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Fifth Circuit Dismisses RICO Claims Against MERS; Texas District Court Dismisses Similar Claims
On March 5, the U.S. Court of Appeals for the Fifth Circuit affirmed on different grounds the dismissals of two cases filed against MERS, the electronic mortgage registry, and its member banks, holding that the complaints failed to adequately plead a RICO injury to the plaintiffs’ “business or property.” Welborn v. Bank of N.Y. Mellon Corp., No, 13-30103, 2014 WL 843262 (5th Cir. Mar. 5, 2014). The cases consolidated for appeal were filed separately by parish and county land recorders in Louisiana and Texas who claimed that fraudulent statements about the legal effect of MERS caused fewer filings in their offices, which decreased fee revenues and undermined the accuracy of records. The district courts in both cases dismissed the complaints, holding that the land recorders were improperly seeking to enforce through the RICO statute the Trust Indenture Act of 1939 (TIA). Without resolving the dispute over whether the complaints sought to enforce the TIA, or whether doing so through civil RICO would be permitted, the court instead dismissed the complaints because they failed to allege an “injury to business or property” under RICO and therefore did not state legally cognizable claim sufficient to survive Rule 12(b)(6). The court explained that under RICO, recovery by a government is only authorized for “injuries suffered in its capacity as a consumer of goods and services,” and that alleged injury to the general economy or the government’s ability to carry out its functions is insufficient. Here, the court held, the alleged injuries did not arise from commercial activity, but rather from a governmental function. A day earlier, the U.S. District Court for the Northern District of Texas dismissed a similar case filed by other Texas counties, alleging violations of a Texas recording statute. The court held that the statute at issue contains no remedy provision, and nothing stating or suggesting that a county may seek relief under the statute, and that the statute does not require the recordation of interim instruments, such as assignments of deeds of trusts. Dallas County v. Merscorp, Inc., No. 11-2733, 2014 WL 840016 (N.D. Tex. Mar. 4, 2014). The court granted summary judgment in favor of MERS and related defendants and dismissed the case.
Visa, MasterCard Announce Payment Security Working Group
On March 7, Visa and Mastercard announced the formation of a cross-industry payment security working group, which the payment system providers state will be focused on “enhancing payment system security to keep pace with the expectations of consumers, retailers and financial institutions.” The group’s initial focus will be on supporting the adoption of EMV chip technology in the United States. In addition, the group will promote tokenization and point-to-point encryption, and will develop “an actionable roadmap for securing the future across all segments of the payments industry.” The group will include representatives from banks of all sizes, credit unions, acquirers, retailers, point-of-sale device manufacturers and industry trade groups.
Virtual Currency Trade Group Announces Board, Annual Meeting
On March 8, the Digital Asset Transfer Authority (DATA), a trade group launched last year and tasked by its members with “leading regulatory, best practices and consumer protection initiatives for companies in the emerging field of digital assets,” announced the election of a board of directors and its inaugural annual meeting. The group explains that digital assets include digital, asset-backed and cryptographic currencies like Bitcoin, Ripple, and Ven, as well as “the emerging ecosystem of payment innovations, fiscal tools, and P2P products enabled by these new Internet technologies.”
CFPB Announces Payday Loan Field Hearing
This afternoon, the CFPB announced that it will hold a field hearing on payday loans on March 25, in Nashville, TN. The event is open to members of the public who RSVP, and will feature remarks from consumer advocates, industry representatives, and CFPB officials, including Director Richard Cordray. The CFPB often announces policy initiatives in connection with its field hearings, and in its most recent rulemaking agenda the CFPB anticipated additional “prerule activities” related to payday loans and deposit advance products this month.
Payday lending was the topic of the CFPB’s first ever field hearing in January 2012, at which the Bureau released examination procedures for short-term, small-dollar lending. Since then, the CFPB has, among other things, (i) launched a payday loan complaint portal; (ii) announced its first enforcement action against a payday lender; (iii) participated in an ongoing, multi-agency effort to revise the Military Lending Act regulations; and (iv) published a white paper on payday loans and deposit advance products.
More CFPB Senior Staff Changes Announced
On March 12, the CFPB announced several new senior officials, as described below. We also have learned that Peter Carroll, the CFPB’s Assistant Director for Mortgage Markets, will be leaving the Bureau later this month.
- Jeffrey Langer has joined the CFPB as the Assistant Director of Installment and Liquidity Lending Markets in the Bureau’s Research, Markets, and Regulations Division. Mr. Langer most recently served as senior counsel at Macy’s, Inc., prior to which he was a lawyer in private practice. Mr. Langer is a founding fellow and treasurer of the American College of Consumer Financial Services Lawyers and is a former chair of the Consumer Financial Services Committee of the American Bar Association Business Law Section.
Mr. Langer will fill a position vacated by Rick Hackett last year. At the time of Mr. Hackett’s departure, Corey Stone, Assistant Director, Credit Information, Collections, and Deposit Markets, took over smaller dollar loan markets on a permanent basis. Rohit Chopra, the CFPB’s Student Loan Ombudsman, took responsibility for auto and student loans on an acting basis. Although Mr. Stone will continue to oversee smaller dollar loan markets, including payday and auto title loans, the addition of Mr. Langer allows Mr. Chopra to focus only on his Ombudsman duties.
- Christopher D. Carroll has joined the CFPB as the Assistant Director and Chief Economist for the Office of Research in the Bureau’s Research, Markets, and Regulations Division, as the CFPB announced last year. Dr. Carroll is a professor of economics at Johns Hopkins University, from which he has taken a leave of absence to serve at the Bureau. He also is a member of the Board of Directors of the National Bureau of Economic Research, and the co-chair of the NBER Research Group on Consumption. Dr. Carroll has served as a senior economist for the Council of Economic Advisors on two separate occasions, and as an economist for the Board of Governors of the Federal Reserve System. Ron Borzekowski, who joined the CFPB at its inception from the Federal Reserve Board, has been serving as the acting head of the Office of Research.
- Daniel Dodd-Ramirez has joined the CFPB as the Assistant Director of Financial Empowerment in the Bureau’s Consumer Education and Engagement Division. Mr. Dodd-Ramirez previously served as the executive director of Step Up Savannah Inc. in Savannah, Ga., from 2005 to 2014. Prior to Step Up, he served as education project director and community organizer for People Acting for Community Together (PACT) in Miami, Florida, and before that was the human resources director for Families First, a social services agency in southern Vermont.
- Jeffrey Langer has joined the CFPB as the Assistant Director of Installment and Liquidity Lending Markets in the Bureau’s Research, Markets, and Regulations Division. Mr. Langer most recently served as senior counsel at Macy’s, Inc., prior to which he was a lawyer in private practice. Mr. Langer is a founding fellow and treasurer of the American College of Consumer Financial Services Lawyers and is a former chair of the Consumer Financial Services Committee of the American Bar Association Business Law Section.
House Financial Services Chairman Presses CFPB On Auto Finance Enforcement
House Financial Services Committee Chairman Jeb Hensarling (R-TX) sent a letter today to CFPB Director Richard Cordray once again pressing the CFPB for information about its March 2013 auto finance guidance and its actions since that time to pursue allegedly discriminatory practices by auto finance companies. That guidance, which the CFPB has characterized as a restatement of existing law, sought to establish publicly the CFPB’s grounds for asserting violations of ECOA against bank and nonbank auto finance companies for the alleged effects of facially neutral pricing policies.
The letter recounts numerous exchanges between members of Congress—including both Democratic and Republican members of the Committee—and the CFPB on this issue to demonstrate what the Chairman characterizes as “a pattern of obfuscation” by the Bureau. Mr. Hensarling explains that through a series of written requests—see, e.g. here, here, and here—as well as in-person exchanges, lawmakers have sought detailed information about the CFPB’s application of the so-called disparate impact theory of discrimination to impose liability on auto finance companies. The letter states that the CFPB has repeatedly refused to provide certain key information used in applying that theory through compliance examinations and enforcement actions, including information about regression analyses, analytical controls, and numerical thresholds employed by the Bureau.
According to the letter, the CFPB has informed inquiring members that the CFPB’s fair lending tools and assessments are dependent upon a particular lender’s policies, practices, and procedures. Following the Bureau’s first auto finance fair lending action, announced in December 2013, the Chairman sought more specific information from the CFPB about how it applied its fair lending analysis in that case. The Chairman asserts the CFPB refused to provide the statistical analyses conducted in that case and CFPB staff who briefed committee staff were unwilling to respond to certain questions about the action, including “potential explanatory variables” and business justifications offered by the finance company.
Seeking once more to obtain additional details about the CFPB’s fair auto finance theories and their application, the letter restates numerous previous requests and demands that the Bureau respond by March 13, 2014. Specifically, the letter once again seeks the methods the Bureau uses to determine disparate impact, including, among others, (i) the factors it holds constant to ensure pricing differences are attributable to the consumer’s background; (ii) the controls applied to ensure sure that the consumers who are being compared are “similarly situated”; (iii) the basis point thresholds at which the Bureau determines a prohibited pricing disparity exists; (iv) the process used to determine the background of consumer credit applicants; (v) the potential explanatory variables offered by respondents in the December 2013 enforcement action, and for each variable offered, the Bureau’s reasons for asserting that the respondents failed to provide adequate evidence that additional variables appropriately reflected legitimate business needs; and (vi) the regression analysis used in the investigation that led to the December 2013 action.
Absent a sufficient response, the “Committee will have no choice but to consider involving its compulsory process.” The Committee’s rules allow it or its subcommittees to issue with a majority vote subpoenas “in the conduct of any investigation or series of investigations or activities.”
CFPB Plans Debt Collection Survey
On March 6, the CFPB issued a notice that it intends to conduct a mail survey of consumers “to learn about their experiences interacting with the debt collection industry.” The notice states that the Bureau, as part of its information gathering related to its debt collection rulemaking, will ask consumers about (i) whether they have been contacted by debt collectors in the past; (ii) whether they recognized the debt that was being collected; (iii) interactions with the debt collectors; (iv) preferences for how they would like to be contacted by debt collectors; (v) opinions about potential regulatory interventions in debt collection markets; and (vi) knowledge of legal rights regarding debt collections. Comments on the proposed survey are due by May 6, 2014.
FTC Announces International Privacy Initiatives
On March 6, the FTC released a memorandum of understanding (MOU) it signed with the UK’s Information Commissioner’s Office (ICO), which is designed to strengthen the agencies’ privacy enforcement partnership. The FTC stated that over the last several years it has worked with the ICO on numerous investigations and international initiatives to increase global privacy cooperation. The MOU establishes a formal framework for the agencies to provide mutual assistance and exchange of information for the purpose of investigating, enforcing, and/or securing compliance with certain privacy violations. The FTC also announced a joint project with the European Union (EU) and Asia-Pacific Economic Cooperation (APEC) economies to map together the requirements for APEC Cross Border Privacy Rules and EU Binding Corporate Rules, which is designed to provide a practical reference tool for companies that seek “double certification” under the APEC and EU systems, and shows the substantial overlap between the two.
Senate Blocks DOJ Civil Rights Division Nominee
On March 5, the Senate voted 47-52 on a procedural motion that would have advanced President Obama’s nomination of Debo Adegbile to serve as Assistant Attorney General, Civil Rights Division. Seven Democrats joined all voting Republicans to defeat the nomination. Mr. Adegbile’s participation in the legal representation of Mumia Abu-Jamal, who was convicted in 1981 of killing a Philadelphia police officer, reportedly played a factor in the voting.
Prudential Regulators Finalize Midsize Bank Stress Test Guidance
On March 5, the Federal Reserve Board, the OCC, and the FDIC issued final guidance for stress tests conducted by banking institutions with more than $10 billion but less than $50 billion in total consolidated assets. Under Dodd-Frank Act-mandated regulations adopted in October 2012, such firms are required to conduct annual stress tests. The guidance discusses (i) supervisory expectations for stress test practices, (ii) provides examples of practices that would be consistent with those expectations, and (iii) offers additional details about stress test methodologies. Covered institutions are required to perform their first stress tests under the Dodd-Frank Act by March 31, 2014.