On August 31, Grovetta Gardineer, the OCC’s Deputy Comptroller for Compliance Operations and Policy, delivered remarks at the Association of Military Bankers of America annual workshop in Leesburg, VA. Throughout her presentation, Gardineer highlighted issues affecting financial institutions focused primarily on lending to servicemembers. Gardineer discussed the OCC’s ongoing efforts to identify and correct deficiencies within bank and thrift compliance practices and noted improved Servicemembers Civil Relief Act (“SCRA”) compliance by regulated institutions. Specifically, Gardineer observed that in 2014, the OCC cited sixty-five SCRA violations among large, midsized, and community institutions. For the first quarter of 2015, however, Gardineer reported that OCC examiners cited only seven SCRA violations. Gardineer also referenced recent amendments to the Military Lending Act (“MLA”) which expanded consumer protections to both open-end and closed-end consumer credit for servicemembers; she emphasized that banks should be proactive in updating their internal policies and procedures to reflect the MLA’s changes. Reiterating the OCC’s commitment to cybersecurity, Gardineer advised that OCC examiners intend to use the cybersecurity assessment tool “to supplement exam work to gain a more complete understanding of an institution’s inherent risk, risk management practices, and controls related to cybersecurity.” Finally, Gardineer discussed innovation within the industry, such as the emergence of various mobile payments transfer systems and peer-to-peer lending. She stressed that the OCC intends to facilitate a responsible regulatory environment that will encourage innovative financial products and services while also implementing regulations to ensure adequate consumer protections.
With recent changes in the regulations implementing the Military Lending Act (“MLA”), creditors are now reevaluating their compliance plans to ensure they are prepared for the new regulations. Although there is no formal guidance on what federal regulators will look for in reviewing MLA compliance, the commentary that accompanied both the proposed and final rule gives some insight as to where regulators will focus examination and enforcement resources. Below, we discuss some of these likely areas of focus, and offer suggestions for how institutions can prepare for regulatory scrutiny.
Determining military service and MLA safe harbor provisions
The MLA only applies to a “covered borrower,” which is either a servicemember (as defined under the MLA) or a servicemember’s dependent. The MLA provides two safe harbors to determine if a consumer is a covered borrower: (1) a set of results from the DoD’s MLA database, or (2) a military status indicator in a consumer report.
Although both of these approaches are optional—and a creditor may use a different method to determine if an individual is eligible for MLA protection—they provide several benefits. They are both determinative, so even if the borrower is in fact a servicemember a safe harbor check that shows otherwise will govern. Both checks can also be done without
inconveniencing the consumer or requiring them to attest to their military status.
However, these safe harbor approaches are only effective if the results are actually retained by the creditor. Since military status checks must be performed at origination, we recommend that the results of these checks be retained with the origination documents. Not only does the outcome of the military status check determine the substantive terms of the actual credit obligation, but by keeping all of these documents together, a creditor can ensure that they have all of the governing origination documents are in a single, secure location. Read more…
On July 7, the CFPB released a report detailing the continued challenges military servicemembers experience related to the servicing of their student loans, particularly when trying to invoke certain rights granted under the Servicemembers Civil Relief Act (SCRA). This report follows the CFPB’s May announcement seeking public comment on student loan servicing practices related to servicemembers. Based on over 1,300 complaints received, the report details how both private and federal student loan servicers continue to make mistakes handling servicemembers’ student loan repayments, leading to wrongful denial of legal benefits and negative credit reporting for military families. Specifically, the report highlights servicemembers’ difficulties in (i) obtaining the SCRA’s 6-percent interest rate cap; (ii) receiving adequate information or having requests properly processed, especially regarding deferment plans (leading to unwarranted delinquencies, defaults, and debt collections); and (iii) discharging the debts of severely injured veterans or the families of deceased servicemembers.
On May 29, the OCC entered into a consent order with a national bank to resolve allegations that it (i) violated the SCRA; (ii) engaged in unsafe and unsound practices in its efforts to comply with the SCRA; and (iii) engaged in unsafe and unsound practices in regards to its sworn document and collections litigation practices. The OCC claimed that the bank did not comply with the SCRA by failing to: (i) maintain effective policies and procedures; (ii) devote adequate financial, staffing and managerial resources to guarantee the SCRA compliance process was properly administered; and (iii) provide sufficient internal controls, compliance risk management, internal audit, third party management, and training related to its SCRA compliance process. In relation to the sworn document and collections litigation process, the OCC asserted that the bank’s deficiencies in its enterprise compliance risk management function resulted in unsafe and unsound practices, including failure to ensure that affidavits filed in court followed proper notary procedures. Under the terms of the consent order for a civil money penalty, the OCC will collect $30,000,000 from the bank.
On May 26, the Department of Education announced the release of reports on its reviews of four major federal student loan servicers, which were conducted to ensure that the servicers adhered to federal law concerning loan interest rates for active-duty servicemembers. Specifically, the Department aspired to determine whether eligible borrowers of eligible Family Federal Education Loans (FFEL) and Direct Loans received the benefit of the 6 percent interest rate cap provided by the SCRA in accordance with applicable statutes and the Department’s regulations and guidance. The reviews considered servicemembers’ SCRA eligibility between 2009 and 2014, and showed that “in less than 1 percent of cases, borrowers were incorrectly denied the 6 percent interest rate cap required by the laws.” In addition to these reviews, the Department will be “expanding its review of compliance with the SCRA and HEA to the Department’s seven non-profit servicers as well as commercial [FFEL] servicers,” with completion expected later this year. The Department’s reviews follow a May 2014 DOJ settlement with one of the four student loan servicers.
On May 15, a San Diego-based storage company entered into a consent order with the DOJ to settle claims that the company’s practice of auctioning off active duty servicemembers’ stored belongings violated the Servicemembers Civil Relief Act (SCRA). As part of the settlement, the storage company will: (i) pay $170,000 in damages to those servicemembers whose stored belongings it sold without obtaining a court order; (ii) implement new SCRA policies and procedures, which are to be approved by the government; and (iii) ensure that those employees who are involved with the enforcement of storage liens receive government approved SCRA training annually.
On May 4, Indiana Governor Michael Pence signed H.B. 1456 into law, amending the state’s civil relief act to include protections for servicemembers under the federal Servicemembers Civil Relief Act (SCRA). The legislation also requires the Indiana National Guard provide both active and reserve members a list that details the rights a servicemember or a dependent of a servicemember are entitled to under the state and federal SCRA. The law will take effect on July 1, 2015.
On April 13, the DOJ released its 2014 Annual Equal Credit Opportunity Act (ECOA) Report highlighting its activities to address credit discrimination. The twenty-page report highlights discrimination lawsuits and settlements in the automobile lending and credit card industry, as well as a consent order resulting from alleged discrimination on the basis of disability and the receipt of public assistance. It also includes information on the DOJ’s work under other federal fair lending laws including the Fair Housing Act (FHA) and the Servicemember Civil Relief Act (SCRA). According to Vanita Gupta, Acting Assistant AG for the Civil Rights Division, in the five years since the Fair Lending Unit was established, the Civil Rights Division has filed or resolved 37 lending matters under the ECOA, FHA, and SCRA. Total settlements in these matters, including enforcement actions from 2014, have resulted in over $1.2 billion in monetary relief for affected borrowers and communities.
On February 9, the DOJ announced a $123 million settlement with five national mortgage servicers for allegedly violating sections of the SCRA. Specifically, the DOJ alleges that the mortgage servicers subjected over 900 service members to unlawful non-judicial foreclosures between January 1, 2006 and April 4, 2012. Under the SCRA portion of the 2012 National Mortgage Settlement, the five mortgage servicers will reimburse millions of dollars to service members who should have been protected from foreclosure, as per Section 533 of the SCRA, which “prohibits non-judicial foreclosures against service members who are in military service or within the applicable post-service period, as long as they originated their mortgages before their period of military service began.” The mortgage servicers are cooperating with the Justice Department to compensate service members affected by the alleged non-judicial foreclosures.
On January 15, an Army Reserve sergeant filed a class action suit against a large national bank for allegedly violating the SCRA limitation on a lender’s ability to foreclose on an active duty service member’s property. According to the complaint, the bank violated the law by foreclosing on the plaintiff’s home and seizing personal property while the sergeant was on active duty. Wensel et al v. The Bank of New York, No 2:15-cv-00068, (W.D. Penn. Jan. 15, 2015)
On December 18, after passing unanimously in both houses of Congress, President Obama signed into law S.3008, the Foreclosure Relief and Extension for Servicemembers Act of 2014. Previously, the SCRA’s protection for servicemembers against foreclosure for one year after the end of active duty was set to expire at the end of 2014. The Act extends this protection until the end of 2015, at which point the foreclosure protection is scheduled to revert to the period of active duty plus 90 days that was in effect in 2008.
On December 3, the ABA sent a letter to HUD’s General Deputy Assistant Secretary for the Office of Housing requesting guidance on the use of form HUD-92070 under the Servicemembers Civil Relief Act. HUD Form 92070 relates to the debt protections servicemembers receive under the SCRA. However, the most current version of the form expired on November 30, 2014. The letter seeks guidance regarding (i) compliance requirements now that the form has expired; and (ii) how to provide an accurate notice to servicemembers since the current form will be inaccurate effective January 1, 2015. Finally, the letter requests that HUD advise lenders as to how they should remain in compliance with the Congressional mandate until a new form is published.
On November 25, 2014, the U.S. District Court for the Eastern District of Michigan applied the state’s three-year statute of limitations for conversion in granting a motion to dismiss a servicemember’s claims of wrongful foreclosure and eviction under the SCRA. Johnson v. MERS, Inc., No. 14-CV-10921, 2014 WL 6678951 (E.D. Mich. Nov. 25, 2014). The plaintiffs argued that, because the SCRA does not explicitly provide its own limitations period within which a suit must be brought, there was no limit for SCRA-based claims; however, the court rejected this argument. Following Supreme Court precedent, the court looked to the most analogous state law and applied its limitations period to the plaintiffs’ SCRA claim. The court considered, and ultimately rejected, plaintiffs’ argument to apply Michigan’s unlimited limitations period for egregious acts under the state’s criminal law. Similarly, the court held that both the ten-year limitations period for breach of contract and the six-year catch-all limitations period did not apply. Ultimately the court concluded that Michigan’s three-year statute of limitations for civil conversion claims was the most analogous to plaintiffs’ SCRA claims. As a result, plaintiffs’ claims were dismissed as time-barred.
BuckleySandler LLP is pleased to announce the availability of the 2015 edition of the “Consumer Financial Services Answer Book,” published by the Practising Law Institute. Twenty-one BuckleySandler attorneys contributed to 12 chapters in this leading desk reference, which uses an easy question and answer format to address matters involving consumer financial services law. BuckleySandler Partner Richard Gottlieb also served as lead editor, a role he has held since publication of the first annual edition in 2011.
The 2015 edition of this publication continues to provide practitioners with a core understanding of the laws governing consumer financial services, addressing the latest developments in Consumer Financial Services Bureau (CFPB) enforcement activities, regulations and guidelines, fair lending, auto lending, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), among others.
New chapters in the 2015 edition address:
- Credit Cards
- Electronic Records and eSignatures
- Short-Term Lending
- Unfair and Deceptive Acts and Practices (UDAAP)
- Servicemembers Civil Relief Act (SCRA)
- Telemarketing and the Telephone Consumer Protection Act (TCPA)
From compliance counseling to enforcement, BuckleySandler has been handling precedent-setting CFPB matters since the Bureau was established in 2011 — experiences which enabled its attorneys to contribute the added insight and advice on current and emerging CFPB developments, trends, and expectations for the Answer Book.
The Consumer Financial Services Answer Book is for sale in hard copy format by the Practising Law Institute at www.pli.edu.
On August 26, the Obama Administration announced a new partnership with residential mortgage servicers designed to enhance protections under the Servicemember Civil Relief Act (SCRA). Speaking to the American Legion convention in Charlotte, North Carolina, President Obama observed that under the SCRA, service members and veterans are entitled to certain protections and benefits “but the burden is on them to ask for it and prove they’re eligible.” Under the new partnership, mortgage servicers will proactively identify eligible consumers and inform them of their rights and benefits under the law. Participating servicers will identify eligible participants by regularly checking their servicing portfolios against the Defense Manpower Data Center searchable database of military personnel. The initiative also aims to simplify the process for enrolling and satisfying the SCRA written notice requirements. The announcement was made as part of a White House effort to bolster services for service members, veterans, and their families.