CFPB and FTC Announce Settlement with National Mortgage Servicing Company

On April 21, the CFPB and the FTC announced a joint enforcement action against a national mortgage servicing company, ordering the company to pay roughly $63 million in relief and penalties for allegedly mishandling home loans for borrowers who were trying to avoid foreclosure. Both regulators allege that from 2010 to 2014, the servicing company failed to honor modifications made to loans it acquired from other firms. According to the complaint, the company allegedly insisted that homeowners make the higher monthly payments and also make payments before providing loss mitigation options. Moreover, the CFPB and FTC claim the company illegally harassed borrowers who fell behind, made false threats, and revealed debts to the borrowers’ employers. The servicing company will pay $48 million in relief to eligible homeowners and a $15 million civil money penalty to the CFPB.

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CFPB Tackles Payment Processor for Charging Servicemembers Hidden Fees, Orders Over $3 Million in Consumer Relief

On April 20, the CFPB announced an enforcement action against a Kentucky-based third-party processor of military allotments and its subsidiary – together “Respondents” – for allegedly charging servicemembers millions of dollars in hidden fees. According to the Bureau, servicemembers set up allotment arrangements with the Respondents, and the Respondents were to pay creditors – auto lenders, installment lenders, and retail merchants – on behalf of deployed servicemembers. The Bureau alleges that from 2010 to 2014, the company violated UDAAP provisions of the Consumer Financial Protection Act by failing to (i) adequately disclose information about various fees associated with the Respondents’ services; and (ii) inform servicemembers when they were being charged residual-balance fees. The consent order requires that the Respondents pay approximately $3.1 million in relief to the affected servicemembers.

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FHFA: G-Fees to Remain at Current Levels

On April 17, FHFA released the results of its Fannie Mae and Freddie Mac Guarantee Fee Review. The FHFA’s review considered the public responses to its June 2014 request for input, and according to the agency’s fact sheet, sought to reach a balance of (i) ensuring the safety and soundness of Fannie Mae and Freddie Mac; and (ii) fostering a liquid national housing market. Because the analysis of the fees showed that “the current average level of guarantee fees appropriately reflects the current costs and risks associated with providing [Fannie and Freddie’s] credit guarantee,” the agency will make only minor adjustments to the fees and does not expect the changes to impact Fannie and Freddie’s loan volume. The fee adjustments will fall into two categories: (i) elimination of the 25 basis point upfront adverse market charge; and (ii) addition of small fee increases for certain loans with risk-layering attributes, such as loans with secondary financing or investment properties.

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FHFA Announces Fannie and Freddie’s Revised Requirements for Private Mortgage Insurances Companies

On April 17, the FHFA announced that Fannie and Freddie have revised the requirements for private mortgage insurance companies insuring mortgage loans that Fannie and Freddie either own or guarantee. By setting financial and operational standards for the mortgage insurers seeking approval with Fannie and Freddie, the new requirements are designed to reduce risk to the GSEs. The new requirements are effective immediately for new applicants and will become effective December 31, 2015 for existing insurers already approved by Fannie and Freddie.

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DOJ and International Investment Bank Enter Into Plea Agreement to Resolve LIBOR Manipulation Claims, Bank Agrees to Pay $2.5 Billion Penalty

On April 23, the DOJ announced that an international investment bank and its subsidiary agreed to plead guilty to wire fraud for its alleged conduct, spanning from 2003 through 2011, in manipulating the London Interbank Offered Rate (LIBOR), which is used to set interest rates on various financial products. In addition, the DOJ announced that the bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust claims for manipulating both the U.S. Dollar LIBOR and Yen LIBOR. Under terms of the agreement, the $2.5 billion in penalties will be divided among U.S. and U.K. authorities – $800 million to the Commodity Futures Trading Commission, $775 million to the DOJ, $600 million to the New York Department Financial Services, and roughly $340 million to the U.K.’s Financial Conduct Authority. The authorities also ordered the bank to install an independent compliance monitor.

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Former Export-Import Bank Loan Officer Pleads Guilty to DOJ Charges of Accepting Bribes

The DOJ released a statement regarding a plea agreement made with a former loan officer of the Export-Import Bank. According to the DOJ, the former loan officer accepted bribes totaling over $78,000 in exchange for providing favorable action on loan applications. From June 2006 through December 2013, the former loan officer managed the review of credit underwriting for companies and lenders submitting financing applications to the Export-Import Bank and admitted to recommending the approval of unqualified loan applicants on 19 different occasions. In addition, the former loan officer also pleaded guilty to improperly expediting the process of certain applications. The sentencing hearing is scheduled for July 20, 2015.

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U.S. Senate Confirms Lynch As Next Attorney General

On April 23, the U.S. Senate confirmed Loretta Lynch to be the next U.S. Attorney General with a 56-43 majority vote, succeeding current Attorney General Eric Holder. With the confirmation, Lynch, who currently serves as the U.S. Attorney for the Eastern District of New York, becomes the first African-American woman to lead the DOJ.

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SEC Announces Whistleblower Award to Compliance Officer, Over $1 Million Dollars

On April 22, the SEC announced an award of more than $1 million to a compliance officer for providing the agency with information on the company’s misconduct. The Dodd-Frank Act whistleblower regime is designed to encourage employees to submit evidence of securities fraud. When sanctions of a successful enforcement action exceed $1 million, the program allows for up to 30 percent of the money collected to be provided to the whistleblower. Since the program began in 2011, 16 whistleblowers have received upwards of $50 million from an investor protection fund, which was established by Congress and is financed through the monetary sanctions the SEC receives from securities law violators.

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Tennessee Enacts Legislation Requiring Payment Service Providers to Provide Adequate Disclosures to Merchants

On April 17, the Tennessee Governor Bill Haslem signed H.B. 547, which requires the disclosure of fees and other details in contracts entered into by payment service providers with merchants located within the state. The legislation requires the payment service providers to provide merchants with information detailing where the merchant can obtain access to operating rules, regulations, and bylaws under the agreement. In addition, the law requires payment service providers to disclose (i) the effective date of the agreement; (ii) terms of the agreement; (iii) any provisions relating to early termination or cancellation of the agreement; and (iv) a full schedule of all payment services fees with respect to the credit card, debit card, or other payment services under the agreement. The law also requires payment service providers to supply merchants with a monthly statement of fees, total value of transactions, and in some cases the aggregate fee percentage.

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U.S. Files Complaint Against Leading Non-Bank Mortgage Lender For Alleged Improper Underwriting Practices on FHA-Insured Loans After Lender Files Suit Against U.S. Alleging Arbitrary and Capricious Investigation Practices

On April 17, Quicken Loans filed a preemptive lawsuit against the DOJ and HUD in the Eastern District of Michigan against HUD, the HUD-IG, and DOJ, asserting that it “appears to be one of the targets (due to its large size) of a political agenda under which the DOJ is “investigating” and pressuring large, high-profile lenders into paying nine- and ten-figure sums and publicly ‘admitting’ wrongdoing, including conceding that the lenders had made ‘false claims’ and violated the False Claims Act.” Specifically, the complaint alleged that HUD, the HUD-IG, and DOJ retroactively changed the process for evaluating FHA loans, from an individual assessment of a loan’s compliance, taking into account a borrower’s individual situation, the unique nature of each property, and the specific underwriting guidelines in effect, to a sampling method which extrapolates any defects found in a small subset of loans across the entire loan population, contrary to HUD’s prior guidance and in violation of the Administrative Procedures Act. The complaint further alleged that the sampling method used by the government was flawed, and asked for declaratory and injunctive relief against the government’s use of sampling. Quicken also asked the court to rule that the FHA loans it made between 2007-2011 in fact were “originated properly in accordance with the applicable FHA guidelines and program requirements, and pose no undue risk to the FHA insurance fund,” asserting that “HUD reviewed a number of these loans and, except in a few rare instances, either concluded the loans met all FHA guidelines or that any issues were immaterial or had been cured.” Read more…

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Tenth Circuit Court of Appeals Dismisses Failed Bank Shareholder Derivative Suit under FIRREA

On April 21, the United States Court of Appeals for the Tenth Circuit upheld the dismissal of a bank shareholders’ suit against a bank holding company – and its officers and directors – for breach of fiduciary duty. Barnes v. Harris, No. 14-4002 WL 1786861 (10th Cir. Apr. 24, 2015) The shareholders had filed a derivative suit in 2012 against the officers and directors of the bank holding company after the bank failed in 2010 and was placed into FDIC receivership.  The FDIC filed a motion to intervene in the suit, which was granted.  Upon a bank’s failure, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) states the FDIC owns “all rights, titles, powers, and privileges of the [bank], and any stockholder … of such [bank] with respect to the [bank] and the assets of the [bank].” The applicability of FIRREA to a derivative suit against a failed bank’s holding company in this court was a question of first impression and the Tenth Circuit agreed with the Fourth, Seventh, and Eleventh Circuits who have all concluded FIRREA gives the FDIC sole ownership of shareholder derivative claims and state law must be used to determine if the claims are derivative.  In this case, though the shareholders were alleging harm to the holding company, all of that harm was due to the failure of the bank, which was the holding company’s only asset.  The claims were found to be derivative, with the exception of a poorly pleaded fraud complaint that belonged solely to the holding company, and the district court’s dismissal of all claims was affirmed.

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Financial Conduct Authority Fines U.S. Bank Subsidiary $19.8 Million for Reporting Failures

On April 22, the Financial Conduct Authority (FCA) fined a subsidiary of U.S.-based bank approximately £13 million ($19.8 million) for (i) improperly reporting more than 35 million various client transactions, ranging from the identity of counterparties to the trading times of such transactions; and (ii) failing to report an additional 121,000 transactions over a seven-year period. According to the final notice issued by the FCA, many of the reporting issues were self-reported to the British regulator.

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CFPB and Navajo Nation Partner in UDAAP Action Against Companies Involved in Alleged Tax Refund Scheme

On April 14, the CFPB along with the Navajo Nation jointly announced an enforcement action against two companies and their respective owners (Defendants) for running an alleged tax-refund scheme, marking the CFPB’s “first enforcement action taken in conjunction with a tribal government.” According to the complaint, the Defendants operated several tax-refund franchises in New Mexico and in the Navajo Nation territory in which clients were offered short-term, triple-digit APR loans secured by the consumer’s anticipated tax refund, also known as refund anticipation loans (“RALs”). The CFPB and Navajo Nation contend, among other things, that the Defendants (i) steered low-income and vulnerable consumers toward high-cost RALs; (ii) understated the APR of the RALs in disclosure agreements to consumers; and (iii) failed “to disclose that consumers’ tax refunds had been received and would soon be available, but instead persuaded consumers to take out additional RALs.” Under the terms of the proposed consent order, the Defendants would, among other things, (i) pay approximately $438,000 in total consumer redress, which consists of $256,267 in redress fees in addition to roughly $184,000 that has already been paid to affected consumers; (ii) incur $438,000 in civil money penalties; and (iii) be barred, for five years, from offering products associated with tax refunds. The consent order also would prohibit the Defendants from investing, financing, or working for an entity that offers tax refund products.

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CFPB Issues Guidance on Housing Counselor Requirement

On April 15, the CFPB issued an interpretive rule clarifying requirements for providing a list of housing counselors to mortgage borrowers, as required under the Bureau’s 2013 Home Ownership and Equity Protection Act final rule. Among other things, the interpretive rule expounds upon how to provide applicants living abroad with homeownership counseling lists, permissible geolocation tools, conditions under which the homeownership counseling list may be combined with other disclosures, and determining which of the borrower’s addresses (e.g. current address, mailing address, or the address of the property securing the mortgage) should serve as the loan applicant’s location for purposes of generating the list. In addition to clarifying counselor qualifications for high-cost mortgage counseling and parameters, the interpretive rule also provides guidance regarding lender participation during the borrower’s housing counseling sessions to ensure that counselor independence and impartiality is preserved and to prevent violation of anti-steering provisions.

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CFPB Grants Credit Card Issuers One-Year Suspension From Filing Card Agreements

On April 15, the CFPB issued a final rule temporarily suspending credit card issuers’ obligation to submit their card agreements to the CFPB, as required by the Credit Card Accontability, Responsibility, and Disclosure Act (CARD Act). The CARD Act, as implemented by TILA and Reg. Z (12 C.F.R. 1026.58), requires credit card issuers to submit credit card agreements to the Bureau on a quarterly basis. The first submission was set to be the first business day on or after April 30, 2015, but under the one-year reprieve, credit card issuers will not be required to begin submitting credit card agreements to the Bureau until April 30, 2016. According to the CFPB, during the temporary suspension, the regulator will “work to develop a more streamlined and automated electronic submission system.” The CFPB contends that the new system will allow for easier submission of credit card agreements than the manual submission system currently in place. Other requirements in Section 1026.58, including the requirement that credit card issuers post their credit card agreements on their own public website, remain unaffected by the temporary suspension.

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