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FTC Report Urges Mobile Application Developers to Improve Disclosures, Announces Multiple COPPA Investigations
On December 10, the FTC issued a staff report on the privacy disclosures and practices of mobile applications offered for children in certain online application stores. The report provides the results of an FTC survey of the disclosures and links on the promotion page in the application store, on the application developer’s website, and within the application, for hundreds of applications for children. According to the report, most mobile applications failed to give parents any information needed to determine what data is being collected from their children, how it is being shared, and with whom it is being shared. Further, the FTC states that many applications shared certain information with third parties without disclosing that fact to parents, and a number of applications contained interactive features – such as advertising, the ability to make in-application purchases, and links to social media – without disclosing these features to parents prior to download. The report also states that FTC staff is launching multiple nonpublic investigations of certain entities that may have violated the Children’s Online Privacy Protection Act (COPPA) or engaged in unfair or deceptive trade practices in violation of the FTC Act, and the FTC “strongly urges” the mobile application industry to develop and implement best practices to protect privacy, including those recommended in an FTC privacy report issued earlier this year. In a related development, on December 11, the Center for Digital Democracy filed a complaint with the FTC seeking an investigation of one firm for allegedly offering and operating a mobile application in violation of COPPA.
Fannie Mae Updates Maximum Allowable Attorney Fees, Provides Standard Short Sale FAQs
On December 13, Fannie Mae issued Servicing Guide Announcement SVC-2012-26 to update the maximum allowable foreclosure attorney fees for mortgage loans, participation pool mortgage loans, and MBS mortgage loans serviced under the special servicing option secured by properties located in Idaho, Montana, New Hampshire, Puerto Rico, U.S. Virgin Islands, and Wyoming. All listed fee revisions are effective as of January 1, 2013. Concurrently, Fannie Mae issued Frequently Asked Questions regarding its standard short sale and deed-in-lieu of foreclosure requirements, which were announced last month in SVC-2012-19.
State Law Update: New Jersey Creates Summary Foreclosure Process for Vacant and Abandoned Properties
On December 3, New Jersey Governor Chris Christie signed SB 2156, which authorizes lenders to bring summary actions to foreclose mortgages on vacant and abandoned residential properties, and grants state courts the authority to enter a final residential mortgage foreclosure judgment if it finds, by clear and convincing evidence, that the residential property is “vacant and abandoned.” Vacant and abandoned means: (i) the property is not occupied by a mortgagor or by a tenant who entered into a lease agreement before the mortgagee served notice of intention to commence foreclosure, and (ii) there exist at least two of 15 enumerated conditions that indicate vacancy and abandonment. If the court makes a finding in the foreclosure judgment that the property is vacant and abandoned, the sheriff will be required to sell the property within 60 days of the sheriff’s receipt of any writ of execution issued by the court. The law took effect immediately, but does not become operative until April 1, 2013.
Third Circuit Shields Property Reporting Firm from FCRA Liability
On December 6, the U.S. Court of Appeals for the Third Circuit held that a property reporting firm cannot be held liable for a willful violation of FCRA because the firm’s interpretation that it was not a consumer reporting agency subject to FCRA requirements was not unreasonable. Fuges v. Southwest Fin. Servs., Ltd., No 11-4504, 2012 WL 6051966 (3rd Cir. Dec. 6, 2012). The borrower filed a putative class action against a property reporting firm, alleging that the firm failed to comply with FCRA when it prepared a report requested by a bank in connection with the borrower’s credit application. On the reporting firm’s motion for summary judgment, the district court explained that the property report contained information about deeds, mortgages, parcel number and taxes, and lien information that more closely relate to a particular parcel of property than to a particular consumer, and that the report did not contain a social security number, payment history, previous addresses, or other information typically included in consumer credit reports. It held that no jury could find that the firm acted willfully because the firm’s reading of FCRA as not being applicable to property-reporting activities was not unreasonable, and granted summary judgment in favor of the firm. The appellate court agreed, holding that (i) the statute’s terms are ambiguous, (ii) the firm’s reading of the those terms has some foundation in the statutory text, and was therefore not objectively unreasonable, and (iii) there is no judicial or agency guidance that would suggest that the firm’s reading is contrary to the intended meaning of the provisions in question, and therefore the firm did not run a substantial risk in adopting its interpretation. Further, the court rejected the borrower’s argument that the reporting firm should lose the potential protection of the “reasonable interpretation” defense, because it never actually interpreted FCRA prior to the commencement of the suit. The court affirmed summary judgment in favor of the reporting firm.
FDIC Finalizes Online Regulatory Calendar for Community Banks
On December 10, the FDIC issued Financial Institution Letter FIL-51-2012 to launch the final version of an online calendar to help community banks monitor changes in federal banking rules. The final calendar incorporates comments received from industry stakeholders and provides information regarding (i) notices of proposed, interim, and final rulemakings, (ii) supervisory guidance to financial institutions issued by the FDIC and FFIEC, (iii) joint issuances with other regulators who are not part of the FFIEC, (iv) select items from other regulators relevant to the FDIC’s supervisory examination programs, and (v) outreach and educational events.
OCC Renews Mutual Savings Associations Advisory Committee
On December 12, the OCC announced that it renewed the charter for the Mutual Savings Associations Advisory Committee (MSAAC). The MSAAC originally was chartered by the Office of Thrift Supervision, and responsibility for the MSAAC transferred to the OCC under the Dodd-Frank Act, along with all of the OTS’ responsibilities for supervising federal savings associations. The MSAAC will generally meet two to three times per year to discuss issues of importance to mutual savings associations and provide advice and recommendations to OCC. It is comprised of officers and directors of a variety of mutual savings institutions. The committee’s first meeting is planned for January 16, 2013, in Washington, D.C.
Special Alert: Congress Passes Bill Extending Privilege Waiver Protections to CFPB
Yesterday, the Senate passed H.R. 4014, an important bill that clarifies that privileged materials produced to the Consumer Financial Protection Bureau (CFPB) retain their privileged character as to third parties. Because the House passed the same bill in March, the measure will now go to President Obama, who is expected to sign it.
The bill amends 12 U.S.C. § 1828(x) to place the Bureau on equal footing with the banking agencies—a so-called “legislative fix” that many observers have called for to address concerns that the Dodd-Frank Act did not provide clear guidance with respect to the status of privileged material provided to the CFPB. The amended statutory provision would read:
The submission by any person of any information to the Bureau of Consumer Financial Protection, any Federal banking agency, State bank supervisor, or foreign banking authority for any purpose in the course of any supervisory or regulatory process of such Bureau, agency, supervisor, or authority shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law as to any person or entity other than such Bureau, agency, supervisor, or authority.
The language “any person” makes clear that the bill applies to submissions by banks, non-banks, and individuals. The bill also amends 12 U.S.C. § 1821(t)(2)(A) to allow the Bureau to share information with other federal agencies without waiving “any privilege applicable” to that information.
Once it receives the President’s signature, the bill will partly resolve some long-standing debates over the effect of producing privileged information to the CFPB. In a January 2012 bulletin, the Bureau first argued that the production of privileged information to the agency would not waive any applicable privileges. Many supervised entities were skeptical, given the absence of any non-waiver statute or regulation applicable to the CFPB. Just a few months later, the agency finalized a regulation that also purported to preserve such privileges. But again, several groups remained concerned that the CFPB’s assurances were not enough to avoid waiver.
H.R. 4014 now offers some measure of comfort to CFPB-supervised entities, but a number of questions remain. For instance:
- Although the amendment to Section 1821(t) explains how privileges are affected when the CFPB shares information with federal agencies, it does not say how privileges will be affected if the CFPB shares such information with state and local authorities—as it has said it intends to do and it has agreed to do in various compacts with state regulatory agencies and enforcement officials.
- The bill does not speak at all to the question of whether, as the CFPB has maintained, it is entitled to obtain privileged material in the first place. The bill only provides that the transmitter may still assert privilege as to third parties if such material is transmitted to the CFPB. The CFPB to date has aggressively sought privileged and attorney work product material relating to institutions’ fair lending compliance efforts. Where institutions turn that material over, the bill would provide no protection against the CFPB’s use of the material to prosecute the institution.
- It is not clear whether the newly-amended Section 1828(x) will apply retroactively to protect confidential information that has already been submitted to the CFPB.
BuckleySandler will continue to monitor these issues. In the meantime, 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.
Special Alert: CFPB and DOJ Announce MOU to Coordinate Fair Lending Enforcement Efforts; CFPB Issues First Annual Report to Congress on Fair Lending Activities
On December 6, the Consumer Financial Protection Bureau (CFPB or Bureau) and the U.S. Department of Justice (DOJ) announced a Memorandum of Understanding (MOU) to coordinate enforcement of the federal fair lending laws, including the Equal Credit Opportunity Act (ECOA). Simultaneously, the CFPB issued its first annual Fair Lending Report to Congress as required by the Dodd-Frank Act, which describes the Bureau’s efforts to build its Office of Fair Lending and Equal Opportunity and reviews its fair lending accomplishments. Together, these initiatives demonstrate that the CFPB and DOJ are continuing to work together closely to aggressively enforce the federal fair lending laws.
Memorandum of Understanding Regarding Fair Lending Coordination
The new MOU supplements an existing Information Sharing Agreement Regarding Fair Lending Investigations among the DOJ, the U.S. Department of Housing and Urban Development, and the Federal Trade Commission, which allows these fair lending enforcement agencies to share confidential information related to fair lending investigations, screening procedures, and investigative techniques. It also follows a general cooperation MOU that the DOJ and CFPB entered into earlier this year.
The new MOU focuses on information sharing and referral of matters alleging ECOA violations, but also governs the agencies’ referral processes for other fair lending-related laws and joint fair lending investigations.
Referral of ECOA Violations to DOJ: The MOU explains the circumstances under which the CFPB will refer potential ECOA violations to the DOJ for further investigation or prosecution. Consistent with the established practice of the prudential federal bank regulators, the MOU requires the CFPB to refer to the DOJ all matters where it has “reason to believe” that one or more creditors has engaged in a pattern or practice of lending discrimination. The CFPB may also refer to DOJ any violation of Section 701(a) of ECOA, including a recommendation that a civil action be commenced if the CFPB cannot obtain compliance from the financial institution.
Following referral, the DOJ has 60 days to determine whether to proceed with its own investigation. Within that period, the CFPB may not unilaterally commence its own action with regard to the referred violation(s). Even if exigent circumstances arise during the 60-day review period, the CFPB must first consult with the DOJ before taking independent action.
The CFPB may also refer to the DOJ possible violations of fair lending-related laws for which the CFPB has no statutory examination or enforcement authority, but for which the DOJ possesses enforcement authority, including the Fair Housing Act and the Servicemembers Civil Relief Act. Despite its lack of statutory authority to enforce these laws, the CFPB’s Supervision & Examination Manual provides resources to identify such potential violations for purposes of referrals to another federal agency.
Joint Investigations: With regard to joint investigations, the MOU provides only that “[w]hen appropriate, the DOJ and the CFPB will seek to collaborate on investigations, and conduct joint investigations of entities allowing the Agencies to leverage resources and expertise.” The agreement calls for quarterly meetings to discuss investigative activity, but allows each agency to retain “independent authority to proceed in the manner that it determines is appropriate.”
Information Sharing: The MOU describes how the parties have agreed to designate, share, use, and protect as non-public, certain information related to investigations of potential ECOA violations, including confidential supervisory information collected by the CFPB under its supervision and examination authority. The MOU allows for additional case- or investigation-specific information sharing agreements as appropriate, based on a form agreement provided as an attachment to the MOU. Section 7 of the form agreement indicates that “sharing of any confidential information [between the CFPB and DOJ] under this Agreement does not constitute a waiver of, or otherwise affect, any privilege any agency or person may claim with respect to such information under federal law.” This provision appears to mirror the treatment of confidential information under 12 U.S.C. § 1828(x) that applies to the prudential bank regulatory agencies.
CFPB’s First Annual Fair Lending Report to Congress
The First Annual Fair Lending Report of the Consumer Financial Protection Bureau describes the CFPB’s efforts to build its Office of Fair Lending and Equal Opportunity and reviews that office’s accomplishments from July 21, 2011 through July 20, 2012. The CFPB includes among those accomplishments the issuance of “Bulletin 2012-04 on Discrimination in Lending” and the commencement of a number of non-public fair lending investigations, which are ongoing. The Report states that the Bureau continues to develop tools that allow it to identify areas of heightened fair lending risk and to promote efficiency in its supervisory and enforcement efforts. Earlier this year, in its strategic plan, the CFPB explained that it intends to base its fair lending-related performance on, among other indicators, the number of fair lending supervision activities opened during the fiscal year and the percentage of fair lending cases filed that were “successfully resolved” through litigation, settlement, or default judgment.
The Report states that federal regulators referred 12 ECOA-related matters to the DOJ from July 21, 2011 through December 31, 2011 and provides a summary of the most frequently cited Regulation B violations found by the federal regulators during examinations of financial institutions. The Report also provides a summary of a study and report by the CFPB to Congress on use of cohort default rates in private education lending, and provides a general status on rulemakings required by the Dodd-Frank Act. The CFPB describes the rulemaking to expand the scope of the data that must be collected and submitted under the Home Mortgage Disclosure Act (HMDA) as being in the “pre-rule stage,” and the Bureau has begun the planning process for new rules concerning data collection and reporting of small, minority- and women-owned business loan data by gathering information from stakeholders.
BuckleySandler LLP is a national leader in fair lending enforcement, litigation, and compliance. Attorneys in our Fair and Responsible Banking Team and CFPB Team defend institutions facing fair lending enforcement actions brought by the DOJ, CFPB and other federal agencies, and the firm regularly counsels an array of financial institutions seeking to comply with the full range of federal fair lending laws.
California AG Files First Mobile Application Privacy Suit
On December 6, California Attorney General Kamala Harris (AG) announced an enforcement action against Delta Airlines for allegedly failing to comply with the state’s Online Privacy Protection Act. This is the first action brought by the AG’s office under this law and follows other efforts by the AG’s office to require enhanced mobile privacy disclosures. In October, the AG’s office sent letters to 30 companies, including Delta, advising those entities that their mobile applications failed to comply with the state privacy law and providing them 30 days to remedy the alleged failure. The complaint alleges that since at least 2010, Delta has operated a mobile application that may be used to, for example, check-in online for an airplane flight, view reservations for air travel, or rebook cancelled or missed flights. The AG claims that the Delta application collections substantial personally identifiable information but does not have a privacy policy. The suit seeks to enjoin Delta from distributing its application without a privacy policy and penalties of up to $2,500 for each violation.
CFPB Announces First Partnership with a City Government, Highlights Chicago's Consumer Financial Protection Efforts
On December 5, CFPB Director Richard Cordray and Chicago, IL Mayor Rahm Emanuel announced an agreement to share consumer financial protection information and resources. According to Director Cordray, the partnership will allow the CFPB to learn from and expand on the ways Chicago protects its consumers, and help the CFPB determine where it should be focusing its attention by allowing the CFPB to better understand consumer protection challenges that arise locally. The partnership also will allow the city to leverage new resources and information developed by the CFPB. In his statement regarding the partnership, Mayor Emanuel highlighted the city’s recent consumer financial protection initiatives, including (i) the planned introduction of a new City Council ordinance to regulate and license debt collectors, (ii) information gathering on predatory and deceptive acts associated with home repair loans, payday loans, small dollar loans, reverse mortgage products, and mortgage origination and servicing, (iii) new zoning regulations to limit the proliferation of payday lenders, auto-title loan stores, and other predatory financial services, and (iv) the planned introduction of a new ordinance to enhance the Department of Business Affairs & Consumer Protection’s ability to take action against businesses convicted of violating state and federal consumer protection acts.