Recent Enforcement Actions in Consumer Financial Services


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  • From Federal Reserve Bank of St. Louis
  • Mortgages, the largest component of household debt, fell in the second quarter of 2013, although the fall was in part due to reporting gaps associated with the servicing transfer of a higher-than-usual number of loans. Mortgage balances shown on consumer credit reports stand at $7.84 trillion, down $91 billion from the level in the first quarter of 2013. Balances on home equity lines of credit (HELOC) dropped by $12 billion (2.2 percent) and now stand at $540 billion.
  • Household non-housing debt balances increased by 0.9 percent, bolstered by gains of $20 billion in auto loan balances, $8 billion in student loan balances, and $8 billion in credit card balances.
  • The percent of 90+ day delinquent balance for all household debt declined to 5.7 percent from 6.1 percent in Q1. Additionally, the delinquency rate for every individual component of household debt declined from the first quarter: auto loan delinquency rates fell to 3.6 percent, the lowest level in five years; mortgages (4.9 percent from 5.4 percent), HELOC (3 percent from 3.2 percent), credit card debt (10 percent from 10.2 percent) and student loan debt (10.9 percent from 11.2 percent).
  • FHA prohibits discrimination on basis of race and national origin in making available, or in terms or conditions of, residential real estate-related transactions.ECOA prohibits discrimination w/r/t credit transactions on basis of race and national origin.
  • Central District of Cal
  • Household non-housing debt balances increased by 0.9 percent, bolstered by gains of $20 billion in auto loan balances, $8 billion in student loan balances, and $8 billion in credit card balances.
  • Followed by $85 million refund in AMEX.
  • Household non-housing debt balances increased by 0.9 percent, bolstered by gains of $20 billion in auto loan balances, $8 billion in student loan balances, and $8 billion in credit card balances.
  • Case filed in Eastern district of California
  • Central District of California
  • Household non-housing debt balances increased by 0.9 percent, bolstered by gains of $20 billion in auto loan balances, $8 billion in student loan balances, and $8 billion in credit card balances.
  • Central District of California
  • Central District of California
  • Recent Enforcement Actions in Consumer Financial Services

    1. 1. Recent Enforcement Actions in Consumer Financial Services Barristers Annual Meeting The Bar Association of San Francisco November 8, 2013
    2. 2. Background
    3. 3. 2007 • Freddie Mac announces it will stop buying subprime mortgages. • S&P places 612 securities backed by subprime mortgages on credit watch. • Bear Stearns liquidates two MBS hedge funds. 2008 • BofA buys Countrywide. • President Bush signs Emergency Economic Stimulus Act of 2008 (the “bailout”). 2009 • President Obama proposes a consumer-protection bureau as part of Wall Street reform. July 21, 2010 • The Dodd-Frank Wall Street Reform and Consumer Protection Act becomes law. A (Very) Brief Timeline
    4. 4. Some Data
    5. 5. The Mortgage Mess
    6. 6. U.S. v. Countrywide Financial Corp. • Between 2004 and 2007, Countrywide was one of the largest residential mortgage lenders in U.S. reporting with net earnings of $6.7 million. • In December 2011, U.S. Attorneys Office for Central District of California filed complaint alleging widespread pattern or practice of charging higher prices to Hispanics and African-American borrowers because of their race or national origin, and not because of credit characteristics. • Claims brought under FHA (42 U.S.C. § 3601-3619) and ECOA (15 U.S.C. § 1691-1691f). • Contemporaneous consent order for $335 million to eligible borrowers.
    7. 7. National Mortgage Servicing Settlement • $25 billion settlement between the Justice Department, HUD, 49 state Ags, and the five largest mortgage servicers: – Ally/GMAC – BofA – Citi – JPMorgan Chase – Wells Fargo • Monetary relief to eligible borrowers • Injunctive relief relating to servicing standards
    8. 8. CFPB v. Castle & Cooke Mortgage LLC • In April 2011, new Loan Originator Compensation Rule goes into effect. (12 CFR 226.36) • July 2013, CFPB files complaint against CCM and two officers alleging violations of LO Comp Rule. Specifically, complaint alleged unlawful quarterly bonus plan that paid LOs more money for placing borrowers into costlier loans. • November 7, 2013, parties ask court to enter stipulated judgment for over $13 million.
    9. 9. Loan Modification Schemes
    10. 10. CFPB v. Chance Gordon • In July 2012, CFPB files complaint against Chance Edward Gordon, Abraham Michael Pessar, and their companies, alleging they targeted underwater homeowners in over 25 states by using Gordon’s “law firm” status to gain trust. • On November 16, 2012, the U.S. District Court for Central District of California entered a preliminary injunction freezing defendants’ assets. • June 2013, on cross-motions for summary judgment, Court enters judgment against defendants for over $11 million, the amount of advance fees collected.
    11. 11. Garden Grove Attorney Charged for Taking Illegal Advance Fees From Homeowners • San Francisco, Oct. 15, 2012 – The State Bar of California filed disciplinary charges against a Garden Grove attorney accused of taking illegal advanced fees from distressed homeowners and partnering with non- lawyers in a large-scale loan modification scheme. • According to the notice of disciplinary charges against him, Siringoringo, first met his non-lawyer partners in December 2009. Soon after, Siringoringo agreed to allow them to open an office his name in Upland, in exchange for a share of the legal fees it brought in. The office performed legal services and with met clients without Siringoringo's supervision. The operation generated enough money to open two other locations in Siringoringo's name – in Glendale and Rancho Cucamonga. • Filed Oct. 10, the disciplinary notice lists at least 23 victims of the loan modification scam, some of them couples. It also accuses Siringoringo of “habitually” disregarding his loan modification practice and misleading his clients into believing he was in charge of their cases.
    12. 12. California State Bar Seeks Disbarment of Two San Francisco Lawyers • SAN FRANCISCO, Nov. 4, 2013 – A State Bar Court judge recommended disbarment for two San Francisco Bay Area attorneys involved in a scheme to defraud struggling homeowners. • Henrioulle and Uy, and former attorney Tarik Sami Soudani, signed up over 200 clients between July 2009 and October 2011, promising loan modifications or foreclosure rescue services. Clients, some of them immigrants who learned of the firm from foreign- language radio stations, paid upfront fees of $3,995 to $4,500, followed by monthly payments initially set at $500, which rose to $650 and then $850. • Despite no longer being a lawyer, Soudani was allowed to meet with clients and in many of the cases Uy and Henrioulle did little or no work, causing the clients to lose their homes anyway.
    13. 13. Credit Cards
    14. 14. In re: Discover Bank • In September 2012, CFPB and FDIC settled with Discover Bank for allegedly deceptive marketing practices associated with credit card add-on products. • Section 1036 prohibits covered persons/service providers from engaging in unfair, deceptive, or abusive acts or practices. (12 U.S.C. § 5536) • CFPB ordered Discover to pay back $200 million to 3.5 million credit card holders, and levied a $14 million penalty.
    15. 15. Auto Loans
    16. 16. FTC v. NAFSO VLM, Inc. • In April 2012, sued Kore Services LLC, doing business as Auto Debt Consulting, and NAFSO VLM, Inc., doing business as Vehicle Loan Mod – and their principals for allegedly promising to reduce consumers’ monthly auto loan payments by 25 to 40 percent, for fees ranging from $350 to $799. The defendants offered a 100 percent money back guarantee. • Section 5(a) of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting commerce.” (15 U.S.C. § 45(A)) • In January 2013, parties settled for $279,728 representing the total amount of consumer injury defendants allegedly caused by deceptively marketing auto loan relief to consumers.
    17. 17. U.S. v. Union Auto Sales • In September 2013, the United States settled a lawsuit alleging that an automobile dealership formerly doing business in Los Angeles violated the Equal Credit Opportunity Act (ECOA) by charging non-Asian customers higher interest rate markups than other customers for a period of at least three years. Union Auto Sales agreed to pay $125,000 to resolve the allegations against it. • ECOA prohibits credit decisions on the basis of sex, marital status, age, race, national origin, or public assistance benefits. (15 U.S.C. § 1691 et seq.) • In the auto industry, it is common practice for banks and other lenders to set a base interest rate or “buy rate” and then for the auto dealership to “mark up” the interest rate to the final rate the customer pays on the loan for the car. The complaint alleges that Union Auto Sales Inc., charged higher interest rate markups to non-Asian customers from at least 2004 to 2006.
    18. 18. Student Loans
    19. 19. Sallie Mae, the top recipient of Department of Education contracts, told investors in its latest quarterly report that the Consumer Financial Protection Bureau last month launched an investigation into how the company processes borrowers’ payments on student loans. The CFPB joins the Federal Deposit Insurance Corp. and Department of Justice in probing the company for alleged misdeeds that include payment-processing issues, “unfair or deceptive” practices, discriminatory lending and violating the Servicemembers Civil Relief Act, a federal law intended to ease financial pressures on active-duty members of the military. … The CFPB’s top student loan official, Rohit Chopra, said in an Oct. 16 report the agency had found widespread problems in how student loan servicers process borrowers’ monthly payments. The report stated that servicers commonly misallocate payments, maximizing late fees and penalties and preventing borrowers from paying off loans quickly. Chopra called the practices “troubling.”
    20. 20. Manny P. Alvarez