December 23, 2014
Law360 quoted me in New York’s Ocwen Deal Sets Tough Precedent For Regulators (behind a paywall). It reads in part,
New York regulators ordered Ocwen Financial Corp. to pay $150 million in hard cash and barred the company from claiming a tax deduction on the restitution payments in a mortgage servicing settlement that could set a new standard for regulators accused of being soft on the companies they penalize.
The New York Department of Financial Services’ penalty against Ocwen, which also saw the company’s executive chairman lose his job, comes amid criticism that major penalties against Bank of America Corp., JPMorgan Chase & Co. and other banks have been too lax. In a move aimed at addressing concerns over companies’ abilities to game the penalties, New York’s settlement specifically says Ocwen will not be able to use some of the techniques banks have used to lessen the blow of earlier settlements.
“They’ve tried to make a very tight settlement that demonstrates that Ocwen is suffering measurable costs for their behavior,” said David Reiss, a professor at Brooklyn Law School.
The New York Department of Financial Services announced Monday that Ocwen, the country’s fourth-largest mortgage servicer, with some $430 billion in unpaid servicing balances, would pay out $150 million in “hard money” to New York homeowners who were victim to the company’s problematic servicing operations. A third of that $150 million would go directly to people who were foreclosed upon, and the remaining $100 million would go to housing-related projects chosen by the state.
But, unlike in previous mortgage-related settlements, Ocwen will not be able to count what are known as “soft dollar” modifications of mortgages they do not own and other techniques toward its settlement total, the DFS said. Banks and other servicers have been able to count such modifications in their total settlement amounts in previous deals, including the $25 billion national mortgage settlement from 2012.
Critics say such soft-dollar remediation has allowed law enforcement agencies, regulators and banks to inflate the amount of money banks and servicers are said to be paying out while limiting the amount of money they actually pay.
“It seems like a transparent settlement,” Reiss said.
* * *
“A lot of the problems that people have had with these financial settlements are specifically identified,” Reiss said.
December 22, 2014
The Consumer Financial Protection Bureau has announced a Project Catalyst Pilot to Promote Regular Saving Behavior Among Prepaid Card Users.The pilot involves an American Express product, a prepaid card with a saving feature.
> Gain insight into consumer saving behavior and identify practices that promote saving behavior among prepaid card users
> Evaluate the impact of saving on consumer wellbeing among prepaid card users (2)
I have been critical of some of the CFPB’s financial literacy initiatives, but this seems like a good one. What is important about this pilot study is that it is not just evaluating whether consumers respond to the product in the expected way — save more, for instance — but whether it has longer-term and more significant effects. Does it help consumers develop saving habits in other contexts? Do those saving habits lead to better outcomes in housing and consumer credit contexts? These are really important questions. If the pilot study helps to answer them, it will be of great value.
December 20, 2014
E-Commerce Times quoted me in Feds Pounce on Sprint for Phone Bill Cramming. It opens,
The United States government is delivering a one-two punch to Sprint over the practice of cramming — allowing third parties to place unauthorized charges on customers’ bills.
The Consumer Finance Protection Bureau on Thursday filed a civil suit against Sprint over the issue.
Meanwhile, the Federal Communications Commission reportedly is planning to hit Sprint with a US$105 million fine.
Coordination between the government agencies “is not atypical,” said David Reiss, professor of law at the Brooklyn Law School.
“Frequently federal government agencies coordinate their actions for better results,” he told the E-Commerce Times.
It’s possible that the FCC was negotiating with Sprint prior to the CFPB taking action, suggested Robert Jaworsky, a partner at ReedSmith.
“I doubt the FCC will take any action while this lawsuit is pending,” he told the E-Commerce Times.
The CFPB’s Allegations
Sprint charged wireless customers for unauthorized third-party services from 2004 through 2013, costing them millions of dollars each year, by creating a billing and payment system that provided third parties with unfettered access to its customers’ accounts, according to the CFPB complaint.
Sprint automatically enrolled customers in this billing system without their knowledge or consent, and many customers were unaware of the unauthorized charges, the bureau maintains.
Sprint continued to operate its system despite numerous red flags, including high refund rates, along with complaints from customers, law enforcement agencies and consumer groups, the CFPB claims. The carrier retained 40 percent of the gross revenue collected for the third-party charges, totaling “hundreds of millions of dollars.”
Sprint took advantage of its customers, treated them unfairly in various ways, mishandled or ignored complaints about the unauthorized charges, and didn’t track them, said CFPB director Robert Cordray.
Sprint refused to provide refunds to some customers, instead telling them how to block future third-party charges, he added — and sometimes it referred victims back to the scammers themselves.
December 18, 2014
The Congressional Budget Office has released a report, Transitioning to Alternative Structures for Housing Finance. This report
examines various mechanisms that policymakers could use to attract more private capital to the secondary mortgage market. The report also addresses how those mechanisms could be combined in different ways to help the market make the transition to a new structure during the coming decade. CBO analyzed transition paths to four alternative structures that involve choices about whether the government would continue to guarantee payment on mortgages and MBSs and, if so, what form and prices those guarantees would have. Under those different structures, the government’s activities would range from providing full or partial guarantees for a large share of the mortgage market to playing a minimal role in a largely private market (except perhaps during a financial crisis). Any transition to a new type of secondary market would also require decisions about what to do with the existing operations, guarantee obligations, and investment holdings of Fannie Mae and Freddie Mac. (1, footnotes omitted)
The report has three key findings:
December 17, 2014
The New York City Independent Budget Office issued an estimate of the cost of providing “free legal representation to individuals with incomes at or below 125 percent of the federal poverty level who are facing eviction and foreclosure proceedings in court . . ..” (1) The IBO nets the cost of this proposal against the potential savings that the City would reap by reducing admissions to homeless shelters. The IBO concludes that this proposal would have a net cost of roughly 100 million to 200 million dollars.
The IBO notes that “there are benefits to reducing evictions that extend beyond the city’s budget, such as the potential for reducing turnovers of rent-regulated apartments, which would slow rent increases for those units, as well as avoiding the long term physical and mental health consequences associated with homelessness.” (1-2)
Seems to me that this is money well spent in 21st century New York City. Market forces are such that landlords can frequently raise rents significantly whenever a tenant leaves. Unscrupulous landlords harass their tenants in a variety of ways in order to encourage them to leave sooner. This might be done through the abuse of legal process, with a landlord trying to evict a tenant multiple times when the tenant has not violated the terms of the lease. Or it might be done through improperly maintaining the property, for instance, cutting off the water repeatedly. In either case, though, tenants are being subject to a lot of illegal behavior in this hot real estate market.
Housing court is a mess for both tenants and landlords, but typically only landlords have lawyers to help them navigate it. This proposal would even the field a bit. Mayor de Blasio’s affordable housing goals would be greatly augmented by this proposal.
Perhaps housing court reform should also be put on the table so that these cases are adjudicated equitably, but that is a topic for another day . . ..
December 16, 2014
Jeff Lederman, Sabeel Rahman and I submitted a comment on the Consumer Financial Protection Bureau’s proposed policy on No-Action Letters. Basically,
This is a comment on the Consumer Financial Protection Bureau’s (the “Bureau”) proposed Policy on No-Action Letters (the “Policy”). The Policy is a step in the right direction, but a more robust Policy could better help the Bureau achieve its statutory purposes.
The Bureau recognizes that there are situations in which consumer financial service businesses (“Businesses”) are uncertain as to the applicability of laws and rules related to new financial products (“Products”); how regulatory provisions might be applied to their Products; and what potential enforcement actions could be brought against them by regulatory agencies for noncompliance. Businesses could therefore benefit from the issuance of a No-Action Letter to reduce that uncertainty.
There is very little scholarly literature on the use of No-Action Letters by administrative agencies. In the absence of comprehensive studies, it is hard to precisely determine how to allocate agency resources to informal guidance as opposed to other types of regulatory action. Notwithstanding this, an agency should attempt to determine the optimal amount of its resources that should be devoted to informal guidance as opposed to the alternatives and then refine that initial estimate as experience dictates.
A rapidly changing field like consumer finance can benefit from the availability of quick and informal feedback for Businesses so long as the process is properly designed. Because the Policy would use a relatively small amount of Bureau resources compared to other types of regulatory action, a well-designed No-Action Letter Policy would be a win-win-win for Businesses, for the Bureau and for consumers.