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3rd Circuit rules student loan servicer must comply with CID
On August 13, in a divided opinion that is not precedential, the U.S. Court of Appeals for the 3rd Circuit affirmed a lower court’s decision to grant a petition filed by the CFPB to enforce a civil investigative demand (CID) issued to a student loan servicer, rejecting arguments that the scope of the Bureau’s investigation was too broadly defined. The Notification of Purpose in the CID at issue named the entirety of the servicer’s business operations, without identifying any specific conduct, when the CFPB sought records to determine whether the servicer’s practices violated federal consumer financial laws. The servicer objected to the Notification of Purpose and petitioned the Bureau to set aside or modify the CID because it did not adequately “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.” The appellate court held that the servicer’s “contention rests on the flawed assumption that the CFPB could not investigate all of [the servicer’s] conduct,” and that, moreover, “[n]othing prohibits the CFPB from investigating the totality of [the servicer’s] business activities, and courts have previously enforced administrative subpoenas regarding conduct that is coextensive with the recipient’s business activity.”
7th Circuit reverses district court, holds settlement with debt collector moots claims against law firm
On August 13, the U.S. Court of Appeals for the 7th Circuit vacated a district court’s decision, holding that a consumer who settled with a debt collector is not entitled to pursue Fair Debt Collection Practices Act statutory damages claims against the debt collector’s law firm. Under the single recovery for a single injury principle, a consumer can only obtain one recovery for a single injury “regardless of how many defendants could be liable for that single injury, or how many different theories of recovery could apply to that single injury.” In this instance, the consumer settled the claim with the debt collector for $5,000 plus release of the consumer’s original debt. The consumer later sued the debt collector’s law firm, spending over $69,000 on attorneys’ fees to argue that the law firm filed suit to collect the debt in the wrong court. While the district court ordered the law firm to pay the attorneys’ fees to the consumer, the 7th Circuit reversed, holding that the settlement with the creditor rendered the consumer’s claim against the law firm moot and thus the consumer could not recover attorneys’ fees or costs.
Colombia’s former anti-corruption chief pleads guilty to money laundering conspiracy related to foreign bribes
On August 14, the DOJ announced that Colombia’s former National Director of Anti-Corruption pleaded guilty to “participat[ing] in a conspiracy to launder money with the intent to promote foreign bribery.” A Colombian attorney also pleaded guilty to the conspiracy. According to the press release, the two men admitted that they “attempted to entice a bribe” from a Colombian politician who was facing a corruption investigation by the former director’s office by promising to provide statements made by cooperating witnesses in exchange for $34,500. Working undercover for the DEA, the politician paid the two men a $10,000 deposit of the bribe money during a June 2017 meeting in Miami. At that meeting, the two men were also recorded promising to obstruct the investigation in exchange for an additional $132,000 bribe. Cash from the deposit was found on the former director when he boarded his flight back to Colombia. The two men were arrested in Colombia and extradited to the U.S. in May 2018. Sentencing is scheduled for November 19, 2018.
Court enters summary judgment in favor of bank in wrongful foreclosure action
On August 3, the U.S. District Court for the District of Massachusetts entered summary judgment in favor of a national bank regarding a mortgage borrower’s allegations that the bank engaged in, among other things, predatory lending, wrongful foreclosure, and violations of Massachusetts’ unfair or deceptive practices (UDAP) law. As to the wrongful foreclosure claim, the borrower alleged that the bank lacked the legal authority to foreclose on his property because the chain of title was compromised and the mortgage transfers were invalid prior to the bank becoming the holder of the mortgage through assignments. The court rejected the borrower’s arguments because Massachusetts law allows for “splitting the note” as long as the mortgage documents are unified at the time of foreclosure, and there was no reason to question the validity of the prior assignments. The court rejected the borrower’s predatory lending claim because the bank was not the original lender of the mortgage note and had no duty to negotiate a modification because the borrower was already in default when the bank became the holder of the mortgage. The court also dismissed the UDAP claim on procedural grounds.
Massachusetts Attorney General announces $26.8 million settlement with firm for securitization of subprime mortgages
On August 6, the Massachusetts Attorney General announced a settlement with a securities firm related to the allegedly unfair purchase and securitization of residential mortgage loans that were alleged to be presumptively unfair under Massachusetts law. The settlement is a part of the Attorney General’s ongoing review of subprime mortgage securitization practices in the state. The agreement requires the securities firm to pay $26.8 million, which includes a $5 million payment to the state to compensate governmental entities that allegedly suffered harm, “including cities and towns that incurred extra expenses due to foreclosures.” The remaining funds will be made available to eligible homeowners to assist with principal reductions and related loan payments, and to assist those whose homes were subject to foreclosure.
FinCEN director discusses approach to virtual currency and emerging technology
On August 9, Financial Crimes Enforcement Network (FinCEN) Director Kenneth A. Blanco delivered remarks at the 2018 Chicago-Kent Block (Legal) Tech Conference to discuss, among other things, the agency’s approach to virtual currency and its efforts to protect financial institutions from being exploited for illicit financing purposes as new financial technologies evolve and are adopted. Blanco commented that while innovation provides customers with greater access to financial services, it can also create opportunities for criminals or serve as a vehicle for fraud. Blanco discussed several areas of focus, such as (i) the regulation of virtual currency and initial coin offerings (ICOs), along with coordinated policy development and regulatory approaches done in conjunction with the SEC and CFTC; (ii) examination and supervision efforts designed to “proactively mitigate potential illicit finance risks associated with virtual currency”; (iii) anti-money laundering/countering the financing of terrorism (AML/CFT) regulatory compliance expectations for companies involved in ICOs or virtual currency transmissions; (iv) enforcement actions taken against companies that fail to implement effective programs; (v) the rise and importance of virtual currency suspicious activity report filings which help the agency identify and investigate illicit activity; and (vi) the development of an information sharing virtual currency-focused FinCEN Exchange program. Blanco emphasized that “individuals and entities engaged in the business of accepting and transmitting physical currency or convertible virtual currency from one person to another or to another location are money transmitters subject to the requirements” of the Bank Secrecy Act.
7th Circuit says inspection company that left door hangers is not a debt collector
On August 10, the U.S. Court of Appeals for the 7th Circuit affirmed a lower court’s ruling that a company (defendant) that performed inspections for a mortgage servicer is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA) and was not liable for claims brought by a putative class of homeowners. According to the opinion, the defendant entered into a contract with the mortgage servicer to perform inspections to determine whether properties were still occupied for homes with defaulted mortgage payments of 45 days or more if the servicer was unable to contact the homeowner directly. When performing the inspections, the defendants left door hangers on the plaintiffs’ properties containing instructions to contact the mortgage servicer, which the plaintiffs claimed violated the FDCPA's disclosure requirements, including the requirement to disclose the creditor’s name, the amount owed, and that the debtor can dispute the debt. However, the lower court ruled—and the appellate court affirmed—that the defendant was not a “debt collector” for purposes of the FDCPA. The court found that the activities did not constitute direct debt collection because the door hangers did not demand payment and did not reference the underlying debt. The court also held that the defendant was not engaged in “indirect” debt collection, agreeing with the characterization of the lower court that the activities were more akin to those of a “messenger” than those of an “indirect” debt collector.
HUD releases ANPR on Affirmatively Furthering Fair Housing regulations
On August 13, HUD announced an advance notice of proposed rulemaking (ANPR) seeking comment on potential amendments to its 2015 Affirmatively Furthering Fair Housing (AFFH) regulations. As previously covered by InfoBytes, AFFH was aimed at helping communities who receive HUD funding meet their fair housing obligations to provide affordable housing in more communities; however, HUD now states that the rule “proved ineffective, highly prescriptive, and effectively discouraged the production of affordable housing.” The ANPR requests public comment on changes that will, among other things, (i) minimize regulatory burden; (ii) create a process focused on accomplishing positive results; (iii) provide for greater local control; (iv) encourage actions that will increase housing choice; and (v) efficiently utilize HUD resources. The ANPR also details a list of substantive questions HUD is interested in commenters responding to, including “[w]hat type of community participation and consultation should program participants undertake in fulfilling their AFFH obligations?” and “[h]ow should HUD evaluate the AFFH efforts of program participants?” Comments on the ANPR must be received by October 15.
CFPB Succession: Bureau reportedly no longer examining for MLA compliance
According to reports citing “internal agency documents,” acting Director of the CFPB Mick Mulvaney intends to cease supervisory examinations of the Military Lending Act (MLA), contending the law does not explicitly prescribe the Bureau the authority to examine financial institutions for compliance with the MLA. In 2013, amendments to the MLA granted enforcement authority to the same agencies with administrative enforcement power under TILA, including the Bureau, but these amendments did not also provide these same agencies with the statutory authority to supervise institutions for compliance with the MLA. The Bureau currently includes the MLA in the statutory- and regulation-based procedures section of the Supervision and Examination Manual and has not released a formal statement in response to reports of this supervisory change.
Federal Reserve Board fines national bank $8.6 million for legacy mortgage documentation deficiencies
On August 10, the Federal Reserve Board (Board) announced a settlement with a national bank for legacy mortgage servicing issues related to the improper preparation and notarization of lost note affidavits. Under the consent order, the Board assessed an $8.6 million civil money penalty for alleged safety and soundness violations under Section 8 of the Federal Deposit Insurance Act. The Board emphasized that the bank’s servicing subsidiary replaced the documents with properly executed and notarized affidavits and, as of September 2017, the subsidiary no longer participated in the mortgage servicing business. The Board also announced the termination, due to “sustainable improvements,” of a 2011 enforcement action against the national bank and its subsidiary related to residential mortgage loan servicing.