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  • FDIC orders bank to plan termination of relationships with “significant” fintech partners

    Recently, the FDIC released a consent order against a Tennessee bank as part of its release of January Enforcement Decisions and Orders. The FDIC stated that within sixty days of the effective date of the consent order, the bank must “submit a general contingency plan to the Regional Director… [on] how the [b]ank will administer an effective and orderly termination with significant third-party FinTech partners,” as part of its Third-Party Risk Management program for the bank. The Program must assess and manage the risks posed by all fintech firms associated with the bank. It will include policies related to due diligence and risk assessment criteria that are appropriate to the products and services provided by the fintech partner. The bank must also engage an independent firm for completion of a comprehensive Banking-as-a-Service Risk Assessment Report.

    The bank further consented, without admitting or denying any charges of unsafe or unsound banking practices, to board supervision of the bank’s management and approval of the bank’s policies and objectives, qualified management, the Regional Director’s prior consent for new or expanded lines of business that would result in an annual 10 percent growth in total assets or liabilities, and a comprehensive strategic plan.

     

    Bank Regulatory FDIC Consent Order Fintech Risk Management Enforcement

  • SEC, DFPI charge unregistered crypto platform

    Securities

    On February 7, the SEC and DFPI announced charges against a Florida-based crypto platform, for failing to register the offer and sale of a crypto lending product that allowed U.S. investors to deposit or purchase crypto assets into an account in exchange for promised interest payments.  

    The SEC found that crypto asset accounts with the “interest feature” were offered and sold by the company as securities in the form of investment contracts but failed to register its offer and sale as required by law. Despite voluntarily halting the offering of the interest feature in 2022, the company agreed to pay a $1.5 million penalty to settle the SEC's charges. The SEC also noted that the company announced its intention to terminate all crypto-related products and services in the U.S. on February 22.   

    In addition, DFPI also entered a consent order with the platform to settle an investigation into the platform’s interest-earning program. The resolution is part of a multistate settlement facilitated by a task force led by California and Washington, comprising of eight state securities regulators. The investigation found that from 2020 through 2022, the platform engaged in the unregistered offer and sale of securities through its crypto interest-earning program. The platform offered the program to investors, allowing them to passively earn interest on crypto assets loaned to the platform. The platform maintained “total discretion” over revenue-generating activities to generate returns for investors, DFPI added. As part of the settlement with DFPI, the company agreed to pay a $1.5 million penalty to the DFPI on behalf of 51 U.S. jurisdictions, mirroring a similar settlement with the SEC for the same amount. 

    Securities DFPI SEC Registration Securities Exchange Commission Consent Order Digital Assets

  • Bank to pay $1.9 million to resolve redlining suit

    Federal Issues

    On January 17, the DOJ announced a $1.9 million settlement with a national bank resolving allegations that the bank engaged in unlawful redlining in Memphis, Tennessee by intentionally not providing home loans and mortgage services to majority-Black and Hispanic neighborhoods, thereby violating the Fair Housing Act, ECOA, and Regulation B. In the complaint, the DOJ alleged that from 2015 through at least 2020, the bank (i) concentrated marketing and maintained nearly all its branches in majority-white neighborhoods; (ii) was aware of its redlining risk and failed to address said risk; (iii) generated disproportionately low numbers of loan applications and home loans during the relevant period from majority-Black and Hispanic neighborhoods in Memphis, compared to similarly-situated lenders; (iv) maintained practices that denied equal access to home loans for those in majority-Black and Hispanic neighborhoods, and otherwise “discouraged” those individuals from applying; and others.

    Under the consent order, which is subject to court approval, the bank will, among other things, invest $1.3 million in a loan subsidy fund to enhance home mortgage, home improvement, and home refinancing access in the specified neighborhoods. The bank will also allocate $375,000 in advertising, outreach, and financial counseling to specified neighborhoods, and allocate $225,000 to community partnerships for services boosting residential mortgage credit access in the specified areas. Additionally, the bank will assign at least two mortgage loan officers to serve majority-Black and Hispanic neighborhoods in the bank’s service area and appoint a Director of Community Lending who will oversee the continued development of lending in communities of color. 

    Federal Issues DOJ Consumer Finance Mortgages Redlining Discrimination Consent Order ECOA Regulation B Fair Housing Act Tennessee Fair Lending

  • FTC settles with lead generator for deceiving consumers

    Agency Rule-Making & Guidance

    On January 2, the FTC filed a complaint against a California-based lead generator (the “Company”), alleging that the Company operated as a “consent farm” that deceived consumers into providing their consent to be contacted for telemarketing purposes, then selling those consents to telemarketers, sellers, or intermediaries. Relying on the Company’s purported consent from consumers, those parties then inundated consumers with telemarketing calls. These calls included robocalls and calls made to telephone numbers on the National Do Not Call Registry. Since 2019, the defendants are alleged to have operated over 50 websites focused on lead generation.

    The FTC charged the Company with violating the FTC Act for misrepresenting the collection of consumers’ personal information, and for violating the Telemarketing Sales Rule for assisting and facilitating telemarketers in breaking the Rule.

    On the same day the complaint was filed, the FTC announced a proposed settlement in which the Company was ordered to pay $7 million for its alleged use of deception and dark patterns to trick consumers into providing personal information. Additionally, the proposed stipulated order banned the Company from initiating or helping anyone make telemarketing robocalls, calling phone numbers on the National Do Not Call Registry, and selling consumer information connected with lead generation. The stipulated order must first be approved by the court before it comes into effect. The Company neither admits nor denies any of the allegations

    Agency Rule-Making & Guidance FTC FTC Act Consent Order Fraud Telemarketing Telemarketing Sales Rule

  • CFPB fines and shuts down debt collector for alleged FDCPA, FCRA violations

    Federal Issues

    On December 15, the CFPB announced a consent order against a Pennsylvania-based nonbank medical debt collection company for alleged violations of the FCRA and FDCPA. According to the order, the company failed to (i) establish and implement reasonable written policies and procedures for ensuring the accuracy and integrity of information furnished to consumer reporting agencies; (ii) conduct reasonable investigations into direct and indirect consumer disputes about furnished information; (iii) report direct dispute investigation results to consumers; and (iv) indicate disputed items when furnishing information to reporting agencies. The company also allegedly lacked a reasonable basis for debt-related representations made to consumers and engaged in collection activities after receiving a written dispute within 30 days of the consumer’s receipt of a debt validation notice but before obtaining and mailing a verification of the debt.

    The consent order permanently bans the company from involvement or aid in debt collection, purchasing or selling of any debts, or any consumer reporting activities. The company must also request credit reporting agencies to delete all collection accounts previously reported by the company. Additionally, the company is obligated to pay a $95,000 civil money penalty and must display on its website information that informs consumers about the option to file a complaint with the CFPB.

    Federal Issues CFPB Debt Collection Consent Order Enforcement FDCPA FCRA Regulation V Nonbank

  • Crypto platform to pay $22 million to resolve NY AG suit

    Securities

    On December 13, the New York State Supreme Court entered a stipulation and consent order resolving a suit brought in March against a crypto platform for operating as an unregistered broker-dealer, among other things. As previously covered by InfoBytes, the suit was brought by New York State Attorney General Letitia James who noted this was one of the first times a regulator claimed in court that one of the largest cryptocurrencies available in the market qualified as a security.

    As a result of the consent order, the platform is obligated to refund over $16.7 million worth of crypto in its control “by allowing users to withdraw those balances and transferring any remaining balances after ninety days to a third-party fund administrator,” to more than 150,000 investors in New York. In addition, the platform must pay an additional $5.3 million to the state. As part of the agreement, the platform is barred from trading securities and commodities in New York or from making its platform available to New York residents. 

    Securities New York State Attorney General Consent Order Settlement

  • CFPB announces $5.5 million loss mitigation settlement

    Federal Issues

    On December 18, the CFPB announced a settlement with a mortgage servicer for allegedly violating the CFPA and RESPA’s implementing regulation, Regulation X, due to widespread failures in the handling and processing of homeowners’ applications for loss mitigation options. According to the consent order, which was entered with the mortgage servicer’s successor in interest, the mortgage servicer violated Regulation X by, among other things, failing to (i) state in the acknowledgement notices the additional documents and information borrowers needed to submit to complete loss mitigation applications; (ii) provide a reasonable due date for submission of borrower documents; (iii) properly evaluate borrowers for all loss mitigation options available to them; and (iv) treat certain applications as “facially complete” in accordance with Regulation X. Additionally, the consent order states that the servicer’s alleged failure to “accurately review, process, track, and communicate to borrowers information regarding their applications for loss mitigation options” is an unfair act or practice and the alleged failure to send accurate acknowledgement notices is a deceptive act or practice. The Bureau asserts that the servicer’s failures delayed or deprived some borrowers of a reasonable opportunity to obtain the benefits of a loss mitigation option, resulting in additional harm such as negative credit reporting, additional late fees, and additional interest.

    The consent order requires the successor in interest to pay nearly $5 million in total redress to over 11,000 consumers. The consent order also imposes a $500,000 civil money penalty and includes requirements for operational changes should the successor in interest resume mortgage servicing operations.

    Federal Issues CFPB Enforcement RESPA Regulation X CFPA Consent Order Unfair Deceptive UDAAP Loss Mitigation

  • CFPB outlines application process for early termination of consent orders

    Agency Rule-Making & Guidance

    On October 5, the CFPB issued a policy statement outlining the application process for entities seeking to terminate a consent order before the original expiration date. Generally, consent orders issued by the Bureau carry five-year terms, although the term may be extended in certain circumstances. While reiterating the essential role consent orders play in the Bureau’s enforcement work, the Bureau recognizes that consent orders can impose costly and resource-intensive reporting and record-keeping requirements, and may impact a regulated depository institution’s ability to open new branches or merge or acquire other financial institutions. Acknowledging that there may be “exceptional circumstances” where early termination may be appropriate, the policy statement sets forth eligibility criteria that entities must meet, and lays out the standards that the Bureau intends to use when evaluating early termination applications. It also notes that only entities are permitted to apply for early termination of a consent order. Individuals are not eligible do so.

    Among other things, an entity applying for early termination must demonstrate that it (i) has fully complied with the consent order’s terms and conditions; and (ii) has a “satisfactory” compliance management system in its institutional product line or compliance area under which the consent order was issued. Entities must also meet certain timing and threshold eligibility criteria. The policy statement further specifies that an entity may not apply if it has been banned from participating in a certain industry, if the consent order involves violations of an earlier order, or if any criminal activity is involved. Once an application is determined to be complete, the Bureau states that it “generally intends to complete [its] compliance review within six months.”

    The policy statement takes effect October 8.

    Agency Rule-Making & Guidance CFPB Consent Order Enforcement

  • CFPB settles with short-term lenders for $2 million

    Federal Issues

    On June 2, the CFPB announced a settlement with a payday and auto title loan lender and its subsidiaries (collectively, “lender”) resolving allegations that the lender violated the Consumer Financial Protection Act (CFPA) and TILA. Specifically, the Bureau asserts that the lender—which is based in Cleveland, Tennessee and operates 156 stores in eight states—violated the CFPA and TILA by (i) disclosing finance charges that were substantially lower than what the consumer would actually incur if repaid according to the amortization schedules; (ii) delayed refunds of consumer credit balances for months; (iii) made repeated debt collection calls to third-parties, including workplaces after being told to stop; and (iv) improperly disclosed, or risked disclosure, of consumer debt information to third parties. The Bureau alleges that the lender received over $3.5 million in finance charges that exceeded the amount stated in required TILA disclosures.

    The consent order requires the lender to pay $2 million of the $3.5 million in consumer redress and $1 civil money penalty, based on a demonstrated inability to pay. The consent order also prohibits the lender from misrepresenting finance charges or engaging in unlawful collection practices and requires certain compliance and reporting measures to be undertaken.

    Federal Issues CFPB Payday Lending Installment Loans Settlement CFPA TILA Consent Order Civil Money Penalties

  • CFPB fines short-term lender $1.3 million for unfair and deceptive acts and practices

    Federal Issues

    On April 1, the CFPB announced a $1.3 million settlement with a Texas-based short-term lender to resolve allegations that the lender violated the Consumer Financial Protection Act, FCRA, and TILA. The Bureau alleged that while “marketing, servicing, and collecting on high-interest payday, auto-title, and unsecured consumer-installment loans,” the lender made deceptive representations through advertisements and telemarketing calls when promoting purported loan discounts. The Bureau also alleged that the lender engaged in unfair collection call practices by allegedly calling consumers who failed to make payments numerous times—some more than 15 or 20 times a day—even after being asked to stop. In addition, the lender allegedly repeatedly called consumers’ workplaces and references as a tactic to obtain payments and disclosed, or risked disclosing, to third parties the existence of the delinquent debts. According to the Bureau, the lender also violated FCRA by failing to maintain adequate consumer reporting policies and procedures to ensure the “accuracy and integrity” of the information furnished to consumer reporting agencies, and violated TILA by failing to provide telemarketers guidance on how to lawfully disclose a loan’s annual percentage rate as required by federal law when responding to consumers’ questions about interest and other loan costs.

    Under the terms of the consent order, the lender is required to pay a $1.1 million civil money penalty, $286,675 in consumer redress, and is, among other things, (i) permanently restrained from certain collection practices; (ii) required to ensure employees do not misrepresent discount offers when marketing or selling consumer financial products or services; and (iii) tasked with ensuring employees correctly disclose the APR of loan products.

    Federal Issues CFPB Enforcement UDAAP CFPA FCRA TILA Unfair Deceptive Civil Money Penalties Consent Order Debt Collection

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