InfoBytesBlog by BuckleySandler

CFPB Announces RESPA Action against Homebuilder

BuckleySandler — Mon, 20 May 2013 13:15:20 +0000

On May 17, the CFPB announced an enforcement action against a homebuilder the CFPB alleges violated Section 8(a) of RESPA through joint venture arrangements. According to the CFPB, the homebuilder created two joint ventures, one with a state bank and the other with a nonbank mortgage company. The CFPB consent order alleges the homebuilder referred mortgage customers to the joint ventures in exchange for payments from those ventures, and that such payments violate RESPA’s prohibition on the acceptance of any fee, kickback, or thing of value in exchange for referral of customers for real estate settlement services. The homebuilder did not admit to the allegations, but agreed to disgorge over $100,000 and cease from performing any real estate settlement services, including mortgage origination. The CFPB investigation resulted from an FDIC referral. That agency issued an enforcement action in June 2012 against the state bank for related alleged activities.

Federal Reserve Board, Illinois Regulator Issue Joint Enforcement Action Against U.S. Subsidiaries of Foreign Bank, OCC Issues Parallel Action

BuckleySandler — Mon, 20 May 2013 13:14:22 +0000

On May 17, the Federal Reserve Board released an April 29, 2013 written agreement between the Federal Reserve Board, an Illinois state regulator, a foreign bank, and its U.S. bank holding company subsidiary (the Holding Company) regarding certain Bank Secrecy Act/Anti-Money Laundering (BSA/AML) deficiencies at the foreign bank’s Chicago branch (the Branch) and an OCC regulated subsidiary of the Holding Company. The OCC took parallel action on the same date against the Holding Company’s Chicago bank subsidiary. The Federal Reserve Board agreement requires that the Holding Company conduct a comprehensive review of its BSA/AML compliance program within 60 days, and within 90 days submit a report of its findings and recommendations, a written enhanced program, and a written plan to strengthen board oversight. Also within 90 days, the Branch must submit a written plan to improve its BSA/AML compliance, and the foreign bank, the Holding Company, and the Branch must submit an enhanced customer due diligence program. The OCC agreement requires that the Chicago bank’s board establish a compliance committee and within 90 days submit a compliance action plan. Within 30 days, the bank’s board must review its current engagement with an independent consultant, and within 90 days (i) develop a staffing plan for its internal BSA compliance department, (ii) conduct an MIS assessment, (iii) develop customer due diligence controls, and (iv) develop written suspicious activity policies and procedures. Both agreements require quarterly reporting, and neither includes a monetary penalty.

CFPB Clarifies 2013 Escrow Rule, Publishes Final List of Rural and Underserved Counties

BuckleySandler — Mon, 20 May 2013 13:12:55 +0000

On May 16, the CFPB issued a final rule clarifying its January 2013 final rule on escrow account requirements for first-lien higher-priced mortgage loans (HPMLs). The January 2013 rule expands existing escrow requirements for such loans and creates a new exemption for small creditors that operate predominantly in rural or underserved areas. The clarifying rule adopts the rule clarifications as proposed. The clarifying rule explains how a county’s rural and underserved status may be determined based on currently applicable Urban Influence Codes established by the Department of Agriculture, or based on HMDA data, and provides illustrations to facilitate compliance. With the clarifying rule, the CFPB posted on its website a final list of rural and underserved counties, for use with mortgages closed from June 1, 2013 through December 31, 2013. The list is identical to the preliminary list posted in March. Finally, the clarifying rule (i) notes that the final escrow rule inadvertently removed existing language that provided certain protections related to a consumer’s ability to repay and prepayment penalties for HPMLs, and (ii) establishes a temporary provision to ensure the removed protections remain in effect until the expanded HPML protections take effect on January 10, 2014.

CFPB Debuts Mortgage Rule Videos, Spanish Language Website

BuckleySandler — Mon, 20 May 2013 13:09:57 +0000

On May 15, the CFPB announced a YouTube playlist, which includes seven videos that provide information about the mortgage rules the CFPB published earlier this year. The CFPB stated that the purpose of the videos is to provide an overview of the rules in a plain language format for use by a broad array of industry constituents, but cautioned that the videos are not a substitute for the rules themselves. Also on May 15, the CFPB announced a Spanish language website, with mobile capability, that provides access to CFPB resources, including information about how to submit a consumer complaint and answers to consumers’ frequently asked questions.

Third Circuit Joins DC Circuit in Invalidating NLRB Recess Appointment

BuckleySandler — Mon, 20 May 2013 13:06:51 +0000

On May 16, the U.S. Court of Appeals for the Third Circuit held that an appointment to the National Labor Relations Board (NLRB) made by President Obama in March 2010 during a purported Senate recess was unconstitutional and vacated orders of the NLRB as constituted with the improperly appointed member. NLRB v. New Vista Nursing & Rehab., No. 11-3440, 2013 WL 2099742 (3rd Cir. May 16, 2013). The NLRB member appointment at issue in this case precedes the appointments at issue in Noel Canning, which appointments were made during the same pro forma Senate session in which President Obama appointed CFPB Director Richard Cordray. The D.C. Circuit’s opinion invalidating those appointments currently is on appeal to the Supreme Court. Here, as explained in the majority opinion and as in Noel Canning, the central question is the meaning of “the Recess of the Senate.” The court concluded that “the Recess of the Senate” in the Recess Appointments Clause refers to only intersession breaks, held that the NLRB panel lacked the requisite number of members to exercise its authority because one panel member was invalidly appointed during an intrasession break, and vacated the Board‘s orders. In a dissenting opinion, one judge argued that the majority holding undoes an appointments process that has successfully operated for over 220 years, and the court instead should have held that “the Recess” refers to both intrasession and intersession recesses because the Senate can be unavailable to provide advice and consent during both. The Third Circuit did not address whether the President may only fill vacancies that arise or begin during such intersession recesses, as opposed to vacancies that happen to exist during such recesses.

New York State Trial Courts Issue Opposing Opinions on MBS Claims Statute of Limitations

BuckleySandler — Mon, 20 May 2013 13:05:41 +0000

This week, two New York trial court justices issued diverging opinions on when the statute of limitations begins to run on claims related to the repurchase obligations of securitizers under certain MBS pooling and servicing agreements. Both courts explained that under New York law a cause of action for a breach of contract accrues at the time of the breach, and that the statute of limitations for breach of contract is six years. But the courts diverged on the question of whether the clock for claims related to repurchase obligations begins to run from the date the representations for the allegedly faulty mortgages are made, or when the securitizer fails to meet its obligations to repurchase such loans. In one case, the court held that the clock on claims by trustees that the securitizer breached its contract by failing to repurchase began to run on the date the representations were made, i.e. the date the pooling and servicing agreement closed, and dismissed the trustee’s suit because it was filed more than six years after the closing date. Nomura Asset Acceptance Corp. Alt. Loan Trust, Series 2005-S4 v. Nomura Credit & Capital Inc., No. 653541/2011, slip op. (N.Y. Sup. Ct. May 10, 2013). In a second case, the court held the opposite: the statute of limitations did not begin to run until the securitizers improperly rejected the trustee’s repurchase demand, i.e. the breach is the failure to comply, not the date of the representation. Ace Securities Corp, Home Equity Loan Trust Series 2006-SL2 v. DB Structured Prods., Inc., No. 650980/2012, 2013 WL 1981345 (N.Y. Sup. Court, May 13, 2013). Based on that holding, the court found the complaint timely filed and denied the securitizer’s motion to dismiss.

Senator Warren Pushes Federal Authorities on Bank Prosecutions

BuckleySandler — Mon, 20 May 2013 13:04:36 +0000

On May 14, Senator Elizabeth Warren (D-MA) sent a letter to Federal Reserve Board Chairman Ben Bernanke, Attorney General Eric Holder, and SEC Chairman Mary Jo White seeking additional information about the agencies’ respective approach to enforcement actions. Specifically, the letter asks whether the agencies have conducted any internal research or analysis on trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation to obtain an admission. The letter notes that the OCC recently informed Ms. Warren that it does not have any such internal research or analysis and reiterates Ms. Warren’s concern that “if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial . . . the regulator has a lot less leverage in settlement negotiations.

Florida Amends Judicial Foreclosure Procedures

BuckleySandler — Mon, 20 May 2013 13:03:19 +0000

On May 9, the Supreme Court of Florida adopted amendments to the state’s civil procedure rules governing judicial foreclosures. The amendments authorize referral of residential mortgage foreclosure cases to general magistrates based on implied consent of the parties, while providing an opportunity for objection by the parties. The amendments also allow the chief judge of each judicial circuit to appoint the number of general magistrates needed to expeditiously preside over residential foreclosure actions. The appointed magistrates must be members of the Florida Bar, but are not required to give bond or surety, as otherwise required by the rule.

California Federal District Court Reinstates Order in Overdraft Class Action

BuckleySandler — Mon, 20 May 2013 12:58:02 +0000

On May 14, the U.S. District Court for the Northern District of California reinstated a prior order enjoining a national bank from engaging in false or misleading representations relating to certain overdraft practices and requiring the bank to pay approximately $203 million in restitution. Gutierrez v. Wells Fargo Bank, N.A., No. 07-05923, 2013 WL 2048030 (C.D. Cal. May 14, 2013). After trial the district court enjoined the bank’s practice of ordering withdrawals from “high-to-low” and ordered the restitution for a class of bank customers who alleged that the bank’s ordering practice was designed to maximize the number of customer overdrafts and related fees and, as such, violated the California Unfair Competition Law (UCL). In December 2012, the U.S. Court of Appeals for the Ninth Circuit vacated the trial court’s order, holding that (i) the bank’s ordering practice is a pricing decision the bank can pursue under federal law, (ii) the National Bank Act preempts the unfair business practices prong of the UCL, and (iii) both the imposition of affirmative disclosure requirements and liability based on failure to disclose are preempted. The appeals court preserved the customers’ claim of affirmative misrepresentations under the fraud prong of the UCL. On remand, the district court held that even though, after the Ninth Circuit’s holding, liability cannot be predicated on the posting method, the result is the same because the harm from the bank’s affirmative misrepresentations is the same. The court explained that it is not penalizing the bank for a federally protected practice, but rather because it violated the fraud prong of the UCL by affirmatively misleading customers about the practice. Further, although the Ninth Circuit order prohibits injunctive relief that requires the bank to use a specific system of posting or make specific disclosures, the court enjoined the bank from making or disseminating any false or misleading representations relating to the posting order of debit card purchases, checks, and ACH transactions.

FTC Submits Financial Acts Enforcement Letter to CFPB

BuckleySandler — Mon, 20 May 2013 12:46:40 +0000

On May 14, the FTC released a letter it sent to the CFPB’s assistant directors for fair lending and supervision examinations describing activities related to the FTC’s administration and enforcement of the regulations implementing ECOA, EFTA, TILA, and the Consumer Leasing Act. The annual letter reviews the FTC’s post-Dodd-Frank Act responsibilities with regard to these regulations and reports on enforcement actions taken with regard to each. For example, with regard to TILA, the letter reviews FTC enforcement actions involving non-mortgage credit advertisements, mortgage lending advertisements, and forensic audit scams, and describes the FTC’s rulemaking and policy work related to the CFPB’s mortgage rules and in the area of mobile payments.