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On December 30, the CFPB released an annual report reviewing consumer financial protection activities undertaken by the Bureau during the last fiscal year. The report was presented to the Committees on Appropriations of the U.S. Senate and House of Representatives pursuant to section 1017(e)(4) of the Dodd-Frank Act and covers August 1, 2012 through September 30, 2013. While it does not identify any planned activities, the report reviews the Bureau’s enforcement and fair lending activities to date, and explains the Bureau’s risk-based prioritization process for addressing lending discrimination and allocating enforcement resources. The report also describes the Bureau’s supervisory process, including procedures for conducting examinations and investigations, as well as its complaint process. Finally, the report reviews the proposed and final rules issued to date and provides, as well as administrative issues such as the agency’s spending and organization.
On December 29, the New York State Department of Financial Services advised supervised institutions that it readopted expiring emergency regulations used to determine if a home loan qualifies as a subprime home loan under Section 6-m of the New York Banking Law. The latest emergency regulations are identical to those initially adopted in September 2013. Without further action, the readopted emergency regulations will expire March 29, 2014.
On December 30, the U.S. District Court for the Southern District of New York held that three LIBOR suits should remain under federal jurisdiction and denied the plaintiffs’ motions to remand. In Re LIBOR-Based Fin. Instruments Antitrust Litig., No. 11-md-2262, slip op. (S.D.N.Y. Dec. 30, 2013). One of the cases was removed from state court, and the other two were referred by the Judicial Panel on Multidistrict Litigation, to be joined with the numerous consolidated suits that have been brought by investors and bondholders who claim that certain financial institutions colluded to deliberately depress LIBOR, which caused the plaintiffs various economic injuries. LIBOR is a global benchmark rate used in financial products and transactions, which was set using data from the banks under the auspices of the British Bankers’ Association. Focusing on the only disputed element for Edge Act jurisdiction—whether the conduct “arises out of” (i) transactions involving international or foreign banking or (ii) other international or foreign financial operations—the court held that it has federal jurisdiction under the Edge Act. Applying a “common sense” statutory interpretation, the court reasoned that the cases arise out of the financial institutions’ allegedly misleading submissions to the LIBOR panel, which is an international or foreign financial operation, and without which there would be no cases at all. Although it did not need to address the financial institutions’ alternative basis for federal jurisdiction, the court explained that it could also retain jurisdiction under the Foreign Sovereign Immunities Act.
On December 30, HUD finalized revisions to the system used by the FHA to measure and inform mortgagees of their loss mitigation performance. The revisions, finalized in Mortgagee Letter 2013-46, involve more comprehensive metrics to evaluate mortgagees on their overall performance with regard to delinquent loan servicing, as opposed to the limited review of default reporting of forbearance actions and loss mitigation and foreclosure claims paid under the previous system. The evaluation will be used to determine which mortgagees are eligible for additional incentive payments during the January 1, 2014 through December 31, 2014, calendar year. The final system is substantially similar to the proposed version, with some changes made in response to comments. HUD also updated the final scoring methodology using new default status codes delineated in Mortgagee Letter 2013-15. Also in its responses to comments, HUD agreed that it should improve loss mitigation performance by imposing penalties in individual cases of non-compliance with its loss mitigation requirements, stating that with the implementation of TRS II, HUD will have the granular data required for referral to enforcement divisions for “meaningful consequences to be imposed.”
On December 20, HUD announced in Mortgagee Letter 2013-45 that new requirements related to the FHA’s Home Equity Conversion Mortgage program (HECM) are tolled pending further guidance from the agency. Since announcing the new financial assessment requirements and funding requirements for the payment of property charges in September 2013, HUD has received comments that require HUD to update the requirements and guidance. Given those changes, HUD delayed the original date for compliance with the requirements—January 13, 2014—and will set a new effective date when it issues the updated guidance. Mortgagees will have at least 90 days to comply with the new guidance.
On December 30, Massachusetts Attorney General (AG) Martha Coakley announced the state’s sixth settlement related to allegedly unlawful RMBS practices, which resulted from the AG’s ongoing review of subprime mortgage securitization practices in Massachusetts. The most recent agreement requires an underwriting firm to pay a total of $17.3 million, which includes $11.3 million to be dedicated to compensate government entities that had invested with the Massachusetts Pension Reserve Investment Management Board and $6 million to be paid to the state.
Eleventh Circuit Certifies Questions On Georgia Business Judgment Rule In Bank Officer Case, Declines To Apply "No Duty" Rule To Bar Affirmative Defenses
On December 23, the U.S. Court of Appeals for the 11th Circuit certified questions to the Georgia Supreme Court regarding whether bank directors and officers can be subject to claims for ordinary negligence under the state banking code. FDIC v. Skow, No.12-15878, 2013 WL 6726918 (11th Cir. Dec. 23, 2013). In this case, former directors and officers of a failed Georgia bank moved to dismiss a suit brought against them by the FDIC as receiver for the failed bank, asserting that the state’s business judgment rule blocked the FDIC’s ordinary negligence allegations. Specifically, the FDIC claimed that the former directors and officers were negligent in pursuing an unsustainable growth strategy that included approving high risk loans that resulted in substantial losses and contributed to the bank’s failure. The appeals court explained that state law appears to provide that a bank director or officer who acts in good faith might still be subject to a claim for ordinary negligence if he failed to act with ordinary diligence. However, given that its reading of the state statute conflicts with state intermediate appellate court holdings, the Eleventh Circuit asked the Supreme Court of Georgia to determine (i) whether a bank director or officer violates the standard of care established by state statute when he acts in good faith but fails to act with “ordinary diligence;” and (ii) whether, in a case applying Georgia’s business judgment rule, the bank officer or director defendants can be held individually liable if they are shown to have been ordinarily negligent or to have breached a fiduciary duty, based on ordinary negligence in performing professional duties. The court also affirmed the district court’s denial of the FDIC’s motion to strike certain affirmative defenses, rejecting the FDIC’s argument that under federal common law it owes “no duty” to bank officers or directors and it therefore is exempt from defenses under state law.
On December 20, the Federal Reserve Board issued SR 13-23, which clarifies the Federal Reserve’s supervisory expectations when assessing a firm’s capital adequacy in certain circumstances when the risk-based capital framework may not fully capture the residual risks of a transaction. The letter states that, while the Federal Reserve generally views a firm’s engagement in risk-reducing transactions as a sound risk management practice, there are certain risk-reducing transactions for which the risk-based capital framework may not fully capture the residual risks that a firm faces on a post-transaction basis. The letter addresses two specific characteristics of risk transfer transactions that give rise to this concern: (i) a firm transfers the risk of a portfolio to a counterparty that is unable to absorb losses equal to the risk-based capital requirement for the risk transferred; or (ii) a firm transfers the risk of a portfolio to an unconsolidated, “sponsored” affiliate entity. The letter stresses that bank supervisors will strongly scrutinize risk transfer transactions that result in substantial reductions in risk-weighted assets, including in supervisors’ assessment of a firm’s overall capital adequacy, capital planning, and risk management through the Comprehensive Capital Analysis and Review. The Federal Reserve may in certain cases determine not to recognize a transaction as a risk mitigant for risk-based capital purposes. Supervisors will evaluate whether a firm can adequately demonstrate that the firm has taken into account any residual risks in connection with the transaction.
On December 26, Illinois Governor Pat Quinn signed SB 1045, which extends through 2015 an existing state foreclosure protection. Under state law, a borrower facing foreclosure can seek to block a judicial foreclosure sale based on a pending federal HAMP modification. The state protection was set to expire at the close of 2013, but was extended to match the federal extension of HAMP through December 31, 2015.
Recently, the California Court of Appeals, Second District, held that a plaintiff must have suffered a statutory injury to have standing to pursue a cause of action under the state’s “Shine the Light Act” (SLA). Boorstein v. CBS Interactive, Inc., No. B247472, 2013 WL 6680796 (Cal. Ct. App. Dec. 19, 2013). The SLA requires businesses that collect California residents’ personal data and then share that data for marketing purposes to disclose or allow consumers to opt out of that sharing. Specifically, all businesses must make consumers aware of their SLA rights by (i) maintaining a disclosure on their website and providing contact information for consumers to make a request about information shared with direct marketers; (ii) requiring customer service agents to provide the contact information upon request; or (iii) making the contact information available at every place of business in the state. In recent years, consumers filed a series of class actions, including the instant case, alleging that companies failed to properly disclose their contact information on their websites. The class plaintiffs did not, however, allege that they had sought SLA disclosures or would have done so had contact information been available. Consistent with federal district courts that have considered these claims, the state appeals court here determined that a failure to timely, accurately, or completely respond to a disclosure request is a discrete event upon which a court could calculate a civil penalty for each violation, whereas a failure to post information on a website is a continuing event that cannot readily be quantified. The court held that such a continuing violation, without more, is not an actionable violation. The court rejected the plaintiff’s claim that he suffered an "informational injury” because he did not receive information to which he was statutorily entitled, and upheld the trial court’s holding that the alleged failure was merely a procedural injury insufficient to establish standing.
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- H Joshua Kotin and Jessica M. Shannon to discuss "TILA/RESPA mortgage servicing rules" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)
- Amanda R. Lawrence to discuss "New privacy legislation: Preparing for a major source of class action and enforcement activity going forward" at the American Conference Institute Consumer Finance Class Actions, Litigation & Government Enforcement Actions
- Sherry-Maria Safchuk and Lauren Frank to discuss "New CFPB interpretation on UDAAP" at a California Mortgage Bankers Association Mortgage Quality and Compliance Committee webinar
- Daniel P. Stipano to discuss "High standards: Best practices for banking marijuana-related businesses" at the ACAMS AML & Anti-Financial Crime Conference
- Daniel P. Stipano to discuss "Wait wait ... do tell me! Where the panelists answer to you" at the ACAMS AML & Anti-Financial Crime Conference
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference