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  • Ohio Enacts Cyber Fraud Enforcement Legislation

    FinTech

    On December 20, the DOJ and the SEC announced separate enforcement actions against a major U.S. agribusiness firm and one of its foreign subsidiaries. In the DOJ action filed in the U.S. District Court for the Central District of Illinois, a foreign subsidiary of the U.S. corporate parent pleaded guilty to a single count of conspiracy to violate the anti-bribery provisions of the FCPA, and agreed to pay $17.8 million in criminal fines. The plea resolved the government's allegations that the subsidiary paid bribes through intermediary firms to Ukrainian government officials in exchange for over $100 million in value-added tax (VAT) refunds.  The plea agreement with the DOJ was accompanied by a non-prosecution agreement with the U.S. parent to resolve claims that the company failed to implement internal controls sufficient to prevent and detect FCPA violations. Under that agreement, the company must periodically report on its compliance efforts, and continue implementing enhanced compliance programs and internal controls. The SEC’s parallel civil enforcement action resolved charges that the parent firm’s lack of sufficient anti-bribery compliance controls, which contributed to FCPA violations by foreign subsidiaries that generated over $33 million in illegal profits. The U.S. parent corporation consented to entry of a judgment that requires the company to disgorge the illegal profits plus $3 million in interest. The judgment also permanently enjoins the parent company from violating the relevant parts of the Exchange Act and requires compliance reporting for a three-year period.

    Fraud State AG

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  • Seventh Circuit Rejects Class Certification for RESPA Section 8 Action

    Lending

    On March 6, the United States Court of Appeals for the Seventh Circuit concluded that borrower claims against a title insurance company for alleged kickbacks and fee splitting, in violation of Section 8 of the Real Estate Settlement Procedures Act (RESPA), were not appropriate for class treatment because an individual determination of liability would be required for each class member.  Howland v. First American Title Ins. Co., Nos. 11-1816, 11-1817, 2012 WL 695636 (7th Cir. Mar. 6, 2012). The case involves the sale of title insurance in Illinois by First American Title Insurance Company. First American typically sells title insurance to borrowers by contracting with the borrower’s real estate attorney to conduct a title examination. As part of that contract, First American provides the real estate attorney with a substantial amount of information about the property, including a summary sheet that includes legal description of the property, the last known grantee, and any open liens. The borrowers alleged that this summary sheet was itself a preliminary title examination. Because much of the title examination work was provided by First American to the attorney as title agent, the borrower sought to certify a class based on two related alleged violations of RESPA: (i) that the fees charged were excessive and unreasonable given the small amount of work performed and (ii) that the attorney title agents were paid to compensate for referrals and not actual services. The court concluded class certification was not appropriate in this instance. It held that while kickbacks and referral fees to the real estate attorney title agents based on compensation for nominal or duplicative services were banned by Section 8 of RESPA, “the existence or the amount of the kickback in these cases generally requires an individual analysis of each alleged kickback to compare the services performed with the payment made.” Furthermore, the court found that claims attorney title agents were being overcompensated for a pro forma clearance of the title based on the title company’s property summary sheet required a specific case-by-case inquiry. The court concluded that “RESPA Section 8 kickback claims premised on an unreasonably high compensation for services actually performed are inherently unsuitable for class action treatment.”

    RESPA Title Insurance

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  • Federal District Court Holds New York's EIPA Does Not Permit Private Right of Action for Judgment Debtors to Sue Their Banks

    Consumer Finance

    On March 2, the U.S. District Court for the Southern District of New York dismissed a putative class action brought by judgment debtors seeking money damages from their bank for allegedly violating New York’s Exempt Income Protection Act (EIPA), holding that the statute does not support a private right of action. Cruz v. TD Bank, N.A., No. 10-8026, 2012 WL 694267 (S.D.N.Y. Mar. 2, 2012). The EIPA provides a special exemption from satisfaction of money judgments for certain amounts and types of a debtor’s income, including income derived from social security, public assistance, and disability benefits. In Cruz, the judgment debtor plaintiffs alleged that their bank failed to provide them and other members of the putative class with the notices and exemptions forms as required by the EIPA, and asserted that the bank unlawfully restrained their accounts and charged them various fees in violation of the statute. After examining the plain text, legislative history, and purpose of the EIPA, the court held that judgment debtors had neither an express nor implied right to sue their bank for money damages under the statute. Instead of creating a right of action for suing a bank, the court concluded that the EIPA merely permitted judgment debtors and creditors to bring claims against each other. In addition to dismissing the EIPA claim, the court dismissed the plaintiffs’ common law fraud, fiduciary duty, unjust enrichment, negligence, and conversion claims.

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  • Washington Enacts Multiple Amendments to Consumer and Mortgage Lending Laws

    Consumer Finance

    On March 8, Washington enacted HB 2255, which alters state regulation of consumer loan companies, including mortgage originators, check cashers and sellers, and payday lenders. Under the Consumer Loan Act, which covers nonbank consumer lenders including nonbank mortgage originators, consumer lenders are prohibited from making a loan from an unlicensed location. The Director of the Department of Financial Institutions can, among other things, order refunds to customers, informally settle complaints and enforcement actions, and issue subpoenas. Entities offering retail installment sales using open loop prepaid cards are no longer exempt from the Consumer Loan Act. Under the Check Cashers and Sellers Act, which covers entities that cash or sell checks, drafts, money orders, or other commercial paper, as well payday lenders, the definition of “licensee” is amended to include out-of-state entities, as well as those that should have a small loan endorsement. The Director can informally settle complaints and enforcement actions regarding covered entities. The bill includes new prohibited practices for check cashers and sellers, including (i) selling open loop prepaid access in a retail installment loan, (ii) advertising a statement that is false or deceptive, (iii) failing to pay annual assessments on time, and (iv) failing to pay other monies due to the Director. The law allows for the transition of check cashers and sellers, escrow agents, and money transmitters to the National Mortgage License System and Registry. HB 2255 also eliminates the requirement that mortgage originators provide a state disclosure form, so long as the originator offers disclosures in compliance with federal Regulation X. All of the above changes take effect June 7, 2012.

    Payday Lending Mortgage Origination

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  • Multi-Party Mortgage Servicing Settlement Filed in Court

    Lending

    On March 12, federal and state officials filed documents in the United States District Court for the District of Columbia formalizing a previously announced settlement (the Settlement) of various government probes into alleged mortgage-related violations by the five largest residential mortgage servicers (collectively the Servicers). The Settlement resolves investigations and inquiries by numerous federal regulators and 49 state Attorneys General (AGs). The federal agencies that have signed on to the settlement include: the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Department of Agriculture, the Department of Veterans Affairs, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Trustee. With the filing of a consolidated complaint and a separate consent judgment for each Servicer, the details of the Settlement have been made available, including its provisions regarding: (i) restitution and other relief, (ii) new servicing standards, (iii) the scope of its releases, and (iv) implementation and enforcement. For a detailed analysis of the Settlement, please see BuckleySandler LLP’s recent Special Alert.

    Mortgage Servicing HUD State AG

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  • Federal Circuit Courts Issue More Rulings Enforcing Arbitration Agreements

    Consumer Finance

    On October 22, the DOJ and the SEC announced parallel actions against a U.S. company that makes ATMs and bank security systems for allegedly violating the FCPA. The federal authorities allege that from 2005 to 2010 the company provided a total of approximately $1.8 million in payments, gifts, and non-business travel to employees of state-owned banks in China and Indonesia, and attempted to disguise the benefits, including by making payments through third parties designated by the banks and by inaccurately recording leisure trips for bank employees as “training.” The government also alleges that from 2005 to 2009, the company entered into false contracts with a distributor in Russia for services that the distributor was not performing in order to facilitate approximately $1.2 million in bribes to employees of privately-owned banks in Russia in order to obtain and retain ATM-related contracts with those customers. The company entered into a deferred prosecution agreement with the DOJ and consented to a final judgment in the SEC matter. Pursuant to those agreements, the company must pay a $25.2 million penalty and disgorge approximately $22.97 million, inclusive of prejudgment interest. The company also must implement numerous specific changes to its internal controls and compliance systems, and retain a compliance monitor for at least 18 months. The government acknowledged the company’s voluntary disclosure and extensive internal investigation and cooperation.

    Arbitration U.S. Supreme Court

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  • Federal Reserve Releases Additional Servicer Action Plans

    Lending

    On October 15, the DOJ filed an indictment against a Swiss national and former executive at Maxwell Technologies—a U.S.-based energy storage and power-delivery company—for alleged violations of the FCPA. The DOJ claims that over a more than six-year period the former executive engaged in a conspiracy to make and conceal payments to Chinese government officials in order to obtain and retain business, prestige, and increased compensation for his company. This individual action follows a 2011 action by the DOJ and the SEC against the company based on the same allegations and which the company agreed to resolve for $13.65 million.

    Federal Reserve Mortgage Servicing

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  • CFPB Director Addresses State Attorneys General, Spotlight on Payday Lenders, Debt Collectors, and Servicing Rules

    Consumer Finance

    The National Association of Attorneys General (NAAG) met this week in Washington, DC. Among the topics covered at the annual meeting was the ongoing and future coordination between federal and state law enforcement with regard to financial services. CFPB Director Cordray, a former state attorney general, noted that NAAG and the CFPB already have several working groups organized to address payday loans, foreclosure scams, auto loans, and debt collection. These efforts will be supported through a formal Memorandum of Understanding that is expected to be finalized soon. In his remarks and in follow up questioning, Director Cordray specifically addressed enforcement and supervision with regard to payday lenders and debt collectors. It was reported that Director Cordray indicated that the CFPB and the FTC are “zoning in” on issues related to payday lenders associated with Native American tribes. Regarding debt collectors, the Director stated that aggressive enforcement by the FTC and states is not enough, and that the CPFB would like federal and state regulators and enforcement agencies to develop a national strategic plan that leverages the CFPB’s supervision and enforcement capabilities. Finally, on planned rulemaking by the CFPB, the Director noted ongoing efforts to develop rules governing mortgage servicing, including force-placed insurance products and hybrid ARMs.

    CFPB Payday Lending FDCPA Mortgage Servicing State AG

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  • New York Extends Emergency Rules Regarding Mortgage Originator Licensing

    Lending

    On March 7, the New York Department of Financial Services extended through May 16, 2012 existing emergency rules regarding the licensing of mortgage loan originators. New York intends to adopt the rules as permanent at some future date.

    Mortgage Licensing

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  • FHFA IG Recommends Improved Freddie Mac Servicer Oversight

    Lending

    On March 7, the Inspector General (IG) of the FHFA published a report related to the FHFA’s supervision of Freddie Mac’s controls over mortgage servicing contractors. The report found areas in which the FHFA could enhance its supervision of Freddie Mac’s controls over those contractors. Specifically, the report found with regard to servicer oversight that the FHFA has not (i) clearly defined its role, (ii) sufficiently coordinated with other federal banking agencies, or (iii) addressed emerging risks in a timely manner. The IG recommends that the FHFA (i) promulgate comprehensive regulations or guidance regarding servicer oversight, (ii) direct Freddie Mac to implement servicer performance metrics more broadly, and (iii) improve existing procedures for coordinating with other federal agencies. The report includes a response letter from the FHFA, which highlights the FHFA servicing oversight initiatives to date and indicates whether and how the FHFA plans to implement the IG’s recommendations.

    Freddie Mac Mortgage Servicing

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