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On August 8, Fannie Mae issued three servicing announcements. The first, Announcement SVC-2012-13, reminds servicers that under the Housing and Economic Recovery Act, Fannie Mae must promote diversity through (i) the inclusion and utilization of minorities, women, and individuals with disabilities, and (ii) the use of minority-, women-, and disabled-owned businesses at all levels, in management and employment, in all business and activities, and in all contracts for services of any kind. To that end, Fannie Mae is requiring that servicers complete by November 1, 2012, a supplier registration profile that accurately reflects its ownership status and its team composition report. The second announcement, Announcement SVC-2012-14, notifies servicers that effective October 1, 2012, Fannie Mae no longer will require mandatory pre-foreclosure mediation for loans in Florida. Finally, through Announcement SVC-2012-15, Fannie Mae is establishing a policy to require both an existing and a new document custodian to provide at least thirty days written notice when all or part of the custodian’s business is being acquired by a new document custodian while the servicer remains the same. This new policy is effective immediately.
How to Handle a Government Investigation: 13 Things You Should You Do Immediately If the Government Comes Knocking
Actions you take, or don’t take, in the early hours of a government investigation can have costly and far-reaching consequences for a company. At the root of this is the importance of having a plan in place should your company come under investigation, as the last thing you want to be is caught flat-footed. Do your key employees and legal department staff know what to do immediately if the government initiates an investigation?
- Inform your in-house counsel. Establish a protocol to ensure that counsel is contacted immediately.
- Preserve documents. Inform all necessary employees of the need to retain documents, including electronic documents, with a document hold memo that replaces standard document retention policies for potentially responsive materials.
- Establish early dialogue with the investigating agency. Communication is critical to understanding the scope of the investigation and to establishing a working relationship with the government.
- Assume a parallel investigation will be initiated. Questions about self-reporting, production, and other strategic decisions should be made under the assumption that a parallel criminal or civil suit will follow.
- Alert the Board of Directors and/or Audit Committee. Schedule a meeting with key executives to carefully review the situation and discuss possible remedies and corrective actions. Be mindful that meeting minutes, notes, or emails may be discoverable.
- Consider implementing internal restrictions on the trading of company stock. Be sure all rules regarding insider trading are upheld.
- Evaluate disclosure issues and formulate a plan to address. With the commencement of a government investigation, a number of governance issues will arise. Carefully consider any and all disclosures that may be necessary and take appropriate action.
- Put your insurance carrier on notice. Put your insurer on notice early to increase your chances of having insurance pay for some or all of the investigation and/or litigation costs.
- Determine if actions are needed with respect to employees who are possible wrongdoers. This may involve implementing restrictions or additional oversight of their activities or even dismissal. All issues involving employees need to be carefully considered from a variety of angles, including employment laws, anti-retaliation provisions, and possible future civil litigation.
- Identify remedial measures if needed. It may be necessary to conduct a gap analysis of existing compliance programs and make changes to avoid a future recurrence.
- Prepare for any anticipated media coverage. Any and all public statements will be carefully scrutinized by the media, the public-at-large, and the investigating agency. Therefore, it is critical that sufficient care and attention is given to any public comments by the company or its spokespeople.
- Notify employees of possible contact by the investigating agency and advise them of their rights and obligations. It is important to remind employees of their responsibility to be truthful when speaking with agents of the government, but that they may choose to have an attorney present if they do decide to be interviewed. You should also reiterate your company’s policy on cooperating with investigations and request that employees inform the legal department of any discussions or contacts with the government.
- Commence an internal investigation if necessary. An internal investigation can help your company determine whether the allegations have merit or not, and if they do, the cause and extent and possible corrective actions.
You may also be interested in reading our related blog post on How to Respond to a Subpoena: 10 Things You Should Do Immediately.
On August 6, President Obama signed into law the Honoring America's Veterans and Caring for Camp Lejeune Families Act of 2012, H.R. 1627. Section 710 of this Act expands foreclosure protections for active duty servicemembers. Currently, under the Servicemembers Civil Relief Act, 50 U.S.C. app. § 533 (SCRA), an individual is entitled to foreclosure protection during the period of active duty and for nine months thereafter. This extended foreclosure protection was set to expire at the end of calendar year 2012, at which point the foreclosure protection would only last for ninety days after the end of active duty.
This bill signing makes three important changes to the SCRA that expand protections for servicemembers:
- The SCRA will continue to provide servicemembers with foreclosure protection during the period of active duty and for nine months thereafter past the end of the current calendar year into 2013;
- One-hundred-and-eighty days from the date of enactment (i.e., February 2, 2013), the mortgage foreclosure protection will extend to one full year after the period of active duty; and
- On January 1, 2015, the SCRA's expanded foreclosure protection will sunset, and the protection period will revert to its 2008 level: the period of active duty service plus ninety days.
Additionally, this Act requires the Comptroller General of the United States to report to Congress information related to the use of this expanded foreclosure protection. This report is due a year-and-a-half after enactment-giving Congress several months to review the report prior to the 2015 sunset.
On July 18, the CFPB filed suit against a group of California companies and individuals alleged to have orchestrated a mortgage modification scam in violation of the Consumer Financial Protection Act and Regulation O. According to the CFPB, the defendants engaged in deceptive acts by promising loan modifications in exchange for an advance fee and misrepresenting affiliation with government entities, while taking little or no action to assist borrowers. This is the first known instance in which the CFPB has brought an enforcement action in court. The CFPB is seeking preliminary and permanent injunction, as well as rescission or reformation of contracts, refund of moneys paid, restitution, and disgorgement or compensation for unjust enrichment.
On August 2, the Federal Reserve Board and the OCC announced that the deadline for borrowers to seek review of their mortgage foreclosures under the Independent Foreclosure Review program has been extended to December 31, 2012. Under the program, an eligible borrower can have his or her foreclosure reviewed by independent consultants to determine whether the borrower was financially injured due to errors, misrepresentations, or other deficiencies in the foreclosure process. An injured borrower may be eligible for compensation or other remedies. The program originally was scheduled to close April 30, 2012, but has been extended numerous times over the past year.
On July 30, the CFPB published its second semiannual report to Congress. The report, which is mandated by the Dodd-Frank Act, provides an update of CFPB activities from January 1, 2012 through June 30, 2012. Included in the report is an overview of the CFPB’s complaint handling process and updated summary information about complaints received to date. The CFPB also states that it is currently conducting investigations spanning the “full breadth of the Bureau’s enforcement jurisdiction” while attempting to focus on violations that cause the most harm to consumers. As in the first report, this report identifies consumer “shopping challenges”, highlights planned regulatory activities for the remainder of 2012, and compiles citations to testimony and speeches delivered, and reports prepared or expected to be prepared over the coming months.
On July 30, the U.S. Court of Appeals for the Tenth Circuit overturned a district court ruling that would have required borrowers seeking rescission under TILA to state their ability to repay in the initial complaint. Sanders v. Mountain Am. Fed. Credit Union, No. 11-4008, 2012 WL 3064741 (10th Cir. Jul. 30, 2012). The borrowers timely sued to compel rescission of their mortgage loan, claiming that the lender failed to provide disclosures required under TILA. The district court held that the borrowers were not entitled to rescission because they failed to plead their ability to repay. On appeal the court held that, while TILA recognizes that a court may entertain a creditor’s petition for an order equitably modifying the rescission procedure, in this case the district court impermissibly altered that procedure and created a pleading standard that would require all borrowers seeking TILA rescission to plead their ability to repay. The court reasoned that such a standard would add a condition not supported by TILA or Regulation Z, and that categorical relief is outside of the district court’s equitable powers. However, the court maintained that a district court still may use its equitable powers to protect a creditor’s interest during the rescission process. The appellate court also reversed the district court’s dismissal of the borrowers’ ECOA claim related to a separate refinance transaction because the district court made factual assumptions about the refinance process in violation of its obligation to draw all reasonable inferences in favor of the plaintiff borrowers. While the TILA and ECOA claims were remanded for further proceedings, the court upheld the district court’s dismissal of the borrowers’ claims that the lender also violated FCRA when it reported false information to consumer reporting agencies, holding that FCRA does not provide a private right of action against the furnisher of credit information.
On July 30, the FTC released staff comments submitted in response to the CFPB’s Advance Notice of Proposed Rulemaking regarding the regulation of prepaid cards. The CFPB issued the Notice in May, noting its intention to extend Regulation E to cover general purpose reloadable gift cards and seeking comment, data, and information about such cards. In response, the FTC staff comments review the current regulation of payment cards, and identify for the CFPB’s consideration several consumer protection issues that may arise with regard to prepaid cards, including (i) liability limits, (ii) disclosure and fees expiration dates, (iii) error resolution procedures, (iv) authorization standards for recurrent payments, and (v) consumer access to account information.
On July 25, the U.S. District Court for the District of Minnesota granted summary judgment to a consumer alleging that the placement of an ATM fee notice on the inside of a “hooded ATM” was not “prominent and conspicuous” as required under the Electronic Fund Transfer Act (EFTA). Brown v. Wells Fargo & Co., No. 11-1362 2012 WL 3030294 (D. Minn. Jul. 25, 2012). The consumer, on behalf of a putative class, alleged that the ATM fee disclosure was placed on the inside of the hood protecting the screen, and not in a more conspicuous position. The consumer did not contest that the disclosure was provided electronically on the screen, as also required by the EFTA, and that he was aware before completing the transaction that he would be charged a fee. Because the EFTA does not define “prominent and conspicuous,” the court looked to other consumer protection statutes to determine that the disclosure must be displayed such that a reasonable person ought to have noticed. In this case, the court held that a reasonable person would not conclude that the notice was prominent and conspicuous because (i) the disclaimer was not in capital letters, (ii) the type and background of the notice were in a coordinating, not contrasting color, (iii) the notice was placed inside the hood as opposed to on top of the machine, and (iv) the notice generally did not stand out relative to other information on or near the ATM. While the court granted the consumer’s motion for summary judgment on the EFTA claims, the court disposed of his claim for unjust enrichment, and refused to certify the class, holding that the consumer failed to meet the requirements of either Rule 23(a) or (b). As we have reported in recent weeks, the U.S. Congress is considering legislation that would eliminate the physical fee disclosure requirement, and instead require that ATM operators only provide an on-screen notice.
On July 26, the Massachusetts state legislature passed a bill, H 4323, that establishes new pre-foreclosure requirements that will make it harder to foreclose in that state. Under the bill, prior to initiating a foreclosure sale, a creditor must make specified good faith efforts to avoid foreclosure, including assessing potential mortgage modification options. The bill sets up a pre-foreclosure process by which a creditor must notify a borrower of his or her right to a loan modification assessment. In addition, the bill (i) prohibits publication of a foreclosure notice if the creditor knows or should know that the mortgagee is neither the note holder or the note holder’s authorized agent, (ii) requires that assignments be recorded in the registry of deeds and that each assignment of a mortgage be referenced in any notice of foreclosure for a given property, and (iii) establishes a task force to study foreclosure mediation programs. Governor Deval Patrick is expected to sign the bill, the majority of which would take effect November 1, 2012.
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the Mortgage Bankers Association Servicing Solutions Conference & Expo
- Jonice Gray Tucker and H Joshua Kotin to discuss regulatory compliance issues in the fintech industry at Protiviti's Risk & Compliance Innovation Roundtable
- APPROVED Checkpoint Webcast: CFL overview
- Amanda R. Lawrence and Sherry-Maria Safchuk to discuss "California privacy rule" on an NAFCU webinar
- Sasha Leonhardt to discuss "MLA & SCRA" on a NAFCU webinar
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS International AML & Financial Crime Conference
- Brandy A. Hood to discuss "RESPA 8 (TRID applied compliance)" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Critique of direct examination; Questions and answers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Hank Asbill to discuss "What judges want from trial lawyers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Steven R. vonBerg to speak at the "Conference super session" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference