Dodd-Frank Amendments to RESPA
Ali v. Wells Fargo Bank, N.A., 2014 WL 345243 (W.D. Okla. Jan. 24, 2014).
This action is one of the first decisions issued regarding the forced-placed insurance provision pursuant to the new mortgage servicing regulations under the “Dodd- Frank Wall Street Reform and Consumer Protection Act” (“Dodd-Frank”). In Ali, Plaintiff brought suit against her mortgage lender, mortgage loan servicer, and an insurance company asserting multiple theories of liability related to lender-placed insurance (“LPI”), by which the lender prevented a lapse of coverage for the mortgaged property. LPI, or force-placed insurance, may be obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the property securing the loan. See 12 C.F.R. §1024.37. Specifically, Plaintiff alleged Defendants violated section 2605 of RESPA by, inter alia, “charging premiums that [were] unfairly and egregiously costly . . . [that] cost up to ten times the amount of standard insurance that a borrower was previously paying or could obtain on the open market” and receiving a “kickback or commission on each policy” purchased by Defendants. See Pl.’s Compl., ¶¶ 68-77. Defendants moved for dismissal pursuant to Fed. R. Civ. P. 12(b)(6).
Plaintiff argued section 2605(m) became effective on July 22, 2010, the date that Dodd-Frank was enacted. Defendants argued, on the other hand, that Plaintiff ’s claim based on an alleged violation of section 2605(m) of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §2601 et seq., failed because that section did not become effective until January 10, 2014, and was not in effect when the alleged violation of it occurred.
The court noted that, pursuant to Dodd-Frank, “the effective date of a newly-added RESPA section is either the date on which the final regulations implementing such section take effect or, if the regulations have not been issued on the date that is 18 months after the designated transfer date, then the section shall take effect on that date.” See Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1146 n.3 (10th Cir. 2013). For purposes of the LPI regulation, the date that is 18 months after the designated transfer date is January 21, 2013. Id. But the Court noted that the regulations implementing section 2506(m) were promulgated before January 21, 2013, and were schedule to take effect on January 10, 2014. See 78 Fed. Reg. 10696 (Feb. 14, 2013). Accordingly, the Court held that the LPI provision pursuant to section 2605(m) of Dodd-Frank took on January 10, 2014, and was not in effect when Defendants obtained LPI on Plaintiff ’s real property. Thus, the Court dismissed Plaintiff ’s claim for violation of section 2605(m) of RESPA for failure to state a claim on which relief can be granted.
Cataldi v. New York Community Bank, 2014 WL 359954 (N.D. GA Feb. 3, 2013)
This action involves one of the first decisions issued pursuant to the new mortgage servicing regulations under the “Dodd–Frank Wall Street Reform and Consumer Protection Act.” Plaintiff sought injunctive relief for violation of the Act, including a claim that the Defendant did not fairly offer and negotiate loss mitigation options and pursued “dual track” foreclosure. The facts established that the parties engaged in modification negotiations, that one or more modifications were offered, that Plaintiff did not agree to the offered modifications, and that foreclosure notices issued after the modification was denied. Plaintiff alleged that the offer was inadequate and in fact a “blatant fraudulent attempt” at “illegal extortion.”
The court noted that the claims appeared to be based on a new regulation enacted by the Consumer Financial Protection Bureau (“Regulation X,” 12 C.F.R. §1024.41). The Court declared that the regulation can be privately enforced under Section 6(f) of the Real Estate Settlement Procedures Act (12 U.S.C. 2605(f)), but that Section 6(f) of RESPA only allows suits for damages and costs, not injunctive relief. Therefore, the Court held that the claim was inapposite to a request for preliminary injunctive relief. In addition, the Court held that “[n]othing in §1024.41 imposes a duty on a servicer to provide any borrower with any specific loss mitigation option.” 12 C.F.R. §1024.41(a). Finally, the Court declared that Plaintiff failed to allege any fraud with the particularity required by law, and failed to state any facts showing a likelihood of success with regard to the allegation that Defendant’s offer of a modification violated any legal duty under Regulation X or otherwise.
Fowler v. U.S. Bank, Nat. Ass’n, 2014 WL 850527 (S.D. Tex. Mar. 4, 2014)
In this action, plaintiff alleged, inter alia, a cause of action under TILA §1639b(c) (relating to the payment of a “yield spread premium”) stemming from a residential mortgage loan transaction plaintiffs entered into with defendants in 2006.
Plaintiffs alleged the broker and original lender’s conduct in connection with a payment of a yield spread premium violated 15 U.S.C. §1639b(c) because such conduct amounted to a steering incentive, which the statute was designed to prohibit. Defendants argued plaintiffs’ claim was barred by the three-year statute of limitations for claims under §1639b(c). The court recognized that although 15 U.S.C. §1640(k) provides an exception to the three-year statute of limitation for claims brought in the context of foreclosure, plaintiffs’ §1639b(c) claim failed because it did not retroactively apply to their 2006 mortgage loan transaction. After analyzing the legislative history of the loan originator compensation rule, 15 U.S.C. §1639b, the court held that the final rule was effective on January 1, 2014 and that the CFPB’s implementing regulations did not intend to apply the regulations retroactively. According to the court, “the operative presumption, after all, is that Congress intends its laws to govern prospectively only.” Without any basis to infer otherwise, the court presumed that §1639b(c) does not apply retroactively to the 2006 mortgage loan transaction. Thus, although the conduct complained of by plaintiffs was prohibited under 12 C.F.R. §226.36 as early as April 1, 2011, plaintiff ’s claim under §1639b(c) was due to be dismissed.
Dodd-Frank Prohibition on Arbitration Clauses
State ex rel. Ocwen Loan Servicing, LLC v. Webster, 752 S.E.2d 372, 380 (2013)
The Supreme Court of Appeals of West Virginia recently held that retroactive application of Dodd-Frank’s prohibition of an arbitration provision in a residential mortgage loan does not apply retroactively. The court recognized a recent split in authority among district courts that have considered retroactive application of Dodd-Frank amendments governing arbitrabilitiy. See Weller v. HSBC Mortgage Servs., Inc., 2013 WL 4882758 (D. Colo. Sept. 11, 2013) (discussing the split in authority).
In October 2006, the Currys obtained an adjustable rate mortgage loan that was ultimately serviced by Ocwen Loan Servicing (“Ocwen”). In connection with the loan, the Currys executed an arbitration rider. After the Currys defaulted on the loan, Ocwen assessed a number of fees, and the Currys eventually filed a complaint against Ocwen alleging various violations of the West Virginia Consumer Credit and Protection Act. Ocwen responded by filing a motion to compel arbitration and dismiss pursuant to the arbitration rider and 15 U.S.C. §1639c(e) (1). The lower court denied Ocwen’s motion, finding, inter alia, the inclusion of an arbitration agreement was unenforceable pursuant to a provision of the Dodd- Frank Act prohibiting the inclusion of such provisions in connection with a residential mortgage loan. See 15 U.S.C. §1639c(e)(1) (2010).
In reversing the lower court, the court noted that the general effective date of the Act was July 22, 2010 and some provisions did not become effective until a later date. Nothing within Dodd-Frank expressly states that §1639c is to be given retroactive application. Because Dodd-Frank neither expressly nor impliedly states that §1639c is to be given retroactive application, the court asked whether applying the statute to the person objecting would have a retroactive consequence in the disfavored sense of affecting substantive rights, liabilities, or duties on the basis of conduct arising from its enactment. The court held that rendering a properly executed arbitration agreement unenforceable would fundamentally interfere with the parties’ contractual rights and would impair the predictability and stability of their earlier agreement. Therefore, retroactive application of the Dodd- Frank prohibition on the enforceability of arbitration agreements in connection with residential mortgage loans was in error.
Whistleblower Protection Under Dodd-Frank
Khazin v. TD Ameritrade Holding Corp., 2014 WL 940703 (D.N.J. Mar. 11, 2014)
Plaintiff Boris Khazin filed suit against his former employers T.D. Ameritrade and Amerivest Investment Management Company, alleging wrongful termination as retaliation for whistleblowing, state law claims, common law claims, and violations of the Dodd-Frank Act. Specifically, plaintiff alleged that around April of 2012, he became aware that a particular AmeriVest financial product was not in compliance with relevant securities regulations and was improperly priced, resulting in customers paying additional overhead for the product in the amount of approximately $2,000,000. Plaintiff conducted a revenue impact analysis at the direction of his supervisor and determined that instituting a corrective change would result in defendants losing $1,150,000 in revenues. Thereafter, plaintiff was terminated and claimed that he reported defendants’ alleged violations to the SEC.
The crux of the parties’ arguments in this case was whether plaintiff qualified as a “whistleblower” under the Dodd-Frank Act. See 15 U.S.C. §78u-6(h)(1) (A). If plaintiff was a whistleblower, for purposes of Dodd-Frank, plaintiff would receive specific statutory protections. Specifically, the parties disputed whether an individual must provide information to the SEC before being terminated to qualify as a “whistleblower” under the statute.
Defendants argued that plaintiff was not a whistleblower because he did not report the alleged securities violations to the SEC prior to his termination and, therefore, could not have been terminated in retaliation by defendants. On the other hand, plaintiff contended that he qualified as a whistleblower under Dodd-Frank because he reported the alleged violations internally and to the SEC post-termination. Specifically, plaintiff argued that the statute has no temporal requirement necessitating his report to the SEC be prior to his termination and, that the statute’s “catch-all” provision incorporates sections of the Sarbanes-Oxley Act which affords protections to whistleblowers who only report violations internally.
At the outset, the court recognized a split in authority regarding the scope of the whistleblower provision and the lack of guiding authority on the issue. The court adopted the majority view on the issue—that the Dodd- Frank Act is ambiguous with respect to who qualifies as a whistleblower for purposes of the anti-retaliation provision of the statute. Accordingly, the court looked to the SEC’s final rule defining whistleblower. Under the SEC’s rule, Dodd-Frank’s anti-retaliation protection includes individuals who report potential violations to a supervisory authority and not to the SEC itself. Specifically, the SEC’s rule explains that “the anti- retaliation whistleblower protection provisions of Dodd-Frank require a [p]laintiff to show that he either provided information to the SEC or that his disclosures fell under the four categories listed in Section 78u-6(h) (1)(A)(iii).” See Murray v. UBS Sec., LLC, 2013 WL 2190084, at *7 (S.D.N.Y. May 21, 2013). Because plaintiff alleged that he possessed a reasonable belief that there were potential securities violations and he reported them to his supervisor, his internal reporting of the potential violations was sufficient to qualify as a whistleblower under Dodd-Frank’s anti-retaliation provision. Therefore, plaintiff ’s post-termination report to the SEC was not necessary to invoke the provision.