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District Court Concludes Mortgage Servicer's Actions Violated RESPA
On January 28, the U.S. District Court for the Western Division of Washington, having determined that a mortgage loan servicer violated the Real Estate Settlement Procedures Act (RESPA) and committed the tort of outrage, ordered the servicer to pay more than $200,000 in economic and emotional distress damages to a borrower. Lucero v. Cenlar FSB, No. 13-0602 (W.D. Wash. Jan. 28, 2016). The borrower and servicer had agreed to a loan modification in early 2013. However, the borrower believed that the servicer was misreporting her loan as delinquent, in spite of the modification. In April 2013, the borrower filed a lawsuit against the mortgage servicer alleging “that [it] violated its credit reporting obligations” and “seeking damages related to the way in which [the mortgage servicer] (and others) had sought to foreclose on her mortgage.” The servicer then began charging the plaintiff for attorney’s fees and costs that it was incurring in defending the ongoing litigation. The plaintiff requested additional information regarding the charges on numerous occasions, but it was not until June 2014 that the servicer’s counsel said “that the fees that were charged to her account had incurred in this litigation, that they are recoverable under the Deed of Trust, and that the notifications were required by a federal regulation.” The court found that the servicer “failed to timely and fully respond to [the plaintiff’s] March 25, 2014 requests for information regarding the nature of and jurisdiction for the fees that were appearing on her monthly statements,” a violation RESPA, which requires “servicers to respond to a qualified written request…for information within specified time frames.” It also held that the charging of attorney’s fees to the borrower was not permitted under the Deed of Trust under the circumstances. In awarding emotional distress damages, the court stated that the servicer’s message to the plaintiff – “continue this litigation and we will take your home” – was “beyond the bounds of decency and [] utterly intolerable.”
European Commission Announces Agreement with the US on the Framework for Transatlantic Data Flows
On February 2, the members of the European Commission approved a new framework for transatlantic data flows: EU-US Privacy Shield. The European Commission and the United States agreed to a deal that reflects the requirements set forth in the Court of Justice of the European Union’s (CJEU) October 6, 2015 decision declaring the old Safe Harbor framework invalid. The agreement aims to protect “fundamental rights of Europeans where their data is transferred to the United States and ensure legal certainty for businesses.” Specifically, the drafters of the new framework attempt to provide (i) robust obligations on U.S. companies to ensure that they are protecting Europeans’ personal data, such as strengthened monitoring by the Department of Commerce and the FTC and increased cooperation with European Data Protection Authorities; (ii) written commitments by the U.S. that “the access of public authorities for law enforcement and national security will be subject to clear limitations, safeguards and oversight mechanisms”; and (iii) effective protection of Europeans’ rights regarding how their data is handled, including several redress possibilities and the creation of an Ombudsperson to whom they can raise inquiries or complaints. Commenting on the agreement, Commission Vice-President Ansip stated, “[t]oday’s decision helps us build a Digital Single Market in the EU, a trusted and dynamic online environment; it further strengthens our close partnership with the US.” In the upcoming weeks, the U.S. will prepare to put in place the new framework while Vice-President Ansip and Commissioner Jourová prepare a draft “‘adequacy decision,’” which could be “adopted by the [Commission] after obtaining the advice of the Article 29 Working Party (WP29) and after consulting a committee composed of representatives of the Member States."
In a February 3 statement, the WP29 maintained that it has concerns regarding the current U.S. legal framework to protect non-U.S. persons’ data. While it recognizes recent efforts by the U.S. to improve protection of personal data to meet the four essential guarantees for intelligence activities, the WP29 emphasized it will need to “consider if its concerns regarding the U.S. legal framework can be alleviated following the introduction of the EU-US Privacy Shield . . . [and] analyse to what extent [the] new arrangement will provide legal certainty for the other transfer tools.”
European Commission Releases Fact Sheet on Plan to Strengthen the Fight Against Terrorist Financing
On February 2, the European Commission issued a fact sheet regarding its plan to strengthen the fight against terrorist financing, posing and answering questions on topic areas including, but not limited to: (i) the measures the EU has already taken to combat the financing of terrorism; (ii) how the EU addresses terrorist financing risks linked to high-risk third countries; (iii) the possibility of defining a legal framework for freezing the assets of terrorists posing a threat to EU internal security; (iv) the risks associated with prepaid cards as used by terrorists; and (v) how the EU tackles the movement of large volumes of cash across borders. The fact sheet frequently refers to the Fourth Anti-Money Laundering package, which was adopted in May 2015 and, among other things, seeks to protect credit and financial institutions against the risks associated with money laundering and terrorist financing.
Germany-Based Software Company Settles Bribery Case with SEC for $3.7 Million
On February 1, the SEC agreed to a $3.7 million settlement with a Germany-based software company regarding allegations that it violated the FCPA regarding the payment and offer of bribes to senior Panamanian government officials. The settlement, stemming from the actions of the company's former executive Vincente Garcia who pleaded guilty last August to one count of conspiracy to violate the FCPA, found that the company lacked appropriate internal controls to detect the illegal activity. According to the SEC, Garcia arranged the sale of heavily discounted software licenses and used the savings to create a “slush fund.” The money in this fund was then used to pay bribes and kickbacks.
The SEC order also found that the company lacked sufficient internal controls to prevent the violations. While the company did not admit or deny the findings, it consented to the cease-and-desist order and agreed to disgorge $3.7 million in profits plus prejudgment interest of $188,896.
California-Based Pharmaceutical Company Settles with SEC Regarding FCPA Offenses in China
On February 4, the SEC settled FCPA allegations with a California-based pharmaceutical company with a cease and desist order finding that the company violated the FCPA’s anti-bribery, books and records, and internal controls provisions related to activities in China. The SEC found that from at least 2007 to 2012, employees of the company’s subsidiaries gave money and gifts to Chinese officials (including employees of state-owned hospitals) in order to boost sales. The SEC further found that the company failed to devise and implement a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program.
The company consented to the SEC’s order without admitting or denying the charges and agreed to pay $12.8 million to resolve the charges, including a $2.5 million penalty, the disgorgement of $9.426 million in profits, and $900,000 in prejudgment interest. The company will also provide status reports to the SEC for the next three years regarding remediation efforts and new anti-corruption compliance measures. The company simultaneously announced that the DOJ had declined to pursue any additional action.
CFPB Monthly Complaint Snapshot Highlights Financial Services Markets
On January 28, the CFPB released its monthly complaint report focusing on a number of financial services markets, including debt settlement, check cashing, tax refund anticipation checks, money order providers, and credit repair. The report states that, since July 19, 2014, the CFPB has handled approximately 2,700 complaints relating to these other types of financial services. According to the report, debt settlement and credit repair complaints are among the more common complaints, and over a quarter of these complaints mention student loans, with borrowers selecting fraud or scam as their primary issue. Additional findings highlighted in the snapshot include: (i) consumers being charged excessive fees, including upfront fees that are generally prohibited by law, for debt settlement and credit repair services; (ii) consumers encountering problems redeeming money orders, taking issue with the amount of time it took to resolve errors with customer service representatives; and (iii) consumers complaining they were victims of fraud when using money orders and travelers checks. The CFPB identified New York State and the New York metro area as its geographic spotlight in this issue, noting that, as of January 1, 2016, the CFPB has received 50,400 complaints from New York State consumers alone. Similar to past reports, mortgages remain the most complained-about product.
Virginia AG Herring Announces Settlement with Banks Over Alleged Mortgage-Backed Securities Fraud
On January 22, Virginia State AG Mark Herring announced a settlement with eleven banks over their alleged misrepresentation of residential mortgage-backed securities to the Commonwealth of Virginia and the Virginia Retirement System. Virginia recovered more than $63 million collectively from the banks involved, making it the “largest non-healthcare-related recovery ever obtained in a suit alleging violations of the Virginia Fraud Against Taxpayers Act,” and, according to AG Herring, “one of the largest of its kind in the nation.” As part of the settlement, the Commonwealth dismissed the claims against the defendants with prejudice and the defendants did not admit liability.
OFAC Issues Amendments to Cuba Sanctions Regulations
On January 26, OFAC announced amendments to the Cuban Assets Control Regulations (CACR) to further implement policy changes announced by the Obama Administration on December 17, 2014. The regulatory changes will, among other things, “remove existing restrictions on payment and financing terms for authorized exports and reexports to Cuba of items other than agricultural items and commodities, and establish a case-by-case licensing policy for exports and reexports of items to meet the needs of the Cuban people, including those made to Cuban state-owned enterprises.” Significantly, under the amendments, U.S. depository institutions will be authorized to provide financing for authorized exports and reexports, including issuing a letter of credit. Prior to the amendments, cash-in-advance or third-country financing were the only financing options available for authorized exports.
OFAC issued new FAQs to address the amended CACR, which were published in the Federal Register on January 27, 2016 and are effective immediately.
FDIC Issues Quarterly Banking Profile for Third Quarter 2015
The FDIC published its most recent Quarterly Banking Profile, summarizing the latest financial results for the banking industry. According to the FDIC’s findings, community banks reported net income of $5.2 billion in the third quarter of 2015, up 7.5% from the previous year. The Profile’s featured article – Financial Performance and Management Structure of Small, Closely Held Banks – indicates that closely held banks are outperforming widely held banks in operational efficiency and financial performance. The FDIC’s research suggests that management structures in which a bank’s managers are members of the ownership group or ownership insiders prove beneficial in that principal-agent problems are minimized because the “manager can be expected to act in the interests of the owners because the manager is an owner.” Although the Profile comments on the disadvantages of the organizational form of closely held banks, including succession issues and difficulty in raising capital, the researchers conclude that the “favorable comparisons between closely held and widely held community banks suggest that the closely held organizational form is by no means an impediment to performance, and may well be one of the keys to the success of closely held banks.”
CFPB Provides Consumers with Information on Obtaining Credit Reports
On January 27, the CFPB announced that it published its 2016 list of consumer reporting companies. The list includes contact information for the three largest nationwide reporting companies and various specialty reporting companies concentrating on specific geographic market areas and consumer segments. In addition, the list provides consumers with (i) tips on determining which specialty credit reports may be important to review depending upon the particular circumstances, such as applying for a job or a new bank account; (ii) information regarding how companies confirm the identity of the consumer requesting a copy of his or her credit report; and (iii) information on which companies also provide free credit scores. The CFPB also reminds consumers of their legal rights to (i) obtain the information in their credit reports, per the FCRA; and (ii) dispute inaccuracies contained in the report.