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  • California Supreme Court: No jury trial for UCL and FAL claims seeking civil penalties in addition to injunctive or other equitable relief

    Courts

    On April 30, the California Supreme Court issued an opinion holding that under the state’s Unfair Competition Law (UCL) and the False Advertising Law (FAL), government enforcement actions seeking civil penalties in addition to injunctive or other equitable relief should be decided by a judge instead of by a jury. The decision overturns a Court of Appeal decision holding that a jury must weigh in when civil penalties are involved. The decision stems from a suit filed in 2015 by the California Department of Business Oversight and several district attorneys (collectively, “People”) against a national debt payment service operation for alleged violations of the UCL and FAL. While the debt payment service operation demanded a jury trial, the People filed a motion to strike, which the trial court granted. The Court of Appeal overturned the trial court decision, holding that under certain provisions of the California Constitution the debt payment service operation had a right to a jury trial.

    The California Supreme Court disagreed with the Court of Appeal concluding that, among other things, (i) the causes of action established by the UCL and FAL at issue in this case are equitable rather than legal actions, which should be tried by a court rather than by a jury; and (ii) the U.S. Supreme Court’s decision in Tull v. United States, relied upon by the Court of Appeal, does not govern this case for various reasons, including that the U.S. Supreme Court’s interpretation of the civil jury trial provision of the Seventh Amendment of the U.S. Constitution applies only to federal court proceedings—not state court proceedings—and that the “constitution right to a jury trial in state court civil proceedings is governed only by the civil jury trial provisions of each individual state’s own state constitution.” (Emphasis in the original.)

     

    Courts State Issues Enforcement California CDBO

  • OFAC issues Finding of Violation to company for issuing prepaid card to SDN

    Financial Crimes

    On April 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a Finding of Violation to a travel-related services company for alleged violations of the Weapons of Mass Destruction Proliferators Sanctions Regulations. According to OFAC, the company allegedly issued a prepaid card to, and processed 42 transactions totaling more than $35,000 on behalf of, a Specially Designated National (SDN) due to human error and screen system defects. When issuing the Finding of Violation, OFAC considered the fact that, among other things, (i) the company did not engage in willful or reckless behavior; (ii) there is no indication that the company was aware that it provided a card to an SDN or that its risk engine could be overridden; (iii) the company took remedial action in response to the violations to prevent similar reoccurrences; (iv) the company cooperated with OFAC and voluntarily disclosed the violations; and (v) OFAC has not issued a penalty notice or Finding of Violation to the company in at least five years prior to the alleged violations. A civil monetary penalty was not issued to the company.

    Financial Crimes Department of Treasury OFAC Sanctions Of Interest to Non-US Persons Enforcement

  • District of Columbia Department of Insurance, Securities and Banking issues FAQs on mortgage deferment

    State Issues

    The District of Columbia Department of Insurance, Securities and Banking issued responses to frequently asked questions (FAQs) regarding the residential and commercial mortgage deferment program under the District of Columbia’s Covid-19 Response Supplemental Emergency Amendment Act of 2020. The FAQs provide guidance on, among other things, which entities and financial institutions are considered mortgage lenders under the act and therefore subject to the requirements, mortgage lenders’ obligations under the act, how borrowers should apply for the mortgage deferment plan, and record-keeping requirements under the act.

    State Issues Covid-19 District of Columbia Insurance Securities Banking Mortgages Mortgage Lenders

  • FDIC updates Covid-19 FAQs

    Federal Issues

    On May 7, the FDIC updated its list of frequently asked questions for financial institutions affected by Covid-19.  The recent updates include the addition of one FAQ describing amendments to Regulation D that remove the six-per-month limit on transfers and withdrawals from savings deposits and one FAQ that discusses additional grace periods for force-placed flood insurance.

    Federal Issues Covid-19 FDIC Deposits Flood Insurance Mortgages Consumer Finance

  • California issues guidance for the reopening of real estate businesses

    State Issues

    On May 7, California issued updated guidance for real estate transactions and an accompanying checklist for the real estate industry intended to minimize the spread of Covid-19 as these business gradually reopen as part of Stage 2 of the state’s roadmap for modifying the stay home order. The guidance includes protocols for the workplace and shown properties.

    State Issues Covid-19 California Real Estate

  • FINRA issues proposed rule change regarding timing, method of service, and other procedural requirements

    Federal Issues

    On May 7, FINRA filed a proposed rule change with the SEC to provide temporary relief from certain timing, method of service, and other procedural requirements in FINRA rules during the outbreak of Covid-19. The proposed rule change would (i) allow or require, as applicable, FINRA to serve certain documents by email, (ii) require applicants, respondents, and other parties to file or serve documents by email for certain proceedings and processes, unless otherwise agreed by the parties, (iii) provide extensions of time to FINRA staff, respondents, and other parties in connection with certain adjudicatory and review processes, and permit oral arguments before the National Adjudicatory Council to be conducted by video conference.

    Federal Issues Covid-19 FINRA SEC

  • Washington Department of Financial Institutions extends guidance regarding remote work for mortgage loan originators

    State Issues

    On May 7, the Washington Department of Financial Institutions issued interim regulatory guidance to licensed mortgage loan originators and companies that sponsor them relating to temporary remote work. The guidance extends earlier interim guidance permitting mortgage loan originators to work from home, previously covered here, until July 10, 2020.

    State Issues Covid-19 Washington Mortgages Loan Origination Mortgage Origination

  • 6th Circuit holds condo company and law firm did not act as debt collectors in non-judicial foreclosure

    Courts

    On May 4, the U.S. Court of Appeals for the Sixth Circuit held that a condominium management company, condominium association, and its law firm (collectively, “defendants”) acted as “security-interest enforcers” and not debt collectors and therefore, did not violate the FDCPA. According to the opinion, the homeowners lost their condominium to a non-judicial foreclosure after they fell behind on condominium association dues. The homeowners filed suit against the defendants alleging various violations of the FDCPA during the foreclosure process. The homeowners did not assert a violation of Section 1692f(6), which applies to security-interest enforcers. The district court dismissed the action, concluding that the homeowners failed to allege facts that the defendants did more than act as security-interest enforcers.

    On appeal, the 6th Circuit agreed, citing to the U.S. Supreme Court’s opinion in Obduskey v. McCarthy & Holthus LLP, which held that parties who assist creditors with the non-judicial foreclosure of a home fall within the separate definition under Section 1692f(6) as security-interest enforcers and not the general debt collector definition (previously covered by InfoBytes here). The appellate court noted that the homeowners’ complaint did not allege the defendants’ regular business activity was debt collection. Moreover, the appellate court rejected the homeowners’ argument that the defendants recording of a lien on their condo was a step beyond enforcing a security interest. According to the court, Michigan law requires the recording of the lien in order to enforce a security-interest and therefore, the action “falls squarely within Obduskey’s central holding.”

     

    Courts Appellate Sixth Circuit FDCPA Debt Collection U.S. Supreme Court

  • Texas amends residential MLO application procedures

    On May 1, the Texas Finance Commission adopted amendments related to application procedures for regulated residential mortgage loan originators (MLO). The amendments are intended to reduce costs for residential MLOs and to ensure consistency with current licensing procedures and processes. Among other things, the amendments lower MLO application and annual renewal fees from $300 to $200, and implement statutory changes from HB 1342 (enacted last year) related to criminal background checks for residential MLOs. Specifically, the amendments (i) repeal a provision that allowed for the “denial, suspension, or revocation for any offense occurring in the five years preceding the application”; (ii) add provisions requiring an agency to consider the correlation between the element of a crime and a licensed occupation’s duties and responsibilities; and (iii) remove language related to letters of recommendation provided on behalf of an MLO applicant. The amendments are effective as of May 7.

    Licensing State Issues State Regulators MLO Texas

  • 7th Circuit: Bank avoids breach of contract claims in HAMP loan modification offer

    Courts

    On April 30, in a split opinion, the U.S. Court of Appeals for the Seventh Circuit issued a decision affirming a district court order holding that a consumer’s claims against a bank failed because the bank never counter-signed the Trial Period Plan (TPP) it offered the consumer in connection with the Home Affordable Mortgage Program (HAMP). According to the opinion, the consumer signed his name to the TPP and returned the TPP to the bank along with what the consumer believed to be the other required documents and the first of this three payments. However, the bank never returned a fully executed copy of the TPP to the consumer. Instead, it sent the consumer multiple notices stating that necessary documentation was still missing. Ultimately, the consumer made all three payments required by the TPP, but never received a permanent modification of his loan. On that basis, the consumer filed suit, alleging breach of contract, fraud, and intentional infliction of emotional distress due to the bank’s alleged failure to honor its loan-modification offer. The district court granted judgment on the pleadings for the bank and denied the plaintiff’s request to amend the complaint, concluding, among other things, that the consumer failed to state a plausible claim for relief.

    On appeal, the majority agreed with the district court, holding, among other things, that the bank never actually agreed to modify the consumer’s mortgage under HAMP. Specifically, the majority stated that “[i]f an offer contains a conditional precedent, a contract does not form until the condition is satisfied,” referencing language in which the bank reserved the right not to send the consumer a counter-signed copy of the Trial Period Plan (TPP) if the borrower did not qualify for HAMP relief. Because the TPP never went into effect, it imposed no contractual obligations on the bank.

    Courts Appellate Seventh Circuit Mortgages HAMP Consumer Finance

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