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  • FTC, State AGs Announce Nationwide Crackdown Against Student Loan Debt Relief Scams

    Lending

    On October 13, in partnership with 11 states and the District of Columbia, the FTC announced a federal-state law enforcement initiative to combat deceptive student loan debt relief scams. According to the FTC, “Operation Game of Loans” targets companies that engage in practices that harm student loan borrowers, such as allegedly (i) charging illegal upfront fees; (ii) making false or misleading statements promising, among other things, debt relief, loan forgiveness, reduced interest rates, and credit repair services; (iii) pretending to be affiliated with the government or loan servicers; (iv) engaging in deceptive marketing practices; (v) pocketing consumer fees rather than applying the money towards student loan balances; and (vi) charging consumers for document preparation services that are readily available to consumers for free. According to a press release issued by the FTC, the initiative “encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”

    That same day, as part of “Operation Game of Loans,” Attorney General Lisa Madigan announced a lawsuit against a pair of entities (defendants) accused of allegedly violating Illinois law by charging upfront fees for services guaranteed to “lower monthly student loan payments, improve credit scores, get students out of default, and negotiate tax and student loan debt adjustments.” The complaint further alleges that not only do the defendants lack the ability to provide the advertised services, they also allegedly impersonate students to gain access to students’ Federal Student Aid IDs (the federal government prohibits entities from accessing federal student aid websites even if authorized by the borrower), and fail to refund consumers—as promised—if they fail to provide debt relief. The complaint seeks injunctive relief, restitution, and civil penalties.

    Lending Agency Rule-Making & Guidance FTC State AG Student Lending Debt Settlement Enforcement Debt Relief

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  • New York AG, Auto Dealers Reach Settlement Over Advance Fee Allegations that Triggered Inflated Vehicle Prices

    State Issues

    On October 12, New York Attorney General Eric T. Schneiderman announced separate settlements (here and here) with two auto dealer groups to resolve allegations that they violated state and federal law by charging upfront fees for “after-sale” credit repair and identity theft protection services, which were provided by a third party, and bundling those fees into vehicle sale or lease prices. According to the settlements, the groups—which have neither admitted nor denied the allegations—are required to pay affected consumers more than $900,000 in restitution and pay a $135,000 fine to the state. The settlements also prohibit the groups from selling or marketing credit repair or identity theft protection services and require that consumers be informed—both orally and in writing—of any other “after-sale” products.

    State Issues State AG Auto Finance Consumer Finance Settlement Enforcement

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  • CFPB Takes Action Against Debt Relief Companies for Allegedly Violating the TSR and Claiming to be Affiliated With the Federal Government

    Consumer Finance

    On October 12, the CFPB announced the filing of a complaint in the U.S. District Court for the District of Maryland against two companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. According to the complaint, the defendants allegedly engaged in abusive and deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by purportedly (i) charging advance fees for debt-relief services before altering the terms of the consumers’ debts or achieving promised results; (ii) misrepresenting the abilities of their debt-relief and credit-repair services; (iii) failing to disclose to consumer that if they stopped making payments on debts enrolled in the service they may be subject to collections or lawsuits from creditors that could increase the overall amount of money owed due to fees and interest; and (iv) misrepresenting an affiliation, endorsement, or sponsorship with the federal government by using direct mailers designed to look like an official government notice.

    Consumer Finance CFPB Debt Relief Enforcement CFPA Telemarketing Sales Rule UDAAP

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  • FTC to Hold Informational Injury Workshop

    Privacy, Cyber Risk & Data Security

    On September 29, the FTC announced it will host an “informational injury” workshop on December 12 to examine the types of injuries consumers face when information about them is misused , as well as the tradeoffs when collecting, using, or sharing consumers’ personal information. In preparation for the workshop, the FTC is seeking public input concerning a range of issues such as (i) the types of qualitative consumer injuries resulting from privacy and data security incidents; (ii) the best ways to assess or quantify injury; and (iii) the cost benefit analysis of collecting, using, and sharing information when facing potential injury. The FTC will accept comments through October 27.

    Privacy/Cyber Risk & Data Security FTC Enforcement

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  • FDIC Releases August 2017 Enforcement Actions

    Federal Issues

    On September 29, the FDIC released its list of 27 orders of administrative enforcement actions taken against banks and individuals in August. The FDIC assessed civil money penalties against three banks, including one citing violations of the National Flood Insurance Act (NFIA) and the Flood Disaster Protection Act for (i) failing to obtain flood insurance before loan origination; (ii) failing to provide flood insurance coverage for the full term of the loan; (iii) failing to ensure the amount of flood insurance coverage was “at least equal to the outstanding principal balance of the loan or the maximum limit of coverage” under the NFIA, including numerous instances where coverage options were not provided to borrowers; and (iv) failing to provide written notice in a timely fashion—or at all—to borrowers that the property securing the loan was in a special flood hazard area.

    Also on the list are six removal and prohibition orders against institution-affiliated parties related to unsafe or unsound banking practices and breaches of fiduciary duty leading to financial loss. One of these orders fines an individual $200,000 for expense account-related misconduct, concealing the ownership of certain stock from the FDIC, and causing dividends on this stock to be placed into his personal account. The list also contains seven Section 19 orders allowing applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and eight terminations of consent orders.

    There are no administrative hearings scheduled for October 2017. The FDIC database containing all 27 of its enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Flood Insurance

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  • CFTC Orders Large Financial Institution to Pay for Supervision Failures

    Securities

    On September 28, the Commodity Futures Trading Commission (CFTC) announced a concurrent filing and settling of charges against a large financial institution/clearing firm (Firm) for failing to adequately supervise fee processing. The Order alleges that between 2009 and 2016, the Firm did not implement and maintain adequate procedures and systems that could account for and help prevent the risk of overcharging customers for exchange and clearance fees. In 2015, according to the Order, the Firm modified its processes to prevent future overcharges to customers.

    The settlement requires the Firm to pay a $500,000 civil penalty.

    Securities Enforcement CFTC Financial Institutions Compliance Settlement

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  • CFPB Issues Consent Order for Steering to Real Estate Settlement Services Provider

    Consumer Finance

    On September 27, the CFPB issued a consent order against a real estate settlement services provider for allegedly steering consumers to a title insurer owned in part by three of its executives without disclosing its affiliated business interests, as required by RESPA. According to the consent order, the company received money “beyond the commission it would normally have been entitled to collect” due to an agreement or understanding that it would refer its business to the title insurer, but it did not make the disclosures of the affiliate relationships required by RESPA to over 7,000 consumers. The CFPB’s order requires the company to pay up to $1.25 million in redress to affected consumers and to implement policies and procedures to ensure proper disclosure of applicable referrals to consumers in the future.

    Consumer Finance CFPB Enforcement RESPA Mortgage Origination

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  • DOJ Obtains Auto Repossession Settlement for Servicemembers

    Consumer Finance

    On September 27, the DOJ announced a settlement with a California-based indirect auto financing company and its subsidiary responsible for extending auto title loans (defendants) resolving allegations that the defendants violated the Servicemembers Civil Relief Act (SCRA) by illegally repossessing at least 70 SCRA-protected servicemembers’ vehicles. The DOJ filed its complaint against the defendants in the U.S. District Court for the Central District of California the same day the settlement agreement was reached. This is the second DOJ settlement reached this month over alleged SCRA violations concerning auto repossessions. (See previous InfoBytes summary here.) According to the complaint, the CFPB’s Office of Servicemember Affairs alerted the DOJ in 2016 to the alleged unlawful vehicle repossessions. The DOJ’s investigation concluded that the defendants repossessed the vehicles between 2011 and 2016, without confirming whether the servicemembers were SCRA-protected or obtaining court orders. The defendants’ practice of violating the SCRA, the DOJ contends, was “intentional, willful, and taken in disregard for the rights of servicemembers.”

    Under the terms of the settlement agreement, the defendants must comply with the following: (i) obtain a court order or “valid SCRA waiver” in compliance with the outlined terms of the agreement before repossessing servicemember vehicles; (ii) develop a set of SCRA policies and procedures that outline repossession compliance measures and another set of policies and procedures to provide SCRA relief; (iii) appoint SCRA-specialized employees; and (iv) provide SCRA compliance training. The defendants must also compensate affected servicemembers $700,000, in addition to “lost equity,” accrued interest, credit repair relief, and an auto loan interest rate cap for eligible servicemembers. Further, the defendants must pay a civil penalty of $60,788 to the Treasury, and provide a list of repossessions between October 2016 and the effective date of the settlement to be reviewed by the DOJ for additional SCRA-violations.

    Consumer Finance DOJ Enforcement Settlement SCRA CFPB Servicemembers Compliance

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  • CFTC Director of Enforcement Offers Incentives to Regulated Companies for Self-Reporting and Cooperation

    Securities

    On September 25, the U.S. Commodity Futures Trading Commission Director of the Division of Enforcement James McDonald spoke before the New York University Institute for Corporate Governance & Finance to address the Division’s priorities and outline its self-reporting and cooperation program. Director McDonald described the Division’s enforcement actions as part of a “broader mission to facilitate healthy, robust, and resilient markets,” with the goal of deterring misconduct. “Optimal deterrence,” he stressed, requires receiving buy-in from regulated companies and financial institutions, which is the premise of the Division’s cooperation and self-reporting program. The Division’s program requires companies to comply with three specific criteria: (i) voluntarily report wrongdoing to the Division in a timely and fully disclosed manner prior to the announcement of a government investigation; (ii) proactively cooperate with the Division throughout the investigation; and (iii) engage in timely and appropriate remedial measures to prevent future misconduct, and implement fixes to internal compliance and control programs. Should a company follow these steps, Director McDonald stated, the Division “will recommend a substantial reduction in the penalty,” and in “extraordinary circumstances . . . may recommend declining to prosecute a case.”

    Securities Agency Rule-Making & Guidance CFTC Enforcement Financial Institutions Compliance

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  • Massachusetts AG Takes Action Against Auto Dealer for Deceptive Marketing and Sales Tactics

    Lending

    On September 26, Massachusetts Attorney General Maura Healey announced a lawsuit against a large auto dealership and its in-house lender for allegedly misleading consumers into purchasing unfavorable sale packages. According to the Commonwealth’s complaint, filed in the Suffolk County Superior Court, the auto dealer purportedly (i) sold consumers cars priced at more than double their retail value; (ii) extended loans to consumers with an APR of 20 percent, regardless of credit qualifications; and (iii) combined these sales with an expensive and limited service contract. The complaint further alleges that because of these sales practices and a faulty underwriting process, more than half of the auto dealer’s sales fail or end in repossession. The complaint seeks injunctive relief, restitution, civil penalties, and attorney fees.

    Lending State AG UDAAP Auto Finance Enforcement Anti-Predatory Lending

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