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  • Texas Federal District Court Allows Government's FCA / FIRREA Mortgage Suit To Proceed

    Lending

    On September 10, the U.S. District Court for the Southern District of Texas denied a mortgage lender’s motion to dismiss the federal government’s claims that the lender and two of its executives knowingly made false statements in loan applications to HUD regarding the company’s compliance with FHA origination requirements. U.S. v. Americus Mortg. Corp., No. 12-2676, 2013 WL 4829271 (S.D. Tex. Sept. 10, 2013). The government claims the lender’s actions violated the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and resulted in HUD incurring losses of over $150 million on loans that defaulted. The court held (i) that the government complaint sufficiently alleged that the lender, at the direction of the individual defendants, knowingly made false statements of fact to HUD while engaging in a fraudulent course of business that caused HUD to pay out money that it otherwise would not have paid, thereby sufficiently alleging a violation of the FCA, and (ii) that pleading proof of specific intent to defraud was unnecessary. The court also rejected the lender’s argument that allegations of materiality or scienter were vitiated because HUD was “on notice of, and conducting an investigation into” the conduct alleged to have violated the FCA, and allowed the lender to continue participating in the FHA-insurance program. Finally, the court held, among other things, that the three-year tolling period that applied to the FCA’s six-year statute of limitations resulted in the government’s complaint being timely. With respect to the FIRREA claim, the court rejected the lender’s argument that it was not an entity subject to FIRREA. The court reasoned that the plain language of Section 1006 in the FIRREA statute applies to “whoever” is connected to HUD, which included the lender. It further stated that the complaint established that the lender knowingly submitted false statements to influence HUD, in violation of FIRREA.

    False Claims Act / FIRREA

  • Federal Court Dismisses Challenge to California City's Eminent Domain Plan

    Lending

    On September 16, the U.S. District Court for the Northern District of California dismissed one of two suits filed recently by investors to preempt a California city’s plan to seize certain mortgages using the government’s eminent domain authority. Wells Fargo Bank, N.A. v. City of Richmond, No. 13-3663, slip op. (N.D. Cal. Sept. 16, 2013). The court restated its decision reported last week that the mortgage investors’ claims were not ripe for action and further held that the case must be dismissed, instead of stayed, because the “[r]ipeness of the[] claims does not rest on contingent future events certain to occur, but rather on events that may never occur”—i.e. the city may not ever move forward with its seizure plan. The decision only addressed the timing of the suit, and did not reach the merits of the investors’ claims that the city’s plan, among other things, will violate the U.S. Constitution’s Takings Clause, Commerce Clause, and Contract Clause, as well as the state’s statutory prohibitions against extraterritorial seizures. A second similar action filed by a separate group of investors remains pending.

    Eminent Domain

  • Third Circuit Holds Securities Act Statute of Limitations Runs from Discovery, RMBS Claims Still Untimely

    Securities

    On September 17, the U.S. Court of Appeals for the Third Circuit held that the one-year statute of limitations in section 13 of the 1933 Securities Act establishes a discovery standard for evaluating timeliness, but held that claims brought by a putative class of investors in certain mortgage backed securities (MBS) still were untimely. Pension Trust Fund for Operating Engineers v. Mortg. Asset Securitization Transactions, Inc., No. 12-3454, 2013 WL 5184064 (3rd Cir. Sept. 17, 2013). The investors claimed that a mortgage securitizer made material omissions and misstatements in the offering and sale of certain MBS. On appeal, the court agreed with the investors that they need not plead compliance with the Section 13 statute of limitations and that the district court erred when it determined the claims to be untimely based on its holding that an inquiry standard applied to the statute of limitations. The court held that the discovery standard announced by the U.S. Supreme Court’s in Merck & Co. v. Reynolds, 130 S.Ct. 1784 (2010), in which the Court rejected the Third Circuit’s application of an inquiry standard under the Securities Exchange Act of 1934 and instead applied a discovery standard, also applies to the Securities Act. However, the court held that the investors, based on “storm warnings” they acknowledged existed more than a year before they filed their claims, could have conducted a reasonably diligent investigation earlier that would have yielded the same results as their later investigation that led to the filing of the action. The court concluded that the investors’ claims therefore were untimely and affirmed the district court’s dismissal.

    Class Action RMBS

  • OECD Revises Privacy Guidelines

    Privacy, Cyber Risk & Data Security

    Recently, the Organization for Economic Cooperation and Development (OECD) released updates to its privacy guidelines, with a focus on (i) practical implementation of privacy protection through risk management, and (ii) addressing the global dimension of privacy through improved interoperability. The revised guidelines, which the OECD describes as the first update of the original 1980 version that served as the first internationally agreed upon set of privacy principles, incorporate new concepts related to (i) national privacy strategies, (ii) privacy management programs, and (iii) data security breach notification. The new guidelines also reflect the organization’s modern views with regard to trans-border data flows, organizational accountability, and privacy enforcement.

    Privacy/Cyber Risk & Data Security

  • Report Indicates Record Pace for FDIC Suits Against Directors and Officers

    Consumer Finance

    On September 16, an economic and financial analysis and consulting firm issued a report that indicates the FDIC already has filed more suits against bank directors and officers in 2013 than it has in any year since the start of the financial crisis. The report states that through August 2013, the FDIC has seized 20 institutions and filed at least 32 lawsuits against officers and directors. Notably, the report finds that the pace of filings in the second and third quarters of 2013 has exceeded the rate of new filings in any equivalent period in the past three years. Over that three year period, the FDIC has filed a total of 76 suits against the directors and officers of failed institutions, 10 of which have settled, and one of which resulted in a jury verdict.

    FDIC Directors & Officers

  • CFPB HMDA Data Tool Launches with Banking Regulators' Release of 2012 HMDA Data

    Lending

    On September 18, the CFPB launched a new web-based tool for use in analyzing HMDA data. The CFPB explains that its new HMDA tool focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types for 2010 through 2012, and allows the public to see nationwide summaries or employ interactive features to isolate the information for metropolitan areas. The CFPB is planning additional features for the site, including (i) “easy-to-use tools” that allow users to filter HMDA records and create summary tables and (ii) an application programming interface that will allow researchers and software developers to incorporate the CFPB-provided HMDA data into other applications and visualizations. During a CFPB Consumer Advisory Board meeting at which the new tool was demonstrated, Director Cordray explained that the CFPB’s HMDA tool is designed to enhance the value of the HMDA data to help identify potentially discriminatory lending patterns and determine whether lenders are serving the housing needs of their communities.

    The launch corresponded with the FFIEC’s annual HMDA data release. The release provides data on mortgage lending transactions—including applications, originations, purchases and sales of loans, denials, and other actions related to applications—provided by 7,400 U.S. financial institutions covered by HMDA for the 2012 calendar year. The FFIEC release notes that 2012 HMDA data are the first to use the census tract delineations and population and housing characteristic data from the 2010 Census and from the American Community Survey and that the boundaries of many census tracts have been revised in the process of transitioning to the 2010 Census, and cautions users that boundary changes and updates to the population and housing characteristics of census tracts complicate intertemporal analysis of the annual HMDA data. The release further advises users that while the HMDA data can inform analysis of fair lending compliance, the HMDA data alone cannot be used to determine whether a lender is complying with fair lending laws because they do not include many potential determinants of creditworthiness and loan pricing, such as the borrower's credit history, debt-to-income ratio, and the loan-to-value ratio.

    CFPB Fair Lending FFIEC HMDA

  • CFPB Releases Revised Payday Loan Exam Manual Incorporating MLA Requirements

    Consumer Finance

    On September 17, the CFPB released revised short-term, small-dollar lending Examination Procedures  that incorporate the regulations issued by the Department of Defense (DoD) to implemente the Military Lending Act (MLA), which addresses alleged predatory lending practices by lenders that operate near military bases. The CFPB was given explicit power to enforce the MLA in the National Defense Authorization Act for Fiscal Year 2013.

    The revised Procedures note that the MLA covers active-duty military members and their dependents and applies to “consumer credit,” defined as closed-end loans that are payday loans with a term of 91 days or fewer and an amount financed of $2,000 or less as well as certain vehicle title loans and tax refund anticipation loans.  The revised Manual notes the special requirements of the MLA, including: (i) capping the Military Annual Percentage Rate (the APR under TILA plus other charges such as credit insurance premiums and fees for certain credit-related ancillary products) at 36 percent; (ii) prohibiting a lender from holding a post-dated personal check, debit authorization, or title to a vehicle for repayment or security; (iii) prohibiting mandatory arbitration clauses and waivers of legal rights under the SCRA or other consumer protection laws; (iv) prohibiting lenders from rolling over loans, unless the new transaction results in more favorable terms for the consumer; (v) prohibiting lenders from requiring consumers to pay through the military wage allotment system; and (vi) prohibiting prepayment penalties.

    The CFPB’s press release notes  the Bureau’s ongoing coordination with the Department of Defense on servicemember protection, as described in the agencies’ 2012 Joint Statement of Principles on small-dollar lending.

    CFPB Payday Lending Examination Servicemembers Military Lending Act Predatory Lending

  • CFPB, OCC Announce Add-On Product Actions, Other Non-Mortgage Enforcement Action

    Consumer Finance

    On September 19, the CFPB and the OCC announced parallel enforcement actions against a national bank to resolve allegations that the bank engaged in the unfair and deceptive marketing, sale, and billing of “add-on products” across multiple consumer products, and the OCC announced a separate order that resolves claims related to the bank’s non-home loan debt collection litigation practices and compliance with the SCRA.

    Under the CFPB’s consent order, the bank will pay a $20 million penalty to resolve allegations that over a seven year period ending in March 2012, the bank, through its vendor, enrolled customers in credit monitoring and identify theft products, and charged some customers for these products without or before having received written authorization to perform the monitoring services. The CFPB order also requires restitution to affected customers, and numerous requirements to enhance compliance, including with regard to vendor oversight. Under the OCC’s parallel action, the bank entered a consent order similar to the one entered with the CFPB, and consented to pay a $60 million penalty.

    The CFPB order acknowledges the bank’s representations that it no longer offers the scrutinized products and that it already has credited or refunded affected customers. The bank’s press release also reaffirms its commitment to holding its vendors to high standards.

    In a separate action announced by the OCC on the same day, the bank also entered a consent order to resolve allegations of unsafe or unsound practices with regard to its non-mortgage debt collection litigation practices and its non-mortgage SCRA compliance. As the bank pointed out in a press release, the consent order relates to only a slight percentage of credit card, student loan, auto loan, business banking and commercial banking customers who defaulted on their loan or contract and the resulting collections litigation that followed several years ago. The press release explains that the bank uncovered the issue in internal reviews that began in 2010 and took several steps in response, including: (i) halting new credit card collections litigation in 2011, (ii) dismissing the impacted lawsuits, and (iii) improving SCRA controls.

    Credit Cards CFPB OCC Servicemembers Debt Collection SCRA Enforcement Ancillary Products

  • Next CFPB Field Hearing to Focus on Credit Cards

    Fintech

    On September 16, the CFPB announced a field hearing on credit cards to be held on October 2, in Chicago, IL.  The event, which is open to members of the public who RSVP, will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups and industry representatives.

    In the past, the CFPB has made policy announcements in connection with field hearings. In this case, the hearing could be related to the CFPB’s study of credit card issues, as required by the 2009 Credit CARD Act. Section 502 of that act requires the CFPB to prepare a study every two years on: (i) the terms of credit card agreements and the practices of credit card issuers; (ii) the effectiveness of disclosure of terms, fees, and other expenses of credit card plans; (iii) the adequacy of protections against unfair or deceptive acts or practices relating to credit card plans; and (iv) whether or not, and to what extent, the implementation of the act has affected cost and availability of credit, the safety and soundness of credit card issuers, the use of risk-based pricing, or credit card product innovation.

    The hearing also could relate to the CFPB’s ongoing arbitration agreement study.  Director Cordray testified last week that, in connection with that study, the CFPB “very recently” exercised its authority under Dodd-Frank Act Sec. 1022 to order “a number of companies” to provide template consumer credit agreements.

    Credit Cards CFPB Arbitration

  • Special Alert: CFPB Finalizes Additional Amendments to the 2013 Mortgage Rules

    Lending

    On September 13, the CFPB finalized another set of amendments to its January 2013 mortgage rules. Whereas previous amendments focused largely on the ability-to-repay/qualified mortgage rule, these amendments – originally proposed in late June 2013 – principally address several important questions that have emerged during the implementation process for the mortgage servicing and loan originator compensation rules. We have prepared a Special Alert regarding these latest amendments.

    The amendments provide guidance on complying with the rules and, in several cases, the CFPB revised the proposed amendments in response to concerns raised by the industry during the comment period.  Nevertheless, the volume and complexity of the new requirements and the number of outstanding issues still present a daunting task for many industry participants as they work to implement the rules by January 2014.  The CFPB declined industry requests to provide additional time for compliance and, except as discussed in our Special Alert, has not indicated whether additional amendments will be forthcoming.

    Questions regarding the matters discussed in the 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 Mortgage Origination Mortgage Servicing

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