InfoBytes Blog

New York DFS Superintendent Lawsky Comments On Virtual Currency and Bitcoin Regulation

On October 14, Superintendent Lawsky delivered remarks on virtual currency and Bitcoin regulation in New York City. Specifically, Lawsky addressed the comments received in connection with the DFS’s July 17 proposal to establish a licensing regime for virtual currency businesses. Lawsky clarified the following five areas of concern: (i) who will be required to obtain a BitLicense; (ii) which type of license, money transmitter and/or virtual currency, a business will be required to obtain, confirming that, if both are required, the application process will be streamlined; (iii) the requirements that banks providing virtual currency services will need to comply with; (iv) the regulation of mining when a miner engages in virtual currency services; and (v) the “compliance costs of regulation on new or fledging virtual currency enterprises.” Noting that the DFS hopes that companies will work with the DFS as opposed to “run[ning] from regulation,” Lawsky emphasized the significance of appropriate regulation as it pertains to safeguarding customers’ money at financial companies.

Virtual Currency

New York Attorney General's Office Settles With Large Financial Institution

On October 15, the New York Attorney General’s office announced a settlement with a large financial institution in connection with a 2012 data breach. Of the $850,000 settlement agreement, New York State will receive over $114,000. The terms of the settlement require that the bank reform its former security practices, which caused over one million customer files to be compromised. Specifically, in 2012, the bank lost over one million unencrypted files that contained personal information for over 200,000 customers nationwide. Going forward, the bank must (i) notify state residents of security breaches in a timely manner; and (ii) maintain security policies that will protect personal information.

Privacy/Cyber Risk & Data Security

Special Alert: Class Action Suit Filed Based on CFPB Consent Order

In what may be the first action of its kind, a consumer who received restitution under the CFPB consent order has filed a class action lawsuit based on the same alleged violations.  While this litigation is still in its early stages, it serves as an important reminder that an institution’s exposure does not end when it reaches a public settlement with a regulator and may, in fact, increase.

Settlement of CFPB Action

As previously discussed in a BuckleySandler webinar, on July 24, 2013, the CFPB filed suit against Castle & Cooke Mortgage LLC, its President, and its Senior Vice President of Capital Markets, alleging that the defendants “developed and implemented a scheme by which the Company would pay quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loans they originated” in violation of the Truth in Lending Act’s loan originator compensation rules.

On November 7, 2013, the defendants entered into a consent order with the CFPB, agreeing to pay $9.2 million for restitution and a $4 million civil penalty to resolve the allegations.  Consistent with current CFPB practice, the consent order stated that “[r]edress provided by the Company shall not limit consumers’ rights in any way” – in other words, affected consumers are not required to sign releases in order to receive remediation.

Class Action Lawsuit

On July 21, 2014, Luis Cabrales filed a class action lawsuit against Castle & Cooke Mortgage LLC in the U.S. District Court for the Eastern District of California.  The complaint asserts violations of the Truth in Lending Act, the Real Estate Settlement Procedures Act, and state law based on the allegation that the “loan officer who sold plaintiff his mortgage loan was paid a bonus that was based, at least in part, on the fact that plaintiff received a more expensive and/or less favorable loan than he otherwise would have received.”  The complaint seeks various remedies, including actual and statutory damages under the Truth in Lending Act.

The complaint specifically references the CFPB consent order and states that, “plaintiff received a check from the CFPB in the amount of $795.02, representing his share of the CFPB’s restitution fund.”  However, the complaint further asserts that “[p]laintiff is owed additional amounts as a result of C&C Mortgage’s illegal practices” and that the statute of limitations was tolled until the date the CFPB distributed restitution checks to plaintiff and other members of the putative class.

Key Take-away

While the ultimate resolution of this particular private action is unclear, it highlights the substantial ongoing risks for institutions that enter into public settlements with regulators when releases are not obtained as part of the consent order’s remediation plan.

Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

CFPB Class Action

Buckley & American Bankers Association Release CFPB Mortgage Origination Deskbook

Buckley is pleased to announce the availability of "The New CFPB Mortgage Origination Rules Deskbook." The CFPB Deskbook, published in partnership with the American Bankers Association, is an all-inclusive compilation of all the mortgage origination rules made by effective by the Consumer Financial Protection Bureau (CFPB) in January 2014, including:

• Ability-to-Repay and Qualified Mortgage requirements
• Points and Fees
• Loan Originator Compensation
• Appraisals
• High-Cost Mortgages
• Qualified Mortgage Provisions for Federal Housing Administration and Veterans Affairs loans
• Summary of the TILA-RESPA disclosure integration taking effect in 2015

"Our goal was to consolidate the numerous sources of CFPB regulatory guidance into a clear, organized format," said Reilly. "We wanted to provide comprehensive descriptions from not just the rule text and official commentary but also from CFPB webinars, compliance guides, preamble material from federal register releases and informal compliance discussions with CFPB staff.  We hope this will be a "one-stop shop" for origination compliance." Benjamin K. Olson, former Deputy Assistant Director in the CFPB's Office of Regulations who was involved in the development of many of the rules covered by the CFPB Deskbook, describes it as "an invaluable resource with the potential to change the way regulations are understood." The CFPB Deskbook is available in PDF and hard copy formats. Requests for copies should be sent to CFPBDeskbook@buckleyfirm.com.

CFPB Mortgage Origination

Special Alert: Proposed Amendments to the TILA-RESPA Integrated Disclosure ("TRID") Rule, Transcript of CFPB Webinar on the Loan Estimate Form, and Introducing Buckley's TRID Resource Center

Buckley is pleased to announce our new TILA-RESPA Integrated Disclosure (“TRID”) Resource Center.  The TRID Resource Center is a one-stop shop for TRID issues, providing access to Buckley’s analysis of the TRID rule and the CFPB’s amendments, transcripts of CFPB webinars providing guidance on the rule, and other CFPB publications that will facilitate implementation of the rule.  In particular, the TRID Resource Center will address the following recent developments:

• Proposed amendments. On October 10, 2014, the CFPB proposed amendments to the TRID rule that, if adopted, would: (1) allow creditors to provide a revised Loan Estimate on the business day after the date the interest rate is locked, instead of the current requirement to provide the revised Loan Estimate on the date the rate is locked; and (2) correct an oversight by creating room on the Loan Estimate form for the disclosure that must be provided on the initial Loan Estimate as a condition of issuing a revised estimate for construction loans where the creditor reasonably expects settlement to occur more than 60 days after the initial estimate is provided.  The proposal would also make a number of additional amendments, clarifications, and corrections, including:
  • Add the Loan Estimate and Closing Disclosure to the list of loan documents that must disclose the name and NMLSR ID number of the loan originator organization and individual loan originator under 12 C.F.R. § 1026.36(g);
  • Provide additional guidance related to the disclosure of escrow accounts, such as when an escrow account is established but escrow payments are not required with a particular periodic payment or range of payments; and
  • Clarify that, consistent with the requirement for the Loan Estimate, the addresses for all properties securing the loan must be provided on the Closing Disclosure, although an addendum may be used for this purpose.

  Comments on the proposal are due by November 10, 2014. For your convenience, we have updated our summary of the TRID rule to identify the most significant proposed changes.

• Unofficial Transcript of the CFPB’s October 1 Webinar on the Loan Estimate Form.  As it has with past webinars where CFPB staff provide informal guidance, Buckley has prepared a transcript of the CFPB’s October 1, 2014 webinar (hosted by the Federal Reserve) addressing frequently asked questions regarding the Loan Estimate form.  The transcript is provided for informational purposes only and does not constitute legal opinions, interpretations, or advice by Buckley. The transcript was prepared from the audio recording arranged by the Federal Reserve and may have minor inaccuracies due to sound quality. In addition, the transcript has not been reviewed by the CFPB or the Federal Reserve for accuracy or completeness.

Other items in the TRID Resource Center include:

• Updated Buckley Special Alert Summarizing the Rule

  Provides a high-level overview of the final TRID rule and identifies significant proposed changes.

• CFPB Readiness Guide

  Discusses the CFPB expectations of institutions when implementing the rule.

• CFPB Compliance Guide

  Provides Guidance on the operational rules governing the integrated disclosures, including timing, tolerances, and other related requirements.

• CFPB Forms Guide

  Provides guidance on completing the Loan Estimate and Closing Disclosure.

• CFPB Example Timeline

  Illustrates the TRID rule's timing requirements by providing an example timeline on a calendar.

• Webinars and Transcripts

   

  • October 1, 2014: During this session, the Bureau addressed frequently asked questions relating to the Loan Estimate.  Our unofficial transcript is available here, and the recording is available here.
  • August 26, 2014: During this session, the Bureau addressed frequently asked questions regarding the operational requirements of the rule.  Our unofficial transcript is available here, and the recording is available here.
  • June 17, 2014: During this session, the CFPB provided a high-level overview of the rule. The recording is available here.

   

Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other Buckley attorney with whom you have consulted in the past.

• Jeffrey P. Naimon, (202) 349-8030
• Clinton R. Rockwell, (310) 424-3901
• John P. Kromer, (202) 349-8040
• Joseph M. Kolar, (202) 349-8020
• Jeremiah S. Buckley, (202) 349-8010

CFPB TILA RESPA Agency Rule-Making & Guidance

Federal Register Publishes Proposed Rule On CFPB Oversight Of Nonbank Auto Finance Companies

On October 8, the CFPB published a rule proposing oversight of larger nonbank auto finance companies for the first time at the federal level. The proposed rule will “amend the regulation defining larger participants of certain consumer financial product and service markets by adding a new section to define larger participants of a market for automobile financing.”  Under the new section, a market would be defined to include: (i) grants of credit for the purchase of an automobile, refinancings of such credit obligations, and purchases or acquisitions of such credit obligations (including refinancings); and (ii) automobile leases and purchases or acquisitions of such automobile lease agreements. Previously, on September 17, the CFPB released information regarding its resolve to supervise and enforce auto finance companies’ compliance with consumer financial laws, including fair lending laws. Comments on the proposed rule must be received on or before December 8, 2014.

Nonbank Supervision Auto Finance

CFPB And FDIC Develop Spanish-Language Tool To Stop Financial Exploitation of Older Adults

On October 7, the CFPB and the FDIC announced a Spanish-language version of Money Smart for Older Adults, a free financial resource tool intended to prevent the elder financial exploitation that is affecting millions of senior citizens each year. The English-language version, which “includes practical information that can be put to use right away,” was jointly developed by the two agencies last year. The Spanish-language participant/resource guide and power point slides can be downloaded for free at the FDIC’s website, or can be ordered as hard copies on the CFPB’s website.

FDIC CFPB Consumer Finance Elder Financial Exploitation

CFPB Holds Forum On Access To Checking Accounts

On October 8, the CFPB held a forum on consumers’ access to checking accounts. The event featured remarks from Director Cordray, as well as presentations from federal and local government officials, consumer groups, and industry representatives. Director Cordray noted the following three main issues of concern regarding the checking account application process, specifically in connection with the reports generated by specialty consumer reporting agencies and sold to banks and credit unions for use in determining whether to approve or reject a consumer for a checking account: (i) the accuracy of the information in the reports; (ii) the consumer’s ability to access the reports and dispute any inaccurate information; and (iii) the use of the reports to exclude consumers from basic financial services.  According to Cordray, while credit reporting agencies are required to report accurate information, the “institutions vary in their abilities to conduct the careful investigations needed to differentiate between accountholders who perpetrate fraud versus those who are victims of fraud.” The Bureau plans to explore alternative procedures for screening consumers, hopeful that better data might enable a financial institution to make more nuanced decisions in account screening rather than simply reaching a “yes or no” result.

CFPB

GAO Publishes Report Regarding Proposed Changes To The Single-Family Housing Finance System

On October 7, the GAO published a report to help policymakers assess proposals for changing the single-family housing finance system and consider ways to make it more effective and efficient. To this end, the report first describes the market developments since 2000 that have led to changes in the federal government’s role in single-family housing finance. Most notably, the GAO found that as the market share of nonprime mortgages grew before the 2007-2009 financial crisis, the share of new mortgage originations insured by federal entities (including Fannie Mae and Freddie Mac) fell dramatically before rising sharply again during and after the crisis. Second, the report analyzed whether and how these market developments created challenges for the housing finance system. The GAO concluded that mortgage markets since 2000 have challenged the housing finance system, revealing the following weaknesses: (i) misaligned incentives between originators and securitizers on the one hand, and borrowers and investors on the other, as the former did not share the risks of the latter; (ii) a lack of reliable information and transparency for borrowers because originators were not required to share certain information; (iii) excessive risk taking due to a loosening of underwriting standards prior to the financial crisis; and (iv) a lack of federal oversight (since addressed by Congress through the FHFA and CFPB). Finally, the report presents a nine-pronged evaluation framework for assessing potential changes to the housing finance system designed to help policymakers understand the strengths and weaknesses of competing goals and policies, to craft new proposals, and to understand the risks of transitioning to a new housing finance system.

CFPB Freddie Mac Fannie Mae Fair Housing FHFA GAO Mortgage Origination

FCC Settles With Large Mobile Telephone Company In Connection With Hidden Third-Party Charges

On October 8, the FCC announced a $105 million settlement – the largest in the agency’s history – with a mobile telephone company to resolve allegations that the company engaged in unauthorized billing practices. According to the FCC, the company charged customers for third-party services, such as subscriptions for ringtones, wallpapers, and certain premium text messages, for which they did not sign up. Many customers contested the charges, only to discover that the company either refused to issue refunds or refunded them for only one or two months. Under the terms of the settlement, which the FCC negotiated with the FTC and the attorney generals of the 50 states and the District of Columbia, the company must pay $80 million to the current and former customers affected by its billing practices, $20 million to the state governments involved in the settlement, and $5 million to the U.S. Treasury.

FTC FCC