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  • Court grants summary judgment in favor of FTC and Florida State Attorney General in debt relief scam case

    Courts

    On December 10, the U.S. District Court for the Middle District of Florida granted the FTC and the Florida Attorney General’s motion for summary judgment against an individual accused of participating in a scheme that allegedly targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. According to a 2016 complaint, several interrelated companies and the founder of such companies (defendants), among other things, allegedly violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act by (i) claiming to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates; (ii) charging up-front payments for debt relief and rate-reduction services; and (iii) pitching credit card debt-elimination services, claiming the defendants could access money from a government fund to pay off consumers’ credit card debt in 18 months, when in actuality, no such government fund existed. In some cases, the defendants instructed consumers to stop paying their credit-card bills, resulting in “significant harm in the form of reduced creditworthiness, higher interest rates on their existing credit-card debt, and higher overall credit-card debt due to the accrual of late fees and interest charges.”

    The court entered a permanent injunction ordering the defendant founder of the companies involved to pay over $23 million in equitable monetary relief. The order also permanently restrains and enjoins such defendant from, among other things, participating—whether directly or indirectly—in (i) telemarketing; (ii) advertising, marketing, selling, or promoting any debt relief products or services; or (iii) misrepresenting material facts.

    Courts State Attorney General FTC Debt Relief Robocalls FTC Act Telemarketing Sales Rule State Issues

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  • Washington State Department of Financial Institutions adopts amendments concerning student education loan servicers

    State Issues

    On December 3, the Washington State Department of Financial Institutions (DFI) issued a final rule adopting amendments  including student education loan servicing and servicers as activities and persons regulated under the state’s Consumer Loan Act. According to DFI, the amendments will provide consumers with student education loans a number of consumer protections and allow DFI to monitor servicers’ activities. Among other things, the amendments (i) change the definition of a “borrower” to include consumers with student education loans; (ii) specify that collection agencies and attorneys licensed in the state collecting student education loans in default do not qualify as student education loan servicers; and (iii) stipulate that businesses must either qualify for specific exemptions or possess a consumer loan license in order to lend money, extend credit, or service student education loans. In addition, the amendments provide new requirements for servicers concerning the acquisition, transfer, or sale of servicing activities, and specify borrower notification rights. Servicers who engage in these activities for federal student education loans in compliance with the Department of Education’s contractual requirements are exempt.

    The amendments take effect January 1, 2019.

    State Issues Student Lending Student Loan Servicer Consumer Finance Licensing

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  • 9th Circuit reverses lower court’s dismissal of TILA rescission enforcement claims

    Courts

    On December 6, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TILA allegations brought against a bank, finding that the statute of limitations for borrowers to bring TILA rescission enforcement claims is based on state law, and is six years in the state of Washington. The panel opined that, because TILA does not specify a statute of limitations for when an action to enforce a TILA recession must be brought, “courts must borrow the most analogous state law statute of limitations and apply that limitation period” to these type of claims, which, in Washington, is the six-year statute of limitations on contract claims. According to the opinion, the plaintiffs refinanced a mortgage loan in 2010, but failed to receive notice of the right to rescind the loan at the time of refinancing in violation of TILA’s disclosure requirements. Consequently, the plaintiffs had three years—instead of three days—from the loan’s consummation date to rescind the loan. In 2013, within the three-year period, the plaintiffs notified the bank of their intent to rescind the loan. However, instead of taking action in response to the plaintiffs’ notice, the bank instead began a nonjudicial foreclosure nearly four years after the rescission demand, declaring that the plaintiffs were in default on the loan. The plaintiffs filed suit in 2017 to enforce the recession, which the bank moved to dismiss on the argument that the claims were time barred. According to the panel, the lower court wrongly interpreted the plaintiff’s request for damages under the Washington Consumer Protection Act “as a claim for monetary relief under TILA”—which has a one-year statute of limitations—and dismissed the plaintiffs’ claim as time barred without leave to amend. However, the consumers were seeking a declaratory judgment and an injunction, not damages.

    On appeal, the 9th Circuit rejected three possible statute of limitations offered by the lower court. The panel also rejected plaintiffs’ argument that no statute of limitations apply to TILA recession enforcement claims, and held that it could not be assumed that “Congress intended that there be no time limit on actions at all”; rather, federal courts must borrow the most applicable state law statute of limitations. Because the mortgage loan agreement was a written contract between the plaintiffs and the bank, and the plaintiffs’ suit was an attempt to rescind that written contract, Washington’s six-year time limit on suits under written contracts must be borrowed. Therefore, the panel concluded that the plaintiffs’ suit was not time-barred and reversed and remanded the case for further proceedings.

    Courts Ninth Circuit Appellate TILA Rescission Mortgages State Issues

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  • Illinois Attorney General settles with bank over pre-crisis marketing and sale of RMBS

    State Issues

    On December 4, the Illinois Attorney General announced a $17.25 million settlement with a national bank resolving allegations of misconduct in the marketing and sale of residential mortgage backed securities (RMBS) dating back to before the 2008 mortgage crisis. According to the announcement, the bank’s $17.25 million settlement will be distributed to the Teachers Retirement System of the State of Illinois, the State Universities Retirement System of Illinois, and the Illinois State Board of Investment. Additional details on the settlement have not been made available by the state.

    State Issues State Attorney General Settlement RMBS

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  • Virginia Attorney General joins bipartisan coalition to stop or reduce robocalls

    State Issues

    On December 6, the Virginia Attorney General Mark Herring announced he is joining a bipartisan group of 40 state Attorneys General to stop or reduce “annoying and dangerous” robocalls. The multistate group is reviewing, through meetings with several major telecom companies, the technology the companies are pursuing to combat robocalls. According to the announcement, the working group’s goals are to (i) develop an understanding of the technology that is feasible to combat unwanted robocalls; (ii) encourage the major telecom companies to expedite a technological solution for consumers; and (iii) determine if the states should make further recommendations to the FCC. As previously covered by InfoBytes, in October, a group of 35 Attorneys General, including Herring, submitted reply comments to the FCC in response to a public notice seeking ways the FCC could create rules that would enable telephone service providers to block more illegal robocalls. In their comments to the FCC, the coalition encouraged the FCC to implement rules and additional reforms that go beyond the agency’s 2017 call-blocking order, which allows phone companies to proactively block illegal robocalls originating from certain types of phone numbers.

    State Issues Robocalls FCC TCPA State Attorney General

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  • California DBO requests comments on future rulemaking for commercial financing disclosures

    State Issues

    On December 4, the California Department of Business Oversight (DBO) released an invitation for comments from interested stakeholders in the development of regulations to implement the state’s new law on commercial financing disclosures. As previously covered by InfoBytes, on September 30, the California governor signed SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction —defined as an “accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes”—the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the DBO.

    The act requires the DBO to first develop regulations governing the new disclosure requirements, addressing, among other things, (i) definitions, contents, and methods of calculations for each disclosure; (ii) requirements concerning the time, manner, and format of each disclosure; and (iii) the method to express the annualized rate disclosure and types of fees and charges to be included in the calculation. While the DBO has formulated specific topics and questions in the invitation for comments covering these areas, the comments may address any potential area for rulemaking. Comments must be received by January 22, 2019.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance Agency Rule-Making & Guidance Nonbank

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  • Coalition of state Attorneys General announce settlement to resolve allegations concerning debt buyers’ collection and litigation practices

    State Issues

    On December 4, the North Carolina Attorney General, along with 41 other state Attorneys General and the District of Columbia, announced a $6 million settlement with a national group of debt buyers to resolve allegations concerning the debt buyers’ collection and litigation practices. According to the press release, the debt buyers allegedly engaged in robo-signing practices by signing and filing large quantities of affidavits in state courts without first verifying the provided information. Under the terms of the settlement, the debt buyers have agreed to (i) completely eliminate or reduce the judgment balances for affected consumers in the participating states; (ii) reform their business practices by carefully verifying the information in affidavits for the courts and present accurate documents in court proceedings; (iii) review original account documents and provide substantiating documentation to consumers free of charge when a consumer disputes a debt; (iv) “maintain proper oversight and training over its employees and the law firms that it uses”; and (v) refrain from reselling debt for two years.

    State Issues State Attorney General Debt Collection Settlement Robo-signing

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  • New York Attorney General reaches largest ever COPPA settlement to resolve violations of children’s privacy

    State Issues

    On December 4, the New York Attorney General announced the largest Children’s Online Privacy Protection Act (COPPA) settlement in U.S. history—totaling approximately $6 million —to resolve allegations with a subsidiary of a telecommunications company that allegedly conducted billions of auctions for ad space on hundreds of websites it knew were directed to children under the age of 13. According to the Attorney General’s office, the subsidiary collected and disclosed personal data on children through auctions for ad space, allowing advertisers to track and serve targeted ads to children without parental consent. Under COPPA, operators of websites and other online services are prohibited from collecting or sharing the information of children under the age of 13 unless they give notice and have express parental consent. Among other things, the subsidiary also allegedly placed ads on other exchanges that possessed the capability to auction ad space on child-directed websites, but that when it won ad space on COPPA-covered websites, the subsidiary treated the space as it would any other and collected user information to serve targeted ads.

    Under the terms of the settlement, the subsidiary must (i) create a comprehensive COPPA compliance program, which requires annual COPPA training for staff, regular compliance monitoring, and the retention of service providers that can comply with COPPA, as well as a third party who will assess the privacy controls; (ii) enable website operators that sell ad inventory to indicate what portion of a website is subject to COPPA; and (iii) destroy the personal data it collected on children.

    State Issues COPPA Privacy/Cyber Risk & Data Security State Attorney General Settlement Enforcement

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  • NYDFS and international bank enter into second supplemental consent order over BSA/AML compliance deficiencies

    State Issues

    On November 21, NYDFS and an international bank entered into a second supplemental consent order covering its settlement over alleged deficiencies in the bank’s Bank Secrecy Act/anti-money laundering and Office of Foreign Assets Control (OFAC) compliance program controls. As previously covered by Infobytes, in 2012, the bank agreed to engage an independent on-site monitor for 24 months to evaluate the New York branch’s BSA/AML and OFAC compliance programs and operations and was issued a $340 million civil money penalty. In 2014 NYDFS issued a subsequent consent order outlining the monitor’s findings, including reports of significant failures in the bank’s transaction monitoring. The 2014 order extended the engagement of the monitor for another two years, outlined remedial measures to address continued deficiencies, and required the bank to pay an additional $300 million civil money penalty. In April 2017, NYDFS and the bank entered into the first supplemental consent order to modify the 2012 and 2014 orders, acknowledging the bank made significant improvements in its BSA/AML compliance program but extended the monitor through December 2018 with all the other terms and conditions of the 2012 and 2014 consent orders remaining in full effect.

    Now, beginning January 1, 2019, the second supplemental order issued by NYDFS requires the bank to engage an independent consultant, selected by the regulator, for a period of up to one year, with a possible extension of one additional year, to provide guidance for completing remediation called for in the 2012 and 2014 consent orders. In response to the second supplemental order, the bank stated it remained “committed to completing the remaining tasks necessary for that remediation.”

    State Issues NYDFS Financial Crimes Bank Secrecy Act Anti-Money Laundering Compliance Consent Order

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  • Colorado Division of Securities issues cease-and-desist orders against ICOs

    Securities

    On November 20, the Colorado Department of Regulatory Agencies Division of Securities (Division) released a statement announcing four new cease-and-desist orders taken against companies for allegedly selling unregistered securities through initial coin offerings (ICOs) to Colorado consumers. The orders come as a result of investigations conducted by the Division’s ICO Task Force, which was created to investigate potentially fraudulent activity. According to the announcement, the Colorado Securities Commissioner has now signed orders for 18 cases against ICOs, and currently has at least two additional pending orders.

    Securities State Issues Initial Coin Offerings Enforcement

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