approved for publication a proposed rule to implement new authorities granted by the Dodd-Frank Act that permit the FDIC, as receiver for a financial company whose failure would pose a significant risk to financial stability, to enforce certain contracts of subsidiaries and affiliates of the covered company. This proposed rule would include contracts that purport to terminate, accelerate, or provide for other remedies based on the insolvency, financial condition, or receivership of the covered company, so long as the FDIC complies with statutory requirements. The proposed rule would apply broadly to all contracts and make clear that the FDIC’s authority as receiver effectively preserves contractual relationships of subsidiaries and affiliates during the liquidation process.

    FDIC Dodd-Frank

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  • Wyoming Prohibits Private Transfer Fees

    Lending

    On March 15, Wyoming enacted House Bill 0025, which ends the use of private transfer fee obligations for a specified period. Pursuant to the law, new private transfer fee obligations—which require the payment of a fee upon the subsequent transfer of a real property—entered into between April 1, 2012 and July 1, 2014 are not enforceable against subsequent owners, purchasers, or mortgagees. To enforce a private transfer fee obligation created prior to April 1, 2012, the payee must record a notice in the county clerk’s office where the property is located. However, the law contains no prohibition of enforcement of private transfer fees absent the required recording.  This law became effective March 15, 2012.

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  • WSJ's Price-Change Clause Allows Company to Spin Off Barron's with Additional Charges

    Fintech

    On March 12, the U.S. District Court for the Southern District of New York ruled that Dow Jones & Company Inc. did not engage in unfair business practices or breach its contract with customers when it spun off Barron’s and added an additional fee for continued access to the publication. Lebowitz v. Dow Jones & Co. Inc., No. 06-2198, 2012 WL 795525 (S.D.N.Y. Mar. 12, 2012). The Wall Street Journal Online subscriber agreement stated that Dow Jones could change or add charges by giving its customers advance notice. Dow Jones notified customers in December 2005 that as of January 2006 it would charge separately for online access to the Wall Street Journal and Barron’s, thereby requiring existing customers to pay an additional fee for access to both. Dow Jones announced the change using pop-ups on its Wall Street Journal and Barron’s sites, which the court held was sufficient notice under the contract. The court also held that Dow Jones’s right change the price did not make the contract illusory.

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  • HUD Issues Guidance Regarding Occupied Conveyance Procedures

    Lending

    On November 3, Bio-Rad Laboratories Inc. agreed to pay a total of $55 million to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam.  According the SEC’s cease-and-desist order, subsidiaries of the bio-medical instrument manufacturer paid $7.5 million in bribes in Russia, Thailand, and Vietnam from 2005 to 2010 in order to win business in violation of Section 30A of the FCPA, which resulted in $35 million in improper profits for the company.  Some of the payments were disguised as commissions to foreign agents, in situations where the “agents had no employees and no capacity to perform the purported services for Bio-Rad.”  The company also allegedly had an “atmosphere of secrecy.”  Bio-Rad self-disclosed the violations to the government in 2010.

    As part of the resolution, the company reached a Non-Prosecution Agreement with the DOJ regarding activities in Russia and agreed to a $14.35 million criminal penalty related to books and records and internal controls violations.  The resolution with the SEC involved the payment of $40.7 million in disgorgement and pre-judgment interest regarding anti-bribery, books and records, and internal controls violations related to Russia, Thailand, and Vietnam.

    Of note, and continuing the trend of cross-border cooperation, the SEC in its press release disclosed that numerous international entities had assisted its investigation, including the “Bank of Lithuania, Financial and Capital Market Commission of Latvia, and British Virgin Islands Financial Services Commission.”  Underscoring the issue, following public disclosure of Bio-Rad’s settlement with the SEC regarding alleged payments in Vietnam, news reports indicate that Vietnam’s Ministry of Health has ordered a review of hospital purchases from Bio-Rad, and asked for information and assistance from US authorities.

    Foreclosure HUD

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  • FTC Releases Survey on Consumer Reporting Agencies and FACTA

    Consumer Finance

    On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs’ practice of attempting to sell identity theft products to consumers reporting identify thefts.

    CFPB FTC FACTA Privacy/Cyber Risk & Data Security

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  • Utah Limits Time for Deficiency Actions Following a Short Sale

    Lending

    Just a month after announcing its internal investigation of possible FCPA violations, news reports indicate that General Cable Corporation’s review will be completed or substantially completed by the first quarter of 2015.  The company also announced that it “plans to exit all of its Asia Pacific and African manufacturing operations,” although it did not link the exit – which affects nine plants in Asia and five plants in Africa, and approximately 17% of its total sales – to its FCPA investigation.

    In September, the Kentucky-based cable manufacturer announced that it was investigating its payment practices with respect to employees of public utility companies in Angola, Thailand, India and Portugal due to possible FCPA concerns.  News reports indicate that, to date, the company has spent millions on the review, which has included a review of over 450,000 documents and interviews of over 20 individuals.  The company also disclosed that it was cooperating with investigations by the DOJ and SEC.

    Mortgage Servicing

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  • Facebook's Forum-Selection Clause Enforceable Against Plaintiff Minors

    Fintech

    On March 8, the U.S. District Court for the Southern District of Illinois ruled that minors who used Facebook are bound by the forum-selection clause contained in the website’s terms of service, to which they agreed when they signed up for Facebook. E.K.D. v. Facebook Inc., No. 11-461 (S.D. Ill. Mar. 8, 2012). The plaintiffs, a group of minors suing Facebook for improperly using their images in advertising, argued that because they were minors when they signed up, the forum selection clause could not be enforced. The court rejected this argument, holding that under California contract law the minor plaintiffs could not void the forum selection because they continued to use and benefit from Facebook after agreeing to the terms of service. The court further held that transferring the case to the Northern District of California would not unduly burden the plaintiffs and was permitted by 28 U.S.C § 1404.

    Privacy/Cyber Risk & Data Security

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  • Freddie Mac Publishes Revisions to Selling Requirements

    Lending

    On March 15, Freddie Mac published Single-Family Seller/Servicer Guide Bulletin 2012-8, which (i) updates mortgage eligibility and credit underwriting requirements Borrower Funds and Mortgage Credit Certificates for Borrower qualification, (ii) revises Forms 16SF and 1107SF regarding warehouse lender agreements and facilities, (iii) eliminates certain requirements for document custodians on Form 1034A, and (iv) updates certain delivery requirements under the Uniform Loan Delivery Dataset and clarifies delivery requirements for certain refinances under HARP.

    Freddie Mac Mortgage Origination

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  • Washington Expands Servicemember Protections

    State Issues

    On March 7, Washington Governor Christine Gregoire signed Senate Bill 5627 which expands protection for members of the state National Guard. The law expands the definition of “military service” to include servicemembers called to service by the governor for more than thirty consecutive days. This change is designed to provide National Guard members activated by the governor the same protections already provided under state law to servicemembers called to federal service by the President or the Secretary of Defense. This law becomes effective June 7, 2012.

    Servicemembers

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