InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
International medical waste provider agrees to $84 million FCPA settlement
On April 20, the DOJ entered into a deferred prosecution agreement (DPA) with an Illinois-based international medical waste management company, in which the company agreed to pay a fine of approximately $52.5 million related to a conspiracy to violate the FCPA’s anti-bribery provision and books and records provisions. Together with a related resolution with the SEC, and with various foreign authorities, the total resolution will reach over $84 million.
According to the DOJ, between 2011 and 2016, the company participated in a scheme to bribe officials at government agencies and instrumentalities in Brazil, Mexico, and Argentina to obtain and retain business and to secure improper advantages in connection with providing waste management services. An executive at the company’s Latin America division directed employees in the company’s offices in Brazil, Mexico, and Argentina to pay bribes, typically in cash, that were calculated as a percentage of the underlying contract payments owed to the company from government customers.
As part of the DPA, the company agreed to cooperate with the DOJ’s ongoing or future investigations, to improve its compliance program, and to retain an independent compliance monitor for two years, followed by self-reporting for the remainder of the term.
The DOJ noted that in addition to cooperation and remediation the resolution reflects a number of factors including, the company’s (i) “failure to voluntarily and timely disclose the conduct that triggered the investigation”; and (ii) “the nature, seriousness, and pervasiveness of the offense.”
The SEC simultaneously announced a resolution of a related matter, in which the company consented to a cease-and-desist order finding violations of the FCPA’s anti-bribery, books and records, and internal accounting controls provisions. According to the SEC, the scheme also included sham third-party vendors who used false invoices to conceal cash payments to government clients. In addition, the company failed to have sufficient internal accounting controls in place to prevent or detect the misconduct and failed to implement its FCPA policies or procedures prior to 2016. Under the terms of the order, the company agreed to pay $28.2 million in disgorgement and prejudgment interest, of which up to $4.2 million will be offset by disgorgement paid to foreign authorities.
District Court compels college operator to testify in CFPB CID challenge
On April 20, a magistrate judge for the U.S. District Court for the District of Utah issued a report and recommendation in a CFPB action seeking to compel testimony from a private, non-profit operator of several colleges as part of its petition to enforce a 2019 civil investigative demand (CID). The CID seeks information about (i) the operator’s private student loan program to determine whether its private financing program violated federal consumer financial laws; and (ii) litigation involving the operator’s student loan program in which it has been a party in since 2012. The CID also sought testimony for what it said was an investigation into whether the operator had misled student borrowers about the offered loans or signed them up for loans without their knowledge or consent—a potential UDAAP violation. Former Bureau Director Kathleen Kraninger previously denied a petition to set aside the CID (and ultimately ratified its enforcement), but offered to narrow the CID’s scope to only require testimony regarding the first of these topics on the condition that the operator would testify as scheduled. The Bureau filed a petition to enforce the CID after the operator failed to comply. The operator challenged the Bureau’s single-director structure (which was addressed in rulings issued by the U.S. Supreme Court in Seila Law v. CFPB and Collins v. Yellen, covered by a Buckley Special Alert here and InfoBytes here), and argued, among other things, that the CID was “overly broad” and “burdensome.”
The magistrate judge rejected the majority of the operator’s arguments, which included constitutional arguments, lack of relevance, abuse of process, and that the demand is too indefinite, overly broad and burdensome. The magistrate judge concluded that enforcing the compromise offered by the Bureau back in 2019 would be an equitable solution and give the agency the necessary information without imposing undue burden, explaining that the defendant “has now had multiple years to prepare witnesses for deposition and should not be unduly burdened to answer questions regarding its own private-student-loan program.”
CFPB, New York sue remittance provider
On April 21, the CFPB and New York attorney general filed a complaint against a remittance provider (defendant) for allegedly violating the Electronic Funds Transfer Act and its implementing Regulation E and the Remittance Rule (the Rule) and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws. The Bureau’s announcement called the defendant a “repeat offender” citing that in 2018, the FTC filed a motion for compensatory relief and modified order for permanent injunction against the defendant, which alleged that it failed to adopt and implement a comprehensive fraud prevention program mandated by the 2009 order (covered by InfoBytes here). The CFPB complaint alleges that from October 2018 through 2022, the defendant: (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further noted that the defendant’s “own assessments of consumers’ complaints showed that the dates Defendants disclosed to consumers, repeatedly, were wrong,” and that the defendant “found multiple delays in making funds available to designated recipients, including delays that constituted errors under the Rule,” among other things. Finally, the Bureau claims that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders.” The Bureau’s complaint seeks consumer restitution, disgorgement, injunctive relief, and civil money penalties. According to a statement released by CFPB Director Rohit Chopra, "the remittance market is ripe for reinvention, and the CFPB will be examining ways to increase competition and innovation for the benefit of both families and honest businesses, while also avoiding creating a new set of harms."
HUD announces $15,000 payment for FHA violations
On April 19, HUD announced a conciliation agreement with a national bank and one if its loan officers to resolve allegations that respondents violated the Fair Housing Act (FHA) by denying a mortgage loan to a couple until after one of the applicants returned to work from maternity leave. Under the FHA, it is unlawful to discriminate in the terms, conditions, or privileges associated with the sale of a dwelling on the basis of race, color, national origin, religion, sex, disability, or familial status, including denying a mortgage loan because an applicant is on maternity leave. In addition to requiring a $15,000 payment be made to the couple, the bank must “adhere to a policy wherein applicants on temporary leave, including parental leave, can be approved for a mortgage prior to returning to active work status,” and provide fair lending training to employees. The conciliation agreement does not constitute an admission by respondents or evidence of a finding by HUD of a violation of the FHA.
FTC takes action against day-trading company for deceptive sales techniques
On April 19, the FTC filed a complaint against a day-trading investment company and its CEO alleging the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) in connection with the company’s investment opportunities. According to the complaint, the Massachusetts-based defendants promote day-trading investments online and sell programs promising to show consumers how to earn substantial profits in a short time period. The FTC contends that the defendants promote these so-called “profitable” and “scalable” trading strategies to consumers through allegedly deceptive sales pitches and inform consumers that their strategies are effective even with initial investments as small as $500. However, the FTC claims that 74 percent of customers’ accounts actually lost money and that only 10 percent of the accounts earned more than $90.
Under the terms of the proposed stipulated order, the defendants are required to pay $3 million in consumer redress and are permanently restrained and enjoined from making unsubstantiated earnings claims concerning consumers’ potential to earn money using their trading strategies regardless of the amount of capital invested or the amount of time spent trading. Defendants are also prohibited from violating federal law, or from making any misrepresentations about investment opportunities, including misrepresentations in connection with telemarketing regarding the amount of “risk, liquidity, earnings potential, or profitability of goods or services that are the subject of a sales offer.”
CFPB and FTC release 2021 FDCPA report
On April 15, the CFPB and the FTC released their annual report to Congress on the administration of the FDCPA (see announcements here and here). The agencies are delegated joint FDCPA enforcement responsibility and, pursuant to a 2019 memorandum of understanding, may share supervisory and consumer complaint information, as well as collaborate on education efforts (covered by InfoBytes here). Among other things, the annual report provided a broad overview of the debt collection industry during the Covid-19 pandemic and highlighted enforcement actions taken by, and education and outreach efforts, policy initiatives, and supervisory findings of, the CFPB and FTC. With respect to enforcement, the report noted that: (i) the FTC resolved three FDCPA cases against 17 defendants and banned all 17 companies and individuals who engaged in serious and repeated violations of law from engaging in debt collection; (ii) there was one new public enforcement action brought in 2021 related to unlawful debt collection conduct; (iii) the Bureau resolved two pending lawsuits with FDCPA claims and also filed an action to recover a fraudulent transfer to enforce a prior judgment that penalized a defendant’s FDCPA violations, which resulted in judgments for $2.26 million in consumer redress; and (iv) by the end of 2021, the Bureau had three FDCPA enforcement actions pending in federal court. The report also noted that the CFPB handled roughly 121,700 debt collection complaints in 2021, of which the Bureau sent approximately 73,600 (or 60 percent) to companies for their review and response. Finally, the report also noted that the U.S. Supreme Court’s decision in AMG Capital Management v. FTC “made it much more difficult for the FTC to obtain monetary relief for unfair or deceptive debt collection practices that fall outside the scope of the FDCPA.” As previously covered by InfoBytes, in that decision the Court unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.”
DOJ initiates SCRA action for auctioning servicemember vehicles without court orders
On April 15, the DOJ filed a complaint in the U.S. District Court for the Eastern District of Virginia against a Virginia-based towing company for allegedly auctioning vehicles owned by at least seven active duty servicemembers without first obtaining the required court orders. Under the Servicemembers Civil Relief Act (SCRA), a person holding a lien on property or effects of a servicemember may not enforce or foreclose on that lien during, or within 90 days after, a period of military service without a court order. According to the complaint, several factors should have alerted the towing company to the fact that the vehicles belonged to a servicemember, including that the vehicles were towed from a military base and one contained a duffel bag containing military uniforms and other evidence of the servicemember’s military service. Additionally, the DOJ contended, among other things, that the company’s policies and procedures “failed to include any mention at all of the SCRA or the protections it grants to servicemembers whose vehicles have been towed,” nor did these policies include the use of the Defense Manpower Data Center database “to determine a vehicle owner’s military status prior to selling, auctioning off, or otherwise disposing of a vehicle without a court order.” The DOJ seeks damages for the affected servicemembers and civil penalties, as well as a court order enjoining the company and all associated persons from engaging in the illegal conduct.
FTC takes action against medical school for deceptive tactics
On April 14, the FTC filed a complaint against a Caribbean for-profit medical school and its Illinois-based operators alleging the defendants violated the Telemarketing Sales Rule, Holder Rule, and Credit Practices Rule (CPR) in connection with its marketing and credit practices. According to the complaint, the defendants improperly marketed the school’s medical license exam pass rate and residency match success. In addition, financing contracts omitted a legally-mandated Holder Rule notice in their credit agreements, among other things. Under the Holder Rule, “any seller that receives the proceeds of a purchase money loan [must] include, in the underlying credit contract, a specific notice informing the consumer of their right to assert claims against any holder of the credit contract.” In addition to omitting the required notice, the defendants also allegedly attempted to waive consumers’ legal rights by inserting language in the credit agreements stating, “ALL PARTIES, INCL[U]DING BOTH STUDENT BORROWER AND COSIGNER. . .WAIVE ANY CLAIM OR CAUSE OF ACTION OF ANY KIND WHATSOEVER THAT THEY MAY HAVE WITH RESPECT TO [DEFENDANT]…” The FTC also contended that the defendants included a notice informing cosigners of their liability in the middle of the contract, instead of providing a separate document containing specific language required by the CPR.
Under the terms of the proposed stipulated order, the defendants are required to pay a $1.2 million judgment that will go towards refunds and debt cancellation for affected consumers, and also cease collection of approximately $357,000 in consumer debt covered by the proposed order. Defendants are also required to notify each consumer that their debt is being cancelled and that consumer reporting agencies will be directed to delete the debt from the consumers’ credit reports. Additionally, defendants are prohibited from misrepresenting their pass rates and residency matches, and from making unsubstantiated claims or violating federal law. The order also provides Holder Rule protections, including prohibiting defendants from selling, transferring, or assigning any consumer credit contracts unless the recipient of such contract agrees, in writing, “that its rights are subject to the borrowers’ claims and defenses against [d]efendants” and requiring defendants to notify each borrower whose credit contract is sold.
FTC settles with retailers over deceptive product representation
On April 8, the FTC used its Penalty Offense Authority against two national retailers for allegedly engaging in false labeling and marketing tactics by presenting rayon textile products as bamboo. According to the complaints (see here and here), which were filed by the DOJ on behalf of the FTC, since at least 2015, the companies allegedly made false or unsubstantiated representations in violation of the FTC Act by improperly labeling and marketing textile fiber products as “made of bamboo” in both product titles and descriptions. The companies also, among other things, falsely marketed some of the “bamboo-derived” products as providing general environment benefits, such as being produced “free of harmful chemicals, using clean, non-toxic materials,” also in violation of the FTC Act. Additionally, in connection with the advertising of textile fiber products containing rayon, the companies allegedly made representations regarding the products’ fiber content without disclosing the full fiber content, in violation of the Textile Act and Textile Rules.
According to the proposed settlements (see here and here), the companies are, among other things: (i) prohibited from making deceptive claims, including false and/or unsubstantiated claims, relating to bamboo fiber products; (ii) prohibited from future violations of the FTC Act and Textile Act and Textile Rules; and (iii) ordered to pay $5.5 million total in penalties.
Massachusetts settles with financial company
On April 13, the Massachusetts attorney general announced a settlement with a California-based finance company (defendant) resolving allegations that it violated Massachusetts law by purchasing and collecting on dog leases – which are illegal in Massachusetts. The settlement also alleges that the company engaged in illegal debt collection practices such as calling debtors too frequently while attempting to collect on the leases. Under the terms of the settlement, the defendant must pay over $930,000, which includes $175,000 in restitution to approximately 200 consumers, and a $50,000 fine. The defendant is prohibited from collecting on any active leases involving dogs in Massachusetts and must transfer full ownerships of the dogs to the consumers. The defendant must also cancel any outstanding amount owed on the leases, totaling approximately $700,000.
The Massachusetts AG has been investigating financial companies who originate or purchase dog leases – calling the practice “exploitive” because it uses “dogs as emotional leverage” over debtors – and encouraged consumers who are victims of dog leases to call the AG’s office or to file a complaint online.