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  • Judge Issues Ruling that Federal Safe Harbor Provision Applies in RESPA Case

    Courts

    On July 13, a federal judge in the U.S. District Court for the Western District of Kentucky issued an opinion holding that a safe harbor provision for affiliated business arrangements under Section 8(c)(4) of RESPA protects a Louisville law firm's relationship with a string of now-closed title insurance agencies. (See CFPB v. Borders and Borders, Plc, No. 3:13-cv-01047-CRS-DW (W.D. Ky. July 13, 2017)). In 2013, the CFPB alleged the firm violated RESPA by paying kickbacks for real estate settlement referrals through a network of joint ventures with the principals of nine title insurance companies. (See previous InfoBytes summary here.) The judge granted the firm’s motion for summary judgment on only one safe harbor question, stating that the firm’s agreements with the title insurance agencies qualified as “affiliated business arrangements” because it “disclosed the relationship…, the customers could reject the referral, and the Bureau failed to show that the [title insurance companies] received anything of value beyond their ownership interests.”

    The judge rejected the firm's claim that the CFPB cannot seek disgorgement as a remedy and further declined to address the firm’s ultra vires argument that the CFPB is an unconstitutional agency and therefore lacks legal authority to bring suit, stating that the en banc decision in PHH Corp. v. CFPB has not yet been issued.

    Notably, however, the judge appeared to suggest that case could be appealed because the firm’s other arguments fail to qualify for RESPA safe harbors under Sections 8(c)(1) and 8(c)(2).

    Courts CFPB RESPA Mortgages Litigation Disgorgement Safe Harbor

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  • Enforcement Actions Announced by CFTC for Fraud, Registration Violations in Florida

    Courts

    On July 11, the CFTC announced that the U.S. District Court for the Middle District of Florida entered an order for final judgment by default against two individuals and their company for fraudulently soliciting investors in a commodity pool, misappropriating pool participants’ funds, and committing futures fraud, among other things. According to the CFTC complaint filed on January 26 of 2017, the defendants fraudulently marketed their company to prospective participants, materially misrepresented their past trading success using fabricated high rates of return, provided account statements to investors showing fictitious increases in value, and failed to disclose defendant’s previous permanent injunction on trading.

    In addition to imposing a permanent injunction on trading and registration, the Court ordered defendants to pay civil monetary penalties of almost $1.85 million as well as restitution of $459,613. An appointed monitor will oversee the defendants’ payment of restitution. The Court also required one of the defendants to affirmatively disclose his violations in any future marketing materials, presentations, speeches or websites. The required disclosure names his violations, the amount of restitution and civil penalties he must pay, along with the case numbers of his CFTC actions.

    Both of the defendants recently pleaded guilty to related criminal charges. One defendant was sentenced to one year and one day in prison in connection with her guilty plea to one count of obstruction of justice, and the other defendant is awaiting sentencing in connection with his guilty plea to one count of wire fraud.

    Courts Federal Issues CFTC Securities Enforcement Fraud Litigation

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  • DOJ Announces Settlement with Michigan Credit Union over SCRA Violations

    Federal Issues

    On July 6, the DOJ announced a settlement with a Michigan-based credit union resolving allegations that the credit union illegally repossessed four servicemembers’ vehicles in violation of the Servicemembers Civil Relief Act (SCRA). As previously reported, the DOJ filed its complaint on July 26, 2016, alleging that the credit union violated the “SCRA’s prohibition against repossessing a motor vehicle from a servicemember during military service without a court order if the servicemember made a deposit or installment payment on the loan before entering military service.”

    Servicemember protections under the SCRA empower the court to (i) review and approve each repossession; (ii) delay a repossession or require the lender to refund the payments made by the servicemember prior to the repossession; (iii) appoint an attorney to represent the servicemember; and (iv) require the lender to post bond with the court.

    Under the settlement, the credit union agreed to a civil penalty of $5,000. In addition, the credit union agreed to pay up to $10,000 plus lost equity in the vehicle with interest and to repair the credit of each affected servicemember whose vehicle was repossessed. The credit union also agreed to obtain either a court order or a valid SCRA waiver before repossessing a servicemember’ s vehicle, and to develop policies and procedures for vehicle repossessions that comply with the SCRA as well as provisions to ensure that servicemembers may benefit from the 6 percent interest rate cap on vehicle loans.

    Federal Issues DOJ Credit Union SCRA Courts Settlement Servicemembers

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  • Fifth Circuit Affirms Debt Collector Violation of FDCPA

    Consumer Finance

    On July 6, the U.S. Court of Appeals for the Fifth Circuit held that a debt collector violated the Fair Debt Collection Practices Act (FDCPA) when it failed to notify credit reporting agencies that a consumer had disputed a debt. The Fifth Circuit further determined that this failure was sufficient to comprise a concrete injury conferring standing for the consumer to sue.

    In its opinion, the appellate court focused on FDCPA § 807(8) and § 809(b), since the debt collector argued that the requirements in § 809 apply to § 807(8), relieving it of its notification duty under § 807(8). Although the appellate court found that the consumer had not disputed his debt under § 809, it agreed with the district court that this failure did not obviate the debt collector’s responsibility under § 807(8). The appellate court found that the debt collector was in violation of the FDCPA for passing on “credit information which is known or which should be known to be false, including the failure” to notify credit agencies of consumer’s disputed debt. Additionally, the appellate court determined that the debt collector’s violation of § 807(8) “exposed [the consumer] to a real risk of financial harm caused by an inaccurate credit rating.”

    Consumer Finance Courts Federal Issues Debt Collection FDCPA Fifth Circuit Litigation

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  • District Court Order Dismissing TCPA Claim Reversed on Appeal

    Courts

    On July 10, the U.S. Court of Appeals for the Third Circuit held that a single telemarketing call to a consumer established a concrete injury sufficient to support a Telephone Consumer Protection Act (TCPA) suit against a New Jersey-based fitness company. The appellate court reversed the District Court’s dismissal of the suit “because the TCPA provides [the consumer] with a cause of action, and her alleged injury is concrete.”

    The appellate court considered two questions in the appeal: (i) was the alleged robocall a violation of the TCPA? If so, (ii) is the alleged injury concrete enough to provide Article III standing to sue under the United States Constitution? The court answered the first question by noting that the TCPA prohibits robocalls and prerecorded messages to cellular phones and that it “does not limit—either expressly or by implication—the statute's application to cell phone calls.” In answering the second question, the court determined that the alleged injury is exactly the kind of injury the TCPA was created to prevent: a nuisance or invasion of privacy.

    The Third Circuit remanded the case for further proceedings consistent with their findings.

    Courts Appellate Third Circuit TCPA Federal Issues Litigation

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  • Debt Collector Liable for Violating FDCPA and TCPA

    Courts

    On July 3, the Court of Appeals for the Third Circuit affirmed that a debt collector violated the Telephone Consumer Practices Act (TCPA) when it called a consumer’s cell phone without the consumer’s consent, resulting in a damages award of $34,500. Additionally, the appellate court reversed the district court’s decision regarding a Fair Debt Collection Practices Act (FDCPA) claim for sending a collection letter to the consumer without taking proper precautions to ensure the consumer’s account number would remain private. The debt collector put forth the defense of bona fide error regarding its alleged violations of the FDCPA. The appellate court, citing Supreme Court precedent, rejected the defense, holding that bona fide error could be claimed only in the case of a clerical or factual error, but a “mistaken interpretation of the law is inexcusable under the FDCPA’s bona fide error defense.” The Third Circuit remanded the FDCPA claim to the district court to enter judgment for the consumer and calculate the damages the debt collector must pay.

    Courts Privacy/Cyber Risk & Data Security Third Circuit Debt Collection TCPA FDCPA Appellate

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  • FTC Announces Settlement of More Than $104 Million with Company for Selling Sensitive Financial Information

    Privacy, Cyber Risk & Data Security

    On July 5, the FTC issued a press release announcing a settlement of more than $104 million with a lead generation company for allegedly misleading loan applicants with promises of matching consumers with lenders that could offer the best loan terms. Actually, the FTC asserts, defendants were selling the applications, including sensitive personal information such as Social Security numbers and bank account numbers, to anyone who would pay for them “without regard for how the information would be used or whether it would remain secure.”

    The proposed order accompanying the settlement states that defendants used deceptive and unfair acts or practices in the course of their lead generation activities, and permanently prohibits defendants from misrepresenting financial products or services to consumers. It also enjoins defendants from selling or transferring a consumer’s personal information unless the consumer has provided consent and provides that defendants may not benefit from any consumer information collected before the entry of the order. Further, defendants must destroy all personal consumer information in any form within 30 days after the order.

    In addition to the above settlement terms, the defendants agreed to (i) compliance monitoring, (ii) creating certain records for ten years after the date of entry of the order, and (iii) compliance reporting

    Although defendants have filed for bankruptcy, they agreed that the amount owed to the FTC in the settlement will not be dischargeable.

    Privacy/Cyber Risk & Data Security Courts Consumer Lending Internet Lending FTC

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  • Second Circuit Affirms No Actual Harm in FACTA Suit

    Courts

    On June 26, the U.S. Court of Appeals for the Second Circuit held that, without concrete evidence of actual harm, a consumer lacks standing under the Fair and Accurate Credit Transactions Act (FACTA) to sue a merchant for printing credit card expiration dates on receipts. The consumer alleged that printing the expiration date on her credit card receipt led to a material risk of identity theft, and therefore constituted an injury-in-fact sufficient to confer Article III standing. The court disagreed, noting that Congress’s amendments to FACTA belie that expiration dates on credit card receipts increase the risk of identity theft. Moreover, the court held that the consumer failed to allege actual harm from the merchant’s practice.

    The court’s decision in Cruper-Wienmann comes approximately one month after the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 194 L. Ed. 2d 635 (2016), as revised (May 24, 2016), which held that “bare procedural violation[s], divorced from any concrete harm” are not enough to establish standing.

    Courts Second Circuit Litigation FACTA

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  • CFPB Sues Credit Repair Companies for $2 Million

    Consumer Finance

    On June 27, the CFPB filed two complaints in the District Court for the Central District of California against several credit repair companies and affiliated individuals. The CFPB alleged that these defendants violated the Consumer Financial Protect Act and the Telemarketing Sales Rule by charging consumers illegal fees and misleading consumers about services (see complaints here and here).

    According to a CFPB press release, the defendants allegedly “[c]harged illegal advance fees” such as initial consultation fees, and set-up fees prior to providing certain services. Defendants also allegedly “[f]ailed to disclose limits on ‘money-back guarantees’” and “[m]isled consumers about the benefits of their services” by suggesting they could remove negative information from credit reports and “substantial[ly] increase” credit scores.

    The CFPB submitted a proposed final judgment for each suit. In the first suit, the CFPB proposed a civil money penalty of over $1.5 million, and restrained defendants from working in credit repair services or maintaining an ownership interest in any company that provides credit repair services for a period of five years. In the second suit, the CFPB sought similar injunctive relief, and also proposed “equitable monetary relief in the form of disgorgement . . . in the amount of $500,000.”

    Consumer Finance Courts Enforcement CFPB Litigation Credit Scores CFPA Telemarketing Sales Rule

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  • Credit Reporting Agency Assessed Damages of $60 Million for FCRA Violations

    Courts

    On June 20, a federal jury found that a major international credit reporting agency had violated the Fair Credit Reporting Act (FCRA), awarding damages of $60 million. When performing credit checks, the agency allegedly had failed to distinguish law-abiding citizens from drug traffickers, terrorists, and other criminals with similar names found on the Treasury Department’s Office of Foreign Assets Control database, sometimes confusing plaintiffs with individuals on the watch list. The jury determined that the company (i) “willfully fail[ed] to follow reasonable procedures to assure the maximum possible accuracy of the OFAC information it associated with members of the class’’; (ii) “willfully failed to clearly and accurately disclose OFAC information in the written disclosures it sent to members of the class”; and (iii) “failed to provide class members a summary of their FCRA rights with each written disclosure made to them.” The class members were awarded just under the maximum for statutory damages, in addition to punitive damages of more than six times the statutory amount.

    Courts Fair Credit Reporting Act Treasury Department OFAC

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