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Category Archives: Litigation & Enforcement Actions

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Another CFPB Loan Originator Compensation Enforcement Action

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions, Mortgage Lending

By: Kris D. Kully

The Consumer Financial Protection Bureau (CFPB) has once again charged a mortgage lender with paying compensation to loan originators based on loan terms, which is prohibited under the Truth in Lending Act and its Regulation Z. This week, the CFPB asked a federal court to approve an order requiring Franklin Loan Corporation (which lends in California and Illinois) to pay $730,000 for allegedly paying loan originators quarterly bonuses based on loan terms.… Continue Reading

Eleventh Circuit Bolsters FCC Interpretation of “Prior Express Consent” under the TCPA

Posted in Litigation & Enforcement Actions

By: Gregory N. Blase, Andrew C. Glass, Samantha A. Miko

The U.S. Court of Appeals for the Eleventh Circuit recently bolstered the Federal Communications Commission’s (“FCC”) interpretation of “prior express consent,” a key term under the Telephone Consumer Protection Act (“TCPA”).

In Mais v. Gulf Coast Collection Bureau, Inc., the plaintiff’s wife provided the plaintiff’s cellphone number on a hospital admittance form. The form disclosed that any information supplied could be shared with the hospital’s affiliates and used for any purpose, including for billing. After the plaintiff failed to pay a hospital affiliate’s invoice for treatment services … Continue Reading

A Hard Rain Has Started to Fall A Product-by-Product Review of the CFPB’S First 60 Enforcement Actions

Posted in Bureau of Consumer Financial Protection (CFPB), FHA/VA, Litigation & Enforcement Actions, Mortgage Lending, Mortgage Servicing

By: Jon Eisenberg

Between July 17, 2012 and October 9, 2014, the Consumer Financial Protection Bureau brought 60 enforcement actions. According to our unofficial tally, they resulted in settlements requiring the payment of $2.2 billion in restitution, $174 million in CFPB civil money penalties, and, in a few cases, other forms of consumer relief. In this alert, we discuss the products and alleged practices that led to those recoveries. Our purpose is simple—what’s past is likely prologue when it comes to CFPB enforcement actions. Understanding the conduct that produced the first 60 enforcement actions will help companies avoid becoming one … Continue Reading

FinCEN Acknowledges the Problem, But a Solution Will Require More

Posted in Litigation & Enforcement Actions, Other Federal Agencies & GSEs, Payment Systems

By: David L. Beam

Money services businesses (“MSBs”) have been losing access to banking services. Increased scrutiny by bank regulators of MSB relationships have led banks to conclude that providing services to MSBs carries increased compliance and reputational risk. Even if these risks can be managed in theory through appropriate due diligence and controls, many banks have decided that costs and risks of offering banking services to MSBs outweigh the revenue that they generate.… Continue Reading

U.S. District Court Strikes Down HUD’s Fair Housing Act Disparate Impact Rule

Posted in Fair Lending/Anti-Discrimination, Litigation & Enforcement Actions, Mortgage Lending, Mortgage Servicing, Other Federal Agencies & GSEs

By: Paul F. Hancock, Andrew C. Glass, Roger L. Smerage, and Olivia Kelman

On Monday, November 3, 2014, Judge Richard J. Leon of the U.S. District Court for the District of Columbia struck down the disparate impact rule promulgated by the U.S. Department of Housing and Urban Development (“HUD”) in March 2013 under the Fair Housing Act.  The court held that HUD had issued the rule—codified at 24 C.F.R. § 100.500—in contravention of the plain language of the Fair Housing Act.  The case is styled American Insurance Association, et al. v. United States Department of Housing & Continue Reading

If Bernanke Wants to Refinance, Maybe He Needs a Co-Signer?

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions, Mortgage Lending

By: Kristie D. Kully, Laurence E. Platt

While former Federal Reserve Chairman Ben Bernanke may be known for his loose monetary policy, unfortunately his mortgage lender is not. According to Bloomberg News, Mr. Bernanke complained (while addressing a conference of the National Investment Center for Seniors Housing and Care in Chicago on October 2) that he was recently unable to refinance his mortgage loan.

Although Mr. Bernanke reportedly remarked that “it’s entirely possible” that lenders “may have gone a little bit too far on mortgage credit conditions,” it’s hard to blame lenders. Mr. Bernanke may seem to be … Continue Reading

K&L Gates Announcement: K&L Gates Receives Top Rankings in BTI’s Litigation Outlook Survey

Posted in Litigation & Enforcement Actions, Securitization

K&L Gates has been ranked as one of three top law firms as a “Powerhouse” in Class Action and Torts Litigation for the second consecutive year.  The firm was also named as a “Standout” in Securities and Finance Litigation, Complex Commercial Litigation and Routine Commercial Litigation in BTI Consulting Group’s 2015 Litigation Outlook survey.

In addition, the firm was once again included in BTI’s “Honor Roll of Most Feared Law Firms” listing as well as on the honor roll of firms noted by clients for IP Litigation.

The rankings were based on direct client feedback from more than 300 interviews … Continue Reading

Mortgage Broker or Mini-Correspondent: CFPB Issues Policy Guidance on Questions for Consideration

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions, Mortgage Lending

By: Holly Spencer Bunting, Anaxet Y. Jones

In response to what the CFPB views as an increasing trend among mortgage brokers shifting to a mini-correspondent lender model, the CFPB recently issued “Policy Guidance on Supervisory and Enforcement Considerations Relevant to Mortgage Brokers Transitioning to Mini-Correspondent Lenders” (“Policy Guidance”) regarding the application of Regulations X (RESPA) and Z (TILA) to transactions involving mini-correspondent lenders. In addition to providing background on the differences between brokers and mini-correspondents and certain requirements of Regulations X and Z, the Policy Guidance identifies questions the CFPB may consider when reviewing mini-correspondent transactions and … Continue Reading

Inspector General Urges FHFA to Consider Suing Servicers, Force-Placed Insurers

Posted in Litigation & Enforcement Actions, Mortgage Servicing, Other Federal Agencies & GSEs

By: Nanci L. Weissgold, Kerri M. Smith, * Christopher Shelton
* Mr. Shelton is not admitted in D.C. Supervised by Nanci Weissgold, member of D.C. Bar.

On June 25, 2014, the inspector general of the Federal Housing Finance Agency (FHFA) issued a report on force-placed insurance with only one recommendation: FHFA should consider suing servicers and force-placed insurers for hundreds of millions of dollars in allegedly “excessive” force-placed insurance premiums.

As we discussed in a recent blog post, “force-placed” or “lender-placed” insurance is an area of increasing controversy, with Fannie Mae and Freddie Mac rolling out new … Continue Reading

Recent Force-Placed Insurance Initiatives by FHFA & CFPB Suggest Divergent Priorities

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions, Mortgage Servicing, Other Federal Agencies & GSEs

By: Nanci L. Weissgold, *Christopher Shelton
* Mr. Shelton is not admitted in D.C. Supervised by Nanci Weissgold, member of D.C. Bar.

Force-placed insurance is under continuing scrutiny by the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB). However, each agency’s focus is slightly different. FHFA, perhaps galvanized by a New York enforcement action, has focused on conflicts of interest between servicers and insurers. The CFPB has focused on erroneous placing of insurance and excessive charges.… Continue Reading

Commonwealth of Massachusetts v. FHFA: Fremont Meets The Federal Government

Posted in Litigation & Enforcement Actions, Mortgage Lending, Mortgage Servicing, Other Federal Agencies & GSEs, UDAAP

By: Irene C. Freidel

On June 2, 2014, the Commonwealth of Massachusetts sued the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac in state court, under Massachusetts’ consumer protection statute (“Chapter 93A”) to force them to sell foreclosed properties to non-profit organizations at fair market value, so that the properties can then be re-sold or leased back to the former homeowner. See Commonwealth of Massachusetts v. Federal Housing Finance Agency, et al., C.A. No. 14-1763 (June 2, 2014). Among other things, the lawsuit seeks a declaration that the GSEs’ current anti-fraud guidelines violate Massachusetts foreclosure law (M.G.L. … Continue Reading

CFPB Widens RESPA Enforcement to Focus on Affiliated Business Arrangement Disclosures

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions, Mortgage Lending

By: Holly Spencer Bunting, Anaxet Y. Jones

The CFPB once again has taken aim at affiliated business arrangements (“AfBAs”), only this time, it is targeting AfBA disclosures. In prior enforcement actions, the CFPB focused on the validity of the AfBA, bringing actions against alleged “sham” AfBAs. However, in its most recent enforcement action, the CFPB entered into a consent order with a real estate brokerage company, alleging that it referred consumers to its affiliate, but failed to provide an adequate AfBA disclosure. The CFPB also alleged that the brokerage company improperly required the use of its affiliate title insurance … Continue Reading

CFPB Proposes “Points and Fees” Cure for Qualified Mortgages

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions, Mortgage Lending

By: Kristie D. KullyEric Mitzenmacher

The Consumer Financial Protection Bureau issued a proposed rule requesting public comments on several amendments to its recent mortgage regulations under the Truth in Lending Act (“TILA,” as amended by the Dodd Frank Act). One of those amendments would, if finalized, allow creditors a limited opportunity to “cure” a loan that inadvertently exceeds the three percent limit on points and fees for qualified mortgages (“QMs”).… Continue Reading

K&L Gates Consumer Financial Services Group to Present at MBA Legal Issues Conference in San Diego

Posted in Bureau of Consumer Financial Protection (CFPB), Fair Lending/Anti-Discrimination, FHA/VA, Litigation & Enforcement Actions, Mortgage Lending, Mortgage Servicing, Other Federal Agencies & GSEs

On May 4-7, 2014 the Mortgage Bankers Association will hold its annual Legal Issues and Regulatory Compliance Conference in San Diego, CA. Several K&L Gates partners from the Consumer Financial Services Group will be presenting at the conference.

Melanie Brody will address “A Look Ahead: HMDA and Fair Lending” on Sunday, May 4, at 4:35 pm.

Krista Cooley will participate on a panel on Tuesday, May 6, at 3:15 pm, entitled “False Claims, Indemnifications, Repurchases and Rescissions.” She will discuss how the False Claims Act is affecting participants in HUD’s Federal Housing Administration loan program.

Andrew Glass will speak on … Continue Reading

5th Circuit Applies HUD Discriminatory Effects Rule to Fair Housing Act Case

Posted in Fair Lending/Anti-Discrimination, Litigation & Enforcement Actions, Mortgage Lending

By: Melanie Brody, Anjali Garg*

*Ms. Garg is a law clerk and is not admitted to practice law.

On March 24, 2014, the Fifth Circuit issued an opinion in Inclusive Communities Project, Inc. v. Texas Department of Housing and Community Affairs applying HUD’s discriminatory effects rule and burden-shifting analysis to a Fair Housing Act claim. This is the first circuit court to apply the rule since it took effect on March 18, 2013.… Continue Reading

Beyond Credit Reporting: The Extension of Potential Class Action Liability to Employers under the Fair Credit Reporting Act

Posted in Litigation & Enforcement Actions

By: Brian M. Forbes, Mark D. Pomfret, Robert W. Sparkes, III

Do not be fooled by its title: the Fair Credit Reporting Act (“FCRA”) reaches far beyond the realm of credit reporting and governs a broad spectrum of industries. Indeed, the provisions of FCRA apply to any business entity that seeks to use a “consumer report” – which broadly includes anything from a credit report to a criminal or even motor vehicle background check – for any “employment purposes” (among other purposes). This includes the use of such reports to evaluate an individual for potential employment, as well … Continue Reading

DOL Seeks Supreme Court Review of the Invalidation of its Mortgage Loan Officer Overtime Ruling

Posted in Litigation & Enforcement Actions, Mortgage Lending, Other Federal Agencies & GSEs

By: Thomas H. Petrides, John L. Longstreth

On February 28, 2014 the Department of Labor, represented by the Solicitor General, petitioned for Supreme Court review of an appellate decision invalidating a 2010 DOL administrative ruling that determined mortgage loan officers generally do not qualify for the administrative exemption from overtime under the Fair Labor Standards Act. The U.S. Court of Appeals for the D.C. Circuit held last July that a prior administrative ruling issued in a 2006 DOL Opinion Letter was established law and that DOL was therefore required to use notice and comment rulemaking to change it. The … Continue Reading

Court Refuses to Defer to RESPA Statement of Policy Regarding Affiliated Businesses – 6th Circuit Says a Safe Harbor is a Safe Harbor

Posted in Litigation & Enforcement Actions, Mortgage Lending

By: Irene C. Freidel

Providing clarity in an area of law that had become increasingly muddled over the last two decades, the U.S. Court of Appeals for the Sixth Circuit held on November 27, 2013 that HUD’s 1996 policy statement setting forth a so-called “10-factor test” to determine whether an affiliated business arrangement (“ABA”) is bona fide or a sham is not entitled to deference (“1996 Policy Statement”).  See Carter v. Welles-Bowen Realty, Inc., No. 10-3922 (6th Cir. Nov. 27, 2013). The Real Estate Settlement Procedures Act (“RESPA”) prohibits the payment of a fee in exchange for a referral … Continue Reading

What’s Old is New: CFPB Claims Captive Reinsurance Arrangements Violate RESPA

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions

By: Phillip L. Schulman, Andrew L. Caplan

Last week, the CFPB announced the filing of a complaint and proposed consent order with a North Carolina-based private mortgage insurer, Republic Mortgage Insurance Corporation (“RMIC”), which echoes previous enforcement positions taken years ago by HUD and state regulators. In this most recent enforcement action, the CFPB alleges that RMIC violated Section 8 of RESPA (the “anti-kickback” provision) through participation in captive reinsurance programs with mortgage lenders. These business arrangements are once again under scrutiny in 2013, as last week’s complaint and proposed consent order with RMIC marks the fifth such enforcement … Continue Reading

Proposed Castle & Cook Settlement on Alleged Loan Originator Compensation Violations

Posted in Bureau of Consumer Financial Protection (CFPB), Litigation & Enforcement Actions, Mortgage Lending

By: Kristie D. Kully

The Consumer Financial Protection Bureau has proposed a settlement with Castle & Cook Mortgage and two of its officers. The CFPB brought an action against Castle & Cook and those officers, alleging that they violated the prohibition against loan-term based compensation under the Dodd-Frank Act and its regulations. On November 7, 2013, the parties to the action proposed a settlement to the federal court in Utah for the payment by the company and the officers of over $9 million for redress to affected consumers, plus a $4 million civil money penalty. The company and officers would … Continue Reading

New York Campaign Against Out-of-State Online Lenders Survives a Battle in the SDNY

Posted in Litigation & Enforcement Actions

By: David L. Beam, Christopher Shelton*
*Mr. Shelton is a law clerk and not admitted to the practice of law.

The Internet has been with us for about two decades, and financial service companies have been offering products over the Internet for nearly as long.  One would have thought that there would be final resolution by now on the question of whether, and under what circumstances, a state may regulate an online lender with no physical presence in the state.  However, this issue continues to be a thorny one.

A recent decision by the United States District Court for … Continue Reading

Township of Mount Holly: The United States Supreme Court Considers Whether the Fair Housing Act Recognizes Disparate-Impact Liability

Posted in Fair Lending/Anti-Discrimination, Litigation & Enforcement Actions, Mortgage Lending

By: Paul F. Hancock, Andrew C. Glass, Melanie Brody,  John L. Longstreth, Roger L. Smerage 

On September 3, 2013, K&L Gates LLP filed a brief as amici curiae before the United States Supreme Court in Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., a case in which the Court will consider whether the Fair Housing Act recognizes a disparate-impact theory of liability. The brief addresses the effect that the Court’s recognition of the disparate-impact theory would have on the residential mortgage lending industry and was filed on behalf of the American Financial … Continue Reading

Will the CFPB Give Credit Where Credit Is Due? It Depends on the Circumstances

Posted in Litigation & Enforcement Actions, UDAAP

By: Melanie Brody, Stephanie C. Robinson, Amanda D. Gossai

The Consumer Financial Protection Bureau (CFPB or Bureau) recently elaborated on some of the factors it will consider in determining what actions to bring, if any, against those subject to its enforcement authority. In a bulletin very reminiscent of the Securities and Exchange Commission’s so-called Seaboard Report, the CFPB announced that it may consider a party’s conduct favorably if the conduct “substantially exceeds” what is required by law in its interactions with the Bureau. Specifically, the CFPB “may” in its discretion award some form of affirmative credit in … Continue Reading

Supreme Court Takes Mount Holly Disparate Impact Case

Posted in Fair Lending/Anti-Discrimination, Litigation & Enforcement Actions, Mortgage Lending, Mortgage Servicing, Other Federal Agencies & GSEs

By: Stephanie C. Robinson

Today, the Supreme Court granted certiorari in the appeal titled Township of Mount Holly, New Jersey v. Mt. Holly Gardens Citizens in Action, Inc., et al., No. 11-1507, agreeing to consider whether the Fair Housing Act allows claims under the disparate impact theory of discrimination. The disparate impact doctrine imposes liability on defendants for actions undertaken without discriminatory intent but which nonetheless have an allegedly disproportionately harmful effect on protected classes of persons.… Continue Reading