Big Win for Loan Originators/Sellers in Federal Appeals Court

Gavel 1Six victories that clients of ours had won over Lehman and Aurora in the U.S. District Court for the District of Colorado got affirmed on January 27 by the Tenth Circuit Court of Appeals in Denver after hotly-contested rounds of appellate briefing and oral argument.  In a 37-page written opinion, the appellate panel unanimously affirmed the loan originators/sellers’ victories on statute of limitations grounds.

In so doing, the federal appeals court rejected, among other arguments, Lehman and Aurora’s contentions that their claims were really “indemnification” claims that did not accrue until they paid Fannie Mae or Freddie Mac with respect to the loans at issue.  The court agreed with our argument that the claims in fact accrued as soon as the loans were sold (in 2006 and 2007).

This has potentially significant implications for loan originators and sellers across the country facing buyback or “indemnification” claims from their investors.  Though case precedents vary from jurisdiction to jurisdiction, we have always strongly believed that claims of damage related to a loan seller’s alleged misrepresentations when they sold a loan must, as a matter of logic and common sense, accrue at the time the alleged misrepresentation was made: on the date of the sale.  It is nice to see this assessment further vindicated by the Tenth Circuit Court of Appeals in its detailed and well-considered opinion.

Happy Holidays To Our Readers!

As we reflect on 2015, we are especially thankful for all of the connections that we have made this year. We are thankful for our clients, our colleagues, our friends, and all of our readers. Thus, for our holiday video we wanted to focus on the power of relationships because our relationships are the foundation for who we are as a firm. When we come together with our partners we have seen incredible things happen, and it is because of all of you that we are proud to be judged by the company we keep.

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iGlobal Forum’s 5th Specialty Finance Summit

Stock Market

On January 12-13, 2016, iGlobal Forum will host the 5th Specialty Finance Summit in New York. The first day is a Pre-Summit series of topical morning and afternoon workshops. The actual Summit begins on January 13, 2016 and will provide all attendees with the opportunity to hear directly from leading dealmakers in the industry, advising on the most effective strategies to close deals and find the best lending opportunities in an increasingly competitive marketplace.

At the opening of the Summit, Robert M. Siegel, Bilzin Sumberg Partner and Chair of the Commercial Finance Practice, will interview keynote speaker, Art Peponis, Head of Private Equity & Special Situations at Angelo Gordon. During their discussion, they will explore the regulatory environment, challenges of the current credit cycle, and the effects of online marketplace lending on the specialty finance sector. Their discussion will also explore how private equity players evaluate specialty finance businesses and monitor them post acquisition, growth opportunities for specialty finance players, as well as the outlook of the industry for 2016. Continue Reading

Tougher Scrutiny on Cybersecurity at Banks in 2016

cyber secCybersecurity has been a focus as part of bank exams for years. Now the Federal Deposit Insurance Corp. (FDIC) is increasing its scrutiny of banks’ cybersecurity practices to ensure that the issue is getting appropriate attention from bank executives and boards. Bank regulators are planning to make cybersecurity a higher priority during bank exams as early as the second quarter of next year. The FDIC will revise its community bank examination program to break cybersecurity out as its own separate issue in examination comments.

Regulators want to ensure that there is an understanding of “cyber risk as it overlays into business decisions that you make at the board level,” an FDIC risk management official recently commented. Though outdated data security systems have typically been viewed as a “budget capital improvement” matter, the threat environment has changed. Now, the FDIC’s approach has changed along with it. Continue Reading

Alphabet Soup and Data Security

Data Security 2In the span of two days, mobile device users learned of two data breaches that could compromise their personal data. In one, Experian (a credit reporting agency) reported that it was hacked, potentially putting 15 million American consumers’ data at risk. Many of those consumers were T-Mobile customers who needed to submit to a credit check before signing up for a mobile plan. T-Mobile’s CEO John Legere issued a press release, stating that he was “incredibly angry about this data breach,” and that T-Mobile takes “customer and prospective customer privacy VERY seriously.” The second, far larger breach, affects approximately one billion Android mobile devices. The “Stagefright 2.0” security flaw—so-named because of another, similar “Stagefright” vulnerability from several months ago—allows hackers to access Android devices through disguised MP3 or MP4 media files—or even through logging into the same wifi network. Google will be rolling out patches to make devices more secure, but until then, users should be wary.

T-Mobile and Google are, no doubt, concerned about lawsuits, but must also consider the potential regulatory consequences of data breaches. We have previously discussed the FTC’s role in enforcing cybersecurity, and how it will likely assert its authority in more cases than ever before in the wake of its successes in the FTC v. Wyndham case. But the FTC is not the only regulatory body with a role in enforcing data security. As the list below shows, federal (and state) agencies are expanding their reach into the realm of data, and that reach will almost certainly only grow over time. Continue Reading

A Shift in Liability for Credit Card Fraud

Credit Cards Abstract ImageFor too long, “swiping” a credit card has had at least one meaning too many. There was “swiping” as it pertains to running the magnetic strip of your credit card inside the groove of a small payment terminal to make an in-person payment by credit card to a retailer. But there is also far too much of another kind of “swiping” that pertains to the counterfeiting of credit cards used in that fashion. The magnetic strips—essentially using the same technology used in cassette tapes made in the 1960s—have been too easy for fraudsters to track and then duplicate, running up unauthorized charges even for cardholders who had never lost physical possession of their cards. Traditionally, card issuers have been responsible for the costs of verified instances of credit card fraud and were undoubtedly not happy about bearing those costs.

As of October 1, there will now be a shift in liability in many instances. If card issuers have provided their customers with upgraded credit cards using EMV (the initials of Europay, MasterCard and Visa—the companies that pioneered the standard) chips,  the risk of loss for credit card fraud associated with transactions involving the upgraded cards will be borne by retailers that have not upgraded to EMV point-of-sale terminals (essentially, readers into which the chip portion of the card is inserted). Card issuers will still be liable for any fraud on cards that do not feature the new EMV technology. Continue Reading

Banks Get Big Win in Challenge to New York Ordinance

Many big cities in the United States responded to the fallout from the 2008 financial crisis by passing local laws which pressure banks to invest more in low-income neighborhoods. Between 2010 and 2013, cities such as New York, Seattle, Los Angeles, San Diego, San Jose, Boston, Minneapolis, Kansas City and Pittsburgh all enacted ordinances of this type. Their actions were, in many instances, motivated by concerns that federal and state regulatory bodies were not doing enough to seek compensation from the large banks—thought by many to be most responsible for the economic meltdown.

For example, New York’s law which was enacted in 2012, applied to 21 banks — including Bank of America, Citibank, JPMorgan Chase, and other large institutions — that are eligible to hold the city’s municipal deposits. The banks were required to provide extensive and detailed data to a new Community Reinvestment Advisory Board—data that goes well beyond what federal regulators collect under the Community Reinvestment Act (CRA). The information sought by New York related to the banks’ local small-business lending, their efforts to prevent foreclosures, their lending for affordable housing and their branches in low-income communities, among other categories. The ordinance also authorized New York’s Banking Commission to consider the banks’ responses to the information requests when deciding where to park the city’s sizable base of deposits. The idea was that this linkage of the information provided to the city’s banking decisions would give the affected banks an incentive to invest more in New York neighborhoods. Continue Reading

Financial Services Companies Seek Larger Payout in Target Data Security Suit

Attorneys for certain banks and other financial institutions that are caught up in Target’s 2013 data breach are objecting to the $67 million deal struck last week between the retailer and Visa Inc. The banks and credit unions are the only plaintiffs left in the data breach litigation after Target paid $10 million in March to settle more than 140 class actions filed against it by its customers. The remaining plaintiffs say that the deal does not pay them a sufficient amount for costs incurred in reissuing cards and reimbursing customers for fraudulent charges.Chess

Made public on Aug. 18, the $67 million resolution is designed to reimburse banks that issued Visa cards affected by the breach, which compromised 40 million credit and debit cards. But plaintiffs’ lawyers say the timing of the deal is suspicious, because the deadline is September 4, just six days before a hearing on their motion for class certification. They argue that this is a ploy by Target to avoid the significantly greater amount of damages they are seeking on behalf of a class of thousands of banks and credit unions. Continue Reading

Court Revives Antitrust Suit Against MasterCard, Visa, Three Banks

Numbers Under Review

A federal appeals court has revived a lawsuit accusing MasterCard, Visa and three major banks of illegally fixing ATM prices to the detriment of consumers. A federal district judge had thrown out the lawsuit in 2013 after finding the plaintiffs failed to show any conspiracy to overcharge consumers.

On Tuesday, the federal appeals court in Washington ruled that a group of consumers and independent ATM operators could pursue antitrust claims against the defendants. Specifically, the plaintiffs will be permitted to argue that the payment processors coordinated with Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. to adopt anticompetitive fees. Continue Reading

Mid-2015 Mortgage Crisis Update – The Repurchase Demands Continue

In the aftermath of the financial crisis, Fannie Mae and Freddie Mac aggressively demanded Wall Street and big bank aggregators (“aggregators”) repurchase millions of defaulted and distressed loans, due to purported breaches of representations, warranties and covenants. In the past few years, there have been several blockbuster settlements with the government-sponsored enterprises (GSEs), such as Citigroup’s 2013 settlement with Fannie Mae in which it agreed to pay Fannie Mae $968 million to resolve existing and potential future mortgage repurchase claims on loans sold to the U.S. mortgage guarantor between 2000 and 2012. Similarly, Bank of America, Wells Fargo, and JPMorgan Chase also settled with the GSEs.

BlackandRedcubeMaintaining Business Relationships

At the time of Citi’s settlement, Jane Fraser, CEO of CitiMortgage, said in a statement “[w]e have a strong and productive relationship with Fannie Mae.” In a similar statement, Bradley Lerman, Executive Vice President and General Counsel of Fannie Mae, commented that the “resolution is an example of our desire to work together with our business partners to find common ground.” Mr. Lerman added that the agreement” compensates taxpayers for losses, and allows Fannie Mae and Citigroup to move forward and strengthen [their] business relationship.” Continue Reading

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