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UK’s Prudential Regulation Authority imposes its second highest fine against a bank
On January 30, UK’s Prudential Regulation Authority (PRA) fined a large bank £57,417,500, the second highest fine ever imposed by the PRA, for allegedly failing to properly implement Depositor Protection Rule requirements. The bank allegedly exhibited shortcomings in depositor protection like maintaining information integrity, which is relied upon by the Financial Services Compensation Scheme (FSCS) to make payments to depositors in the event of a firm failure. In addition, the PRA alleged that the bank did not identify eligible deposits for FSCS protection from 2015 to 2022. The bank also allegedly failed to notify the PRA of inaccuracies in its account of eligible FSCS-protected accounts in a timely manner or to appoint a senior manager responsible for ensuring compliance with Depositor Protection Rules. The bank agreed to settle this matter at an early stage of the PRA’s investigation.
FTC bans student loan “scammers” from debt relief industry
On February 6, the FTC announced two orders (here and here) that will ban a group of student loan debt relief “scammers” (defendants) from the debt relief industry. As previously covered by InfoBytes, defendants allegedly misled consumers by charging them for services that are free through the Department of Education, claiming consumers needed to pay fees or make payments to access federal student loan forgiveness. As a consequence, the FTC filed a temporary restraining order resulting in an asset freeze, among other things.
As a result of the FTC’s action, and subject to court approval, defendants are banned from operating in the debt relief industry, as well as prohibited from making false statements about financial products or services and from using deceptive tactics to gather consumers’ financial information. Moreover, the proposed orders include a monetary judgment of $7.4 million, with a significant portion suspended due to financial constraints. Defendants must surrender personal and business assets, and if any of them materially misrepresent their finances, the entire monetary judgment will become immediately payable.
DOJ announces settlement against Pennsylvanian bank for alleged redlining
On February 5, the DOJ, together with the State of North Carolina, announced a settlement with a Pennsylvania-based bank (respondent) to resolve allegations that the bank engaged in a pattern or practice of lending discrimination by engaging in “redlining” in Charlotte and Winston-Salem, North Carolina, in violation of the Fair Housing Act and ECOA. The DOJ’s complaint alleged that from at least 2017 through 2021, the bank failed to provide mortgage lending services to predominantly Black and Hispanic neighborhoods in Charlotte and Winston-Salem and discouraged people seeking credit in those communities from obtaining home loans. The DOJ compared the respondent’s performance with other lenders, noting that other lenders generated applications in predominantly Black and Hispanic neighborhoods at two-and-a-half times the rate of respondents in Charlotte, and four times the rate of respondents in Winston-Salem.
Under the two proposed consent orders, the respondent will, among other things (i) invest at least $11.75 million in a loan subsidy fund to increase access to home mortgage, home improvement, and home refinance loans for residents of majority Black and Hispanic neighborhoods; (ii) spend $1 million on community partnerships; (iii) spend $750,000 for advertising, outreach, consumer financial education, and credit counseling focused on the areas at hand; (iv) open three new branches in the areas at hand, with at least one mortgage banker assigned to each branch; (v) hire a director of community lending who will oversee the continued development of lending in communities of color; (vi) retain independent consultants to enhance its fair lending program and better meet communities’ needs for mortgage credit; (vii) conduct a community credit needs assessment and offer a staff training; and (viii) evaluate its fair lending compliance management systems.
FDIC issues December 2023 enforcement actions
On January 26, the FDIC released a list of administrative enforcement actions taken against banks and individuals in December 2023. During that month, the FDIC made public 12 orders consisting of “four orders of termination of deposit insurance; three orders terminating consent orders; two consent orders; one order terminating supervisory prompt corrective action directive; one order of prohibition from further participation; one order to pay a civil money penalty (CMP); and one Decision and Order to Prohibit from Further Participation and Assessment of Civil Money Penalty.”
Included is a consent order with a Mississippi-based bank for alleged Bank Secrecy Act violations, along with violations of a previous consent order from 2020, imposing a $600,000 civil money penalty. Also included is a consent order with a Kentucky-based bank, alleging the bank engaged in “unsafe or unsound banking practices and violations of law or regulation” relating to, among other things, the Bank Secrecy Act. The bank neither admitted nor denied the allegations but agreed to create a written plan to recover its losses from the bank’s relationship with a third-party loan program, to reduce the bank’s risk position in the program, and to stop granting any extensions of credit through adversely classified or criticized loans related to the third-party loan program. The consent order additionally requires the bank’s board to assess the sufficiency of the bank’s allowance for credit losses (ACL), ensuring the establishment of an appropriate ACL and to uphold and accurately report it. Specifically, “management shall review updated credit risk metrics and loss data for the third-party loan programs referenced in the ROE and ensure appropriate provisions to the ACL relative to this information.”
CFPB reflects on 2023 enforcement actions; states upcoming enforcement goals
On January 29, the CFPB released a blog post on its enforcement actions from 2023, as well as its outlook for 2024. In 2023, the CFPB reportedly filed 29 enforcement actions and resolved six final orders on previously filed lawsuits. Compensation-wise, the Bureau required entities to pay approximately $3.07 billion in compensation to consumers and nearly $500 million in civil money penalties. The CFPB highlights some key enforcement actions from 2023, such as helping protect servicemembers from loan exploitation, as previously covered in Infobytes here, and taking action against the alleged illegal junk advance fees from credit repair services, also covered in Infobytes here.
Looking forward to 2024, the CFPB stated its intent to increase its capacity. The Bureau’s outlook falls in line with previous comments from a CFPB representative in an FTC panel, covered by InfoBytes here. The blog post provides greater detail, outlining the Bureau’s plans to hire more technology experts to help enforce the law against emerging technologies, as well as expanding its enforcement capacity by adding more attorneys, analysts, paralegals, and economists, among others.
SEC rejects petition to amend the “no admit/no deny policy”
On January 30, the SEC rejected a nonprofit’s 2018 rulemaking petition that requested an amendment to Rule 202.5(e) under Commission Rule of Procedure 192(a), which outlines the terms for the Commission's acceptance of settlements in enforcement actions. Specifically, the rule prohibits settlements imposing sanctions if a defendant can publicly deny the Commission's allegations.
The rejection letter emphasizes the SEC’s authority to investigate securities law violations and initiate enforcement actions, saying that considering the request “could undermine confidence in the Commission’s enforcement program.” The SEC highlights its reliance on consent judgments and the contractual nature of settlements, as well as the potential implications of the proposed amendment on the SEC’s settlement process, adding that “it could undermine confidence in the Commission’s enforcement program.” SEC Chair Gary Gensler said in a statement supporting the decision that “a settlement that allows the denial of wrongdoing undermines the value provided by the recitation of the facts, and it muddies the message to the public.”
The Commission has decided not to amend Rule 202.5(e), affirming that the rule is a valid exercise of its authority in pursuing enforcement actions and settling cases. The policy allows the SEC to retain the option of seeking legal remedies if a defendant publicly denies allegations after settling. The letter also emphasizes that the constitutional and statutory arguments presented in the petition lack merit and conflict with established legal precedent regarding the waiver of rights in civil settlements. The Commission underscores the importance of the “no-deny” provision in preserving its ability to challenge public denials in court and rejects the notion that settling defendants can later deny allegations without consequence.
FTC orders companies and individuals to turn over millions
On January 17, the FTC announced two proposed settlements against an independent sales organization and its owners (collectively, “defendants”) for allegedly participating in deceptive and unfair acts and practices. The FTC alleges the defendants violated FTC Act, the Business Opportunity Rule, the Cooling-Off Rule, and the Consumer Review Fairness Act by targeting Spanish-speaking consumers with “false or unfounded earnings claims and other deceptive promises,” relating to business opportunities. According to the complaint, defendants sold business opportunities to Spanish-speaking consumers that used unsubstantiated earnings claims to convince consumers to pay thousands of dollars for its products and services. The complaint also alleged that although defendants’ marketing and sales were conducted largely in Spanish, the company’s purchase agreements that outline the cancellation policy were often provided exclusively in English. Additionally, the complaint alleged that defendants frequently rejected consumers’ refund requests as untimely, and when consumers reported the defendants to law enforcement or the Better Business Bureau, defendants offered partial refunds to those consumers contingent upon their withdrawal of their complaints and agreement to refrain from posting negative reviews about defendants.
The proposed stipulated order, among other things, would (i) permanently ban the defendants from offering any business coaching on ecommerce or real estate; (ii) require the defendants to support their claims about how much consumers can earn using any product or service that the defendants market or sell; (iii) prohibit the defendants from repeating the unlawful practices that formed the basis for the complaint; (iv) require defendants to pay $29,175,000 and surrender all funds and assets of the receivership entities and those additionally listed; and (v) identify repayment obligations of various financial institutions and require the identified financial institution to remit the balance of each identified account to the Commission. The defendants neither admitted nor denied any of the allegations in the complaint.
Bank to pay $18 million for violating a whistleblower protection rule
On January 16, the SEC accepted a global financial services firm’s offer of settlement to resolve allegations of violations of the whistleblower protection rule, which prohibits any action that might impede an individual from communicating with the SEC about securities law violations. According to the SEC, from March 2020 through July 2023, the firm asked clients to sign a confidential release if they were issued a credit or settlement from the firm of more than $1,000. The release required clients to “promise[] not to sue or solicit others to institute any action or proceeding against [respondent] arising out of events concerning the [a]ccount.” The SEC claimed that at least 362 clients have signed the release since 2020. In connection with the settlement, the firm agreed to be censured, to cease and desist further violations of the rule, and to pay an $18 million civil money penalty.
Texas resolves securities fraud case with decentralized finance lending platform
Recently, a decentralized finance crypto lending platform and its owners (respondents) entered into a settlement agreement with a Texas regulatory agency, resolving an emergency cease-and-desist action brought in June 2023. The Texas State Securities Board alleged that respondents committed securities fraud in connection with the offers and sales of investments, falsely denied the platform’s impending bankruptcy, and “secretly” transferred customer funds to a crypto exchange, as well as offered unregistered securities. Under the terms of the settlement, respondents have agreed to, among other things, (i) inform clients of its plan for asset return within seven days of the settlement and provide a seven-day window for clients to withdraw assets through the app; (ii) continue to provide customer support to prior customers; (iii) pay an administrative fine; and (iv) cease-and-desist from selling unregistered securities in the state without admitting or denying the allegations. Texas also agreed to dismiss its emergency cease-and-desist order as part of the settlement.
Colorado Attorney General fines debt collector $500,000 for collecting on illegal loans
On January 16, the Colorado State Attorney General (AG) reached a settlement agreement with a third-party debt collection company that is ordered to pay $500,000 to the State. The company previously contracted to collect debt from consumers on behalf of unlicensed lending entities associated with Native American tribes, or Tribal Lending Entities (TLEs). According to the settlement agreement, none of the TLEs were licensed Colorado lenders and all of their loan agreements with consumers contained finance charge terms that exceeded the Uniform Consumer Credit Code’s 12 percent finance charge cap on unlicensed lenders—with most having interest rates that exceeded 500 percent APR and some up to 900 percent APR. The AG alleged that, between 2017 and 2022, the company violated the Colorado Fair Debt Collection Practices Act by using “unfair or unconscionable means” to collect on defaulted TLE-issued loans by representing to consumers that the entire loan balance was owed to the TLEs, that the company was legally authorized to collect the payments, and that consumers were legally obligated to pay the full amount. The company denies that its conduct violated any state law and otherwise denies all allegations of wrongdoing. Along with the penalty, the company will be barred from collecting on any debt where the loan’s APR exceeded the 12 percent cap and will provide the State with a list of affected consumers within 30 days.