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On September 27, the DOJ announced a settlement with a Washington state foreclosure services company resolving allegations that the company violated the Servicemembers Civil Relief Act (SCRA) by foreclosing on homes owned by servicemembers without first obtaining the required court orders. As previously covered by InfoBytes, in November 2017, the DOJ filed a complaint in the Western District of Washington alleging its investigation into the company’s practices uncovered at least 28 unlawful non-judicial foreclosures. The DOJ initiated the investigation following the same court’s dismissal of a private SCRA action brought by a veteran on the ground that it was time-barred.
Under the settlement, each affected servicemember may receive up to $125,000, with a total payout by the company of up to $750,000. The DOJ notes that the company ceased operations in December 2017 and was placed into receivership in March.
On September 19, the California governor signed AB 3212 that provides several benefits and protections to servicemembers under the state’s Military and Veterans Code. The legislation’s protections apply to members of the National Guard, State Military Reserve, and the Naval Militia called to full-time active state service or full-time active federal service, as well as other individuals called to full-time active duty for a period in excess of seven days in any 14-day period. Highlights of the amendments include:
- Extension of Interest Rate Protection. The legislation extends the prohibition on charging an interest rate in excess of six percent on any obligations bearing interest to 120 days after military service. The legislation also extends the six percent interest rate protection for student loans to one year after military service, which previously only applied to mortgage obligations.
- Written response for Good Faith Requests for Relief. The legislation requires that any person who receives a good faith request from a servicemember for relief and believes the servicemember is not entitled to the relief to provide, within 30 days of the request, a written response acknowledging the request. The written response must include (i) the basis for asserting that the request was incomplete or that the servicemember is not entitled to the relief; (ii) information/materials that are missing, if the servicemember’s request was deemed incomplete; and (iii) contact information. If the written response is not provided, the person waives any objection to the request, and the servicemember shall be entitled to the relief requested.
- Extension of the Default Judgment Protection. At any stage in any action or proceeding in which a servicemember is involved, the court may stay an action or proceeding during the period of military service or 120 days thereafter (previously 60 days).
- Inclusion of Motor Vehicles in the Lease Termination Protection. Existing state law allows for the termination of leases of premises that are occupied for dwelling, professional, business, agricultural, or similar purposes by the servicemember, upon entry into military service. The legislation now mirrors the federal Servicemember Civil Relief Act protections for motor vehicle lease termination. Specifically, it provides that a servicemember may terminate a motor vehicle lease after the servicemember’s entry into military service for a period of not less than 180 days. Additionally, it provides for cancelation of leases executed while in a period of military service if the servicemember receives military orders for a change of permanent station from a location in the continental U.S. to a location outside the continental U.S., or from a location in a state outside the continental U.S. to any location outside that state, or to deploy for a period not less than 180 days.
On September 11, the Department of Justice announced a settlement with a Nebraska apartment complex owner resolving allegations that it violated the Servicemembers Civil Relief Act (SCRA) by unlawfully charging lease termination fees for 65 servicemembers. The complaint, which was filed on the same day as the settlement, alleges that between January 2012 and June 2017, the apartment complex owner imposed early lease termination fees, ranging from $78 to almost $1,500, on servicemembers who sought termination due to qualifying military orders under the SCRA. The settlement requires the apartment complex owner, among other things, to (i) pay more than $76,000 in damages to the 65 identified servicemembers; (ii) pay a $20,000 civil money penalty, and (iii) develop policies and procedures related to SCRA lease terminations.
On September 11, the Washington state Attorney General announced the filing of a lawsuit against a towing company for allegedly auctioning off a servicemember’s car while he was deployed, in violation of the Washington Servicemembers’ Civil Relief Act (WSCRA). The complaint argues that the towing company impounded and unlawfully sold a deployed servicemember’s car without first determining the military status of the car’s owner and without obtaining a court order, as required by the WSCRA. The complaint rejects the towing company’s arguments that the responsibility fell on the servicemember’s creditor to redeem the vehicle as the legal owner because the law places the duty for determining military status on the party enforcing the lien. The complaint seeks restitution for the servicemember and a permanent injunction. Additionally, the complaint seeks civil penalties of up to $55,000 for a first offense and up to $110,000 for subsequent offenses, as allowed by the WSCRA.
9th Circuit affirms dismissal of SCRA private action, applies federal four-year catch-all statute of limitations
On July 26, the U.S. Court of Appeals for the 9th Circuit affirmed the dismissal of a private suit alleging a mortgage servicer violated the Servicemembers Civil Relief Act (SCRA) prohibition on foreclosure on the grounds that the claim was time-barred, holding that the federal catchall four-year statute of limitations applies to private suits under the SCRA. The decision results from a 2016 lawsuit filed by a United States Marine veteran (the plaintiff) alleging that the August 2010 foreclosure sale on his home violated section 303(c) of the SCRA as it occurred within nine months of the end of his active military service. While the SCRA does not provide a specific statute of limitations for a private right of action, the defendants moved to dismiss the case as time-barred, arguing that the court should apply the closest state-law analogue to the SCRA. The plaintiff argued that the court should look to the Uniformed Services Employment and Reemployment Rights Act (USERRA) as the most analogous statute, which does not limit the period for filing claims. In response to the plaintiff, the defendants added an alternative argument that the court should apply 28 U.S.C. § 1658(a), which establishes a four-year limitation period for any claims arising from a federal law enacted after 1990, which does not delineate a specific limitations period. The district court granted the motion to dismiss, rejecting the plaintiff’s arguments, and applied the four-year statute of limitations found in the Washington State Consumer Protection Act.
In affirming the dismissal of the plaintiff’s case on an alternate ground, the court noted that while the SCRA’s protection against foreclosure existed prior to 1990, Congress did not add a private right of action until 2010. The court rejected the plaintiff’s argument that the private right of action was “implied” prior to the 2010 because there was no evidence Congress intended to create one under the SCRA’s predecessor, the Soldiers’ and Sailors’ Civil Relief Act. The court held that because a private right of action was not provided until 2010, the four-year catch-all provision of 28 U.S.C. § 1658(a) applied, and the plaintiff’s claim under the SCRA was time-barred.
On July 20, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include cease and desist orders, civil money penalty orders, removal/prohibition orders, and terminations of existing enforcement actions. Two of the more notable actions by the OCC covered in this report are discussed below.
On May 31, the OCC issued a consent order against an international investment bank’s federal branches located in Stamford, Miami, and New York, which identified alleged deficiencies in the branches’ Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance programs. The alleged deficiencies include failure to adopt and implement adequate BSA/AML compliance programs and failure to file timely Suspicious Activity Reports. Among other things, the consent order requires the branches to (i) develop and implement an ongoing BSA/AML risk assessment program; (ii) adopt an independent audit program to conduct a review of the bank’s BSA/AML compliance program; (iii) submit a written progress report within 30 days after the end of each calendar quarter that details actions undertaken to ensure compliance with the consent order’s provisions; and (iii) ensure each branch has permanent, experienced BSA officers responsible for compliance functions. The bank has neither admitted nor denied the OCC’s findings, and a civil money penalty was not assessed against the branches.
In addition, on June 18 the OCC issued an order terminating a 2016 consent order against a national bank following the OCC’s determination that the bank had successfully completed the consent order’s requirements for complying with provisions of the Servicemembers Civil Relief Act.
Maryland expands scope of unfair and deceptive practices under the Maryland Consumer Protection Act, increases maximum civil penalties
On May 15, the Maryland governor signed HB1634, the Financial Consumer Protection Act of 2018, which expands the definition of “unfair and deceptive trade practices” under the Maryland Consumer Protection Act (MPCA) to include “abusive” practices, and violations of the federal Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA). The law also, among other things:
- Civil Penalties. Increases the maximum civil penalties for certain consumer financial violations to $10,000 for the initial violation and $25,000 for subsequent violations
- Debt Collection. Prohibits a person from engaging in unlicensed debt collection activity in violation of the Maryland Collection Agency Licensing Act or engaging in certain conduct in violation of the federal FDCPA.
- Enforcement Funds. Requires the governor to appropriate at least $700,000 for the Office of the Attorney General (OAG) and at least $300,000 to the Office of the Commissioner of Financial Regulation (OCFR) for certain enforcement activities.
- Student Loan Ombudsman. Creates a Student Loan Ombudsman position within the OCFR and establishes specific duties for the role, including receiving, reviewing, and attempting to resolve complaints from student loan borrowers.
- Required Studies. Requires the OCFR to conduct a study on Fintech regulation, including whether the commissioner has the statutory authority to regulate such firms. The law also requires the Maryland Financial Consumer Protection Commission (MFCPC) to conduct multiple studies, including studies on (i) cryptocurrencies and initial coin offerings and (ii) the CFPB’s arbitration rule (repealed by a Congressional Review Act measure in November 2017).
On March 22, the Washington governor signed HB 1056, which amends the Washington Service Member’s Civil Relief Act (WSCRA) to update the definition of “service member” and allow for a service member to terminate or suspend certain private contracts without penalty. Specifically, HB 1056 defines “service member” as “an active member of the United States armed forces, a member of a military reserve component, or a member of the national guard who is either stationed in or a resident of Washington state.” The law allows for a service member, after receiving orders for a permanent change of station or deployment (for at least 30 days), to terminate or suspend certain contracts for the following: telecommunication services, internet services, health studio services, and subscription television services. After proper written notice is given to the service provider for termination, suspension or reinstatement, the service member may not be charged a “penalty, fee, loss of deposit, or any other additional cost” due to the notice. Additionally, HB 1056 allows the Washington Attorney General to recover costs and fees in an action brought to enforce the WSCRA. The law becomes effective on June 7.
On March 28, the DOJ filed a complaint in the Central District of California against a California-based indirect auto lending company (defendant) for allegedly repossessing servicemembers’ vehicles in violation of the Servicemembers Civil Relief Act (SCRA). The allegations stem from an investigation into the defendant’s practices after an Army Private submitted a complaint to the DOJ in 2016. The DOJ’s investigation concluded that the defendant repossessed the vehicle without obtaining a court order or confirming whether the servicemember was SCRA-protected. According to the DOJ’s complaint, its investigation revealed that the defendant allegedly failed to have policies or practices in place to verify borrowers’ military status before repossessing vehicles. As such, the DOJ believes that the defendant may have repossessed vehicles of other servicemembers without obtaining the necessary court others or verifying military status. The DOJ contends that the defendant’s conduct was “intentional, willful, and taken in disregard for the rights of servicemembers.” In addition to monetary damages, the DOJ seeks civil monetary penalties and injunctive relief.
On February 22, the DOJ announced a settlement agreement with a motor vehicle finance company regarding allegations that the company did not refund a portion of the capitalized cost reduction (CCR), after the motor vehicle leases were terminated early under the Servicemembers Civil Relief Act (SCRA). The DOJ took the position that the CCR was a prepayment subject to refund upon termination. Consistent with industry practice, the finance company treated the CCR as an amount comparable to a down payment in a finance agreement, not subject to refund, rather than a prepayment. Though not admitting any violation of law, the company agreed to refund certain portions of CCR pre-payments and update its policies and procedures, among other relief. Buckley Sandler attorneys John Redding and Sasha Leonhardt represented the company in this matter.
- Valerie L. Hletko to discuss "Forecasting litigation and settlement trends in the mortgage servicing and fair lending context" at the American Conference Institute National Forum on Residential Mortgage Regulatory Enforcement & Litigation
- Michelle L. Rogers and Jonice Gray Tucker to discuss “Building a govt affairs program; Government investigations” at the TechGC National Summit
- Tina Tchen to deliver keynote address at the American Bar Foundation Montgomery Summer Research Diversity Fellowship 30th Anniversary Celebration
- Douglas F. Gansler to discuss "Privacy, security and protection of your assets in contracts; Security exercises and tactical measures" at the TechGC National Summit
- H Joshua Kotin will discuss federal regulatory developments in mortgage lending and servicing at the Mortgage Bankers Association of Arkansas Fall Conference
- Kate Shrout to discuss "Conducting workplace investigations" at the TechGC National Summit
- Kathryn R. Goodman to discuss "HECM servicing policies and updates" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Fredrick S. Levin to discuss "Reverse mortgage litigation trends" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Melissa Klimkiewicz to speak at the "Digital marketing compliance roundtable" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Hank Asbill to discuss "The role of the media in white collar criminal investigations and the Mueller probe" at the American Bar Association White Collar Crime Town Hall
- John C. Redding to discuss "Regulatory compliance update" at PowerSports Finance
- Matthew P. Previn to discuss "Enforcement trends: Who is doing what and how?" at the Cambridge Forums Inc. Forum on Consumer Finance Litigation & Enforcement
- Jonice Gray Tucker to discuss "Protect yourself from a CFPB investigation" at the National Association of Settlement Purchasers Conference
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference