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  • NIST Requests Information Regarding Cybersecurity Framework

    Fintech

    On February 26, the National Institute of Standards and Technology (NIST), issued a request for information to begin developing the “Cybersecurity Framework” required by a recent executive order directing NIST to develop a framework to reduce cyber risks to critical infrastructure. The request explains that the framework will incorporate voluntary consensus standards and industry best practices to the fullest extent possible, and should include flexible standards, guidelines, and best practices that provide (i) a consultative process to assess the cybersecurity-related risks to organizational missions and business functions, (ii) a menu of management, operational, and technical security controls, including policies and processes, available to address a range of threats, (iii) a consultative process to identify adequate security controls, (iv) metrics to assess and monitor the effectiveness of security controls, (v) a comprehensive risk management approach that provides the ability to assess, respond to, and monitor information security-related risks and provide industry leadership with necessary information to help make ongoing risk-based decisions, and (vi) a menu of privacy controls. The goal of the framework development process is to (i) identify existing cybersecurity standards, guidelines, frameworks, and best practices that are applicable to increase the security of critical infrastructure sectors and other interested entities, (ii) specify high-priority gaps for which new or revised standards are needed, and (iii) collaboratively develop action plans by which those gaps can be addressed. NIST asks that comments be provided by April 8, 2013.

    NIST Privacy/Cyber Risk & Data Security

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  • U.S. Supreme Court Upholds Discretion to Award Costs to Prevailing FDCPA Defendant Creditors

    Consumer Finance

    On February 26, the U.S. Supreme Court held that the FDCPA does not limit a court’s discretion under federal rules to award costs to a prevailing defendant creditor alleged to have violated the Act. Marx v. Gen. Revenue Corp., No. 11-1175, 2013 WL 673254 (Feb. 26, 2013). The Tenth Circuit had earlier held that the defendant creditor did not violate the FDCPA, and that the creditor could be awarded costs under Federal Rule of Civil Procedure 54(d)(1). On appeal, the debtor, supported by the United States as amicus, argued that any statute specifically providing for costs displaces Rule 54(d)(1), regardless of whether it is contrary to the Rule. The relevant FDCPA provision, §1692k(a)(3), provides that “[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.” The Court affirmed the Tenth Circuit and held that the language and context of §1692k(a)(3) indicate that Congress did not intend it to prohibit courts from awarding costs. The Court explained that (i) the statute is best read as codifying a court’s pre-existing authority to award both attorney’s fees and costs, (ii) by including “and costs” in the second sentence of the statute, Congress foreclosed the argument that defendants can only recover attorney’s fees when plaintiffs bring an action in bad faith and removed any doubt that defendants may also recover costs in such cases, and (iii) the statutory language sharply contrasts with that of other statutes in which Congress has placed conditions on awarding costs to prevailing defendants.

    FDCPA U.S. Supreme Court Debt Collection

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  • New York Warns Payday Loan Debt Collectors

    Consumer Finance

    On February 22, the New York Department of Financial Services (DFS) sent letters to all debt collectors in the state to remind them that it is illegal to attempt to collect a debt on a payday loan made in New York, even if such loans were made on the Internet. Under New York law, nonbank lenders and state-charted banks are prohibited from making loans or forbearances under $250,000 at an interest rate of 16 percent or higher. Any loans made in violation of those limitations are void and cannot be collected by a debt collector. The DFS claims that “[l]enders attempt to skirt New York’s prohibition on payday lending by offering loans over the Internet, hoping to avoid prosecution.” The DS states that, regardless of the method used to make the loan, payday loans made in New York are not valid debts and cannot lawfully be collected.

    Payday Lending Debt Collection

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  • Fannie Mae Announces Servicing Policy Changes

    Lending

    On February 22, Fannie Mae issued Servicing Guide Announcement SVC-2013-02, reminding servicers that when they deposit undisbursed insurance loss draft funds into an interest-bearing account, the account must be for the borrower’s benefit and, regardless of the mortgage loan’s delinquency status, the servicer must comply with applicable laws regarding the disbursement of interest earned to the borrower. The announcement also introduced a new form for use when referring a borrower to Fannie Mae for the exit option that allows a three-month transition with no rent payment required, and updated the form to be used when referring a borrower for the exit option that allows up to a twelve-month lease with a market rent payment. On February 27, Fannie Mae issued Servicing Guide Announcement SVC-2013-03, describing servicing policy changes and updates to (i) private flood insurance, (ii) termination of applicable force-placed insurance, and (iii) special remittance type codes. The private flood insurance change follows a related announcement, SEL-2013-02, which, among other things, informed sellers that Fannie Mae must accept flood insurance from private providers as an alternative to National Flood Insurance Program policies. The insurance-related policies are effective immediately, and servicers must report using the new codes for applicable special remittances on or after April 1, 2013.

    Fannie Mae Mortgage Servicing Force-placed Insurance Flood Insurance Servicing Guide

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  • Federal Reserve Board Extends Comment Period for Foreign Bank Rule

    Consumer Finance

    On February 22, the Federal Reserve Board, citing the “range and complexity of the issues addressed in the rulemaking,” as well as a “request from the public” for more time, extended the public comment period from March 31, 2013 until April 30, 2013 pertaining to its proposal to (i) enhance its oversight of certain foreign banks that operate in the U.S., and (ii) move from the SEC to the Federal Reserve oversight of foreign bank broker-dealers.

    Federal Reserve

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  • Illinois Adopts Court Rules Governing Foreclosure Cases

    Lending

    On February 22, the Illinois Supreme Court announced additional rules governing the state’s home foreclosure process. The three rules, respectively, (i) add requirements for mortgage foreclosure mediation programs in state circuit courts and counties (Rule 99.1); (ii) establish required practice, procedure, and notice obligations by the lender as plaintiff (Rule 113); and (iii) require a lender to attest that it has complied with the requirements of any loss mitigation program which applies to the specific home loan (Rule 114). With regard to this final rule, a judge may deny entry of a foreclosure judgment absent the required affidavit. All of the rules take effect on March 1, 2013. Those counties and circuit courts that already have mortgage foreclosure mediation programs in place, including Cook, Will, Peoria, Madison, Bond, McLean and Cane, have until June 1, 2013 to bring their programs into compliance with the new statewide rule on mediation programs.

    Foreclosure Loss Mitigation

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  • Florida Supreme Court Limits Discretion to Strike Voluntary Dismissals of Foreclosure Actions

    Lending

    The Florida Supreme Court recently held that when a borrower alleges fraud on the court as a basis for setting aside a lender’s notice of voluntary dismissal of a foreclosure action, the trial court has jurisdiction to sanction the lender by reinstating the dismissed action only when the fraud resulted in the lender securing affirmative relief to the detriment of the borrower before voluntarily dismissing the case to prevent the court from undoing the improperly obtained relief. Pino v. Bank of New York, No. SC11-697, 2013 WL 452109 (Fla. Feb. 7, 2013). In the trial court foreclosure proceeding, the defendant borrower had challenged the plaintiff lender's assignment documents as fraudulent and moved for sanctions, after which the lender voluntarily dismissed the case without prejudice before a decision could be rendered on the motion. The trial court denied the borrower’s subsequent motion to vacate the notice of voluntary dismissal, reinstate the proceeding, and then dismiss it again with prejudice. The Florida Fourth District Appellate Court affirmed, but certified to the Florida Supreme Court the question of whether a trial court has jurisdiction or inherent authority to grant relief from a voluntary dismissal where the motion alleges a fraud on the court but the plaintiff has obtained no affirmative relief. The Florida Supreme Court then affirmed the Fourth District and held that the trial court did not have jurisdiction or inherent authority to reinstate the dismissed foreclosure action because the lender did not obtain affirmative relief before taking the voluntary dismissal, and as such, measures other than reinstatement existed to protect the borrower. Finally, in light of concerns regarding the abuses that can occur from the filing of fraudulent pleadings, the court requested the Civil Procedure Rules Committee to review those concerns and make recommendations for possible amendments to governing rules.

    Foreclosure

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  • State Law Update: Virginia Amends Mortgage Originator Licensing Statute

    Lending

    On February 20, Virginia enacted HB 1803, which conforms Virginia law to federal SAFE Act regulations, as recommended by the Virginia Housing Commission. The bill (i) expands the definition of a mortgage loan originator to include an individual who represents to the public that he can or will take an application for, or offer or negotiate the terms of, a residential mortgage loan, (ii) exempts from licensing requirements any individual acting as a loan originator in financing the sale of his or her own residence, (iii) specifies conditions under which an attorney engaged in mortgage loan origination activities is exempt from licensing requirements, (iv) removes the definition of "federal banking agencies", and (v) defines the term "employee."

    Mortgage Licensing SAFE Act

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  • SEC National Examination Program Publishes 2013 Examination Priorities

    Securities

    On February 21, the NEP published its examination priorities for 2013. The NEP’s market-wide priorities include (i) fraud detection and prevention, (ii) corporate governance and enterprise risk management, (iii) conflicts of interest, and (iv) technology. The NEP also identifies priorities for its (i) investment advisers and investment companies, (ii) broker-dealers, (iii) clearing and transfer agents, and (iv) market oversight program areas. For example, for the investment advisers and investment companies program area, the NEP plans to focus on certain ongoing risks including (i) safety of assets, (ii) marketing and performance advertising, and (iii) fund governance, as well as certain new and emerging risks.

    Examination SEC

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  • FTC Announces First Settlement of Privacy-By-Design Case against Device Manufacturer

    Fintech

    On February 22, the FTC announced that a mobile device manufacturer agreed to settle charges that it failed to employ reasonable and appropriate security practices in the design and customization of the software on its mobile devices. The settlement is the first of its kind obtained by the FTC. The FTC’s complaint alleged that the manufacturer failed to (i) provide its engineering staff with adequate security training, (ii) review or test the software on its mobile devices for potential security vulnerabilities, (iii) follow well-known and commonly accepted secure coding practices, and (iv) establish a process for receiving and addressing vulnerability reports from third parties. The complaint further described several resulting vulnerabilities that allegedly compromised sensitive device functionality and could have permitted malicious applications to send text messages, record audio, and install additional malware onto a consumer’s device. Such malware, according to the FTC, could be used to record and transmit information entered into or stored on the device. The settlement requires the device manufacturer to establish a comprehensive security program and deploy security patches to consumers’ devices. The manufacturer also is prohibited from making any false or misleading statements about the security and privacy of consumers’ data on its devices.

    Mobile Commerce Privacy/Cyber Risk & Data Security

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