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Fourth Circuit Relies on E-Sign Act to Hold Electronic Agreement May Effect A Valid Transfer of Copyright
On July 17, the U.S. Court of Appeals for the Fourth Circuit held that under the E-Sign Act, an electronic transfer may satisfy the requirements for transfer of a copyright under the Copyright Act, even though the Copyright Act itself does not define the “writing” or “signature” required to effectuate a transfer. Metro. Reg. Info. Sys., Inc. v. Am. Home Realty Network, Inc. No. 12-2102, 2013 WL 3722365 (Jul. 17, 2013). In this case, the company that operates the online real estate listing service MLS sued a competitor real estate referral service, contending that the referral service collected and used information without authorization – including photographs of listed properties – that MLS compiled for its customers. In order to submit photos to the MLS, customers are required to click a button and agree to certain terms of use. The court agreed with the MLS operator that its customers’ acceptance of the terms of use operated as a transfer of copyrights in any photograph provided to the MLS, and that as such the competitor service may have violated the Copyright Act through its unauthorized use of the materials. Noting the paucity of case law applying the E-Sign Act to instruments conveying copyrights, the court looked to cases in which circuit courts have applied the E-Sign Act to the Federal Arbitration Act’s protections that pertain only to written arbitration agreements, including the Second Circuit’s holding in Specht v. Netscape Comms. Corp., 605 F.3d 17 (2nd Cir. 2002). Based on the analysis in those cases, the court explained that “[t]o invalidate copyright transfer agreements solely because they were made electronically would thwart the clear congressional intent embodied in the E-Sign Act.” The court held that an electronic agreement may effect a valid transfer of copyright interests under the Copyright Act. As such, the court affirmed the district court’s preliminary injunction prohibiting MLS’s competitor from displaying the MLS photographs.
Prudential Regulators Encourage Private Student Loan Workouts
On July 25, the FDIC, the OCC, and the Federal Reserve Board issued a joint statement to encourage financial institutions to “work constructively with private student loan borrowers experiencing financial difficulties.” The statement explains that prudent workout arrangements are consistent with safe-and-sound lending practices and are generally in the long-term best interest of both the financial institution and the borrower. Specifically, under the Retail Credit Policy, which covers student loans, “extensions, deferrals, renewals, and rewrites of closed-end loans can be used to help borrowers overcome temporary financial difficulties.” As such, the agencies promise not to criticize institutions for engaging in prudent workout arrangements with borrowers who have encountered financial problems, even if the restructured loans result in adverse credit classifications or troubled debt restructurings in accordance with accounting requirements under GAAP. Further, the regulators state that modification programs should provide borrowers with clear and easily accessible practical information about the available options, general eligibility criteria, and the process for requesting a modification.
CFPB Publishes ECOA Baseline Review Modules
Yesterday afternoon, the CFPB released its ECOA baseline review modules, which supplement the recently updated ECOA examination procedures. Completed baseline modules will be included in an institution’s examination work papers and may be considered in conjunction with any fair lending statistical analysis to assess an institution’s fair lending compliance and risks.
The baseline review procedures provide examiners with a series of questions in six modules to assess the following:
- Fair lending supervisory history;
- Fair lending compliance management system – management participation, policies and procedures, training, and internal controls and monitoring;
- Mortgage lending - policies and procedures for mortgage underwriting and pricing, including frequency of deviations, compensation structures, third-party involvement, and marketing practices;
- Mortgage servicing - policies and procedures as they relate to fair lending;
- Auto lending – policies and procedures for direct and indirect auto lending, including information related to pricing, underwriting, referrals, origination, and third-party compensation; and
- Other products – policies and procedures with respect to any additional products selected for review, e.g. secured and unsecured consumer lending, credit cards, add-on products, private student lending, payday lending, and small business lending.
The CFPB baseline review differs from the CFPB’s targeted review process, during which a supervised institution can be subject to an in-depth look at a specific area of fair lending risk, and is separate from the CFPB’s HMDA review, which includes transactional testing for HMDA data accuracy.
Service Provider Challenges CFPB Authority
On July 22, a Connecticut bankruptcy attorney and a firm with whom the attorney contracts for legal support services filed a lawsuit charging the CFPB with “grossly overreaching its authority” in requesting “sensitive and privileged information” about thousands of consumers and challenging the constitutionality of the Bureau itself. The suit was filed in response to a CFPB investigation into the service provider’s relationships with law firms that provide debt settlement assistance to consumers facing bankruptcy. The complaint asserts that the CFPB lacks authority to regulate the law firms supported by the service provider and that the information demanded by the CFPB – disclosed to lawyers by clients seeking advice regarding bankruptcy – is protected by the attorney-client privilege.
CFPB Sues Mortgage Company Over Alleged Loan Officer Compensation Practices
This afternoon, the CFPB released a complaint it filed today against a Utah-based mortgage company and two of its officers for giving bonuses to loan officers who allegedly steered consumers into mortgages with higher interest rates. The complaint alleges that the company, and its president and senior vice-president of capital markets, violated the Federal Reserve Board’s Loan Originator Compensation Rule by instituting a quarterly bonus program that paid more than 150 loan officers greater bonus compensation based on the terms and conditions of the loans they closed. The CFPB claims the program incentivized loan officers to steer consumers into loans with higher rates.
According to the complaint, when the Loan Originator Compensation Rule took effect in April 2011, the company amended its program to eliminate any written reference to compensation based upon terms or conditions, making it appear on its face to be a compliant compensation program. The CFPB alleges that although the company’s regular compensation was no longer tied to terms or conditions under the new program, the managers actually continued to adjust the quarterly bonuses based upon the terms and conditions established under the compensation program.
The complaint further alleges violations of Regulation Z’s requirement that a creditor retain records of compensation paid to loan originators for two years. According to the complaint, the company violated this requirement by failing to record what portion of quarterly bonuses paid to loan originators were attributable to a given loan and by failing to maintain accurate and complete compensation agreements.
The case highlights a number of points:
- The CFPB will look beyond a company’s written compensation and compliance plans to include analysis of a company’s actual compensation payments to its loan originators;
- The CFPB is pursuing individuals in senior management;
- $1 billion companies are within range for CFPB actions;
- The CFPB is seeking an injunction, restitution, civil money penalties for each bonus paid, and costs; and
- The case was referred to the CFPB by the Utah Department of Commerce.
HUD Proposes Framework for Affirmatively Furthering Fair Housing, HUD Secretary Promises Increased Enforcement
On July 18, HUD released a proposed rule to refine the fair housing elements of the existing planning process that recipients of HUD funds – states, local governments, insular areas, and public housing agencies (Program Participants) – already undertake. To aid Program Participants, HUD will provide local and regional data to allow Program Participants (i) to evaluate patterns of integration and segregation in their area, (ii) to identify disparities in access to community assets by members of protected classes, (iii) to locate racial and ethnic concentrations of poverty, and disproportionate housing needs based on protected class; (iv) to uncover areas for improvement in their fair housing programs; and (v) to develop the tools, strategies, and priorities to respond to problems identified by the data.
The proposed rule also (i) defines “affirmatively furthering fair housing” to clarify that the phrase requires proactive steps to foster more inclusive communities and greater access to community assets for all groups protected by the Fair Housing Act; (ii) refines current Analysis of Impediment requirements; (iii) requires Program Participants to incorporate fair housing planning in existing planning processes, such as the consolidated plan and PHA Annual Plan; and (iv) encourages Program Participants to take regional approaches to address fair housing issues.
In a speech earlier in the week in which he previewed the proposed rule, HUD Secretary Donovan also promised increased enforcement of the Fair Housing Act, stating: “I want to send a message to all those outside these doors. There are no stones we won’t turn. There are no places we won’t go. And there are no complaints we won’t explore in order to eliminate housing discrimination. Period. . . . HUD is enhancing its enforcement techniques by initiating investigations on our own without waiting for individuals to file complaints. We have more than tripled the number of Secretary-initiated complaints that we have filed since 2008.”
Senate Banking Committee Approves FHFA Director Nominee, Other Nominees
On July 18, the Senate Banking Committee approved Rep. Mel Watt (D-NC) to be the next Director of the FHFA, on a 12-10 party line vote. On a voice vote, the Committee also approved Michael Piwowar and Kara Stein as members of the Securities Exchange Commission, Jason Furman to serve as member and chairman of the Council of Economic Advisers, and Richard Metsger to sit on the National Credit Union Administration Board. Finally, again by voice vote, the Committee voted to extend the term of SEC Chair Mary Jo White until June 5, 2019. The nominations could come before a vote of the full Senate in the coming weeks.
Freddie Mac Updates Numerous Selling Requirements
On July 18, Freddie Mac issued Bulletin Number 2013-13, which updates or revises numerous selling requirements. For Relief Refinance Mortgages sold under fixed rate cash commitments taken out on or after July 19, 2013, Freddie Mac is reinstating the cash adjustor for mortgages with loan-to-value ratios greater than 105% and less than or equal to 125% and is adjusting the cash adjustor value for mortgages with LTV ratios over 125%. Effective immediately, Freddie Mac is relaxing requirements regarding authorized user accounts to give sellers that option to evaluate the impact of authorized user accounts on a borrower’s credit report. If a seller determines that the impact on a borrower’s overall credit history is insignificant and the information on the credit report is representative of a borrower’s credit reputation, then (i) for Loan Prospector mortgages, the Loan Prospector decision may be considered valid and (ii) for manually underwritten mortgages the FICO score may be considered usable. The Bulletin also (i) simplifies eligibility and review requirements for condominium projects; (ii) eliminates requirements contained within Section 22.24 of the Seller/Servicer Guide for properties in subdivisions that do not have resale restrictions; (iii) updates section 22.23 of the Guide with new terminology to eliminate references to “inclusionary zoning;” (iv) updates certain ULDD data point requirements for Condominium Projects and Manufactured Homes; and (v) clarifies the eligibility of living trusts for Texas Equity Section 50(a)(6) mortgages.
CFPB Outlines Financial Literacy Strategy in Report to Congress
On July 17, the CFPB published its first annual Financial Literacy Report to Congress. The report, required by the Dodd-Frank Act, outlines the CFPB’s broad consumer education and outreach efforts. The report reviews the various resources the CFPB has developed on its website, including its complaint database and tools aimed at helping consumers understand college costs and payment options. The CFPB also highlights ongoing research to (i) determine how to measure financial well-being and identify the knowledge, skills, and habits associated with financially capable consumers; (ii) evaluate the effectiveness of existing approaches to improving financial decision-making and outcomes; and (iii) develop new approaches to financial education and evaluate their potential to improve financial well-being.
CFPB Names New Senior Staff
On July 15, the CFPB announced that it filled four senior staff positions. Sartaj Alag will serve as Chief Operating Officer. Prior to taking on this role, Mr. Alag had established the Bureau’s Office of Consumer Response and had worked in the private sector both as President of a Capital One subsidiary and as a management consultant at McKinsey & Company. Christopher D’Angelo, who joined the CFPB in June 2011 as an enforcement attorney and who most recently served as Senior Advisor to Director Cordray, will be promoted to Chief of Staff. Prior to joining the Bureau, Mr. D’Angelo served as Senior Advisor to the Under Secretary for Domestic Finance at the Treasury Department. Nora Dowd Eisenhower will become the new Assistant Director for the Office of Older Americans. Prior to joining the CFPB, Ms. Eisenhower served on the National Council on Aging, where she was the Director of the National Center for Benefits Outreach and Enrollment, and the Senior Vice President of Economic Security. Prior to her work with the National Council on Aging, Ms. Eisenhower served as Secretary of the Pennsylvania Department of Aging and as Executive Director for AARP Pennsylvania. Finally, Laurie Maggiano will join the Bureau as the Program Manager for Servicing and Securitization Markets in the Division of Research, Markets, and Regulations. Ms. Maggiano most recently served as the Director of Policy in the Office of Homeownership Preservation at the Treasury Department, where she was one of the principal architects of the Making Home Affordable program. Prior to joining Treasury, Ms. Maggiano managed servicing policy at HUD, and before that spent 20 years in the private sector as a director at Freddie Mac and as a senior vice president for two major mortgage banks.