FDIC Updates Flood Insurance Videos

On March 10, the FDIC issued FIL-18-2016 announcing updates to technical assistance videos on flood insurance. The FDIC’s videos “reflect changes in federal flood insurance laws, including changes regarding escrowing of flood insurance premiums and fees, insuring detached structures, and force-placed insurance.” The updated flood insurance series includes five separate videos: (i) Overview and Key Requirements; (ii) Building an Effective Compliance Management System; (iii) Common Violations and Consequences for Noncompliance; (iv) Frequently Asked Questions; and (v) Review and Resources. As highlighted in the letter, “the FDIC continues to emphasize to institutions the importance of managing compliance risk associated with making loans in areas having special flood hazards.”

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Bank Settles with DOJ for $81.6 Million for Failing to Timely File Payment Change Notices for Homeowners in Bankruptcy

On November 5, the DOJ announced a proposed settlement with a bank for allegedly violating bankruptcy rules by not providing homeowners with required notices that would have allowed them to challenge the accuracy of increased mortgage rates. According to the DOJ, the bank acknowledged that, from December 1, 2011 to March 31, 2015, it failed to (i) file payment change notices (PCNs) 21 days before adjusting a debtor’s monthly mortgage payment, as required by federal regulations; and (ii) perform timely escrow analyses. Under the settlement, the bank will be required to pay over $80 million in restitution to homeowners in bankruptcy that were affected by its actions and will be required to update its internal procedures to prevent further violations, including improving its employee training and its quality control processes to ensure that PCNs are filed within the appropriate timeframe. The settlement was filed in the U.S. Bankruptcy Court for the District of Maryland and is subject to court approval.

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POSTED IN: Federal Issues, Mortgages

DOJ Reaches Settlement with National Bank Over Bankruptcy Practices

On March 3, the DOJ’s U.S. Trustee Program announced a $50 million settlement with a national bank to resolve allegations that the bank engaged in improper actions during bankruptcy proceedings. Under the terms of the settlement, the bank will provide relief in the form of cash payments, mortgage loan credits, and loan forgiveness to over 25,000 homeowners who are, or were, in bankruptcy. Additionally, the bank will acknowledge that (i) the bank’s former employees and the employees of an outside vendor improperly signed more than 50,000 payment change notices filed in bankruptcy courts around the country; (ii) the bank failed to file timely, accurate payment change notices; and (iii) the bank failed to provide timely, accurate escrow statements. The bank further will agree to enhance its technology, policies, procedures, internal controls and other oversight systems. Finally, the parties will agree to engage an independent reviewer to confirm the bank’s adherence to the terms of the settlement. The settlement is pending court approval.

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POSTED IN: Banking, Federal Issues

FinCEN Issues Five Rulings On Application Of BSA Regulations To Certain Activities

On April 29, FinCEN issued five rulings in response to companies who sought clarification regarding whether their company is a money service business under the BSA. In FIN-2014-R006, FinCEN determined that a company that operates an online real-time deposit, settlement, and payment services platform for banks, businesses, and consumers is considered a money transmitter, not a provider of prepaid access, and should be registered as a money services business under BSA regulations. In two other rulings—FIN-2014-R004 and FIN-2014-R005— FinCEN clarified the exemption from the money transmitter definition for persons that accept and transmit funds “only integral to the sale of goods or the provision of services, other than money transmission services.” FinCEN determined that the escrow services at issue in FIN-2014-R004 and the transaction management services at issue in FIN-2014-R005 fit within that exemption because the acceptance and transmission of funds in these cases is not a separate and discrete service in addition to the underlying service, but instead is a necessary and integral part of the service itself. Therefore, these companies are not considered to be money transmitters subject to registration. FinCEN determined in FIN-2014-R007 that a company that rents computer systems used to mine virtual currencies is not a money transmitter. Finally, in FIN-2014-R008, FinCEN determined that although the company, which uses armored cars to facilitate the exchange of coins and cash, does not qualify for the “armored car” exemption in the money transmitter definition, it is still not considered a money transmitter. FinCEN stated that the transportation of currency and/or coin of certain denominations from the company’s vault to the customer’s location and the return transportation of currency and/or coin in the exact amount of the change provided to the company’s own vault does not constitute the acceptance of value from one person and the transportation of such value to another person or location.

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C.D. Cal. Limits Scope Of RESPA Kickback Safe Harbor For “Services Actually Performed”

On April 29, the U.S. District Court for the Central District of California held that RESPA’s preclusion of liability for otherwise illegal kickbacks based on “services actually performed” relates only to “settlement services” as defined in RESPA, and not to some broader set of services. Henson v. Fidelity Nat’l Fin. Inc., No. 14-cv-01240, 2014 WL 1682005 (C.D. Cal. Apr. 29, 2014). Last month in the same case, the court held that the overnight delivery services provided by certain delivery companies to a parent company of various escrow companies were “settlement services” under RESPA and concluded that the borrowers had pleaded facts sufficient to establish that the defendant parent company may have violated RESPA by accepting marketing fees from certain delivery companies in exchange for “referring”—via its escrow subsidiaries—overnight delivery business to those delivery companies. The defendant then moved for judgment on the pleadings, asserting that its subsidiary performed actual services in exchange for the marketing fees it received from the delivery companies, and therefore was not liable under RESPA. The court held that although the relevant RESPA section uses only the general term “services” and not the specific phrase “settlement services” used elsewhere in the statue, “Congress would have vitiated RESPA’s purposes by permitting kickbacks as long as the recipient performed any service—even if the service bore no relationship to a real-estate settlement.” The court held that Congress clearly intended to provide a safe harbor only with regard to “settlement services.” In this case, the court held that issues of fact persist as to whether the services performed were settlement services and denied the motion for judgment on the pleadings.

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