On March 29, the United Kingdom’s Financial Services Authority (FSA) published the findings of its thematic review into anti-bribery and corruption systems and controls in U.K.-based investment banks. The FSA review also looked at related topics including (i) gift-giving practices and controls, (ii) staff recruitment and vetting, (iii) training, and (iv) incident reporting. The FSA report concludes that the U.K. investment banking sector has been too slow and reactive in managing bribery and corruption risk, and that substantial work remains. In response, the FSA published proposed revisions to its regulatory guide, “Financial crime: a guide for firms.” The FSA proposes to update Chapters 2 and 6 of Part 1 of the guide, with new guidance and examples of good and poor practice drawn from the report findings. The FSA also proposes to include a new Chapter 13 in Part 2 of the guide, which will consolidate all examples of good and poor practice highlighted in the thematic review. Stakeholders can submit comments on the proposed revisions through April 29, 2012.
Join Us! 2012 Fair Lending Today Conference on Compliance, Regulatory and Litigation Issues and the CFPB in Today’s Changing Enforcement Environment, hosted by BuckleySandler LLP.
2012 Panel Topics Include:
- Overview: A New Agency Emerges
- The Justice Department and Fair Lending: Disparate Impact Escapes Potential Elimination in Magner
- Mortgage Servicing Developments: The AG/DOJ Settlement, the CFPB, and Ongoing Enforcement
- Anatomy of a CFPB Enforcement Action
- The CFPB’s Fair Lending Agenda for Auto, Private Student Lenders, and Non-Secured Lending
- New CFPB Enforcement Priorities for Credit Cards
- Fair and Responsible Banking Risk Management Update
When: Monday, April 30, 2012
Where: The Fairmont Hotel inWashington, DC
Registration required. This conference is open to all financial services companies and others subject to CFPB oversight. Please no outside law firms, government agency personnel, consultant firms or media. For more information visit http://www.fairlendingtoday.com/ or contact firstname.lastname@example.org.
On March 28, the U.S. Supreme Court ruled 5-3 that the Privacy Act of 1974, which regulates how federal agencies handle personal information, does not unequivocally authorize damages for mental or emotional distress. Cooper v. FAA, No. 10-1024, 2012 WL 1019969 (U.S. Mar. 28, 2012). In this case, an airline pilot sued the Federal Aviation Administration (FAA) and other federal agencies for impermissibly exchanging information about his HIV status in connection with a criminal investigation. The pilot claimed to suffer emotional and mental distress due to the disclosure. The U.S. Court of Appeals for the Ninth Circuit held that the term “actual damages” in the Privacy Act is not ambiguous and includes damages for mental and emotional distress. The Supreme Court reversed, holding, as the district court originally held, that the term is ambiguous and therefore does not waive the government’s sovereign immunity from liability for nonpecuniary damages. The narrow ruling only directly impacts actions under the Privacy Act, and the court notes that “actual damages” can mean different things in different contexts. As such, the holding does not invalidate prior lower court rulings that “actual damages” under other statutes, including the Fair Credit Reporting Act and the Fair Housing Act, can include damages for emotional or mental distress.
On March 16, Indiana Governor Mitch Daniels signed House Bill 1238, which includes provisions allowing a mortgage creditor to file a petition to have a state court determine whether a property is abandoned. The bill also sets forth criteria and procedures for use by the court in making its determination. A finding from the court that a property is abandoned allows for an expedited foreclosure process.
Recently, Indiana enacted Senate Bill 298. The new law provides that if a mortgage or vendor’s lien does not show the due date of the last installment, the mortgage or lien expires 10 years after the date of execution of the mortgage or lien instead of 20 years under the current law. The bill makes exceptions to the expiration period if a foreclosure action is brought prior to the expiration. It also provides for civil actions concerning an omitted party’s interest in a property and sets forth factors that the court must consider in determining any rights of redemption. Lastly, the bill provides that: (i) the senior lien on which the foreclosure action was based is not extinguished by merger with the title to the property conveyed to a purchaser at the judicial sale until the interest of any omitted party has been terminated; and (ii) until an omitted party’s interest is terminated, the purchaser at the judicial sale is the equitable owner of the senior lien.
On March 15, West Virginia enacted House Bill 3177, which will permit the owner of a residential rental property purchased at foreclosure to terminate an existing tenancy after giving the tenant 90 days notice, or not less than 30 days notice before the expiration of the lease, whichever is shorter. Tenants with month-to-month leases need only be provided with 30 days notice. The law details the content and method of delivery for the notices. The new provisions take effect January 1, 2013.
On March 21, Wisconsin enacted Senate Bill 307 relating to foreclosures on abandoned properties. Under the new law, the redemption period for abandoned property is reduced from two months to five weeks from the date a judgment of foreclosure is entered. The length of time that a sheriff must publish the notice of a sale in a newspaper is reduced from six successive weeks to three successive weeks before the sale. The law also (i) adds a new provision that provides that in addition to the parties to an action to enforce a mortgage lien, a representative of the municipality where the property is located may also provide evidence or testimony to the court as to whether the property has been abandoned and (ii) delineates the specific factors a court must consider in determining whether a property is abandoned. The changes take effect April 5, 2012.
On March 23, Freddie Mac issued a reminder that on April 23, 2012, the selling system will be updated to reflect Uniform Loan Delivery Dataset named fields and layout. To assist sellers and provide information as to what is changing in the system, Freddie Mac issued a job aid identifying, among other things, (i) what to do before the system conversion, (ii) changes to export functionality, and (iii) expectations for historical data conversion.
Recently, Utah enacted several bills to amend the state’s mortgage licensing and servicing requirements, and to support enforcement of mortgage fraud. On March 19, the state enacted House Bill 191, the majority of which takes effect May 8, 2012. The bill makes numerous adjustments to the state’s mortgage and real estate practices and licensing statutes, including revisions to certain definitions, licensing and renewal requirements, prohibited conduct, and record keeping and reporting requirements. House Bill 164, enacted on March 19, establishes new servicing requirements, including (i) requiring servicers to appoint a single contact person for residential properties in default and establishing responsibilities for the contact person, (ii) requiring notice to a default trustor before a notice of default is filed, and (iii) allowing a default trustor to seek foreclosure relief. Enacted on March 22, House Bill 280, extends for two years, through the end of 2014, an existing provision requiring a notice for residential rental property that is being foreclosed. Also enacted on March 22 was Senate Bill 281. That bill creates a mortgage and financial fraud unit within the state’s Attorney General’s office. Beginning July 1, 2012, the Attorney General’s office will have a $2 million appropriation to establish the new unit to work with other state and local agencies to prevent, investigate, and prosecute mortgage and other financial fraud.
On March 28, the Inspector General (IG) for the Federal Housing Finance Agency (FHFA) published a white paper that provides a general assessment of the FHFA’s conservatorship of Fannie Mae and Freddie Mac (the enterprises). The report provides background on the FHFA’s oversight regime noting that it has evolved from one that strictly supervised the enterprises’ activities, to one that allows more operational decision-making at the enterprise level. The IG argues that the FHFA should assume a more active role in managing the enterprises and specifically notes that the FHFA (i) does not independently test and validate enterprise decision-making and (ii) is not sufficiently proactive in its oversight and enforcement of enterprise activity. The white paper acknowledges the significant challenges that the FHFA faces in its mission and provides a discussion of the tensions presented by FHFA’s dual role as conservator and regulator.
On March 29, the U.S. Senate confirmed President Obama’s three nominees for the FDIC Board of Directors: Martin Gruenberg, Thomas Hoenig, and Jeremiah Norton. However, the Senate did not confirm Mr. Gruenberg as Chair of the FDIC or Mr. Hoenig as the Vice Chair. Instead, Mr. Gruenberg will continue to serve as Vice Chair and will lead the board in an acting capacity. Thomas Curry was confirmed to serve as Comptroller of the Currency. As such, he will also sit on the FDIC Board, as he has in an independent position since 2004. The Senate also confirmed (i) Maurice Jones to be the Deputy Secretary of the Department of Housing and Urban Development, (ii) Christy Romero as Special Inspector General for the Troubled Asset Relief Program, (iii) Mary John Miller to serve as the Under Secretary for Domestic Finance at the U.S. Treasury Department, and (iv) Jon Leibowitz to another seven year term as Federal Trade Commission Chairman. Two nominees to the Federal Reserve Board, Jerome Powell and Jeremy Stein, remain pending in the Senate.
On March 26, the U.S. Department of Justice (DOJ) announced it had reached a settlement with a medical device company to resolve allegations that the company and its subsidiaries made improper payments in violation of the Foreign Corrupt Practices Act (FCPA). DOJ alleges that Biomet, its subsidiaries, employees, and agents made illegal payments to publicly-employed health care providers in Argentina, Brazil, and China in exchange for business with certain hospitals in those countries and then falsely recorded the payments on its books to conceal the true nature of the payments. The deferred prosecution agreement requires Biomet (i) to pay a $17.28 million criminal penalty, (ii) to implement a robust compliance program and internal controls, and (iii) to retain an outside compliance monitor for 18 months. Separately, Biomet agreed to disgorge $5.4 million of profits and interest to resolve parallel civil charges brought by the SEC.
On March 26, the Federal Reserve Board, the FDIC, and the OCC proposed revisions to the interagency leveraged finance guidance issued in 2001. Leveraged finance transactions are characterized by a borrower with a degree of financial or cash flow leverage that significantly exceeds industry norms as measured by various debt, cash flow, or other ratios. According to the agencies, the guidance needs to be revised given increasing leveraged lending volumes, deteriorating underwriting practices, limited protection of debt agreements, aggressive capital structures and repayment prospects, and less than satisfactory management information systems. Specifically, the agencies believe that the guidance should be updated to refocus attention on the following five key areas: (i) establishing a sound risk-management framework, (ii) underwriting standards, (iii) valuation standards, (iv) pipeline management, and (v) reporting and analytics. The agencies are accepting comments on the proposed guidance through June 8, 2012.
On March 26, the FTC released an anticipated report on consumer privacy, calling on all companies to adopt certain practices to protect consumers’ private information. The final report outlines three basic principles: (i) “privacy by design”, (ii) simplified choice, and (iii) increased transparency. Though the report and recommended practices do not carry the force of law, the FTC encourages adoption of the recommendations to support innovation and commerce while improving consumer protection. The report also serves as a blueprint for what the FTC is seeking in federal privacy legislation. Pending congressional action, the FTC will continue to employ its existing enforcement authority to address unfair or deceptive practices, including practices that violate self-regulatory programs. Further, the FTC intends to support implementation of the framework by focusing on several substantive topics and stakeholder groups, including (i) do not track, (ii) mobile services, (iii) data brokers, (iv) large platform providers, and (v) industry codes of conduct. For example, the FTC will focus on mobile services by updating guidance about online advertising disclosures, including holding a workshop on model mobile disclosures on May 30, 2012. It also calls on mobile service providers to establish industry standards that address data collection, transfer, use, and disposal, particularly for location data.
The CFPB announced today that it recently filed an amicus brief in the U.S. Court of Appeals for the Tenth Circuit in a case involving the Truth in Lending Act (TILA) right to rescind a transaction, Rosenfield v. HSBC Bank, No. 10-1442 (10th Cir.). The CFPB argued that borrowers who do not receive the material disclosures required by TILA can rescind the transaction as long as they notify the lender of the cancellation within three years of consummation, even if they do not file suit within the three-year period. The CFPB urged the Tenth Circuit to reject the view of the majority of courts that the borrower must both notify the lender and file suit within three years. Citing both the statute and the CFPB’s implementing Regulation Z, the CFPB argued that the holding in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), that the right to rescind expires completely after three years, simply means that “consumers [must] exercise their rescission right by providing notice to their lender within three years of obtaining the loan,” and that consumers could file suit after three years if the lender failed to honor the rescission notice. As an indication of the Bureau’s intense interest in this issue, it noted that it plans to file amicus briefs on the same question in at least three other circuits in which briefing is still pending.
On March 21, Fannie Mae issued a notice reminding servicers that in processing a borrower request for a foreclosure prevention alternative evaluation, servicers may only request limited documentation from a borrower. Specifically, a servicer may only request (i) a completed Uniform Borrower Assistance Form (Form 710), (ii) income documentation as outlined in Form 710 based on income type, (iii) hardship documentation as outlined in Form 710 based on hardship type, and (iv) a Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower. Servicer requests for additional documentation are limited only to instances in which the servicer must reconcile inconsistencies in the documentation provided by the borrower, but such instances should be rare. Further, servicers may not request federal income tax returns unless the borrower is self-employed or the borrower has rental income, as outlined in Form 710.