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  • Second Circuit Holds Email Notice of Arbitration Agreement Insufficient

    FinTech

    On September 7, the U.S. Court of Appeals for the Second Circuit held that three plaintiff consumers were not bound to arbitrate certain claims related to their purchase of a discount club membership because email notice of the arbitration clause was insufficient. Schnabel v. Trilegiant Corp., No. 11-1311 WL 3871366 (2nd Cir. Sep. 7, 2012). On appeal of the district court's denial of its motion to compel arbitration, the membership club marketer argued that it provided the plaintiffs with notice of an arbitration provision (i) through a hyperlink appearing on the page the plaintiffs would have seen before enrolling in a service offered by the defendants and (ii) through an email sent to the plaintiffs after their enrollment. The Second Circuit disagreed and affirmed the district court's decision. According to the court, the email notice containing the arbitration clause "was both temporally and spatially decoupled from the plaintiffs' enrollment in and use of [the membership]; the term was delivered after initial enrollment and . . . members such as the plaintiffs would not be forced to confront the terms while enrolling in or using the service or maintaining their memberships." As such, "the email did not provide sufficient notice to the plaintiffs of the arbitration provision, and the plaintiffs therefore could not have assented to it solely as a result of their failure to cancel their enrollment in the defendants' service."  The court did not provide a substantive ruling on notice via a hyperlink, holding instead that the defendants forfeited their argument by failing to raise it in the district court.

    Arbitration

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  • FHFA, Fannie Mae, and Freddie Mac Implement New Representation and Warranty Framework

    Lending

    On September 11, the FHFA announced that Fannie Mae and Freddie Mac (the GSEs) are implementing a new representation and warranty framework for all conventional loans sold or delivered to the GSEs on or after January 1, 2013. As detailed in subsequent announcements from the GSEs, including Fannie Mae Selling Guide Announcement SEL-2012-08, Fannie Mae Lender Letter LL-2012-05, Freddie Mac Bulletin 2012-18, and a Freddie Mac Industry Letter, the new framework is designed to improve the GSE loan review process and to clarify lenders' repurchase exposure. With regard to loan review, under the new framework, (i) GSE reviews will generally be conducted between 30 and 120 days after loan purchase, (ii) the GSEs will have consistent timelines for submission of loan file review requests, (iii) loan file evaluation will be more comprehensive and will leverage data from tools currently used by the GSEs, and (iv) the repurchase request appeals process will be made more transparent. For lenders, the new framework will provide relief from certain repurchase obligations for loans that meet specific payment requirements, including for loans with 36 consecutive months of timely payments and HARP loans with a twelve-month acceptable payment history. Lenders will receive additional detailed information about exclusions from this new representation and warranty relief.

    Freddie Mac Fannie Mae Mortgage Origination RMBS FHFA

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  • Ohio Supreme Court Holds Website Notice of Sheriff's Sale Does Not Satisfy Due Process

    FinTech

    On September 6, the Supreme Court of Ohio held that notice of a sheriff's sale via the sheriff's website was insufficient to satisfy due process and reversed an appellate court decision that denied a foreclosing lender's motion to set aside the sheriff's sale. PHH Mortg. Corp. v. Prater, No. CA2010-12-095, WL 3848454 (Ohio Sept. 6, 2012). The lender obtained a motion for default judgment and permission to foreclose on a borrower. The sheriff's office tried multiple times to schedule a sale and each time withdrew the sale at the lender's request. The sheriff's office informed the lender in a letter that the sheriff's office no longer would send notices of scheduled sales via letter, and that the lender would need to check the sheriff's website for future notices. Notice subsequently was posted on the website and the property was sold. Both the trial court and intermediate appellate court denied the lender's request to set aside the sale. The lender argued that the sale was invalid because it had not received written notice. In a unanimous decision, the Ohio Supreme Court held that the notice directing the lender to check the sheriff's website was notice of a change in procedure and did not constitute actual notice of the sale. While the court acknowledged that Internet publication may conserve resources, it held that such notice is akin to newspaper notice and is insufficient to satisfy due process. The court agreed with a dissenting appellate court judge who identified e-mail notice as a closer substitute for mail notice, and explained that, in any event, such a change in notice requirements would have to be effectuated through a change to state or local law. The court reversed the appellate court's decision and set aside the sheriff's sale.

    Foreclosure Mortgage Servicing

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  • State Law Update: California Amends Mortgage Licensing Statute

    Lending

    On September 7, California enacted Assembly Bill 2666, which updates and clarifies portions of the state's Residential Mortgage Lending Act and Finance Lenders Law to parallel federal implementation of the SAFE Act. The bill requires licensing of individuals who engage in the business of a mortgage loan originator, and sets forth exemptions for employees of nonprofit organizations and government employees. The bill also clarifies requirements for subsidiaries of depository institutions owned and controlled by federally regulated depository institutions, and addresses the validity of certain NMLS records.

    Mortgage Licensing

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  • House Passes FHA Solvency Legislation

    Lending

    On September 11, the U.S. House of Representatives voted overwhelmingly to pass legislation that seeks to bolster and protect FHA capital reserves. The bill, H.R. 4264, would set a minimum 0.55% annual premium and would increase the maximum annual premium from 1.55% to 2.05% for all FHA-insured single-family mortgage loans. The bill also would authorize the Secretary of Housing and Urban Development to require lenders to indemnify the FHA for claims paid on loan, if the lender knew or should have known that the loan included serious or material violations of FHA requirements under the direct endorsement program, regardless of whether the violations caused the loss. In cases of fraud or misrepresentation in connection with the origination or underwriting of a loan on which the FHA suffers a loss, the Secretary would be required to seek indemnification from the lender. As a condition of obtaining FHA lending approval, lenders would be required to notify HUD if the lender terminates purchases of FHA mortgages or servicing rights from another FHA lender based on evidence of fraud or material misrepresentation. Finally, under the bill, lenders could have their approval to originate and underwrite FHA mortgages terminated if their delinquency rates are comparatively high.

    HUD FHA

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  • State Law Update: Montana Adopts Mortgage Servicer Regulations

    Lending

    On September 6, the Montana Department of Administration published final rules governing mortgage servicers. In 2011, Montana enacted House Bill 90, which made numerous revisions to the Montana Mortgage Broker, Mortgage Lender, and Mortgage Loan Originator Licensing Act concerning the licensing and regulation of mortgage servicers. The bill also updated licensing and other requirements for brokers, lenders and originators. The new regulations implement these amendments, addressing mortgage servicer (i) quarterly reporting requirements, (ii) record keeping requirements and electronic record keeping rules, (iii) renewal application deadlines, and (iv) escrow fund requirements. The final rules also amend existing regulatory definitions and other provisions impacting all mortgage licensees. The adopted regulations largely track the proposed versions, with the exception of changes made in response to comments or to address technical issues.

    Mortgage Licensing Mortgage Origination Mortgage Servicing

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  • Federal Regulators Host Webinar on SCRA Compliance

    Consumer Finance

    On September 10, federal banking regulators, the CFPB, and the FHFA conducted a webinar on federal servicemember financial protections, recent changes to the Servicemembers' Civil Relief Act (SCRA), and recent changes to Fannie Mae and Freddie Mac short sale procedures for servicemembers and loan modification options for servicemembers. The event featured compliance and enforcement updates from the CFPB, the DOJ, and the OCC. Ann Thompson from the CFPB Office of Nonbank Supervision described recent joint agency guidance regarding servicemembers with Permanent Change of Station (PCS) Orders as an extension of the CFPB's mortgage servicing exam procedures. Ms. Thompson explained that the CFPB will look at bank and nonbank servicers' policies and procedures to determine their adequacy for handling servicemembers with PCS orders. If there are deficiencies, the CFPB may take supervisory or enforcement actions to support implementation of the guidance. Eric Halperin from the DOJ's fair lending unit provided an update on enforcement activity and described a recent SCRA enforcement action against a national bank that covered all aspects of SCRA, not just foreclosure protections, as the model for the DOJ moving forward. Finally, Kimberly Hebb from the OCC offered some considerations for institutions seeking to comply with SCRA. She explained that the SCRA compliance process need not stand alone. For example, with regard to the law's rate reduction requirements, compliance steps could be incorporated into existing processes for error resolution. Ms. Hebb also stressed documentation and record keeping, pointing out that while the law does not include a specific record retention requirement, examiners will want to see the full scope of compliance processes documented for use in determining compliance.

    FDIC CFPB Federal Reserve OCC Servicemembers SCRA Department of Treasury DOJ

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  • Federal District Court Holds TILA Supports Vicarious Liability for Creditors

    Lending

    On August 30, The U.S. District Court for the Southern District of Florida held that a creditor may be vicariously liable for certain Truth in Lending Act (TILA) violations committed by its servicer. Kissinger v. Wells Fargo Bank, N.A. No. 12-60878, 2012 WL 3759034 (S.D. Fla. Aug. 30, 2012). In this case, a creditor sought to dismiss two borrowers' complaint alleging that the creditor was liable for its servicer's failure to provide information the borrowers requested about the owner of the promissory note. In response to the borrowers' request, the servicer had provided the name of the owner of the note, along with the servicer's address and telephone number. The borrowers claimed that the servicer's failure to provide the owner's address and telephone number constituted a violation of TILA. The creditor argued the case should be dismissed because TILA does not support vicarious liability, and in any event, the servicer was acting as a master servicer and was allowed under TILA to provide its own contact information. The court rejected the latter argument as one not suited to a decision on the law at this stage, ruling that the creditor must reserve the argument as a defense to be raised later. With regard to vicarious liability, the court relied in part on Davis v. Greenpoint Mortg. Funding, Inc., No 09-2719, 2011 WL 7070221 (N.D. Ga. Mar. 1, 2011), which held that a finding of no vicarious liability for creditors would render TILA's private right of action clause superfluous. The court thus held that TILA allows the application of agency principles so that creditors can be held liable for the actions of their servicers. Declining to follow another Florida case, Holcomb v. Fed. Home Loan Mortg. Corp., No 10-81186, 2011 WL 5080324 (S.D. Fla. Oct. 26, 2011) -- which held Congress did not intend to apply agency principles to TILA -- the court denied the creditor's motion to dismiss.

    TILA Mortgage Servicing

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  • Federal District Court Declines to Enforce Browsewrap Arbitration Agreement

    FinTech

    On August 28, the U.S. District Court for the Central District of California held that a retailer's so-called browsewrap agreement failed to provide the consumer with constructive notice of an agreement to arbitrate disputes and declined to enforce arbitration. Nguyen v. Barnes & Noble, Inc., No 12-0812, WL 3711081 (C.D. Cal. Aug. 28, 2012). The consumer filed suit under New York's and California's unfair competition and false advertising laws and other state statutes, alleging that the retailer canceled his online purchase of two sale items, causing him to have to later purchase substitute products at more expense. The retailer responded that by making the purchase through the company's website, the consumer accepted the website's Terms of Use, which contained an agreement to arbitrate any claims arising out of the use of that website. On the retailer's motion to compel arbitration, the court explained that the website's browsewrap agreement stated that any user of the site is deemed to have accepted its terms by, among other things, making a purchase. The court held that the retailer cannot show that the consumer had constructive notice of the Terms of Use because the site did not require that the consumer affirmatively assent to the terms. The court denied the retailer's motion to compel arbitration and allowed the litigation to proceed.

    Arbitration

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  • State Law Update: Oregon Updates Check Cashing Regulations, Adopts Rules Allowing Bank Interest Rate Swaps

    Consumer Finance

    Recently, the Oregon Department of Consumer and Business Services published final rules to update certain rules applicable to check cashing businesses. The adopted regulations simplify reporting requirements and reduce the data that licensees must include in annual reports. In the same publication, the Department adopted temporary rules granting Oregon commercial banks authority to engage in interest rate swap transactions as intermediary with and on behalf of the bank's customers, provided the bank receives prior written approval from the Director of the Department of Consumer and Business Services and other specified conditions are satisfied.

    Check Cashing Swaps

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