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  • Massachusetts Attorney General announces firm to pay $26.8 million for securitization of subprime mortgages

    Securities

    On August 6, the Massachusetts Attorney General announced a settlement with a securities firm related to the allegedly unfair purchase and securitization of residential mortgage loans that were alleged to be presumptively unfair under Massachusetts law. The settlement is a part of the Attorney General’s ongoing review of subprime mortgage securitization practices in the state. The agreement requires the securities firm to pay $26.8 million, which includes a $5 million payment to the state to compensate governmental entities that allegedly suffered harm, “including cities and towns that incurred extra expenses due to foreclosures.” The remaining funds will be made available to eligible homeowners to assist with principal reductions and related loan payments, and to assist those whose homes were subject to foreclosure.

    Securities State Attorney General Settlement Securitization Mortgages

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  • Georgia Attorney General reaches settlement with mortgage company to resolve allegations concerning unauthorized third-party fees

    State Issues

    On August 1, the Georgia Attorney General announced a settlement with a New Jersey-based mortgage company to resolve allegations that it charged unauthorized fees to Georgia consumers in violation of the state’s Fair Business Practices Act. According to the Attorney General’s office, the company allegedly marketed various third-party products and services, such as insurance products and home warranty programs, for certain mortgages it serviced and added the charges for these products and services to consumers’ monthly mortgage bills without their knowledge. Under the settlement terms, the company is required to (i) comply with the Fair Business Practices Act; (ii) refrain from soliciting third-party products and/or services to Georgia consumers; (iii) cease all billing for the alleged third-party products and services; (iv) notify consumers currently being billed for the alleged third-party products and services that the remainder of their contracts may be cancelled without penalty; (v) pay $25,000 in restitution; and (vi) pay $50,000 to the Attorney General’s office to go towards fees, penalties, investigation and litigation costs, and future consumer protection and education costs.

    State Issues State Attorney General Enforcement Fees Consumer Finance Settlement

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  • National bank settles with DOJ for $2.09 billion over RMBS misrepresentations

    Federal Issues

    On August 1, the Department of Justice (DOJ) announced a settlement with a national bank and several of its affiliates (bank) for allegedly misrepresenting the quality of certain loans originated by the bank that were packaged and sold in residential mortgage-backed securities (RMBS). The alleged representations related to debt-to-income ratios for stated income loans sold to investors and in which a significant number of borrowers misstated income information on the applications. The settlement agreement states that the bank “sold at least 73,529 stated income loans in RMBS during [2005-2007], and nearly half of those loans defaulted.” The bank, without admitting liability or wrongdoing, agreed to pay $2.09 billion in a civil money penalty under the Financial Institutions Reform, Recovery, and Enforcement Act, and the DOJ agreed to release the bank from any civil claims arising under several other laws, including: (i) the False Claims Act; (ii) the Program Fraud Civil Remedies Act; (iii) the Racketeer Influenced and Corrupt Organizations Act; and (iv) the Injunctions Against Fraud Act.

    Federal Issues DOJ RMBS Settlement Loan Origination Mortgages

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  • Federal Reserve fines Kentucky-based bank $4.75 million for FTC Act violations

    Federal Issues

    On July 26, the Federal Reserve Board (Board) announced a settlement with a Kentucky-based bank for allegedly violating section 5 of the FTC Act regarding its offering of deposit account add-on products to consumers. According to the consent order, the bank marketed certain add-on products to accountholders, including an identity protection product, and represented that all benefits of the products would be effective upon enrollment when in actuality, certain benefits needed to be individually activated after enrollment. The Board alleges the bank charged the enrolled accountholders fixed monthly fees for the full benefits of the products without adequately disclosing to accountholders how to receive all the associated benefits. In addition to the $4.75 million the bank must pay in restitution, the consent order also requires the bank to, among other things (i) submit written plans to strengthen the oversight of the compliance management program and enhance the consumer compliance risk management program; (ii) hire an independent auditor to verify the restitution has been made; and (iii) submit quarterly progress reports regarding compliance with the consent order.

    Federal Issues Federal Reserve Enforcement Settlement Consumer Finance

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  • Global investment bank subsidiaries to settle SEC allegations of mishandled American Depositary Receipts

    Securities

    On July 20, the SEC announced it had reached a settlement with two U.S.-based subsidiaries of a global investment bank to settle allegations that the subsidiaries mishandled the pre-release of American Depositary Receipts (ADRs)—U.S. securities that represent shares in foreign companies. According to the SEC’s separately issued orders, the bank’s depository bank subsidiary and the broker-dealer subsidiary allowed pre-released ADRs to be “used for abusive practices, including inappropriate short selling and inappropriate profiting around dividend payouts.” The SEC explained in its press release that ADRs can only be “pre-released” without the deposit of foreign shares, provided the brokers receiving the ADRs have an agreement with a depository bank and the broker or the broker's customer owns an amount of the underlying shares that corresponds to the number of shares the ADR represents. However, the SEC alleged that the depository bank subsidiary improperly provided thousands of ADRs where neither the broker nor its customers possessed the required shares, and that the broker-dealer subsidiary’s policies, procedures and supervision failed to prevent and detect violations tied to the borrowing and lending of pre-released ADRs. While the two subsidiaries neither admitted nor denied the SEC’s allegations, the depository bank has agreed to pay more than $51 million in disgorgement and prejudgment interest, along with a $22.2 million civil money penalty. The broker-dealer subsidiary has agreed to pay approximately $1.1 million in disgorgement and prejudgment interest and a nearly $500,000 civil money penalty.

    Securities SEC Settlement

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  • CFPB announces settlement with Alabama-based operation for allegedly failing to properly disclose finance charges

    Consumer Finance

    On July 19, the CFPB announced a settlement with a small-dollar lending operation that allegedly failed to properly disclose finance charges and annual percentage rates associated with auto title loans in violation of the Truth in Lending Act (TILA) and the prohibition on deceptive practices in the Consumer Financial Protection Act (CFPA). According to the consent order, the Alabama-based operation, which owned and operated approximately 100 retail lending outlets in Alabama, Mississippi, and South Carolina under several names, materially misrepresented the finance charges consumers would incur for Mississippi auto title loans by disclosing a finance charge based on a 30-day term while having consumers sign a 10-month payment schedule. The Bureau asserts that “[c]onsumers acting reasonably likely would not understand that the finance charge disclosed in the loan agreement does not actually correspond to their loan payment term.” Furthermore, the Bureau contends that the operation also failed to disclose the annual percentage rate on in-store advertisements as required under TILA. The order requires the operation to pay redress in the amount of $1,522,298, which represents the total undisclosed finance charges made directly or indirectly by affected consumers on their loans. However, based on defendants’ inability to pay this amount, full payment is suspended subject to the operation’s paying $500,000 to affected consumers. In addition to the penalties, the operation is prohibited from continuing the illegal behavior and the operation’s board must ensure full compliance with the consent order.

    Consumer Finance CFPB Settlement CFPA TILA Auto Finance Disclosures

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  • CFPB settles with Kansas-based company and part-owner for debt collection violations

    Consumer Finance

    On July 13, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner for using a network of debt collection agencies (the Agencies) that allegedly engaged in improper debt collection tactics in violation of the prohibitions in the Consumer Financial Protection Act (CFPA) on engaging in unfair, deceptive, or abusive acts or practices (UDAAPs) and on providing substantial assistance to others engaging in such practices. The Bureau also alleged that the company, acting through the Agencies, violated the Fair Debt Collection Practices Act (FDCPA). According to the consent order, the Kansas-based company and its part-owner had “knowledge or a reckless disregard” of the illegal debt collection tactics used by the Agencies, including misrepresenting the amount the consumer actually owed and falsely threatening consumers and their families with lawsuits. In its findings and conclusions, the CFPB alleges that, after reviewing the Agencies’ practices, the company’s “compliance personnel recommended terminating the Agencies because of the Agencies’ illegal collection acts and practices, but [the company and its part-owner] continued placing accounts with the Agencies” and selling debts to one of the Agencies. In addition, the Bureau alleges the company and its part-owner provided operational assistance to the Agencies, such as (i) drafting and implementing policies and procedures that falsely implied compliance with federal laws; (ii) defending the Agencies’ practices when original creditors raised concerns about collection tactics; and (iii) preventing compliance personnel from conducting effective reviews of the Agencies. The order imposes a civil money penalty judgment of $3 million against the Kansas-based company and $3 million against the part-owner but the full payment is suspended subject to the company paying a $500,000 penalty and the part-owner paying a $300,000 penalty. In addition to the penalties, the company is prohibited from continuing the illegal behavior and must create and submit to the Bureau a comprehensive compliance plan, while the part-owner is permanently restrained from acting as an officer, director, employee, agent or advisor of, or otherwise providing management, advice, direction or consultation to, any individual or business that collects, buys, or sells consumer debt. 

    Consumer Finance CFPB Settlement Enforcement

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  • New York Attorney General announces settlement with auto dealership over deceptive practices targeting non-English speakers

    State Issues

    On July 5, the New York Attorney General announced a settlement with an auto dealership to resolve allegations that it engaged in deceptive practices targeted towards non-English speakers. The auto dealership allegedly misled consumers about the actual cost of their purchases and offered false refinancing promises. According to the announcement, the dealership allegedly (i) provided English documents to non-English speaking consumers containing loan terms and aftermarket items different from those discussed during the actual sale, including “supplemental service contracts, gap insurance policies, or special protections for tires, fabric, glass, or paint that added thousands of dollars to the auto sale or lease contracts”; and (ii) told consumers it would refinance their loans at a lower rate after receiving complaints of overcharges and unwanted aftermarket items. However, the Attorney General asserts that the dealership failed to honor the refinancing promises. Under the terms of the settlement, the dealership is required to reform its business practices, refrain from engaging in the alleged deceptive business practices, modify its employee training and complaint handling process, and produce sales and lending documents in languages for non-English speakers prior to the signing of any documentation in English. The dealership must also pay over $423,000 to cover restitution, penalties, fees, and costs to the state.

    State Issues State Attorney General Fair Lending Settlement Auto Finance

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  • Court preliminarily approves $11.2 million settlement for post-payment interest charges on FHA mortgages

    Courts

    On July 5, the U.S. District Court for the Southern District of Iowa preliminarily approved a $11.2 million settlement in a proposed class action against a national bank for allegedly improperly charging interest on pre-paid FHA-insured mortgages. According to the complaint filed in 2016, the bank charged post-payment interest on FHA-insured mortgages without providing the proper disclosures required by FHA. Specifically, the complaint alleges that the bank did not use the FHA-approved form to provide the disclosures to consumers. The settlement requires the bank to place $11.2 million in an escrow account for class distributions; settlement expenses; and attorneys’ fees, which, according to settlement documents, will not exceed 28 percent. The court found that the settlement fell “within the range of reasonableness” and met the requirements for preliminary approval.

    Courts Class Action Settlement FHA Prepayment Mortgages

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  • International bank settles with Illinois Attorney General for $20 million for alleged RMBS misconduct

    State Issues

    On July 3, the Illinois Attorney General announced a settlement with an international bank to resolve allegations of misconduct in the bank’s marketing and sale of residential mortgage-backed securities (RMBS) in the lead-up to the 2008 financial crisis. According to the press release, the bank allegedly failed to disclose accurately the risk of the RMBS investments when selling the securities. Under the terms of the settlement, the bank has agreed to pay $20 million to the state, which will be divided between three state retirement systems. This settlement follows several other RMBS-related actions taken by the Attorney General.

    As previously covered in InfoBytes, earlier in March, the bank reached a settlement with the New York Attorney General to resolve similar allegations.

    State Issues State Attorney General Settlement RMBS Mortgages

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