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  • National Non-Profit Fair Housing Organization Files Complaint Against Fannie Mae Alleging Racial Discrimination

    Consumer Finance

    On May 12, 2015, the National Fair Housing Alliance (NFHA) and 19 local fair housing organizations (collectively, the “Complainants”) filed a fair housing discrimination complaint with the U.S. Department of Housing & Urban Development against Fannie Mae alleging a pattern of maintaining and marketing its foreclosed houses in white areas better than in minority areas. The complaint is the result of a five year investigation where investigators visited and documented the conditions of the foreclosed properties that Fannie Mae owns in 34 metro areas. In each of the investigated metropolitan areas, the Complainants allege that Fannie Mae engaged in the practice of maintaining and marketing its REO properties in a state of disrepair in communities of color while maintaining and marketing REO properties in predominantly White communities in a materially better condition. Fannie Mae REO properties in White communities were far more likely to have a small number of maintenance deficiencies or problems than REO properties in communities of color, while REO properties in communities of color were far more likely to have large numbers of such deficiencies or problems compared to those in White communities. As a result, the Complainants allege that Fannie Mae violated the Fair Housing Act, Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988, including but not limited to 42 U.S.C. §§ 3604(a)-(d). The housing advocacy groups are calling for Fannie Mae to clean up the neglected properties and spend "millions" of dollars on grants or other compensation for those trying to buy foreclosed houses and people living in communities affected by them.

    Fannie Mae HUD FHA Discrimination

  • DOJ Settles with Illinois-Based Lender over Allegations of Discriminatory Lending

    Consumer Finance

    On May 7, the DOJ announced a consent order with an Illinois-based lender to settle allegations that the state-chartered bank engaged in a pattern of discriminatory lending, violating the Equal Credit Opportunity Act (ECOA). According to the complaint, from at least January 1, 2011 to March 9, 2014, approximately 1,500 Hispanic borrowers and 700 African-American borrowers paid higher interest rates for their motorcycle loans than white borrowers. The average victim of the bank’s discretionary dealer markup system paid over $200 more during the loan term, allegedly because of their national origin and not because of their creditworthiness. Until March 2014, the lender’s business practice was such that the motorcycle dealers submitted loan applications to the lender, allowing the dealers “subjective and unguided discretion to vary a loan’s interest rate from the price [the lender] initially set.” In March 2014, the lender adopted a new policy that compensated dealers “based on a percentage of the loan principal amount that does not vary based on the loan’s interest rate;” since the implementation of the new policy, no discrimination has been found in the loans analyzed by the United States. Neither admitting nor denying the allegations, the lender voluntarily entered into a consent order with the U.S., agreeing to provide $395,000 in monetary relief to victims of the lender’s alleged practices.

    ECOA DOJ Enforcement Discrimination

  • FTC Lobbies Michigan Legislature to Repeal Ban On Direct-to-Consumer Sale of Motor Vehicles by Auto Manufacturers

    Consumer Finance

    On May 11, the FTC released a statement regarding the agency staff’s May 7 letter to Michigan Senator Booher, which concerns pending SB 268 – an act to regulate the sale and servicing of automobiles. The proposed legislation seeks to create an “exception to current law that prohibits automobile manufacturers from selling new vehicles directly to consumers.” While the letter states that the bill likely will encourage competition and benefit consumers, the staff’s view is that the legislation’s scope is too narrow and “would largely perpetuate the current law’s protectionism for independent franchised dealers, to the detriment of Michigan car buyers.” The focal point of the FTC staff’s letter is that, “absent some legitimate public purpose, consumers would be better served if the choice of distribution method were left to motor vehicle manufacturers and the consumers to whom they sell their products.”

    FTC Auto Finance

  • NYDFS Releases New Title Insurance Rates for Refinancings; Consumers Save Up to 65 Percent

    Consumer Finance

    On May 12, the NYDFS announced newly approved title insurance industry rates for mortgage refinancing transactions, which is just one of the steps the NYDFS is planning to take to reform and lower title insurance rates. The new rates vary depending on the term, size, and duration of the loan, and they are anticipated to provide significant savings to New York homeowners.

    Title Insurance NYDFS

  • Oklahoma Enacts Law Establishing Penalty Amount for Liens on Auto Vehicles

    Consumer Finance

    On May 1, Governor Mary Fallin (R-OK) signed into law SB 465, which amends a current law imposing a $100 penalty on a secured party if it does not furnish a release of a lien after seven days. Under the new law, a $100 penalty will be imposed each day following the first seven days – the penalty can reach $1,500 or the value of the vehicle, whichever is less. The law is effective November 1, 2015.

    Auto Finance

  • Maryland Law to Require Notice to Purchaser of Vehicle Prior to Dealer-Arranged Financing Approval

    Consumer Finance

    On May 12, Governor Larry Hogan (R-MD) signed HB 313, which will require auto dealers to provide notice to the purchaser/lessee before the dealer-arranged third-party financing is approved. The law requires the dealer to “notify a buyer in writing if the terms of a certain financing or lease agreement are not approved by a third-party finance source within a certain period of time.” Specifically, the dealer has four days from the delivery of the vehicle to notify the purchase/lessee of the third-party rejection. If the sale of the vehicle is canceled, the purchaser/lessee must return the vehicle to the dealer within two days of receiving the written notice. The new law is effective October 1, 2015.

    Auto Finance Disclosures

  • Southern District of New York Denies Class Certification in Fair Lending Suit Against Global Investment Bank

    Consumer Finance

    On May 14, the District Court for the Southern District of New York denied class certification status in a fair lending suit brought by the ACLU and NCLC against a global investment bank. Adkins v. Morgan Stanley, No. 12-CV-7667 (VEC) (S.D.N.Y. May 14, 2015).  The Plaintiffs had alleged that the bank, as a significant purchaser of subprime residential mortgage loans, had caused a disparate impact on African-American borrowers in Detroit in violation of the Fair Housing Act and the Equal Credit Opportunity Act.  In an exhaustive 50-page opinion, the court denied class certification on multiple grounds, including the variation in loan types and the role of broker discretion.  BuckleySandler anticipates the ruling will be widely cited in future fair lending class actions.

    Class Action Fair Lending ECOA Disparate Impact FHA SDNY Discrimination

  • FinCrimes Webinar Series Recap: Conducting an Effective Financial Crimes-Related Internal Investigation

    BuckleySandler hosted a webinar, Conducting an Effective Financial Crimes-Related Internal Investigation, on April 23, 2015 as part of their ongoing FinCrimes Webinar Series.  Panelists included John Mackessy, Anti-Money Laundering & Trade Sanctions Officer at MasterCard and Saverio Mirarchi, Senior Director at Treliant Risk Advisors and former Chief Compliance and Ethics Officer at Northern Trust.  The following is a summary of the guided conversation moderated by Jamie Parkinson, partner at BuckleySandler, and key take-aways you can implement in your company. To request a recording of this webinar, please email Nicole Steckman at nsteckman@buckleyfirm.com.

    Key Tips and Take-Aways:

    1. Make sure that the organization has appropriate policies and procedures in place to quickly and efficiently react when an investigation begins.

    1. Have systems in place to quickly identify the veracity of any allegations and be prepared to begin the internal investigation as soon as possible.

    1. Be prepared for, and understand the impact of having, a compliance monitor as part of any settlement agreement.

    Pre-Investigation Preparation

    The session began with a discussion of what an organization can do to prepare for an internal investigation.  The panel focused on the benefits of preparation and having established policies and procedures in place before an investigation begins.  Specifically, the panelists noted the importance of having individual roles and responsibilities outlined and understood at the outset, in order to make the response more efficient.  The panelists further noted that with the significant time constraints associated with such an investigation, it is critical that the team be prepared to act immediately.  Finally, the panelists highlighted the significance of having effective routes of communication established in the policies and procedures, to ensure that all parties involved know how to proceed when an investigation is initiated.  All of this can be in place in the absence of a concern triggering an internal investigation, so the panelists emphasized the steps to take before any concerns arise.

    Internal Investigation Leadership and Logistics

    The panelists then discussed the variety of approaches an organization can take when it comes to who leads the internal investigation.  Specifically, the panelists noted that while there is no one-size fits all approach, the leadership of an internal investigation needs to be transparent from the outset, even if that role is transitioned during the investigation.  The panelists suggested numerous approaches to who should run the investigation, including having either a business unit, outside counsel, or the organization’s general counsel be in charge of the investigation.

    Conducting the Internal Investigation

    Panelists next shifted to discussing the steps involved in conducting an internal investigation.  The panel noted that the first critical component of running an internal investigation is obtaining the key information related to the problem, and identifying whether there is any information that the organization does not have.  Specifically, the panel highlighted the importance of validating the initial allegations quickly, in order to fully engage with the investigation. The panel also noted the importance of quickly initiating a document hold, especially if the allegation is coming from a reputable source.  The panelists highlighted the fact that putting out a document hold too soon is generally a minor problem, whereas any inadvertent destruction of relevant information could pose significant problems down the line.  Financial crimes investigations are extremely data-analytics-intensive and may involve vast amounts of data covering many years, so the panelists focused on the role of a data analytics team.

    Corporate Monitors

    The panelists then discussed the importance of being prepared to deal with a monitor.  The panelists noted that with the recent increase in situations where a monitor will be required, it is key for an organization to know how to implement any agreements regarding the monitorship.    Specifically, the panelists noted that the organization needs to make sure that they understand the scope of the monitor’s role and how the organization will be able to interact with the monitor.  The panel suggested that before signing any monitoring agreement, the document needs to be discussed with compliance, operations, information technology, and any other departments that may be impacted by the monitorship, so that all parties are aware of the operational implications of a monitorship.  Finally, the panel added that organizations should make sure to have a contact person or team that handles interactions with the monitor and is able to manage the monitor’s access to documents, in order to establish an effective relationship with the monitor.

    Role of Senior Management and the Board

    The panel also discussed the role of senior management and the Board of Directors in the internal investigation process.  The panelists noted that in all internal investigations, it is important to make sure senior management and the Board are involved.  Specifically, the panelists noted that senior management and the Board need to know the severity of the allegations, any related risks, the costs associated with the investigation, and that the investigation is being run properly.  Finally, the panelists noted that if the investigation is being run by the general counsel, any communications to senior management and the Board need to be drafted so as to protect privilege.

    Anti-Money Laundering Investigations Financial Crimes

  • CFPB Updates Mortgage Origination Examination Procedures to Include Requirements of TILA-RESPA Integrated Disclosure Rule

    Lending

    On May 4, the CFPB updated its Supervision and Examination Manual’s Mortgage Origination examination procedures to include guidance on how its compliance examiners will examine loan disclosures and terms of closed-end residential mortgage loans that are subject to the TILA-RESPA Integrated Disclosure (TRID) rule. The TRID examination procedures updates are reflected in module 4 of the Manual’s 8 modules, and instruct compliance examiners to review a sample of complete loan files to determine a company’s compliance. Further, if consumer complaints exist concerning the mortgage origination and closing disclosure requirements, then compliance examiners are permitted to interview the consumers included in the sample and inquire about each subject area listed in the module. The TRID rule is scheduled to go into effect August 1, 2015.

    CFPB Examination TRID Mortgage Origination

  • CFPB Study: Over 26 Million Consumers Are Credit Invisible

    Consumer Finance

    On May 5, the CFPB released the results of its latest analysis of the credit reporting industry, finding that more than 26 million consumers are categorized as “credit invisible” (i.e., consumers without credit histories with a nationwide consumer reporting agency). The report also found that an additional 19 million consumers’ credit records (roughly 8 percent of the adult population) are unscored because of insufficient credit history or information not recently reported. Other notable findings of the study include: (i) almost 15 percent of Black and Hispanic consumers are more likely to be “credit invisible” compared to 9 percent of White consumers; and (ii) consumers in low-income neighborhoods are much more likely to be credit invisible or to have an unscored credit record. During a conference call to announce the results of the study, Kenneth Brevoort, Section Chief within the CFPB’s Office of Research, alluded to what the Bureau’s next steps may be in the area, stating that the Bureau wants “to have a better understanding of exactly what interventions are possible in the regulatory space or perhaps, industry initiatives that may improve the functioning of these markets for the consumers’ well-being.”

    CFPB Credit Scores

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