Corporate Counsel CLE Seminar

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1 Corporate Counsel CLE Seminar The Westin Mission Hills Golf Resort and Spa Rancho Mirage, CA; February 13 16, 2014 Written Materials Supporting Breakout Session: Consumer Financial Protection? Are You Kidding Me? What You Don t Know Can Hurt You. Moderator: Panelists: Rich Benenson, Co-Chair Litigation Department, Brownstein Hyatt Farber Schreck, LLP John W. Suthers, Colorado Attorney General Anthony Alexis, Acting Director of Enforcement, Consumer Financial Protection Bureau Anthony M. Sharett, Partner, Bricker & Eckler LLP Isabelle Ord, Partner, DLA Piper LLP I. A Brief Overview of the CFPB The Consumer Financial Protection Bureau (CFPB) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in July It is an independent bureau within the Federal Reserve System, and its focus is on protecting consumers in the financial marketplace. Under the Dodd-Frank Act, certain authorities and functions of several agencies relating to federal consumer financial law transferred to the CFPB in July These authorities were transferred from the Board of Governors of the Federal Reserve System (Board of Governors), Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and the Department of Housing and Urban Development (HUD). In addition, Congress vested the CFPB with authority to enforce in certain circumstances the Federal Trade Commission s (FTC) Telemarketing Sales Rule and its rules under the FTC Act, although the FTC retains full authority over these rules. 2 The Dodd-Frank Act also provided the CFPB with certain other federal consumer financial regulatory authorities. 1 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No , H, 124 Stat (2010). 2 Fiscal Year 2013 Financial Report of the Consumer Financial Protection Bureau, available at

2 In Fiscal Year 2013, the CFPB collected $49,520,001 in civil penalties, up from $32,000,000 in Fiscal Year 2012, from American Express, United Guaranty Corporation, Genworth Mortgage Insurance, JPMorgan, and several other companies. 3 The agency is growing quickly in both budget and employees, and it has not yet reached its full capacity in either of these areas. 4 II. The CFPB s Expansive Areas of Regulation The CFPB has taken enforcement action against companies in a wide variety of industries. A. Credit Card Companies Credit card companies have been subjected to several enforcement actions. 1. Chase and JPMorgan In September 2013, Chase and JPMorgan Chase were required under an administrative consent order to refund an estimated $309 million to more than 2.1 million customers and pay a $20 million civil penalty after the CFPB found that Chase and JP Morgan Chase had used unfair billing practices and customers were charged for add-on products such as identity theft monitoring and fraud monitoring that they did not receive. Under the consent order, Chase and JPMorgan had to make several changes in their practices, in addition to paying both refunds and penalties: End unfair billing practices: Chase was required to stop billing consumers for products if they were not receiving the promised benefits. Chase also was required to take steps, subject to the CFPB s approval, to ensure these unlawful acts did not occur in the future. Complete repayment, plus interest, to more than two million consumers: Chase was required to pay a full refund, approximately $309 million, to more than two million consumers who enrolled in the credit monitoring product and were charged for services that were not received. In addition to the amount paid for the product, Chase was required to refund interest and any over-the-limit fees resulting from the charge for the product. Conveniently repay consumers: If the consumers were still Chase customers, they received a credit to their accounts. If they were no longer a Chase credit card holder, they received checks in the mail. Consumers were not required to take any action to receive their credit or check. Submit to an independent audit to help ensure the refunds had been provided in compliance with the terms as set forth in the CFPB s order. 3 Id. 4 Id. 2

3 Improve oversight of third-party vendors by strengthening its management of third-party vendors who manage these identity protection products. Pay a $20 million penalty payment to the CFPB s Civil Penalty Fund American Express American Express was ordered by the CFPB in December 2013 to refund an estimated $59.5 million to customers and pay a $9.6 million civil penalty after the CFPB determined that American Express had, from 2000 through 2012, allowed three of its subsidiaries to use misleading and deceptive tactics to sell credit card add-on products including Account Protector and Lost Wallet. 6 American Express allegedly misled consumers about the benefits, the length of coverage, and the fees for these products. Also, American Express used telemarketing sales calls conducted in Spanish to enroll the vast majority of Puerto Rican consumers in this product, but did not provide a uniform Spanish-language script for these enrollment calls, and it provided consumers with written materials only in English. Finally, the order states that American Express had billed consumers for products and services they did not receive, charged interest and fees based on the charges for these products, and failed to inform consumers about their right to a free credit report. The consent order required American Express to: Cease selling the Account Protector, Identity Protection, and Lost Wallet Puerto Rico add-on products until it has submitted a compliance plan to the CFPB. Refrain from billing customers for certain identity protection products if they are not receiving the promised benefits. Pay restitution of approximately $59.5 million to more than 335,000 consumers who purchased the products and after submitting a plan for remediation to the CFPB. Provide refunds or credits without any further action by consumers. Submit to an independent review to help ensure the refunds have been provided in compliance with the terms set forth in the CFPB s order. Hire an independent third party to review American Express s other credit card add-on products for compliance with federal consumer financial laws and submit a plan to the CFPB explaining how it will correct any violations. Continue to strengthen its management of third-party vendors who manage these add-on products. 5 CFPB Orders Chase and JPMorgan Chase to Pay $309 Million Refund for Illegal Credit Card Practices, Sept. 19, 2013, available at million-refund-for-illegal-credit-card-practices/. 6 CFPB Orders American Express to Pay $59.5 Million for Illegal Credit Card Practices, Dec. 23, 2013, available at 3

4 Pay a $9.6 million fine to the CRPB s Civil Penalty Fund. B. Debt-Relief Companies The director of the CFPB recently gave a speech indicating the agency would focus enforcement efforts on debt-relief companies. 7 More recently, the CFPB filed a complaint 8 in the United States District Court for the Central District of California against Morgan Drexen and its president and CEO, Walter Ledda, for violations that included: Violating the Telemarketing Sales Rule by requesting or receiving fees for debt relief from consumers before altering the terms of any of the consumer s debts. Failed to hold consumers up-front fee payments in accounts or allow consumers to withdraw from the debt relief program without penalties. Telling consumers they would not be charged an advance fee for debt relief services, and then charging such fees. Promising consumers they would be debt-free in months after enrolling in Morgan Drexen s programs, although that often did not happen. The CFPB s complaint against Morgan Drexen was filed about one month after the company sued the CFPB in the United States District Court for the District of Columbia, claiming that the CFPB s structure is unconstitutional. The District Court dismissed Morgan Drexen s case in October The CFPB s case against Morgan Drexen is still pending. In addition, in May 2013, the CFPB filed a similar complaint against another debt-relief company, American Debt Solutions, and its owner, Michael DiPanni. This complaint alleged that the company had charged illegal up-front fees and made misrepresentations to consumers about its debt-relief services. In this case, the court entered an order for a $15,000 civil penalty fine and a suspended judgment of $500, Prepared Remarks of Richard Cordray Director of the Consumer Financial Protection Bureau SDNY Enforcement Press Conference, May 7, 2013, available at (specifically mentioning enforcement actions against Mission Settlement Agency, Premier Consultant Group, the Law Office of Michael Levitis, and the Law Office of Michael Lupolover). 8 Complaint, CFPB v. Morgan Drexen, Inc., No. SACV JST (C.D. Ca. Aug. 20, 2013), available at 9 Morgan Drexen v. CFPB, No (D.D.C. Oct. 17, 2013), available at 10 Stipulated Final Judgment and Order, CFPB v. American Debt Settlement Solutions, Inc., 9:13-cv DMM (D. So. Fla. June 6, 2013), available at See also CFPB and State Partners Obtain Refunds for Consumers Charged Illegal Debt-Relief Fees, Dec. 21, 2012, available at (discussing an order requiring Payday Loan Debt Solution, Inc. to refund up to $100,000 it had charged customers as advance fees for debt-settlement services). 4

5 C. Payday Lenders The CFPB brought an administrative claim against Cash America in November 2013, charging it with robo-signing, illegally charging servicemembers more than 36 percent interest, and impeding a CFPB exam. 11 In the consent order that resolved this case, Cash America promised to do several things, including: Refund consumers: Refund up to $14 million to military borrowers and victims of the robo-signing practices. Dismiss pending collections lawsuits: Within months of the CFPB discovering the robo-signing, Cash America dismissed pending collections lawsuits, terminated all post-judgment collections activities, cancelled all judgments obtained, and corrected information it furnished to credit bureaus for the nearly 14,000 wrongful cases filed in Ohio. Pay a $5 million civil money penalty. Develop and implement a comprehensive plan to improve its compliance with consumer financial protection laws, including the Military Lending Act. D. Auto Lenders 1. Ally Bank Ally Bank was required to pay $80 million in victim compensation and an $18 million civil penalty, as well as refunding discriminatory overcharges to borrowers over three years, under a settlement it reached with the Consumer Financial Protection Bureau and the Department of Justice on December 20, The CFPB found that Ally had engaged in an ongoing pattern or practice of discriminating against African-American, Hispanic, and Asian/Pacific Islander borrowers through its auto lending business since April 1, The discrimination consisted of charging individuals from these groups higher interest rates than those charged to non-hispanic white borrowers. The average victim allegedly paid between $200 and $300 extra over the term of the loan. Ally s offenses were indirect: it was accused of allowing car dealers to vary a loan s interest rate based on subjective discretion, which the CFPB and Department of Justice (DOJ) concluded resulted in less favorable terms for borrowers from certain minorities; and failing to adequately monitor its interest rate markups for discrimination or require dealers to document their markup decisions. In a statement that Ally issued at the same time as the CFPB announcement of the consent judgment, Ally said that it does not engage in or condone violations of law or discriminatory 11 Consent Order, In re Cash America Int l, Inc., CFPB File No CFPB-0008 (Nov. 20, 2013), available at 12 Consent Order, In re Ally Financial, Inc., CFPB File No CFPB-0010 (Dec. 20, 2013). 5

6 practices, and that its analysis did not show measurable discrimination by auto dealers. 13 consent judgment requires Ally to change its practices in this area. 14 Under the consent judgment, Ally is required to: The Establish an independent compliance committee within its board of directors to monitor and coordinate Ally s compliance with the consent order. Change its dealer compensation policy. Give regular notice to all dealers explaining the Equal Credit Opportunity Act. Analyze its dealer contracts quarterly for discrimination using the method developed by the CFPB and DOJ. Take appropriate corrective action with regard to dealers who are identified in the analysis as discriminating on a prohibited basis. Make refunds of about $80 million to customers affected by the discrimination, using the CFPB and DOJ s damage-calculation formula. Pay a settlement administrator to contact customers who are due to receive compensation. Detail exactly how it will fulfill these requirements in a compliance plan that must be communicated to and approved by the CFPB and DOJ (and get approval for every change to the plan from both agencies). 2. U.S. Bank and Dealers Financial Services The CFPB also ordered U.S. Bank and Dealers Financial Services to return about $6.5 million to servicemembers for failing to properly disclose all the fees charged to participants in the companies Military Installment Loans and Educational Services (MILES) auto loans program and for misrepresenting the true cost and coverage of add-on products financed along with auto loans. 15 E. Mortgage Processors and Insurers 1. PNC Bank On December 23, 2013, the CFPB obtained a consent judgment against National City Bank, a predecessor to PNC Bank, under which PNC Bank was required to pay $35 million in restitution to a settlement fund for African-American and Hispanic borrowers who were allegedly harmed 13 Ally Reaches $98M Settlement with DOJ, CFPB for Lending Discrimination, F&I and Showroom, Dec. 20, 2013, available at 14 Consent Order, In re Ally Financial, Inc., CFPB File No CFPB-0010 (Dec. 20, 2013). 15 See CFPB Orders Auto Lenders to Refund Approximately $6.5 Million to Servicemembers, June 27, 2013, available at million-to-servicemembers/. 6

7 by National City Bank s discriminatory pricing practices relating to home mortgages. 16 The CFPB s investigation found that, between 2002 and 2008, National City Bank gave its loan officers and brokers the discretion to set borrowers rates and fees and compensated its officers and brokers from extra costs paid by consumers. The CFPB found that this system resulted in over 76,000 African-American and Hispanic borrowers paying higher costs than other borrowers with similar creditworthiness. PNC Bank did not use this system for mortgage origination, but it was required to pay the settlement fund because it had acquired National City Bank in Under the settlement, PNC was required to: Pay $35 million to a settlement fund for borrowers harmed by the bank s discriminatory practices. Choose and pay a settlement administrator to handle claims from borrowers allegedly injured by National City Bank s discrimination. Submit semiannual reports to the CFPB and DOJ on the administration of the settlement fund. 2. Mortgage Insurers In November 2013, the CFPB filed a complaint and a proposed consent order against Republic Mortgage Insurance Co. (RMIC) alleging that the insurer paid illegal kickbacks to mortgage lenders in exchange for business. 17 The proposed order in this case will require Republic to: End the practice: The proposed order prohibits RMIC from entering into any new captive mortgage reinsurance arrangements with affiliates of mortgage lenders, and from obtaining captive reinsurance on any new mortgages, for a period of ten years. As preexisting reinsurance arrangements come to a close, RMIC will forfeit any right to the funds not directly related to collecting on reinsurance claims. The proposed order will also prohibit RMIC from paying illegal kickbacks or otherwise violating the Real Estate Settlement Procedures Act. Any violation of these prohibitions could result in additional fines. Pay $100,000 in penalties: The penalty amount reflects a number of factors, including that RMIC is currently under administrative supervision with the North Carolina Department of Insurance due to its inability to honor its payment obligations in full. Monitor and report compliance: RMIC will be subject to monitoring by the CFPB and required to make reports to the CFPB in order to ensure their compliance with the provisions of the order. 16 Consent Order, CFPB v. National City Bank, No. 2:2013-CV (W.D. Pa. Dec. 23, 2013), available at 17 CFPB v. Republic Mortgage Insurance Co., No. 1:13-cv JAL (S.D. Fla. 2013), available at (use links at the bottom of the page). 7

8 A few months earlier, the CFPB had filed complaints and proposed consent orders against four other mortgage insurance companies Genworth Financial, Mortgage Guarantee Insurance Corporation, Radian Guaranty Inc., and United Guaranty Corporation--claiming a total of $15.4 million in penalties. 18 F. Other Industries The CFPB has brought enforcement actions against a wide variety of companies outside the scope of the financing industry. And it is likely that additional companies outside the traditional banking and lending industries will fall within the scope of the CFPB s regulatory authority. 1. Student Loan Servicers The CFPB published a final rule on Dec. 3, 2013, that gives it authority to examine the largest student loan servicers. 19 These servicers include Sallie Mae, Nelnet, Great Lakes, and Ed Financial Law Firms The CFPB has filed several lawsuits against lawyers. Its first enforcement action against a law firm was a complaint filed against the Gordon Law Firm in Los Angeles in July In June 2013, U.S. District Judge Percy Anderson of the Central District of California ordered Chance Gordon and his firm to pay $11.4 million in damages. 22 While this case is still on appeal, 23 it is a jolting realization for the potential liability of lawyers who specialize in debt collection. In the words of CFPB Director Richard Cordray, these wolves in sheep s clothing take money from consumers who are already struggling to pay their bills, falsely promising them help while really making their problems worse. 24 A few months after the Gordon action was filed, the CFPB filed a similar complaint in the Central District of California against the National Legal Help Center, alleging that the company promised to provide legal representation to consumers although the individual defendants were 18 The CFPB Takes Action Against Mortgage Insurers to End Kickbacks to Lenders, Apr. 4, 2013, available at 19 Defining Larger Participants of the Student Loan Servicing Market, 78 Fed. Reg (Mar. 28, 2013) (to be codified at 12 CFR Part 1090). 20 Danielle Douglas, CFPB Gaining Wider Clout Over Student-Loan Servicers, WASH. POST, Dec. 2, 2013, available at 21 Complaint, CFPB v. Gordon, No. CV (C.D. Cal. July 12, 2012), available at 22 Minute Order, CFPB v. Gordon, No. CV (C.D. Cal. June 26, 2013). 23 CFPB v. Gordon, No (9 th Cir. Aug. 23, 2013). 24 Richard Cordray, Prepared Remarks of CFPB Director Richard Cordray at the SDNY Enforcement Press Conference, May 7, 2013, available at 8

9 not attorneys and the consumers did not receive legal representation. 25 In another action against a law firm, the CFPB filed a complaint against Borders & Borders PLC, a Kentucky law firm, in October This complaint alleged that the firm had paid kickbacks for real estate settlement referrals through a network of shell companies. 27 The CFPB has also brought enforcement actions against law firms that were engaged in debt settlement and foreclosure practices. 28 The CFPB is taking these actions against lawyers despite the fact that Section 1027 of the Dodd- Frank Act 29 states that the agency may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law. The CFPB has defended its actions by pointing out that nothing in the act prevents it from exercising its authority with respect to a consumer financial product or service offered or that is provided outside of the scope of the attorney-client relationship Homebuilders The CFPB ordered Paul Taylor Homes, a Texas homebuilding company, and its owner, Paul Taylor, to pay more than $100,000 they had received in kickbacks for referring mortgage origination business to Benchmark Bank and Willow Bend Mortgage Company. (Benchmark Bank was separately fined by the FDIC.) 31 III. Coordination between the CFPB and the State Attorneys General A. Established Framework for Cooperation Cooperation with state attorneys general has been a predicate part of the CFPB s strategy since the inception of the consumer bureau. As early as 2010, now Senator Elizabeth Warren described state regulators as natural partners because of their preexisting experience with consumer protection. And coordination between the CFPB and state attorneys general is required under the Dodd-Frank Act. Title X of the Dodd Frank Act 32 establishes a mechanism for states to enforce the law directly against national banks and federal savings associations. Section 1042(a)(2)(B) states: 25 CFPB Halts Alleged Nationwide Mortgage Loan Modification Scams, Dec. 11, 2012, available at 26 Complaint, CFPB v. Borders & Borders, PLC, No. 3:13-cv JGH (W.D. Ky. Oct. 4, 2013). 27 Id. 28 See Prepared Remarks of CFPB Director Richard Cordray at the SDNY Enforcement Press Conference, May 7, 2013, available at (discussing an action for illegally charging upfront fees for debt settlement by the Law Office of Michael Levitis and the Law Office of Michael Lupolover). 29 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No , 124 Stat (2010). 30 Jenna Greene, Watch Your Back: The banks were supposed to be the CFPB s big target, now lawyers, Jan. 1, 2014, CORPORATE COUNSEL, available at 31 Consent Order, In re Taylor, File No. 213-CFPB-0001 (May 17, 2013), available at 32 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No , H, 124 Stat (2010). 9

10 The attorney general... of any State may bring a civil action in the name of such State against a national bank or Federal savings association in any district court of the United States in the State or in State court that is located in that State and that has jurisdiction over the defendant to enforce a regulation... and to secure remedies under provisions of this title or remedies otherwise provided under other law. The remedies available to state AGs are the same as those available to the CFPB. Pursuant to section 1042(b), state regulators must consult with the CFPB prior to initiating an enforcement action. In response to the notice, the CFPB may intervene, and, in effect, take over any state-initiated enforcement action. By giving the state attorneys general broad discretion to enforce federal consumer banking regulations, but also requiring consultation, the Dodd-Frank Act requires the CFPB and state regulators to coordinate and cooperate with each other. Not surprisingly, in 2011, the CFPB announced a partnership with the National Association of Attorneys General (NAAG) pursuant to a Joint Statement of Principles. 33 In the Joint Statement, the parties agreed to a wide platform of cooperation, designed to: Develop joint training programs and share information about developments in federal consumer financial law and state consumer protection laws that apply to consumer financial products or services. Share information, data, and analysis about conduct and practices in the markets for consumer financial products or services to inform enforcement policies and priorities. Engage in regular consultation to identify mutual enforcement priorities that will ensure effective and consistent enforcement of the laws that protect consumers of financial products or services. Support each other, to the fullest extent permitted by law as warranted by the circumstances, in the enforcement of the laws that protect consumers of financial products or services, including by joint or coordinated investigations of wrongdoing and coordinated enforcement actions. Pursue legal remedies to foster transparency, competition, and fairness in the markets for consumer financial products or services across state lines and without regard to corporate forms or charter choice for those providers who compete directly with one another in the same markets. Develop a consistent and enduring framework to share investigatory information and to coordinate enforcement activities to the extent practicable and consistent with governing law. 33 CFPB and National Association of Attorneys General Presidential Initiative Working Group Release Joint Statement of Principles, Apr. 11, 2011, available at 10

11 Share, refer, and route complaints and consumer complaint information between the CFPB and the state attorneys general. Analyze and leverage the input they receive from consumers and the public in order to advance their mutual goal of protecting consumers of financial products or services. Create and support technologies to enable data sharing and procedures that will support complaint cooperation. As explained by Director Richard Cordray: State attorneys general will be an important partner for the Bureau because they understand as well as anyone the kinds of problems that consumers their constituents face. Quite bluntly, we need your experience, your perspectives and your coordination in a strategic effort to root out fraud and unfairness in the financial marketplace. 34 The CFPB and state AGs have collaborated regularly and effectively in a variety of areas including: payday loans, foreclosure processes, auto loans, and debt collection. In that regard, Director Cordray has expressed strong support for the AGs and the CFPB to collaborate on a national strategic plan regarding debt collection agency abuses. The CFPB and state AGs are also discussing sharing, coordinating and jointly evaluating information via the Federal Trade Commission s complaint clearinghouse, the Consumer Sentinel network. Perhaps the most formidable example of the coordination is the series of agreements between the CFPB and Conference of State Bank Supervisors. 35 In 2011, the CFPB and Conference of State Bank Supervisors signed a memorandum of understanding that established a process for coordination. In 2012, the CFPB and the Conference of State Bank Supervisors expanded the process for coordination in a Statement of Intent. Recently, in May of 2013, the CFPB and the Conference of State Bank Supervisors again expanded their efforts to coordinate with State Bank and Nonbank regulators on supervision and enforcement matters by entering into the 2013 CFPB-State Supervisory Coordination Framework. 36 In doing so, Director Cordray stated: Our strong partnership with state regulators is critical to protecting consumers. By working together, we are streamlining our resources, making the most of our joint resources, and ensuring evenhanded oversight of federal consumer financial laws. 37 The Framework establishes a process for coordinating federal and state supervision and enforcement and to promote efficiencies in doing so. At its core, the Framework is an outline of 34 Richard Cordray, A Level Playing Field for Consumer Financial Products and Services, Mar. 8, 2011, available at 35 The membership of the Conference of State Bank Supervisors includes state financial regulatory authorities in all 50 states and several US territories. See Regulator Membership, CFPB-State Supervisory Coordination Framework, May 7, 2013, available at 37 The CFPB Establishes Framework to Better Coordinate with State Regulators: Bureau Expands Efforts to Coordinate with State Bank and Nonbank Regulators on Supervision and Enforcement Matters, May 21, 2013, available at 11

12 responsibilities and examination processes for covered entities. Federal and state chartered banks with more than $10 billion in assets are covered by the Framework. So too are certain non-banks that: Engage in residential mortgage, private education or payday lending markets. Are larger participants (currently defined to include credit reporting agencies, debt collection entities and student loan servicers). Pose a risk to consumers by engaging in potentially unfair, deceptive or abusive practices when offering consumer financial products or services. B. Recent Examples of Coordinated Enforcement between the CFPB and State Attorneys General 1. Ocwen Financial Corporation In early 2012, examinations by the Multistate Mortgage Committee, which is comprised of state financial regulators, identified potential violations at Ocwen. In addition, the Federal Trade Commission referred its investigation of Ocwen to the CFPB after the CFPB opened in July The CFPB then teamed with state attorneys general to investigate and resolve the issues identified. The settlement was a multi-jurisdictional collaborative effort. The complaint, 38 which was filed on December 19, 2013, in the United States District Court for the District of Columbia, alleges that Ocwen, the largest nonbank mortgage loan servicer in the U.S., violated the law in several ways, including: Failing to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements. Charging borrowers unauthorized fees for default-related services. Imposing force-placed insurance on consumers when Ocwen knew, or should have known, that they already had adequate home-insurance coverage. Providing false or misleading information in response to consumer complaints. Failing to provide accurate information about loan modifications and other loss mitigation services. Failing to properly process borrowers applications and calculate their eligibility for loan modifications. 38 Complaint, CFPB v. Ocwen Financial Corp., No. 1:13-CV ABJ (Dec. 19, 2013), available at see also State Authorities Order Ocwen to Provide $2 Billion in Relief to Homeowners for Servicing Wrongs, Dec. 19, 2013, available at 12

13 Providing false or misleading reasons for denying loan modifications. Failing to honor previously agreed upon trial modifications with prior servicers. Deceptively seeking to collect payments under the mortgage s original unmodified terms after the consumer had already begun a loan modification with the prior servicer. Providing false or misleading information to consumers about the status of foreclosure proceedings where the borrower was in good faith actively pursuing a loss mitigation alternative also offered by Ocwen. Robo-signing foreclosure documents, including preparing, executing, notarizing, and filing affidavits in foreclosure proceedings with courts and government agencies without verifying the information. Under the proposed settlement, 39 Ocwen must complete sustainable loan modifications that result in principal reductions totaling $2 billion, refund $125 million to customers whose loans it serviced, and pay $2.3 million to administer the refund process. It is also required to stop robosigning official documents and follow the servicing standards set up by the 2012 National Mortgage Settlement (discussed below). Ocwen must also agree to several additional consumer protections, including requirements that it determine the status of in-process loss mitigation requests pending within 60 days of transfer and refrain from starting, referring to, or proceeding with foreclosure during that time; honor loan modification agreements made by previous holders of loans; ensure that consumers get regular and dependable assistance when they call Ocwen, ensure that all servicing fees are reasonable, bona fide, and disclosed in detail; and refrain from referring accounts for foreclosure while applications for loan modifications are still pending. 2. National Mortgage Settlement In February 2012, the CFPB and 49 state attorneys general reached a settlement with the country s five largest mortgage servicers: Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo. 40 The settlement imposed large penalties and refund obligations on the participating banks and added a new layer of regulation by allowing state AGs to regulate national banks for the first time. Under the settlement, the participating banks must pay: Up to $10 billion to reduce principal for borrowers who owe more on their mortgages than their homes are worth and are either delinquent or at imminent risk of default. At least $3 billion for refinancing for borrowers who are current on their mortgages but owe more than their homes are worth. 39 Consent Judgment, CFPB v. Ocwen Financial Corp., No. 1:13-CV ABJ (D.D.C. Dec. 19, 2013). 40 For additional details on the settlement and links to related documents, see For a summary of the new mortgage servicing standards, see 13

14 Up to $7 billion in other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales, transitional assistance, benefits for servicemembers who are forced to sell their homes at a loss as a result of a Permanent Change in Station, and other programs. $5 billion in cash payments to the states and federal government. The new servicing standards that are included in the National Mortgage Settlement require the banks to: Stop many past foreclosure abuses, such as robo-signing, improper documentation and lost paperwork through new mortgage servicing standards. Require strict oversight of foreclosure processing, including of third-party vendors. Impose new standards to ensure the accuracy of information provided in federal bankruptcy court, including pre-filing reviews of certain documents. Make foreclosure a last resort by requiring servicers to evaluate homeowners for other loan mitigation options first. Restrict banks from foreclosing while the homeowner is being considered for a loan modification. Set procedures and timelines for reviewing loan modification applications, and give homeowners the right to appeal denials. Create a single point of contact for borrowers seeking information about their loans and adequate staff to handle calls. The National Mortgage Settlement allows state AG oversight of national banks for the first time: National banks will be required to regularly report compliance with the settlement to an independent, outside monitor that reports to state attorneys general. Servicers will have to pay heavy penalties for noncompliance with the settlement, including missed deadlines. The settlement also leaves banks exposed to criminal actions, securities claims, most loan origination claims, and claims by individual borrowers CashCall and Other Online Loan Servicers The CFPB sued three online lenders in December The complaints alleged that CashCall, WS Funding, and Delbert Services, all of which are owned by J. Paul Reddam, had charged annual interest rates of percent, in violation of state usury laws, and that it engaged in 41 Settlement Fact Sheet, Mar. 6, 2012, available at 14

15 unfair, deceptive and abusive practices, including debiting consumer checking accounts for loans that were void. 42 Although the states did not participate in the federal case, Colorado State Attorney General John Suthers was present at the press conference that was held to announce the federal case filings, and a separate case was filed against the same defendants in the Denver District Court in December. 43 Attorneys for CashCall have responded with statements alleging that these claims are an invalid effort by the CFPB to impose rate caps. 44 As of January 7, 2014, the Colorado and federal cases are both still pending. C. Implications of Coordinated Enforcement These recent enforcement actions underscore the way that coordination between the CFPB and state regulators has materially changed the regulatory playing field. Understanding this change is critical because: It will bring some companies, especially smaller, non-bank entities, into the CFPB s regulatory scope. It will bring national banks within the regulatory scope of state attorneys general. State regulators are heightening their consumer protection enforcement focus (even when not coordinating with the CFPB and sometimes in competition with the CFPB). Examination logistics will become more challenging. It is likely that even with coordination, examinations and investigations will be more resource-consuming, expensive, and longer. 42 CFPB Sues CashCall for Illegal Online Loan Servicing, Dec. 16, 2013, available at 43 State of Colorado v. Cashcall Inc., No. 2013CV35455 (Dec. 16, 2013). 44 Howard Pankratz, Colorado and feds sue online loan servicers, THE DENVER POST, Dec. 16, 2013, available at Alan Zibel, CFPB Sues Online Lender CashCall: Accused of Illegally Trying to Collect Payments on Short-term Loans Made Over the Internet, Dec. 16, 2013, THE WALL STREET JOURNAL, available at 15

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