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  • California Federal Court Dismisses Data Loss Class Action Because No Immediate Harm Exists

    Fintech

    On January 20, the U.S. District Court for the Eastern District of California dismissed a putative class action brought on behalf of California residents against a company that lost multiple server drives containing personal and medical information. Whitaker v. Health Net of Cal., Inc. No. 11-910, 2012 WL 174961 (E.D. Cal. Jan. 20, 2012). The named plaintiff alleged that the loss of the drives and personal information violated California’s Confidentiality of Medical Information Act. Relying on Ninth Circuit decisions in Krottner v. Starbucks Corp., 628 F.3d 1139 (9th Cir. 2010) and Ruiz v. Gap Inc., No. 09-15971, 380 F. Appx. 689 (9th Cir. May 28, 2010), the plaintiff argued that the threat of harm naturally stems from a loss of data alone. The court held, however, that there is a difference between theft and loss of data. Unlike those prior cases in which personal data was obtained by hacking or data breach, loss of data does not present any actual or immediate harm, only conjectural or hypothetical harm. The court held that the plaintiff lacked standing and dismissed the case with leave to amend because the possibility of harm is not sufficient to meet the constitutional injury-in-fact standard.

    Privacy/Cyber Risk & Data Security

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  • CFPB and FTC Announce Memorandum of Understanding to Coordinate Regulatory Activities

    Consumer Finance

    On January 23, the CFPB and the FTC announced that the agencies had entered into a memorandum of understanding (MOU) to facilitate coordination of the agencies’ consumer financial rulemaking, enforcement, and supervision activities. The MOU establishes regular meetings between the two entities, as well as processes for providing notice of enforcement activities. Under the MOU, the CFPB and the FTC will be able to share consumer complaint information, and the FTC can request CFPB examination reports and confidential supervisory information.

    CFPB FTC

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  • FHFA Releases Analysis of Principal Forgiveness Loan Modification Option

    Lending

    On January 23, the Federal Housing Finance Agency (FHFA), the entity serving as conservator for Fannie Mae and Freddie Mac, released a letter sent to certain members of Congress describing the internal analyses that resulted in FHFA’s decision not to use principal forgiveness as part of Fannie Mae’s and Freddie Mac’s loan modification programs. In short, the letter and analyses support FHFA’s previous publicly-stated conclusion that FHFA lacks statutory authority to incur the taxpayer losses that would result from the use of principal forgiveness. The letter concludes that “forbearance achieves marginally lower losses for the taxpayer than forgiveness,” but both provide the same more affordable payment for the borrower. The additional costs of principal forgiveness would not be offset by preservation of Fannie Mae and Freddie Mac assets.

    Freddie Mac Fannie Mae

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  • Georgia Federal Court Allows RESPA Class Action to Proceed

    Lending

    On January 18, the U.S. District Court for the Northern District of Georgia denied a motion to dismiss a putative class action suit alleging violations of the Real Estate Settlement Procedures Act (RESPA). Bolinger v. First Multiple Listing Serv., Inc., No. 10-00211-RWS, 2012 WL 137883 (N.D. Ga. Jan. 18, 2012). Georgia residents who purchased properties listed on the First Multiple Listing Service, Inc. (FMLS) database claim that member agents and brokers paid fees to FMLS out of settlement proceeds but did not disclose those fees on the HUD-1 settlement statement. Plaintiffs also claim that FMLS used those fees to pay kickbacks to member brokers for referrals of listing business. As such, plaintiffs allege that defendants violated (i) Section 8 of RESPA; (ii) the Sherman Act; and (iii) several Georgia state laws. The court found that plaintiffs alleged sufficient facts for their RESPA claims to survive the motion to dismiss. The Court did, however, dismiss plaintiffs’ claims under the Sherman Act, holding that the plaintiffs failed to allege facts showing that defendants engaged in price-fixing by agreeing to fix broker commissions.

    RESPA

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  • CFPB Finalizes Amendments to Remittance Transfer Rules (Regulation E)

    Fintech

    On January 20, the CFPB issued a final rule to amend regulations applicable to consumer remittance transfers of over fifteen dollars originating in the United States and sent internationally. Generally, the final rule requires remittance transfer providers to (i) provide written pre-payment disclosures of the exchange rates and fees associated with a transfer of funds, as well as the amount of funds the recipient will receive, and (ii) investigate consumer disputes and remedy errors. The rulemaking stems from a Dodd-Frank Act provision that expanded the scope of the Electronic Fund Transfer Act to cover international money transfers, and concludes an effort started by the Federal Reserve Board (FRB) that was transferred to the CFPB last year. The final rule closely tracks the proposed FRB rule, but among other things, provides (i) a thirty-minute cancellation period for consumers, as opposed to the proposed one-day period, (ii) additional compliance guidance for specific circumstances, including for transactions conducted by mobile applications, and (iii) revised model disclosure forms. Concurrent with the final rule, the CFPB issued a request for comment on additional revisions to the regulations, including comments and information for use in (i) setting a specific safe harbor for remittance transfer providers that do not provide such services “in the normal course of business”, and (ii) applying the new disclosure and cancellation requirements in cases where the request is made several days in advance of the transfer date. Comments on the proposal will be accepted for sixty days following publication in the Federal Register.

    CFPB Dodd-Frank

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  • CFPB Holds Field Hearing on Payday Lending, Releases Payday Lending Exam Guide

    Consumer Finance

    On January 19, the CFPB held a field hearing in Birmingham, Alabama to discuss payday lending products. The hearing, which was the first such hearing held by the CFPB, included three panels featuring CFPB staff, consumer groups, and industry representatives. In conjunction with the event, the CFPB also released its “Short-Term, Small-Dollar Lending Procedures,” which is a field guide for use in examining bank and nonbank payday lenders. These procedures are structured to mirror payday lending activities ranging from initial advertising to collection practices. The CFPB will prioritize its supervision of payday lenders depending on the perceived risk to consumers, taking into account factors such as a lender’s volume of business and the extent of existing state oversight. In remarks at the event, Director Richard Cordray stated that there are some payday lenders and practices that deserve more urgent attention because they present immediate risk to consumers and are “clearly illegal.” The Director identified two examples of such practices, including (i) unauthorized debits on a consumer’s checking account that can occur when the consumer unknowingly “is dealing with several businesses hidden behind a payday loan,” any one of which could be a “fraudster” merely seeking the customer’s private financial information, and (ii) “aggressive debt collection tactics” including “posing as federal authorities, threatening borrowers with criminal prosecution, trying to garnish wages improperly, and harassing the borrower.”

    CFPB Payday Lending Nonbank Supervision

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  • U.S. Sentencing Commission Proposes Harsher Sentences for Securities and Mortgage Fraud

    Financial Crimes

    On January 19, the U.S. Sentencing Commission proposed more severe sentencing guidelines for certain securities and mortgage fraud violations. The proposal implements two directives of the Dodd-Frank Act, which require the Commission to re-evaluate penalties in cases involving (i) securities fraud and similar offenses, and (ii) mortgage fraud and financial institution fraud. Generally, the Commission seeks comment on whether the current guidelines appropriately account for potential and actual harm to the public and financial markets from securities, mortgage, and financial institution fraud. With regard to securities fraud, the Commission proposes amendments to address sophisticated insider trading and frauds conducted by individuals holding certain positions of trust. In addressing the mortgage fraud directive, the Commission proposes changes to the calculation of loss in cases of a fraud involving a mortgage loan, including that (i) the loss should be determined by the amount recovered from the foreclosure sale where the collateral has been disposed of at a foreclosure sale; and (ii) reasonably foreseeable administrative costs to the lending institution associated with foreclosing on the mortgaged property may be included as reasonably foreseeable pecuniary harm provided that the lending institution exercised due diligence in the initiation, processing, and monitoring of the loan and the disposal of the collateral. Finally, with regard to more general financial institution fraud, the proposal seeks to provide an enhancement for offenses involving specific financial harms, such as jeopardizing the financial institution. The deadline for written public comments regarding the proposed amendments is March 19, 2012.

    Fraud

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  • The Fair Housing Act, Disparate Impact Claims, and Magner v. Gallagher

    Courts

    In the February 2012 volume of The Banking Law Journal, BuckleySandler partner Jeff Naimon published "The Fair Housing Act, Disparate Impact Claims, and Magner v. Gallagher", in which the authors review the text of the Fair Housing Act, its legislative history, and past federal appellate court decisions holding that the FHA permits disparate impact claims. They argue that recent Supreme Court decisions cast doubt on the past federal appellate court decisions, and show that the statutory text of the FHA, unlike the text of some other civil rights laws, does not permit disparate impact claims. They also discuss the case currently pending before the Court in which the Court may address for the first time whether the FHA permits disparate impact claims.

    U.S. Supreme Court Fair Housing

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  • U.S. Supreme Court Holds TCPA Litigation Not Confined to State Courts

    Courts

    On January 18, the U.S. Supreme Court unanimously held that the Telephone Consumer Protection Act (TCPA) does not require that private actions seeking redress under the TCPA be heard only by state courts. Mims v. Arrow Financial Services, LLC, No. 10-1195, 2012 WL 125429 (Jan. 18, 2012). The decision reversed an Eleventh Circuit decision upholding a district court’s finding that Congress had placed exclusive jurisdiction over private TCPA actions in state courts. In so reversing, the Supreme Court contravened prior decisions from the Second, Third, Fourth, Fifth and Ninth circuits. Unlike those decisions, the Supreme Court found no reason to convert the TCPA’s permissive grant of jurisdiction to state courts into an exclusive grant barring the federal-question jurisdiction of U.S. district courts. According to the Supreme Court, in the TCPA Congress enacted “detailed, uniform, federal substantive prescriptions” related to telemarketing and “provided for a regulatory regime administered by a federal agency.” Congress could have, but did not, seek only to fill gaps in states’ enforcement capability.

    TCPA

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  • DOJ Obtains Settlement of FCPA Charges Against Japanese Trading Company, Loses Trial on FCPA Charges Related to Mexican Electricity Contract

    Financial Crimes

    On January 17, the Department of Justice (DOJ) announced the settlement of Foreign Corrupt Practices Act (FCPA) charges against a Japanese trading company for a bribery scheme involving Nigerian government officials in connection with a liquid natural gas project. The company agreed to pay a $54.6 million criminal penalty to resolve the charges. Concurrently, the DOJ filed a deferred prosecution agreement (DPA), as well as a criminal information that will be dismissed if the company abides by the terms of the DPA for two years.

    On the same day, following a four-day jury trial, the U.S. District Court for the Southern District of Texas acquitted a former power company executive of multiple FCPA charges related to alleged bribes paid to Mexican officials in connection with an electrical equipment and services contract. The defendant still faces non-FCPA criminal charges, which previously were severed. In 2010, the company settled related charges it faced.

    FCPA

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