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  • Spotlight on Electronic Discovery: Challenges Presented by the Internet of Things

    Privacy, Cyber Risk & Data Security

    Tihomir-Yankov-webElizabeth-McGinn-web E-discovery is poised to enter a new revolution as the Internet of Things (“IoT”) continues its seemingly exponential growth. IoT is the ecosystem of interconnected sensory devices that perform coordinated, pre-programmed – and even learned – tasks without the need for continuous human input. Consider your fitness tracker that logs your sleep and physical activity, or sensors in your vehicle that track your driving habits on behalf of your auto insurance provider– all of these objects log and upload data about your body and habits into the cloud for analysis and use in automated tasks. All this data, projected to impact nearly every facet of industrialized society, has presented numerous preservation, collections, and analytical challenges for litigators navigating e-discovery in the world of the IoT. But despite these challenges, litigators can use technological and legal tools to effectively manage IoT discovery.

    1. It is true that IoT was not designed with e-discovery in mind, but neither was email or social media.

    IoT data is generated by machines and usually transferred to the cloud rather than being stored on devices. This data storage process, which is largely automated, presents numerous preservation conundrums for litigators.

    “Although innovation in e-discovery necessarily lags behind the innovation of the underlying technology, technology has always solved the problem that it had created. There’s no reason to believe the IoT experience will be materially different. But until that day arrives, courts should avail litigants of protections against disproportionate e-discovery efforts,” said Elizabeth McGinn, Partner in the DC office of BuckleySandler LLP.

    1. The responding litigant may not have the requisite control over IoT data to preserve it.

    “The challenge of who controls cloud data is not unique to the IoT,” said Ty Yankov, Associate in the DC office of BuckleySandler LLP.

    Technology companies have invested billions to maintain access to the data created from IoT devices, which calls into question who can control data created by such devices – the company who created the device or the person who’s data the device has collected?

    1. Preservation of IoT may be limited by the proposed revisions to the Federal Rules of Civil Procedure.

    “Perhaps the most potent limitation to a party’s preservation and collection obligation of IoT data may rest in the timely proposed revisions to the Federal Rules of Civil Procedure, which are widely expected to take effect by the end of 2015,” said McGinn.  Mindful of litigants’ inclination to over-preserve evidence, the Rules Committee seeks to clarify and limit litigants’ discovery obligations in four important ways:

    • Proposed Rule 26(b) limits discoverability to issues within the parties’ claims or defenses, eliminating broad subject matter discovery.
    • Proposed Rule 26(b)(2)(i) redefines the scope of discovery to include a proportionality principle.
    • Proposed Rule 37(e) extends the proportionality principle to the duty to preserve evidence.
    • Proposed Rule 26(b)(2)(B) reaffirms the allocation of expenses as a potential protective order remedy.

    “IoT’s impact to data preservation and collection in e-discovery will be more muted that many fear,” said Yankov. “This is in large part due to the anticipated adoption of the proposed revisions to the Federal Rules as applied to the unique challenges of its preservation and accessibility.”

    In their recently published article, “Treading Beyond the Iota of Fear: eDiscovery of the Internet of Things,” McGinn and Yankov provide further discussion on the changes and challenges IoT brings to e-discovery.

    E-Discovery Internet of Things Elizabeth McGinn Ty Yankov

  • CFPB and Maryland AG Bring RESPA Enforcement Action Against Title Company and Six Individuals

    Consumer Finance

    On April 29, the CFPB and the Maryland Attorney General announced a joint enforcement action against a Maryland title company and six individuals for participation in a mortgage-kickback scheme in violation of RESPA and state law. According to the complaint, between 2009 and 2014, the title company allegedly provided kickbacks and marketing services to loan officers in exchange for referrals of business. Under a proposed consent order, the title company will be prohibited from committing further violations of RESPA. In addition, five of the six individuals will be banned from the mortgage industry and ordered to pay a total of $662,500 in redress and penalties, while the regulators are proceeding in litigation against the sixth individual. The enforcement action follows a January enforcement action, where the CFPB and the Maryland Attorney General announced a joint enforcement action against two banks for their participation in this particular mortgage-kickback scheme.

    CFPB RESPA Enforcement

  • CFPB Report Recaps 2014 Fair Lending Activities

    Consumer Finance

    On April 28, the CFPB published its third annual report to Congress on its fair lending activities. Among other developments, the report highlights the following key supervision and enforcement priorities taken by the Bureau in the past year: (i) A continued focus on discrimination in the mortgage lending industry, including redlining and underwriting disparities; (ii) Emphasis on the auto lending industry, which has resulted in guidance given to lenders on complying with Federal consumer financial laws, and action taken when lenders do not abide by those laws; (iii) Attention to the credit card market, including an enforcement action against a company for its alleged failure to provide certain consumers with debt relief offers because of national origin; and (iv) Assistance to consumers who receive disability income by issuing Bulletin 2014-03 to lenders, which outlines the rights of a consumer whose income is derived, in part or in whole, from a public assistance program. According to the report, the Bureau’s efforts in 2014 to protect consumers from credit discrimination lead to financial institutions providing approximately $224 million in monetary relief to over 300,000 consumers.

    CFPB Fair Lending Redlining

  • CFPB Publishes Information Regarding Servicemembers' Complaints

    Consumer Finance

    On April 27, the CFPB published a report regarding the trend of recent complaints submitted to the Bureau by Servicemembers entitled, A Snapshot of Complaints Received from Servicemembers, Veterans, and their Families. According to the report, between July 21, 2011 and December 31, 2014, the areas servicemembers reported to have the most problems with were debt collection, mortgage, and credit reporting. With debt collection making up 39% of the complaints, it is the most common type of complaint the Bureau receives from servicemembers: “[S]ervicemembers assert that the calculation of debt is inaccurate or unfair… [They] complain about telephone collections that are too frequent and that come at inconvenient times. They also complain about debt collectors calling their place of employment or third parties.” In addition to debt collection, mortgage, and credit reporting complaints, the report reveals the following products as problem areas for servicemembers: credit cards, bank accounts, consumer loans, and student loans. The Bureau’s report is an overview of the approximated 29,500 complaints the Bureau received from servicemembers since July 2011.

    CFPB Servicemembers Consumer Complaints

  • CFPB Sets Date for Student Debt Field Hearing

    Consumer Finance

    On April 29, the CFPB revealed via blog post that it will host a field hearing focusing on issues related to student debt. The hearing will be held in Milwaukee, Wisconsin and is scheduled to occur on Thursday, May 14. The hearing will feature remarks from CFPB Director, Richard Cordray, in addition to testimony from consumer groups, industry representatives, and members of the public.

    CFPB Student Lending Debt Collection

  • CSBS Announces Multi-State Regulatory Groups' Annual Reports to State Regulators

    Consumer Finance

    On April 27, the Conference of State Bank Supervisors (CSBS) announced that three working groups of state regulators – the State Coordinating Committee (SCC), the Multi-State Mortgage Committee (MMC), and the Multi-State MSB Examination Task Force (MMET) – issued annual reports to state regulators regarding their 2014 operations and progress. Responsible for information sharing and examination work with the CFPB, the SSC report outlines the two agencies’ 9 joint examinations. The MMC – established as the “oversight body for multi-state mortgage supervision” in 2008 – is responsible for coordinated, multi-state mortgage exams, and its report covers the 6 joint mortgage examinations conducted with the CFPB in 2014. Finally, the MMET supervises the money services businesses; its report highlights 57 examinations conducted jointly with the CFPB in 2014.

    CFPB Nonbank Supervision CSBS Bank Supervision

  • SEC Publishes Cybersecurity Guidance for Registered Investment Companies and Advisers

    Privacy, Cyber Risk & Data Security

    On April 30, the SEC’s Division of Investment Management issued IM Guidance Update No. 2015-02 which highlights measures that investment companies and advisers may wish to consider in addressing cybersecurity risks. The guidance urges firms to adopt a three-pronged approach including, among other things: Conducting a periodic assessment of (1) the nature, sensitivity and location of information that the firm collects, processes and/or stores, and the technology systems it uses; (2) internal and external cybersecurity threats to and vulnerabilities of the firm’s information and technology systems; (3) security controls and processes currently in place; (4) the impact should the information or technology systems become compromised; and (5) the effectiveness of the governance structure for the management of cybersecurity risk. Second, creating a strategy designed to prevent, detect, and respond to cybersecurity threats, and third, implementing the strategy through written policies and procedures. The Division’s guidance also warned investment companies and advisers about third-party vendor agreements that could potentially lead to unauthorized access of investors’ information.

     

    SEC Vendors Privacy/Cyber Risk & Data Security

  • SEC Votes to Propose Executive Compensation Rules

    Securities

    On April 29, the SEC voted 3-2 to propose rules that would implement Dodd Frank’s pay-versus-performance provision by requiring companies to disclose the relationship between their financial performance and executive compensation. According to SEC Chair Mary Jo White, the proposed rules “would better inform shareholders and give them a new metric for assessing a company’s executive compensation relative to its financial performance.” All executive officers currently submitting their financials in the summary compensation table must abide by the proposed rules’ disclosure requirements. The rules would require that all reporting companies, except smaller companies, disclose the relevant compensation information for the last five fiscal years; smaller reporting companies will only be required to disclose the information for the past three fiscal years. Foreign private issuers, registered investment companies, and emerging growth companies will be exempt from the relevant Dodd-Frank statutory requirement. The comment period for the proposed rules will be open for 60 days after publication in the Federal Register.

    Dodd-Frank SEC Compensation

  • FDIC OIG Publishes Results of Audit of Personally Identifiable Information in Owned Real Estate Properties

    Privacy, Cyber Risk & Data Security

    On April 28, the FDIC’s Office of the Inspector General published a report – The FDIC’s Controls for Identifying, Securing, and Disposing of Personally Identifiable Information in Owned Real Estate Properties – regarding its audit of the agency’s internal controls of personally identifiable information (PII) in owned real estate (ORE) properties, which it acquires from failed FDIC-insured financial institutions. The audit was conducted to determine whether or not the FDIC’s internal controls sufficiently identified, secured, and disposed of ORE properties’ PII. According to the report, the OIG determined that the agency’s Division of Resolutions and Receivership (DRR), which is responsible for the liquidation of assets, often did not identify PII in a timely manner, and its “practices for handling and disposing of the information were inconsistent in certain key respects.” As a result of the audit, the OIG recommends that the DRR incorporate the following enhancements to its current review process of PII at ORE properties: (i) Obtain from the agency’s legal division an opinion that outlines and clarifies the requirements for handling PII at ORE properties; (ii) Review existing policies, procedures, guidance, and training and make adjustments where necessary; and (iii) Establish “the appropriate disposition of the PII that was identified at three of the ORE properties reviewed during the audit and that is currently in off-site storage.”

    FDIC Privacy/Cyber Risk & Data Security

  • FHA Revises Single-Family Housing Policy HandBook, Extends Effective Dates

    Consumer Finance

    On April 30, the FHA announced revisions to its Single Family Housing Policy HandBook (HandBook) and extended the effective date for various policies contained within from June 15 to September 14, 2015. The policy topics affected include, (i) the annual mortgage insurance premium reductions, (ii) the maximum mortgage limits 2015, (iii) the electronic appraisal delivery portal, and (iv) the refinance of borrowers in negative equity positions program.

    HUD FHA

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