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SEC issues multiple whistleblower awards
On April 20, the SEC announced a $5 million award to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower “provided critical evidence of wrongdoing, which helped save time and resources in the SEC’s investigation.” The formal order also states that the whistleblower “promptly reported the information” and “suffered a unique hardship” by being terminated shortly after raising concerns internally.
Earlier on April 16, the SEC announced an award of more than $27 million to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower provided “critical investigative leads,” tied in part to misconduct occurring overseas, that “advanced the investigation and saved significant Commission resources.” The formal order also stated that the whistleblower, among other things, provided substantial assistance and cooperation, relayed information that “helped the Commission further significant law enforcement interests,” and “repeatedly and strenuously” raised concerns about internal misconduct within the whistleblower’s organization. The award is the sixth largest overall award since the program began.
According to the SEC, as of April 20 it has awarded 80 individuals a total of approximately $430 million in whistleblower awards since its first award in 2012.
District court says $267 million robocall verdict is not unconstitutionally excessive
On April 17, the U.S. District Court for the Northern District of California issued an order granting in part and denying in part several motions pertaining to a class action lawsuit, which accused a debt collection agency (defendant) of violating the TCPA, FDCPA, and the California Rosenthal Fair Debt Collection Practices Act by using repeated robocalls and pre-recorded voices messages to collect debt. As previously covered by InfoBytes, last September the court entered a $267 million final judgment against the defendant, consistent with a jury’s verdict that found the defendant liable for violating the TCPA by making more than 500,000 unsolicited robocalls using autodialers. Under the terms of the judgment each class member was awarded $500 per call. The defendant argued that the award was unconstitutionally excessive and violated due process, and requested that the court reduce the per violation amount. The court was unpersuaded and upheld the judgment, stating that the defendant failed to identify (and the court could not find) any “Ninth Circuit authority on how a district court should reduce damages that are found to be unconstitutionally excessive.” While acknowledging that the award was “significant,” the court stated that it also “evidences the fervor with which the United States Congress was attempting to regulate the use of autodialers for non-consensual calls” and that “the unilateral slashing of an award does not only ignore the plain words of the statute, the task is devoid of objectivity.” Among other actions, the court granted the defendant’s request to amend the final judgment to reflect that allegations concerning “willful and/or knowing violations of the TCPA” were dismissed with prejudice and that the defendant succeeded at summary judgment on the FDCPA and state law claims. However, the court denied the defendant’s request to release any surplus or residue amounts not distributed to a class member back to the company. The court also approved the class counsel’s motion for more than $89 million in attorneys’ fees and non-taxable costs of $277,416.28, and awarded the named plaintiff a $25,000 service award.
FHFA: Fannie, Freddie to temporarily buy mortgages in forbearance due to Covid-19
On April 22, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (GSEs) will purchase “certain single-family mortgages in forbearance that meet specific eligibility criteria” for a limited period in an effort to provide liquidity to ensure continued lending. Current policies dictate that the GSEs do not purchase loans that are in forbearance; however, due to the economic effects of Covid-19, FHFA will begin allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs. The temporary selling requirements in Freddie Mac Bulletin 2020-12 allow lenders to sell to the GSE mortgages in forbearance only on mortgages for home purchases or “no cash-out” mortgage refinances. Further, the mortgages must have note dates between February 1, 2020 and May 31, 2020, the dates of settlement must be after May 1, and the mortgages must not be more than 30 days delinquent. Fannie Mae Lender Letter 2020-06 follows most of the same guidelines provided in the Freddie Mac bulletin, but Fannie Mae will also buy mortgages for limited cash-out refinances. To limit losses, the GSEs will charge sellers loan-level price adjustments of 5 percent for loans to first-time homebuyers, and 7 percent for all others.
NCUA amends capital regulation to conform to CARES Act
On April 22, the NCUA approved an interim final rule (IFR) amending its capital adequacy regulation to align with the CARES Act. The NCUA amended its risk-based capital requirements to provide for a zero percent risk weight for Paycheck Protection Program (PPP) loans. Further, to neutralize the effect of the PPP loans on credit unions, the IFR will allow credit unions to omit covered loans from their total assets calculation when determining their net worth ratios. However, the covered loans must be “pledged as collateral for a non-recourse loan that is provided as part of the [Fed’s] PPP Lending Facility.” The IFR also amended “the definition of a commercial loan in the NCUA’s member business loans and commercial lending rule” to exclude PPP loans. This IFR is effective upon publication in the Federal Register, after which comments will be accepted for 30 days.
Vermont attorney general declares CARES stimulus checks exempt from garnishment/collection
On April 21, Vermont’s attorney general issued a directive to debt collectors, creditors, and financial institutions declaring that CARES Act stimulus payments are exempt from garnishment or collection under Vermont law. In addition, the directive asks banking institutions to voluntarily suspend any set-offs or other collection activity for overdrafts and fees that could impact the stimulus payments.
Maine governor relaxes certain lending requirements for Covid-19 loan guarantee program
On April 21, Maine’s governor issued an executive order concerning the Covid-19 Loan Guarantee Program recently established by Maine’s legislature. The order suspends the enforcement of certain statutory lending requirements law to allow financial institutions to consider a consumer’s creditworthiness and extent the amortization period of loans issued pursuant to the program. The order also extends certain grace periods, repayment periods, and claims provisions.
New York attorney general: CARES Act payments are exempt from setoff, garnishment
On April 21, New York Attorney General Letitia James issued guidance clarifying that New York law exempts emergency stimulus payments made under the CARES Act from garnishment. Additionally, although New York law may, in certain circumstances, permit a bank to seize funds in a consumer’s account to pay a debt owed to the bank, the Office of the Attorney General views such a setoff against a CARES Act payment as unfair and abusive. James warned that the Office of the Attorney General would aggressively pursue any creditor or debt collector that garnishes or exercises a right of setoff against a CARES Act payment in violation of New York law.
Georgia Department of Banking and Finance issues bulletin regarding lending, liquidity, business continuity, and regulatory reporting
The Georgia Department of Banking and Finance has issued its monthly bulletin for financial institutions in which it provides guidance on lending, liquidity, business continuity planning, and regulatory reporting. Among other things, the department reiterates the importance of liquidity risk management during Covid-19 and urges financial institutions to consider the impact of certain scenarios on their liquidity. The department also provides questions that financial institutions should consider as part of their pandemic planning. The bulletin also notes that, for banks and credit unions, the department is implementing electronic document and payment submission for correspondence, applications, and requests, including any applicable fees.
FHFA: Servicers obligated to advance only four months of payments on loans in forbearance
On April 21, the Federal Housing Finance Agency (FHFA) announced it has aligned Fannie Mae’s and Freddie Mac’s (GSEs) “policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans.” The plan, which is applicable to all GSE servicers regardless of type or size, limits servicers’ obligations to advance scheduled principal and interest payments to mortgage-backed securities (MBS) investors after a servicer has advanced four months of missed borrower payments on a loan. FHFA further clarifies that loans in forbearance due to Covid-19 will not be purchased out of MBS pools by the GSEs, but will instead “be treated like a natural disaster event and will remain in the MBS pool,” reducing potential liquidity demands on the GSEs. FHFA notes that both the agency and the GSEs will continue to monitor Covid-19’s impact on the housing finance market and will make policy updates as necessary.
11th Circuit: Borrowers’ state-law claims not preempted by Higher Education Act
On April 10, the U.S. Court of Appeals for the Eleventh Circuit vacated a district court’s dismissal of borrowers’ state law claims against a student loan servicer, holding that the claims were not preempted by the federal Higher Education Act (HEA). The decision results from a lawsuit filed by two federal student loan borrowers who alleged the servicer violated the Florida Consumer Collection Practices Act (FCCPA) and other state laws by making “affirmative misrepresentations to them and to other borrowers that they were on track to have their student loans forgiven based on their public-service employment when, in fact, their loans were ineligible for the forgiveness program.” The borrowers claimed that, after making years of payments, they discovered they were not eligible for the Public Service Loan Forgiveness (PSLF) Program because most of their loans were not federal direct loans. Both borrowers contended that had they not been misinformed, they would have taken the necessary steps to ensure eligibility. The district court dismissed the borrowers’ claims on the grounds that they were expressly preempted under section 1098g of the HEA, which prohibits the application of state-law disclosure requirements to federal student loans.
On appeal, the 11th Circuit determined that the borrowers’ claims were not expressly preempted by the HEA, concluding that the precise language in section 1098g “preempts only state law that imposes disclosure requirements; state law causes of action arising out of affirmative misrepresentations a servicer voluntarily made that did not concern the subject matter of required disclosures imposes no ‘disclosure requirements.’” Among other things, the appellate court noted that the borrowers did not allege that the servicer failed to provide information it was legally obligated to disclose, but rather that the information provided to the borrowers concerning their eligibility for the PSLF program was false. “Holding [the servicer] liable for offering false information would therefore neither impose nor equate to imposing on servicers a duty to disclose information,” the appellate court wrote. In addition to dismissing the servicer’s field preemption argument, the appellate court reasoned that its decision “does no harm to standardization of disclosures for federal student loan programs.” The court vacated the district court’s dismissal, and remanded the case for further proceedings.