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  • OCC Names New Enforcement and Compliance Director

    Consumer Finance

    On September 5, the OCC announced the promotion of Ellen M. Warwick to Director for Enforcement and Compliance, responsible for conducting investigations, recommending administrative actions, and litigating enforcement actions. Ms. Warwick previously served as Assistant Director for Enforcement and Compliance and as Assistant Director for Litigation, among other positions with the OCC. She also has been a litigation attorney in private practice, a trial attorney with the DOJ, and a prosecutor in the Essex District Attorney’s Office of Massachusetts.

    OCC Enforcement

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  • Fannie Mae Announces Miscellaneous Servicing Policy Changes


    On September 5, Fannie Mae issued Servicing Guide Announcement SVC-2012-20, which updates special investor reporting requirements to provide new guidance regarding reporting a foreclosure for a modified mortgage loan with principal forbearance. The Announcement also provides new contact information for servicers to use when a borrower or servicer of a first-lien mortgage requests information relating to a HomeSaver Advance Note.

    Fannie Mae Mortgage Servicing

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  • Federal Court Dismisses Fannie Mae Shareholders' Subprime Suit Against Underwriters, Allows Claims to Proceed Against Fannie Mae, Officers


    On August 30, the U.S. District Court for the Southern District of New York ruled on multiple motions to dismiss filed in four consolidated cases pending against Fannie Mae, certain former officers, and several banks, related to Fannie Mae’s exposure to certain risky mortgages. In re Fannie Mae 2008 Secs. Litig., No. 09-2013, 2012 WL 3758537 (S.D.N.Y. Aug. 30, 2012). The main class of shareholders alleges that Fannie Mae and certain of its former officers violated federal securities laws by failing to adequately disclose the company’s exposure to subprime and Alt-A mortgages. Separately, institutional investors brought their own federal securities claims, as well as state statutory and common law fraud and negligence claims against Fannie Mae, certain officers, and certain of its underwriters related to the same alleged misrepresentations. Many of the same allegations are contained in SEC enforcement actions pending against a number of the same individual defendants. In a single opinion, the court dismissed certain of the claims but allowed others to proceed. The court allowed to proceed the federal securities claims brought by the main class and two other plaintiffs against Fannie Mae and certain of its officers with regard to Fannie Mae’s subprime mortgage disclosures and risk management controls, but dismissed all state law claims, including those against Fannie Mae, certain officers, and certain underwriters. The court also dismissed in full a suit that one underwriter faced alone because the plaintiffs failed to present evidence sufficient to show the underwriter intentionally provided investors allegedly false information it received from Fannie Mae.

    Fannie Mae RMBS Subprime

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  • Federal Court Dismisses Consumer Privacy Action Brought Under California's Shine the Light Act


    On August 24, the U.S. District Court for the Northern District of California dismissed a putative class action alleging that Time magazine failed to establish procedures to comply with California’s Shine the Light Act (SLA). Murray v. Time, Inc., No 12-00431, 2012 WL 3634387 (N.D. Cal. Aug. 24, 2012). The SLA requires businesses to disclose to California consumers upon request any information collected and shared with third-party direct marketers. Alternatively, businesses can adopt a policy of not sharing consumer information without first obtaining consumer consent. All businesses must make consumers aware of their SLA rights by (i) maintaining a disclosure on their website and providing contact information for consumers to make a request about information shared with direct marketers, (ii) requiring customer service agents to provide the contact information upon request, or (iii) making the contact information available at every place of business in the state. The named plaintiff contends that by the nature of its business Time only could provide the required information on its website, and that it failed to do so. The court dismissed the case, holding that the named plaintiff suffered no economic or informational injury and therefore lacked standing to pursue his claims. The court held that the plaintiff’s general allegations concerning the “inherent monetary value” of consumer data are presented without any facts regarding the value of his specific personal information and therefore could not prove any economic injury. With regard to informational injury, the court explained that the plaintiff does not claim that he was deprived any information in response to a request, but rather that he was deprived of the ability to make the request. Such a procedural violation of the SLA, the court held, does not equate to informational injury. The court allowed the plaintiff to re-plead additional facts in support of his claim, but he may not add other plaintiffs or defendants.

    Privacy/Cyber Risk & Data Security

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  • FTC Issues Advertising and Privacy Guidelines for Mobile Application Developers


    On September 5, the FTC published “Marketing Your Mobile App: Get It Right from the Start,” a guide to assist mobile application developers in complying with federal advertising and privacy requirements. The Guide provides basic guidance and principles related to truthful advertising and consumer privacy protections. For example, the guide urges application developers to (i) disclose key information in advertising materials clearly and conspicuously, (ii) collect sensitive information only with user’s affirmative consent, and (iii) avoid collecting unnecessary data and ensure the security of any sensitive data that is collected.

    FTC Mobile Commerce Privacy/Cyber Risk & Data Security

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  • State Law Update: Illinois Amends Collection Agency Law

    Consumer Finance

    On August 24, Illinois amended the Collection Agency Act to add certain definitions and new requirements for debt buyers. House Bill 5016 adds new definitions for (i) charge-off balance, (ii) charge-off date, (iii) current balance, and (iv) debt buyer. The bill subjects debt buyers to the Collection Agency Act generally, including statute of limitations requirements for collection actions, but exempts debt buyers from certain requirements when pursuing a debt it owns. For example, debt buyers need not maintain a trust account or surety bond. The changes take effect on January 1, 2013.

    Debt Collection

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  • NACHA Proposes Guidelines for Use of QR Codes for Consumer Bill Pay


    On August 30, NACHA – The Electronic Payments Association, proposed guidelines to facilitate the use of Quick Response (QR) codes for consumer bill payments. A QR code is a type of barcode readable by a mobile device equipped with a QR application. The guidelines, developed by NACHA’s Council for Electronic Billing and Payment, seek to establish a single QR code format to serve consumer bill pay needs through a variety of channels, including a biller’s website, a financial institution’s online bill pay website site, or other aggregation bill pay websites. The proposal recommends guidelines for the QR code size and format, billing data to be included, and encoding format. NACHA has requested comment from interested parties by September 19, 2012 and expects to prepare a final version of the guidelines before the end of 2012.

    Mobile Payment Systems NACHA

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  • CFPB Extends Comment Period for Finance Charge Definition Proposal


    On August 31, the CFPB extended the comment period for aspects of two recently proposed rules. On July 9, the CFPB proposed a rule to merge the TILA and RESPA mortgage loan disclosures. That proposal includes potential changes to the definition of finance charge, comments on which were due September 7, 2012.  Having heard from stakeholders that the proposed definition could impact changes proposed in other CFPB mortgage-related rulemakings, the CFPB extended the comment deadline to November 6, 2012, which matches the deadline for most of the other aspects of the proposed TILA/RESPA disclosure rule. This extension does not impact the September 7, 2012 deadline for comments on whether the CFPB should delay implementation of certain new TILA and RESPA disclosures. Also on July 9, 2012, the CFPB proposed a rule to expand the types of mortgage loans subject to HOEPA, with comments due September 7, 2012. Given the extension of the deadline for comments on the definition of finance charge, which will impact the scope of the extended HOEPA coverage, the CFPB also extended the HOEPA proposed rule comment deadline to November 6, 2012.

    CFPB TILA Dodd-Frank Mortgage Origination RESPA HOEPA

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  • Sixth Circuit Holds Computer Hacking Losses Covered by Insurance

    Consumer Finance

    Last month, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court holding that the computer fraud rider to a retailer’s Crime Policy covered losses resulting from the theft of customers’ financial information by computer hackers. Retail Ventures, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., No 10-4576/4608, 2012 WL 3608432 (6th Cir. Aug. 23, 2012). The retailer incurred millions of dollars in expenses and attorney fees related to a data breach in which computer hackers stole customers’ credit card and bank account information. The retailer submitted a claim for the losses under the computer fraud rider to its Blanket Crime Policy, which the insurer denied because the policy excluded third-party theft of “proprietary” or “confidential information.” The retailer filed suit and prevailed on summary judgment. On appeal, the court upheld the district court’s application of a proximate cause standard to determine that the losses were covered as losses sustained as a direct result of the theft. The court also rejected the insurer’s argument that the losses were excluded as losses of “proprietary or confidential information” because the retailer did not “own or hold single or sole right” to the stolen information and the information did not relate to the manner in which the business operated.

    Privacy/Cyber Risk & Data Security

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  • Special Feature: Report on the AARMR 23rd Annual Regulatory Conference


    The American Association of Residential Mortgage Regulators (AARMR) held its 23rd Annual Regulatory Conference in Boston, Massachusetts from August 14-17, 2012.  AARMR is the trade association of state mortgage regulators that coordinates state-level regulation of the mortgage industry and, in partnership with the Conference of State Bank Supervisors (CSBS), created the National Mortgage Licensing System & Registry (NMLS).

    The Conference brought together state and federal mortgage regulators, industry professionals, compliance companies, legal professionals, and education providers to discuss the latest developments in mortgage supervision and pressing issues confronting the industry, most notably developments regarding: (i) the SAFE Act and entity level licensing through the NMLS and (ii) the examination, enforcement and rulemaking initiatives of the Consumer Financial Protection Bureau (CFPB).

    On August 14, recently appointed NMLS Ombudsman Timothy Siwy, Deputy Secretary for Non-Depository Institutions, Pennsylvania Department of Banking, presided over his first bi-annual NMLS Ombudsman Meeting, which allows NMLS users an opportunity to raise concerns and questions regarding the NMLS.  Specifically, the session addressed the following topics, among others:

    • Continued discussion of the states potentially issuing (1) “reciprocal licenses” for mortgage loan originators (MLOs) based on similar state education and testing standards, or (2) a 90- to 120-day “transitional license” for MLOs needing additional time to complete a state’s specific MLO requirements;
    • “Inactive licenses” for federally registered MLOs, which would allow MLOs not currently employed by a state-licensed entity to obtain and maintain an “Approved-Inactive” status in the NMLS if the MLO otherwise satisfies the state’s MLO licensing requirements;
    • The Uniform State Test for MLOs, which is expected to launch in Spring 2013;
    • Alleviating “home state” licensure for MLOs, which is where a state requires the MLO to secure a license not because the MLO makes loans to borrowers in the state or secured by property in the state, but rather because the MLOs office is located in the home state;
    • Issues facing exempt companies, such as insurance companies, that may be required to obtain entity level approval via NMLS because of certain non-lending activities performed by its employees, e.g., underwriting activities;
    • States compelling submission of information from depository institutions to authorize state exemptions via the NMLS when such depository institutions may otherwise be exempt from a state’s mortgage lending law;
    • The April 2012 NMLS amendments, including a request for uniformity among states regarding recently-implemented requirements to upload documentation to the NMLS; and
    • Suggestions on how to improve the user interface of the NMLS.

    Subsequent panel discussions provided more detailed information on several of these topics, and also examined related NMLS issues.

    Details regarding the specific issues submitted for comment, as well as accompanying exhibits and an audio recording, will be made available on the NMLS Ombudsman website.

    The Conference included several CFPB focused panels, which included presentations from high ranking CFPB officials.

    First, on August 15, Edwin Chow, Regional Director, CFPB, West Region, discussed the CFPB’s supervision process for both banks and non-bank lenders with a focus on the recently launched non-bank exams.  Mr. Chow stated that the general intention of a CFPB examination is to evaluate a company’s ability to manage its compliance.  An entity’s ability to manage its compliance is assessed through the CFPB’s examination approach, which at a macro level includes:

    • The CFPB initiating the first point of contact through a preliminary meeting by phone or in-person with the entity;
    • Prior to an examination, issuing a letter to the entity requesting information to facilitate fast and efficient review of the entity;
    • Throughout the process, coordinating with state regulators of the entity; and
    • Following the examination, performing an “exit interview” prior to any finalized action to discuss tentative findings and conclusions and to address how issues may be corrected.

    Regardless of the region in which the examination is being conducted, Mr. Chow indicated that the CFPB will strive for uniformity and consistency in its examination approach.

    Also, on August 16, Steven Antonakes, Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, and David Bleicken, Acting Deputy Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, provided an update on the CFPB’s Supervision, Enforcement, and Fair Lending division and provided an overview of the CFPB’s enforcement approach.  Specifically, the officials indicated that during examinations the CFPB will:

    • Focus on harm to consumers, as it weighs heavily into whether the CFPB takes a “punitive” or “instructive” approach in a particular examination, (e.g., the CFPB may consider on a case-by-case basis whether consumer reimbursements are appropriate when there was no actual harm to a particular consumer);
    • Continue its efforts to maintain any relevant attorney-client privilege for information disclosed by entities.  Following the issuance of its January bulletin and June 28 final rule, the CFPB has asserted that a party may submit information to the CFPB in the supervisory or regulatory process without waiving any applicable privileges;
    • Utilize a product-based, rather than institution-based, focus; and
    • Utilize real-time information sharing.

    While the CFPB touched on the process for making decisions about what constitutes an “abusive” practice under the CFPB’s Unfair, Deceptive or Abusive Acts or Practices (UDAAP) authority, the officials declined to comment regarding mortgage-specific practices that the CFPB would generally deem to be “abusive.”

    The CFPB expects to issue the first summary of its examination findings this fall.

    Finally, during a separate panel on August 16, Peter Carroll, Assistant Director of Mortgage Markets, CFPB provided an overview of the CFPB’s widely-reported rulemakings on the combined TILA/RESPA disclosure form, HOEPA, appraisals, ability to repay and qualified mortgages, mortgage servicing guidelines, and MLO compensation and qualification.  Mr. Carroll indicated that next year the CFPB plans to focus on HMDA reporting and reverse mortgages.

    In addition to the above, the Conference covered other various federal and state regulatory issues, including the following:

    • In the panel “Mortgage Fraud and Other Trends Affecting Housing Finance Federal Housing Finance Agency (FHFA) Office of Inspector General,” representatives of the FHFA-OIG provided an overview of its ongoing audits of mortgage fraud;
    • “Mortgage Loan Servicing: Aftermath of National Servicer Settlement/Updates & Lessons” provided an overview of the widely-reported mortgage servicing settlement announced earlier this year.  Notably, Joseph Smith, Monitor of the Office of Mortgage Settlement Oversight, provided several comments regarding the settlement and fair lending concerns.  Specifically, while some have expressed a concern regarding the application of principal reductions for protected classes, the Monitor noted that violations of state fair lending laws were specifically reserved in the settlement, and the Monitor takes the position that the consumer relief provisions do not authorize him to assess whether principal reductions are being equally applied with respect to protected classes;
    • In the panel “Multistate Mortgage Committee Overview of Examination Procedures: Risk Scoping to Post-Exam Enforcement,” the Multistate Mortgage Committee (MMC), which coordinates examination and supervision of mortgage lenders, servicers and brokers operating in more than one state, gave an overview of its activities that (i) emphasized a risk-based approach to examinations, and (ii) outlined an examinations process that strives for uniformity, modernization, and effectiveness;
    • “A Look at Foreclosure Prevention, Loan Modification Scams and the Role of the Regulators” provided an overview of loan modification and foreclosure-related concerns,  including issues affecting low-income borrowers and protected classes; and
    • “FinCEN, Updates on AML for Mortgage Lenders and Originators” provided an overview of anti-money laundering, specifically the recently-effective requirement for non-banking entities, including residential mortgage lenders and originators, to file suspicious activity reports.

    CFPB Mortgage Licensing Nonbank Supervision Mortgage Origination NMLS CSBS

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