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Digital asset company to pay $6.5 million to settle CFTC allegations
On March 19, the CFTC announced a $6.5 million settlement with a California-based digital asset company to resolve allegations of false, misleading, or inaccurate reporting concerning its digital asset transactions that violated the Commodity Exchange Act or CFTC regulations. According to the CFTC, from January 2015 to September 2018, the company allegedly operated at least two trading programs that generated orders that, at times, matched each other. The CFTC claimed, among other things, that the transactional information provided on the company’s website and given to reporting services resulted “in a perceived volume and level of liquidity of digital assets. . .that was false, misleading or inaccurate.” Additionally, the CFTC alleged that the company was vicariously liable for a former employee’s use of “a manipulative or deceptive device” to intentionally place buy and sell orders that matched each other, creating a misleading appearance of interest in certain cryptocurrencies. The company did not admit or deny the CFTC’s findings and agreed to pay a $6.5 million civil penalty.
OFAC sanctions additional individuals and entities connected to Burmese military coup
On March 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14014 against two individuals and two entities connected to the Burmese military’s “repression of pro-democracy protests.” The sanctions follow previous actions taken by OFAC earlier this year against several individuals and entities (covered by InfoBytes here and here). As a result of the sanctions, all property and interests in property belonging to the sanctioned persons and “any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons,” subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific license.
Utah creates certain affirmative defenses for data breaches
On March 11, the Utah governor signed HB 80, which provides entities an affirmative defense for a data breach if they follow certain cybersecurity industry standards. Among other things, a “person that creates, maintains, and reasonably complies with a written cybersecurity program” that meets specific safeguard requirements to protect personal information and is in place at the time of the data breach has an affirmative defense to claims brought under Utah law or in the courts of the state that allege the person failed to implement reasonable information security controls that resulted in the data breach. A person also has an affirmative defense to claims regarding the failure to appropriately respond to a data breach or provide notice to affected individuals as long as the written cybersecurity program contained specific protocols at the time of the breach that “reasonably complied with the requirements for a written cybersecurity program” for responding to a data breach or for providing notice. HB 80 also outlines the components that a written cybersecurity program must include to be eligible for an affirmative defense, and is effective 60 days following adjournment of the legislature.
OFAC sanctions Chinese government officials for human rights violations
On March 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13818 against two current Chinese government officials for alleged corruption violations of the Global Magnitsky Human Rights Accountability Act. According to OFAC, the sanctioned persons are connected to serious human rights abuse against ethnic minorities, including Uyghurs, in the Xinjiang region. The sanctions follow previous OFAC designations taken against several other Chinese government entities and current or former government officials for similar corruption violations (covered by InfoBytes here and here). As a result of the sanctions, all property and interests in property belonging to the sanctioned persons, and “any entities that are owned, directly or indirectly, 50 percent or more” by them, subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC notes that its regulations generally prohibit U.S. persons from participating in transactions with these persons, which includes “the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person.”
Fed targets flood insurance violations
On March 18, the Federal Reserve Board announced an enforcement action against a Pennsylvania-based bank for alleged violations of the National Flood Insurance Act (NFIA) and its implementing Regulation H. The consent order assesses a $105,000 penalty against the bank for an alleged pattern or practice of violations of Regulation H but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
Department of Education streamlines borrower defense relief process
On March 18, the Department of Education announced a new, streamlined approach for ensuring federal borrowers who attended institutions that engaged in certain misconduct are able to receive full discharges of their William D. Ford Direct Loan Program loans. The new approach—which rescinds a methodology announced in December 2019 that relied “on publicly available earnings data and a scientifically robust statistical methodology to determine harm”—will immediately create a path for borrowers with approved borrower defense claims to date to receive full loan discharges, including borrowers who already had their claims approved and received only partial relief. In addition, the Department said full relief under the new approach will also include requests to credit bureaus to remove any negative ratings tied to the loans, and reinstatement of a borrower’s federal student aid eligibility, where applicable.
Court rules CDC eviction moratorium unconstitutional
On February 25, the U.S. District Court for the Eastern District of Texas granted plaintiffs’ motion for summary judgment, ruling that decisions to enact eviction moratoriums rest with the states and that the federal government’s Article I power under the U.S. Constitution to regulate interstate commerce and enact necessary and proper laws to that end “does not include the power” to order all evictions be stopped during the Covid-19 pandemic. The Centers for Disease Control and Prevention (CDC) issued an eviction moratorium order last September (set to expire March 31), which “generally makes it a crime for a landlord or property owner to evict a ‘covered person’ from a residence” provided certain criteria are met. The CDC’s order grants the DOJ authority to initiate criminal proceedings and allows the imposition of fines up to $500,000. The plaintiffs—owners/managers of residential properties located in Texas—argued that the federal government does not have the authority under Article I to order property owners to not evict specified tenants, and that the decision as to whether an eviction moratorium should be enacted resides with the given state. The CDC countered that Article I afforded it the power to enact a nationwide moratorium, and argued, among other things, that “evictions covered by the CDC order may be rationally viewed as substantially affecting interstate commerce because 15% of changes in residence each year are between States.”
However, the court disagreed stating that the CDC’s “statistic does not readily bear on the effects of the eviction moratorium” at issue, and that moreover, “[i]f statistics like that were enough, Congress could also justify national marriage and divorce laws, as similar incidental effects on interstate commerce exist in that field.” The court determined that the CDC’s eviction moratorium exceeds Congress’ powers under the Commerce Clause and the Necessary and Proper Clause. “The federal government cannot say that it has ever before invoked its power over interstate commerce to impose a residential eviction moratorium,” the court wrote. “It did not do so during the deadly Spanish Flu pandemic. . . .Nor did it invoke such a power during the exigencies of the Great Depression. [] The federal government has not claimed such a power at any point during our Nation’s history until last year.”
The DOJ issued a statement on February 27 announcing its decision to appeal the court’s decision, citing that the court’s order “‘does not extend beyond the particular plaintiffs in that case, and it does not prohibit the application of the CDC’s eviction moratorium to other parties. For other landlords who rent to covered persons, the CDC’s eviction moratorium remains in effect.’”
Washington passes law allowing mortgage employees to work from home
On March 24, the Washington legislature passed SB 5077, allowing licensed mortgage loan originator activity to be conducted from the mortgage loan originator’s residence if, among other things, certain state and information security requirements are satisfied.
SBA increases lending limit for Covid-19 EIDL program
On March 24, the Small Business Administration (SBA) announced that the maximum amount small businesses and non-profit organizations can borrow through its Covid-19 Economic Injury Disaster Loan (EIDL) program will increase beginning the week of April 6. According to the announcement, SBA will raise the loan limit for Covid-19 disaster loans “from 6-months of economic injury with a maximum loan amount of $150,000 to up to 24-months of economic injury with a maximum loan amount of $500,000.” New loan applications, as well as loans-in-process when the increase takes effect “will automatically be considered” for the new maximum loan limit. This change follows SBA’s announcement earlier this month, which extended the deferment period for all disaster loans, including Covid-19 EIDLs, until 2022 (covered by InfoBytes here).
CFPB: 54 percent increase in consumer complaints from 2019
On March 24, the CFPB published its Consumer Response Annual Report for 2020, providing a review of the Bureau’s complaint process and a description of complaints received from consumers in all 50 states and the District of Columbia between January 1 and December 31, 2020. According to the report, the Bureau handled approximately 542,300 consumer complaints—an almost 54 percent increase from 2019. Of these complaints, the Bureau noted that roughly 32,100 complaints referenced the Covid-19 pandemic or related keywords, but emphasized that complaints that did not include Covid-19 as a keyword were not necessarily an indication that the complaint was not related to the financial impact of the pandemic. Additionally, roughly 84 percent of the complaints were submitted to companies for review and response, nine percent were referred to other regulatory agencies, and seven percent were determined to be incomplete. Report data showed that more than 3,300 companies responded to complaints received by the Bureau, with roughly 11,100 complaints receiving administrative responses. In addition, as of February 1, 2021, approximately 3,900 complaints were still being reviewed by companies, the report stated. The top products and services—representing approximately 92 percent of all complaints—were credit or consumer reporting, debt collection, credit cards, checking or savings accounts, and mortgages. The Bureau also received complaints related to: (i) money transfers and virtual currency; (ii) vehicle finance; (iii) prepaid cards; (iv) student, personal, and payday loans; (v) credit repair; and (vi) title loans. The CFPB also reported that 89 percent of consumers who submitted complaints indicated that they first tried to resolve their issues with the companies.