Subject to Inquiry

Subject to Inquiry

THE LATEST ON GOVERNMENT INQUIRIES AND ENFORCEMENT ACTIONS

Government Investigations and White Collar Litigation Group
Financial Institution Regulation

The Forgotten Face of Student Lending

MentiCashon student loans and the face that comes immediately to mind is probably someone in their early twenties. A recent report from the CFPB sheds light on an overlooked segment of the student loan population – consumers 60 years old and older. The number of older student loan borrowers has skyrocketed in recent years. The ranks of older student loan borrowers has quadrupled in the last decade and their amount of debt has grown exponentially. The CFPB’s report considers the effect student loans have on older borrowers and examines complaints filed by older borrowers.

So who are these borrowers? Baby boomers seeking a degree for a second or even third career? No. The majority of older student loan borrowers (around 73%) are financing their children’s or grandchildren’s educations. There were an estimated 2.8 million such older borrowers in 2015, up from an estimated 700,000 just ten years earlier. During the same period, the average debt load of student loans borrowers has more than doubled, going from $12,100 to $23,500. One trait these older student loan borrowers share with younger borrowers is an alarming default rate. Close to 40% of older student loan borrowers are in default.

The profile of older student loan borrowers differs widely their younger counterparts. Older borrowers are reaching the end of their peak earning years, while younger borrowers fresh out of college have their entire career in front of them. Health concerns that might hamper an older borrower’s ability to earn an income or to make payments are also less likely to plague younger borrowers. Finally, older borrowers are likely to have more debt, such as mortgages, credit cards, and auto loans.

Student loans can negatively affect older borrowers in ways they don’t affect younger borrowers. The federal government can offset older borrowers’ social security benefits to offset missed student loan payments. Older borrowers are also more financially vulnerable than younger borrowers, as seen in the higher likelihood to forego necessary healthcare needs.

Despite the differences in older and younger borrowers and the unique difficulties facing older borrowers, the number of CFPB complaints filed by older borrowers on student loans is small. Older borrowers have filed less than 2,000 complaints relating to student loans. The proliferation of older borrowers with student loans may, however, portend more complaints in the future.

Older borrower’s complaints have focused on several issues. Older borrowers complain about “roadblocks” to their participation in income-driven repayment plans. One common complaint is that servicers are slow to adjust income-driven plans when older borrowers switch from a salary to a fixed-income. Some of these borrowers are placed in graduated repayment plans better suited for their younger counterparts whose careers are in the ascendency.

Another complaint by older borrowers, specifically those who co-signed on a loan, is that their loan is allocated to other student loans owed by the primary borrower. This can have the double whammy effect of causing the older borrower to incur late fees and interest and resulting in a negative mark on the borrower’s credit history.

Older borrowers have also complained about certain debt collection practices. Some of the debt collection practices encountered, such as the use of aggressive and hostile tactics, are not unique to older borrowers. But older borrowers have also complained that some debt collectors of private student loans have threatened to collect on their federal benefits, including social security, even though social security benefits cannot be collected on based on private student loans.

The CFPB’s report does not offer any recommendations for addressing the issues faced by older student loan borrowers, but urges policymakers to consider the report in shaping reform in the higher education finance market. If the number of older borrowers continues on its upward trajectory, this will be an issue to watch for those in the student loan servicing industry and ultimately servicing older borrowers’ debt might require a different protocol tailored to the unique challenges they face.

Compliance, Financial Institution Regulation

CFPB’s 2017 Fair Lending Priorities

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The CFPB recently issued its Fair Lending Priorities for 2017.  According to its December blog post, the CFPB plans to increase its focus on the following three areas, which it describes as “presenting a substantial risk of credit discrimination for consumers.”

Redlining: The CFPB “will continue to evaluate whether lenders have intentionally avoided lending in minority neighborhoods.”  The CFPB will likely seek to build off its recent redlining enforcement actions and this redlining focus is consistent with the CFPB’s Fall 2016 Supervisory Highlights, which identified “redlining as a priority area in the Bureau’s supervisory work.”

Mortgage and Student Loan Servicing: The CFPB “will determine whether some borrowers who are behind on their mortgage or student loan payments may have more difficulty working out a new solution with the servicer because of their race or ethnicity.”

Small Business Lending: “Congress expressed concern that women-owned and minority-owned businesses may experience discrimination when they apply for credit, and has required the CFPB to take steps to ensure their fair access to credit.”  This is likely a reference to Dodd-Frank Section 1071, which required financial institutions to collect and maintain certain data on credit applications made by women- or minority-owned businesses and small businesses.  In 2016, the CFPB began building a small business lending team that has focused on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.

“Because [it] is responsible for overseeing so many products and so many lenders,” the CFPB noted that it “re-prioritize[s] [its] work from time to time, to make sure that [it is] focused on the areas of greatest risk to consumers.”  This list identifies the “key areas where the CFPB’s fair lending team will focus in 2017.”

Clients should remain cognizant of these issues and be sure that there is appropriate attention paid to them in 2017.  However, given the ongoing PHH litigation, continued speculation that President-elect Trump may seek to terminate Director Cordray for cause, and Republicans’ general focus on reigning in the CFPB and rolling back Dodd Frank in the new Congress, it must be noted that these priorities could shift in the coming months.  If they do, we will be sure to highlight that in future Subject to Inquiry blog posts.

Financial Institution Regulation

GOP Takes Aim at Dodd-Frank

iStock_000004688619MediumOn Friday, January 20, 2017, Donald J. Trump will become the President of the United States, and for the first time in nearly a decade, a single party will control the Presidency, the House, and the Senate. After years of deadlock, Republicans are prepared to use this consolidation of power to move their legislative agenda quickly through Congress. But one current law may find itself in the GOP’s cross-hairs: the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

President Obama signed the over 2,000 page Dodd-Frank Act into law over six years ago on July 21, 2010. The sweeping legislation created the Consumer Financial Protection Bureau (CFPB) and imposed comprehensive regulatory reform on the financial industry. Although hailed by Democrats as a success, Republicans have repeatedly argued that Dodd-Frank overregulates the financial services industry and often causes more harm than good.  During his campaign, President-Elect Trump called Dodd-Frank “a disaster” that “make[s] it harder for small businesses.” In an op-ed in USA Today, Congressman Jeb Hensarling (R) of Texas likened Dodd-Frank to “Obamacare for America’s economy and their household finances…[It has] left [Americans] with fewer choices, higher costs and less freedom.”

However, the GOP will likely stop short of attempting to repeal Dodd-Frank in full. As we previously reported, Congressional Republicans introduced a bill, the Financial CHOICE Act, in early 2015 that was designed to “repeal[] the provisions of Dodd-Frank Act that make America less prosperous, less stable, and less free.” Specifically, the Financial CHOICE Act would eliminate aspects of Dodd-Frank that Republicans believe are unnecessary like the Volcker Rule, a complex regulation that limits the type of speculative investments banks may engage in. The Financial CHOICE Act would also reign in the CFPB’s power by replacing the current single director with a bipartisan commission and requiring funding from congressional appropriations. Although unlikely to pass in its current form, the Financial CHOICE Act may provide a blueprint to any attempt to repeal parts of Dodd-Frank this year.

However, the GOP can expect strong opposition to any attempt to amend Dodd-Frank. In a recent blog post, Senator Elizabeth Warren (D) of Massachusetts warned that Democrats would “fight [Trump and the Republican Party] every step of the way.” But whether Congressional Democrats will be able to muster enough support to block the GOP’s efforts remains to be seen.

Anti-Money Laundering, Compliance

FinCEN Opens 2017 with SAR Sharing Guidance for Casinos

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Financial institutions’ ability to share suspicious activity reports (“SARs”) within the corporate organizational structure serves as an important tool for Bank Secrecy Act compliance and risk avoidance.  FinCEN began 2017 by reminding casinos of their ability to share information under this rule.

Subject to certain limitations, casinos may share with domestic parents and affiliates suspicious activity reports and related information under the Bank Secrecy Act (“BSA”).  FIN-2017-G001 (January 4, 2017).  Under this guidance, such sharing assists casinos in discharging their responsibilities with respect to enterprise-wide risk management and compliance, and facilitates a casino’s ability to identify suspicious transactions.  This guidance also reinforces FinCEN’s 2014 Advisory to financial institutions regarding promoting a culture of compliance, which is achieved in part by ensuring information is shared throughout the organization.  FIN-2014-A007.

Permissible Sharing

Casinos are expressly permitted to disclose SARs to FinCEN, law enforcement agencies, and Federal and state regulators or tribal authorities that examine casinos for compliance with the BSA.  31 CFR § 1021.320(e).  Casinos may also share facts and documents upon which a SAR is based with another financial institution for filing a joint SAR, § 1021.320(e)(1)(ii)(A)(2), and share a SAR or information revealing the existence of a SAR “within a casino’s corporate organizational structure for purposes consistent with Title II of the [BSA] as determined by regulations or in guidance.”  § 320(e)(1)(ii)(B).

With this guidance, FinCEN defines the “corporate organizational structure.”  A “parent” is as an entity that controls the casino filing the SAR; an “affiliate” is a financial institution required under BSA rules to report suspicious transactions that is controlled by, or under common control with, the casino filing the SAR.

Important Limitations on Sharing

Casinos and their agents are not authorized to disclose a SAR or any information that would reveal the existence of a SAR to anyone outside a limited set of exceptions, described above.  Under no circumstances may this information be shared with a subject of a SAR.  In addition, casinos may not share SARs or revealing information with:

  1. Parents or affiliates located outside the U.S.;
  1. Individuals or entities within the organization structure who perform functions unrelated to gaming, g. shops, restaurants, entertainment;
  1. A financial institution without its own independent SAR-filing obligation; or
  1. A money services business co-located with a casino but not an affiliate.

Further, a domestic parent or affiliate receiving SAR-related information from a casino may not forward that information to another affiliate, even if that affiliate is subject to SAR-reporting obligations.

Practical Impact

In formulating its overall compliance program, a casino should be mindful of its ability to share this SAR information to effectively identify risk and ensure operational information is understood by those in a position to mitigate identified risks.  However, given the prohibitions on SAR information sharing—and potential attendant liability—casinos should be mindful to have policies, procedures and internal controls in place to ensure SAR confidentiality is preserved.

Fraud, Deception and False Claims

Supreme Court Rules on False Claims Act’s Seal Requirement

In the m780536983idst of a False Claims Act (FCA) case, the relators have blatantly violated the FCA’s seal provision.  Surely this will lead to dismissal, right?  Wrong.

On Tuesday, December 6, the Supreme Court unanimously ruled that violating the FCA’s seal requirement does not necessarily demand that a case be dismissed.

The case before the Court was State Farm Fire & Casualty Co. v. United States ex. rel. Rigsby et al.  In the years following the devastation of Hurricane Katrina, there were a massive number of insurance claims.  The National Flood Insurance Program was responsible for flood damage, whereas State Farm Fire & Casualty Company (SFFCC) was responsible for wind damage.  As one can imagine, there was some ambiguity in parsing out what damage was due to wind and what to flooding.  In this case, the relators alleged that SFFCC instructed claims adjusters to misclassify wind damage as flood damage, thereby fraudulently shifting the cost of insurance liability to the government.

The FCA’s seal requirement mandates that qui tam complaints be kept under seal until the court orders them unsealed.  This requirement was broken when the relators’ former attorney, Dickie Scruggs, leaked a sealed filing to several press outlets.  SFFCC moved for dismissal.  The District Court decided and the Court of Appeals for the Fifth Circuit affirmed that this violation did not merit automatic dismissal.  The Supreme Court has now affirmed this view.

In reaching its decision, the Supreme Court looked at both the language and purpose of the statutory provision, concluding that while there’s no doubt the language creates “a mandatory rule the relator must follow,” the statute does not require automatic dismissal.  Though the seal provision prescribes no remedy, the Court reasoned that several other provisions of the FCA do expressly require dismissal for certain violations, indicating that if Congress intended to require dismissal for violating the seal requirement, it would have said so.  Further, the Court saw their conclusion in line with the purpose of the statute.  Justice Kennedy remarked that the seal provision was meant to encourage more private enforcement suits and to protect the Government’s interests.  Given that, it wouldn’t be reasonable to see this provision in a way that would prejudice the Government “by depriving it of needed assistance from private parties.”  The Court held that whether a violation of the FCA’s seal requirement merits dismissal of the case is left with the sound discretion of the district court.

This decision clears up a prior ambiguity, ending a Circuit split.  So what does this mean for parties in FCA cases?

First, it means that defendants cannot count on a dismissal if a relator violates the seal provision.  However, it is key to remember that dismissal is still an option for the district court, along with a variety of lesser punishments.  Finally, though this decision does not mean relators can violate the FCA’s seal requirement with impunity, time will tell whether it emboldens relators to be somewhat less cautious.

Compliance, Enforcement and Prosecution Policy and Trends, Financial Institution Regulation

Companies Challenge CFPB’s Authority to Issue Civil Investigative Demands

As andocument-reviewy company that has received a civil investigative demand (CID) from the Consumer Financial Protection Bureau (CFPB) knows, the Bureau’s authority to issue CIDs is a powerful tool that leaves recipients with limited options to challenge or limit their compliance obligations.  Recently, the CFPB has fought back against CID challenges, asking two federal district courts, to direct the target companies to show cause why they are unable to, or should not be required to, comply with the CIDs, and to issue an order enforcing the CIDs.

On November 29, 2016, the CFPB filed a petition against Harbour Portfolio Advisors, LLC (Harbour Portfolio), and related companies National Asset Advisors, LLC, and National Asset Mortgage, LLC, in Detroit federal court, seeking compliance with a CID issued on September 8, 2016.  Harbour Portfolio is a private investment firm that purchases foreclosed properties in bulk and resells them as land contracts to consumers.  Harbor Portfolio petitioned the CFPB in September to set aside the CID, arguing that the Bureau lacked authority over the company, because the land contracts for deeds were not consumer products, and that the scope and timeframe of the CID was unduly burdensome.  Although CFPB director Richard Corday denying the petition on November 1, 2016, Harbour Portfolio and the related companies have not responded to the CID’s requests.

Meanwhile, in California, the CFPB filed a similar petition against Zero Parallel, LLC (Zero Parallel) in Los Angeles federal court on December 1, 2016, seeking compliance with a CID issued on April 25, 2016.  Like Harbor Portfolio, Zero Parallel had petitioned the CFPB to set aside the CID for lack of authority, but its request was similarly denied.  Following meet-and-confer sessions, the Bureau granted some of Zero Parallel’s requested to limit the information sought and extend production deadlines.  Zero Parallel then made five partial productions pursuant to the amended CID, but continued to refuse to produce responsive emails.  Instead, Zero Parallel claimed once again that the CFPB lacked authority to issue the CID, but nonetheless agreed to “voluntarily” produce the emails on its own schedule.  Zero Parallel also agreed to make a witness available for testimony once it completed production.

In both cases, the CFPB’s arguments in support of its petitions focus on the wide latitude given to an agency while it investigates using subpoenas and the narrow standard of judicial review of the issuance of subpoenas.  The CFPB noted that it can investigate fully the laws it is charged with enforcing, even if based only on a mere suspicion of violation.  Additionally, the CFPB argued that it can subpoena any evidence that is not within its possession that is relevant and material to an investigation as long as it follows applicable procedural requirements for the issuance of a CID.  According to the CFPB, the burden then shifts to the subpoenaed companies to prove that the CIDs are overly broad or unduly burdensome.  In both cases, the courts in question have issued Orders to Show Cause, requiring Harbour Portfolio and Zero Parallel to respond with why the CFPB’s petition to enforce the CIDs should not be granted by January 13, 2017 and January 20, 2017, respectively, again underscoring the difficulty of challenging CFPB-issued CIDs.

Enforcement and Prosecution Policy and Trends, Uncategorized

Caldwell’s Comments Draw Criticism, Apology—But Might Her Advice Be Timely?

It is no s78053698.jpgecret that top Department of Justice officials in Washington may occasionally be at odds with local prosecutors over charging or investigatory decisions made in U.S. Attorney offices around the country.  Indeed, DOJ Criminal Chief Leslie Caldwell was in the news last week for remarks she made during a Federalist Society luncheon in Washington, D.C.  Speaking as part of a panel discussion on criminal overreach, Caldwell relayed stories of Main Justice intervening to squelch overly aggressive would-be prosecutions, and suggested that a lack of experience and oversight might be to blame.  Caldwell’s remarks were widely reported, but her candor was not universally appreciated.  In fact, Caldwell has since apologized to her “Friends and Colleagues” throughout the Department for “overreact[ing] to criticisms” raised by other panel members, “rather than defending the reputation of the entire Department.”  Her mea culpa notwithstanding, Caldwell’s remarks confirm the existence of a safety net.  Faced with an overly aggressive prosecution, targeted companies and individuals just may find an ally at Main Justice.

Of course, it’s important not to put too much stock in an appeal to the top brass.  While feasible, an intervention and declination from Washington remains the far-and-away exception.  But with that said, companies and individuals currently under investigation may have reason for some slightly renewed optimism.  The transition from an Obama administration to a Trump one is certain to bring with it significant changes to DOJ—from the top on down.  This means not only new people, but new enforcement priorities as well.  Certain cases may find a more friendly audience—be it in the form of fresh leadership, or even just a new U.S. Attorney.

Precisely which cases those might be in a new administration, however, is difficult to predict.  President-elect Trump’s nominee for Attorney General—Alabama Senator Jeff Sessions—is nearly two decades removed from his own career as a state and federal prosecutor, and his record in Washington is mixed.  Several commentators have warned against reading too much into his reputation as pro-business.  And there has been little indication, moreover, as to who might be tapped to fill out DOJ leadership.  Suffice it to say this is an issue worth monitoring, and a strategy that may merit renewed consideration.

Compliance, Enforcement and Prosecution Policy and Trends

In Data Privacy, Don’t Forget the State Attorneys General

State attorneys general play an active role in data privacy and security matters. Their involvement is increasing as they grapple with changing technologies and threats, rapidly evolving state laws and their relatively broad consumer protection authority to engage private sector custodians of personal data such as retailers, financial institutions, technology companies, and health systems. In some states, attorneys general also have some level of law enforcement responsibility related to data breaches and privacy matters.  The role of the attorneys general vary by state, further complicating compliance for those who may experience a data privacy or security event.Attorneys general often work together leveraging their resources by initiating multistate litigation against companies resulting in larger settlements and by working closely with federal agencies such as the Department of Justice (DOJ), the Federal Bureau of Investigation (FBI), the Federal Trade Commission (FTC), and the U.S. Department of Commerce (DOC). Attorneys general are also branching out from their typical enforcement roles to include policy and legislative initiatives.  Attorneys general associations such as the National Association of Attorneys General (NAAG), Republican Attorneys General Association (RAGA), and Democrat Attorneys General Association (DAGA) are making data privacy and security a top priority, frequently hosting panel discussions at their national meetings, and holding policy conferences specific to this topic.  The following are some examples of how attorneys general can impact your business regarding data breach and security matters.State Reporting Requirements

A total of 47 states have legislation requiring entities to notify individuals of breaches involving personally identifiable information. Twenty-three of these states require entities to notify the attorney general of a breach. Some notification statutes are triggered by the number of persons affected by the breach (e.g., when 500 or 1,000 persons are affected). Others require disclosure no matter the size of the breach. As of this year, states requiring some form of attorney general notification are: California, Connecticut, Florida, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Massachusetts, Missouri, Montana, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Oregon, Rhode Island, Vermont, Virginia and Washington.  Because state laws in this area are constantly changing, it is important to stay current on breach notification laws for your applicable states.

State Attorney General Litigation and Settlements

Attorneys general are actively involved in bringing litigation and seeking settlements against companies for various matters relating to data breaches. For example, Trump Hotel Collection settled with the New York attorney general to pay $50,000 in penalties when over 70,000 credit card numbers and other personal data were breached. Trump Hotel Collection also agreed to design and implement new data security practices to prevent future breaches.

Recently the Texas attorney general settled with PayPal regarding its Venmo mobile phone app for potential violations of Texas law by not disclosing how the personal information was being used and that it might have publically exposed private information. The settlement required PayPal to pay $175,000 to the state and improve disclosures regarding security and privacy.

Failure to timely notify patients of a breach and inadequate security measures resulted in a consent judgment against Beth Israel Deaconess Medical Center (BIDMC). The Massachusetts Attorney General sued BIDMC after a laptop containing health information of nearly 4,000 patients was stolen from a physician’s office. The lawsuit alleged BIDMC violated state and federal law when it did not notify patients that their information had been compromised until three months after the incident. BIDMC agreed to pay $100,000 and take steps to ensure compliance with data security laws.

A Vermont-based grocery store, Natural Provisions, settled with the Vermont Attorney General after a security breach involving credit card numbers. The settlement required Natural Provisions to upgrade its computer systems beyond the minimum required legal protections and pay a fine to the state. This settlement exemplifies the emerging trend requiring companies to not only pay a monetary penalty, but also make institutional improvements to prevent future breaches.

In November, Adobe settled a multistate action alleging the company did not employ reasonable security measures to protect customer information in violation of consumer protection laws and personal information safeguard statutes. The Connecticut attorney general led the multistate investigation with fourteen other states that involved over 500,000 people. The settlement required Adobe to pay $1 million to the states and review internal security polices at least twice annually.

State Attorney General Policy Initiatives

Many attorneys general are going beyond enforcement and litigation. This year, the Massachusetts Attorney General’s Office hosted a forum on data privacy. Consumer advocates at this forum encouraged attorneys general to pursue enforcement of consumer protection laws. Washington and California attorneys general release annual reports of every data breach incident in their state. Ohio’s Attorney General recently launched CyberOhio, a collection of cybersecurity initiatives to help Ohio businesses prevent data security threats and pursue legislative initiatives. The Maryland Internet Privacy Unit, created in 2013, monitors companies to ensure compliance with state and federal consumer protection laws. The increased policy attention on data breaches is sure to bring more enforcement and investigatory efforts by state attorneys general. Much of the policy development for attorneys general begin with their various national associations such as NAAG, RAGA and DAGA, providing companies with a good opportunity to help inform these state initiatives.

Summary

Despite federal regulations and enforcement, companies cannot forget that state attorneys general play a significant and expanding role with data privacy and security matters, including enforcement, prevention, and policy development. Understanding their role and a company’s responsibility in the event of a data breach is critical.  Engaging attorneys general before a crisis occurs, and helping shape their policy initiatives are also prudent strategies.

Anti-Bribery and Corruption, Enforcement and Prosecution Policy and Trends

Last Four Months of DOJ’s FCPA Pilot Program Could Provide Important Signals

Last April, the CForeignCorruptriminal Division of the U.S. Department of Justice launched a one-year pilot program in the Fraud Section’s Foreign Corrupt Practices Act (“FCPA”) Unit.  The pilot program, self-described as “building” on the Yates memorandum, provides structured incentives for companies to self-disclose, cooperate, and remediate with respect to FCPA violations.  The remaining four months of the program before it expires promise to provide valuable information on several fronts.

Pursuant to the pilot program, to date DOJ has issued a total of five declination letters.   Three of these were in June 2016, and two were in September 2016.  All five involved conduct in China.  In all five, DOJ pointed to six common factors for its reasons to decline prosecution: 1) timely self-disclosure, 2) thorough investigation, 3) fulsome cooperation (including identifying responsible individuals), 4) a promise to cooperate in the future regarding individual investigations, 5) remediation (including termination of employees in all five declinations), and 6) full disgorgement.  All but one also pointed to the establishment of an enhanced compliance program.  And only one mentioned a civil penalty in addition to a disgorgement.  One declination also cited as a factor that the company’s internal audit program had discovered the reported conduct.

While many of these factors can take a significant period time to put into place, many targets of ongoing FCPA investigations are likely to have significant incentives to seek to reach a resolution with DOJ before next April.  Uncertainty pertaining to the upcoming change in DOJ leadership may further heighten motivations for quick resolutions, providing yet more data points on DOJ’s current practices in this area.

The pilot program’s fate and continued implementation after the change in administration in January 2017 could also provide clues as to the new Attorney General’s enforcement priorities.  Theoretically, the new administration could elect to terminate the pilot program before its April 2017 expiration, but it could also let it run its natural course, extend it, or even apply it across additional areas of DOJ.  Any of these courses of action could provide a signal as to the way ahead in FCPA investigations and perhaps beyond.

Compliance, Enforcement and Prosecution Policy and Trends

The U.S. Department of Justice is Ramping Up its Enforcement of the Servicemembers Civil Relief Act

iStock_000005983304-capitol-bldg-thumb-225x336-15Think you are in compliance with the Servicemembers Civil Relief Act?  Now would be a good time to make sure since the federal government is increasing its enforcement efforts as part of its Servicemembers and Veterans Initiative.

The Servicemembers Civil Relief Act (SCRA) is a federal law that provides a wide range of protections to eligible servicemembers.  The law’s purpose is to postpone or suspend certain civil obligations so that members of the Armed Forces can focus their full attention on their military responsibilities without adverse consequences for them or their families. The first iterations of this federal law date back to the Civil War.  Contrary to beliefs held by many, the SCRA applies to all companies, not just banks.  The current law is very broad in scope, providing benefits and protections related to rental agreements, security deposits, prepaid rent, evictions, installment contracts, interest rates on all debt: including home loans, credit cards and student loans, mortgage foreclosure, civil judicial proceedings, automobile leases and repossessions, life insurance, health insurance and income tax payments.

The Civil Rights Division of the U.S. Department of Justice (DOJ) is tasked with enforcing the SCRA and has been aggressively doing so since 2011.  The Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System have also brought enforcement actions in the last few years.  In just the past five years, these agencies have brought more than 35 actions requiring payments in excess of $650,000,000 in fines and remediation.

Through the government’s enforcement actions, it has been retroactively imposing standards that go beyond what is set forth in the statutory text and legislative history.  To make matters more challenging, there has been no public guidance issued as to what the government believes is required in order to comply with the SCRA.  One can glean some of the requirements by reading the Consent Orders from settlements, but unless you have been party to one of these settlements, certain requirements remain unknown.

The number of enforcement actions will almost certainly increase.  On November 2, 2016, DOJ announced a new program, the Servicemembers Civil Relief Act Enforcement Support Pilot Program, to support its enforcement efforts related to protecting the rights of current and former military personnel as part of DOJ’s Servicemembers and Veterans Initiative. The new pilot program funds Assistant U.S. Attorney and trial attorney positions to assist with SCRA enforcement, and also designates military judge advocates currently serving as legal assistance attorneys to serve as Special Assistant U.S. Attorneys to support DOJ’s enforcement efforts related to the SCRA.  U.S. Attorneys throughout the country will also be appointing Initiative Liaisons to work with local military and veteran communities.

We have significant experience representing companies in SCRA enforcement actions and private litigation.  We are also compliance counsel to clients concerned with avoiding an enforcement action by the federal regulators.