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Financial Services Law Insights and Observations


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  • CFPB sues mortgage company for allegedly deceiving veterans about refinance benefits


    On December 6, the CFPB announced the filing of a complaint and proposed final judgment in the U.S. District Court for the District of Nevada against a non-bank mortgage company for allegedly deceiving veterans about the benefits of refinancing their mortgages in violation of the Consumer Financial Protection Act. According to the complaint, during in-home presentations, the company would allegedly use flawed “apples to apples” comparisons between the consumers’ mortgages and an Interest Rate Reduction Refinancing Loan (a loan, guaranteed by the Department of Veterans Affairs, which allows veterans to refinance mortgages at lower interest rates). The Bureau alleges the presentations misrepresented the future cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month.

    If ordered by the court, the judgment would require the company to pay $268,869 in redress to consumers and a civil penalty of $260,000; it would also prohibit the company from misrepresenting the terms or benefits of mortgage refinancing.

    Courts CFPB Civil Money Penalties Military Lending Department of Veterans Affairs IRRRL Refinance Mortgages

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  • FTC, New York Attorney General sue New York debt collection operation

    Federal Issues

    On November 1, the FTC announced a joint action with the New York Attorney General against a New York-based debt collection company for allegedly violating the FTC Act, the FDCPA, and New York state law by using false or deceptive tactics to collect money from consumers, sometimes resulting in the consumer paying more than what they allegedly owed. According to the complaint, the company’s employees threatened consumers with arrest or lawsuits while falsely posing as law enforcement officials or attorneys. Additionally, the employees allegedly added “more pressure” to consumers by telling them they owed more than the company’s records indicated they did, using forms to show a higher balance than the actual client balance—a practice known as “overbiffing.” On October 25, the U.S. District Court for the Western District of New York granted a temporary restraining order, halting the company’s allegedly illegal activity and freezing the company’s assets. The complaint seeks a (i) permanent injunction; (ii) consumer redress; and (iii) civil money penalties under New York law.

    Interestingly, as covered by InfoBytes here, FTC Commissioner Rohit Chopra issued a concurring statement in another recent FTC action, suggesting the FTC should seek to partner with other enforcement agencies that have the authority to obtain monetary settlements from FTC targets. In this complaint, the New York Attorney General is seeking civil money penalties against the debt collectors under New York General Business Law § 350-d.

    Federal Issues State Issues Debt Collection FTC Act FDCPA Civil Money Penalties FTC State Attorney General

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  • CFPB solicits comments on proposed rule regarding civil penalty inflation adjustments

    Agency Rule-Making & Guidance

    On October 12, the CFPB published an amendment to its rule regarding inflation adjustments for the maximum amount of each civil penalty within its jurisdiction, pursuant to the 2015 Inflation Adjustment Act amendments. Under the Bureau’s amendment, adjusted penalty amounts would only apply to assessments with associated violations occurring on, or after, November 2, 2015. The Bureau noted that because the amendment “would limit the civil penalties covered persons may pay, the proposed rule would not impose any additional costs on them. Nor does the rule impose any new, affirmative duty on any small entity or change any existing requirements on small entities, and thus no small entity who is currently complying with the laws that the Bureau enforces will incur any expense from the amended rule.” Comments must be received by November 13.

    Agency Rule-Making & Guidance CFPB Civil Money Penalties

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  • OFAC reaches $1.5 million settlement with electronics company for alleged Iranian sanctions violations

    Financial Crimes

    On September 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $1.5 million settlement with a California-based electronics company for alleged violations of the Iranian Transactions and Sanctions Regulations when it sold equipment to a Dubai-based distributor it knew or had reason to know distributed most, if not all, of its products to Iran. The settlement resolves litigation between the California company and OFAC stemming from a 2014 lawsuit challenging OFAC’s initial $4.07 million civil penalty. While the lower count ultimately granted summary judgment in favor of OFAC after finding enough evidence that the company knew the distributor’s business was primarily in Iran at the time the shipments were made, upon appeal, the D.C. Circuit reached a split decision in May 2017 setting aside OFAC’s initial penalty. While the appellate court affirmed that 34 of 39 shipments in question were in violation of the sanctions regulations, the company had produced emails indicating that the other shipments were intended for a retail store in Dubai. Because the penalty was calculated in such a way that the two shipments categories were “intertwined,” the court remanded the matter to OFAC for further consideration of the total penalty calculation.

    In arriving at the settlement amount, OFAC considered the following aggravating factors: (i) “the [a]lleged [v]iolations constituted or resulted in a systematic pattern of conduct”; (ii) the company exported goods valued at over $2.8 million; and (iii) the company had no compliance program in place at the time of the alleged violations. However, OFAC also considered mitigating factors such as the company’s status as a small business, the company not receiving a penalty or finding of a violation in the five years prior to the transactions at issue, and some cooperation with OFAC. OFAC further noted that following litigation, the company “took additional remedial actions to address the conduct that led to the [a]lleged [v]iolations, including terminating its relationship with [the Dubai-based distributor] and instituting an OFAC sanctions compliance program.”

    Financial Crimes Department of Treasury Sanctions OFAC Iran Courts Appellate Civil Money Penalties

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  • FDIC releases July enforcement actions

    Federal Issues

    On August 31, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in July. The 15 orders include “three Section 19 orders; four removal and prohibition orders; one civil money penalty; three terminations of consent orders; and four adjudicated decisions.” The FDIC assessed a $10,800 civil money penalty against a New Mexico-based bank for alleged violations of the Flood Disaster Protection Act in connection with alleged failures to (i) obtain flood insurance coverage on loans at or before origination or renewal; (ii) maintain flood insurance; (iii) notify borrowers that they were required to obtain flood insurance; and (iv) obtain flood insurance on a borrower’s behalf when the borrower did not obtain insurance within 45 days after receiving such notification. There are no administrative hearings scheduled for September 2018. The FDIC database containing all 15 enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Civil Money Penalties Flood Disaster Protection Act Flood Insurance

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  • Federal Reserve Board fines national bank $8.6 million for legacy mortgage documentation deficiencies

    Federal Issues

    On August 10, the Federal Reserve Board (Board) announced a settlement with a national bank for legacy mortgage servicing issues related to the improper preparation and notarization of lost note affidavits. Under the consent order, the Board assessed an $8.6 million civil money penalty for alleged safety and soundness violations under Section 8 of the Federal Deposit Insurance Act. The Board emphasized that the bank’s servicing subsidiary replaced the documents with properly executed and notarized affidavits and, as of September 2017, the subsidiary no longer participated in the mortgage servicing business. The Board also announced the termination, due to “sustainable improvements,” of a 2011 enforcement action against the national bank and its subsidiary related to residential mortgage loan servicing.

    Federal Issues Enforcement Civil Money Penalties Mortgages FDI Act

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  • FDIC releases May enforcement actions

    Federal Issues

    On June 29, the FDIC announced a list of orders of administrative enforcement actions taken against banks and individuals in May 2018. The 14 orders include “five Section 19 orders; two civil money penalties; one removal and prohibition order; two terminations of consent orders; two terminations of insurance; one order for restitution; one modification of removal and prohibition order; and one modification of civil money penalty order.” The order for restitution is for violations of certain laws, regulations, and a 2016 consent order “relating to statutory lending limits and restrictions on loans to borrowers classified as ‘substandard.’” The civil money penalty orders relate to (i) unsafe or unsound practices and breaches of fiduciary duty, and (ii) a violation of Regulation O concerning the handing of certain loans from the bank to the respondent. The announcement also notes that there are no administrative hearings scheduled for July 2018.

    Federal Issues FDIC Enforcement Civil Money Penalties

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  • FDIC releases April enforcement actions, including flood insurance and BSA/AML violations

    Federal Issues

    On May 25, the FDIC released a list of 35 administrative enforcement actions taken against banks and individuals in April. Civil money penalties were assessed against several individuals and one bank. The FDIC assessed a $5,000 civil money penalty against a New Jersey-based bank, citing violations of the Flood Disaster Protection Act for allegedly failing to ensure 20 properties were adequately covered by flood insurance for the term of the loan. Additionally, the FDIC issued two consent orders, one against a South Dakota-based bank for unsafe or unsound banking practices or violations of law or regulation. The FDIC ordered the bank to, among other things, (i) retain qualified management; (ii) develop an independent external loan review program; and (iii) develop a plan to address the weaknesses in the bank’s audit and internal controls. The second consent order alleges violations of the Bank Secrecy Act and anti-money laundering (BSA/AML) rules by a Maryland-based bank. The bank is ordered to, among other things, (i) perform an enhanced risk assessment of the bank’s operations; (ii) revise and implement internal controls for BSA/AML compliance; and (iii) take necessary steps to correct or eliminate all cited violations.

    Also on the list are 11 Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and four terminations of consent orders.

    There are no administrative hearings scheduled for June 2018. The FDIC database containing all 35 enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Bank Secrecy Act Anti-Money Laundering Flood Insurance Civil Money Penalties Flood Disaster Protection Act

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  • Colorado Court of Appeals holds attorney fees award is a non-dischargeable civil penalty


    On May 17, the Colorado Court of Appeals held that an attorney fees award imposed under the Colorado Consumer Protection Act (CCPA) is a civil penalty and is not dischargeable under the Bankruptcy Code. According to the opinion, the State of Colorado sued a law firm, its owners, and affiliated companies for allegedly violating the CCPA and the Colorado Federal Debt Collection Practices Act (CFDCPA) by fraudulently billing mortgage servicers for full costs associated with title insurance premium charges even though not all the costs were incurred. The district court agreed with the State and awarded attorney fees and costs for the violations. In the appeal, one of the defendants argued, among other things, that the district court was precluded from awarding attorney fees because his debts had previously been discharged in bankruptcy. In affirming the district court’s decision, the appeals court concluded that attorney fees awards made under the CCPA and the CFDCPA are not dischargeable because the award “made under the CCPA’s mandatory provision was sufficiently penal to constitute a ‘fine, penalty or forfeiture’ under § 523(a)(7) [of the Bankruptcy Code] and was not dischargeable.”

    Courts State Issues Bankruptcy Civil Money Penalties Attorney Fees

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  • Maryland expands scope of unfair and deceptive practices under the Maryland Consumer Protection Act, increases maximum civil penalties

    State Issues

    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).

    State Issues UDAAP SCRA Military Lending Act FDCPA Student Lending Arbitration Civil Money Penalties Fintech Cryptocurrency State Legislation

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