Busy CFPB Studying Mandatory Arbitration Clauses

Posted on April 25, 2012 by Fred Rivera

April 24, 2012-- The Consumer Financial Protection Bureau announced a study into mandatory arbitration clauses in consumer financial product contracts.  The CFPB is required under the Dodd-Frank Wall Street Reform and Consumer Protection Act to submit a study to Congress regarding the use of arbitration clauses in credit agreements, including contracts for credit and debit cards, bank accounts and other consumer financial products.

CFPB Director Richard Cordray said "Arbitration clauses are found in many contracts for consumer financial products,  We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers' issues. This inquiry will help the bureau assess whether rules are needed to protect consumers.”

The public and industry has until June 23 to provide their views on arbitration clauses, according to the CFPB release.

Long a source of criticism from consumer advocacy groups,  in 2011 the U.S. Supreme Court in  AT&T Mobility LLC v. Concepcion gave deference to contractual arbitration clauses in consumer contracts that bar plaintiffs from proceeding in a class action.  Industry advocates argue that arbitration is an efficient method to resolve customer disputes, which keep costs down and result in timely resolution of disputes.

Read the CFPB announcement here.
Read the Federal Register announcement here.
Read Los Angeles Times article regarding arbitration review here.

 









 

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Number of FDIC Professional Liability Suits Against Failed Bank Execs Soars

Posted on March 22, 2012 by Fred Rivera

According to a Law360 report, since 2009 the FDIC has authorized the filing of suits against 369 directors and officers of 54 failed banks, claiming a total of $8 billion in damages in professional liability lawsuits. The FDIC released the statistics in March 2012 report. 

Professional liability suits are only pursued if they are both meritorious and cost-effective. Before seeking recoveries from professionals, the FDIC conducts a thorough investigation into the causes of the failure. Most investigations are completed within 18 months from the time the institution is closed. Prior to filing the claim, staff will attempt to settle with the responsible parties. If a settlement cannot be reached, however, a complaint will be filed, typically in federal court.

The FDIC is likely entering a period of time in which it will authorize an even larger number of professional liability lawsuits. As it pointed out in its recent report, the peak of bank failures occurred in 2010, when there were 157 bank failures.  The FDIC's position is that, as receiver, it has three years for tort claims and six years for breach-of-contract claims to file suit from the time a bank is closed. If state law permits a longer time, the state statute of limitations is followed.

The  FDIC report is a strong reminder of liability issues that face bank--and other financial institutions--officers and directors.  Officers and directors should be vigilant about in ensuring the enterprise has a robust compliance program and proper insurance coverage in connection with professional liability claims. 

 

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SEC Speaks 2012 - Early Reports from SEC Whistleblower Office's Launch Year

Posted on March 9, 2012 by Fred Rivera

By Caryn L. Trombino

At the annual “SEC Speaks” conference convened in Washington, D.C. from February 24-25, 2012, Sean McKessy, chief of the SEC’s Office of the Whistleblower, reported that the new Whistleblower Program from Dodd-Frank has resulted in hundreds of high-quality tips, as well as prodded numerous untold companies to enhance their own internal compliance programs.  Responding to widespread criticism that the whistleblower program will undermine internal corporate reporting, McKessy defended the program’s approach as "balanced" because it includes “built-in incentives” that enable whistleblowers to report internally first and still remain eligible for the bounty. McKessy also anecdotally observed that a “significant majority“ of the tips received were—according to the whistleblowers themselves—reported first internally within their respective companies.  According to McKessy, the Office has successfully returned more than 2,000 calls within 24 business hours of receiving a tip on the hotline.

 

Late last year, the SEC released tip data generated during the first months following the program's implementation in August 2011.  The most common complaint categories among the initial 334 whistleblower tips received broke down as follows:  market manipulation (16.2%); corporate disclosures and financial statements (15.3%); and offering fraud (15.6%). 

 

For a more fulsome summary of the SEC's enforcement priorities outlined at SEC Speaks 2012 beyond the Whistleblower Report, click here.   

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ABA Urges Congress to Protect Privileged Information Given to CFPB

Posted on February 24, 2012 by Fred Rivera

The American Bar Association (ABA) has sent letters to the United States Congress advocating for passage of legislation requiring the Consumer Financial Protection Bureau (CFPB) to protect privileged information that the agency receives from banks.  The letter from the ABA to Senate and House leaders raises the same concerns expressed by banks that now fall under the new bureau's regulatory regime.  The ABA's letter argues that the CFPB should be governed by the same rules regarding protections of privileged information that other federal banking regulators must follow.

There are pending bills in both the Senate and House (H.R. 4014 and S. 2099) that, if passed, will categorize the CFPB as a federal banking regulator, thus subjecting them to the same rules as other banking regulating agencies regarding privileged information received from banks.  The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, did not include such a provision, leading to bank concerns that sensitive information will be improperly provided to the public or competitors if produced to the CFPB.  Under current law, federal banking agencies may share with other similar agencies privileged information received from banks without a waiving the confidentiality of the information. Sharing privileged information with another third party--which may include the CFPB-- waives the confidential nature of the information.




 

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Mortgage Servicing Settlement Reached

Posted on February 9, 2012 by Fred Rivera

February 9, 2012.  Today government officials, including  Attorney General Eric Holder, announced a $26 billion settlement with five banks to settle allegations of mortgage servicing and foreclosure processing errors. The agreement, reached with Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., and Ally Financial Inc., resolves allegations related to foreclosure practices in 2009 and 2010. According to a New York Times article, under the settlement, the banks will provide $17 billion in loan modifications for delinquent borrowers. The deal also includes about $3 billion for “underwater” borrowers to refinance their home and approximately $1 billion paid to the Federal Housing Administration. Another $5 billion includes cash payments to states and federal authorities.

The settlement, which largely provides for loan modification incentives, provides banks certainty about resolving the government's allegations in connection with paperwork errors during foreclosures initiated after borrowers defaulted on their mortgage.   Additional detail about the settlement and its implication will soon follow.

Read U.S. Department of Justice Press Release.

Read Servicing Standards

 Read Wells Fargo Press Release

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Perkins Coie's Financial Services Bulletin: CFPB and FTC Issue MOU Regarding Consumer Protection Enforcement Efforts

Posted on February 2, 2012 by Fred Rivera

On February 2, 2012, Perkins Coie issued its weekly Financial Services Bulletin, including an article discussing the Memorandum of Understanding between the Federal Trade Commission and the Consumer Financial Protection Bureau regarding coordinated efforts to enforce consumer protection laws.  Section 1024(c)(3) of the Dodd-Frank Act requires the CFPB and the FTC to work together to coordinate their enforcement activities and promote consistent regulatory treatment of consumer financial products and services.

Read the Perkins Coie Bulletin

Read the FTC Press Release

Read the MOU

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CFPB Publishes Rules for Nonbank Mortgage Lenders

Posted on January 12, 2012 by Fred Rivera

On January 11, 2012, the Consumer Financial Protection Bureau (CFPB) released new procedures for regulating nonbank mortgage lenders.  The Mortgage Origination Examination Procedures apply to independent lenders, brokers, servicers, and others unaffiliated with banks and depository institutions, the bureau said in a statement.

The rules are a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and were published one week after the January 4, 2012 recess appointment of Richard  Cordray as the bureau's first director. The appointment of a director was a precondition to the CFPB enforcing regulations on certain sectors, including the nonbanking financial industry such as mortgage lending.

In a statement issued with the release of the new procedures, the CFPB said that the bureau's supervision of the nonbank financial sector will be rolled out in phases.  Effective immediately, the CFPB will begin regulating nonbank entities involved in mortgage lending, including originators, brokers, servicers, and loan modification services; payday lenders; and private education lenders.  

For other nonbank financial sectors, including debt collections, consumer credit reporting, and auto financing, the CFPB may supervise "larger participants" after that term is defined.

The bureau's publication of the rules of the game for nonbank mortgage lenders is a watershed moment for the agency.  The agency now has authority to oversee entities that were a main target of the Dodd-Frank financial reform legislation, and it intends to immediatly begin its supervision program. 

The bureau took little time to issue these regulations after the director's appointment, and significant enforcement has already begun with the announcement that the CFPB is investigating New Jersey-based PHH, Corp. in connection with how the company handled mortgage insurance premiums.  (Read more here.)  

Read more about the CFPB's new regulations for nonbank mortgage lenders:  Wall Street Journal Online ; Law360.

 



 

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Justice Department Settles Lending Discrimination Suit Against Countrywide

Posted on December 21, 2011 by Fred Rivera

On December 21, 2011 the U.S. Department of Justice announced it had reached a $335 million settlement with Countrywide, now owned by Bank of America, to resolve allegations of lending discrimination.  The settlement resolves claims that Countrywide charged Hispanics and African-American borrowers higher prices for credit compared to similarly situated non-Hispanic and white borrowers.  The Justice Department announced that the settlement is the largest fair lending settlement in the Department's history. 

The settlement, which is subject to court approval, was filed today in the U.S. District Court for the Central District of California in conjunction with the department’s complaint which alleges that Countrywide discriminated by charging more than 200,000 African-American and Hispanic borrowers higher fees and interest rates than non-Hispanic white borrowers in both its retail and wholesale lending.  The complaint alleges that these borrowers were charged higher fees and interest rates because of their race or national origin, and not because of the borrowers’ creditworthiness or other objective criteria related to borrower risk.  

According to the DOJ press release, the settlement also resolves allegations that Countrywide violated the Equal Credit Opportunity Act by discriminating on the basis of marital status against non-applicant spouses of borrowers by encouraging them to sign away their home ownership rights. 

For the last three years, the Civil Rights Division has warned of its stepped-up enforcement efforts in the fair lending arena.  While case filings were slow to come, the Countrywide settlement, along with recent fair lending activity out of the Division and by members of the interagency Financial Fraud Enforcement Task Force, suggests that government enforcement of fair lending laws may continue to impact the consumer finance industry during 2012.

Read the DOJ's Press Release here; the Complaint here; and the proposed Consent Order here. 

Read MarketWatch's article here and Bloomberg's article here.

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Poll finds that majority willing to "blow whistle" following Dodd-Frank

Posted on December 12, 2011 by Fred Rivera

A December 12, 2011 Reuters report states that a recent poll found that three-quarters of Americans are willing to blow the whistle under the protections and incentives offered by the Dodd-Frank Wall Street Reform and Consumer Act.

"According to the poll released on Monday, 78 percent of Americans said they would report wrongdoing in the workplace as long as they could do it anonymously, without retaliation, and claim a monetary report" the article stated.

Under the Dodd-Frank whistleblower provisions, individuals who provide original information that leads to an SEC enforcement action with penalties of more than $1 million are eligible to receive a 10%-30% cut of the penalties.   In its November 15, 2011 Annual Report on Dodd-Frank Whistleblower Program, the SEC stated that it had received 334 whistleblower tips in the seven weeks immediately following the August 12 effective date of the whistleblower bounty rules.

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Federal Agencies Issue Joint Statement on Responsibility for Federal Consumer Financial Laws

Posted on November 28, 2011 by Fred Rivera

On Thursday, November 17, 2011, the Board of Governors of the Federal Reserve System the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency  issued a joint statement describing how the total assets of an insured bank, thrift or credit union will be measured for purposes of determining supervisory and enforcement responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act.   Under Dodd-Frank, the CFPB has exclusive authority to examine, and primary authority to enforce, compliance with federal consumer financial laws for institutions with total assets of more than $10 billion.  The statement attempts to explain how asset size is measured for this purpose.

For a summary of the statement, read the Perkins Coie Financial Services Bulletin:  New Rules at the CFTC and Fed and a Multi-Agency Joint Statement on Federal Consumer Financial Laws.

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