Saturday, July 25, 2015

FYI: CFPB and DOJ Enter Into Alleged "Discretionary Pricing" Discrimination Consent Order with Auto Finance Company

The Consumer Financial Protection Bureau (“CFPB”) and Department of Justice (“DOJ”) recently entered into a Consent Order with an automobile finance company for alleged violations of the federal Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 (“ECOA”), arising from the auto finance company’s policies and practices allowing car dealer discretion for interest rate markups.

 

A copy of the consent order is available at: http://files.consumerfinance.gov/f/201507_cfpb_consent-order_honda.pdf

 

A copy of the related DOJ complaint is available at http://www.justice.gov/opa/file/629806/download

 

As you may know, in connection with sales of cars on credit, car dealers frequently submit credit applications to auto finance companies on behalf of their customers.  The auto finance company sets minimal interest “buy rates” for approved sales contracts that it will buy from car dealers, and informs the dealers of these buy rates.  Auto finance companies often provide car dealers with discretion to mark up a consumer’s interest rate above the buy rates (“dealer markup”) for certain types of transactions, and the finance company compensates the car dealer for the expected increased interest revenue to be derived from the dealer markups.

 

The CFPB and DOJ alleged that the finance company caused race and national origin discrimination in violation of the ECOA and its implementing regulation, Regulation B, 12 C.F.R. Part 1002 (“Regulation B”) by allowing car dealers to include interest rate markups not based on the borrower’s creditworthiness or other objective criteria related to the borrower risk. 

 

The CFPB and DOJ further claimed the auto finance’s policy and practice of allowing this discretion, and by compensating dealers for the dealer markups without adequate controls and monitoring, was not justified by legitimate business needs that could not be reasonably achieved by means that were less disparate in their impact on protected groups. 

 

The Consent Order noted the DOJ and the CFPB used a Bayesian Improved Surname Geocoding (“BISG”) method based on geographical and name census data to show alleged interest rate disparities of 36 basis points higher than similarly situated white car buyers for African-American car buyers, 28 basis points for Hispanic car buyers, and 25 basis points for Asian and/or Pacific Islander car buyers. 

 

The Consent Order further asserts that the auto finance company did not monitor whether prohibited discrimination occurred for dealer markups, and did not employ adequate controls to prevent discrimination. 

 

In addition, the Consent Order asserts that the policy and practice of allowing dealer markups without adequate controls and monitoring was not justified by legitimate business needs, and resulted in illegal discrimination on the basis of race and national origin. 

 

Among other things, the Consent Order requires that the auto finance company:  (1) not engage in race or national origin discrimination in any aspect of dealer discretion in automobile credit sales pricing; (2) implement a dealer compensation policy conforming with one of three described options to ensure compliance with the ECOA; (3) make submissions for review by a compliance committee; (4) deposit $24 Million for redress to affected consumers and create a plan for remuneration; and (5) retain business records for five years demonstrating compliance.

 

The Consent Order further released and discharged the auto finance company from all potential liability in the consent order, and the auto finance company was not assessed any monetary penalties. 

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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Wednesday, July 22, 2015

FYI: CFPB Issues Final Rule Delaying TRID Effective Date to Oct. 3, 2015

The federal Consumer Financial Protection Bureau (CFPB) issued its final rule earlier today confirming the delay of the effective date of the TILA-RESPA Integrated Disclosures rule to October 3, 2015.

 

A copy of the final rule is available at:  Link to Final Rule

 

The final rule also makes certain technical corrections, including:

 

1.  Amending 12 CFR § 1026.38(i)(8)(ii) and (iii)(A) to “include, in the amount disclosed as ‘Final’ for Adjustments and Other Credits, the amount disclosed under § 1026.38(j)(1)(iii) for

certain personal property sales, thus conforming the calculation of Adjustments and Other Credits on the Closing Disclosure and Loan Estimate;” and

 

2.  Amending 12 CFR § 1026.38(j)(1)(iv) to “include, in the amount disclosed as Closing Costs Paid at Closing, lender credits disclosed under § 1026.38(h)(3), thus conforming the disclosure of the borrower’s cash to close in the Calculating Cash to Close and the Summaries of Transactions tables on the Closing Disclosure.”

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:

 

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Insurance Recovery Services

 

 


From: Ralph T. Wutscher [mailto:rwutscher@mauricewutscher.com] 
Sent: Thursday, June 25, 2015 11:49 AM
To: Ralph T. Wutscher
Cc: New York Office; Florida Office; New Jersey Office; San Francisco Office; San Diego Office; Philadelphia Office; Ohio Office; Indiana Office; DC Office; Chicago Office

 

 

As referenced in our prior update below, the federal Consumer Financial Protection Bureau (CFPB) issued a proposed rule to change the effective date for the “Know Before You Owe” TILA-RESPA Integrated Disclosure rule to October 3, 2015.

 

A copy of the proposed rule and request for public comment is available at:  Click Here

 

The CFPB previously indicated the effective date would be delayed to Oct. 1, 2015. 

 

The CFPB stated that it “is proposing a new effective date of Saturday, October 3,” explaining that “scheduling the effective date on a Saturday may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems. A Saturday launch is also consistent with existing industry plans tied to the original effective date of Saturday, August 1.”

 

The proposal will be open for public comment until July 7, 2015.

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building 
105 W. Madison Street, 18th Floor 
Chicago, Illinois 60602 
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:

 

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From: Ralph T. Wutscher [mailto:rwutscher@mauricewutscher.com
Sent: Thursday, June 18, 2015 9:34 AM
To: Ralph T. Wutscher
Cc: New York Office; Florida Office; New Jersey Office; San Francisco Office; San Diego Office; Philadelphia Office; Ohio Office; Indiana Office; DC Office; Chicago Office
Subject: FYI: CFPB to Issue Proposed Amendment Delaying TRID Effective Date to Oct. 1, 2015

 

The federal Consumer Financial Protection Bureau (CFPB) issued a short press release yesterday, confirming reports that it would be issuing a proposed amendment to delay the effective date for the “Know Before You Owe” TILA-RESPA Integrated Disclosure rule until October 1, 2015.

 

A copy of the press release is available at:  Press Release

 

The press release simply states:

 

The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until October 1, 2015. We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.

 

The public will have an opportunity to comment on this proposal and a final decision is expected shortly thereafter.

 

Prior to the proposed amendment, the effective date for the “Know Before You Owe” TILA-RESPA Integrated Disclosure rule was August 1, 2015, and would apply to transactions for which the mortgage lender or broker receives an application on or after that date.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building 
105 W. Madison Street, 18th Floor 
Chicago, Illinois 60602 
Direct: (312) 493-0874
Fax: (312) 284-4751 
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:


Financial Services Legal Developments

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery 

 

 

 

 

 

Sunday, July 19, 2015

FYI: NY Ct of Appeals Holds Loan Repurchase Action Time-Barred, as Action Accrued When Reps and Warranties Were Made

The Court of Appeals of New York recently held that a mortgage loan repurchase action for breach of representations and warranties accrued when the representations and warranties were made, and the obligation to cure and repurchase was not a separate and continuing promise of future performance.

 

A copy of the opinion is available at:  Link to Opinion

 

The sponsor of a residential mortgage-backed securities trust purchased 8,815 mortgage loans from third-party originators. This pool of loans was sold to an affiliate, known as a “depositor,” pursuant to a Mortgage Loan Purchase Agreement (“MLPA”) between the sponsor and the depositor dated March 28, 2006.

 

Also on March 28, 2006, the depositor transferred the loans and its rights under the MLPA to the Trust pursuant to a Pooling and Servicing Agreement (“PSA”) between the depositor, the servicer, a bank as master servicer and securities administrator, and another bank as trustee.

 

In the MLPA, the sponsor made over 50 representations and warranties as to the quality and other attributes of the loans as of the closing date, March 28, 2006. The MLPA also allowed the trust to examine each mortgage loan file and exclude from the final pool any that did not conform to the representations and warranties. The sole remedy in the event of a breach of the MLPA was for the sponsor to cure or repurchase the non-conforming loans.

 

The PSA provided that the trustee had the right to enforce the sponsor’s repurchase obligation by notifying the sponsor and servicer and demanding a cure within 60 days. If the default was not cured, the trustee had the right to enforce the sponsor’s obligation to repurchase under the MLPA within 90 days after the sponsor was notified of the breach. The PSA also provided that certificate holders with at least 25% of voting rights in the Trust could enforce certain events of default after giving notice in writing to the trustee demanding that it file suit and the trustee failed or refused to do so within 15 days.

 

The Trust and certificate holders allegedly lost almost $330 million due to borrower defaults and delinquencies, leading two independent investment fund certificate holders—who together held 25% of the voting rights—to hire a forensic mortgage loan review company to analyze a portion of the loan pool. The result was that 99% of the loans reviewed failed to comply with one or more representations and warranties.

 

In January of 2012, the two certificate holders gave notice of default under the PSA to the trustee bank, demanded that the trustee require the sponsor to repurchase all of the loans in the trust, and also demanded that the trustee obtain a tolling agreement from the sponsor given potential problems with the statute limitations.

 

The trustee neither sued the sponsor nor obtained a tolling agreement, so the two certificate holders sued the sponsor for breach of contract on March 28, 2012, exactly six years after the MLPA and PSA were signed.

 

In September of 2012, the trustee sought to substitute itself as the party plaintiff, filing a complaint on the trust’s behalf against the sponsor for breach of the representations and warranties and failure to cure and repurchase. The trustee alleged that it had notified the sponsor of the breaches in 9 letters sent between February and July of 2012.

 

In November of 2012, the sponsor moved to dismiss the complaint, arguing that it was untimely because the trustee’s claims accrued on March 28, 2006, more than six years before the trustee filed its complaint, the certificate holders did not give the sponsor the required 60 days’ notice to cure and 90 days to repurchase before suing, the certificate holders lacked standing because only the trustee could sue for breaches of the representations and warranties, and the trustee’s substitution as plaintiff could not relate back to March 28, 2012 because the certificate holders’ action was not valid.

 

The trial court denied the sponsor’s motion to dismiss, concluding that the sponsor’s obligation to cure or repurchase was recurring, such that the sponsor breached the PSA each time it failed to cure or repurchase a defective loan after receiving notice of breach. The trial court also held that the trustee had satisfied the condition precedent to give notice of breach before filing suit because the sponsor repudiated its obligation to repurchase.

 

The New York Appellate Division reversed and granted the sponsor’s motion to dismiss the complaint as untimely, reasoning that the claims accrued on the closing date of the MLPA, March 28, 2006, when the breach occurred, the 60 and 90-day cure and repurchase periods had not expired when the certificate holders sued on March 28, 2012, and that the certificate holders lacked standing to sue on behalf of the trust and the trust’s substitution did not cure that defect and relate back to the certificate holders’ filing date.

 

The trustee sought leave to appeal, which the Court of Appeals granted.

 

The New York Court of Appeals began its analysis by stressing that New York’s law of contracts and statutes of limitation serve the same objectives of finality, certainty and predictability, and are designed to “not only to save litigants from defending stale claims, but also express a societal interest or public policy of giving repose to human affairs.” In addition, the Court noted that New York courts have “rejected accrual dates which cannot be ascertained with any degree of certainty, in favor of a bright line approach.”

 

Thus, the New York Court of Appeals held that, under New York law, the statute of limitations for breach of contract does not begin to run when the plaintiff discovers that he has a cause of action, but “from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury.”

 

The Court of Appeals rejected the trustee’s argument that its claim did not accrue until the sponsor refused to cure or repurchase, at which point the trustee or certificate holders had six years to sue, distinguishing the ruling in Bulova Watch Co. v. Celotex Corp., 26 NY 2d 606 (1979), because although “parties may agree to undertake a separate obligation, the breach of which does not arise until some future date, the repurchase obligation undertaken by [the sponsor] does not fit this description.”

 

The New York Court of Appeals explained that Bulova Watch involved a provision in a contract for a new roof that obligated the seller to make repairs for 20 years. The Court held that the repair guarantee was an agreement separate and distinct from the agreement to supply roofing materials, and the agreement to repair was subject to a six-year statute of limitations, running from the time each breach of the obligation to repair occurred, not when the contract was signed.

 

In contrast, the Court held, in the case at bar, the sponsor never guaranteed the future performance of the mortgage loans, but rather only that certain facts were true as of a date certain – here, March 28, 2006, when the MLPA and PSA were signed. In addition, the Court held, the agreements expressly stated that the representations and warranties did not survive the closing date.

 

The Court of Appeals also rejected the trustee’s argument that the obligation to cure or repurchase was a condition precedent that delayed accrual of the cause of action, because the trustee could not sue the sponsor until the sponsor refused to cure or repurchase, and only then did the PSA allow the trustee to sue to enforce the obligation.

 

Relying on a decision more than 100 years old, Dickinson v. Mayor of City of N.Y., 92 NY 584, 590 (1883), the Court of Appeals reasoned that the trustee ignored “the difference between a demand that is a condition to a party’s performance, and a demand that seeks a remedy for a pre-existing wrong.”

 

In Dickinson, the Court of Appeals held that a 30-day statutory period that the city had to investigate claims before suit could be filed did not affect when the cause of action against the city accrued, contrasting that situation with one in which “a demand was a part of the cause of action and necessary to be alleged and proven, and without this no cause of action existed.”

 

Like in Dickinson, the Court of Appeals held, the trust “suffered a legal wrong” when the sponsor breached the representations and warranties, and the case before the Court was not one where no cause of action existed until the demand was made.

 

The Court held that the sponsor’s obligation to cure or repurchase was not a separate and continuing promise of future performance, but was instead the sole remedy if the sponsor breached its representations and warranties.  Accordingly, the Court held, the obligation to cure or repurchase “was not an independently enforceable right, nor did it continue for the life of the investment.”

 

Accordingly, the Court of Appeals concluded that the trustee’s claim was subject to the six year statute of limitations for contract actions, which accrued on March 28, 2006, when the MLPA was signed. In addition, the Court of Appeals held that the sponsor’s failure to cure or repurchase “was not a substantive condition precedent that deferred accrual of the Trust’s claim; instead, it was a procedural prerequisite to suit.”

 

Finally, because the Court held the Trust failed to fulfill the procedural condition precedent, the Court did not address the issues of standing and relation-back, and affirmed the order of the Appellate Division.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

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and

 

Insurance Recovery Services

 

 

 

 

FYI: 6th Cir Rejects Borrowers' Foreclosure Challenges Under Mich "Foreclosure by Advertisement" Statute and Alleged HAMP Violations

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a district court’s dismissal of borrowers’ state law negligence and constitutional due process allegations arising from the foreclosure and sale of their home under Michigan’s foreclosure-by-advertisement statute.

 

A copy of the opinion is available at: http://www.ca6.uscourts.gov/opinions.pdf/15a0137p-06.pdf

 

The plaintiff borrowers obtained a mortgage loan in 2008. The mortgage named Mortgage Electronic Registration Systems, Inc. (“MERS”) as the lender’s nominee and the mortgagee. The note was endorsed in blank to the original lender was later transferred to a loan servicer. The assignment of mortgage to the loan servicer was recorded in 2011.

 

The borrowers defaulted and the holder of the note foreclosed the mortgage under Michigan’s foreclosure-by-advertisement statute. The borrowers failed to redeem the property within the six-month statutory redemption period allowed, and the loan owner purchased the property at the foreclosure sale.

 

The loan owner sued to evict the borrowers in state court and they answered and counterclaimed, challenging the foreclosure and eviction. The case was removed to federal court by the loan owner.  The district court entered judgment on the pleadings in favor of the loan owner defendants, and the borrowers appealed.

 

On appeal, the Sixth Circuit began by pointing out that under Michigan’s foreclosure-by-advertisement statute, the failure to redeem the property by paying the amount owed within an allowed six-month period results in the vesting of all right, title and interest of the mortgagor in the purchaser at the sheriff’s sale.  

 

The Sixth Circuit noted that, because the plaintiffs did not redeem the property within the time allowed, they had to clearly plead fraud or irregularity relating to the foreclosure itself and that they were prejudiced by such fraud or irregularity. To demonstrate prejudice, the Court held the borrowers “must show that they would have been in a better position to preserve their interest in the property absent defendant’s noncompliance with the statute.”

 

The Appellate Court rejected the borrowers’ argument that the loan servicer lacked standing to foreclose under Michigan law because there was no record chain of title showing an assignment of the mortgage to it, reasoning that, in fact, MERS had assigned the mortgage to the servicer and the assignment was duly recorded in October of 2011, before the November, 2011 sheriff’s sale took place.

 

In addition, the Appellate Court held that, because the borrowers granted MERS and its assigns the power to assign the mortgage as well as to initiate foreclosure proceedings, the servicer, as holder of record of the mortgage, also had the power to foreclose the mortgage.

 

The Sixth Circuit also rejected the borrower’s argument that the Michigan statute required a record chain of title reflecting ownership of the note, because the statute only required a record chain of title for the mortgage, and not the underlying debt evidenced by the note. 

 

The plaintiff borrowers did not allege any facts showing the prejudice required to void the foreclosure.  The Appellate Court held that, because the borrowers did not exercise their right to redeem in a timely fashion, the borrowers could not show they would have been in a better position to preserve their interest in the property, and their right, title and interest in the property was extinguished by operation of law.

 

The Sixth Circuit next rejected the borrowers’ argument that the foreclosing party must hold be both the assignee of the note and the assignee of the mortgage in order to have the right to foreclose because, under Michigan law, the holder of the mortgage and the owner of the debt do not have to be one and the same, and the servicing agent of the mortgage is also one of the parties entitled to foreclose. The borrowers’ challenge to the mortgage’s chain of title due based on the “securitization” of the debt was rejected for same reasons, i.e., because separating or severing the mortgage from the note had no bearing on the servicer’s right to foreclose as MERS’ assignee of record.

 

In Count II of their counterclaim, the borrowers argued that the loan owner was negligent in failing to grant them a loan modification under the federal Home Affordable Modification Program (“HAMP”) because it failed to comply with the applicable administrative guidelines. The Appellate Court rejected this argument also, because the borrowers could not show that the loan owner breached any duty the loan owner owed to them, relying on a Sixth Circuit recent ruling in another case (Campbell v. Nationstar Mortg., No. 14-1751, 2015 WL 2084023, at *9 (6th Cir. May 6, 2015) (unpublished)) that HAMP does not create a private right of action, and Michigan courts have not recognized that HAMP’s regulations impose a duty of care owed by servicers to borrowers.

 

Finally, the Court rejected the borrower’s claim that their due process rights under the Fifth and Fourteenth Amendments were violated because (a) they waived the argument by not objecting to the magistrate judge’s report and recommendation and the district court did not address the issue in its opinion; and (b) on the merits, the loan owner satisfied the requirements of the Due Process Clause because it complied with Michigan’s foreclosure-by-advertisement statute by publishing notice of the foreclosure sale and posting it on the property and giving notice of the six-month redemption period, which the borrowers did not contest.

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

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and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

 

 

 

 

Maurice Wutscher LLP

 

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