InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
9th Circuit: HOLA preempts California interest on escrow law
On September 22, the U.S. Court of Appeals for the Ninth Circuit, in a split decision, reversed the denial of a national bank’s motion to dismiss, holding that state law claims involving interest on escrow accounts were preempted by the Home Owners Loan Act (HOLA). As previously covered by InfoBytes, three plaintiffs filed suit against the bank, arguing that it must comply with a California law that requires mortgage lenders to pay interest on funds held in a consumer’s escrow account, following the U.S. Court of Appeals for the 9th Circuit’s decision in Lusnak v. Bank of America (covered by InfoBytes here). The bank moved to dismiss the action, arguing, among other things, that the claims were preempted by HOLA. The court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan was transferred to a bank whose own lending is not covered by HOLA. The district court granted the bank’s motion for interlocutory appeal.
On appeal, the 9th Circuit disagreed with the district court. Specifically, the appellate court applied the plain meaning of the Office of Thrift Supervision’s preemption regulation, concluding that it “extend[ed] to all state laws affecting a federal savings association, without reference to whether the conduct giving rise to a state law claim is that of a federal savings association or of a national bank.” The appellate court distinguished the case from Lusnak, noting that HOLA preemption is “triggered at a much lower threshold” than National Bank Act. Finally, the appellate court rejected the premise that applying preemption would “run afoul” of HOLA’s purpose of consumer protection, concluding that “HOLA field preemption is so broad that the traditional presumption against preemption does not apply.”
In dissent, a judge argued that the statutory and regulatory text does not support the majority’s conclusion and therefore, HOLA’s application does not excuse the national bank from California’s law requiring interest on escrow accounts.
District court allows Georgia counties’ disparate impact claims to proceed
On September 18, the U.S. District Court for the Northern District of Georgia denied a national bank’s motion to dismiss claims that the bank and its subsidiaries’ (collectively, “defendants”) mortgage originating and servicing practices and policies had a disparate impact on, and resulted in disparate treatment of, minority borrowers, in violation of the Fair Housing Act (FHA). The plaintiffs, three Georgia counties, filed a second amended complaint raising two disparate impact claims and one disparate treatment claim under the FHA, claiming the defendants’ lending and servicing practices—which included allegedly targeting minority borrowers for higher cost loan products, approving unqualified minority borrowers for loans they could not afford, and providing less favorable terms for loan modifications—were “designed to reduce the overall equity minority borrowers located within their counties had in their homes.” The practices, among other things, allegedly caused African-American and Latino borrowers to receive disproportionately higher cost mortgage loans than similarly situated white, non-Latino borrowers, creating an increase in defaults and foreclosures, and causing the plaintiffs to incur alleged damages, including out-of-pocket foreclosure-related costs and increased municipal expenses, and loss of property tax revenues due to decreased home values.
The defendants moved to dismiss, asserting, among other things, that the plaintiffs failed to properly allege their disparate impact claims under Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a previous Buckley Special Alert). The defendants also argued that the plaintiffs’ municipal “economic injuries were not proximately cause by the [d]efendants’ discriminatory policies under [City of Miami Garden v. Wells Fargo & Co.]” (covered by InfoBytes here), and that the plaintiffs failed to allege specific allegations within the FHA’s two-year statute of limitations.
The court granted the motion in part and denied it in part. With respect to the disparate impact claims, the court applied Inclusive Communities and held that the plaintiffs identified several specific policies that caused the alleged disparate impact. The court also rejected the statute of limitations arguments and held that the plaintiffs “‘can prove a set of facts’ showing a timely violation of the FHA.” The court dismissed certain of the counties’ injury claims—the plaintiffs’ attempts to recover franchise tax and municipal expenses (police, fire, and sanitation services related to vacant or foreclosed-upon properties)—ruling that plaintiffs failed to establish proximate cause and “explain how their municipal services injuries ‘are anything more than merely foreseeable consequences’ of [the d]efendants’ discriminatory acts.”
OCC announces settlements with former senior executives over account openings
On September 21, the OCC announced settlements with three former senior executives of a national bank for their roles in the bank’s incentive compensation sales practices. According to consent orders (see here and here), the OCC alleged that two of the individuals either “knew or should have known” about the sales misconduct problem and its root cause, but allegedly failed to, among other things, appropriately consider concerns about the “unreasonably high sales goals” and the associated risks of incentivizing sales of secondary deposit products. The third individual—previously in charge of identifying human resource risks—allegedly approved incentive compensation plans that overly incentivized sales and failed to respond to or escalate information received about unreasonable sales goals. In addition to paying civil money penalties, the individuals—who did not admit or deny wrongdoing—have each agreed to cooperate with the OCC in any investigation, litigation, or administrative proceeding related to sales misconduct at the bank.
As previously covered by InfoBytes, in January, the OCC reached settlements with three other former senior executives in January for their alleged roles in the bank’s sales practices misconduct, and issued notices of charges against five others.
FHFA extends Covid-19 flexibilities until October 31
On September 24, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA has extended until October 31 existing guidelines related to: (i) GSE purchases of qualified single-family mortgages in forbearance that meet specific eligibility criteria; (ii) alternative appraisal requirements on purchase and rate term refinance loans; (iii) alternative methods for documenting income and verifying employment before loan closing; and (iv) expanding the use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2020-03, LL 2020-04, LL-2020-06, and Freddie Mac Guide Bulletin 2020-37.
OCC: Banks may hold stablecoins in reserve accounts
On September 21, the OCC released Interpretive Letter 1172, stating that national banks may hold stablecoin in reserve accounts as a service to bank customers and may engage in activity incidental to receiving the deposits. According to the OCC, issuers of stablecoins—a type of cryptocurrency backed by an asset such as a fiat currency—have a desire to place assets in reserve accounts with national banks to “provide assurance that the issuer has sufficient assets backing the stablecoin in situations where there is a hosted wallet.” Hosted wallet, as defined by the OCC, is “an account-based software program for storing cryptographic keys controlled by an identifiable third party.” Because national banks are authorized to receive deposits and provide “permissible banking services to any lawful business they choose,” they may provide these services to issuers of stablecoins, as long as they comply with applicable laws and regulations. (In Interpretive Letter 1170, the OCC approved the holding of cryptocurrency on behalf of customers, covered by InfoBytes here.) Specifically, the OCC noted that national banks should ensure that deposit activities comply with the Bank Secrecy Act and anti-money laundering regulations. Moreover, a national bank must also “identify and verify the beneficial owners of legal entity customers opening accounts.” Lastly, the OCC emphasized that stablecoin reserves “could entail significant liquidity risks,” and national banks may consider entering into contractual agreements with stablecoin issuers to “verify and ensure that the deposit balances held by the bank for the issuer are always equal to or greater than the number of outstanding stablecoins issued by the issuer.” This guidance does not apply to stablecoin transactions involving un-hosted wallets.
Supplement marketer again settles with FTC over negative option marketing
On September 22, the FTC announced a $1.04 million settlement with a supplement marketer and its two officers (collectively, “defendants”), resolving allegations that the defendants engaged in deceptive sales and billing practices, in violation of the Restore Online Shoppers’ Confidence Act (ROSCA), the Telemarketing Sales Rule (TSR), and a previous court order. Previously, in 2016, the marketer entered into a settlement with the FTC covering allegations that the company engaged in negative option marketing by enrolling consumers in a membership program that billed up to $79.99 monthly unless the consumers canceled within an 18-day trial period. The 2016 settlement barred the company from, among other things, (i) obtaining consumers’ billing information without first disclosing they would be charged, that the charge would increase after a certain period, or that the charge would be reoccurring; (ii) obtaining payment from consumers without express written authorization; and (iii) failing to provide a simple way for consumers to cancel.
According to the FTC’s new complaint, from 2016 to 2019, the defendants violated the previous consent order, ROSCA, and TSR by failing to clearly and conspicuously disclose that in order to cancel, consumers must contact the company “at least one day before the end of the advertised Free Trial Period to avoid being charged for the monthly membership program.” The agreed-upon proposed contempt order requires the defendants to pay nearly $1.04 million to be used for equitable relief, including consumer redress.
FTC settles first consumer protection case against a VoIP service provider
On September 22, the FTC and the Ohio attorney general announced several proposed stipulated final orders against a Voice over Internet Protocol (VoIP) service provider, along with an affiliated company, the VoIP service provider’s former CEO and president, and a number of other subsidiaries and individuals, to settle allegations concerning their facilitation of a credit card interest rate reduction scheme. This marks the FTC’s first consumer protection case against a VoIP service provider. According to the FTC and the AG, the VoIP service provider provided one of the defendants with the ability to place illegal robocalls in order to market “phony credit card interest rate reduction services.” Both of these defendants were controlled by the VoIP service provider’s former CEO who was also named in the lawsuit. In addition, the defendant that placed the illegal calls, along with four additional defendants, are accused of managing the overseas call centers and other components used in the credit card interest rate reduction scheme.
One of the settlements will prohibit the former CEO, along with two corporations under his control, from (i) participating in any telemarketing in the U.S.; (ii) marketing any debt relief products or services; and (iii) making misrepresentations when selling or marketing any products or services. These defendants will collectively be subject to a $7.5 million judgment, which is mostly suspended due to their inability to pay.
The settlement with the VoIP service provider and the affiliated company will require a payment of $1.95 million. The VoIP service provider and its U.S.-based subsidiaries will also be prohibited from hiring the former CEO or any of his immediate family members, as well as from hiring two of the other defendants. These defendants will also be required to follow client screening and monitoring provisions, and are prohibited from providing VoIP and related services to clients who pay with stored value cards or cryptocurrency, or to clients who do not maintain public-facing websites or a social media presence. Additionally, the defendants will be required to block calls that may appear to come from certain suspicious phone numbers, block calls that use spoofing technology, and terminate certain high-risk relationships.
The settlements (see here, here, and here) reached with the defendant that placed the illegal calls and four additional defendants include prohibitions similar to those issued against the former CEO, and will require the payment of a total combined judgment of $10.3 million, which will be largely suspended due to their inability to pay.
All settlements are subject to court approval.
Asphalt company agrees to pay over $16 million to settle FCPA charges
On September 22, the DOJ announced that a Florida-based asphalt company pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA, agreeing to pay a $16.6 million criminal fine to resolve the charges. According to the information filed in the U.S. District Court for the Eastern District of New York, the company and its affiliates bribed foreign officials in Brazil, Venezuela, and Ecuador with millions of dollars in order to “obtain contracts to purchase or sell asphalt to the countries’ state-owned and state-controlled oil companies, in violation of the FCPA.” Between 2010 and 2015, to execute the bribery scheme in Brazil, the company entered into fake consulting agreements with intermediaries and sent international wires from company bank accounts to offshore bank accounts controlled by the bribe intermediaries. The intermediaries would then pay bribes to Brazilian government officials on the company’s behalf. In Venezuela, between 2012 and 2018, the company used similar fake consulting agreements to bribe Petróleos de Venezuela, S.A. (PDVSA) officials and used code names to hide the names of PDVSA officials in emails and texts. Lastly, in 2014, the company again used similar sham consulting arrangements to bribe Ecuador’s state-owned oil company to secure a contract to supply asphalt.
The announcement notes that the DOJ recently unsealed charges and guilty pleas of five individuals involved in the bribery scheme, including a company senior executive, a company trader, two bribe intermediaries, and a former PDVSA official. Additionally, the announcement states that a different company trader pleaded guilty in 2017 for his role in the scheme and a pending criminal complaint against a former PDVSA official was also recently unsealed in federal court.
OFAC sanctions individuals for supporting Maduro regime
On September 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against five key individuals for allegedly “facilitate[ing] the illegitimate Maduro regime’s efforts to undermine democracy in Venezuela.” The sanctions, issued pursuant to Executive Order 13692, reflect Treasury’s continued efforts to hold persons who offer support to the Maduro regime accountable. As a result, all property and interests in property belonging to the identified individuals subject to U.S. jurisdiction are blocked, and “any entities that are owned, directly or indirectly, 50 percent or more by the designated individuals, are also blocked.” U.S. persons are generally prohibited from dealing with any property or interests in property of blocked or designated persons.
Oklahoma regulator amends working from home guidance
On September 23, the Oklahoma Department of Consumer Credit extended, for the third time, its interim guidance to regulated entities on working from home (see here, here, here and here for previous coverage). The guidance sets forth data security standards that regulated entities must meet in order to satisfy the department guidance. The guidance also provides that the department will expedite and waive fees for change of address applications in the event that a licensed location is compromised by Covid-19 or is undergoing decontamination. The guidance was extended through October 31, 2020.