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Financial Services Law Insights and Observations

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  • Nineteen States Settle With Debt Collector Over Collection Practices

    Courts

    On February 6, nineteen state attorneys general announced a multi-state settlement with NCO Financial Systems, a debt collection company, to resolve allegations of misleading and deceptive debt collection practices. Under the agreement, the company must set aside $950,000 ($50,000 for each state) for consumer restitution, and will pay $575,000 for state consumer protection enforcement efforts. Restitution will go to consumers who paid the company for debts the consumers did not owe, who overpaid interest, or who overpaid a debt beyond what the company had agreed to settle an account. The company also agreed to (i) comply with the Fair Debt Collection Practices Act, the federal Fair Credit Reporting Act, and all applicable state laws, (ii) notify credit reporting agencies within 30 days of consumer disputes and results of investigations into disputes, (iii) provide notice to consumers about their debt collection rights under federal and state law, and (iv) monitor compliance, create written policies and procedures for handling consumer complaints, and submit periodic compliance reports.

    FDCPA FCRA

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  • Idaho Supreme Court Holds Standing Does Not Need To Be Proven Prior To Nonjudicial Foreclosure

    Lending

    On January 25, the Idaho Supreme Court held that a party is not required to prove it has standing before foreclosing nonjudicially on a deed of trust. Trotter v. Bank of New York Mellon, No. 38022, 2012 WL 206004 (Idaho Jan. 25, 2012). Prior to a scheduled trustee’s sale, the borrower filed a complaint alleging lack of standing to foreclose, and challenging MERS’ ability to assign the loan.  The district court granted the bank’s motion to dismiss, finding that the statutory requirements for nonjudicial foreclosures had been satisfied, and that MERS was the beneficiary under the deed of trust and had properly assigned its rights as beneficiary to the bank. The Idaho Supreme Court affirmed, noting that “the plain language of the statute makes it clear that the trustee may foreclose on a deed of trust if it complies with the requirements contained within the Act” and that unlike judicial foreclosures, “there is no statutory requirement for the trustee to prove standing before initiating a nonjudicial foreclosure on a deed of trust.”

    Foreclosure

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  • New York Federal Court Affirms Enforceability Of Terms Of Service Available By Hyperlink

    Fintech

    On January 24, the U.S. District Court for the Southern District of New York held in Fteja v. Facebook Inc., No. 11-918, 2012 WL 183896 (S.D.N.Y. Jan. 24, 2012), that an experienced Internet user received adequate notice to be bound by Facebook’s Terms of Service when he pushed a button indicating his assent to the terms, which were available via a hyperlink near the button. The user had sued Facebook in New York state court for allegedly wrongly terminating his account. When Facebook removed the case to federal court and moved to transfer the action to the Northern District of California, citing the mandatory forum selection clause in its Terms of Service, the user argued that the Terms were unenforceable because he never saw or agreed to them. The court granted Facebook’s motion to transfer after finding that Facebook’s signup process “reasonably communicated” the Terms despite a second step, clicking the hyperlink, being required to view the Terms.

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  • Missouri AG Announces "Robosigning" Indictment

    Financial Crimes

    On February 7, Missouri Attorney General Chris Koster announced that a grand jury had returned a 136-count indictment against DOCX, LLC, and its founder, for alleged “robosigning” by forgery and false declarations with regard to mortgage documents. The indictment alleges that the signatures on 68 notarized deeds of release submitted to one county recorder were forged and constituted false declarations. If convicted, the founder could face up to seven years in prison per count, and the company could be fined up $10,000 for each forgery and $2,000 for each false declaration.

    Foreclosure Mortgage Servicing State Attorney General

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  • South Carolina Bans Transfer Fee Covenants

    Lending

    On February 1, South Carolina enacted legislation that deems any transfer fee covenant recorded after February 1, 2012, to be non-binding and non-enforceable. Generally, a transfer fee covenant is a deed provision that requires a current owner or successor in title to pay a fee to the owner who added the covenant to the property each time the property is transferred. Covenants recorded before February 1 remain valid and enforceable only if a Notice of Transfer Fee Covenant is filed by July 30, 2012 in each county in which the real property subject to the transfer fee covenant is located. The Notice must contain information such as (i) how the transfer fee covenant is calculated, (ii) actual dollar-cost examples for a home priced at $250,000, $500,000, and $750,000, (iii) how and if the transfer fee covenant expires, and (iv) instructions and contact information concerning the payment of the fee required by the transfer fee covenant.

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  • Illinois Expands Housing Assistance Efforts

    Lending

    On July 10, 2012, medical device manufacture Orthofix International N.V. became the latest in a string of companies in the sector to resolve an FCPA matter with the U.S. government.  The Orthofix FCPA resolution calls for the company to pay a criminal fine to the U.S. Department of Justice (DOJ) of $2.22 million, and a civil monetary sanction (including disgorgement and interest) of $5.2 million to the U.S. Securities and Exchange Commission (SEC).  The DOJ resolved the matter through a Deferred Prosecution Agreement, which was attached to the company’s 8-K of July 10, 2012, reporting the resolution.

    According to the allegations in the SEC’s Complaint, Promeca S.A. de C.V, a subsidiary based in Mexico, paid bribes to employees of the government-operated health care system, referring to the payments as “chocolates” and booking inaccurate reimbursement requests as meals, car tires or training expenses.  The Mexico subsidiary made approximately $317,000 in improper payments over a 7-year period, according to the SEC.

    As initially reported in an August 31, 2010 8-K, the company disclosed to the DOJ and the SEC that it was investigating certain conduct at Promeca.  The FCPA resolution follows a June 7, 2012 guilty plea by the U.S. subsidiary, Orthofix Inc., on a False Claims Act-related matter, resulting in $7.8 million fine and payment of over $34 million to resolve a civil action (see DOJ Press Release).

    The settlement adds Orthofix to the list of device manufacturers that have settled FCPA matters in 2012, along with Smith & Nephew and Biomet, which settled in February and March 2012, respectively.

    Foreclosure

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  • NCUA Publishes Advance Notice Regarding Use of Financial Derivatives Transactions to Offset Interest Rate Risk

    Consumer Finance

    On February 3, the NCUA published a second advance notice of proposed rulemaking seeking additional comments to identify the conditions for federal credit unions to engage in certain derivatives transactions to offset interest rate risk. The second notice follows one issued in June 2011, which requested comment on potentially modifying NCUA’s rule on investment and deposit activities to allow such derivative transactions.  The current notice focuses on the ability of federal credit unions to independently engage in derivative transactions, without the oversight of a third-party provider. The NCUA is seeking comment on eligibility requirements and safety and soundness considerations that might limit the types of derivatives that federal credit unions may use, exposure limits, and counterparty risk. Comments responding to the notice must be received by April 3, 2012.

    NCUA

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  • NCUA Issues Final Interest Rate Risk Rule

    Consumer Finance

    On February 2, the National Credit Union Administration (NCUA) issued a final rule amending Part 741 of its insurance rules to require certain federally insured credit unions (FICUs) to adopt written interest rate risk policies and programs. These interest rate risk policies and programs must include five elements: (i) Board approval, (ii) Board oversight and management implementation, (iii) risk-measurement systems to assess the interest rate risk sensitivity of earnings and/or asset and liability values, (iv) internal controls to monitor adherence to interest rate risk limits, and (v) decision-making that is informed and guided by interest rate risk measures. The new rule applies to all FICUs with assets greater than $50 million and to any FICU with assets between $10 million and $50 million that has a Supervisory Interest Rate Risk Threshold ratio (SIRRT ratio) greater than 1:1. FICUs can calculate their SIRRT ratio by adding together their portfolios of first mortgage loans and investments with maturities greater than five years, and dividing that figure by the FICU’s net worth. The final rule also contains guidance on how to develop an interest rate risk policy and program that is based on generally recognized best practices for safely and soundly managing interest rate risk. The rule is effective September 30, 2012.

    NCUA

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  • Medical Device Manufacturer Resolves FCPA Enforcement Actions for $22.2 Million

    Financial Crimes

    On February 6, the U.S. Department of Justice and Securities and Exchange Commission announced resolved FCPA enforcement actions against a domestic medical device manufacturer and its UK-based parent company. The combined monetary sanction totals $22.226 million, and the UK parent must retain an independent compliance monitor for a period of eighteen months. The conduct in question, as alleged in the SEC Complaint, involved the use of three UK shell companies created by a distributor in Greece for use as conduits to make payments to physicians in Greece working “at publicly-owned hospitals [and who were] government employees, providing healthcare services in their official capacities.” The commercial relationship between the device manufacturer and the distributor ended in 2008. More details are available in an update from BuckleySandler’s FCPA Team. To remain current on FCPA and anti-corruption developments, please view BuckleySandler’s FCPA Score Card.

    FCPA

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