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Morgan Stanley Paying $13 Million Penalty for Overbilling Clients and Violating Custody Rule

Morgan Stanley Paying $13 Million Penalty for Overbilling Clients and Violating Custody Rule

FOR IMMEDIATE RELEASE
2017-12

Washington D.C., Jan. 13, 2017 —The Securities and Exchange Commission today announced that Morgan Stanley Smith Barney has agreed to pay a $13 million penalty to settle charges that it overbilled investment advisory clients due to coding and other billing system errors.  The firm also violated the custody rule pertaining to annual surprise examinations.

The SEC’s order finds that Morgan Stanley overcharged more than 149,000 advisory clients because it failed to adopt and implement compliance policies and procedures reasonably designed to ensure that clients were billed accurately according to the terms of their advisory agreements.  Morgan Stanley also failed to validate billing rates contained in the firm’s billing system against client contracts, fee billing histories, and other documentation.

According to the SEC’s order, Morgan Stanley received more than $16 million in excess fees due to the billing errors that occurred from 2002 to 2016.  Morgan Stanley has reimbursed this full amount plus interest to affected clients.

“Investors must be able to trust that their investment advisers have put appropriate safeguards in place to ensure accurate billing.  The long-running deficiencies in those safeguards at Morgan Stanley resulted in 36 different types of billing errors that caused overcharges to customers,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s order further finds that Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination.  Morgan Stanley also failed to maintain and preserve client contracts.

“The custody rule’s surprise examination requirement is designed to provide clients protection against assets being misappropriated or misused,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York office.  “Morgan Stanley failed in consecutive years to do what was required of it to give investment advisory accounts that important protection.”

Without admitting or denying the findings that it violated various provisions of the Investment Advisers Act of 1940 and related rules, Morgan Stanley consented to the SEC’s cease-and-desist order and agreed to the $13 million penalty, a censure, and undertakings related to its fee billing and books and records practices.

The SEC’s investigation was conducted by Ranah Esmaili, Kenneth Gottlieb, Nicholas Pilgrim, and Celeste Chase of the New York office, and the case was supervised by Sanjay Wadhwa.  The examination that led to the investigation was conducted by Heather Palmer, Jennifer Klein, and Anthony Fiduccia.

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TFH 1/15/17 | Foreclosure Workshop #25: Sampaio v. Mililani Town Association — A Case Study on Homeowner Association Abuses and Why State Legislators Need To Stop Band-Aiding the System and Start Instead Enacting Five Comprehensive Fundamental Institutional Reforms that the Foreclosure Hour Will Now Propose on this Sunday’s National Radio Show.

TFH 1/15/17 | Foreclosure Workshop #25: Sampaio v. Mililani Town Association — A Case Study on Homeowner Association Abuses and Why State Legislators Need To Stop Band-Aiding the System and Start Instead Enacting Five Comprehensive Fundamental Institutional Reforms that the Foreclosure Hour Will Now Propose on this Sunday’s National Radio Show.

COMING TO YOU LIVE DIRECTLY FROM THE DUBIN LAW OFFICES AT HARBOR COURT, DOWNTOWN HONOLULU, HAWAII

LISTEN TO KHVH-AM (830 ON THE AM RADIO DIAL)

ALSO AVAILABLE ON KHVH-AM ON THE iHEART APP ON THE INTERNET

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Sunday – January 15, 2017

Foreclosure Workshop #25:
Sampaio v. Mililani Town Association —
Most Homeowner Associations throughout the Nation are today in various stages of increasing absolute turmoil, with mounting maintenance costs, acrimonious disputes among homeowners and between homeowners and directors, and dwindling finances.

Let’s face it. What was once celebrated as a noble experiment in homeowner collective democracy has disintegrated into over-expensive and wasteful rule by totalitarian Board of Director oligarchies.

Nevertheless, State Legislators hearing the mounting outcries of its constituents continue to attempt to prop up a failing system by proposing piecemeal reforms, ignoring the realities of the complete breakdown in the internal governance within most homeowner associations.

The Foreclosure Hour is proposing five unique, major institutional reforms urgently needed to restore economic and political sanity within homeowner associations for those justifiably angry and frustrated homeowners otherwise seemingly hopelessly trapped within the present unworkable system.

Those who miss this important live broadcast can listen to it on the Past Broadcast Section of our Website at www.foreclosurehour.com shortly after it airs live on KHVH-AM News Radio in Honolulu and simultaneously throughout the United States on the iHeart Internet App.

.
Host: Gary Dubin Co-Host: John Waihee

.

CALL IN AT (808) 521-8383 OR TOLL FREE (888) 565-8383

Have your questions answered on the air.

Submit questions to info@foreclosurehour.com

The Foreclosure Hour is a public service of the Dubin Law Offices

Past Broadcasts

EVERY SUNDAY 3:00 PM HAWAII 5:00 PM PACIFIC 8:00 PM EASTERN ON KHVH-AM (830 ON THE DIAL) AND ON iHEART RADIO

The Foreclosure Hour 12

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Free Houses? Recent Trends in Foreclosure Litigation

Free Houses? Recent Trends in Foreclosure Litigation

BNA-

The subprime mortgage crises of 2008, which experts believe caused millions of mortgages to default, may be old news but mortgage lenders holding defaulted mortgages are starting to feel the effects and may now face a new problem which can result in the loss of the security interest. Nearly a decade after the 2008 Financial Crisis, considered the worst since the Great Depression, crippled the American economy, mortgage lenders are bringing an increasing number of foreclosure actions, but borrowers are now raising the statute of limitations as a defense. In some instances, borrowers are actually initiating actions in an effort to have courts declare mortgages invalid, thereby redefining the meaning of a “free lunch.”

Mortgage lenders responded to the subprime mortgage crises, but the response was not always the initiating of a foreclosure proceeding to gain possession of the collateral securing the loan. For example, mortgage lenders may have accelerated a mortgage upon default. Acceleration of the mortgage loan, however, may have triggered the running of the statute of limitations while offering very little benefit to the mortgage lender. In other instances, foreclosure litigations may have been initiated but not litigated to conclusion. In such circumstances, the loan could have been sold, a common occurrence, and the subsequent holders of the mortgages may have opted not to proceed. In other instances, mortgage lenders may have opted not to proceed with foreclosure litigations because of some type of deficiency (or a perceived deficiency), thereby opting to voluntarily dismiss the action. Such actions may have not stopped the running of the statute of limitation.

[BNA]

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MERS, MERSCORP’s Morgan, Lewis & Bockius is Part of Trump’s Transition Team!

MERS, MERSCORP’s Morgan, Lewis & Bockius is Part of Trump’s Transition Team!

As well as represents Trump Foundation…and just last year it was named Russia Law Firm of the Year!

 

National Law Journal-

The Trump camp continues to draw DOJ transition officials from the nation’s largest law firms. The newest members are McGuireWoods partner J. Patrick Rowan, the former head of the National Security Division; Morgan, Lewis & Bockius partner Ronald Tenpas, the former head of the Environment and Natural Resources Division; and Morrison & Foerster partner Jessie Liu, who served as a top official in the National Security and Civil Rights divisions.

[NATIONAL LAW JOURNAL]

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OCC Terminates Mortgage Servicing-Related Consent Order Against HSBC Bank USA, N.A., Issues $32.5 Million Civil Money Penalty

OCC Terminates Mortgage Servicing-Related Consent Order Against HSBC Bank USA, N.A., Issues $32.5 Million Civil Money Penalty

NR 2017-5
Contact: Bryan Hubbard
(202) 649-6870

OCC Terminates Mortgage Servicing-Related Consent Order Against HSBC Bank USA, N.A., Issues $32.5 Million Civil Money Penalty

WASHINGTON—The Office of the Comptroller of the Currency (OCC) today terminated its mortgage servicing-related order against HSBC Bank USA, N.A. (HSBC), and assessed a $32.5 million civil money penalty against the bank for previous violations of the order.

The OCC terminated the consent order against the bank after determining that the institution now complies with the order. The OCC originally issued the order in April 2011 and amended the order in February 2013 and June 2015. The termination of the order and amended orders ends business restrictions affecting HSBC that the OCC mandated in June 2015.

The OCC also assessed a $32.5 million civil money penalty against the bank. The OCC found that HSBC failed to correct deficiencies identified in the 2011 consent order in a timely fashion. As a result, the OCC determined the bank violated the 2011 consent order from October 1, 2014, through September 30, 2016. The OCC also found that HSBC failed to file payment change notices that complied with bankruptcy rules, which resulted in approximately $3.5 million in remediation to borrowers.

The bank will pay the assessed penalty to the U.S. Treasury.

Related Links

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Gov. Cuomo proposes plan to ban bankers with ‘unacceptable behavior’ in New York

Gov. Cuomo proposes plan to ban bankers with ‘unacceptable behavior’ in New York

NY Daily News-

The state would be able to ban bad actors from the financial services industry under a proposal Gov. Cuomo announced Sunday.

The plan, which Cuomo will discuss in his State of the State speeches this week, is meant to beef up New York’s powers to crack down on shady bankers like those at Wells Fargo, which was fined for opening up bogus accounts for customers without their knowledge.

Cuomo plans to pursue legislation which would allow the superintendent of the Department of Financial Services to bar individuals from working in the banking or insurance industries if he finds after a hearing that the person has engaged in misconduct severe enough to have a direct bearing on their fitness to participate in the industry.

“New York is the financial center of the world and we have zero tolerance for those who seek to defraud customers and undermine the system,” Cuomo said. “The excesses and systematic abuse at the center of the Wells Fargo scandal is unacceptable and New York, in its role as a regulator, is seeking to take bold steps to crack down on this unacceptable behavior.”

[NY DAILY NEWS]

image of Andrew_Cuomo_by_Pat_Arnow

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Dixon v. WELLS FARGO BANK, NA | FL 4DCA – because Bank did not substantially comply with paragraph 22 of Borrowers’ mortgage, we reverse and remand to the trial court to grant Borrowers’ motion for involuntary dismissal

Dixon v. WELLS FARGO BANK, NA | FL 4DCA – because Bank did not substantially comply with paragraph 22 of Borrowers’ mortgage, we reverse and remand to the trial court to grant Borrowers’ motion for involuntary dismissal

 

LORENZO DIXON and LAHOMA DIXON, Appellants,
v.
WELLS FARGO BANK, N.A., et al., Appellees.

No. 4D15-3974.
District Court of Appeal of Florida, Fourth District.
January 4, 2017.
Appeal from the Circuit Court for the Seventeenth Judicial Circuit, Broward County; Lynn Rosenthal, Judge; L.T. Case No. CACE08024246.

S. Alan Johnson of S. Alan Johnson Law LLC, Fort Myers, for appellants.

Brian S. Jacobson of Brian Jacobson Law, PL, Miami, for appellee SJ Mak LLC.

KLINGEN SMITH, J.

Lorenzo and Lahoma Dixon (“Borrowers”) appeal a final judgment of foreclosure entered against them. Because the initial plaintiff, Wells Fargo Bank, N.A. (“Bank”), sent a default letter to Borrowers that failed to substantially comply with paragraph 22 of the mortgage, we reverse.[1]

After Borrowers defaulted on their mortgage loan payment, Bank’s law firm sent them a default letter on Bank’s behalf stating that “[p]ursuant to the terms of the promissory Note and Mortgage, [Bank] has accelerated all sums due and owing, which means that the entire principal balance and all other sums recoverable under the terms of the promissory Note and Mortgage are now due.” The letter notified Borrowers that although the process of filing a foreclosure complaint against them was already underway, Borrowers should contact the firm “if you wish to receive figures to reinstate (bring your loan current) or pay off your loan through a specific date,” and that the debt would be assumed valid “[u]nless you notify this law firm within thirty (30) days after your receipt of this letter that the validity of this debt, or any portion thereof, is disputed.” Eight days after this letter was sent, Bank filed its foreclosure complaint.

At the close of the non-jury trial, Borrowers moved for involuntary dismissal on multiple grounds, one of which was that the default letter failed to comply with paragraph 22 of the mortgage. Paragraph 22 of the mortgage provided, in relevant part:

22. Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 18 unless Applicable Law provides otherwise). The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument, foreclosure by judicial proceeding and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to assert in the foreclosure proceeding the non-existence of a default or any other defense of Borrower to acceleration and foreclosure. If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may foreclose this Security Instrument by judicial proceeding.

The trial court ruled that Bank substantially complied with paragraph 22, and ultimately entered final judgment against Borrowers. This appeal followed.

“[A] trial court’s interpretation of a contract is a matter of law subject to a de novo standard of review.” Reilly v. Reilly, 94 So. 3d 693, 697 (Fla. 4th DCA 2012) (quoting Chipman v. Chipman, 975 So. 2d 603, 607 (Fla. 4th DCA 2008)).

Paragraph 22 of a standard mortgage “sets forth a pre-suit requirement that the lender give the borrower thirty days’ notice and an opportunity to cure the default prior to filing suit.” Dominko v. Wells Fargo Bank, N.A., 102 So. 3d 696, 698 (Fla. 4th DCA 2012). Its purpose is “to ensure that borrowers are informed before suit is filed that they are not required to take a foreclosure complaint lying down and can defend the case if so inclined.” Green Tree Servicing, LLC v. Milam, 177 So. 3d 7, 16-17 (Fla. 2d DCA 2015). A bank’s substantial compliance with paragraph 22 “is all that is required” to satisfy this condition precedent. See Ortiz v. PNC Bank, Nat’l Ass’n, 188 So. 3d 923, 925 (Fla. 4th DCA 2016).

Analogous to this case is Kurian v. Wells Fargo Bank, National Ass’n, 114 So. 3d 1052, 1054-55 (Fla. 4th DCA 2013), wherein this court reversed a summary judgment of foreclosure entered against the borrowers because the bank did not meet the requirements of paragraph 22 since its default letter conveyed that acceleration had already occurred, was dated six days before the filing of the complaint, and failed to provide both a sufficient notice of default and a thirty-day opportunity to cure. Likewise, the evidence here showed that Bank did not substantially comply with paragraph 22 of Borrowers’ mortgage because Bank’s default letter stated that acceleration had already occurred, was sent only eight days before the filing of the initial complaint, and failed to inform Borrowers of their right to assert the nonexistence of default and to provide them with thirty days to cure. See id.

Therefore, because Bank did not substantially comply with paragraph 22 of Borrowers’ mortgage, we reverse and remand to the trial court to grant Borrowers’ motion for involuntary dismissal.

Reversed and Remanded with instructions.

GERBER and LEVINE, JJ., concur.

Not final until disposition of timely filed motion for rehearing.

[1] Wells Fargo was the initial plaintiff, but SJ Mak LLC was properly substituted as the plaintiff later in the case.

 

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Rep. Maxine Waters Calls for HUD, DOJ to Release OneWest Investigation Documents

Rep. Maxine Waters Calls for HUD, DOJ to Release OneWest Investigation Documents

Washington, DC, January 9, 2017

Following her statement denouncing President-elect Trump’s nomination of Steve Mnuchin as Treasury Secretary, Congresswoman Maxine Waters (D-CA) called on the Department of Housing and Urban Development (HUD) and the Department of Justice (DOJ) to immediately release documents pertaining to investigations into any fraudulent or discriminatory activities committed by Mnuchin’s bank, OneWest. Congresswoman Waters underscored the urgency behind releasing these documents due to the conflict of interest that would develop should the investigation carry over into Trump Administration.

In November 2016, two nonprofit organizations filed a complaint with HUD requesting an investigation into OneWest due to alleged redlining practices such as declining to build branches in minority neighborhoods and failing to market and originate mortgages for multiple years.

The full text of the letter can be found below:

January 6, 2017

The Honorable Loretta E. Lynch
Attorney General
U.S. Department of Justice
Washington, D.C.

The Honorable Julián Castro
Secretary
U.S. Department of Housing & Urban Development
Washington, D.C.

Dear Madam Attorney General and Mr. Secretary:

In light of President-elect Donald Trump’s recent nomination of Steven Mnuchin to be his Secretary of Treasury, I write to request that the Department of Justice (DOJ) and the Department of Housing and Urban Development (HUD) act quickly to expedite and release as much information as possible regarding any investigations into Mr. Mnuchin’s involvement in fraudulent or discriminatory activities during his tenure as the CEO of OneWest Bank. I have grave concerns about the ability of the incoming administration to take unbiased action towards one of its own cabinet members, and I urge you to do everything in your power to ensure that justice is served for those homeowners that fell victim to the illegal activities of OneWest.

I understand that two advocacy groups from my home state of California have filed an official complaint with HUD regarding OneWest, alleging that the bank violated and continues to violate the Fair Housing Act. For example, the complaint alleges that OneWest kept REO homes in predominately white neighborhoods well maintained while neglecting REO homes in neighborhoods of color. These are the kinds of pernicious, discriminatory practices that condemned families and communities of color to suffer disproportionately from the housing crisis, and they should not be taken lightly by the Administration.

I am also aware of reports regarding OneWest’s aggressive foreclosure actions that unfairly forced homeowners out of their homes, particularly elderly homeowners participating in HUD’s reverse mortgage program. For example, ProPublica has reported that OneWest’s reverse mortgage division has conducted a disproportionately high percentage of the nation’s reverse mortgage foreclosures, with numerous examples of foreclosures with legally questionable bases.

Mr. Mnuchin profited from his role at Goldman Sachs, helping to push the kinds of risky mortgage products that ultimately crashed the housing market and our economy. He then went on to profit from his role at OneWest, pushing families out of their homes without proper due process despite the fact that they were struggling as a direct result of the crisis and the risky mortgage products that he himself had helped bring about. He should not now be allowed off the hook only because he is poised to be in a position wherein a sympathetic new administration fails to properly investigate his actions. The homeowners that were unfairly pushed out of their homes deserve better than that, and I urge you to fight for them until your very last day in office.

Thank you for your consideration of this important issue.

Sincerely,

Rep. Maxine Waters (D-CA)
Ranking Member
House Financial Services Committee

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Top House Dem calls on feds to release Mnuchin investigation documents

Top House Dem calls on feds to release Mnuchin investigation documents

The Hill-

The top Democrat on the House Financial Services Committee is asking federal agencies to release documents from any investigations into President-elect Donald Trump’s nominee for Treasury Secretary.

Rep. Maxine Waters (D-Calif.) in a letter released Monday asked the Department of Justice and the Department of Housing and Urban Development (HUD) to release materials related to any investigations of OneWest Bank while Steven Mnuchin served as its CEO from 2009-15.

Democrats have targeted Mnuchin, a former Goldman Sachs partner and Hollywood producer, for the more than 36,000 foreclosures OneWest carried out during his tenure.

[THE HILL]

image: Bloomberg News

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TFH 1/8/17 | Five Urgent Actions State Legislatures Need To Take in 2017 To Stop Our Foreclosure Courts From Continuing To Be Collection Agencies For Crooks

TFH 1/8/17 | Five Urgent Actions State Legislatures Need To Take in 2017 To Stop Our Foreclosure Courts From Continuing To Be Collection Agencies For Crooks

COMING TO YOU LIVE DIRECTLY FROM THE DUBIN LAW OFFICES AT HARBOR COURT, DOWNTOWN HONOLULU, HAWAII

LISTEN TO KHVH-AM (830 ON THE AM RADIO DIAL)

ALSO AVAILABLE ON KHVH-AM ON THE iHEART APP ON THE INTERNET

.

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Sunday – January 8, 2017

Five Urgent Actions State Legislatures Need To Take in 2017 To Stop Our Foreclosure Courts From Continuing To Be Collection Agencies For Crooks

 Despite welcome enlightened decisions by a few state and federal judges, nevertheless almost all American Courts continue to allow wrongful forecloses on American homeowners despite overwhelming evidence of mortgage and promissory note fraud.

It has become clear that only urgent action by individual state legislatures in 2017 is now capable of reversing such well established, court sponsored, stare decisis protected, foreclosure abuses, for it is court interpretation of existing state legislation that is empowering such fraud to take place in our courts in the first place, and it is now only remedial state legislation that can therefore remedy those abuses.

On this Sunday’s Foreclosure Hour a five-part comprehensive plan for state legislative reform will be presented and discussed, to be followed on subsequent shows with draft model state legislation.

We are no longer interested in piecemeal legislative bandaids being applied to existing legislation.

We will be sponsoring fundamental reform of the entire mortgage recording and enforcement system in the United States based on what we have learned from years of our past shows.

To begin this curative process and achieve success, homeowners in each state will be encouraged to form citizen legislative task forces to lobby individual state legislatures to enact these needed reforms.

Depending upon our courts to correct foreclosure abuses has proven to be absolute folly.

This new year The Foreclosure Hour intends to concentrate on stimulating fundamental state legislative institutional reform in the hope of changing the national focus from judicial to legislative changes in the foreclosure area.

Those who miss this important live broadcast can listen to it on the Past Broadcast Section of our Website at www.foreclosurehour.com shortly after it airs live on KHVH-AM News Radio in Honolulu and simultaneously throughout the United States on the iHeart Internet App.

.
Host: Gary Dubin Co-Host: John Waihee

.

CALL IN AT (808) 521-8383 OR TOLL FREE (888) 565-8383

Have your questions answered on the air.

Submit questions to info@foreclosurehour.com

The Foreclosure Hour is a public service of the Dubin Law Offices

Past Broadcasts

EVERY SUNDAY 3:00 PM HAWAII 6:00 PM PACIFIC 9:00 PM EASTERN ON KHVH-AM (830 ON THE DIAL) AND ON iHEART RADIO

The Foreclosure Hour 12

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Donald Trump is going to appoint Pam Bondi, who got an illegal payment from the Trump Foundation, to a White House spot

Donald Trump is going to appoint Pam Bondi, who got an illegal payment from the Trump Foundation, to a White House spot

The Trump Foundation is under investigation in part because of an illegal contribution it made to Pam Bondi

Salon-

It is now being reported that Florida Attorney General Pam Bondi, a member of Donald Trump’s transition team who has a history with the president-elect, is being considered for an appointment in the Trump White House.

When the Trump transition team was asked about the possibility of a Bondi appointment on Thursday, incoming press secretary Sean Spicer refused to divulge any information on the subject.

“We have no additional announcements at this time,” Spicer said. “I don’t want to get ahead of any announcements that may or may not come.”

[SALON]

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CFPB Orders TransUnion and Equifax to Pay for Deceiving Consumers in Marketing Credit Scores and Credit Products

CFPB Orders TransUnion and Equifax to Pay for Deceiving Consumers in Marketing Credit Scores and Credit Products

Credit Reporting Companies Misstated the Cost and Usefulness of the Credit Scores and Products They Sold, Lured Consumers into Costly Recurring Payments

The Consumer Financial Protection Bureau (CFPB) today took action against Equifax, Inc., TransUnion, and their subsidiaries for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers. The companies also lured consumers into costly recurring payments for credit-related products with false promises. The CFPB ordered TransUnion and Equifax to truthfully represent the value of the credit scores they provide and the cost of obtaining those credit scores and other services. Between them, TransUnion and Equifax must pay a total of more than $17.6 million in restitution to consumers, and fines totaling $5.5 million to the CFPB.

“TransUnion and Equifax deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises,” said CFPB Director Richard Cordray. “Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them.”

Chicago-based TransUnion and Atlanta-based Equifax are two of the nation’s three largest credit reporting agencies. TransUnion and Equifax collect credit information, including a borrower’s payment history, debt load, maximum credit limits, names and addresses of current creditors, and other elements of their credit relationships. These generate credit reports and scores that are provided to businesses. Through their subsidiaries, TransUnion Interactive and Equifax Consumer Services, the companies also market, sell, or provide credit-related products directly to consumers, such as credit scores, credit reports, and credit monitoring.

Credit scores are numerical summaries designed to predict consumer payment behavior in using credit. Many lenders and other commercial users rely in part on these scores when deciding whether to extend credit. No single credit score or credit score model is used by every lender. Lenders use an array of credit scores, which vary by score provider and scoring model. The scores that TransUnion sells to consumers are based on a model from VantageScore Solutions, LLC. Although TransUnion has marketed VantageScores to lenders and other commercial users, VantageScores are not typically used for credit decisions. Scores Equifax sold to consumers were based on Equifax’s proprietary model, the Equifax Credit Score, which is an “educational” credit score that also is typically not used by lenders to make credit decisions.

TransUnion, since at least July 2011, and Equifax, between July 2011 and March 2014, violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by:

  • Deceiving consumers about the value of the credit scores they sold: In their advertising, TransUnion and Equifax falsely represented that the credit scores they marketed and provided to consumers were the same scores lenders typically use to make credit decisions. In fact, the scores sold by TransUnion and Equifax were not typically used by lenders to make those decisions.
  • Deceiving consumers into enrolling in subscription programs: In their advertising, TransUnion and Equifax falsely claimed that their credit scores and credit-related products were free or, in the case of TransUnion, cost only “$1.” In reality, consumers who signed up received a free trial of seven or 30 days, after which they were automatically enrolled in a subscription program. Unless they cancelled during the trial period, consumers were charged a recurring fee – usually $16 or more per month. This billing structure, known as a “negative option,” was not clearly and conspicuously disclosed to consumers.

Equifax also violated the Fair Credit Reporting Act, which requires a credit reporting agency to provide a free credit report once every 12 months and to operate a central source – AnnualCreditReport.com – where consumers can get their report. Until January 2014, consumers getting their report through Equifax first had to view Equifax advertisements. This violates the Fair Credit Reporting Act, which prohibits such advertising until after consumers receive their report.

Enforcement Action

Under the Dodd-Frank Act, the CFPB is authorized to take action against institutions engaged in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws. Under the consent orders, TransUnion and Equifax must:

  • Pay more than $17.6 million in total restitution to harmed consumers: TransUnion must provide more than $13.9 million in restitution to affected consumers. Equifax must provide almost $3.8 million in restitution to affected consumers. The companies must send notification letters about the restitution to affected consumers.
  • Truthfully represent the usefulness of credit scores it sells: TransUnion and Equifax must clearly inform consumers about the nature of the scores they are selling to consumers.
  • Obtain the express informed consent of consumers: Before enrolling a consumer in any credit-related product with a negative option feature, TransUnion and Equifax must obtain the consumer’s consent.
  • Provide an easy way to cancel products and services: TransUnion and Equifax must give consumers a simple, easy-to-understand way to cancel the purchase of any credit-related product, and stop billing and collecting payments for any recurring charge when a consumer cancels.
  • Pay $5.5 million in total penalties: TransUnion must pay $3 million to the Bureau’s civil penalty fund. Equifax must pay $2.5 million to the Bureau’s civil penalty fund.

The full text of the CFPB’s Consent Order against Equifax is here:http://files.consumerfinance.gov/f/documents/201701_cfpb_Equifax-consent-order.pdf

The full text of the CFPB’s Consent Order against TransUnion is here:http://files.consumerfinance.gov/f/documents/201701_cfpb_Transunion-consent-order.pdf

More information about credit scores can be found here: http://www.consumerfinance.gov/about-us/blog/what-you-need-know-understanding-why-offers-your-credit-score-are-not-all-same/

###
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov .

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Mo of The Same – Trump picks Wall Street lawyer Jay Clayton to lead SEC

Mo of The Same – Trump picks Wall Street lawyer Jay Clayton to lead SEC

CNN-

President-elect Donald Trump’s choice to be the next top cop of Wall Street is Jay Clayton, an elite lawyer who has defended big banks for their financial crisis-era misbehavior.

Trump announced his SEC pick on Wednesday and explained that Clayton’s background as a Wall Street lawyer will help unleash the “job-creating power” of the economy while still providing strong oversight.

“We need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers,” Trump said in a statement.

[CNN]

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Treasury Nominee Steve Mnuchin’s Bank Accused of “Widespread Misconduct” in Leaked Memo

Treasury Nominee Steve Mnuchin’s Bank Accused of “Widespread Misconduct” in Leaked Memo

The Intercept-

ONEWEST BANK, WHICH Donald Trump’s nominee for treasury secretary, Steven Mnuchin, ran from 2009 to 2015, repeatedly broke California’s foreclosure laws during that period, according to a previously undisclosed 2013 memo from top prosecutors in the state attorney general’s office.

The memo obtained by The Intercept alleges that OneWest rushed delinquent homeowners out of their homes by violating notice and waiting period statutes, illegally backdated key documents, and effectively gamed foreclosure auctions.

In the memo, the leaders of the state attorney general’s Consumer Law Section said they had “uncovered evidence suggestive of widespread misconduct” in a yearlong investigation. In a detailed 22-page request, they identified over a thousand legal violations in the small subsection of OneWest loans they were able to examine, and they recommended that Attorney General Kamala Harris file a civil enforcement action against the Pasadena-based bank. They even wrote up a sample legal complaint, seeking injunctive relief and millions of dollars in penalties.

But Harris’s office, without any explanation, declined to prosecute the case.

[THE INTERCEPT]

© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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PENNSYLVANIA PUBLIC SCHOOL EMPLOYEES’RETIREMENT SYSTEM v. BANK OF AMERICA CORPORATION, Dist. Court, SD New York 2016 | MERS … PennPSERS’ $335 million settlement approved in Bank of America class action

PENNSYLVANIA PUBLIC SCHOOL EMPLOYEES’RETIREMENT SYSTEM v. BANK OF AMERICA CORPORATION, Dist. Court, SD New York 2016 | MERS … PennPSERS’ $335 million settlement approved in Bank of America class action

 

PENNSYLVANIA PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM, individually and on behalf of all others similarly situated, Plaintiff,
v.
BANK OF AMERICA CORPORATION, et al., Defendants.

No. 11cv733 (WHP).
United States District Court, S.D. New York.
December 27, 2016.
Pipefitters Local No. 636 Defined Benefit Plan, Plaintiff, represented by A. Arnold Gershon, Barrack, Rodos & Bacine.

Pipefitters Local No. 636 Defined Benefit Plan, Plaintiff, represented by David Avi Rosenfeld, Robbins Geller Rudman & Dowd LLP & Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP.

Patricia Grossberg Living Trust, Consolidated Plaintiff, represented by A. Arnold Gershon, Barrack, Rodos & Bacine.

Anchorage Police & Fire Retirement System, Consolidated Plaintiff, represented by A. Arnold Gershon, Barrack, Rodos & Bacine.

Sjunde Ap-Fonden, Movant, represented by Geoffrey Coyle Jarvis, Grant & Eisenhofer P.A..

Arkansas Teacher Retirement System, Movant, represented by Geoffrey Coyle Jarvis, Grant & Eisenhofer P.A..

KBC Asset Management NV, Movant, represented by Geoffrey Coyle Jarvis, Grant & Eisenhofer P.A..

Local 338 Funds, Movant, represented by David A. Bishop, Kirby McInerney LLP, Ira M. Press, Kirby McInerney LLP, Roger W. Kirby, Kirby McInerney LLP, Andrew Martin McNeela, Kirby McInerney LLP & Surya Palaniappan, Kirby McInerney LLP.

Forsta AP-Fonden, Movant, represented by A. Arnold Gershon, Barrack, Rodos & Bacine & Jeffrey Alan Barrack, Barrack, Rodos & Bacine.

Pennsylvania Public School Employees’ Retirement System, Movant, represented by A. Arnold Gershon, Barrack, Rodos & Bacine, Jeffrey Alan Barrack, Barrack, Rodos & Bacine, Jeffrey B. Gittleman, Barrack, Rodos & Bacine, pro hac vice, M. Richard Komins, Barrack, Rodos & Bacine, pro hac vice, Mark Robert Rosen, Barrack, Rodos & Bacine, pro hac vice & William J. Ban, Barrack, Rodos & Bacine.

Bank of America Corporation, Defendant, represented by Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP, Christopher P. Malloy, Skadden, Arps, Slate, Meagher & Flom LLP, David Emmett Carney, Skadden, Arps, Slate, Meagher & Flom LLP, pro hac vice, Michael Scott Bailey, Skadden, Arps, Slate, Meagher & Flom LLP & Scott D. Musoff, Skadden, Arps, Slate, Meagher & Flom LLP.

Brian T. Moynihan, Defendant, represented by Patrick J. Smith, DLA Piper US LLP, Jeffrey David Rotenberg, DLA Piper US LLP, John Michael Hillebrecht, DLA Piper US LLP & Samantha Noel Bent, DLA Piper.

Charles H. Noski, Defendant, represented by Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP, Robert Jeffrey Jossen, Dechert, LLP, Katherine Keely Rankin, Dechert, LLP & Scott D. Musoff, Skadden, Arps, Slate, Meagher & Flom LLP.

Neil Cotty, Defendant, represented by Lawrence Jay Portnoy, Davis Polk & Wardwell LLP, Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Charles S. Duggan, Davis Polk & Wardwell L.L.P..

William P. Boardman, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Frank Paul Bramble, Sr, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Virgis William Colbert, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Charles K. Gifford, Jr., Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Charles Otis Holliday, Jr., Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Monica C. Lozano, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Thomas John May, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Thomas Michael Ryan, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Robert W. Scully, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Pricewaterhousecoopers LLP, Defendant, represented by James J. Capra, Jr., King & Spalding LLP.

Cantor Fitzgerald & Co., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Cowen & Company, L.L.C., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Daiwa Capital Markets America Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Deutsche Bank Securties Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Gleacher & Company Securities, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Goldman & Sachs & Co, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Keefe Bruyette & Woods, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

KeyBanc Capital Markets Inc, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Macquarie Capital (USA) Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Mizuho Securities USA Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Morgan Stanley & Co. LLC, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

National Australia Bank Limited, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

RBS Securities Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Samuel A. Ramirez & CO., Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Sanford C. Bernstein & Co. LLC, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Santander Investment Securities, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Southwest Securities, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Stifel Nicholaus & Company, Incorporated, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

SunTrust Robinson Humphrey, Inc, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

UniCredit Capital Markets, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Wells Fargo Securities, LLC., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

ICBC International Securities Limited, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Samsung Securities Co., Ltd., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP.

Brian T. Moynihan, Consolidated Defendant, represented by Patrick J. Smith, DLA Piper US LLP, Jeffrey David Rotenberg, DLA Piper US LLP, John Michael Hillebrecht, DLA Piper US LLP & Samantha Noel Bent, DLA Piper.

Charles H. Noski, Consolidated Defendant, represented by Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP, Robert Jeffrey Jossen, Dechert, LLP & Katherine Keely Rankin, Dechert, LLP.

Kenneth D Lewis, Consolidated Defendant, represented by Colby A. Smith, Debevoise & Plimpton LLP & Ada Fernandez Johnson, Debevoise & Plimpton LLP, pro hac vice.

Joseph L. Price, Consolidated Defendant, represented by David M. Locher, Baker Botts LLP, Harry Christopher Morgan, Baker Botts LLP, pro hac vice, Julia E. Guttman, Baker Botts LLP, pro hac vice & Richard Benjamin Harper, Baker Botts L.L.P.

Bank of America Corporation, Consolidated Defendant, represented by David Emmett Carney, Skadden, Arps, Slate, Meagher & Flom LLP, pro hac vice.

Merrill Lynch Pierce Fenner & Smith Incorporated, ADR Provider, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

UBS Securities LLC, ADR Provider, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

SG Americas Securities LLC, ADR Provider, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Board of Governors of the Federal Reserve System, ADR Provider, represented by Yvonne Facchina Mizusawa, Board of Governors of The Federal Reserve System.

Comptroller of the Currency, OCC, US Treasury Dept., Miscellaneous, represented by Ashley Wilcox Walker, Shearman & Sterling LLP & Melton Amber, Federal Government – Office of The Comptroller of The Curren.

Federal Deposit Insurance Corporation, in its Corporate capacity, Miscellaneous, represented by Thomas M. Clark, Federal Deposit Insurance Corporation.

OPINION & ORDER

WILLIAM H. PAULEY, III, District Judge.

Lead Plaintiff Pennsylvania Public School Employees’ Retirement System (“PPSERS”) seeks final approval of a $335 million settlement (the “Settlement”) with Bank of America (“BofA”), the Executive Defendants, the Director Defendants, the Underwriter Defendants, and PricewaterhouseCoopers (collectively, “Defendants”). The Settlement resolves this class action involving misleading statements regarding BofA’s reliance on the Mortgage Electronic Registration System (“MERS”) and exposure to mortgage-backed security repurchase claims during the 2008 financial crisis. The law firm of Barrack, Rodos & Bacine (“Barrack”), Lead Counsel for PPSERS, also seeks this Court’s approval of their request for attorneys’ fees and expenses stemming from their representation of the class. For the following reasons, the motion for approval of the Settlement and Plan of Allocation is granted, and the motion for approval of attorneys’ fees and expenses is granted in part and denied in part.

BACKGROUND

The factual background of this action is described in this Court’s prior opinions and orders. See Pipefitters Local No. 636 Defined Ben. Plan v. Bank of America Corp., 275 F.R.D. 187 (S.D.N.Y. 2011); Penn. Public Sch. Employees’ Retirement Sys. v. Bank of America Corp., 874 F. Supp. 2d 341 (S.D.N.Y. 2012); Penn. Public Sch. Employees’ Retirement Sys. v. Bank of America Corp., 939 F. Supp. 2d 445 (S.D.N.Y. 2013).

A. Procedural Background

This Settlement is the product of nearly six years of litigation, which included several motions to dismiss and a protracted mediation. This Court appointed PPSERS as Lead Plaintiff and Barrack as Lead Counsel in June 2011 (ECF No. 56), and PPSERS filed the Consolidated Class Complaint several months later (ECF No. 59). Defendants moved to dismiss, with mixed results. This Court dismissed the Securities Act claims against all Defendants with prejudice and the Exchange Act claims against the Executive Defendants without prejudice, but denied the motion with respect to the Exchange Act claims against BofA. (ECF No. 148.) BofA moved for reconsideration, which this Court denied in August 2012. (ECF No. 167.)

Another round of procedural sparring broke out after PPSERS filed the Amended Class Complaint (ECF No. 158), which ended with the denial of Defendants’ motion to dismiss and the Executive Defendants’ motion for reconsideration in mid-2013 (see ECF Nos. 183, 222). The parties then shifted their focus to class certification. PPSERS moved to certify the class in November 2013 (ECF No. 243), and three months later Defendants stipulated to class certification without further motion practice (ECF No. 253).

The class certification stipulation largely marked the end of formal litigation, aside from several discovery disputes. Thereafter, the parties agreed to mediation. That mediation consisted of three sessions over the course of ten months, and involved ongoing discovery and “detailed written submissions,” which Barrack claims were “akin to briefs and supporting exhibits that a party plaintiff would file in support of a summary judgment motion.” (Lead Plaintiff’s Post-Hearing Submission (“Post-Hearing Sub.”), ECF No. 371 at 5.) At the third mediation session in August 2015, the parties agreed to settle all claims for a $335 million cash payment by BofA.

B. The Settlement Agreement and Plan of Allocation

The Settlement covers a class consisting of purchasers of BofA common stock between February 27, 2009 and October 19, 2010 and creates a $335 million fund (the “Fund”) to compensate class members for losses due to the alleged artificial inflation in the prices of BofA’s common stock during the time that each member held shares. On June 15, 2016 the Court granted preliminary approval of the Settlement and directed the parties to begin the notice process. (ECF No. 338.) To date, the Claims Administrator has received nearly 375,000 timely Proofs of Claim and only one timely objection,[1]which the individual subsequently withdrew. (See ECF No. 362.) Fifty-one class members asked to be excluded from the Settlement, including a single institutional investor that had previously entered into a tolling agreement with BofA. The Plan of Allocation directs Lead Counsel to reallocate any funds remaining six months after the initial distribution among those class members who have cashed initial checks. Any residual monies will then be donated to the New York Bar Foundation.

C. Attorneys’ Fees and Expenses

Barrack, which has litigated on behalf of the class on a contingency basis, seeks approval of fees and expenses in the following amounts, drawn from the Settlement Fund: (1) attorneys’ fees of $51,675,000; (2) litigation expenses of $1,386,167.33; and (3) costs and expenses incurred by PPSERS as Lead Plaintiff in the amount of $130,323.70. Over the course of this action, Barrack devoted the time of forty-two attorneys and seven paralegals working at a blended rate of approximately $450 per hour. (See Declaration of Mark R. Rosen (“Rosen Decl.”), ECF No. 357; Post-Hearing Sub., Exs. A-E.) In total, Barrack recorded 77,026.25 billable hours for a lodestar of $34,450,696.50. (See Rosen Decl., Ex. D.)

DISCUSSION

A. Motion to Approve the Settlement and Plan of Allocation

Under Federal Rule of Civil Procedure 23, the District Court must approve any class action settlement. See Fed. R. Civ. P. 23(e). The Court must “carefully scrutinize the settlement to ensure its fairness, adequacy and reasonableness, and that it was not the product of collusion.” D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001) (internal citations omitted). This is a two-part inquiry wherein the Court “must determine whether both the negotiating process leading to a settlement and the settlement itself are fair, adequate, and reasonable.” In re Currency Conversion Fee Antitrust Litig., 263 F.R.D. 110, 122 (S.D.N.Y. 2009).

i.) Procedural Fairness

The procedural fairness prong requires that the settlement “be the result of arm’s-length negotiations and that plaintiffs’ counsel have possessed the experience and ability, and have engaged in the discovery, necessary to [effective representation] of the class’s interests.” Weinberger v. Kendrick, 698 F.2d 61, 74 (2d Cir. 1982). Negotiation processes are presumed fair when these elements are present. See Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 116 (2d Cir. 2005). This Settlement is the product of nearly a full year of arm’s-length mediation between able and experienced counsel, as well as a discovery process that involved more than eight million pages of documents and required Barrack to hire sixteen attorneys dedicated solely to this matter. (See Rosen Decl, ¶¶ 34-37, 68-74.) Although the parties ultimately stipulated to class certification, the mediation occurred after PPSERS had briefed the issue. See D’Amato, 236 F.3d at 85 (“When a settlement is negotiated prior to class certification. . . it is subject to a higher degree of scrutiny in assessing its fairness.”). Accordingly, this Court finds that the negotiation process leading to this Settlement was fair, adequate and reasonable. See Wal-Mart, 396 F.3d at 116.

ii.) Substantive Fairness

At the substantive fairness stage of settlement approval, courts in the Second Circuit consider the nine factors set forth in City of Detroit v. Grinnell Corp.: (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through trial; (7) the ability of the defendants to withstand greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of the litigation. 495 F.2d 488, 463 (2d Cir. 1974). “[N]ot every factor must weigh in favor of settlement, rather the court should consider the totality of these factors in light of the particular circumstances.” In re Global Crossing Sec. and ERISA Litig., 225 F.R.D. 436, 456 (S.D.N.Y. 2004) (citations omitted).

In this case, the Grinnell factors weigh in favor of approving the Settlement. This case was a complex securities class action—a breed of litigation that courts have recognized as “notably difficult and notoriously uncertain,” In re Flag Telecom Holdings, Ltd. Sec. Litig., No. 02-CV-3400, 2010 WL 4537550, at *15 (S.D.N.Y. Nov. 8, 2010)—that began in 2011 and reached a resolution through the exhaustive efforts of both parties. As discussed above, Defendants tested PPSERS’s claims twice through motions to dismiss and the ensuing motions for reconsideration. The parties also took thirty-four depositions and briefed a discovery motion concerning Defendants’ assertion of the bank examiner privilege. (See Rosen Decl. ¶¶ 43-44, 47-55.) Furthermore, the absence of objections to the Settlement and substantial number of timely Proofs of Claim is “extraordinarily positive.” Dial Corp. v. News Corp., ___ F.R.D. ___, 2016 WL 6426409, at *4; see also Maley v. Del. Global Tech. Corp., 186 F. Supp. 2d 358, 362 (S.D.N.Y. 2002) (“It is well-settled that the reaction of the class to the settlement is perhaps the most significant factor to be weighed in considering its adequacy.”).

Although Defendants stipulated to class certification, they reserved their right to move to alter or amend the certification order if the parties failed to reach an agreement. (See Rosen Decl. ¶ 96.) This Settlement allows class members to recover part of their losses as soon as possible and without the need for expert discovery, summary judgment motions, trial, and any appeal. See Maley, 186 F. Supp. 2d at 366 (“Settling avoids delay as well as uncertain outcome at summary judgment, trial and on appeal.”). As with any complicated securities action, the class faced the very real risk “that a jury could be swayed by experts . . . who could minimize or eliminate the amount of Plaintiffs’ losses.” In re Am. Bank Note Holographics, Inc., Sec. Litig., 127 F. Supp. 2d 418, 426-27 (S.D.N.Y. 2001). Accordingly, the Court finds that the Settlement and Plan of Allocation is fair, reasonable, and adequate under the Grinnell standard. The parties are directed to submit a revised judgment that designates the New York Bar Foundation as the recipient of any cy pres funds and provides that Plaintiff’s attorneys’ fees may be paid when 75% of the Settlement Fund has been distributed.

B. Motion for Attorneys’ Fees and Expenses

i.) Attorneys’ Fees

In a class action settlement, courts must carefully scrutinize lead counsel’s application fee in order to “ensure that the interests of the class members are not subordinated to the interests of . . . class counsel.” Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1078 (2d Cir. 1995). A court’s role in this context is “to act as a fiduciary who must serve as a guardian of the rights of absent class members.” McDaniel v. Cty. Of Schenectady, 595 F.3d 411, 419 (2d Cir. 2010). The trend in the Second Circuit is to assess a fee application using the “percentage of the fund” approach, which “assigns a proportion of the common settlement fund toward payment of attorneys’ fees.” Dial Corp., 2016 WL 6426409, at *6. As a “cross-check on the reasonableness of the requested percentage,” however, courts also look to the lodestar multiplier, which should be a reasonable multiple of the total number of hours billed at a standard hourly rate. Goldberger v. Integrated Res., Inc., 209 F.3d 43, 53 (2d Cir. 2000). In this case, Barrack has submitted billing records reflecting 77,026.25 hours for a lodestar of $34,450,696.50. (See Rosen Decl., Ex. D.) The requested fee of $51,675,000 thus represents approximately 15.4% of the Fund and a lodestar multiplier of 1.5.

When assessing a fee application under the percentage of the fund method, courts consider the six Goldberger factors: (1) the time and labor expended by counsel; (2) the magnitude and complexities of the litigation; (3) the risk of litigation; (4) the quality of representation; (5) the requested fee in relation to the settlement; and (6) public policy considerations. 209 F.3d at 50. In class actions involving “mega funds”—i.e. funds of more than $100 million—courts typically “account[] for these economies of scale by awarding fees in the lower ranges.” Goldberger, 209 F.3d at 52. Here, the Court finds that the second, third, and fourth factors weigh in favor of the requested fee, while the remaining three factors support a reduction.

a.) Factors Favoring Fee Application

This case was lengthy, complex, and vigorously contested up to the point of class certification. Plaintiffs brought two different types of complicated allegations: (1) the “rep and warranty claims,” regarding BofA’s alleged misleading statements to investors about its exposure to repurchase demands in connection with mortgage-backed securities; and (2) the “MERS claims,” focusing on institutional risks from BofA and Countrywide’s reliance upon a national mortgage database to track changes in the quality of loans secured by residential properties. These claims survived two motions to dismiss, but even if Plaintiffs had prevailed on liability they faced considerable risk in establishing damages at trial. With the assistance of able and experienced counsel, the class obtained a favorable result that obviates the uncertainties associated with summary judgment, trial, and appeals. Thus the second, third, and fourth Goldberger factors favor approval of Barrack’s fee application.

b.) Factors Favoring a Reduction

Because plaintiffs’ firms typically handle class actions on a contingency basis, public policy encourages the award of reasonable attorneys’ fees to ensure that such cases find their way to court. However, courts must also “guard against providing a monetary windfall to class counsel to the detriment of the plaintiff class.” In re NTL Inc. Sec. Litig., No 02-CV-3013, 2007 WL 1294377, at *8 (S.D.N.Y. May 2, 2007). For example, this Court has reduced fees “in view of the large percentage of hours attributable to attorneys with the highest billing rates, as well as the relatively early stage of the litigation in which the settlement was reached.” In re Platinum and Palladium Commodities Litig., No 10-CV-3617, 2015 WL 4560206, at *4 (S.D.N.Y. July 7, 2015). Ultimately, this Court’s role is to ensure that “the lodestar [is not] enhanced without restraint above a fair and reasonable amount under all the facts and circumstances.” In re Sumitomo Copper Litig., 74 F. Supp. 2d 393, 396 (S.D.N.Y. 1999). There are two interconnected billing practices in this case that support a reduction in Barrack’s fee application: the predominance of partner-level work on the substantive aspects of the litigation, and the use of temporary associates for the bulk of document discovery at standard associate hourly rates.

First, this Court notes that the overwhelming amount of billable legal work in this case was devoted to discovery. While there were two substantial motions to dismiss, the parties stipulated to class certification and never proceeded to summary judgment. Instead, they resolved the case at mediation. An examination of Barrack’s post-hearing submission reveals that motion practice and mediation generated about 5% of the total billable hours and 6.7% of the lodestar. (See Post-Hearing Sub., Exs. A-E.) On closer scrutiny, however, it seems that most of the substantive work relating to motion practice and mediation was performed by Barrack partners: eleven different partners billed 88% of the hours devoted to the mediation and motions, creating 94% of the fees associated with those tasks. (See Post-Hearing Sub., Exs. A-E.) Indeed, no fewer than four Barrack partners—but no associates—attended the mediation sessions. (See Post-Hearing Sub. at 6.) This allocation of resources stands in stark contrast to the division of labor in the case as a whole. Twenty-six Barrack associates accounted for nearly 70% of the total hours and generated about 60% of the lodestar. (See Rosen Decl., Ex. D.) If partners handled the bulk of the motion practice and mediation responsibilities but generated comparatively few of the total hours, it stands to reason that the Barrack associates were primarily assigned to discovery work.

Delegating the legwork of complex litigation (such as routine document review) to less-costly associates or temporary contract attorneys is common practice, and it is not this Court’s place to dictate law firm structure or workflow. What is troublesome, however, is Barrack’s practice of “gear[ing] up” for discovery by hiring a large group of temporary “associates” and billing them at the firm’s standard rates for what this Court must assume was first-cut document review. (Rosen Decl. ¶ 34.) Barrack hired sixteen temporary attorneys in 2013 and 2014 to work exclusively on this matter at a blended rate of $362.50 per hour. (See Rosen Decl., Ex. D; Post-Hearing Sub., Ex. F.) Although these attorneys were “full-time [Barrack] associate attorneys” who were eligible to participate in the firm’s health insurance and 401(k) plans, not one of the sixteen remains at the firm—the group as a whole stayed an average of twelve months, some as few as one month. (See Rosen Decl. ¶ 34, n.2; Post-Hearing Sub., Ex. F.) The new hires billed nearly 40% of the total hours in the case and generated $10,805,725 (or 31% of the lodestar) in legal fees for Barrack. (See Rosen Decl., Ex. D.) However, hiring a group of temporary associates and billing them out at more than $350 per hour for work that is typically the domain of contract attorneys or paralegals seems excessive.

On this point, Barrack’s citation to In re Citigroup Inc. Bond Litig., 988 F. Supp. 2d 371 (S.D.N.Y. 2013) is instructive. In that case, Judge Stein drew a distinction between “contract” attorneys and “staff” attorneys—the latter being “full-time employees of the law firm” who are “provided benefits and ongoing legal education”—to determine the appropriate reduction in a fee application where plaintiffs’ counsel had billed its staff attorneys at $385 per hour. In re Citigroup, 988 F. Supp. 2d at 377.

Barrack makes much of the Citigroup court’s reference to a submission showing that defense counsel in that case—Paul, Weiss, Rifkind, Wharton & Garrison LLP—had submitted a fee application in an unrelated bankruptcy case with a blended rate of $333 per hour for staff attorneys, who performed “document review and similar routine tasks.” 988 F. Supp. 2d at 377. But that ignores Judge Stein’s finding that “$200 per hour [is] a fair approximation of the rate a reasonable paying client with bargaining power would pay” for the type of work performed by a contract attorney (e.g. first-cut document review), as well as the fact that Paul Weiss’s clients—unlike the class members in this case—have the benefit of ex ante negotiations as to what they will pay for legal services. Citigroup, 988 F. Supp. 2d at 377. If it is true, as Barrack submits, that “[t]here were no so-called `contract’ lawyers hired either directly by [Barrack] or through an external attorney provider,” then this Court must conclude that the sixteen new hires performed work that might otherwise have been handled by contract attorneys. See Rosen Decl., ¶ 34, n.2; see also Dial, 2016 WL 6426409, at *11 (“To Counsel’s credit, this [contract] attorney time was accounted as an expense rather than included in the lodestar.”). The blended rate charged by Barrack for that work is unreasonable and warrants a reduction in the attorneys’ fees.

It must be noted that this reduction is not a rebuke of Barrack’s structure as a lean, partner-heavy firm that hires associates when necessary to prosecute large actions such as this one. Indeed, it is debatable which route more effectively advances a young lawyer’s career: temporary placement through a staffing agency on a document-review project, or brief full-time employment with the understanding that the job ends with the discovery deadline. This Court does not presume to resolve that question here. Rather, this Court simply concludes that a reduction in the requested fees is warranted to avoid a windfall to Barrack for charging more than $350 per hour for associates who are contract attorneys in all but name, while simultaneously overstaffing the substantive legal work with high-priced partners.[2]

Considering all the circumstances, the simplest resolution is to reduce the lodestar multiplier from 1.5 to 1.2, resulting in attorneys’ fees of $41,340,835.80, or 12% of the Fund. This percentage and multiplier is within the range of fees awarded in similar cases in this Circuit. See In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486 (S.D.N.Y. 1998) (“[W]here a class recovers more than $75-$200 million . . . fees in the range of 6-10 percent and even lower are common.); In re IndyMac Mortgage-Backed Sec. Litig., 385 F. Supp. 2d 363 (S.D.N.Y. 2015) (awarding 12% of a $75 million settlement fund); In re Bristol-Meyers Squibb Sec. Litig., 361 F. Supp. 2d 229 (S.D.N.Y. 2005) (awarding 3% of a $300 million fund); In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 991 F. Supp. 2d 437 (E.D.N.Y. 2014) (awarding 9.6% of a $5.7 billion settlement).

ii.) Litigation Expenses

Barrack also seeks reimbursement of $1,386,167.33 in litigation expenses. In class action settlements, “[a]ttorneys may be compensated for reasonable out-of-pocket expenses incurred and customarily charged to their clients.” In re Currency Conversion, 263 F.R.D. at 131. When the “lion’s share” of expenses reflects the typical costs of complex litigation such as “experts and consultants, trial consultants, litigation and trial support services, document imaging and copying, deposition costs, online legal research, and travel expenses,” courts should not depart from “the common practice in this Circuit of granting expense requests.” In re Visa/Mastermony Antitrust Litig., 94 F. Supp. 3d 517, 525 (S.D.N.Y. 2015). In this case, the Court finds that Barrack’s itemized litigation expenses reflect these traditional costs of maintaining a complex securities action. (See Rosen Decl., Ex. E.) The motion for reimbursement of these expenses from the Fund is approved.

iii.) Lead Plaintiff’s Expenses

PPSERS seeks approval of $130,323.70 in costs and expenses associated with its role as Lead Plaintiff. Under the PSLRA, the Court may award “reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of the class.” 15 U.S.C. § 78u-4(a)(4). These awards compensate lead plaintiffs for “the substantial time and effort the class representatives incurred, including written discovery, being deposed, reviewing and editing submissions, and attending hearings.” In re Currency Conversion, 263 F.R.D. at 131. Here, PPSERS actively participated in this litigation throughout the action and should be compensated for its time and effort in bringing about a favorable result. (See Rosen Decl., Ex. A.) The amount requested represents less than one hundredth of a percent of the Fund. This award is comfortably below the rate awarded in similar cases, and is approved. See In re Currency Conversion, 263 F.R.D. at 131 (award representing approximately 0.1% of the fund); Roberts v. Texaco, 979 F. Supp. 185 (S.D.N.Y. 1997) (0.18% of the total fund).

CONCLUSION

The motion to approve the Settlement and Plan of Allocation is granted. The motion to approve the application for attorneys’ fees, litigation expenses, and Lead Plaintiff’s expenses is granted in part and denied in part. The litigation expenses and Lead Plaintiff’s expenses are approved, and the fee request is approved in the amount of $41,340,835.80. The litigation expenses and Lead Plaintiff’s expenses may be reimbursed immediately. Attorneys’ fees may be paid once 75% of the Settlement Fund has been distributed. Plaintiff is directed to submit a revised judgment in accord with this Opinion and Order forthwith. The Clerk of Court is directed to close the motions pending at ECF Nos. 350 and 352.

SO ORDERED.

[1] The Court received one other objection from an individual who may or may not have been a class member. (See ECF No. 370.) This objection was untimely by more than a month and did not conform to the requirements set out in the Notice Form for objecting to the Settlement. Specifically, it does not contain any dates, prices, or numbers of shares/units of BofA stock to show that the individual is a class member. This objection is deemed waived.

[2] Barrack also assigned seven paralegals to this matter, billing them at rates between $270 and $325 per hour—the same “lofty” range that weighed in favor of a fee reduction in a similar case before this Court. See Dial, 2016 WL 6426409, at *11; Rosen Decl., Ex. D.

 

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TFH 1/1/17 |  Deadbeats Are Not The Problem: The Legal System Is

TFH 1/1/17 | Deadbeats Are Not The Problem: The Legal System Is

COMING TO YOU LIVE DIRECTLY FROM THE DUBIN LAW OFFICES AT HARBOR COURT, DOWNTOWN HONOLULU, HAWAII

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Sunday – January 1, 2017

Deadbeats Are Not The Problem: The Legal System Is

Those who miss this important live broadcast can listen to it on the Past Broadcast Section of our Website at www.foreclosurehour.com shortly after it airs live on KHVH-AM News Radio in Honolulu and simultaneously throughout the United States on the iHeart Internet App.

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Justice Department Reaches Settlement with Ohio-Based Banks to Resolve Allegations of Lending Discrimination

Justice Department Reaches Settlement with Ohio-Based Banks to Resolve Allegations of Lending Discrimination

Justice Department Reaches Settlement with Ohio-Based Banks to Resolve Allegations of Lending Discrimination

Settlement Provides $9 Million to Ensure Equal Lending Services to African-American Communities in Ohio and Indiana

The Justice Department filed a consent order today to resolve allegations that Union Savings Bank and Guardian Savings Bank engaged in a pattern or practice of “redlining” predominantly African-American neighborhoods in and around Cincinnati; Columbus, Ohio; Dayton, Ohio; and Indianapolis.  “Redlining” is the discriminatory practice by banks or other financial institutions of denying or avoiding providing credit services to consumers because of the racial demographics of the neighborhood in which the consumer lives.

The settlement, which is subject to court approval, was filed in conjunction with the department’s complaint in the U.S. District Court for the Southern District of Ohio.  The complaint alleges that Union and Guardian violated the Fair Housing Act and the Equal Credit Opportunity Act, which prohibit financial institutions from discriminating on the basis of race and color in their mortgage lending practices.  The lawsuit alleges that, from at least 2010 through 2014, Union and Guardian served the credit needs of the residents of predominantly white neighborhoods to a significantly greater extent than they served the credit needs of majority African-American neighborhoods.  Those neighborhoods are easily recognized because each of the four metropolitan areas in which the banks operate has long maintained highly-segregated residential housing patterns for African Americans.  Both banks are headquartered in Cincinnati and share common ownership and management.

As a result of the settlement, Union will open two full-service branches and Guardian will open one loan production office to serve the residents of African-American neighborhoods.  Together, Union and Guardian will invest at least $9 million in majority African-American neighborhoods in the Cincinnati, Columbus, Dayton and Indianapolis metropolitan areas.  That investment includes $7 million in a loan subsidy fund to increase the amount of credit that Union and Guardian extend to residents of majority African-American census tracts.  In order to make residential mortgage loans available to residents of predominately African-American neighborhoods that were not adequately served by Union and Guardian, the banks will further invest $2 million in advertising, outreach, financial education and community partnership efforts.  The settlement also requires both banks to develop robust internal controls to ensure compliance with fair lending obligations and conduct fair lending training for their employees.

“Lenders must treat all potential borrowers equally and fairly,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division.  “This settlement embodies a win-win solution for all parties by increasing the volume of mortgage loans, driving economic activity and creating a level playing field for qualified borrowers.”

“Redlining has no place in the Southern District of Ohio,” said U.S. Attorney Benjamin C. Glassman of the Southern District of Ohio.  “This office is committed to vigorously enforcing the guarantees of the Fair Housing Act and the Equal Credit Opportunity Act so that the people in our District can borrow without prejudice based on race and color.”

The Justice Department’s enforcement of fair lending laws is conducted by the Civil Rights Division’s Housing and Civil Enforcement Section.  Since 2010, the division has provided over $1.6 billion in monetary relief for individual borrowers and impacted communities through its enforcement of the Fair Housing Act, ECOA and the Servicemembers Civil Relief Act.  The Attorney General’s annual reports to Congress on ECOA enforcement highlight the department’s accomplishments in fair lending and are available at www.justice.gov/crt/publications/.

The Civil Rights Division and the U.S. Attorney’s Office of the Southern District of Ohio are members of the Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes.  For more information on the task force, visit www.StopFraud.gov.

Additional information about fair lending enforcement by the Justice Department can be found on the Justice Department’s website at www.justice.gov/fairhousing.

Union Savings and Guardian Savings Complaint

Union Savings and Guardian Savings Proposed Consent Order

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Trump’s Financial Deregulation Might Be Bad News for Banks After All

Trump’s Financial Deregulation Might Be Bad News for Banks After All

WSJ-

Bank stocks have surged since the election on hopes that President-elect Donald Trump will roll back financial rules. But deregulation, for the biggest institutions at least, might come with a catch: tougher limits on borrowing.

Some influential voices in Mr. Trump’s world insist banks should, as a quid pro quo for rolling back some regulations, maintain higher capital—shareholders’ funds that act as a cushion against losses but can also curb profits.

“Between Trump’s populist victory and the calls for greater capital by…Republicans, it is far from given that the largest Wall Street banks would benefit from their reform efforts,” said Mark Calabria, a former adviser to Senate Banking Committee Chairman Richard Shelby (R. Ala.), and now a fellow at the free-market Cato Institute.

[WALL STREET JOURNAL]

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Fidelity National Unit Said to Near Settlement Over Robo-Signing

Fidelity National Unit Said to Near Settlement Over Robo-Signing

  • Regulators seeking $65 million in discussions with former LPS
  • LPS was acquired during five-year talks over foreclosure flaws

Bloomberg-

A Fidelity National Financial Inc. subsidiary is in final talks to pay as much as $65 million to resolve U.S. government accusations that it contributed to improper and fraudulent foreclosures after the 2008 credit crisis, according to a person familiar with the deal.

Federal banking regulators agreed that a $65 million penalty could settle the case involving so-called robo-signing of foreclosure papers tied to the firm formerly known as Lender Processing Services Inc., according to the person, who requested anonymity because the negotiations aren’t public. Fidelity National acquired the company during the lengthy settlement talks with the Federal Reserve and other agencies, and it has been divided among subsidiaries including ServiceLink Holdings and Black Knight Financial Services.

LPS, which provided technology and services to lenders such as Wells Fargo & Co. and JPMorgan Chase & Co., faced accusations that it filed fraudulent legal documents used in the repossession of homes. For more than five years, LPS has been ensnared by a 2011 order from the Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. requiring changes to how it deals with loan defaults and the hiring of an outside firm to examine its work from 2008 through 2010.

[BLOOMBERG]

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Wells Fargo Is Trying to Fix Its Rogue Account Scandal, One Grueling Case At a Time

Wells Fargo Is Trying to Fix Its Rogue Account Scandal, One Grueling Case At a Time

The bank said it will compensate thousands of customers with unwanted accounts and cards; how do you calculate cost of a damaged credit score?

WSJ-

Aaron Brodie has been dogged by poor credit for five years, the result, he said, of a Wells Fargo & Co. banker giving him a credit card he didn’t ask for. Hearing about the bank’s civil settlement over alleged illegal sales practices, he called a Wells Fargo hotline, thinking help was at hand.

Wells Fargo told Mr. Brodie, 28 years old, an emergency dispatcher with the Fort Worth, Texas, police department, that there was nothing it could do since the account had been sold to debt collectors.

“I just want somebody to say, ‘Yeah, we did this. Yeah, we were wrong,’ and maybe have my credit cleaned up,” said Mr. Brodie. He said he now can’t qualify for a mortgage.

[WALL STREET JOURNAL]

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Prosecutor to investigate Trump-related complaint against Florida AG Pam Bondi

Prosecutor to investigate Trump-related complaint against Florida AG Pam Bondi

First Coast News-

Gov. Rick Scott has assigned a complaint filed against Attorney General Pam Bondi to a prosecutor in southwest Florida.

The complaint stems from scrutiny this year over a $25,000 campaign contribution Bondi received from President-elect Donald Trump in 2013. Bondi asked for the donation around the same time her office was being asked about a New York investigation of alleged fraud at Trump University.

A Massachusetts attorney filed numerous complaints against Bondi, including one that asked State Attorney Mark Ober to investigate Trump’s donation.

[FIRST COAST NEWS]

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Trump’s Treasury Pick Excelled at Kicking Elderly People Out of Their Homes

Trump’s Treasury Pick Excelled at Kicking Elderly People Out of Their Homes

When Steven Mnuchin ran OneWest, the bank aggressively and in some cases, wrongly, foreclosed on elderly homeowners with reverse mortgages. The bank had a disproportionate share of such foreclosures.

 

Trump’s Treasury Pick Excelled at Kicking Elderly People Out of Their Homes

by Paul Kiel and Jesse Eisinger ProPublica, Dec. 27, 2016, 8 a.m.

In 2015, OneWest Bank moved to foreclose on John Yang, an 80-year-old Korean immigrant living in Orange Park, Florida, a small suburb of Jacksonville. The bank believed he wasn’t living in his home, violating the terms of its loan. It dispatched an agent to give him legal notification of the foreclosure.

Where did the bank find him? At the same single-story home the bank had said in court papers he did not occupy.

Still OneWest pressed on, forcing Yang, a former Christian missionary, to seek help from legal aid attorneys. This year, during a deposition, an employee of OneWest’s servicing division was asked the obvious question: Why would the bank pursue a foreclosure that seemed so clearly unjustified by the facts?

The employee’s response was blunt: “You’re trying to make logic out of an illogical situation.”

Yang was lucky. The bank eventually dropped its efforts against him. But others were not so fortunate. In recent years, OneWest has foreclosed on at least 50,000 people, often in circumstances that consumer advocates say run counter to federal rules and, as in Yang’s case, common sense.

President-elect Donald Trump’s nomination of Steven Mnuchin as Treasury Secretary has prompted new scrutiny of OneWest’s foreclosure practices. Mnuchin was the lead investor and chairman of the company during the years it ramped up its foreclosure efforts. Representatives from the company and the Trump transition team did not respond to requests for comment.

Records show the attempt to push Mr. Yang out of his home was not an unusual one for OneWest’s Financial Freedom unit, which focused on controversial home loans known as reverse mortgages. Regulators and consumer advocates have long worried that these loans, popular during the height of the housing bubble, exploit elderly homeowners.

The loans allow people to benefit from the equity they have built up over many years without selling their houses. The money is paid in a variety of ways, from lump sums to a stream of monthly checks. Borrowers are allowed to stay in their homes for as long as they live.

The loans are guaranteed by the U.S. Department of Housing and Urban Development, meaning the agency pays lenders like Freedom Financial the difference between the ultimate sale price of the home and the size of the reverse mortgage.

But the fees are often high and the interest charges mount up quickly because the homeowner isn’t paying down any of the principal on the loan. Homeowners remain on the hook for property taxes and insurance and can lose their homes if they miss those payments.

A 2012 report to Congress by the Consumer Financial Protection Bureau said that “vigorous enforcement is necessary to ensure that older homeowners are not defrauded of a lifetime of home equity.”

ProPublica found numerous examples where Financial Freedom had foreclosed for legally questionable reasons. The company served several other homeowners at their homes to let them know they were being sued for not occupying their homes. In Florida, a shortfall of only $0.27 led to a foreclosure attempt. In Atlanta, the company sought to foreclose on a widow after her husband’s death, but backed down when a legal aid attorney sued, citing federal law that allowed the surviving spouse to remain in the home.

“It appears their business approach is scorched earth, in a way that doesn’t serve communities, homeowners or the taxpayer,” said Alys Cohen, a staff attorney for the National Consumer Law Center in Washington D.C.

Since the financial crisis, OneWest, through Financial Freedom, has conducted a disproportionate number of the nation’s reverse mortgage foreclosures. It was responsible for 16,200 foreclosures on government-backed reverse mortgages, or 39 percent of all foreclosures nationwide, from 2009 through late 2014, even though it only serviced about 17 percent of the loans, according to government data analyzed by the California Reinvestment Coalition, an advocacy group for low-income consumers. While some foreclosures were justified, legal aid attorneys say Financial Freedom has refused to work with borrowers in foreclosure to establish payment plans, in contrast with other servicers of reverse mortgages.

Experts say the companies are not entirely to blame for the wave of foreclosures. HUD oversees standards on most reverse mortgages. In the years after the housing crash, HUD’s rules evolved, creating a miasma of confusion for mortgage servicers. Companies say the new federal rules required them to foreclose when borrowers fell far behind on property and insurance costs, rather than work out payment plans.

OneWest’s rough treatment of homeowners extended to its behavior toward borrowers with standard mortgages in the aftermath of the housing crash. In 2009, the Obama administration launched a program to encourage mortgage servicers to work out affordable mortgage modifications with borrowers. OneWest, weighed down by several hundred thousand souring mortgages, signed up.

It didn’t go well. About three-quarters of homeowners who sought a modification from OneWest through the program were denied, according to the latest figures from the Treasury Department. OneWest was among the worst performing large servicers in the program by that measure. In 2011, activists protested OneWest’s indifference at Mnuchin’s Bel Air mansion in Los Angeles.

“We’re in a difficult economic environment and very sympathetic to the problems many homeowners face, but under the government’s program there’s not a solution in every case,” Mnuchin told the Wall Street Journal in that year.

Despite the controversy, Mnuchin and the other investors in OneWest made a killing on their purchase. In 2009, Mnuchin’s investment group bought the failed mortgage bank IndyMac, which had been taken over by the Federal Deposit Insurance Corporation after the financial crisis, changing the name to OneWest. They paid about $1.5 billion, with the FDIC sharing the ongoing mortgage losses. George Soros, a Clinton backer at whose hedge fund Mnuchin had worked, and John Paulson, a hedge fund manager who also supported Trump, invested alongside Mnuchin in IndyMac.

In 2015, CIT, a lender to small and medium-sized businesses, bought OneWest for $3.4 billion, more than doubling the Mnuchin group’s initial investment. Mnuchin personally made about $380 million on the sale, according to Bloomberg estimates. He retains around a 1 percent stake in CIT, worth around $100 million, which he may have to divest if confirmed.

CIT has found the reverse mortgage business to be a headache. Recently, CIT took a $230 million pretax charge after it discovered that OneWest had mistakenly charged the government for payments that the company should have shouldered itself. An investigation of Financial Freedom’s practices by HUD’s inspector general is ongoing.

Yang’s lawyers at Jacksonville Area Legal Aid fought his foreclosure for a year. Though Yang had run a dry cleaning business in Florida and roamed the world as a missionary, working in North Korea, China, and Afghanistan, the bank’s torrent of paperwork had overwhelmed him. Yang didn’t speak English well. OneWest claimed it had sent him forms to verify he was living at his home, but that he never sent them back.

Under HUD rules, OneWest was required to verify that each borrower continued to use the property as a principal residence. It is a condition of all the HUD-backed loans in order to help ensure the government subsidy goes to those who need it.

But Yang can be forgiven for thinking that OneWest could not have doubted that he was still in his home. During the same period that OneWest was moving to foreclose on Yang for not living in his home, another arm of the bank regularly spoke and corresponded with him at his home about a delinquent insurance payment, according to court documents.

A Financial Freedom employee testified in the case that the department that handled delinquent insurance payments and the department that handled occupancy did not communicate with each other in those circumstances.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

image: Bloomberg

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