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Financial Services Law Insights and Observations


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  • U.S. hits law firm with FHA violations; loan modifications discriminated against Hispanic borrowers


    On October 30, the U.S. Attorney for the Middle District of Florida filed a lawsuit against a Florida legal services provider and two of its officers (defendants) for allegedly violating the Fair Housing Act by “intentionally discriminating against Hispanic homeowners by targeting them with a predatory mortgage loan modification and foreclosure rescue services scheme.” Specifically, the complaint alleges that the defendants, among other things, (i) targeted borrowers through the use of Spanish-language advertisements that allegedly promised to cut mortgage payments in half; (ii) promised payments would be lowered “in a specific timeframe in exchange for thousands of dollars of upfront fees and continuing monthly fees of as much as $550,” without delivering the promised loan modifications; (iii) instructed borrowers to stop making monthly mortgage payments and to stop communicating with their lenders; and (iv) had borrowers sign English-language contracts while only translating the provisions regarding payment. The complaint seeks to enjoin the defendants from participating in discriminatory activities on the basis of national origin, and requests monetary damages and civil penalties.

    Lending Predatory Lending FHA DOJ Mortgages

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  • 9th Circuit denies petition for en banc rehearing of TCPA action against gym


    On October 30, the U.S. Court of Appeals for the 9th Circuit denied a California gym’s petition for a rehearing en banc of the court’s September decision reviving a TCPA putative class action. As previously covered by InfoBytes, the appeals court vacated a district court order granting summary judgment in favor of the gym, concluding that there was a genuine issue of material fact as to whether the text system used by the gym—which stores numbers and dials them automatically to send the messages—qualified as an “autodialer” under the TCPA. Notably, in vacating the summary judgment order, the 9th Circuit performed its own review of the statutory definition of an autodialer in the TCPA, because the recent D.C. Circuit opinion in ACA International v. FCC (covered by a Buckley Sandler Special Alert) set aside the FCC’s definition. Through this review, the appeals court concluded that the TCPA defined an autodialer broadly as “equipment which has the capacity—(i) to store numbers to be called, or (ii) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers automatically (even if the system must be turned on or triggered by a person).”

    Courts ACA International Ninth Circuit Appellate TCPA Autodialer D.C. Circuit Class Action

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  • Fed proposes supervisory categories

    Agency Rule-Making & Guidance

    On October 31, the Federal Reserve announced a proposed rulemaking to more closely match certain regulations for large banking organization with their risk profile. The proposal would establish four risk-based categories for applying the regulatory capital rule, the liquidity coverage ratio rule, and the proposed net stable funding ratio rule for banks with $100 billion or more in assets. Specifically, the Federal Reserve proposes to establish the four categories using risk-based indicators, such as size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure. According to the proposal, the most significant changes will be for banks are in the two lowest risk categories:

    • Banks with $100 billion to $250 billion in total consolidated assets would generally fall into the lowest risk category and would (i) no longer be subject to the standardized liquidity requirements; (ii) no longer be required to conduct company-run stress tests, and (iii) be subject to supervised stress tests on a two-year cycle.
    • Banks with $250 billion or more in total consolidated assets, or material levels of other risk factors, that are not global systemically important banking institutions (GSIBs), would (i) have reduced liquidity requirements; and (ii) only be required to perform company run stress tests on a two-year cycle. These banks would still be subject to annual supervised stress tests.

    Banks in the highest two risk categories, including GSIBs, would not see any changes to capital or liquidity requirements. A chart of the proposed requirements for each risk category is available here.

    Comments on the proposal must be received by January 22, 2019.

    Additionally, the Federal Reserve released a joint proposal with the OCC and FDIC that would tailor requirements under the regulatory capital rule, the Liquidity Coverage Ratio and the proposed Net Stable Funding Ratio to be consistent with the prudential standard changes.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC Bank Supervision GSIBs Liquidity Standards Stress Test

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  • Freddie Mac releases various selling updates in Guide Bulletin 2018-19

    Federal Issues

    On October 31, Freddie Mac released Guide Bulletin 2018-19, which announces selling updates, including updates to the Settlement/Closing Disclosure Statement that sellers are required to use for mortgages with note dates on or after September 25, 2017. Effective immediately, Freddie Mac and Fannie Mae have jointly agreed that sellers “must create or obtain . . . the [c]losing [d]isclosure form for each [m]ortgage, regardless of whether another form might also be required by a [s]tate or local law.” Bulletin 2018-19 additionally states that, with the exception of certain servicing transactions, the Settlement/Closing Disclosure Statement means the closing disclosure required under TILA for mortgages subject to TRID rules, “whether or not the TRID rules apply to the transaction.”

    Among other things, Bulletin 2018-19 also (i) updates certain rental income and documentation requirements; (ii) removes the special loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit TLTV ratio requirements for a “no cash-out” refinance of a mortgage owned or securitized by Freddie Mac with settlement dates on or after February 1, 2019; and (iii) removes the mandatory expiration date on Guide Form 960 (the Concurrent Transfer of Servicing Agreement), eliminating the need for sellers to submit a new guide form each year.

    Federal Issues Freddie Mac Fannie Mae Mortgages Selling Guide TRID TILA Disclosures

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  • FTC settles with online student loan refinance lender for allegedly deceptive marketing


    On October 29, the FTC announced a settlement with an online student loan refinance lender resolving allegations the lender violated the FTC Act by misrepresenting in television, print, and internet advertisements how much money student loan borrowers can save from refinancing their loans with the company. The complaint alleges that the lender inflated the average savings consumers have achieved refinancing through the lender, in some instances doubling the average savings by selectively excluding certain groups of consumers from the data. The complaint also alleges that in some instances, the lender’s webpage misrepresented instances where a loan option would result in the consumer paying more on a monthly basis or over the lifetime of the loan, simply stating the savings would be “0.00.” Although the lender did not admit or deny any of the allegations, it agreed to a consent order that requires it to cease the alleged misrepresentations and agree to certain compliance monitoring and recordkeeping requirements.

    Notably, Commissioner Rohit Chopra issued a concurring statement in this matter suggesting that in instances where the FTC is unable to obtain monetary remedies, it should seek to partner with other enforcement agencies that have the additional legal authority to obtain monetary settlements from the targets of the FTC enforcement action.

    Lending Student Lending FTC Enforcement FTC Act Settlement Consent Order

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  • FDIC releases September enforcement actions, including breaches of fiduciary duty and BSA violations

    Federal Issues

    On October 26, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in September. Included among the actions is a removal and prohibition and civil money penalty assessment issued against a bank’s president, CEO and board chairman (in his individual capacity as an institution-affiliated party) of a Florida-based bank for allegedly engaging in unsafe or unsound practices and breaches of fiduciary duty while employed by the bank. Among other claims, the respondent allegedly created a conflict of interest when he operated a consumer finance company, which he personally owned, out of one of the bank's branches. The FDIC contends that the respondent (i) operated the company through the utilization of bank property and staff without reimbursing the bank; (ii) issued loans to bank customers through the company; (iii) repaid the company using overdraft funds from customers’ bank accounts; and (iv) “caused the release and sale of bank collateral without full repayment to the bank when a portion of the sale proceeds were being used to pay on a finance company loan.” According to the FDIC, the respondent failed to disclose his actions to the bank’s board of directors as required by state law and a consent order the bank entered into in July 2010.

    Additionally, a consent order was issued to a South Carolina bank related to alleged weaknesses in its Bank Secrecy Act (BSA) compliance program. The bank was ordered to, among other things, (i) revise and implement internal controls and policies and procedures for BSA compliance, including suspicious activity monitoring and reporting and customer due diligence procedures; (ii) perform an enhanced risk assessment of the bank’s operations; and (iii) take necessary steps to correct or eliminate all cited violations, such as conducting independent testing and implement effective BSA training programs.

    There are no administrative hearings scheduled for November 2018. The FDIC database containing all 24 enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Bank Secrecy Act Compliance

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  • Federal Reserve sets annual indexing requirements under Regulation D for 2019

    Agency Rule-Making & Guidance

    On October 25, the Federal Reserve Board announced the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2019 under Regulation D. For 2019, Regulation D is amended to set the reserve requirement exemption amount at $16.3 million (an increase from 2018’s $16 million) and the low reserve tranche at $124.2 million (an increase from 2018’s $122.3 million). The new low reserve tranche and reserve requirement exemption amount will apply to the fourteen-day reserve maintenance period that begins January 17, 2019. The final amendments are effective 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve Regulation D Federal Register

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  • Bankruptcy judge approves Lehman’s motion to add indemnity claims against mortgage sellers


    It has been reported that during a hearing on October 29, a judge for the U.S. Bankruptcy Court for the Southern District of New York approved Lehman Brothers Holdings, Inc.’s motion to amend and extend indemnification claims brought against mortgage sellers, allowing Lehman to include an additional $2.45 billion in residential mortgage-backed securities (RMBS) allowed claims from settlements reached earlier this year. As previously reported by InfoBytes, these claims had not yet accrued when the original order was entered pursuant to Federal Rule of Bankruptcy Procedure 9024. Lehman’s prior claims addressed indemnification claims held against roughly 3,000 counterparties involving more than 11,000 mortgage loans related to litigation settlements reached with Fannie Mae and Freddie Mac.

    According to the report, the judge stated her decision to allow the amendments will not delay litigation, nor abridge defendants’ rights, as discovery has not yet commenced. The judge’s decision further requires the parties to reach an agreement concerning an alternative dispute resolution regarding the claims.

    Courts Bankruptcy Indemnity Claims Mortgages RMBS Fannie Mae Freddie Mac

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  • FTC to hold public hearings on consumer privacy and data security; focus will address data security enforcement program

    Privacy, Cyber Risk & Data Security

    On October 26, the FTC announced it will hold four days of public hearings in December 2018 and February 2019 to examine the Commission’s authority to deter unfair and deceptive conduct in data security and privacy matters as part of its broader series of hearings on “Competition and Consumer Protection in the 21st Century.” According to the FTC, these hearings (i) “will provide the first comprehensive re-examination of the FTC’s approach to consumer privacy since 2012,” and (ii) “will provide an opportunity to reexamine the Commission’s work in light of changing technologies, legal regimes, and business models.”

    The FTC will continue to accept public comments through March 13, 2019, regarding items to be discussed at the February 2019 hearing. As previously covered by InfoBytes, a coalition of bipartisan state Attorneys General submitted a comment letter to the FTC last August requesting that they be included in the discussions regarding consumer protection during the Commission’s hearing process. Specifically, the letter emphasized the states’ “long history of protecting consumers from unfair and deceptive practices” under each state’s consumer protection authority, and noted consumers’ concerns over personal information and data security.

    Privacy/Cyber Risk & Data Security FTC Consumer Protection State Attorney General

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  • OFAC targets Singaporean persons for assisting North Korea in evading U.S. sanctions

    Financial Crimes

    On October 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it made three additions to the Specially Designated Nationals (SDNs) List pursuant to Executive Order 13551, which empowers the United States to block the property of certain persons with respect to North Korea. OFAC said the decision was designed to reinforce the U.S.’s ongoing “commitment to safeguard the international financial system and implement existing UN Security Council [ ] resolutions.” OFAC’s additions identify one Singaporean individual and two Singapore-based entities found to have helped North Korea evade U.S. sanctions—either directly or indirectly—by allegedly engaging in money laundering, counterfeiting goods or currency, smuggling bulk cash, trafficking narcotics, or engaging in other forms of illicit economic activity involving or supporting the North Korean government or any senior official. As a result, all assets belonging to the identified individual and entities subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.

    In a related action, the DOJ unsealed a federal indictment against the Singaporean individual who was charged with fulfilling millions of dollars in commodities contracts for North Korea and defrauding several financial institutions in hiding those illicit transactions using international front companies, including entities previously identified as SDNs for supporting the North Korean regime’s illicit activities. The indictment’s charges include conspiracies to (i) violate international sanctions; (ii) commit bank fraud; (iii) commit money laundering; and (iv) defraud the U.S. The charges also include counts of bank fraud and money laundering.

    See here for previous InfoBytes coverage on North Korean sanctions.

    Financial Crimes Department of Treasury OFAC North Korea Sanctions

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