Spotlight on Vendor Management: Mortgage Industry Continues To Bear Brunt of CFPB Regulatory Burdens

Moorari-Shah-webElizabeth-McGinn-webMortgage industry players have had to adapt quickly in recent years to the evolving regulatory environment, and the latest scramble for mortgage lenders includes the various downstream effects of pending rule changes set to take effect on August 1, 2015, related to disclosures required under the implementing regulations of the Truth-in-Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). A critical factor to successful implementation of this historic set of rule changes, known as the TILA-RESPA Integrated Disclosure (“TRID”) rule, is coordinating with various vendors to address new timing and information requirements for Loan Estimates and Closing Disclosures, which are creating project management nightmares for mortgage professionals growing weary of the regulatory onslaught of revised regulations and enforcement actions.

“Despite the relative speed with which many companies have adapted to various rule changes since the CFPB came online, there seems to be a new rule change waiting in the wings at almost every turn,” observed Elizabeth McGinn, Partner in the D.C. office of BuckleySandler. “To make matters worse, managing service providers through the changes has undoubtedly tested the strength of deep industry relationships that have been in place for decades.”

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Spotlight on Vendor Management: “Brother’s Keeper” Enforcement Pattern Becoming the Norm

Moorari-Shah-webElizabeth-McGinn-webTwo regulatory enforcement matters announced in April offer a view into the current mindset of regulators in the ever-evolving world of vendor management.  First, the Federal Communications Commission (FCC) announced a $25 million settlement with a telecommunications carrier related to the unauthorized release of personal information of more than a quarter-million customers.  The identified cause of the data breach were employees of the carrier’s service providers based in Mexico, Columbia, and the Philippines, who confessed to selling customer information to unauthorized third parties.  In holding the carrier responsible, the FCC issued its largest data security enforcement action to date.  Although severe in its punishment, the FCC action did not break new ground, as regulators have shown an increasing willingness in recent years to assess monetary penalties against supervised institutions for legal violations committed by vendors.

“This approach is entirely consistent with the FCC’s past enforcement actions related to data security breaches, as well as those of other regulatory bodies where consumer harm has resulted,” advises Elizabeth McGinn, Partner in the D.C. office of BuckleySandler.  “In the current environment, virtually every regulator has made accountability a fundamental axiom of its vendor management guidance.”    Read more…


Spotlight on Electronic Discovery: Challenges Presented by the Internet of Things

Tihomir-Yankov-webElizabeth-McGinn-web E-discovery is poised to enter a new revolution as the Internet of Things (“IoT”) continues its seemingly exponential growth. IoT is the ecosystem of interconnected sensory devices that perform coordinated, pre-programmed – and even learned – tasks without the need for continuous human input. Consider your fitness tracker that logs your sleep and physical activity, or sensors in your vehicle that track your driving habits on behalf of your auto insurance provider– all of these objects log and upload data about your body and habits into the cloud for analysis and use in automated tasks. All this data, projected to impact nearly every facet of industrialized society, has presented numerous preservation, collections, and analytical challenges for litigators navigating e-discovery in the world of the IoT. But despite these challenges, litigators can use technological and legal tools to effectively manage IoT discovery.

  1. It is true that IoT was not designed with e-discovery in mind, but neither was email or social media.

IoT data is generated by machines and usually transferred to the cloud rather than being stored on devices. This data storage process, which is largely automated, presents numerous preservation conundrums for litigators.

“Although innovation in e-discovery necessarily lags behind the innovation of the underlying technology, technology has always solved the problem that it had created. There’s no reason to believe the IoT experience will be materially different. But until that day arrives, courts should avail litigants of protections against disproportionate e-discovery efforts,” said Elizabeth McGinn, Partner in the DC office of BuckleySandler LLP. Read more…


Spotlight on Vendor Management: Interpreting CFPB Guidance and Enforcement Actions

Moorari-Shah-webElizabeth-McGinn-webIn April 2012, the Consumer Protection Financial Bureau issued Bulletin 2012-03, a guidance document setting forth the CFPB’s high-level expectations related to the engagement of third party service providers by supervised financial institutions. Since then, the Bureau has often referenced the Service Provider Bulletin in subsequent guidance and enforcement actions, but has not provided much in the way of detailed requirements for managing service providers. Despite the absence of strong guideposts, the CFPB has nonetheless sent unmistakable signals to highlight conduct which fails to meet the Bureau’s expectations on a variety of vendor relationship issues.

“The CFPB has voiced its dissatisfaction on a number of occasions with supervised entities that fail to perform adequate vendor oversight,” according to Elizabeth McGinn, Partner in the D.C. office of BuckleySandler. “In particular, nonbanks and service providers that are still coming up-to-speed on federal agency supervision and enforcement have to be alert and aware of important trends in recent enforcement actions that challenge outdated notions of vendor management.” Read more…


Spotlight: Q&A with BuckleySandler’s Douglas F. Gansler, Former Attorney General of Maryland

Doug-Gansler-webOn January 20, 2015, Douglas F. Gansler, former Attorney General of Maryland, joined BuckleySandler LLP as a Partner in the firm’s Washington, DC, office upon completion of his second term as Maryland Attorney General. An accomplished trial lawyer and appellate advocate with a unanimous victory before the U.S. Supreme Court, Doug’s in-depth knowledge and understanding of complex civil, criminal and enforcement matters will be, as firm Chairman Andrew L. Sandler recently noted, “an invaluable asset for firm clients in navigating the government enforcement challenges they confront on a daily basis.”

As he makes the transition to private practice, Doug is optimistic about the opportunities in front of him and is looking forward to getting to know his new colleagues and meeting with firm clients. He shares some added professional and personal insights for InfoBytes Spotlight. Read more…


Spotlight on Student Lending (Part 2 of 2): Lessons Learned from CFPB Reports

In 2012 and 2013, the Consumer Financial Protection Bureau released several major reports and held field hearings focused on private student lending and servicing. In addition to recent CFPB activity, on June 25, 2013, the Senate Banking Committee held a hearing regarding private student loans at which, among other witnesses, the CFPB’s Student Loan Ombudsman Rohit Chopra testified.

The largest CFPB report, and the one most sweeping in scope, was the Bureau’s study of the private student loan market and characteristics of private student loans that was mandated by Dodd-Frank and issued in July 2012 (Private Student Loans Report). In addition, in October 2012, the Student Loan Ombudsman issued his Annual Report in which, among other things, he characterized the nature of the student loan complaints received through the CFPB’s student loan complaint portal up to that point (Annual Report of the Student Loan Ombudsman). Further, on May 8, 2013, the CFPB issued another report and held a field hearing focused on what it described as the “potential domino effect” of student loan debt on the broader economy and proposing several options to assist private student loan borrowers. Finally, testimony at the above-referenced Senate Banking Committee hearing focused largely on how to increase the low refinancing and modification activity in the private student loan (PSL) market.  Read more…


Spotlight on Student Lending (Part 1 of 2): Facing Increased Regulatory Scrutiny, Student Loan Lenders Prepare for CFPB Examinations

Currently, total outstanding student debt (both federal loans and private loans) has risen to roughly $1.1 trillion dollars. That figure represents an over 50% increase since 2008 and makes student loans the largest source of unsecured consumer debt – surpassing credit cards. At the same time, at least with respect to federal student loans, delinquencies have risen sharply during the same time period and, with unemployment rates for recent graduates still high by historic standards, the risk of continued high delinquency rates remains significant. Complicating matters is that student loan servicers, and servicers of private student loans in particular, have limited ability vis-à-vis a mortgage lender to modify those loans for borrowers in default.

Not surprisingly, given this backdrop, borrowers have lodged complaints with the Consumer Financial Protection Bureau (CFPB or Bureau) focused on their inability to obtain loan modifications, concerns about improper payment processing, and concerns about servicers’ debt collection practices. All of these factors have prompted the Bureau to draw comparisons to the recent mortgage servicing crisis and to increase focus and attention on the student lending and servicing industry in an effort to stave off a problem of those proportions. Read more…


Spotlight: Q&A with BuckleySandler’s Benjamin K. Olson, Former Senior CFPB Regulations Official

Consumer Finance Attorney Ben OlsonOn May 28, 2013, Benjamin K. Olson, former Deputy Assistant Director for the Office of Regulations at the Consumer Financial Protection Bureau (CFPB), joined BuckleySandler LLP as Counsel in the firm’s Washington, DC office. A recognized expert in the field of consumer financial protection regulation, Ben brings his valuable insights and broad experience on regulatory matters based on his experience at the CFPB, the Board of Governors of the Federal Reserve System (FRB), and the Federal Trade Commission (FTC). As he makes the transition to private practice, he’s excited about what lies ahead and has fond memories of his past eight years in government service. He shares some added professional and personal insights in this week’s InfoBytes Spotlight.

InfoBytes: Why did you decide to join BuckleySandler?

Benjamin K. Olson: For a number of reasons, BuckleySandler was a natural fit and, at the end of the day, an easy choice.  First, it’s a leading firm in the financial services field with a talented and experienced team already in place.  I know all too well from my experience in government that the range of issues financial institutions face are far too complex for any one person to handle alone.  For that reason, it was important to me to join a group whose expertise could compliment my own. Read more…

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Spotlight on the SCRA (Part 3 of 3): Federal vs. State

SCRA Attorney Kirk JensenThus far SCRA enforcement activity has focused on the federal act, leaving the states overlooked. “Most states have an SCRA equivalent,” explains Kirk Jensen, Partner in BuckleySandler’s Washington, DC office. “One of the biggest differences is the populations they protect.”

State SCRA equivalents are designed to protect state guard members acting on behalf of the state; for example, when the state guard is called upon in the situation of Katrina, the wildfires, or the flooding in the Midwest. In each of the situations, the state’s SCRA equivalent would provide protections to servicemembers. Read more…


Spotlight on the SCRA (Part 2 of 3): Ensuring Compliance

SCRA Attorney Kirk JensenRecent enforcement activity has demonstrated the agencies have taken to viewing the SCRA as a strict liability statute. This shift in interpretation makes financial institutions legally responsible for compliance with the SCRA. According to Kirk Jensen, Partner in BuckleySandler’s Washington, DC office, “this is a big game changer in how financial institutions react to the SCRA.”

The Department of Justice has had some success in bringing litigation in these matters against the smaller, unsophisticated companies. However, it is important to note that the court is not hearing all the relevant arguments. There has been an uptick in private litigation and some of the issues raised in the enforcement matters may also be raised in court. It is our hope that the defendants will make the relevant arguments to resolve some of the outstanding issues. Read more…


Spotlight on the SCRA (Part 1 of 3): Increased Enforcement Activity

SCRA Attorney Kirk JensenThe Servicemembers Civil Relief Act (SCRA) is designed to provide protection for military members as they enter active duty. The Act has origins dating back to the Civil War, but was first solidified in 1940 with the passage of the Soldiers and Sailors Civil Relief Act (SSCRA). In 2003, the SSCRA underwent modernizations, but the intent and language remained intact, to become what is known today as the SCRA.

Following the 2009 financial crisis and the rising number of foreclosures, reports began surfacing about banks and other financial institutions violating the SCRA. The Department of Justice began actively pursuing actions against institutions with the Office of the Comptroller of the Currency becoming involved later. Read more…


Spotlight on Anti-Money Laundering (Part 3 of 3): SAR Reporting for RMLOs

AML Attorney Howard EisenhardtFor the first time, all non-bank residential mortgage lenders and originators (RMLOs) are required to file mandatory and voluntary Suspicious Activity Reports (SARs) with the government through the e-filing system established by FinCEN. Similar to the establishment of an AML program, compliance for this regulation is August 13, 2012.

A company may file a voluntary report with FinCEN to alert them of any suspicious transaction they have reason to believe is a possible violation of any law or regulation, without any de minimus amount. A company must file a SAR once they have become aware of a transaction that:

  • Is conducted or attempted by, at, or through a RMLO
  • Involves or aggregates funds or assets of at least $5,000
  • The RMLO knows, suspects, or has reason to suspect that the transaction or pattern of transactions:
    • Involves funds derived from illegal activity or conducted to hide funds or assets derived from illegal activity
    • Is designed to evade BSA requirements
    • Has no business or apparent lawful purpose, i.e., “doesn’t look right”
    • Involves the use of the company to facilitate criminal activity

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Spotlight on Anti-Money Laundering (Part 2 of 3): Establishing an AML Compliance Program at a Non-Bank Residential Mortgage Lenders and Originators

Howard Eisenhardt

As reported in Part 1 of this series, all non-bank residential mortgage lenders and originators (RMLOs) have until August 13, 2012 to establish an Anti-Money Laundering (AML) program as part of the new rule.

Howard Eisenhardt, Counsel in BuckleySandler’s Washington, DC office, cautions against simply attempting to use a bank model AML template. “Bank models are focused on cash, account monitoring, and include many things that are not part of the business model of an RMLO. In addition, there are many things peculiar to an RMLO that would not be present in the traditional depository AML program.  While some parts may be the same, the RMLO AML Program is not a ‘one size fits all.’ The bank model is like the proverbial square peg, the RMLO model is more like a round hole, and the two just don’t fit together,” explains Eisenhardt.

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Spotlight on Anti-Money Laundering (Part 1): New Regulatory Path Ahead for Non-Bank Residential Mortgage Lenders and Originators

Auto Finance Attorney John Redding

Ongoing concern among regulators, law enforcement, and Congress over abusive and fraudulent sales and financing practices in both the primary and secondary residential mortgage markets prompted the Financial Crimes Enforcement Network (FinCEN) to finalize a rulemaking process concerning regulation of non-bank residential mortgage lenders and originators (RMLOs) that started in 2003.

The Advance Notice of Proposed Rulemaking (ANPRM) issued by FinCEN in 2009 and the Notice of Proposed Rulemaking issued in 2010 were follow-ups to the 2003 APNR and resulted in the Final Rule being issued in 2012.  The Final Rule requires RMLOs – mostly non-bank mortgage lenders – to establish an Anti-Money Laundering (AML) program and to file Suspicious Activity Reports (SARs) as required by the Bank Secrecy Act (BSA).

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Spotlight on Auto Finance (Part 3 of 3): Expanded Coverage for Vehicle and Consumer Loans

Auto Finance Attorney John ReddingConsumers have a larger platform to submit complaints against vehicle and consumer finance companies directly to regulators. The CFPB has set up an online database that allows the CFPB to receive consumers’ complaints against their lenders and take action or transfer those complaints to another, appropriate regulator.

“We are advising our clients to be aware of this increased focus on individual complaints,” says John Redding, Counsel in BuckleySandler‘s Southern California office. “Because of this new database, companies need to be aware of their customer service response times and make each customer complaint a top priority.”

He suggests:

  1. Provide prompt responses to consumer complaints
  2. Work with consumers to resolve issues before they become complaints to the CFPB or other regulatory agencies
  3. Monitor social media outlets, but don’t overreact to comments or complaints and use care when considering any type of response

“Companies need to recognize that consumers have been given a new outlet that they have not had before,” says Redding. “Consumers now have a greater voice with the regulatory agencies and, as a result, lenders have to be aware of all issues raised by their customers.”

Regulators have made it clear that  they are closely reviewing  consumer complaints and that they are likely to have a  strong impact on regulatory actions.

“The CFPB is likely to focus on standards, like fairness and risk to consumers, as well as specific rules” says Redding. “The regulators are looking to address practices that may cause harm to consumers.”