MBA Regulatory Compliance Conference 2011 Litigation Forum Session 4: Enforcement

September 25, 2011

Mitchel H. Kider Weiner Brodsky Sidman Kider PC 1300 19th Street, N.W. Fifth Floor Washington, DC 20036 (202) 628-2000 kider@wbsk.com

ENFORCEMENT EFFORTS WIDESPREAD

Federal Regulators
CFPB Prudential Regulators (OCC, FDIC, FRB etc.) FTC HUD DOJ

State Regulators
State Banking Departments State Attorneys General

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

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

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 Even

DOJ
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CFPB FORCING CHANGE

Changes Through Regulation and Changes Through Negotiation

CFPB will not just regulate but will force changes in the industry through negotiations with the largest players

CFPB ENFORCEMENT TOOLS

Civil Money Penalties

$5,000 Mistake $25,000 Reckless

$1,000,000 Willful

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 violation and 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 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 the interests of consumers before the completion of the proceedings. The CFPB can enforce FTC regulations defining unfair/deceptive practices
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The CFPB Can Commence:

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 Banking Departments, State Attorney Generals 4 Primary Statutes ECOA, FCRA, Fair Housing Act, TILA For TILA -- Dodd-Frank mandates CFPB to
issue regulations to prohibit abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but of 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 the Storm 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 vis the 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 focus on 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 Amounts Due and Timely Reporting of Terminations

Face-to-Face Meeting Requirement
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DEPARTMENT OF JUSTICE FAIR LENDING

Fair Lending
Aggressive Assistant Attorney General for Civil Rights

Willing to Push the Envelope on Legal Issues

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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, THE STATES 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 of the debt Force-placing insurance for consumers who already have insurance Charging fees not expressly set forth in, or authorized by, the loan documents
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STATE ATTORNEYS GENERAL AND THE CFPB 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 advancing aggressive interpretations of the terms unfair, deceptive or abusive, or from using Title X to enforce otherwise unenforceable provisions of other 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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