InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Banking Agencies Seek Comments On Outdated, Unnecessary Regulations
On June 4, the Federal Reserve Board, the FDIC, and the OCC published a notice of regulatory review and request for comments to identify outdated, unnecessary, or unduly burdensome regulations imposed on insured depository institutions. The review is required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996, and this is the first of four requests for comments that will be issued over the next two years. The request seeks comments on regulations in three specific categories: (i) applications and reporting; (ii) powers and activities; and (iii) international operations. The agencies ask commenters to specifically consider, among other things: (i) the need for statutory change; (ii) the need and purpose of the regulations; (iii) the effect on competition; (iv) reporting, recordkeeping, and disclosure requirements; and (v) the burden on small institutions, including community banks. Comments are due September 2, 2014.
Buckley Sandler Achieves Landmark Settlement in Navajo Nation Breach of Trust Lawsuit Against United States
WASHINGTON (June 1, 2014) — BuckleySandler LLP is proud to announce that it has obtained a $554 million settlement on behalf of its client the Navajo Nation. The settlement resolves the Nation’s landmark lawsuit alleging that the U.S. had breached its historical fiduciary obligations by failing to manage, invest and account for tribal trust funds and resources under the custody and control of the U.S. in a manner that would maximize the financial return from those assets. This is the largest settlement obtained in any action by a single Tribe against the U.S. and exceeds, by more than $170 million, the largest single resolution in the more than 100 natural resource breach of trust cases filed against the U.S. by American Indian Tribes.
BuckleySandler partner Samuel J. Buffone, who has represented the Navajo Nation for many years in important litigation matters, led this representation since the firm was retained by the Nation in August 2012 to seek to advance this case, which was first filed in 2006. Firm Chairman and Executive Partner Andrew L. Sandler led the long and complex settlement negotiations and partner Christopher F. Regan had principal responsibility for leading a BuckleySandler litigation team including, associate Veena Viswanatha, in completing discovery and preparing the case for trial.
“This has been one of the most satisfying legal representations in my career,” said Buffone. “I am proud that I have been able to play a part in the Navajo Nation’s decades long effort to obtain compensation for breaches of the trust obligations owed to it by the United States.”
Sandler added, “Our entire law firm is thrilled to have been able to achieve this result for the Navajo Nation. We want to thank our co-counsel at the Nordhaus Law Firm for the important role that they played and express our appreciation for the efforts of Court of Federal Claims Judge Eric Bruggink who has patiently mediated this case for more than six years. We also want to commend the U.S. Department of Justice and the Interior Department for their tireless efforts to work with us to resolve this important matter in a fair and equitable manner.”
“The agreement marks the successful conclusion of years of hard fought litigation and we are grateful for the efforts of the BuckleySandler team in securing this very significant result for the Navajo Nation,” said Navajo Nation Attorney General Harrison Tsosie.
The BuckleySandler team worked closely with Don Grove of the Nordhaus Law Firm and Navajo Nation Attorney General Harrison Tsosie, Deputy Attorney General Dana Bobroff and former Attorney General Louis Denetsosie in pursuing these claims for the Navajo Nation.
With more than 150 lawyers in Washington, New York, Los Angeles, and Chicago, BuckleySandler provides best-in-class legal counsel to meet the challenges of its financial services industry and other corporate and individual clients across the full-range of government enforcement actions, complex and class action litigation and transactional, regulatory and public policy issues. The Firm represents many of the nation's leading financial services institutions. Online: www.buckleyfirm.com; Twitter: https://twitter.com/BuckleySandler; InfoBytes Blog: http://www.infobytesblog.com.
CFPB Seeks Comment On Revised Credit Card Arbitration Survey
On May 29, the CFPB published a notice and request for comment on an updated plan to conduct a credit card arbitration survey. The following day, the OMB made available the documents submitted by the CFPB in support of the survey.
The amended survey notice follows an initial notice last year that the CFPB planned to conduct a telephone survey of 1,000 credit cardholders to assess (i) the extent of their awareness of dispute resolution provisions in their credit card agreements and (ii) the cardholders’ “assessments of such provisions.” At the time, the CFPB released draft survey questions as part of its information collection request supporting statements. The initial public comment period closed August 6, 2013. During the comment period, banking trade groups objected to the survey and suggested the CFPB instead pursue peer-reviewed research that compares consumer dispute resolution methods.
In its latest notice, the CFPB states that the survey “will explore (a) the role of dispute resolution provisions in consumer card acquisition decisions and (b) consumers’ default assumptions (meaning consumers’ awareness, understanding, or knowledge without supplementation from external sources) regarding their dispute resolution rights vis-a-vis their credit card issuers, including their awareness of their ability, where applicable, to opt-out of mandatory pre-dispute arbitration agreements.”
The supporting statements and attachments thereto detail the CFPB’s rationale for conducting the survey. Appendix A provides the final survey questions, and Appendix B provides the justification for the questions
The public comment period on the notice and supporting materials closes June 30, 2014.
House Oversight Committee Report Challenges DOJ's Operation Choke Point
On May 29, the House Oversight Committee released a staff report on Operation Choke Point, DOJ’s investigation of banks and payment processors purportedly designed to address perceived consumer fraud by blocking fraudsters’ access to the payment systems. The report provides the following “key findings”: (i) the operation was created by DOJ to “choke out” companies it considers to be “high risk” or otherwise objectionable, despite the fact that those companies are legal businesses; (ii) the operation has forced banks to terminate relationships with a wide variety of lawful and legitimate merchants; (iii) DOJ is aware of these impacts and has dismissed them; (iv) DOJ lacks adequate legal authority for the initiative; and (v) contrary to DOJ’s public statements, Operation Choke Point is primarily focused on the payday lending industry, particularly online lenders. The findings are based on documents provided to the committee by DOJ, including internal memoranda and other documents that, among other things, “acknowledge the program’s impact on legitimate merchants” and show that DOJ “has radically and unjustifiably expanded its [FIRREA] Section 951 authority.” The committee released the nearly 1,000 pages of supporting documents, which are available in two parts, here and here.
Utah Federal Court Dismisses Putative Class's "True Lender" Claims Against Online Merchant
On May 23, the U.S. District Court for the District of Utah dismissed a putative class action filed against an ecommerce merchant for allegedly operating a financing program that violated various California laws, including the state's usury law. Sawyer v. Bill Me Later, Inc., No. 11-988, 2014 WL 2159044 (D. Utah May 23, 2014). The court explained that the customer chose to finance his online purchase and was required to sign a contract: (i) identifying a Utah-chartered bank as the lender and as the owner of the account; (ii) specifying that the customer was accepting the loan in Utah, credit was being extended from Utah, and an annual interest rate of 19.99% would apply to outstanding loan amounts; and (iii) disclosing a schedule for late fees. The bank funded the transaction by paying the merchant on the customer’s behalf and held the receivables for at least two days before selling them to the merchant. The customer sued after he failed to pay for the purchase within 30 days and the merchant applied the disclosed interest rate and assessed a late fee, which the customer claimed together exceeded the usury cap in California, where the purchase was made. The court rejected the customer’s claim that the merchant, rather than the bank, was the “true lender” or the real party in interest. The court determined that “the lending framework more closely resembles credit card programs than the circular payday loan structures” described by the customer. The court concluded that loans serviced through contracts with third parties such as the merchant in this case are included within the definition of “any loan” under Section 27 of the Federal Deposit Insurance Act and as such are expressly preempted by federal statute.
OCC Announces Bank Supervision Changes
On May 28, the OCC announced “significant” changes to its large bank supervisory process and its large bank examination force. The OCC plans to “expand the organization, functions, and responsibilities of its large bank lead expert program to improve horizontal perspective and analysis, systemic risk identification, quality control and assurance, and resource prioritization.” The OCC also will establish a formal program under which large bank examiners will rotate to another large bank every five years in cities with multiple large banks. The changes come in response to an international peer review initiated by the OCC. The OCC released a summary of the supervision peer review recommendations and the OCC’s responses, which describe a number of other supervisory changes including, among others: (i) formalizing an enterprise risk management framework that will involve “developing a risk appetite statement, creating a decision-tree process, and enhancing the OCC’s existing National Risk Committee framework and processes”; and (ii) expanding an ongoing review of Matters Requiring Attention “to enhance and standardize MRA definitions, methods for communication, resolution processes, establish consistent tracking mechanisms, and develop a consistent examiner reference guide.” The OCC declined to implement other recommended changes, including, for example, creating more flexibility within the CAMELS rating system or developing potential alternatives to CAMELS.
FinCEN Updates Trade-Based Money Laundering Detection Advice
On May 28, FinCEN published Advisory FIN-2014-A005, which updates advice related to trade-based money laundering (TBML) to address the increased use of “funnel accounts.” FinCEN explains that individuals or businesses may establish an account in one geographic area that receives multiple cash deposits, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals. FinCEN states that criminal organizations may use wires and checks issued from those accounts to move illicit narcotics proceeds to the accounts of businesses offering trade goods and services. The Advisory details this TBML scheme and offers a number of red flags that could indicate a funnel account is being used as part of such a scheme. FinCEN cautions that because some red flag activities may be legitimate financial activities in appropriate circumstances, financial institutions should evaluate indicators of potential TBML activity in combination with other red flags and the expected transaction activity for the customer before making determinations of suspiciousness. The Advisory reminds institutions of their SAR reporting obligations in the event activities are determined to be suspicious.
Fannie Mae Updates Numerous Selling Policies
On May 27, Fannie Mae announced in Selling Guide Announcement SEL-2014-06 numerous selling policy updates. The announcement includes changes to Fannie Mae policies related to cash-out refinance transactions to provide additional flexibility and clarity with regard to delayed finance, continuity of obligation, and multiple finance properties for the same borrower. The announcement also details several asset-related updates, including, for example, that Fannie Mae will no longer require documentation for any deposit on a borrower’s recent bank statement that exceeds 25% of the total monthly qualifying income for the loan. Instead, Fannie Mae is changing the definition of a large deposit to 50% of the total monthly qualifying income, and states that when a deposit includes both sourced and unsourced portions, only the unsourced portion must be used when calculating whether the deposit meets the 50% definition. Fannie Mae also announced: (i) updates to the definitions for retail, broker, and correspondent origination types; (ii) clarification of the requirements for use of a power of attorney; and (iii) revised requirements for reporting lender financial statements.
FTC Report Calls For Increased Data Broker Transparency
On May 27, the FTC released a report that claims—based on a study of nine data brokers—that data brokers generally operate with a “fundamental lack of transparency.” The FTC describes data brokers as companies that collect personal information about consumers from a wide range of sources and then provide that data for purposes of verifying an individual’s identity, marketing products, and detecting fraud or otherwise mitigating risk. The report is based in part on the nine brokers’ responses to FTC orders that required the brokers to provide information about: (i) the nature and sources of the consumer information the data brokers collect; (ii) how they use, maintain, and disseminate the information; and (iii) the extent to which the data brokers allow consumers to access and correct their information or to opt out of having their personal information sold or shared. The report summarizes the companies’ data acquisition processes, their product development and the types of products they provide, the quality of the data collected and sold, the types of clients to whom the data is sold, and consumer controls over the information. The FTC recommends that Congress consider enacting data broker legislation that would, among other things: (i) require data brokers to give consumers access to their data and the ability to opt out of having it shared for marketing purposes; (ii) require data brokers to clearly disclose that they not only use raw data, but that they also derive certain inferences from the data; (iii) address gaps in FCRA to provide consumers with transparency when a company uses a data broker’s risk mitigation product that limits a consumer’s ability to complete a transaction; and (iv) require brokers who offer people search products to allow consumers to access their own information and opt out of the use of that information, and to disclose the sources of the information and any limitations of the opt out.
Illinois Federal Court Rejects Putative Class Challenge To Crediting Of Online Mortgage Payments
On May 27, the U.S. District Court for the Northern District of Illinois held that a mortgage servicer did not violate Regulation Z when it credited a payment two days after the borrower submitted the payment online. Fridman v. NYCB Mortg. Co., LLC, No. 13-3094, 2014 WL 2198395 (N.D. Ill. May 27, 2014). The borrower filed a putative class action against her mortgage servicer, alleging the servicer violated TILA and Regulation Z by failing to promptly credit her online payments. The court explained that the servicer allows borrowers to submit payments online, but requires borrowers to acknowledge that its ACH process takes two business days to post the payment. In this case, the borrower selected the online payment option, and the delayed payment application resulted in a late fee for the borrower. The court rejected the borrower’s argument that the servicer’s online payment screen is the equivalent of a check, and therefore the date of receipt is when the servicer receives the information—either at the online submission or when the ACH file is created through the nightly batch processing. The court determined based on Regulation E staff commentary that the ACH system utilized by the servicer is an electronic fund transfer system, and determined that the payment at issue fits squarely within the definition of “electronic fund transfer” that is considered received under Regulation Z “when the mortgage servicer receives the third-party payor’s check or other transfer medium, such as an electronic fund transfer.” Therefore, the court held that the servicer was in compliance with Regulation Z when it credited the account after receiving the transfer of funds from the borrower’s deposit account two days after the borrower submitted her payment online. The court granted the servicer’s motion for summary judgment and dismissed the suit.