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FTC Settles Charges Related to Sale and Use of Consumer Mortgage Payment Data
On October 10, the FTC announced that a major consumer reporting agency (CRA) agreed to settle charges that it improperly sold lists of consumers who were late on their mortgage payments. The CRA will pay $393,000 to resolve allegations that it violated the FTC Act by failing to implement procedures to prevent the sale of lists of consumer information to firms that should not have received them. In a separate but related case, which the DOJ pursued under a referral from the FTC, a data reseller and its affiliates settled charges that the companies violated the FTC Act and FCRA by (i) obtaining prescreened lists without having a permissible purpose, (ii) reselling the reports without disclosing to the consumer reporting agency that provided them who the end users would be, (iii) failing to maintain reasonable procedures to ensure that prospective users had a permissible purpose to get them, (iv) to the extent that firm offers of credit were made, failing to maintain a record of the criteria used to select consumers for these offers, and (v) failing to control access to sensitive consumer financial information. The resellers agreed to pay a $1.2 million civil penalty and will be barred from using or selling prescreened lists without a permissible purpose, or in connection with solicitations for debt relief or mortgage assistance relief products or services.
Senator Seeks Information from Data Brokers
On October 10, Senator Rockefeller (D-WV), Chairman of the Senate Commerce Committee, sent letters to nine data brokers seeking information about how those companies compile and sell consumer information. For example, Mr. Rockefeller asked that, by November 2, 2012 the data brokers (i) provide a list of the sources from which the brokers have collected or received data from or about consumers over the past four years, (ii) describe the methods of data collection employed, (iii) identify the consumer data collected during that period, and (iv) list the products or services offered to third parties. This follows similar requests made in August by a bipartisan group of members of the House of Representatives. Because the data brokers targeted by members of the respective chambers of Congress overlap only in part, a total of fourteen companies have been asked to produce information and materials to Congress.
Federal Regulators Finalize Bank Stress Test Rules
On October 9, the OCC and the FDIC each finalized a rule to implement the company-run stress test requirements of the Dodd-Frank Act. The stress tests are exercises designed to gauge the losses that covered institutions might experience under hypothetical scenarios established by the regulators. The OCC and FDIC rules apply to covered institutions with average total consolidated assets greater than $10 billion. Covered institutions with assets over $50 billion are subject to the stress test requirements immediately. They will be required to submit results in January 2013 of stress tests based on data as of September 30, 2012 and scenarios that the FDIC and the OCC plan to publish next month. Implementation of the stress test requirements for institutions with assets of $10 billion to $50 billion will not begin until October 2013. Also on October 9, the Federal Reserve Board (FRB) finalized two stress test-related rules. The first rule establishes the stress test requirements for bank holding companies, state member banks, and savings and loan companies with more than $10 billion in total consolidated assets. As with the OCC and FDIC rules, the FRB rule delays implementation of stress test requirements for covered institutions with $50 billion or less in assets until the fall of 2013. Additionally, the results of that first test will not have to be publicly disclosed. The second FRB rule establishes the company-run stress test requirements for bank holding companies with $50 billion or more in total consolidated assets, and nonbank financial companies designated as systemically important by the Financial Stability Oversight Council. These institutions are required to conduct two internal stress tests each year, in addition to a stress test performed by the FRB. Like the OCC and the FDIC, the FRB expects to release its stress test scenarios in November.
Supreme Court Passes on Appeals of Overdraft Litigation Decisions
On October 9, the U.S. Supreme Court denied the petitions for writ of certiorari filed by plaintiffs in two cases challenging the overdraft billing practices of certain banks. Hough v. Regions Financial Corp., No. 12-1139, 2012 WL 3097294 (Oct. 9, 2012); Buffington v. SunTrust Banks, Inc., No. 12-146, 2012 WL 3134482 (Oct. 9, 2012). In March, the U.S. Court of Appeals for the Eleventh Circuit issued two separate, but substantively similar, opinions regarding arbitration agreements at issue in the overdraft litigation. Hough v. Regions Financial Corp., No. 11-14317, 2012 WL 686311 (11th Cir. Mar. 5, 2012); Buffington v. SunTrust Banks, Inc., No. 11-14316, 2012 WL 660974 (11th Cir. Mar. 1, 2012). In both cases, based on the Supreme Court’s holding in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), the Eleventh Circuit vacated district court rulings that the banks’ arbitration clauses were substantively unconscionable under Georgia law because they contained a class action waiver. After further proceedings on remand yielded a second appeal, the Eleventh Circuit held that, under Georgia law, an agreement is not unconscionable because it lacks mutuality of remedy. It also rejected the district court’s holding that the clauses were procedurally unconscionable because the contract did not meet the Georgia standard that an agreement must be so one-sided that “’no sane man not acting under a delusion would make [it] and … no honest man would’ participate in the transaction.” The U.S. Supreme Court’s decision not to review the Eleventh Circuit decisions will now require the plaintiffs to arbitrate their claims against the banks.
FDIC Finalizes Large Bank Assessment Rule
On October 9, the FDIC released a final rule to revise certain definitions included in the large bank pricing assessment system for banks with more than $10 billion in assets. In February 2011, the FDIC published a large bank pricing rule that, among other things, eliminated risk categories and the use of long-term debt issuer ratings. In their place, the FDIC adopted scorecards that combine CAMELS ratings and certain forward-looking measures to assess risk posed by an institution to the FDIC insurance fund. The February rule used existing interagency guidance to define nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans, but refined the definitions to minimize reporting discrepancies. A subsequent FDIC notice added a requirement that covered institutions include nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans data in their Call Reports. In response to industry concerns that institutions generally do not maintain data on those loans consistent with the definitions in the February rule, the current final rule extensively renames and revises the definitions of (i) higher-risk consumer loans, (ii) higher-risk consumer and industrial loans, (iii) nontraditional mortgage loans, and (iv) higher-risk securitizations.
South Carolina Attorney General Discusses Decision To Intervene In Case Challenging Dodd-Frank Act
On October 5th, South Carolina Attorney General (AG) Alan Wilson, in an interview with the STAGE Network, discussed the reasons why he and the AG’s of Oklahoma and Michigan determined to join an earlier existing lawsuit in order to dispute the Orderly Liquidation Authority powers granted by Title II of the Dodd-Frank Act. AG Wilson also gave his perspectives on the appropriate balance between effective consumer protection and unduly burdensome regulation, and commented on the increased coordination among state AG’s in financial services related investigations and litigation. A webcast featuring AG Wilson’s views can be reviewed in its entirety at https://www1.gotomeeting.com/register/348234897.
California Federal District Court Permits FDIC Suit Against Former Bank Officers to Proceed
On October 5, the U.S. District Court for the Central District of California dismissed several affirmative defenses invoked by a group of former bank officers sued by the FDIC as receiver for a failed bank, including their claim of protection from personal liability for business decisions. FDIC v. Van Dellen, No. 10-4915, 2012 WL 4815159 (C.D. Cal. Oct. 5, 2012). The FDIC sued the former officers, alleging that, in pursuit of bonuses for high loan origination volumes, the officers approved homebuilder loans to unqualified borrowers. As part of their defense, the officers claimed that the court should apply the law of the state of Delaware where the bank was incorporated, and not California law where the bank had its principle place of business. The officers sought to invoke Delaware law protecting officers from personal liability for business decisions. The court disagreed and held that (i) California law applies under any choice of law test and (ii) California’s business judgment rule, both as codified and its common law element, immunizes directors from personal liability but not officers. With regard to the officers’ defense that the FDIC claims were time barred as allegations of professional negligence, the court held that the gravamen of the complaint actually is breach of fiduciary duty, which has a longer statute of limitations. The court also reiterated a previous ruling that the officers could not invoke any defenses that would rely on imputing the bank’s pre-receivership conduct to the FDIC as receiver. The court did agree with the officers that any recoveries made by the FDIC in another case should be considered when assessing damages in this case, and that claims regarding certain loans approved by the bank’s federal regulator should be reviewed by a jury.
Federal Nonbank Charter Legislation Faces Opposition from State AGs
On October 5, forty-one state attorneys general (state AGs) reasserted their interest in enforcing state laws regulating short-term, small dollar lenders, including payday lenders. The National Association of State Attorneys General sent a letter to the leadership of the U.S. House of Representatives and the U.S. Senate urging them to oppose H.R. 6139, the Consumer Credit Access, Innovation, and Modernization Act. As previously reported, the Act, introduced by Reps. Luetkemeyer (R-MO) and Baca (D-CA), would allow the OCC to establish a federal charter for certain nonbanks. The state AGs charge that H.R. 6139 would preempt state laws governing consumer lending and generally would undermine states’ authority with regard to consumer protection enforcement. The state AGs acknowledge that the bill would allow them to enforce violations of federal law, but argue that state laws designed for local markets would be preempted and the state AGs’ ability to target abuses as they emerge would be impaired. During a July hearing on the legislation, the OCC and the Conference of State Bank Supervisors also expressed opposition to the legislation.
CFPB to Host Remittance Rules Webinar, Announces Safe Harbor Countries
On October 16, the CFPB will host a webinar on the new requirements for remittance transfer providers. The CFPB issued a final remittance rule at the beginning of this year, and subsequently modified the rule to exempt certain institutions from its disclosure requirements. To further assist industry stakeholders with implementation of the remittance rule, the CFPB has also released a list of countries that qualify for the safe harbor exception to the rule’s disclosure requirements. Under the exception, providers may disclose estimates of the amounts to be received in a foreign currency, fees, and taxes for transfers to Aruba, Brazil, China, Ethiopia, and Libya, in lieu of exact amounts. The remittance rule, and its safe harbor exception, becomes effective February 7, 2013.
Oklahoma Transitions Money Transmitter Licensing to NMLS
On October 1, Oklahoma began transitioning state-licensed money transmitters to the NMLS. Existing and new licensees must create a company record in the NMLS and begin using the system for new licenses and renewals. The NMLS has issued instructions for new applications as well as company transition requests. Because the Oklahoma State Banking Department cannot receive electronic payments, licensees still must mail fee payments to the Department with a copy of the new or renewal application.