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  • CFPB fines installment lender $5 million for improper collection and credit reporting practices

    Federal Issues

    On June 13, the CFPB ordered a South Carolina-based installment lender and its subsidiaries to pay $5 million in civil money penalties for allegedly making improper in-person and telephonic collection attempts in violation of the Consumer Financial Protection Act (CFPA) and inaccurately furnishing information to credit reporting agencies in violation of the Fair Credit Reporting Act (FCRA). According to the consent order, between 2011 and 2016, the company and its subsidiaries (i) initiated collection attempts at consumers’ homes and places of employment; (ii) routinely called consumers at work to collect debts, sometimes after being told they were not allowed to receive calls; and (iii) contacted third parties and disclosed or were at risk of disclosing the existence of the consumer’s debt. The CFPB also alleges that the company and its subsidiaries failed to implement reasonable credit reporting procedures and failed to correct inaccurate information furnished to credit reporting agencies. In addition to the $5 million civil money penalty, the company and its subsidiaries must (i) cease improper collection practices; (ii) correct the credit reporting errors; and (iii) develop a comprehensive compliance plan.

    Federal Issues CFPB CFPA UDAAP FCPA Enforcement Debt Cancellation

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  • SEC settles RMBS supervision and improper markup allegations with brokerage firm

    Securities

    On June 12, the SEC issued an order against a brokerage firm to settle allegations that it violated antifraud provisions of federal securities laws when it failed to properly supervise traders who persuaded customers with false or misleading statements to overpay for residential mortgage-backed securities (RMBS). According to the SEC, the firm misled customers about how much the firm paid for the securities and illegally profited from the improper markups that were, in some cases, allegedly more than twice as much as what the customers should have paid. The order claims that the firm did not charge a traditional commission on the transactions, but rather derived profits “from the difference between the price at which [the firm] sold securities and the price at which it had purchased them.” Additionally, while the firm had policies and procedures to monitor and prevent excessive markups on RMBS transactions, they were “not reasonably designed and implemented.” While neither admitting nor denying the SEC’s charges, the firm agreed to be censured for failing reasonably to supervise its traders, to pay a fine of approximately $5.2 million, and to pay more than $10.5 million in disgorgement and interest to affected customers.

    Securities SEC RMBS Settlement Enforcement

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  • Federal banking agencies release policy statement on interagency notification of enforcement actions

    Federal Issues

    On June 12, the OCC, Federal Reserve, and FDIC (collectively, “Federal Banking Agencies” or “FBAs”) published in the Federal Register a policy statement on interagency notification of formal enforcement actions to assure ongoing coordination after the Federal Financial Institutions Examination Council rescinded its 1997 revised policy statement on “Interagency Coordination of Formal Corrective Action by the Federal Bank Regulatory Agencies.” According to the new policy statement, when making a determination to bring a formal enforcement action, an FBA should evaluate whether a potential enforcement action involves the interests of another FBA and if so, should notify the agency prior to notifying the financial institution about the pending action. The notice to the FBA should contain enough information for the agency to take necessary action to examine or investigate the financial institution.  The statement clarifies that the policy is not intended to substitute or replace the informal communication that routinely occurs between FBAs in advance of an enforcement action.

    Federal Issues FFIEC FDIC Federal Reserve OCC Enforcement

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  • Court approves $12 million settlement between FTC and student debt relief company

    Courts

    On June 8, the U.S. District Court for the Central District of California approved an order requiring an owner and his multiple student debt relief companies (defendants) to pay almost $12 million to settle allegations that the defendants violated the FTC Act and Telemarketing Sales Rule (TSR) when marketing and selling student debt relief services. As part of a coordinated effort between the FTC and state law enforcement called Operation Game of Loans, the FTC filed a complaint in September 2017 alleging the defendants, among other things, charged upfront and monthly fees to enroll students in free government programs to manage student loan debt, but did not perform any services. Additionally, the FTC alleged that the defendants marketed themselves as associated with the Department of Education and called consumers listed on the Do Not Call Registry. Under the settlement order, in addition to the nearly $12 million fine, the defendants are permanently banned from: (i) advertising, marketing, promoting, offering, or selling debt relief or credit repair products or services, or assisting others in such activities; (ii) misrepresenting or assisting others in misrepresenting information relating to any products or services and, specifically, financial products or services; (iii) making any misleading or unsubstantiated representation or assisting others in making any such representation about the benefits, performance, or result of any financial product or service; and (iv) engaging in any unlawful telemarketing practices. The defendants neither admit nor deny any of the FTC’s allegations.

    Courts Consumer Finance FTC Federal Issues Enforcement Student Lending Debt Relief

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  • FTC reports on certain 2017 enforcement activities to the CFPB

    Federal Issues

    On May 17, in response to a request from the CFPB, the FTC transmitted a letter summarizing its 2017 enforcement activities related to Regulation Z (TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act) for the CFPB’s use in preparing its 2017 Annual Report to Congress. The FTC highlighted numerous activities related to the enforcement of the pertinent regulations, including:

    • Payday Lending. The FTC acknowledged the continued litigation against two Kansas-based operations and their owner for allegedly selling lists of counterfeit payday loan debt portfolios to debt collectors in violation of the FTC Act, previously covered by InfoBytes here.
    • Military Protection. The FTC identified the July 2017 military consumer financial workshop and the launch of the new Military Task Force (previously covered by InfoBytes here and here) among the activities the agency engaged in related to protecting the finances of current and former members of the military. The FTC also noted continued participation in the interagency group working with the Department of Defense on amendments to its rule implementing the Military Lending Act.
    • “Negative Option.” For actions under the Regulation E/EFTA, the FTC highlighted numerous “negative option” enforcement actions, in which the consumer agrees to receive goods or services from a company for a free trial option, but if the consumer does not cancel before the trial period ends, the consumer will incur recurring charges for continued goods or services. Among the actions highlighted is a case in which the FTC imposed a $179 million judgment (suspended upon the payment of $6.4 million) settling allegations that the online marketers’ offers of “free” and “risk free” monthly programs for certain weight loss and other products were deceptive.
    • Auto Loans. The letter highlighted, among others, the FTC action against a Southern California-based group of auto dealerships that allegedly violated a prior consent order with the FTC by misrepresenting the cost to finance or lease a vehicle, previously covered by InfoBytes here.

    Federal Issues FTC Act Payday Lending FTC Auto Finance Enforcement Military Lending Act Department of Defense CFPB TILA Consumer Leasing Act EFTA Congress

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  • District Court holds that FTC investigation and initiation of enforcement proceedings do not qualify as final agency actions subject to judicial review

    Courts

    On May 29, the U.S. District Court for the Northern District of California granted the FTC’s motion to dismiss a declaratory-judgment action filed by several California-based companies that provide student loan processing services, along with their CEO/primary shareholder (plaintiffs). In August 2017, having allegedly learned that the FTC “was in the final process of gathering information to file a lawsuit against one or more of [the] [p]laintiffs on the purported and factually unsupportable basis that the [c]ompanies made misrepresentations to consumers” and violated the TSR’s debt relief service provision, the plaintiffs filed for instant declaratory relief under the Declaratory Judgment Act, seeking a declaration that the Telemarketing Sales Rule’s (TSR) debt relief provisions did not apply to them or, alternatively, that they were in compliance with the provisions. In February 2018, the FTC filed an enforcement action against the plaintiffs alleging that their collection of fees in advance of providing services violated the FTC Act and the TSR, and seeking injunctive and equitable relief. The FTC also moved to dismiss the plaintiffs’ declaratory judgment for lack of subject-matter jurisdiction.

    According to the order granting the FTC’s motion, the court agreed with the FTC that the Administrative Procedure Act (APA)—not the Declaratory Judgment Act—is the exclusive, proper vehicle to obtain judicial review of a federal agency’s action. The court then held that the plaintiffs failed to satisfy the two prerequisites for judicial review under the APA, that (i) the agency’s actions constitute as a “final” agency action, and (ii) there exists no other adequate remedy in court. Specifically, the court found that the plaintiffs failed to demonstrate that the FTC’s “investigation into the lawfulness of the [plaintiffs’] actions and initiation of enforcement proceedings” qualified as a “final” agency action subject, and that the plaintiffs’ alternative “adequate remedy” was to be had in the enforcement action brought against them by the FTC, where they would be able to present all of the same defenses and arguments they sought to advance in their declaratory judgment action.

    Courts FTC Enforcement FTC Act Telemarketing Sales Rule Administrative Procedures Act

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  • FTC settles with North Carolina-based debt collection business and its principals

    Consumer Finance

    On June 4, the FTC announced settlements with a North Carolina-based debt collection business and its principals resolving allegations that the business violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by making false, unsubstantiated, or misleading representations regarding debt owed on payday loans or other debts and threatening legal action. As previously covered in InfoBytes, the business allegedly used a variety of “trade names” that sound like law firms to threaten individuals if they failed to pay debt they did not actually owe or that the defendants had no right to collect. The terms of the settlement call for a $2.7 million judgment against the business and one of the principals, as well as a $1.8 million judgment against the remaining principal, with all parties jointly and severally liable for approximately $1.6 million. The judgments will be partially suspended after defendants surrender certain assets. The settlements also prohibit all defendants from debt collection activities as well as from buying or selling debt in the future.

    Consumer Finance Debt Collection FTC Act Enforcement Settlement

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  • FTC settles with two student loan debt relief companies

    Federal Issues

    On May 31, as part of a coordinated effort between the FTC and state law enforcement called Operation Game of Loans, the FTC announced settlements with two student loan debt relief companies. According to the FTC, the settlements resolve claims that the companies violated the FTC Act and the Telemarketing Sales Rule (TSR) by illegally charging consumers upfront fees and falsely promising to reduce or eliminate their student loan debt. The first settlement is the result of a lawsuit filed by the FTC in 2017, alleging that the company would enroll consumers in debt relief programs with an upfront fee and subsequent monthly payments, but would not fulfill promises to apply the payments to the consumers’ student loans. In addition to a $17 million fine, which will be partially suspended if the defendants turn over substantially all assets worth more than $4 million, the settlement bars the defendants from debt relief and credit repair activities in the future.

    The second settlement also results from a 2017 complaint by the FTC alleging that a Los Angeles-based company defrauded consumers through programs offering mortgage assistance and student debt relief. According to the FTC, the company falsely promised distressed homeowners assistance in preventing foreclosure and promised student borrowers reduced monthly payments or loan forgiveness purportedly through the Department of Education. The $9 million settlement, which will be partially suspended once defendants turn over all assets worth $54,000 because of their inability to pay, also bans defendants from participating in debt relief and telemarketing activities in the future.

    For more InfoBytes coverage on Operation Game of Loans see here.

    Federal Issues Consumer Finance FTC Debt Relief Enforcement Student Lending

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  • CFPB Succession: Bureau asks court to stay payday rule litigation; Mulvaney: Bureau may resume PII collection; working on a fintech regulatory “sandbox”; will consider scale and frequency of violations in future actions

    Federal Issues

    On May 31, the CFPB filed a joint motion with two payday loan trade groups, requesting a stay of litigation pending the Bureau’s reconsideration of its final rule on payday loans, vehicle title loans, and certain other high-cost installment loans (Rule) and requesting a stay of the compliance date—currently set for August 19, 2019 for most substantive sections—of the Rule until 445 days after final judgment in the litigation. The motion argues that the stay is necessary for the duration of the rulemaking process because “the rulemaking process may result in repeal or revisions of the [Rule] and thereby moot or otherwise resolve this litigation.”  As previously covered by InfoBytes, on April 9, the payday loan trade groups filed the lawsuit in the U.S. District Court for the Western District of Texas asking the court to set aside the Rule because, among other reasons, the CFPB is unconstitutional and the Bureau’s rulemaking failed to comply with the Administrative Procedure Act. The Bureau announced its intention to reconsider the Rule in January, and reiterated that intent in its Spring 2018 rulemaking agenda.   

    Additionally, acting Director of the CFPB, Mick Mulvaney, reportedly lifted the ban on the Bureau’s collection of personally identifiable information after an independent review concluded that “externally facing Bureau systems appear to be well-secured.” The ban was initially announced in December 2017, soon after Mulvaney began his acting role.

    On May 29, Mulvaney stated in response to a question at a luncheon hosted by the Women in Housing & Finance that the CFPB is working closely with the U.S. Commodities Futures Trading Commission (CFTC) on developing a regulatory “sandbox” for fintech companies—which would provide targeted regulatory relief for companies to test new consumer financial products. While he did not provide many details on the project, he did note the Bureau was reviewing similar state actions for guidance (as previously covered by InfoBytes, Arizona was the first state to create a regulatory sandbox for fintech innovation). Additionally, in response to another question, Mulvaney noted that the Bureau may begin to take into account the scale and frequency of violations when determining whether to take action against a company; a practice, according to Mulvaney, that was not done under previous leadership. When referring to his authority to decide when to pursue an action, he stated, “I think if [a company is] doing something less than one-tenth of 1 percent of the time, maybe…it's evidence of a lack of criminal intent, and maybe there's a good place ... for me to execute some prosecutorial discretion."

    Overall, Mulvaney’s remarks were consistent with previous comments about the direction of the Bureau, including his intention to end the practice of “regulation by enforcement” and his desire to move the CFPB under the Congressional appropriations process. He noted that he is still in the process of reviewing the public disclosure of consumer complaints and whether or not the Consumer Complaint Database will continue to be publicly available. Additionally, he was unable to provide a status update on the Bureau’s future debt collection rule (the Spring 2018 rulemaking agenda lists the rule in a “Proposed Rule Stage” and has the deadline for a notice of proposed rulemaking set for February 2019, see InfoBytes coverage here). Lastly, he reiterated the Bureau’s recent announcement that it is reviewing applications of the disparate impact doctrine under ECOA, stating that he is “reviewing all of [the Bureau’s] rules regarding ECOA, not just in auto lending” because Dodd-Frank requires that the Bureau “enforce federal consumer financial law consistently without regard to the status of the person.”   

    Federal Issues CFPB CFPB Succession Enforcement Fintech Payday Rule

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  • FDIC releases April enforcement actions, including flood insurance and BSA/AML violations

    Federal Issues

    On May 25, the FDIC released a list of 35 administrative enforcement actions taken against banks and individuals in April. Civil money penalties were assessed against several individuals and one bank. The FDIC assessed a $5,000 civil money penalty against a New Jersey-based bank, citing violations of the Flood Disaster Protection Act for allegedly failing to ensure 20 properties were adequately covered by flood insurance for the term of the loan. Additionally, the FDIC issued two consent orders, one against a South Dakota-based bank for unsafe or unsound banking practices or violations of law or regulation. The FDIC ordered the bank to, among other things, (i) retain qualified management; (ii) develop an independent external loan review program; and (iii) develop a plan to address the weaknesses in the bank’s audit and internal controls. The second consent order alleges violations of the Bank Secrecy Act and anti-money laundering (BSA/AML) rules by a Maryland-based bank. The bank is ordered to, among other things, (i) perform an enhanced risk assessment of the bank’s operations; (ii) revise and implement internal controls for BSA/AML compliance; and (iii) take necessary steps to correct or eliminate all cited violations.

    Also on the list are 11 Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and four terminations of consent orders.

    There are no administrative hearings scheduled for June 2018. The FDIC database containing all 35 enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Bank Secrecy Act Anti-Money Laundering Flood Insurance Civil Money Penalties Flood Disaster Protection Act

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