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Additional defendants settle credit card laundering lawsuit
On December 11, the FTC entered into a proposed settlement with an Arizona-based company and its officer (defendants) relating to an allegedly deceptive credit card telemarketing operation. As previously covered by InfoBytes, the FTC alleged that the defendants—as part of a larger group of 12 defendants comprised of an independent sales organization, sales agents, payment processors, and identified principals—violated the FTC Act and the Telemarketing Sales Rule by assisting a telemarketing company in masking its identity by processing the company’s credit card payments and laundering credit card transactions on behalf of multiple fictitious companies. The proposed settlement, among other things, prohibits the defendants from engaging in credit card laundering and bans them from telemarketing, processing payments, or acting as an independent sales organization or sales agent. The order also stipulates a judgment of $5.7 million, which will be suspended unless it is determined that the financial statements submitted by the defendants contain any inaccuracies.
In March 2018, the FTC reached settlements with two of the other defendants (see InfoBytes coverage here). Litigation continues against the remaining defendants.
Washington State Department of Financial Institutions adopts amendments concerning student education loan servicers
On December 3, the Washington State Department of Financial Institutions (DFI) issued a final rule adopting amendments including student education loan servicing and servicers as activities and persons regulated under the state’s Consumer Loan Act. According to DFI, the amendments will provide consumers with student education loans a number of consumer protections and allow DFI to monitor servicers’ activities. Among other things, the amendments (i) change the definition of a “borrower” to include consumers with student education loans; (ii) specify that collection agencies and attorneys licensed in the state collecting student education loans in default do not qualify as student education loan servicers; and (iii) stipulate that businesses must either qualify for specific exemptions or possess a consumer loan license in order to lend money, extend credit, or service student education loans. In addition, the amendments provide new requirements for servicers concerning the acquisition, transfer, or sale of servicing activities, and specify borrower notification rights. Servicers who engage in these activities for federal student education loans in compliance with the Department of Education’s contractual requirements are exempt.
The amendments take effect January 1, 2019.
9th Circuit reverses lower court’s dismissal of TILA rescission enforcement claims
On December 6, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TILA allegations brought against a bank, finding that the statute of limitations for borrowers to bring TILA rescission enforcement claims is based on state law, and is six years in the state of Washington. The panel opined that, because TILA does not specify a statute of limitations for when an action to enforce a TILA recession must be brought, “courts must borrow the most analogous state law statute of limitations and apply that limitation period” to these type of claims, which, in Washington, is the six-year statute of limitations on contract claims. According to the opinion, the plaintiffs refinanced a mortgage loan in 2010, but failed to receive notice of the right to rescind the loan at the time of refinancing in violation of TILA’s disclosure requirements. Consequently, the plaintiffs had three years—instead of three days—from the loan’s consummation date to rescind the loan. In 2013, within the three-year period, the plaintiffs notified the bank of their intent to rescind the loan. However, instead of taking action in response to the plaintiffs’ notice, the bank instead began a nonjudicial foreclosure nearly four years after the rescission demand, declaring that the plaintiffs were in default on the loan. The plaintiffs filed suit in 2017 to enforce the recession, which the bank moved to dismiss on the argument that the claims were time barred. According to the panel, the lower court wrongly interpreted the plaintiff’s request for damages under the Washington Consumer Protection Act “as a claim for monetary relief under TILA”—which has a one-year statute of limitations—and dismissed the plaintiffs’ claim as time barred without leave to amend. However, the consumers were seeking a declaratory judgment and an injunction, not damages.
On appeal, the 9th Circuit rejected three possible statute of limitations offered by the lower court. The panel also rejected plaintiffs’ argument that no statute of limitations apply to TILA recession enforcement claims, and held that it could not be assumed that “Congress intended that there be no time limit on actions at all”; rather, federal courts must borrow the most applicable state law statute of limitations. Because the mortgage loan agreement was a written contract between the plaintiffs and the bank, and the plaintiffs’ suit was an attempt to rescind that written contract, Washington’s six-year time limit on suits under written contracts must be borrowed. Therefore, the panel concluded that the plaintiffs’ suit was not time-barred and reversed and remanded the case for further proceedings.
Court grants summary judgment, finding no concrete harm in alleged kickback scheme
On December 7, the U.S. District Court for the District of Maryland granted a motion for summary judgment filed by a real estate team and title company (defendants), finding that an alleged kickback scheme involving the defendants did not constitute a violation of RESPA, and that the plaintiffs failed to demonstrate that they suffered from any concrete harm. According to the court, the plaintiffs filed a suit on behalf of a putative class more than four and a half years after they purchased their home, claiming the defendants violated RESPA by allegedly “using a ‘sham’ marketing agreement . . . to disguise an illegal kickback scheme,” which provided the real estate team with “unearned fees” through settlement referrals to the title company. The plaintiffs further argued that they were entitled to equitable tolling because the kickback scheme was allegedly concealed in an undisclosed marketing and services agreement, and that even if the agreement had been disclosed, it would have seemingly appeared to be valid. However, the court found “no genuine issue of material fact that the [p]laintiffs failed to exercise reasonable diligence to discover their claim” because at the time of closing, “they knew that they could choose their own settlement and title company” but elected not to. In addition, the court disagreed with the plaintiffs’ argument that they had Article III standing because they were “deprived of impartial and fair competition between settlement services,” finding that the plaintiffs were not overcharged for services due to the alleged kickback scheme and failed to show that the costs of settlement services were unnecessarily increased.
Moreover, the court found that the plaintiffs (i) did not inquire about a potential relationship between the defendants; (ii) did not claim dissatisfaction with the title company services provided; and (iii) did not claim that the fees paid to the title company were “unreasonable or undeserved.” Furthermore, the court found that the claim was barred by RESPA’s one-year statute of limitations and that equitable tolling did not apply.
District Court rejects dismissal bid for California interest on escrow class action
On December 7, the U.S. District Court for the Northern District of California denied a bank’s motion to dismiss a putative class action alleging the bank violated the California Unfair Competition Law (UCL) by not paying interest to residential mortgagors on funds held in escrow accounts, as required by California law. The three plaintiffs filed the complaint against the bank after the March decision by the U.S. Court of Appeals for the 9th Circuit in Lusnak v. Bank of America, which held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account. (Previously covered by InfoBytes here.) The plaintiffs argued that the 9th Circuit decision requires the bank to comply with the California law requiring interest on funds held in escrow.
In response, the bank filed a motion to dismiss, or in the alternative to stay the case, on the basis that the plaintiffs failed to provide the bank with notice and an opportunity to cure alleged misconduct prior to judicial action as required by the mortgage deed, and that the plaintiff’s claims were preempted by the Home Owners Loan Act (HOLA). The court rejected these arguments, finding that the plaintiff’s failure to comply with the ambiguous provisions in the mortgage deed do not foreclosure their claims, concluding “[t]o deprive Plaintiffs of recourse to their statutory rights based on an ambiguous contractual provision would also frustrate the consumer protection purposes of those statutes.” As to the HOLA argument, the court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan is transferred to a bank whose own lending is not covered by HOLA. Specifically, the court looked to the legislative intent of HOLA and noted it was unclear if Congress intended for preemption to attach through the life of the loan, but found a clear goal of consumer protection. Therefore, the court concluded that “[a]llowing preemption may run contrary to HOLA's purpose and could result in a gross miscarriage of justice” by depriving homeowners of state law protections.
Additionally, the court rejected as moot the alternative request to stay the case pending the Supreme Court’s resolution of Lusnak, because the Supreme Court denied the petition of writ in that case in November (covered by InfoBytes here).
CFPB releases new No-Action Letter policy and new product sandbox
On December 10, the CFPB released a new proposed policy on No-Action Letters (NAL) and a new federal product sandbox. The new NAL proposal, which would replace the 2016 NAL policy, is “designed to increase the utilization of the Policy and bring certain elements more in line with similar no-action letter programs offered by other agencies.” The proposal consists of six sections. Highlights include:
- Description of No-Action Letters. The letter would indicate to the applicant, that subject to good faith, substantial compliance with the terms of the letter, the Bureau would not bring a supervisory or enforcement action against the recipient for offering or providing the described aspects of the product or service covered by the letter.
- Submitting Applications. The proposal includes a description of the items an application should contain and invites applications from trade associations on behalf of their members, and from service providers and other third parties on behalf of their existing or prospective clients.
- Assessment of Applications. The Bureau intends to grant or deny an application within 60 days of notifying the applicant that the application is deemed complete.
- Issuing No-Action Letters. NALs will be signed by the Assistant Director of the Office of Innovation or other members in the office, and will be duly authorized by the Bureau. The Bureau may revoke a NAL in whole or in part, but before the Bureau revokes a NAL, recipients will have an opportunity to cure a compliance failure within a reasonable period.
- Regulatory Coordination. In order to satisfy the coordination requirements under Dodd-Frank, the Bureau notes it is interested in partnering with state authorities that issue similar forms of no-action relief in order to provide state applicants an alternative means of also receiving a letter from the Bureau.
- Disclosure of Information. The Bureau intends to publish NALs on its website and in some cases, a version or summary of the application. The Bureau may also publish denials and an explanation of why the application was denied. The policy notes that disclosure of information is governed by the Dodd-Frank Act, FOIA and the Bureau’s rule on Disclosure of Records and Information, which generally would prohibit the Bureau from disclosing confidential information.
Notable changes from the 2016 NAL policy include, (i) NALs no longer have a temporal duration—under the new proposal, there is no temporal limitation except in instances of revocation; (ii) applicants are no longer are required to commit to sharing data about the product or service covered by the application; and (iii) the letters are no longer staff recommendations, but issued by authorized officials in the Bureau to provide recipients greater assurance of the relief.
The proposal also introduces the Bureau’s “Product Sandbox,” which offers substantially the same relief as the NAL proposal but also includes: (i) approvals under one or more of three statutory safe harbor provisions of TILA, ECOA, or the EFTA; and (ii) exemptions by order from statutory provisions of ECOA, HOEPA, and FDIA, or regulatory provisions that do not mirror statutory provisions under rulemaking authority. The proposal notes that two years is the expected duration for participation in the Sandbox, but similar to the no-action relief above, the no-action relief from the Sandbox program can be of unlimited duration—if approved under the sandbox program, “the recipient would be immune from enforcement actions by any Federal or State authorities, as well as from lawsuits brought by private parties.”
Comments on the proposals are due within 60 days of publication in the Federal Register.
Agencies issue guidance on 37 key data fields for HMDA examinations
On December 7, the Federal Reserve Board, the FDIC, and the OCC issued guidance regarding the HMDA key data fields that Federal Reserve examiners use to evaluate the accuracy of HMDA data collected since January 1 pursuant to the CFPB’s October 2015 and August 2017 amendments and the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) exemptions (all of which have been previously covered by InfoBytes here, here, and here).
The guidance cites to the October 2017 list of 37 key data fields identified by the agencies and notes that “[o]nce examiners have selected a random sample of entries from an institution’s HMDA Loan Application Register (HMDA LAR) and have received the corresponding loan files, they would verify the accuracy of the applicable HMDA key data fields in the entries in the HMDA LAR sample(s) against information in the loan files.” Additionally, for institutions eligible for the partial exemption granted by the Act, and covered by the Bureau’s August interpretive and procedural rule (InfoBytes coverage here), the guidance notes that these institutions are responsible for collecting, recording, and reporting only 21 of the 37 designated HMDA key data fields, as the exemption covers the other 16 fields.
The Federal Financial Institutions Examination Council members are currently developing a set of revised interagency HMDA examination procedures regarding HMDA requirements relating to data collected from January 1, 2018 onward.
HUD-OIG report examines top management challenges
Earlier this fall, the HUD Office of Inspector General (HUD-OIG) published an annual report, which examines top management challenges facing the agency in 2019 and beyond. According to HUD-OIG, the six top challenges are a result of “critical unaddressed internal or external risks” that impede the success of HUD’s programs. Identified challenges impacting HUD’s performance relate to (i) the availability of safe, affordable housing; (ii) the ability to protect FHA’s mortgage insurance funds due to, among other things, a lack of sufficient safeguards, losses due to home equity conversion mortgages, increases in Ginnie Mae’s nonbank issuers, and emerging digital mortgage risks attributed to technology and information security problems; (iii) the inability to implement and institute adequate monitoring and oversight of its operations and program participants; (iv) identified inefficiencies in administering disaster recovery assistance; (v) a failure to modernize technology and properly oversee the information technology infrastructure, which leaves the agency vulnerable to data breaches; and (vi) the ability to institute sound financial management governance, internal controls, and systems due to a “lack of strong, consistent leadership over an extended period.” HUD-OIG states it will continue to identify challenges and assist in implementing solutions to remediate weaknesses.
CFPB releases beta version of HMDA Platform
On December 10, the CFPB announced the beta release of the new HMDA Platform. The beta version enables financial institutions to become familiar with the platform and permits entities to establish log-in credentials, upload sample files, validate data, and confirm their submissions of test data. Entities can test and retest throughout the beta period, and any test data will be removed from the system when the 2018 filing period opens on January 1, 2019. The announcement reminds institutions that in order to use the beta version of the HMDA Platform as well as to file HMDA data collected in 2018, financial institutions must have a Legal Entity Identifier (LEI) and that LEI must be recognized by the HMDA Platform in order to create a new account or test data with an existing account.
OFAC issues continued extension of Ukraine-related General Licenses
On December 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the issuance of Ukraine-related General Licenses (GL) 13H, 14D, 15C, and 16D, which amend previous licenses related to permissible wind-down transactions that otherwise would be prohibited by Ukraine-Related Sanctions Regulations with respect to the subject entities. OFAC extended the expiration dates of the licenses from January 7 to January 21.
GL 13H supersedes GL 13G and authorizes, among other things, activities “ordinarily incident and necessary” to (i) divest or transfer debt, equity, or other holdings in the specified blocked entities to a non-U.S. person; or (ii) facilitate the transfers of debt, equity, or other holdings in those entities by a non-U.S. person to another non-U.S. person. GL 14D, which supersedes GL 14C, relates to specific wind-down activities involving a Russian aluminum producer sanctioned last April as previously covered by InfoBytes here. GL 15C and GL 16D supersede GL 15B and GL 16C, respectively, and authorize permissible activities relating to the maintenance or wind-down of operations, contracts, and agreements with designated entities and subsidiaries that were effective prior to April 6.
Visit here for additional InfoBytes coverage on Ukraine sanctions.