Untitled Document

Consumer Financial Serivces Committee: Top E-Bulletins

2016

2015

2014

2013


February 9, 2016:
California Supreme Court Broadens Application of Anti-Deficiency Statute to Include Short Sales

On January 21, 2016, the California Supreme Court ruled that the state’s anti-deficiency statute enumerated under California Code of Civil Procedure Section 580b applied to short sales in addition to foreclosures.  Coker v. JPMorgan Chase Bank, N.A., S213137, 2016 WL 240901 (Cal. Jan. 21, 2016).  Section 580b states that no deficiency judgment may be obtained by the lender against the borrower when he/she defaults on a purchase money loan and the lender exhausts its security via sale under the deed of trust or mortgage.

In Coker, the borrower negotiated a short sale of her property with JP Morgan Chase Bank (“Chase”) in 2010 and agreed to remain personally liable for the deficiency ($116,000) caused by the difference in the sale price and loan balance.  Even though the current short sale anti-deficiency statute, California Code of Civil Procedure Section 580e, was not enacted until 2011, the Court found that California’s long standing consumer protection provisions could not be waived in this transaction.

The Coker decision affirmed the California Court of Appeal’s ruling that Chase’s effort to recover the deficiency owed by the borrower was not enforceable since Section 580b applied to any sale and not just a (judicial or non-judicial) foreclosure sale.  Additionally, the Court also affirmed the Court of Appeal’s holding that Section 580b applies even if a borrower waives their right under California’s one-action rule, California Code of Civil Procedure Section 726.
Guided by the themes of determining the “purpose” and “intent” of Section 580b, the Court held that “…a law established for a public reason cannot be contravened by a private agreement.”  Coker at *14; Cal. Civ. Code § 3513.  In the ruling, it was noted that the purpose of the state’s anti-deficiency statutes were to (1) prevent lenders from overvaluing homes and (2) prevent aggravation of the economic decline which could stem from saddling borrowers with significant personal liability. 

Here, the Court applied the test it fleshed out in DeBerard Properties, Ltd. v. Lim 20 Cal.  (1999) to determine the applicability of Section 580b.  Under the DeBerard test, the Court asked two questions:  “(1) [D]oes the sale vary from a standard purchase money transaction, and (2) if so, does applying section 580b’s anti-deficiency protection comport with the Legislature’s intent?  Section 580b applies unless the answer to the first question is yes and the answer to the second question is no.”  Id. at 665.

Finding that the borrower in Coker did nothing more than buy a home to live in using purchase money as her financing, the Court held that the sale did not vary from a standard purchase money transaction and that Section 580b applied automatically in this case.  Chase’s argument that the short sale agreement changed the purchase money loan from a secured to unsecured transaction was rejected by the Court as it held that Chase always had a possessory interest in its security because it still could have foreclosed if the short sale transaction was unsuccessful. 

For more information, please contact Hadi Seyed-Ali at Robertson, Anschutz & Schneid, P.L. at (561) 241-6901 or hseyedali@rasflaw.com.

Coker v. JPMorgan Chase Bank, N.A. Opinion

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

January 6, 2016:
FTC Settlement with Foreclosure Scammers

On December 4, 2015, The Federal Trade Commission (“FTC”) reached an agreement to end litigation with five of the six defendants stemming from the complaint filed April 15, 2015, against Chad Caldaronello, Derek Nelson, Brian Pacios, Cortney Gonsalves, and Justin Moreira, DBA HOPE Services and HAMP Services.  Litigation against a sixth defendant, Denny Lake, has not settled.

The original complaint, which was filed under seal, sought to obtain permanent injunctive relief, rescission of contracts restitution, refund of monies paid, and disgorgement of ill-gotten gains against the defendants for violating §5(a) of the FTC Act, the FTC’s Telemarketing Rule and the Mortgage Relief Servicers Rule (“MARS Rule”).

The defendants offered services to borrowers in foreclosure under the names HAMP and HOPE, the names associated with the $75 billion federal government program which was instituted to stabilize the U.S. housing market by preventing foreclosures.

The defendants allegedly made material misrepresentations by stating that the borrowers were pre-approved for the government programs and that their mandatory trial payments would be held by their own lenders in a trust account and refunded if a permanent modification was not approved.  The defendants allegedly conspired to keep borrowers from contacting their lenders where they would have easily discovered the fraud.  Borrowers claimed they did not receive modifications or refunds and the lenders never received the stolen trial payments which had been deposited into the bank of account of another one of the defendants’ businesses Trial Payment Processing. 

The HOPE defendants allegedly scammed distressed borrowers through a telemarketing program where callers implied that they were part of the government programs.  The telemarketers went so far as to complain about government cut backs as an excuse for phone calls that were not returned in a timely manner.  The defendants used the actual government forms from the Making Homes Affordable website but omitted the seventh and final page which contained a disclosure warning consumers not to pay mortgage payments to anyone but their lenders.  Defendants also used a sophisticated mailing program in conjunction with the telemarketing scam where they used the HAMP government seal, making their correspondence look official.

The settlement included a 2013 contempt action against Brian Pacios.  Defendants Pacios and Caldaronello are permanently banned from selling credit related products and from using aliases (four of the defendants used multiple aliases).    Pacios, Caldaronello and Moreira are also permanently banned from telemarketing.  Moreira and Nelson are prohibited from using material misrepresentations and unsubstantiated claims to sell financial services and products.  Nelson is banned from telemarketing without strict record keeping in accordance with the terms of the settlement. 

Pacios and Caldaronello have been ordered to pay $2.7 million, the amount consumers paid in fees.  Moreira is subject to the same judgment which will be satisfied upon the surrender of assets delineated in the settlement agreement.   Nelson will pay $859,839 and Gonsalves will pay $218,760, the amount profited from the scam.

The FTC had a unanimous vote to authorize the stipulated final orders.  The U.S. District Court for the Central District of California entered the order On November 3, 2015, for Caldaronello, Pacios and Moreira and on December 4, 2015, for Nelson and Gonsalves.

For more information, please contact:

Nadine Lewis
Nadine@lewislawassociates.com
8560 W. Sunset Boulevard
5th Floor
West Hollywood, CA 90069
310.617.8584

Consumer Financial Services Committee

Chair
Jennifer Duncan 
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

December 30, 2015:
CFPB Takes on “Trafficking” of Information Gleaned from Payday and Installment Loan Applications

On December 17, 2015, the Consumer Financial Protection Bureau (“CFPB”) filed a complaint in federal court against a Burbank company called T3Leads.  The CFPB alleged that the company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act.   According to the complaint, the Bureau alleged that the company bought and sold personal customer information from payday and installment loans without properly vetting the customers.  T3Leads is “lead aggregator.”  This type of company purchases consumer information (leads) from websites that market payday and installment loans (considered “lead generators”).  Specific allegations against T3Leads include the following:

  • The company ignored false/misleading statements about lenders who obtained consumer applications.  Basically, those consumers who applied for loans through T3’s lead generators were unable to control who received their application.  T3 Leads, the CFPB alleged, often falsely claimed to say its consumers were matched with lenders who “followed the rules” and/or had “reasonable terms.”
  • T3Leads did not vet purchasers before adding them to its network, and failed to require proper disclosures regarding compliance with state laws.
  • The Company allegedly steered customers toward unfavorable loans.

The CFPB seeks monetary relief, injunctive relief, and penalties against T3Leads.

The CFPB separately targeted the individual who owned a Phoenix company called “Lead Publisher.”  Lead Publisher bought and sold leads which contained personal information like names, phone numbers email addresses, employer information, and the like.  As punishment, the owner was ordered to disgorge about $20k, and was also banned from the industry.  In its complaint, the CFPB alleged that the company sold 3 million consumers leads to companies that allegedly threatened harassed and defrauded customers to collect “phantom debts.”  In addition, the CFPB accused the company of failing to check the compliance or legitimacy of the companies to which it sold the information.  Lead Publisher is now out of Business.    

The complaint filed against T3Leads can be found here: http://files.consumerfinance.gov/f/201512_cfpb_complaint-v-d-and-d-marketing-inc-et-al.pdf

The consent order issued against Sancho can be found here: http://files.consumerfinance.gov/f/201512_cfpb_eric-v-sancho-consent-order.pdf

For more information, please contact Jennifer Duncan of ResortCom International at jduncan@resortcom.com.  

The CFPB’s CARD Act report may be accessed at the following link:
http://files.consumerfinance.gov/f/201512_cfpb_report-the-consumer-credit-card-market.pdf

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

December 29, 2015:
CFPB Provides Guidance and Warnings about “In Person” Collection of Debt

In a Supervisory Bulletin released on December 16, 2015, the Consumer Financial Protection Bureau (“CFPB”) opined about practices the Bureau had noticed “in the field” during supervisory examinations and enforcement investigations.  The purpose of the Bulletin, according to the Bureau, was to provide specific guidance with regard to debt collection to the following parties:

  • Creditors;
  • Debt Buyers; and
  • Third-Party Collectors

The Bulletin specifically focuses

  • the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (sections 1031 and 1036); and
  • Fair Debt Collection Practices Act (FDCPA

With Regard to Dodd Frank, the Bureau warned that warned that First Party and Third-Party debt collectors may run a “heightened risk” of committing the unfair acts or practices prohibited by Dodd Frank.  In-person collections may cause substantial reputational injury to consumers if the visit results in third parties finding out that the consumer has a debt in collection.  Also of note was the chance that the consumer would be caused employment consequences if the employer prohibited personal visitors. 

CFPB Compliance Bulletin 2015-7 may be accessed in its entirety here:

http://files.consumerfinance.gov/f/201512_cfpb_compliance-bulletin-in-person-collection-of-consumer-debt.pdf

For more information, please contact Jennifer Duncan of ResortCom International at jduncan@resortcom.com.  

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

December 24, 2015:
$6.4 Million Penalty for “Buy-Here, Pay Here” Auto Dealer Called Carhop

On December 17, 2015, the Consumer Financial Protection Bureau (“CFPB”) ordered auto dealer CarHop (and its affiliated financing company) to pay a $6.4 Million civil penalty for allegedly providing “damaging, inaccurate, consumer information to credit reporting companies.”  Carhop was the subject of a CFPB investigation in which the CFPB alleged both parties violated the Fair Credit Reporting Act and the Consumer Financial Protection Act by specifically:

  • Deceiving customers into believing they would be able to build and maintain good credit with CarHop
  • Providing inaccurate repossession information
  • Incorrectly reporting previous customers as still owing money
  • Failure to have “reasonable written policies and procedures” to ensure credit information accuracy. 

In addition to the monetary penalty (which will be allocated to the CFPB’s Civil Penalty Fund) , the companies will be required to cease misrepresenting that they will report “good credit” to the credit reporting agencies; that an audit program will be implemented and followed; provide credit reports to harmed customers; and correct any errors in credit reports.

The consent order can be found at: http://files.consumerfinance.gov/f/201512_cfpb_carhop-consent-order.pdf

For more information, please contact Jennifer Duncan at ResortCom International LLC at resortcom.com.

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

December 23, 2015:
U.S. Supreme Court Upholds Enforceability of Class Waivers in Arbitration Agreements

On December 14, 2015, the U.S. Supreme Court once again upheld the enforceability of class waivers in arbitration agreements. In DIRECTV, Inc. v. Imburgia, the Supreme Court reversed a California Court of Appeal's refusal to enforce an arbitration agreement waiving the right to bring class arbitration claims. 

The arbitration agreement at issue included a class arbitration waiver specifying that the entire arbitration agreement was unenforceable if the "law of your state" made class arbitration waivers unenforceable. The agreement also declared that the Federal Arbitration Act governed the arbitration provision. At the time of the agreement between DIRECTV and the consumer, California law made class-arbitration waivers unenforceable as a result of the decision in Discover Bank v. Boehr. Thereafter, the U.S. Supreme Court held in AT&T Mobility LLC v. Concepcion that the Federal Arbitration Act preempted California's Discover Bank rule.

The trial court denied DIRECTV's request to order the matter to arbitration, and the California Court of Appeal affirmed. The state appellate court thought that California law would render class arbitration waivers unenforceable, so it held the entire arbitration provision was unenforceable. The fact that the FAA preempted that California law did not change the result, the court stated, because the parties were free to refer in the contract to California law as it would have been absent federal preemption. The court reasoned that the phrase "law of your state" was both a specific provision that should govern more general provisions and an ambiguous provision that should be construed against the drafter. Therefore, the court found, the parties had in fact included California law as it would have been without federal preemption.

The Supreme Court ruled that because the Federal Arbitration Act preempted the California Court of Appeal's interpretation, that court must enforce the arbitration agreement.  For a copy of the U.S. Supreme Court’s decision, click here Decision

For more information, please contact Alicia Tortarolo, Hudson Cook, LLP at (714) 263-0425 or atortarolo@hudco.com.

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

December 21, 2015:
FTC Obtains Largest Monetary Award Ever in Enforcement Action against LifeLock

In the largest monetary award for an enforcement action ever, LifeLock will pay $100 Million to settle FTC charges that it violated a 2010 FTC order to protect consumer data.  In a proposed order in the U.S. District Court for the District of Arizona, the FTC stated that the company violated four parts of the 2010 order:

  1. LifeLock allegedly did not maintain a comprehensive information security program.
  2. LifeLock allegedly falsely advertised that it protected consumer data with the same safeguards that financial institutions use.
  3. LifeLock allegedly engaged in false advertising when it told consumers that it would send alerts to them as soon as it received any indication that the consumer was a victim of identity theft.
  4. LifeLock apparently failed in its recordkeeping requirements.  Since this settlement, these requirements have been extended another 13 years.

Under the terms of the settlement, of the $100 million, $68 million may be used to redress class action consumers who were claim they were injured by the aforementioned violations.  The funds will be paid directly to consumers and not used for legal or administrative costs.   Any leftover money will go to the FTC.

The 16-page PROPOSED STIPULATED ORDER RESOLVING FTC’S ALLEGATIONS OF CONTEMPT AND MODIFYING STIPULATED FINAL JUDGMENT AND ORDER FOR PERMANENT INJUNCTION is available at the FTC’s website: https://www.ftc.gov/system/files/documents/cases/151217lifelockstip.pdf?utm_source=govdelivery

For more information, please contact Jennifer Duncan of ResortCom International LLC at jduncan@resortcom.com.  

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

December 21, 2015:
Department of Justice Announces Proposed Resolution of Discriminatory Mortgage Lending Claims

The Department of Justice announced a proposed resolution of lending discrimination claims asserted against Sage Bank.  In a complaint filed in the United States District Court for the District of Massachusetts, the Department of Justice alleged that Sage Bank employed a pricing system which resulted in African-American and Hispanic borrowers paying higher prices than similarly-situated white borrowers for residential mortgage loans.  Among other challenged elements of the pricing system, the bank allegedly allowed loan officers the discretion to price loans without management approval, which purportedly increased the risk that “similarly qualified borrowers would receive differently priced loans.”  The Department of Justice alleged that the bank’s pricing system created a “foreseeable disparate impact,” and that the higher prices could not be “fully explained by factors unrelated to race or national origin.”  Based upon these allegations, the Department of Justice asserted that the bank violated the Fair Housing Act and the Equal Credit Opportunity Act.

The consent order, if approved by the court, will require Sage Bank to pay $1.175 million into a settlement fund to compensate impacted borrowers.  The consent order also requires the bank to implement pricing policies designed to minimize fair lending risks and to establish a monitoring program to address pricing disparities.  Finally, the bank must establish a loan officer compensation policy which ensures compliance with TILA, including prohibiting compensation based on any loan term other than the amount of the loan.

Sage Bank denies all allegations made by the Department of Justice. 

The Department of Justice’s complaint, and the proposed consent order, may be found at the Department of Justice’s website:  http://www.justice.gov/opa/pr/justice-department-reaches-settlement-sage-bank-resolve-allegations-mortgage-lending

For more information, please contact Brian Farrell at bfarrell@sheppardmullin.com.

Consumer Financial Services Committee

Chair
Jennifer Duncan  
ResortCom International LLC
jduncan@resortcom.com

Vice Chair of Communications
Alicia Tortarolo
Hudson Cook LLP
atortarolo@hudco.com

Vice Chair of Programming
Andrew Noble
Severson & Werson
awn@severson.com

Vice Chair of Membership
Scott M. Pearson
Ballard Spahr LLP
pearsons@ballardspahr.com

Vice Chair of Legislation
Brian Farrell
Sheppard Mullin Richter & Hampton LLP
bfarrell@sheppardmullin.com

Secretary
Avital Samet
TrueAccord
avital@trueaccord.com

October 7, 2014:
FHA Lender Handbook Updated, 2013, HMDA Data Released, and New Reporting Regulations Proposed

FHA Handbook: Last week, the Federal Housing Administration issued an updated handbook consolidating its guidance for lenders into a single resource. The updated resource is distinct from FHA’s effort to update its servicing manual. Comments on servicing changes are due Oct. 17. See updated handbook

HMDA Data: In addition, Home Mortgage Disclosure Act data for 2013 is now available at http://www.consumerfinance.gov/hmda/. HMDA data is collected from financial institutions and includes statistics on applications, originations, denials, and loan purchases and sales, and breaks down the type of loan, the secured status of the loan, Census tract characteristics, and other data points. More than 7,000 lenders reported data for 2013, a decrease of approximately 3% from the previous year, with the top twenty-five banks providing 42% of all home loans.

The data is used to enforce fair lending standards and identify lenders who are not providing mortgages in communities of color. In 2013, home purchase lending increased 13% overall. However, home purchase loans to black or Hispanic borrowers decreased slightly while refinance loans to these groups increased slightly. Similarly, home purchase loans to low- or moderate-income borrowers decreased slightly while refinance loans increased.

Federal Housing Administration loans decreased in popularity overall but not with high-income borrowers. In 2013, 25% of high-income borrowers received FHA loans, despite increases in insurance premiums associated with FHA loans. Minority borrowers also disproportionately used government loan programs, including FHA loans.

Proposed HMDA Regulations: The Consumer Financial Protection Bureau proposed new regulations on HMDA data at the end of August (The Dodd Frank Act transferred HMDA rulemaking authority to the CFPB). The proposed regulations seek to expand the types of transactions subject to HMDA reporting as well as the data points regarding each transaction. The proposed rule change is available for comment. Comments are due October 29, 2014. http://www.gpo.gov/fdsys/pkg/FR-2014-08-29/pdf/2014-18353.pdf

For more information, please contact Katherine Porter, Professor of Law, University of California, Irvine at kporter@law.uci.edu

July 16, 2014:
CFPB Sues Georgia High-Volume Debt Collection Law Firm

On July 14, 2014, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit in federal district court against law firm Frederick J. Hanna and Associates and three of its partners. The action alleges that the firm, which filed more than 350,000 debt collection lawsuits in Georgia alone between the years 2009 and 2013, violated the Fair Debt Collection Practices Act (FDCPA) as well as the Dodd-Frank Wall Street Reform and Consumer Protection Act by operating “less like a law firm than a factory.” The complaint states that the firm relied on an automated system and non-attorney support staff to determine which consumers to sue. It goes on to say that “the non-attorney support staff produce the lawsuits and place them into mail buckets, which are then delivered to attorneys essentially waiting at the end of an assembly line. The Firm’s attorneys are expected to spend less than a minute reviewing and approving each suit.” These “high volume litigation tactics,” the CFPB claims, allowed the plaintiffs to collect millions of dollars from consumers who may not have actually owed the debt at all, or who owed different amounts than the debt in the amounts claimed.

The full name of the case is Consumer Protection Bureau v. Frederick J. Hanna and Associates, P.C., Frederick J. Hanna, individually, and Robert A. Winter, individually.

The full text of the complaint may be accessed at: http://files.consumerfinance.gov/f/201407_cfpb_complaint_hanna.pdf.

July 14, 2014:
Wells-Fargo Sued in Whistleblower Action over the Home Affordable Modification Program (HAMP)

The complaint was recently unsealed in a Qui tam action, where plaintiff and Texas resident Michael Fisher brought a $1 Billion dollar whistleblower action against Wells Fargo Bank N.A. under the False Claims Act. The complaint was filed in the United States District Court for the Southern District of New York. From 2008-2012, Fisher worked for law firms assisting with loan modifications relating to residential property mortgage loans made by Wells Fargo and other servicers or lenders. In 2009, the US Treasury Department rolled out the Home Affordable Modification Program, or HAMP, which encouraged lenders to modify home-secured loans. Under HAMP, loan servicers, borrowers, and certain other parties would receive incentive payments from the Government in connection with granting the modification and keeping the modified payments current. Borrowers’ incentives, for example, were paid to the servicer to be applied to the reduction of the principal. Fisher alleges that Wells Fargo falsely certified that it was in full compliance with the relevant laws (including Truth in Lending Act and Regulation Z) in the HAMP servicer agreement. Specifically, the complaint claims that the bank did not provide borrowers with notice of the right of rescission, as required under Regulation Z. Fisher’s action seeks treble damages, attorneys’ fees, court costs and other relief.

The case is currently pending in the Southern District of New York, and is case number 1:13-cv-01460-LTS, which is accessible on Pacer.

For more information, please contact Jennifer Duncan, General Counsel at ResortCom International LLC (jduncan@resortcom.com).

May 22, 2014:
National Mortgage Settlement Compliance Progress Report Released

On May 14, 2014, the Office of Mortgage Settlement Oversight released its Compliance in Progress report summarizing the six compliance reports filed with the United States District Court for the District of Columbia. These reports are required by the February 9, 2012 national mortgage settlement reached between the attorneys general of 49 states and the District of Columbia (every state except Oklahoma), the federal government and five banks and mortgage servicers – Ally/GMAC, Bank of America, Citibank, J.P. Morgan Chase and Wells Fargo. The settlement created new servicing standards, provided loan modification relief to distressed homeowners and provided for payments to the states to support the prevention of foreclosure and civil money penalties to the federal government. The Office of Mortgage Settlement Oversight also was created to monitor the progress of compliance with the settlement.

The report contains the results from tests conducted to review the servicers’ compliance with the national mortgage settlement for the fourth quarter of 2013 (Oct. 1, 2013 – Dec. 31, 2013). Five servicers – Ocwen (successor by assignment to GMAC/Ally), Bank of America, Citibank, J.P. Morgan Chase and Wells Fargo – passed all of the tests for compliance with the settlement. Green Tree (also successor by assignment to GMAC/Ally), however, failed eight of the 29 metrics tested. This is the first quarter that Green Tree has been subject to these tests. The Office of Mortgage Settlement also announced that it began testing for four additional metrics (beyond the 29 required by the settlement) in the fourth quarter of 2013 relating to the loan modification process, single point of contact and billing accuracy, and results for these tests will be announced in the next compliance report. More information, including the report, is available here.

For more information, contact Kristina Del Vecchio at kristina@josephandcohen.com.

February 10, 2014:
CFPB's Winter 2013 "Supervisory Highlights" -- Features New Mortgage Servicing Rules and Examination Guidelines to Address Identified Past Problems

The Consumer Financial Protection Bureau issued its latest Supervisory Report this week, highlighting in particular the types of unfair and deceptive practices found by CFPB examiners to have been committed during the reporting period July – October 2013 by mortgage servicers. These practices were uncovered by examiners in connection with: servicing transfers; waivers of rights in loss mitigation agreements; payment processing; furnishing information to consumer reporting agencies; and other issues arising in servicing of defaulted loans. The CFPB adds that its new mortgage servicing rules to amend RESPA, TILA and ECOA, effective January 10, 2014, are meant to address each of these practices going forward. The new servicing rules can be found here.

The Supervisory Report also notes related Supervision Program Developments:

  • The Bureau is changing the format of its Examination Reports and Supervisory Letters starting January 2014 to simplify them and reduce repetition, in an effort to reduce the time necessary to finalize reports and send them out to supervised entities.

  • The Bureau has updated both its Mortgage Origination examination procedures and its Mortgage Servicing examination procedures to reflect implementation of all final 2013 CFPB mortgage reform rules implementing the Dodd-Frank Act.

For the CFPB’s public announcement regarding the release of its Winter 2013 Supervisory Report, go to: http://www.consumerfinance.gov/newsroom/cfpbsupervision- report-highlights-mortgage-servicing-problems-in-2013/.

For more information, please contact Melissa Richards, Chief Legal & Risk Officer, CMG Financial at mrichards@cmgfi.com.

November 15, 2013:
The CFPB Takes Action against Mortgage Insurer for Alleged Kickback Arrangements

Today the Consumer Financial Protection Bureau (CFPB) filed a complaint and proposed consent order with the United States District Court for the Southern District of Florida against Republic Mortgage Insurance Company (RMIC) for allegedly paying kickbacks for mortgage insurance referrals.  CFPB Director Richard Cordray stated that kickbacks are illegal and “can drive up costs for consumers seeking to buy a home.”

The CFPB alleges that RMIC violated federal consumer financial law by providing kickbacks to lenders in exchange for referrals of mortgage insurance business by those lenders.  In the proposed settlement, RMIC has agreed to, among other items: (a) pay $100,000 in penalties; (b) be subject to monitoring by the CFPB and make reports to the CFPB; and (c) end the practice of entering into captive mortgage reinsurance arrangements with mortgage lender affiliates.  RMIC’s outstanding insurance claim obligations are being resolved under the supervision of the North Carolina Department of Insurance. 

View the consent order at:
 http://files.consumerfinance.gov/f/201311_cfpb_consent-order_RMIC.pdf

View the complaint at:
http://files.consumerfinance.gov/f/201311_cfpb_complaint_RMIC.pdf

For more information, please contact Jennifer Duncan , General Counsel at ResortCom International, LLC (jduncan@resortcom.com). 

October 29, 2013:
CFPB Brings Action Against Louisville Law Firm for Alleged Illegal Real Estate Kickbacks

On October 24, 2013, the Consumer Financial Protection Bureau (CFPB) further demonstrated how it is taking up the Department of Housing and Urban Development’s (HUD) mantle as the defender and enforcer of the Real Estate Settlement Procedures Act (RESPA).  The CFPB filed a complaint against the Louisville, Kentucky-based law firm Borders & Borders, PLC and its principals, alleging that it had been utilizing a network of sham joint-ventures to disguise the payment of kickbacks to the owners of local real estate and mortgage brokerages in exchange for referrals.  The action was a result of a HUD investigation.  The CFPB complaint alleged that the nine joint ventures setup between Borders & Borders and these real estate and mortgage brokerages were not bona fide entities because, inter alia:

  1. none had their own office space, email address, or phone number;

  2. all nine joint-ventures were manned by the same sole employee, who was also an employee of Borders & Borders;

  3. None issued title insurance to homebuyers not referred by the joint-venture partners to and by Borders & Borders;

  4. None advertised to attract other business;

  5. None performed substantive title research work.  This was all performed by the staff at Borders & Borders.

Section 8 of RESPA prohibits, among other things, the giving and receiving of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”  12 U.S.C. § 2607(a).  The CFPB is seeking disgorgement of all ill-gotten proceeds from the referral arrangement, and an injunction to prevent Borders & Borders from further violating RESPA. 

While RESPA does provide a safe harbor for certain types of referrals and joint ventures conducted through "affiliated business arrangements", as described in 12 U.S.C. § 2607(c)(4), the CFPB alleged that the joint ventures established by Borders & Borders did not qualify because, among other things, the returns provided to the joint venture owners did not constitute bona fide returns on ownership interest in the entities.  In some jurisdictions, courts have determined that a violation of RESPA's affiliated business arrangement provisions constitutes an independent violation of Section 8 of RESPA.  See, e.g., Bolinger v. First Multiple Listing Service, Inc., 2012 WL137883 (N.D. Ga. Jan 18, 2012) (available at http://www.leagle.com/decision/In%20FDCO%2020120119D53) and Minter v. Wells Fargo Bank, 274 F.R.D. 525, 539, 545 (D. Md. 2011) (available at http://www.philadelphiafed.org/bank-resources/publications/consumer-compliance-outlook/2011/third-quarter/minter.pdf).  Although the CFPB complaint alleges general violations of section 8 of RESPA, it will be interesting to see whether the CFPB further advances the argument that violation of the affiliated business arrangement provisions constitute an independent violation of RESPA.

For more information, please contact Neil Peretz, General Counsel at BillFloat, Inc. (neil@billfloat.com) or Ryan Ito (rmi@severson.com), Associate, Severson & Werson, P.C.

August 8, 2013:
D.C. District Court Overturns Durbin Amendment Rule’s Debit Interchange Fee Limit

In a victory for retailers seeking to invalidate debit card interchange fee and transaction routing limits set by the Federal Reserve Board (FRB), the U.S. District Court for the District of Columbia concluded that the FRB’s Final Rule was clearly contrary to Congress’ intent.  The Durbin Amendment required the FRB to limit per transaction interchange fees that large debit card issuers receive from merchants to ensure that the fee is “reasonable and proportional” to the issuer’s costs incurred in relation to a transaction.  The Court found that the FRB’s Final Rule impermissibly expanded the allowable costs it considered in setting the maximum limit on debit card interchange fees, in a manner “contrary to the expressed will of Congress.”  As a result, the Court vacated the FRB’s interchange fee regulations, although it stayed the vacatur in an effort to reduce disruption while the FRB develops new rules to replace the invalid portions of its Final Rule.

A copy of the ruling is attached.

For more information, please contact Raza Ali at Styskal, Wiese & Melchione, LLP.