Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

June 24, 2010 - Marketwatch.com reports that Morgan Stanley & Co. agreed to pay $102 million to  settle allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers.  Massachusetts Attorney General Martha Coakley's office announced the settlement on Thursday.  According to its press release, the AG "alleged that Morgan entered the subprime arena in Massachusetts by offering funding to retail lenders that specialized in loans to less-qualified borrowers. Morgan provided billions of dollars to subprime lender New Century, which used Morgan funds to target lower-income borrowers and lure them into loans that consumers predictably could not afford to pay...Some Morgan Stanley investment bankers referred to New Century as Morgan’s 'partner' in the subprime lending business."

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Florida attorney general's office has launched a civil investigation against Fidelity National Financial Inc. and Lender Processing Services Inc. to review allegations that the companies used fabricated assignments in foreclosure cases.  According to the AG's summary of the case, the office is reviewing whether "bogus assignments" of mortgages were created in order that foreclosures may go through more quickly and efficiently.

Over the last several years, borrowers in default have alleged that a lender or assignee may not foreclose without producing the original note.  Courts have generally rejected the "show me the note" defense by applying basic legal principles applicable to negotiable instruments.  See, e.g., Diessner v. Mortgage Electric Registration Services, 618 F.Sup.2d 1184, 1187 (D.Ariz. 2009)("...district courts have routinely held that Plaintiff's 'show me the note' argument lacks merit.")  The Florida AG's investigation, regardless of the outcome, may spawn yet another basis for defaulting borrowers to delay or defeat loss mitigation efforts of lenders and servicers.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

According to a June 7, 2010 New York Times article, the FTC announced that two Countrywide mortgage-servicing companies agreed to pay $108 million to resolve charges that they collected excessive fees from homeowners.  The FTC alleged that Countrywide charged excessive fees to homeowners who were behind on their mortgage payments, in some cases asserting that borrowers were in default when they were not.

In addition, the FTC said in its statement announcing the settlement that Countrywide at times imposed a new round of fees on homeowners who had recently emerged from bankruptcy protection, sometimes threatening the consumers with a new foreclosure.   The case was brought with the assistance of the U.S. Trustee.

The FTC charge alleges that when homeowners fell behind on mortgage payments and were in default on their loans, Countrywide ordered property inspections, lawn mowing, and other services meant to protect the lender’s interest in the property.  However, according to the FTC complaint, rather than hire third-party vendors to perform the services, Countrywide created subsidiaries to hire the vendors that marked up the price of the services charged by the vendors.  The mark-ups were then passed on to the borrower. The complaint alleges that the company’s strategy was to increase profits from default-related service fees in bad economic times.

The settlement requires Countrywide to pay $108 million for refunds to homeowners that the FTC alleges Countrywide overcharged before July 2008.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Sen. Dodd rolled out his vision of consumer financial services regulatory reform this week and, among other things, it threatens to further consolidate oversight of banks into a single federal agency.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Maloney-Frank bill will implement credit card reforms immediately upon enactment

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Credit Card Act of 2009 was set to go into effect in February, 2010, but Congressman Frank and Congresswoman Maloney want it to go into effect December 1, 2009.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Federal Reserve announced last week that it would begin examining nonbank subsidiaries of bank holding companies for compliance with consumer protection laws.  A September 14 letter from Sandra F. Braunstein, the agency's Director of Consumer and Community Affairs states:  

This letter establishes, effective immediately, a policy for conducting risk-focused consumer compliance supervision of, and the investigation of consumer complaints against, nonbank subsidiaries of bank holding companies (BHCs) and foreign banking organizations (FBOs) with activities covered by the consumer protection laws and regulations the Federal Reserve has the authority to enforce. This policy is designed to enhance our understanding of the consumer compliance risk profile of nonbank subsidiaries and to guide our supervisory activities for these entities. It leverages existing consumer compliance supervision policies and procedures as well as the existing prudential supervision processes for Large Complex Banking Organizations (LCBOs), FBOs, Regional Banking Organizations (RBOs), and Community Banking Organizations (CBOs).

The consumer compliance and full-scope examinations of nonbank subsidiaries will result in ratings based on the "Consumer Compliance Risk Management rating system (Strong, Satisfactory, Fair, Marginal, or Unsatisfactory) that is included in the draft Risk-Focused Consumer Compliance Supervision Program," according to the letter.

The Feds announced this move a day after President Obama publicly reiterated his support for a new consumer protection enforcement agency.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Rep. Barney Frank, the sponsor of H.R. 3126, has sent a memo to House Democrats outlining his proposals for amendments to the proposed Consumer Financial Protection Agency Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a highly anticipated decision, a divided U.S. Supreme Court  authorized states to investigate national banks for lending discrimination, thus rejecting the OCC's position that its regulatory authority preempted states' enforcement powers.   In the 5-4 opinion authored by Justice Scalia, the high court in Cuomo v. Clearing House Association, LLC held that federal banking regulations did not pre-empt states from enforcing their own fair-lending laws.

The ruling decided a dispute between the OCC and the New York attorney general's office, which had initiated investigations into national banks' residential real-estate lending practices.  Former Attorney General and Governor Eliot Spitzer initiated the investigation of several banks, including Wells Fargo, JPMorgan Chase and Citigroup, based on mortgage data he claimed showed black and Hispanic borrowers received a larger percentage of high-interest home loans than white borrowers.

CNN reported the mixed reactions to the ruling.  The American Bankers Association issued a statement contending that the ruling "changes over 140 years of settled law," and expressed concern that national banks will  "face a patchwork of duplicative and conflicting federal and state regulation and enforcement actions."  On the other hand, current New York Attorney General Cuomo said the ruling "reaffirms the vital role state attorneys general play in protecting consumers from illegal and improper practices by our country's biggest and most powerful banks."  Similarly, the Lawyers' Committee for Civil Rights Under Law applauded the decision, stating in a press release that the the decision "will unshackle the oversight muscle of state attorneys general whose attempts to enforce fair lending laws against national banks were thwarted when most needed." 

• Email This
• Print
• Comments
• Trackbacks
• Share Link