On July 21, a leading China-based bank agreed to address deficiencies in connection with the BSA/AML risk management and compliance program of its New York branch office. The Agreement, entered into with the Federal Reserve Bank of New York and the New York State Department of Financial Services, requires the bank and its New York branch to (i) enhance the branch’s written BSA/AML compliance program and customer due diligence program; and (ii) develop a written program for the branch that is capable of identifying and reporting suspected violations of law and suspicious transactions to law enforcement and supervisory authorities. In addition, the bank must hire an independent third-party to review the Branch’s U.S. dollar clearing transaction activity “to determine whether suspicious activity involving high-risk customers or transactions at, by, or through the branch was properly identified and reported” to the appropriate federal banking authorities. No civil money penalty was imposed on the bank.
NMLS Updates Resource Center: Encourages Public to Submit Comments on Proposed Changes; Responds to Public Comments
On July 21, the Nationwide Mortgage Licensing System (NMLS) updated its resource center to encourage the public to submit further comments – via the Conference of State Bank Supervisors – on certain proposed changes to the Uniform NMLS Licensing Forms and the Mortgage Call Report. The proposed changes to the licensing forms include, but are not limited to: (i) adding a Filing Comment section to the Company Form (MU1) and the Branch Form (MU3); (ii) expanding the Business Activities section by adding “Reverse Mortgage Lending,” “Reverse Mortgage Brokering,” and “Reverse Mortgage Servicing” as available selections; (iii) expanding the Contact Employees section by adding “Annual/Call Report” as an available selection under Area(s) of Responsibility; and (iv) updating language in the Disclosure Questions section. If implemented, changes to the Mortgage Call Report (“MCR”) would include: (i) adding fields that allow for more accurate reporting on Qualified Mortgage standards; (ii) adding an upload option within the Loans Serviced section; and (iii) exploring the “development of a dynamic MCR based on a company’s business activities and license authority.” Comments on the proposals are due August 20.
Also on July 21, the NMLS posted to its resource center responses to the public’s comments regarding the Pre-Licensure Education Expiration Policy, Electronic Surety Bond Tracking, and the Uniform NMLS Licensing Forms and Mortgage Call Report. Feedback received on the initial proposed changes to the Licensing Forms and MCR prompted the additional comment period for the more targeted proposed changes described above.
On July 14, New York Attorney General Eric Schneiderman announced two settlements with auto dealers over allegedly deceptive advertising practices. The first settlement was reached with a White Plains-based auto dealer that allegedly misled consumers by promoting, in its print and online ads, illusory sale and lease prices by including “discounts or rebates that were not available to most consumers, and thus, did not represent the actual sale or lease prices.” According to the Attorney General, rebates or discounts offered to “military” or “college graduates” were among the deceptive advertisements used by the auto dealer. An investigation by the AG’s Office revealed that the dealership would only make the rebates or discounts available to certain military personnel and recent college graduates. In addition to failing to comply with the Attorney General’s Advertising Guidelines for Automobile Dealers, the Attorney General alleged that the ads used footnotes and asterisks that contradicted or materially modified the principal message of the advertisements. The dealership will pay $32,500 to the state and has agreed to reform its advertising practices.
In a separate action, the Attorney General announced a settlement resolving allegations that 22 dealerships “persistently defrauded consumers with misleading promotions and fraudulent sales tactics.” According to the Attorney General’s office, the dealers’ advertisements included certain game cards that led consumers to believe that they would be guaranteed winners of certain items – such as cash, a free vehicle, or an Apple iPad – if they received a winning ticket containing three matching symbols. However, virtually none of the consumers won a prize when they brought in their winning tickets to the dealers. In addition to misleading game cards, the dealers were alleged to have charged unauthorized fees for vehicle maintenance plans that had not been requested by purchasers and to have upcharged the retail sales price on cars to effectively nullify discounts offered to consumers. Under the terms of the settlement agreement, the dealers will pay $310,000 in penalties and restitution.
Rhode Island Modifies its Fair Housing Practices Act to Include Military Status Under Discrimination Protections
On July 9, Governor Raimondo signed S.0241, which amends the Rhode Island Fair Housing Practices Act to include discrimination based on a person’s military status as a prohibited and unlawful housing and credit granting practice. Protected classes now include veterans with an honorable discharge (or an honorable or general administrative discharge), and active servicemembers in the Armed Forces. The amendments are effective immediately.
NY Governor Says Two Additional Mortgage Companies Will Adopt Set of Best Practices to Combat “Zombie Properties”
On July 9, in an ongoing fight to reduce the amount of “zombie properties” within the state, Governor Cuomo announced that two additional mortgage companies will adopt the New York Department of Financial Services (NYDFS) recommended Industry Best Practices, aiming to help combat the economic damage that vacant and abandoned properties cause certain neighborhoods. The Practices ensure that banks and mortgage companies will regularly inspect properties in a delinquent status to determine if they are vacant, and if they are properly maintained and safe. If a property is determined vacant, banks and mortgage companies will report the property to a state registry, ensuring that NYDFS shares the information with local government officials. Local government officials and the NYDFS will then work together to “address and escalate any concerns about maintenance with the bank or mortgage company that is servicing the loan.” Governor Cuomo’s announcement resonates with Superintendent Lawsky’s May 22 remarks concerning NYDFS’s effort to reform the state’s lengthy foreclosure process, which leaves properties in despair and causes economic blight and safety issues. With the two additional companies joining the state’s efforts against zombie properties, lenders representing nearly 70 percent of the New York mortgage lending market have now agreed to adopt the set of best practices.
On July 6, Governor Maggie Hassan (D-NH) signed into law Senate Bill 119/Chapter 207 to regulate the offering of GAP waivers. The act also amends the terms of Consumer Guarantee Contracts to limit the consumer’s ability to bring an action in a court of law. The act is effective September 4, 2015.
Minnesota Passes Legislation to Exclude Guaranteed Asset Protection Waiver Policies from Insurance Definition
On June 13, Governor Mark Dayton (D-MN) signed into law H.F. 3/Chapter 1, which, in part, excludes Guaranteed Asset Protection (GAP) waiver policies from the definition of insurance. Effective August 1, the act specifies that the GAP waiver statute will not apply to certain insurance law requirements, including those relating to: (i) commercial deals; (ii) a debt cancellation or debt suspension contract; and (iii) credit life, credit accident and health, and credit involuntary unemployment. The act also allows for GAP waivers to be sold for either a single payment or as a monthly periodic payment. Finally, the act includes certain GAP waiver disclosures, such as cancellation of the GAP waiver by the borrower within the free look period, which is no less than 30 days.
NAAG Urging Congress to Refrain From Passing Federal Data Breach Legislation Preempting State Authority
On July 7, as Congress considers proposed legislation on data breach notification and security, the National Association of Attorneys General (NAAG) sent a letter to leaders of both houses of Congress urging them to refrain from passing federal data breach and identity theft laws that would preempt states’ authority to enforce their own legislation, or pass legislation that exceeds federal standards. The 47 state attorneys general argued that “preempting state law would make consumers less protected than they are right now” because (i) states are closer to people affected consumers and can better respond to their concerns; (ii) states are “better equipped to quickly adjust to the challenges presented by a data-driven economy”; (iii) although helpful for a national data breach, a single federal agency would be unable to “respond effectively” to the large number of smaller data breaches that “have a large impact in a particular state or region”; and (iv) “with the increasing speed rate of technological developments,” states need the ability to surpass minimal and continually obsolete federal requirements. Accordingly, the state attorneys general asserted it was “crucial” that they “maintain their enforcement authority under their states’ laws, and that any legislation be tailored to ensure complementary enforcement authority.”
On June 24, the New York State Register published the Department of Financial Services’ BitLicense framework, requiring companies and individuals who provide virtual currency services involving New York or a New York Resident to apply for a BitLicense by August 10, 2015. Virtual currency firms must submit the 31-page application providing information including, among other things, (i) written policies and procedures including, but not limited to BSA/AML, cybersecurity, privacy and information security, (ii) company information, (iii) biographical information on company directors and stockholders, and (iv) an explanation of the methodology used to calculate the value of virtual currency in fiat currency. In addition, the NYDFS released a set of FAQs to help clarify the BitLicense requirements.
New York AG Announces Nearly $14 Million Agreement with Local Auto Dealers Over Deceptive Sales Practices, Plans to Sue an Additional 11 Auto Dealerships
On June 17, New York Attorney General Eric Schneiderman announced an approximate $14 million agreement with three jointly-owned auto dealers in connection with the alleged unlawful sale of add-on products, such as credit repair and identity-theft prevention services. According to the AG, the auto dealers failed to disclose the costs and fees of many “after-sale” items to consumers, in some instances resulting in the addition of $2,000 to the purchase or leasing price of a vehicle. Furthermore, the AG contends that the dealers concealed that they were charging consumers for the add-on services, or misrepresented that the services were free of charge. Under the terms of the settlement agreement, the auto dealers must, among other things, (i) pay more than $13.5 million in restitution to affected consumers and (ii) pay $325,000 in penalties, fees, and costs to New York State. In addition to the settlement announcement, AG Schneiderman made public that his office has served notices of intent to file suits against an additional eleven dealerships for allegedly engaging in similar practices.
Nevada Assembly Passes Legislation Relating to Mortgage Lending and Servicing Regulation, Licensing and Fees
On June 9, Governor Brian Sandoval (R-NV) signed into law AB 480, which revises existing law concerning the licensing and regulation of escrow agents and escrow agencies. The law also authorizes a wholesale lender from outside the state to operate in Nevada as a mortgage broker or mortgage banker, and increase fees related to those roles. Further, the bill requires the Commissioner of Mortgage Lending to prescribe by regulation the requirements for licensing, regulation and discipline of mortgage servicers. Specific sections of the bill – 101.3, 101.7, and 103 – are effective immediately, while others become effective January 1, 2016.
Illinois AG Madigan Announces $1 Million Settlement Regarding Company’s Management of Foreclosed Properties
On June 3, Illinois AG Madigan announced a $1 million settlement with an Ohio-based company that mortgage lenders hire to manage properties throughout the foreclosure process and ensure that the properties retain their value. The settlement resolves a 2013 lawsuit by Madigan that alleged that the company wrongly deemed homes vacant, and instructed its contractors to shut off utilities, change the properties’ locks and illegally remove residents’ personal belongings even though they actively remained in their homes. Under the settlement, the company agreed to overhaul its business practices by using objective standards to ensure that homes are vacant, such as: (i) requiring its inspectors to support their inspections with photographs and an affidavit; (ii) posting notice to the occupant that the property has been deemed vacant; (iii) not misrepresenting the occupants’ rights to stay in their home, even if they are behind on their mortgage payments and in foreclosure; (iv) increasing its oversight and quality control of its subcontractors; (v) providing consumers with access to a 24-hour hotline for submitting complaints; and (vi) unless the company obtains a court order, not removing any personal property prior to foreclosure.
In addition to the $1 million agreement, which will be paid in restitution to consumers who filed complaints with respect to the company’s business practices, the company agreed to adhere to ongoing monitoring by Madigan’s office to ensure compliance with the settlement.
South Carolina Passes Legislation to Create the Guaranteed Asset Protection Act, Effective Immediately
On June 1, Governor Nikki Haley (R-SC) signed into law Senate Bill 441, enacting the Guaranteed Asset Protection Act and instituting a framework under which guaranteed asset protection (GAP) waivers may be offered in South Carolina. As outlined in SB 441, a GAP waiver is “a contractual agreement in which a creditor agrees for a separate charge to cancel or waive all or part of amounts due on a borrower’s finance agreement in the event of a total physical damage loss or unrecovered theft of the motor vehicle.” Effective June 5, SB 441 prohibits the creditor from conditioning the terms of an extension of credit upon the borrower’s purchase of a GAP waiver and requires the creditor to disclose the terms of the GAP waiver “in easily understandable language,” including the purchase price, the procedures for obtaining GAP waiver benefits, and a statement that the purchase of a GAP waiver is optional.
On June 3, New York’s departing superintendent of financial services, Benjamin Lawsky, revealed that the agency has adopted final regulations of the BitLicense, the regulatory framework in which digital currency firms operate within the state. In prepared remarks delivered at the BITS Emerging Payments Forum in Washington, D.C., Lawsky announced that the final BitLicense – which has undergone two previous updates – contains key consumer protection, AML compliance, and cybersecurity requirements. Moreover, Lawsky advised of the latest changes, and provided guidance clarifying that (i) firms that wish to obtain both a BitLicense and a money transmitter license will not have to submit separate applications, if they can satisfy the requirements for both; (ii) firms filing suspicious activity reports (SARS) with federal regulators, such as FinCEN, will not have to file a duplicate set of SARS with the state; (iii) firms must obtain prior approval for changes to their products or business models; (iv) firms will not require prior approval from the regulator for each round of venture capital funding, unless the investor seeks to oversee the company’s management and policies. Lawsky also clarified that the DFS intends to regulate only financial intermediaries who hold customer funds, rather than software developers who specifically focus on developing software, and do not hold customer funds.
On May 27, Nevada Governor Brian Sandoval signed into law S.B. 242, enacting the Payday Lender Best Practices Act. The legislation requires payday and similar lenders to use various specified best practices – advocated by the Community Financial Services Association of America – to strengthen consumer protections and promote responsible lending. The Act applies to any lender licensed within the state who operates a deferred deposit loan service, high-interest loan service, or title loan service. In addition to requiring lenders to fully comply with federal TILA disclosure requirements, the Act mandates lenders must also, among other things, (i) disclose to and provide borrowers with the option to enter into a repayment plan if the borrower is unable to pay; (ii) include a notice on marketing materials and advertisements advising borrowers that the loan should be used for short-term financial needs, and that borrowers with credit impairments should seek credit counseling; and (iii) report violations of Nevada’s short-term loan law to the state’s Financial Institutions Division.