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CFPB charges debt-settlement company with TSR and CFPA violations
On December 1, the CFPB announced it filed a complaint in the U.S. District Court for the District of Massachusetts against a Massachusetts-based debt-settlement company alleging violations of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). According to the complaint, the company violated the TSR and/or the CFPA by, among other things, (i) requesting and receiving payment of fees for their services before they renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to an agreement or before a consumer had made a payment under their agreement; (ii) misrepresenting to consumers that it would not charge fees for its services until it settled a debt and consumers made payments under the settlement to the creditor; (iii) charging fees based on the amount of debt after enrollment instead of the amount of debt at the time of enrollment; and (iv) failing to disclose the amount of time it would take the company to make a settlement offer or the amount of debt the consumer would need to accumulate to make a settlement offer to each creditor. The complaint seeks an injunction against the company as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
OCC releases 2021 fees and assessments schedule
On December 1, the OCC issued Bulletin 2020-106, which informs all national banks, federal savings associations, and federal branches and agencies of foreign banks of the agency’s 2021 fees and assessment rates. For 2021, the OCC is reducing the rates in all fee schedules by 3 percent, which “reflects cost savings in the OCC’s operations and projections of the OCC’s revenues and expenses.” Additionally, the OCC notes that for the 2021 assessment year, among other things, (i) there will be no inflation adjustment to assessment rates; (ii) new entrants to the federal banking system will be assessed on a prorated basis using call report information as of December 31 or June 30, depending on the entrance date; and (iii) the hourly fee for special examinations and investigations will increase from $140 to $150. The bulletin takes effect January 1, 2021.
9th Circuit vacates summary judgment in bankruptcy, FDCPA action
On November 25, the U.S. Court of Appeals vacated summary judgment in favor of defendants in an action alleging the defendants violated the FDCPA by attempting to collect a debt that was discharged in a bankruptcy proceeding and no longer owed. According to the opinion, after the plaintiff fell behind on dues that were owed to his homeownership association (HOA), a law firm acting as a debt collector on behalf of the HOA obtained a lien for the unpaid debt and initiated nonjudicial foreclosure proceedings. The plaintiff filed and received approval for Chapter 13 bankruptcy protection. A separate collection agency that received the plaintiff’s HOA arrearage payments eventually informed the bankruptcy trustee that the HOA debt was “paid in full,” with a notice issued to that effect. An order of discharge was entered in the case by the bankruptcy court after the completion of payment was verified. Following the bankruptcy discharge order, the law firm—whose records still showed an unpaid balance—undertook collection efforts again. The plaintiff informed the law firm that the debt had been paid, and—after further review—the law firm acknowledged a communication from the collection agency that stated the debt had been paid in full. The plaintiff filed suit, but the defendants argued that the claims were precluded under Walls v. Wells Fargo Bank, N.A. because the debt was discharged in bankruptcy. The district court granted the defendant’s motion for summary judgment, ruling that the plaintiff’s “FDCPA claims were precluded ‘because they are premised upon violations of the bankruptcy post-discharge injunction.’”
On appeal, the 9th Circuit concluded that the plaintiff’s claims were not precluded by the Bankruptcy Code. The appellate court observed that while its 2002 decision in Walls generally indicates that the Bankruptcy Code precludes FDCPA claims premised on a violation of a bankruptcy discharge order, it did not apply in this case. Among other things, the panel determined that the plaintiff’s FDCPA claims were not premised on an issuance or violation of the discharge order in the bankruptcy proceeding. Rather, the plaintiff’s FDCPA claims were based on a debt that was fully satisfied through arrearage payments as part of a Chapter 13 plan before a discharge order was entered. As such, the appellate court determined that “just because [the plaintiff] made his arrearage payments through operation of a bankruptcy plan” it “does not render his FDCPA claims inextricably intertwined with bankruptcy issues.”
District court advances CFPB action against bank for alleged TILA, CFPA violations
On December 1, the U.S. District Court for the District of Rhode Island denied a national bank’s motion to dismiss a CFPB lawsuit alleging violations of the Consumer Financial Protection Act (CFPA) and TILA, rejecting the bank’s arguments that, among other things, the CFPB’s claims were time-barred and that the case cannot proceed because the CFPB’s structure violates constitutional separation-of-powers identified in Seila Law LLC v. CFPB. As previously covered by InfoBytes, the CFPB filed suit in January against the bank alleging, among other things, that when servicing credit card accounts, the bank failed to properly (i) manage consumer billing disputes for unauthorized card use and billing errors; (ii) credit refunds to consumer accounts resulting from such disputes; or (iii) provide credit counseling disclosures to consumers. According to the CFPB, the alleged conduct “began in 2010 or earlier and ended, depending on the violation, sometime in 2015 or 2016.” The CFPB also noted that the parties signed agreements tolling all relevant statutes of limitations from February 23, 2017, until January 31, 2020. The bank argued that the CFPB’s claims are governed by section 1640 of TILA with its one-year statute of limitations, but the CFPB countered that its claims were brought pursuant to section 1607 of TILA, which provides a “three-year discovery period.”
In denying the bank’s motion to dismiss, the court concluded that the tolling agreements were valid and that the three-year limit under section 1607 applied because “plain language indicates that § 1640 only governs cases brought by individuals or state attorneys general,” whereas § 1607 “provides the cause of action for federal enforcement agencies such as the CFPB.” Furthermore, the court determined that because § 1607 “does not contain a statute of limitations,” and “instead stat[es] that cases brought by the CFPB ‘shall be enforced under. . . subtitle E of the [CFPA],’ the action is governed by subtitle E’s requirement that cases be brought within three years of discovery by the CFPB.” The court also dismissed the bank’s constitutional claims, ruling, among other things, that the argument is moot following the U.S. Supreme Court’s decision in Seila, which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the CFPB (covered by a Buckley Special Alert).
SEC announces whistleblower awards totaling over $6.9 million
On December 1, the SEC announced a joint award of over $6 million to two whistleblowers whose information and assistance led to a successful SEC enforcement and related actions. According to the redacted order, the information led to “actions related to a complex [redacted] scheme involving multiple individuals and tens of millions of dollars in ill-gotten gains.” Moreover, the whistleblowers “substantially assisted” the SEC and another agency by “submitting information and documents, participating in interviews, and identifying key individuals involved in the misconduct.”
Earlier on November 19, the SEC announced a whistleblower award of over $900,000 in connection with an ongoing overseas securities investigation. According to the redacted order, the whistleblower provided “significant and timely information” to the Commission, which expanded and expedited the investigation and resulted in Commission charges. Additionally, the whistleblower “identified alleged violations that were occurring overseas, some of which would have been difficult to detect in the absence of [the whistleblower’s] information.”
The SEC has now paid a total of $728 million to 118 individuals since the inception of the program.
OFAC sanctions Chinese tech company for supporting Maduro regime
On November 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against a Chinese technology company for allegedly “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, actions or policies that undermine democratic processes or institutions.” The sanctions, issued pursuant to Executive Order (E.O.) 13692, reflect Treasury’s continued efforts to hold persons who offer support to the Maduro regime accountable. As a result, all property and interests in property belonging to the identified individuals subject to U.S. jurisdiction are blocked, and “any entities that are owned, directly or indirectly, 50 percent or more by the designated individuals, are also blocked.” U.S. persons are generally prohibited from dealing with any property or interests in property of blocked or designated persons.
Concurrently, OFAC issued Venezuela-related General License (GL) 38 and a related frequently asked question. GL 38 authorizes the wind down of transactions and activities involving the sanctioned company or any entity owned—directly or indirectly at a 50 percent or greater interest—through January 14, 2021, which would otherwise be prohibited by E.O. 13692. According to OFAC, GL 38 does not authorize (i) any debit to the sanctioned entity’s accounts on a U.S. financial institution’s books; or (ii) any transactions otherwise prohibited by the Venezuela Sanctions Regulations.
OCC publishes Volcker Rule quantitative measurement instructions
On November 30, the OCC released instructions and technical specifications for preparing and submitting quantitative measurements relating to Section 13 of the Bank Holding Act, commonly known as the Volcker Rule. As previously covered by InfoBytes, in 2019, the OCC, FDIC, Federal Reserve Board, CFTC, and SEC published a final rule amending the regulations implementing the Volcker Rule. Under the amendments, “banking entities with significant trading assets and liabilities” are required to “submit certain quantitative measurements on a quarterly basis and in accordance with the XML schema posted on the OCC’s ‘Volcker Rule Implementation’ web page.” The compliance date for the final rule is January 1, 2021.
CFPB issues automated underwriting NAL to Fintech
On November 30, the Bureau issued a no action letter (NAL) to a Fintech covering its automated underwriting and pricing model that facilitates the origination of unsecured, closed-end loans made by third party lenders. The NAL states that the Bureau will not bring supervisory or enforcement actions against the lender concerning alleged discrimination on a prohibited basis from its use of the automated model for unsecured, closed-end loans under (i) Section 701(a) of ECOA and Sections 1002.4(a) and (b) of Regulation B; or (ii) its authority to prevent unfair, deceptive, or abusive acts or practices. According to the lender’s application, after applicants meet initial eligibly requirements, the automated model, which uses artificial intelligence techniques and alternative data, is designed “to assess the individual risk profile of [eligible] applicants…and is responsible for assigning the maximum amount an applicant can borrow and the appropriate interest rate based on that risk assessment.” If the model’s assigned interest rate “falls within the parameters of a lending partner’s loan program,” the applicant will be approved. The NAL expires after 36 months.
OFAC sanctions entities for assisting North Korean regime
On November 19, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13722 against two entities allegedly involved in the exportation of forced labor from North Korea. According to OFAC, the sanctioned entities—a Russian construction company and a North Korean company—have “engaged in, facilitated, or been responsible for the exportation of forced labor from North Korea, including exportation to generate revenue for the Government of North Korea or Workers’ Party of Korea.” In addition, OFAC updated the Specially Designated Nationals and Blocked Person List to provide additional information on three previously designated companies responsible for sending North Korean workers to Russia and China. As a result of the sanctions, “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and warned foreign financial institutions that if they knowingly facilitate significant transactions for any of the designated individuals or entities, they may be subject to U.S. secondary sanctions.
1st Circuit: Original creditor’s arbitration agreement applies to debt buyer
On November 25, the U.S. Court of Appeals for the First Circuit affirmed a grant of a motion to compel arbitration in a debt collection action, concluding that a debt buyer holds the same arbitration rights as the original creditor under a cardmember agreement entered into with the plaintiff. The debt buyer purchased a pool of defaulted credit card debts from the original creditor, including the plaintiff’s charged-off account. After a municipal judge ruled that the debt buyer could not prove it owned the unpaid debt, the plaintiff filed a class action lawsuit alleging, among other things, that the debt buyer and its law firm (collectively, “defendants”) violated the FDCPA by attempting to collect the debt after the statute of limitations had expired. The defendants filed a motion to compel arbitration, and the district court approved the magistrate judge’s recommendation that an enforcement clause in the cardholder agreement between the plaintiff and the original creditor be enforced. The plaintiff appealed, arguing that the defendants should not be able to compel arbitration because they were not the signatories of the original cardholder agreement.
On appeal, the 1st Circuit concluded that the plaintiff offered no support for deviating from the “long-standing given in contract law. . .that ‘an assignee stands in the shoes of the assignor,’” holding that the original creditor’s rights were assigned to the debt buyer and its agents, including the right to invoke the cardmember agreement’s arbitration provision.