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New York regulator permits video hearings
October 9, the New York State Department of Financial Services amended its rules governing adjudication proceedings to permit hearings to be held by videoconference. Whether a hearing is conducted by videoconference is at the discretion of the official who issued the notice for the hearing, although the respondent or applicant may object. When a hearing is conducted by videoconference, none of the parties nor the hearing officer need by physically present at the same location. The amendments, which were adopted on an emergency basis, will remain effective for 90 days from the date of filing. The regulator intends to submit a similar notice of proposed rulemaking in the future.
Financial services firm fined $400 million for risk-management deficiencies
On October 7, the OCC and Federal Reserve Board announced enforcement actions against a financial services firm and its national bank subsidiary (bank) to resolve alleged enterprise-wide risk management, data governance, and internal controls deficiencies. According to the OCC’s announcement, the bank allegedly engaged in unsafe or unsound banking practices by failing to “establish effective risk management and data governance programs and internal controls.” While neither admitting nor denying the allegations, the bank has agreed to pay a $400 million civil money penalty. Additionally, under the terms of the OCC’s cease and desist order, the bank must implement corrective measures to improve its risk management, data governance, and internal controls. The agency’s announcement states that the order further requires the bank “to seek the OCC’s non-objection before making significant new acquisitions and reserves the OCC’s authority to implement additional business restrictions or require changes in senior management and the bank’s board should the bank not make timely, sufficient progress in complying with the order.”
In conjunction with the OCC’s action, the Fed also announced a cease and desist order against the financial services firm, which identified ongoing deficiencies with respect to areas of compliance risk management, data quality management, and internal controls. Among other things, the Fed claims the firm also failed to adequately remediate “longstanding” deficiencies identified in previously issued consent orders, including in areas such as anti-money laundering compliance. The order requires the firm to enhance firm-wide risk management and internal controls, and imposes a series of deadlines for the firm to take measures to ensure compliance with the OCC’s order, enhance its compliance risk management programs, devise a plan to hold senior management accountable, and improve data quality management.
CFPB offers RESPA guidance on MSAs
On October 7, the CFPB issued FAQs covering RESPA Section 8 and corresponding Regulation X sections. The FAQs provide a general overview of Section 8 and its prohibited activities. The FAQs also address the application of Section 8 to common scenarios involving gifts and promotional activities and marketing services agreements (MSAs). Highlights of the examples include:
- Gifts. The FAQs note that if a gift ( “thing of value”) is given or accepted as part of an agreement or understanding for referral of business related to a real estate settlement service involving a federally related mortgage loan then it is prohibited under Section 8. The FAQs emphasize that the agreement or understanding need not be in writing or oral and can be established by a practice, pattern, or course of conduct.
- Promotional activities. The FAQs state that promotional or educational activities connected to a referral source would be allowed under Regulation X if the activities (i) are not conditioned on referral of business; and (ii) do not involve defraying expenses that otherwise would be incurred by the referral source. The FAQs describe these conditions in more detail and provide example of activities that meet and do not meet Regulation X’s conditions.
- Marketing Services Agreements. The FAQs emphasize that MSAs that involve payments for referrals are prohibited under RESPA Section 8(a), whereas MSAs that involve payments for marketing services may be permitted under RESPA Section 8(c)(2), depending on certain facts and circumstances. MSAs are lawful under RESPA when structured and implemented as an agreement for the performance of actual marketing services and the payment reasonably reflects the value of the services performed. The FAQs provide examples of prohibited MSAs under Section 8(a) and Section 8(b), including (i) agreements structured to provide payments based on the number of referrals received; or (ii) the use of split charges, either being paid to a person that does not actually perform the services or the amount paid exceeds the value of the services performed by the person receiving the split.
Notably, with the release of the FAQs, the Bureau is rescinding its Compliance Bulletin 2015-05, entitled RESPA Compliance and Marketing Services Agreements, noting that the Bulletin “does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X.” The Bureau emphasizes that with the rescission, MSAs will still “remain subject to scrutiny, and [the Bureau] remain[s] committed to vigorous enforcement of RESPA Section 8.”
U.S. Supreme Court to continue remote oral arguments through December
On October 9, the United States Supreme Court announced that all oral arguments scheduled for November and December will take place by telephone conference, and all parties will participate remotely. The proceedings will follow a similar format as hearings in October, including for live audio feed, and posting of audio and transcripts on the website daily.
Fannie Mae updates Covid-19 Seller FAQs
On October 8, Fannie Mae updated its Covid-19 Seller FAQs to include new guidance covering, among other things, (i) general standards for audited profit and loss statements; (ii) when a mortgage loan is considered to be reinstated; (iii) reusing desktop and exterior-only appraisals for subsequent refinances; and (iv) using credit supplements as a form of due diligence to determine whether a borrower’s existing mortgage payments are current. Additionally, Fannie Mae updated previous questions related to refinancing an existing loan in forbearance and timely payments in certain repayment plans.
Federal banking agencies amend capital rules to encourage support of recovery
On October 8, the OCC, FDIC and Federal Reserve Board finalized two rules intended to encourage depository institutions to utilize their capital buffers, which must be maintained in order to avoid having restrictions placed on capital distributions, for lending and other financial intermediation activities. The agencies amended rules governing risk-based capital and leverage ratio requirements for U.S. banking organizations, to make limitations on capital distributions more gradual in nature. The agencies also amended rules governing the total loss-absorption capacity of the largest U.S. bank holding companies and U.S. operations of the largest foreign banking organizations.
District court: Debt collector must disclose partial payment or promise to pay will restart statute of limitations
On September 28, the U.S. District Court for the Northern District of Illinois granted a plaintiff’s motion for summary judgment in an FDCPA action, ruling that a debt collector (defendant) was required to disclose that a partial payment or new promise to pay would restart the statute of limitations under state law. The plaintiff received a dunning letter from the defendant seeking to collect time-barred credit card debt. A disclaimer included in the letter, which presented several options to resolve the debt, stated: “The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau. In addition, we will not restart the statute of limitations on the debt if you make a payment.” The plaintiff filed a lawsuit alleging violations of Sections 1692e and 1692f of the FDCPA, claiming that the disclosure language was misleading and deceptive because it failed to disclose (i) “the effect of partial payment on the statute of limitations”; (ii) “that the statute of limitations on the debt had run”; and (iii) “that no information about the debt could be reported to credit bureaus.” The defendant countered that the first two sentences of the disclosure were included pursuant to a consent order with the CFPB and “that its policy is to continue treating a time-barred debt as expired even if a consumer makes a partial payment.” The defendant further argued that there was “no potential ‘pitfall’ to partial payment” because of its policy not to restart the statute of limitations when a partial payment was made, and that its “explicit promise that it will not sue even if Plaintiff makes a payment dispels any potential confusion.”
The court disagreed, finding that the defendant’s promise not to restart the statute of limitations without disclosing that a partial payment or a promise to pay would restart the statute was “misleading and deceptive” under Illinois law. The court also ruled that the plaintiff “is not expected to know [the defendant’s] internal policies regarding suing on debts where the statute of limitations has run or rely on its promises to not pursue a debt collectible in court after the statute of limitations protection has been forfeited.” The defendant’s policy, the court stated, does not obviate the “need to explain the mechanics of reviving the statute of limitations under Illinois law.”
District court certifies another RESPA class over kickback referrals
On October 2, the U.S. District Court for the District of Maryland certified a class of mortgage borrowers who alleged that a Maryland bank referred them to a title firm in exchange for cash and kickbacks in violation of RESPA. The court’s decision approved a class defined as borrowers of federally-related mortgage loans originated or brokered by the bank who were referred to the title firm in connection with the closing of their loan. As previously covered by InfoBytes, the case originally was dismissed on the grounds that the plaintiffs’ RESPA claims were time-barred, but the U.S. Court of Appeals for the Fourth Circuit reversed the decision, finding that the plaintiffs were entitled to proceed because the kickback scheme was allegedly “fraudulently concealed” by the defendants. Among other things, the plaintiffs claimed that the title firm provided bank loan officers kickbacks in exchange for referrals, including cash payments, free marketing materials, credits for future marketing services, and customer referrals from other lenders. Because of these alleged kickbacks, the plaintiffs contended they were deprived of “impartial and fair competition” and “paid more for their settlement services than they otherwise would have.” The defendant argued, among other things, that the plaintiffs lacked standing because they did not suffer a concrete injury, and that the class was overboard because the plaintiffs had not proven that each loan was affected by a RESPA violation or that every loan fell outside a relevant exemption.
The court found that the plaintiffs had standing, stating that the plaintiffs have shown evidence supporting their claims that they may have been overcharged. But the court also noted that the bank may be able to continue to challenge that the plaintiffs failed to allege more than a mere procedural violation of RESPA. The court likewise rejected the bank’s objections to class certification, ruling that the plaintiffs were able to show that a majority of the loans were not subject to a RESPA exemption, and that the concern over RESPA exemptions “does not predominate over the numerous, imperative questions that are answerable on a class-wide basis.”
District court: No subject-matter jurisdiction for unconstitutional TCPA section
On September 28, the U.S. District Court for the Eastern District of Louisiana granted in part and denied in part a motion to dismiss, concluding that the court lacked subject matter jurisdiction in a TCPA action over 129 out of 130 robocalls made prior to the U.S. Supreme Court’s July 6 decision in Barr v. American Association of Political Consultants Inc (AAPC) (covered by InfoBytes here). According to the opinion, the plaintiffs filed a putative class action against a telecommunications company for violating Section 227(b)(1)(A)(iii) of the TCPA, which prohibits robocalls to cell phones without prior express consent. The company moved to dismiss the action, arguing that the Supreme Court decision in AAPC—which concluded the government-debt exception in Section 227(b)(1)(A)(iii) is an unconstitutional content-based speech restriction—makes the alleged violations unenforceable in federal court because the provision was determined to be unconstitutional. In response, the plaintiffs argued that because the Supreme Court’s decision preserved the general ban on robocalls to cellphones by severing “the new-fangled government-debt exception,” the Supreme Court “confirmed that [Section] 227(b)(1)(A)(iii) was constitutional all along.”
The district court disagreed with the plaintiffs, concluding that during the years that Section 227(b)(1)(A)(iii) permitted robocalls for government-debt collection while prohibiting other categories of robocalls, the entirety of the provision was unconstitutional. The district court noted that the Supreme Court’s opinion in AAPC provided little guidance, only “dicta of no precedential force.” The court looked to Justice Gorsuch’s opinion concurring in part and dissenting in part, noting his reasoning was better “as a matter of law and logic.” Because the entirety of Section 227(b)(1)(A)(iii) was unconstitutional prior to the Supreme Court’s severance of the government-debt exception on July 6, the district court dismissed the action with respect to the alleged TCPA violations that occurred prior to that date, but denied dismissal for the one robocall made after July 6. Lastly, the court granted a stay of the action pending the Supreme Court’s decision in Duguid v. Facebook, Inc (covered by InfoBytes here and here).
Senate Democrats question CFPB’s lack of restitution in VA ad settlements
On October 1, sixteen Democratic Senators sent a letter to CFPB Director Kathy Kraninger, expressing concern over the Bureau’s failure to obtain restitution in eight recent settlements with mortgage lenders for allegedly mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that contained misleading statements or lacked required disclosures (covered by InfoBytes here). The letter states that while the Bureau collected approximately $2.8 million in civil penalties over the eight settlements, it did not require any company to pay restitution to harmed consumers. The letter argues that the failure to obtain restitution in these matters was a departure from the Bureau’s practice in previous cases where it obtained restitution for consumers who enrolled in a service connected to allegedly deceptive advertising. The letter notes that, if the Bureau was not able to determine a restitution amount based on the “millions of advertisements” that were sent, it had the authority to seek disgorgement as a remedy. The letter requests the Bureau elaborate on, among other things, its decision not to seek restitution for consumers in the cited actions and to provide information about the standard the Bureau uses to determine when to provide restitution.