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On February 4, 2016, the SEC announced a settlement with the CEO of Chile-based LAN Airlines S.A. and its holding company Latam Airlines Group SA, Ignacio Cueto Plaza, regarding his approval of the payment of over $1.15 million to an Argentinian consultant in connection with LAN Airline’s attempts to settle disputes over wages and work conditions with employees in Argentina. According to the SEC, Cueto knew that a portion of these payments might be passed on to union officials in Argentina and that the actual services agreed to in the underlying consulting agreement would not be performed. Without admitting or denying the SEC’s findings, Cueto agreed to pay a $75,000 penalty and "certify his compliance with his airline’s policies and procedures by attending anti-corruption training among other undertakings." In its administrative cease and desist order, the SEC found that Cueto violated both the FCPA’s internal accounting controls and books and records provisions.
The company has said that this was an isolated matter, that it cooperated with the SEC’s investigation, and strengthened its accounting controls since the incident took place.
On May 9, Fannie Mae announced new requirements for document custodians with respect to compliance audits and certification practices. In Servicing Guide Announcement SVC-2012-08, Fannie Mae states that document custodians must engage third-party auditors to conduct an annual assessment of eligibility and operational compliance. Custodians that had a Fannie Mae on-site review prior to August 1, 2011 must engage an independent third-party auditor and complete the first annual audit by July 31, 2013, while custodians that had or will have a Fannie Mae audit between August 1, 2011 and July 31, 2012 will have until December 31, 2013. All custodians must also develop and implement a monthly quality control review by September 30, 2012.
On April 30, the Tennessee Court of Appeals ruled that affidavits submitted as evidence of a debt were inadmissible under the business records exception to the hearsay rule and judgment against the debtor was thus reversed because, absent such evidence, the creditor could not establish the existence or amount of debt. LVNV Funding, LLC v. Mastaw, M2011-00990-COA-R3-CV, 2012 WL 1534785 (Tenn. Ct. App. Apr. 30, 2012). The court found that the affidavits, which had been prepared specifically for the litigation in order to show existence and ownership of debt, did not incorporate by reference or otherwise summarize or interpret documents that are prepared in the normal course of regularly conducted business activity and therefore did not qualify for the business records exception to the hearsay rule. As another example of increased documentation requirements for debt collectors, new rules went into effect earlier this year in Maryland, where its Court of Appeals adopted rule changes that, effective January 1, 2012, similarly require debt buyers to provide more proof before being allowed to obtain affidavit judgments against consumers to recover debts. The new rules require additional information from debt buyers, including better proof of an existing debt or interest owed on a debt, and proof from the debt buyer that they own the debt they are trying to collect.
FinCEN Extends Proposed Customer Due Diligence Program Comment Period, Issues Electronic Filing Reminder
On May 4, FinCEN extended the comment period for its proposal to establish a customer due diligence regulation that would require covered financial institutions to institute defined programs to identify the real or beneficial owners of customer accounts. The proposed regulation is designed to enhance federal anti-money laundering and counterterrorism efforts. Interested parties will have an additional thirty days to comment from the time the extension is published in the Federal Register. On May 7, FinCEN reminded financial institutions subject to the Bank Secrecy Act that certain BSA-required filings must be filed electronically beginning July 1, 2012.
On May 10, HUD and the U.S. Attorney for the Southern District of New York announced the settlement of a lawsuit alleging violation of the False Claims Act by a mortgage originator and affiliated entities. The government alleged that, for nearly a decade, MortgageIT, Inc. certified falsely that the mortgages it originated complied with HUD rules. MortgageIT and its affiliates agreed to pay $202.3 million to resolve the suit. After the Bank of America and Countrywide FCA claims settled in February, this marks the third mortgage-FCA lawsuit settled to date. A fourth case remains pending in the Southern District of New York.
On May 10, Freddie Mac announced that Donald Layton will serve as the organization’s Chief Executive Officer. Mr. Layton will join the firm on May 21, 2012. Mr. Layton has served as chairman & CEO of E*TRADE Financial and worked for nearly 30 years at JP Morgan Chase and its predecessors.
On May 7, the Office of Comptroller of the Currency announced the hiring of Paul Nash to succeed John Walsh as Senior Deputy Comptroller and Chief of Staff. Mr. Nash comes from the FDIC, where he served for two years as the Deputy to the Chairman for External Affairs.
Oklahoma Updates Uniform Consumer Credit Code. On May 1, Oklahoma enacted House Bill 2742, which amends the state’s Uniform Consumer Credit Code. The bill increases the dollar threshold for transactions exempt from the Code from $45,000 to $50,000 and requires that the threshold be adjusted annually henceforth. With regard to mortgages particularly, the bill (i) expands the language required to be included in the disclosure statement, (ii) requires that the creditor mail the disclosure statement at least seven business days before the transaction, and (iii) requires the creditor to send a new statement at least three days before closing if the interest rate changes. It further requires that (i) a consumer cannot be charged any fee prior to receipt of the statement, except for a fee to obtain a credit report; and (ii) a consumer can waive the disclosure statement timing requirements. The law also increases the penalties for violations of the mortgage disclosure statement or right to rescind rules and requires that, within 30 days of the sale or transfer of a mortgage loan, the new creditor must notify the borrower that the loan has been transferred and provide contact and other relevant information.
Georgia Enacts Mortgage-Related Bills. On May 1, Georgia enacted two mortgage-related bills. House Bill 110 permits local jurisdictions to create vacant and foreclosed property registries and establishes uniform requirements for such registries. The law takes effect July 1, 2012. House Bill 237 expands the state’s mortgage fraud law to cover the foreclosure process.
New York Extends Temporary Mortgage Servicer Rules. On May 2, the New York Department of Financial Services published an extension of its emergency rules to implement the 2008 Mortgage Lending Reform Law. The rules will remain in effect through July 11, 2012, unless further extended or permanently adopted.
On April 24, the Supreme Court of Tennessee upheld an appellate court decision enforcing a settlement agreed upon by an e-mail exchange between the parties’ attorneys. Waddle v. Elrod, No. M2009-02142-SC-R11CV, 2012 WL 1406451 (Tenn. Apr. 24, 2012). The case involved a family dispute over an interest in real property. After counsel exchanged email setting forth terms of the settlement (which included agreement to transfer a property interest), one party recanted and refused to sign the written settlement documents. In the ensuing litigation, the trial court enforced the settlement agreement, but failed to address arguments that Tennessee’s Statute of Frauds (the Statute) precluded enforcement or that the state’s Uniform Electronic Transactions Act (UETA) satisfied the Statute. In addressing both questions, the Tennessee Supreme Court rejected a lower appellate court’s reasoning that the Statute only applied to land sale contracts, and held that the Statute also applied to agreements to transfer land. The court nonetheless opined that that the exchanged e-mails were sufficiently definite writings for purposes of the Statute, and were validated as such by UETA; the court also found that the parties “through their counsel evidenced an intent to finalize the settlement by electronic means,” that UETA “obviate[d] the need for a handwritten signature[,]” and that counsel’s “typed name at the end of the e-mail constitute[d] an ‘electronic signature[,]’” thereby satisfying the signature requirement of the Statute.
Traditionally, non-bank lenders looked to the states and the FTC for industry regulations. But, this has changed with the introduction of the CFPB. Recent reports show that the federal government is stepping up efforts to regulate and review auto finance companies, many of whom have never been subject to bank-style examinations.
“The CFPB has created a new layer of regulation,” according to John Redding, Counsel in the Southern California office of BuckleySandler. “Auto lenders have to be alert and aware of their fair and responsible lending risks.”
Redding says one of the ways to minimize these risks is to be proactive when reviewing a company’s policies, procedures, discretionary underwriting and pricing practices. The CFPB is likely to conduct statistical reviews for loans that the company has made or purchased to ensure there is no unexplained or improper disparity between protected and non-protected classes , so companies should consider performing such analyses in advance of the regulator conducting such an analysis.
“This will help mitigate risks for the companies by identifying areas that may present risk and allowing them to proactively take steps to modify policies and practices. When the regulators are conducting an exam, companies will have to explain why the business is conducted as it is, including steps taken to ensure fair and responsible lending to all consumers, regardless of status, and address any issues that may arise,” says Redding.
The bottom line: Recognize that there are new regulators and more scrutiny on the industry and begin taking steps to perform these important reviews now.
Redding suggests the following steps auto finance companies can take to prepare for the CFPB:
- Evaluate the institution’s risk profile and prepare an operations and compliance strategy
- Update policies and procedures (review CFPB exam guidelines)
- Monitor, address, and retain records regarding consumer complaints
- Monitor third-party sources of complaints
- Appoint an ombudsman
- Conduct internal audits
- Consider patterns and practices that emerge regarding operations
- Focus on areas that may lead to consumer harm, as well as technical violations
- Include the compliance team to monitor, analyze and advise on specific proposals
- Daniel R. Alonso to discuss "When can trial lawyers take their case to the public? The Harvey Weinstein case and beyond" at a New York City Bar Association webcast
- Jonice Gray Tucker to discuss "Fair servicing in wake of Covid-19" at an American Bar Association webinar
- APPROVED Webcast: Maximizing vendor value
- Daniel P. Stipano to discuss "Cram for the exam: Best prep strategies for a regulatory examination" at an ACAMS webinar
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)