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  • State Law Update: NAAG to Focus on Privacy; Vermont, Connecticut, Oklahoma Make E-Commerce Changes


    Incoming NAAG President to Focus on Privacy Issues. On June 22, after being elected president of the National Association of State Attorneys General (NAAG), Maryland Attorney General Doug Gansler announced a year-long Presidential Initiative titled “Privacy in the Digital Age.” The Initiative will explore the best ways to manage consumer privacy risks in light of “emerging technologies and business models” that are challenging consumers’ ability to control their personal information. Through the Initiative, state Attorneys General will attempt to ensure that “the Internet’s major players protect online privacy and provide meaningful options for privacy control” to consumers.

    Two States Expand Data Breach Notification Requirements. Recently, Connecticut and Vermont altered state requirements for firms experiencing a data breach to report the breach. Connecticut’s revision – in the state’s annual budget bill, House Bill 6001 – expanded existing breach notification provisions to include notification to the state attorney general and takes effect October 1, 2012. Vermont amended, in House Bill 254, its breach notice law to require consumer notice of a security breach within 45 days and notification to the attorney general within 14 days of discovery of the incident.  The Vermont requirement was effective as of May 8, 2012.

    Oklahoma High Court Approves Rules for Electronic Filing and Signatures. On June 21, the Supreme Court of Oklahoma issued new state court rules governing the electronic filing of court documents in that state. These rules apply to a new statewide electronic management system that will replace the mix of electronic and paper-based record systems previously used in Oklahoma. Among other things, the rules provide for the use of electronic signatures where any statute or court rule requires a person’s signature in an Oklahoma state court. Like the new electronic system, the new rules will be phased in gradually; they become effective in each district and appellate court at the time the Oklahoma Unified Case Management System is implemented in that court.

    State AG Electronic Signatures Privacy/Cyber Risk & Data Security

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  • California Appeals Court Holds Brokerage Agreement Sufficiently Incorporated Arbitration Provision


    On June 21, the California Second District Court of Appeal held that a defendant brokerage firm had established an agreement to arbitrate, where the brokerage account application signed by the plaintiffs incorporated by reference certain arbitration provisions of a separate client agreement.  Rodriguez v. Citigroup Global Markets, Inc., No. B230310, 2012 WL 2354637 (Cal. Ct. App. June 21, 2012). The appeals court observed that the plaintiffs had signed an account application that explicitly stated that any signatories had also agreed to all terms of a separate client agreement. Another paragraph of the same application, located directly above the signature lines, included an express acknowledgement that the client agreement included an arbitration provision. The court rejected several arguments proffered by the plaintiffs, including that (i) the references to the arbitration provision were unreadable, (ii) the plaintiffs had never received the client agreement containing the arbitration provision, (iii) the client agreement itself was not signed, and (iv) the client agreement was confusing.


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  • FHFA, Fannie Mae, and Freddie Mac File Suit Challenging Imposition of State and Local Taxes


    On June 22, the FHFA, along with Fannie Mae and Freddie Mac (the Enterprises), filed a lawsuit in the U.S. District Court for the Northern District of Illinois challenging the authority of Illinois state and county officials to impose transfer taxes on transactions moving property to or from the Enterprises. Although the complaint concedes that federal law requires the Enterprises to pay real estate taxes on the value of properties held, it asserts that federal law exempts the Enterprises from other state and local taxation, including taxes tied to property transfers. This suit follows a class action raising the same issues, which was filed by a Florida county against FHFA and the Enterprises on June 15.

    Freddie Mac Fannie Mae FHFA

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  • FinCEN Offers Guidance on Application of BSA Regulations to Daily Money Management Services and Prepaid Card Vendors

    Financial Crimes

    A major global financial company (“Company”) and a Hong Kong subsidiary (“Subsidiary”) agreed on November 17, 2016, to pay approximately $264 million to the DOJ, SEC, and the Federal Reserve, putting an end to a nearly three year, multi-agency investigation of the Subsidiary’s “Sons and Daughters” referral program through which the children of influential Chinese officials and executive decisions makers were allegedly given prestigious and lucrative jobs as a quid pro quo to retain and obtain business in Asia. The conduct occurred over a seven year period, included the hiring of approximately 100 interns and full-time employees at the request and referral of Chinese government officials, and resulted in more than $100 million in revenues to the Company and approximately $35 million in profit to the Subsidiary.

    The Subsidiary entered into a non-prosecution agreement and agreed to pay a $72 million criminal penalty, as well as to continue cooperating with the ongoing investigation and/or prosecution of individuals involved in the conduct. Additionally, the Subsidiary agreed to enhance its compliance programs and report to DOJ on the implementation of those programs. DOJ asserts in its press release that the Subsidiary admitted that, beginning in 2006, senior Hong Kong-based investment bankers set up the referral program as a means to influence the decisions of Chinese officials to award business to the Subsidiary, going so far as to link and prioritize potential hires to upcoming business opportunities, as well as to create positions for unqualified candidates where no appropriate position existed. The Subsidiary also admitted that its bankers and compliance personnel worked together to paper over these arrangements and hide the true purpose of the hire.

    DOJ acknowledged that while the Subsidiary did not voluntarily or timely disclose its conduct, in determining an appropriate resolution DOJ considered a number of actions taken by the Company, including the commencement of a thorough internal investigation, the navigation of foreign data privacy law to produce documents from foreign countries, and the provision of access to foreign-based employees for interviews in the US. Additionally, DOJ considered the employment actions taken by the Subsidiary, which resulted in the departure of 6 employees and the discipline of 23 employees.

    In connection with the same conduct, the Company also settled allegations with the SEC and the Federal Reserve. In a cease and desist order filed today, the SEC found that the Company violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934. The SEC considered the Company’s remedial actions and cooperation with the ongoing investigation, ordering the Company to pay over $105 million in disgorgement and $25 million in interest. Finally, in a consent cease and desist order filed today, the Federal Reserve Board imposed an approximately $62 million civil monetary penalty on the Company for operating an improper referral hiring program and failing to maintain adequate enterprise-wide controls to ensure candidates were vetted and hired appropriately and in accordance with anti-bribery laws and company policies. This order, among other things, requires the Company to enhance its oversight and controls of referral hiring practices and anti-bribery policies, as well as to continue cooperating with the ongoing investigation.

    Anti-Money Laundering FinCEN

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  • New York Appellate Court Holds Electronically Signed Affirmations Admissible


    On June 21, a New York state appellate court held that an electronically signed affirmation is admissible under state court rules. Martin v. Portexit Corp., No. 303854/07, 2012 WL 2344889 (N.Y. App. Div. June 21, 2012). In this personal injury case, the defendants moved for summary judgment in the trial court and relied on two electronically signed expert affirmations. In opposing the motion, the plaintiff argued that the electronically signed affirmations were inadmissible because they did not comply with court rules. The trial court agreed. On appeal, the court determined that the term “subscribed” in state court rules does in fact include electronic signatures; as such, electronic signatures have the same legal effect as handwritten signatures. Further, the court held that under the federal E-SIGN Act and state law, a party to a suit need not prove who placed the electronic signature on an affirmation.

    ESIGN Electronic Signatures

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  • Regulators Extend Foreclosure Review, Issue Financial Remediation Framework, Publish Status Report


    On June 21, the OCC and the Federal Reserve Board announced that the deadline for borrowers to seek review of foreclosures under the Independent Foreclosure Review program has been extended through September 30, 2012. At the same time, the regulators released a Financial Remediation Framework that sets out specific recommendations for remediation of financial injury for servicing errors, depending on the type of error and whether the foreclosure was in progress or complete at the time of remediation. Independent consultants will use the Framework to recommend remediation for financial injury identified during the Independent Foreclosure Review. Each servicer will prepare its own remediation plan based on independent consultant recommendations, which must be approved by the federal banking regulators. Also on June 21, the OCC published its second interim report on the status of the Independent Foreclosure Review and actions required under the April 2011 consent orders.

    Foreclosure Federal Reserve Mortgage Servicing OCC

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  • Federal Agencies Announce New Mortgage-Related Policies to Support Military Homeowners


    On June 21, the CFPB, the federal prudential banking regulators, and the FHFA announced new policies to support servicemember homeowners. The CFPB, the Federal Reserve Board, the FDIC, the NCUA, and the OCC issued joint guidance that identifies specific servicing practices deemed by regulators to present risks to servicemembers. For servicemember homeowners who have received Permanent Change of Station Orders, the guidance instructs servicers to maintain adequate policies and procedures disallowing the identified practices. The guidance also informs servicers that if an agency determines that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate federal consumer financial laws, the agency will take appropriate supervisory and enforcement actions.  Concurrent with the regulators’ announcement, the FHFA announced that military homeowners with Permanent Change of Station Orders and with Fannie Mae or Freddie Mac loans will be eligible to sell their homes in a short sale even if they are current on their mortgage. Under the new policy, Fannie Mae and Freddie Mac will not pursue a deficiency judgment or any cash contribution or promissory note from covered servicemembers for any property purchased on or before June 30, 2012.

    FDIC CFPB Foreclosure Freddie Mac Fannie Mae Federal Reserve Mortgage Servicing HUD OCC FHFA

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  • Supreme Court Asked to Hear New Case Involving Disparate Impact Claims Under the Fair Housing Act


    On June 11, the New Jersey Township of Mount Holly petitioned the U.S. Supreme Court to hear a case involving the use of disparate impact claims under the Fair Housing Act. Specifically, Mount Holly asks the Court to determine whether disparate impact claims are cognizable under the Fair Housing Act, and, if so, how such claims should be analyzed. The issues presented in this case are substantially similar to those the Supreme Court agreed to hear in Magner v. Gallagher, but was unable to hear because the petitioner in Magner withdrew its petition prior to oral argument. As detailed in a recent BuckleySandler article about Magner and the history of the Fair Housing Act, the Supreme Court has never decided whether the FHA permits plain­tiffs to bring claims under a disparate impact theory. The U.S. Department of Justice and HUD, relying on lower court rulings permitting disparate impact claims, have increasingly employed the theory to further their policy goals. More recently, the CFPB repeatedly has stated its intention to apply disparate impact in enforcing ECOA. The instant petition could present an opportunity for the Court to alter the landscape within which federal authorities enforce the Fair Housing Act and other antidiscrimination laws.

    CFPB U.S. Supreme Court HUD Fair Lending

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  • FHFA Announces Multiple New Policy Initiatives


    On June 15, the FHFA published a Notice of Proposed Rulemaking regarding state and local Property Assessed Clean Energy (PACE) programs, as required by a preliminary injunction issued by the Northern District of California in a lawsuit challenging the FHFA’s direction to Fannie Mae and Freddie Mac not to purchase mortgages subject to first-lien PACE obligations, and to the Federal Home Loan Banks to limit exposure to first-lien PACE programs. Under the PACE programs, local governments provide property-secured financing to property owners for the purchase of energy-related home improvement projects. The FHFA believes such financing arrangements present safety and soundness concerns. Several states challenged the FHFA actions in court. While most of the cases were dismissed, California succeeded in forcing the FHFA to conduct a formal rulemaking on the issue. Comments on the proposed rule are due by July 30, 2012.

    On June 18, the FHFA announced an initiative to supplement fraud reporting by the entities it supervises. Under the Suspended Counterparty Program, Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are required to notify the FHFA whenever an individual or company with whom they do business is adjudicated to have engaged in fraud or other financial misconduct. The FHFA also will consider information it receives from other government sources. Based on the reported information, the FHFA will make a determination as to whether the individual or business will be suspended from doing business with the supervised entities. The new program takes effect August 15, 2012.

    On June 19, the FHFA published a Notice and Request for Comment regarding a proposed new rating system to be used in conducting safety and soundness examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The proposal seeks to implement a single risk-focused examination system for all three entities that would be similar to the “CAMELS” rating system used by federal prudential regulators for depository institutions. The FHFA is accepting comments on the proposed system through July 19, 2012.

    Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing FHFA

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  • State Law Update: North Carolina, Connecticut, Ohio Update Banking, Mortgage Laws


    North Carolina Alters Mortgage Regulation Funding Mechanism. On June 20, North Carolina enacted Senate Bill 806, which creates a new funding mechanism for mortgage regulation. The new law replaces the current licensing fee, which offsets the state’s regulatory costs, with an assessment structure similar to the one currently applicable to banks. The change takes effect October 1, 2012.

    Connecticut Enacts Bill to Update State Banking Laws. On June 8, Connecticut enacted Senate Bill 67, which makes numerous revisions to the state banking laws. Among the changes, the law (i) alters mortgage licensing requirements to exempt “housing finance agencies” and nonprofit groups, (ii) requires certain lender and broker employees to be licensed as mortgage loan originators, (iii) requires banks to review a mortgage loan before excusing the borrower from amortization of the principal, (iv) requires that banks consider an obligor’s credit exposure arising from a derivative transaction when determining the obligor’s liability limitations, (v) exempts from certain requirements “loan production offices.” The law also gives new investigatory powers to the state banking commissioner and allows the commissioner to require, without seeking a court order, restitution and disgorgement for banking law violations. Most of the law’s provisions take effect October 1, 2012.

    Ohio Levels Playing Field for State Banks. Recently, Ohio Governor John Kasich signed House Bill 322, permits Ohio-chartered banks, savings banks, savings and loan associations, and credit unions to charge the same or lower rates or amounts of interest, fees, and other charges under a revolving credit agreement that their out-of-state counterparts may charge Ohio customers. The change does not apply to residential mortgages.  It takes effect September 4, 2012.

    Mortgage Licensing Bank Compliance

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