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  • Special Alert: HUD, DOJ sign MOU on mortgage False Claims Act violations

    Agency Rule-Making & Guidance

    On October 28, HUD and DOJ announced a long-awaited Memorandum of Understanding (MOU), which provides prudential guidance concerning the application of the False Claims Act to matters involving alleged noncompliance with FHA guidelines. The announcement was made by HUD Secretary Dr. Benjamin S. Carson at the Mortgage Bankers Association’s Annual Conference, and both agencies issued releases shortly after Carson’s comments. The intention, HUD noted, is to bring greater clarity to regulatory expectations within the FHA program and ease banks’ worries about facing future penalties for mortgage-lending errors.

    * * *

    Click here to read the full special alert.

    If you have any questions about the HUD/DOJ Memorandum of Understanding or other related issues, please visit our Mortgages or False Claims Act & FIRREA practice pages, or contact a Buckley attorney with whom you have worked in the past.

    Agency Rule-Making & Guidance Special Alerts HUD DOJ False Claims Act / FIRREA FHA Mortgages

  • GSEs publish updated URLA

    Federal Issues

    On October 23, Fannie Mae and Freddie Mac (GSEs) published the updated and redesigned Uniform Residential Loan Application (URLA), which reflects revisions announced in August at the direction of the FHFA, including the removal of the language preference question. (Previous InfoBytes coverage here.) The updated static URLA form and supporting materials can be accessed on Fannie Mae’s URLA web page. The announcement also states that the GSEs are on track to publish their updated automated underwriting system specifications and supporting documents next month and anticipate announcing the updated implementation timeline and mandate prior to year-end. Although the GSEs retired the dynamic version, an interactive PDF version of the redesigned URLA will be released in early 2020.

    Federal Issues Fannie Mae Freddie Mac GSE URLA Mortgages

  • Federal financial regulators join the Global Financial Innovation Network

    Federal Issues

    On October 24, the CFTC, FDIC, OCC, and SEC announced that they joined the Global Financial Innovation Network (GFIN). GFIN was created by the United Kingdom’s Financial Conduct Authority in 2018 and is an international network of 50 organizations, including the CFPB and other financial regulators. As previously covered by InfoBytes, GFIN members are committed to supporting financial innovation by (i) collaborating on innovation and providing accessible regulatory contact information for firms; (ii) providing a forum for joint regulation technology work; and (iii) providing firms with an environment in which to trial cross-border solutions. According to the FDIC’s announcement, “[p]articipation in the GFIN furthers these objectives and enhances the agencies’ abilities to encourage responsible innovation in the financial services industry in the United States and abroad.”

    Federal Issues FDIC OCC SEC CFTC Regulatory Sandbox Of Interest to Non-US Persons

  • NIST publishes updated Big Data Interoperability Framework

    Privacy, Cyber Risk & Data Security

    On October 21, the National Institute for Standards and Technology (NIST) released the second revision of its Big Data Interoperability Framework (NBDIF), which aims to “develop consensus on important, fundamental concepts related to Big Data” with the understanding that Big Data systems have the potential to “overwhelm traditional technical approaches,” to include traditional approaches regarding privacy and data security. Modest updates were made to Volume 4 of the NBDIF, which focuses on privacy and data security, including recommending a layered approach to Big Data system transparency. With respect to transparency, Volume 4 introduces three levels, starting from level 1, which involves a System Communicator that “provides online explanations to users or stakeholders” discussing how information is processed and retained in a Big Data system, as well as records of “what has been disclosed, accepted, or rejected.” And at the most mature levels, transparency includes developing digital ontologies (multi-level architecture for digital data management) across domain-specific Big Data systems to enable adaptable privacy and security configurations based on user characteristics and populations. Largely intact, however, are the Big Data Safety Levels, in Appendix A which are voluntary (standalone) standards regarding best practices for privacy and data security in Big Data systems, and include application security, business continuity, and transparency aspects.

    Privacy/Cyber Risk & Data Security Big Data NIST

  • 3rd Circuit affirms summary judgment in bankruptcy, FDCPA action

    Courts

    On October 23, the U.S. Court of Appeals for the Third Circuit affirmed summary judgment for a debt collection law firm and attorney (collectively, “defendants”) in an action alleging the defendants violated the U.S. Bankruptcy Code and the FDCPA. According to the opinion, the plaintiffs had to make monthly payments to their condominium association as part of a special assessment to pay for an improvement project. The plaintiffs made payments until filing for bankruptcy in 2014. After the bankruptcy closed, the plaintiffs did not resume payments to the association for the improvement project. The balance continued to accrue and a lien was filed for the outstanding balance of $10,137.38. The association also created a “Certificate of Amount of Unpaid Assessments” that referenced the outstanding balance and explained over $8,000 of the total balance had been discharged in the 2014 bankruptcy. The plaintiffs sued the defendants, asserting that the bankruptcy discharged all the debt owed, including the post-discharge payments, and that the defendants’ collection efforts “were coercive and misleading.” The district court granted summary judgment in favor of the defendants.

    On appeal, the 3rd Circuit affirmed. The court concluded that the payment owed to the condominium association was a “fee or assessment” under the Bankruptcy Code that was not discharged here because the plaintiffs retained ownership interest in the property and the assessment payment became due after the bankruptcy. The court also rejected the plaintiffs’ FDCPA claims against the defendants. The court explained that the defendants were not responsible for the amount listed in the condominium association’s certificate and, in any event, the amount the defendants’ attempted to collect did not include the discharged amount. The court concluded that the plaintiffs failed to provide any evidence that would create an issue of material fact on the FDCPA claim and affirmed the district court’s summary judgment ruling.

    Courts Appellate Third Circuit Bankruptcy FDCPA Debt Collection

  • Waters and Brown urge regulators to reconsider Volcker Rule changes

    Federal Issues

    On October 17, House Financial Services Committee Chairwoman Maxine Waters (D-Calif) and Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) wrote to the heads of the Federal Reserve Board, FDIC, OCC, SEC, and CFTC to oppose the federal financial regulators’ recent approval of changes to the Volcker Rule. (Previous InfoBytes coverage here.) According to Waters and Brown, the final revisions—which are designed to simplify and tailor compliance with Section 13 of the Bank Holding Company Act’s restrictions on a bank’s ability to engage in proprietary trading and own certain funds—“open the door to the very risky, speculative activities that Congress sought to prohibit.” Specifically, the letter addresses rollback concerns such as (i) narrowing the definition of a “trading account,” which would weaken the short-term intent prong; (ii) “eliminating metrics reporting”; (iii) “removing activity restrictions on non-U.S. banks”; and (iv) “expanding permitted activity related to covered funds.” Waters and Brown urged the regulators to reconsider their decision to adopt the revisions, and requested that they be provided with the data and metrics used by the regulators during their analysis, as well as the regulators’ justification for “eliminating or reducing the information and data reported by banking entities.”

    Federal Issues Volcker Rule House Financial Services Committee Senate Banking Committee Federal Reserve FDIC OCC SEC CFTC

  • FTC announces two actions involving fraudulent social media activity and online reviews

    Federal Issues

    On October 21, the FTC announced two separate actions involving social media and online reviews. In its complaint against a skincare company, the FTC alleged that the company misled consumers by posting fake reviews on a retailer’s website and failed to disclose company employees wrote the reviews. The FTC asserted that the retailer’s customer review section is “a forum for sharing authentic feedback about products,” and the company and owner “represented, directly or indirectly, expressly or by implication, that certain reviews of [the company] brand products on the [retailer’s] website reflected the experiences or opinions of users of the products.” The FTC argued that the failure to disclose that the owner or employees wrote the reviews constitutes a deceptive act or practice under Section 5 of the FTC Act because the information would “be material to consumers in evaluating the reviews of [the company] brand products in connection with a purchase or use decision.” In a 3-2 vote, the Commission approved the administrative consent order, which notably does not include any monetary penalties. The order prohibits the company from misrepresenting the status of an endorser and requires the company and owner to disclose the material connection between the reviewer and the product in the future.

    The FTC also entered into a proposed settlement with a now-defunct company and its owner for allegedly selling fake social media followers and subscribers to motivational speakers, law firm partners, investment professionals, and others who wanted to boost their credibility to potential clients; as well as to actors, athletes, and others who wanted to increase their social media appeal. According to the FTC, the company “provided such users of social media platforms with the means and instrumentalities for the commission of deceptive acts or practices,” in violation of Section 5(a) of the FTC Act. The Commission unanimously voted to approve the proposed court order, which bans the company from selling or assisting others in selling “social media influence.” The proposed order imposes a $2.5 million monetary judgment against the company owner, but suspends the majority upon the payment of $250,000.

    Federal Issues FTC Act Deceptive UDAP Disclosures Fraud FTC

  • NYDFS to investigate deed fraud and deception targeting homeowners

    State Issues

    On October 22, the New York governor directed NYDFS to investigate instances of alleged mortgage deed fraud and deceptive practices targeting homeowners in Brooklyn. In addition to the investigation, the governor also directed NYDFS to “dispatch the Department's Foreclosure Relief Unit to provide assistance to homeowners who believe they may have been a victim of deed fraud or unfair, deceptive, or abusive practices in regard to the sale or attempted purchase of their home.”

    As previously covered by InfoBytes, the governor recently signed a package of bills intended to increase consumer homeowner protections. Specifically, A 5615 amended state law related to distressed home loans to extend consumer protections for homes in default and foreclosure by, among other things, (i) providing homeowners additional time to cancel a covered contract with a purchaser; (ii) preventing distressed property consultants from inducing the consumer to transfer the deed to the consultant or anyone else; and (iii) allowing consumers to void contracts, deeds, or other agreements material to the consumer’s property where an individual was convicted of or pled guilty to making false statements in connection with that agreement.

    State Issues Mortgages State Legislation State Regulators NYDFS Consumer Protection

  • District Court denies request to enforce modified CID, says CFPB can issue third-party CID

    Courts

    On October 18, the U.S. District Court for the District of Columbia denied defendants’ request to enforce a modified Civil Investigative Demand (CID) and prevent the CFPB from obtaining personal information about the defendants’ clients via CIDs to third parties. In August 2017, the CFPB issued a CID to the defendants requesting various documents and information. The defendants challenged the scope of the original CID and, following mediation, the parties stipulated to a modified CID that no longer sought personal information of the defendants’ clients who obtained products or services related to immigration bonds. The CFPB subsequently issued third party CIDs and requested the personal information of the defendants’ clients from certain other parties. In March 2019, the defendants moved to enforce the modified CID, claiming that the CFPB “reneged on its stipulation and [acted] in bad faith” by seeking this personal information from third parties. The court, however, denied the defendants’ request to enforce the modified CID, ruling that “the modified CID makes no mention of CIDs issued to other parties,” and that the parties’ stipulation did not “preclude the CFPB from acquiring any type of information from third parties.” The court also explained that it was unclear whether the defendants had standing to contest the CFPB’s CID to a third party, noting that the defendants failed to state how they would suffer an injury if the pertinent information was disclosed by a third party.

    Courts CFPB CIDs Third-Party

  • Kraninger discusses semi-annual report at House and Senate hearings

    Federal Issues

    On October 17, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress. (Previous InfoBytes coverage here.) Pursuant to the Dodd-Frank Act, the hearing covered the semi-annual report to Congress on the Bureau’s work from October 1, 2018 to March 31, 2019. While Committee Chairman Mike Crapo (R-Idaho) praised recent key initiatives undertaken by Kraninger pertaining to areas such as innovation, small dollar lending underwriting provisions, and proposed amendments to the Ability to Repay/Qualified Mortgage Rule, he stressed the importance of reconsidering the fundamental structure of the Bureau. Conversely, Senator Sherrod Brown (D-Ohio) argued that Kraninger’s leadership has led to zero enforcement actions taken against companies for discriminatory lending practices, and that her initiatives have, among other things, failed to protect consumers. In her opening testimony, Kraninger reiterated her commitment to (i) providing clear guidance; (ii) fostering a “‘culture of compliance’” through the use of supervision to prevent violations; (iii) executing “vigorous enforcement”; and (iv) empowering consumers. Notable highlights include:

    • Constitutionality challenges. The Bureau recently filed letters in pending litigation arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers, and on October 18, the U.S. Supreme Court granted cert in Seila Law LLC v. CFPB, to answer the question of whether an independent agency led by a single director violates Article II of the Constitution. (InfoBytes coverage here.) Senator Brown challenged, however, Kraninger’s “credibility as a public official,” arguing that she changed her original position about not speaking on constitutionality issues.
    • Supervision of student loan servicers. Kraninger addressed several Senators’ concerns about the Department of Education reportedly blocking the Bureau from obtaining information about the Public Service Loan Forgiveness Program for supervisory examinations, as well as and the need for a stronger response from the Bureau to obtain the requested information. Kraninger stressed that the CFPB will move forward with a statutorily required Memorandum of Understanding between the two agencies, and emphasized that the Bureau continues to examine private education loans and is collaborating with the Department of Education to ensure consumer protection laws are followed.
    • Proposed revisions to Payday Rule. Several Democratic Senators questioned the Bureau’s notice of proposed rulemaking to rescind the Payday Rule’s ability-to-repay provisions. (Previously covered by InfoBytes here.) Specifically, one Senator argued that the Bureau has failed to “present any new research in defense of the change.” Kraninger replied that while she defends the Bureau’s proposal, “a final decision has not been made in this issue.” Kraninger also addressed questions as to why—if the Bureau does not believe there is a reason to delay the effective date of the Payday Rule’s payment provisions—the Bureau has not yet filed a motion to lift a stay and allow payment provision to be implemented. Kraninger indicated that the CFPB had not done so because the payday loan trade groups were also challenging the Bureau’s constitutionality (InfoBytes here).
    • Clarity on abusive practices under UDAAP. Kraninger noted the Bureau intends to, “in the not too distant future,” provide an update as to whether more guidance is necessary in order to define what constitutes an abusive act or practice.

    A day earlier, Kraninger also presented testimony at the House Financial Services Committee’s hearing to discuss the semi-annual report, in which committee members focused on, among other things, constitutionality questions and concerns regarding recent Bureau settlements. Similar to the Senate hearing, Democratic committee members questioned Kraninger’s change in position concerning the Bureau’s constitutionality, and argued that for her “to second-guess Congress’ judgment on [the] constitutionality of the CFPB and to argue against the CFPB structure in court is disrespectful to Congress.” With regard to recent Bureau enforcement actions, many of the committee members’ questions revolved around consumer restitution, as well as a recently released majority staff report, which detailed the results of the majority’s investigation into the CFPB’s handling of consumer monetary relief in enforcement actions since Richard Cordray stepped down as director in November 2017. (See previous InfoBytes coverage here.)

    Federal Issues CFPB Senate Banking Committee House Financial Services Committee Student Lending Payday Rule UDAAP Single-Director Structure Seila Law

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