RC11Kider.enforcement

8/3/2019 RC11Kider.enforcement

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MBA Regulatory ComplianceConference 2011

Litigation Forum

Session 4: EnforcementSeptember 25, 2011

Mitchel H. Kider

Weiner Brodsky Sidman Kider PC1300 19th Street, N.W.Fifth FloorWashington, DC 20036(202) [email protected]


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ENFORCEMENT EFFORTS WIDESPREAD

Federal Regulators

CFPB

Prudential Regulators (OCC, FDIC, FRB etc.)

FTC

HUD

DOJ

State Regulators

State Banking Departments State Attorneys General


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HOW DID WE GET HERE?

Subprime Collapse of 2007

Secondary Market Collapse of 2008

Too Big to Fail Banks

Unregulated Mortgage Companies

Leveling the Playing Field


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CONSUMER FINANCIAL PROTECTION BUREAU (CFPB)

Scope and Breadth of Enforcement Authority to Come

MOUs (Joint investigative cooperation agreements)

39 regulatory agencies and 32 states (including

AGs)

Joint training

Information sharing

Regular consultation

Identifying mutual priorities

Enforcement support/coordination

Share/refer/analyze complaints


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CFPB NOT A PRUDENTIAL REGULATOR

Set to Enact Approximately 250

Regulations in 18 Months

And

Lead a Coordinated Enforcement Effort

Not Answerable to Anyone Not EvenDOJ


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CFPB FORCING CHANGE

Changes Through Regulation and

Changes Through Negotiation

CFPB will not just regulate but will forcechanges in the industry through

negotiations with the largest players


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CFPB ENFORCEMENT TOOLS

Civil Money Penalties

$5,000 Mistake

$25,000 Reckless

$1,000,000 Willful


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REMEDIES AVAILABLE TO THE CFPB

CFPB can seek additional broad remedies:

Rescission or reformation of contracts

Refund of moneys

Return of real property

Restitution

Disgorgement of profits

Compensation for unjust enrichment

Damages

Public notification of violations (with costs to be

borne by the violator) Limits on activities or functions

But no punitive damages under Title X


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CFPBS ENFORCEMENT TOOLS

The CFPB Can Issue:

Subpoenas Civil Investigative Demands (CIDs)

Must state nature of conduct constituting the alleged violationand applicable provision of law

Subject can petition CFPB to modify or set aside

CFPB can petition federal district court to enforce

Cease and Desist Orders

The CFPB Can Commence:

Civil Actions the CFPB litigates on its own behalf; it does not need

the Administrations permission.

Administrative Proceedings (based on C&D Orders)

Administrative hearing with appeal to Court of Appeals. CFPB can issue temporary C&D where violation is likely to

cause the person to be insolvent or otherwise prejudice theinterests of consumers before the completion of theproceedings.

The CFPB can enforce FTC regulations defining unfair/deceptive practices


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KEY AREAS OF ENFORCEMENT

Fair Lending RESPA

Loan Originator (LO)Compensation


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FAIR LENDING

Enforced by at Least 7 different Regulators

DOJ, FTC, HUD, Prudential Regulators(OCC, FDIC), State BankingDepartments, State Attorney Generals

4 Primary Statutes

ECOA, FCRA, Fair Housing Act, TILA

For TILA -- Dodd-Frank mandates CFPB toissue regulations to prohibit abusive or unfairlending practices that promote disparities

among consumers of equal credit worthiness butof different race, ethnicity, gender or age


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RESPA

Expected Emphasis On:

Joint Ventures

Disclosures

Marketing Agreements


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LOAN ORIGINATOR COMPENSATION

We Are In The Calm Before theStorm

Many Unanswered Questions

Remain

An Uneven Playing Field Has

Resulted From This Process


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FEDERAL TRADE COMMISSION (FTC)

JURISDICTION Independent mortgage lenders and state

credit unions

No enforcement authority over banks,

thrifts, or federal credit unions

FTCs authority vis visthe CFPB will be

negotiated in a coordination agreement no

later than January 2012, pursuant to 1024

of the Dodd-Frank Act


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FTC: WHAT IS IT LOOKING FOR?

ECOA and Fair Lending Compliance:

Advertisements & Other Marketing Tools

Underwriting Activities

TILA Compliance

FCRA Violations Incentives for Using Affiliated Service Providers

Criteria for Targeting Customers

Compensation for Sales Staff


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RECENT FTC INITIATIVE MAP RULE

Mortgage Acts and Practices Advertising Final Rule

(16 C.F.R. Part 321) This new rule reveals FTCs focuson mortgage loan advertising as a possible deceptive

trade practice, as well as a violation of TILA.

Advertising rule targets both large and small lenders, as

well as brokers and others. The types of advertisements

and marketing covered by the rule include:

Print Ads

Direct Mail

Unsolicited Emails

Internet Ads and Websites

Telemarketing

In-Person Sales Presentations


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HUD MORTGAGEE REVIEW BOARD

Increased Enforcement Activity

New Emphasis on Servicing Activities

Loss Mitigation

MIP Payments Outstanding AmountsDue and Timely Reporting of Terminations

Face-to-Face Meeting Requirement

DEPARTMENT OF JUSTICE FAIR LENDING


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DEPARTMENT OF JUSTICE FAIR LENDING

Fair Lending

Aggressive Assistant AttorneyGeneral for Civil Rights

Willing to Push the Envelope on LegalIssues

DEPARTMENT OF JUSTICE


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DEPARTMENT OF JUSTICE

S.D.N.Y. LEADS THE WAY

Deutsche Bank

FIRREA Subpoenas Very Burdensome

Covering Many Years

Expensive to Comply With, Especially E-Mails


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WHERE THE FEDERAL GOVERNMENT GOES, THESTATES FOLLOW

State Attorneys General involved in servicing settlement

States starting to coordinate to review smaller servicers

States actively involved in loss mitigation issues

Robosigning

Dual tracking

Loan modifications

States investigating Debt Collection violations:

Making repeated or continuous calls

Misrepresenting the character, extent, or amount ofthe debt

Force-placing insurance for consumers who alreadyhave insurance

Charging fees not expressly set forth in, or authorizedby, the loan documents


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STATE ATTORNEYS GENERAL AND THECFPB INTERPLAY

State Attorneys General Can Enforce Title X in

State or Federal Court

But only as interpreted by the CFPB in regulations

This prevents state AGs from advancingaggressive interpretations of the terms unfair,deceptive or abusive, or from using Title X toenforce otherwise unenforceable provisions ofother consumer financial statutes or regulations


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STATE AGs OUTSOURCING THEIR WORK

Consequence of the Economic Crisis:

Demand for state enforcement actions are up, but

budgets for State Attorneys General have been

going down.

In 2008 alone, State Attorneys General brought over

8,000 enforcement actions against the mortgage

lending industry, ranging from violations of state

consumer protection laws to civil and criminal RICO

actions.

Contingency Fee arrangements provide incentive for

plaintiffs firms.


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STATE AGs OUTSOURCING THEIR WORK

Problems with States Hiring Outside Counsel:

Must comply with strict statutory framework for hiring

outside counsel;

Ethical problems: conflicts of interest;

Government attorneys are held to high ethical

standards; they are supposed to support a public

trust.


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CONCLUSION

In Conclusion . . .

Regulators and Enforcement Agencies Have

Become More Aggressive than Ever Before

Regulators Are Under Considerable Political

Pressure

New Laws and Regulations With Little Concern for

Cost and Effectiveness

You Cannot Afford to Be Passive

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