Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • CFPB, DOJ issue guidance on immigration status and fair lending

    Agency Rule-Making & Guidance

    On October 12, the CFPB and DOJ issued a joint statement on fair lending and credit opportunities for noncitizen borrowers. The statement warned that, under the Equal Credit Opportunity Act (ECOA) and its implementing regulations, it is unlawful for lenders to discriminate against credit applicants based on their national origin or race, regardless of their immigration status. In its press release announcing the joint statement, DOJ explained that the statement was prompted by reports of consumers being rejected for credit cards as well as auto, student, and personal loans because of their immigration status, even when they were otherwise qualified to receive the loans. The joint statement explained that, although a creditor may consider an applicant’s immigration status when necessary to ascertain the creditor’s rights regarding repayment, “unnecessary or overbroad reliance on immigration status in the credit decision process, including when that reliance is based on bias, may run afoul of ECOA’s antidiscrimination provisions and could also violate other laws.” Among other things, the agencies cautioned against the overbroad consideration of criteria that may “serve as a proxy for citizenship of immigration status,” such as how long a consumer has had a social security number. Likewise, requiring only certain groups of noncitizens to provide documentation, identification, or in-person applications may also violate ECOA by “harming applicants on the basis of national origin or race.”

    Agency Rule-Making & Guidance Federal Issues CFPB DOJ ECOA Consumer Finance Consumer Protection Credit Cards Fair Lending

  • Automotive management company settles with DOJ to resolve False Claims Act allegations

    Federal Issues

    On October 11, an automotive management company settled claims by the Department of Justice alleging that the company had violated the False Claims Act by knowingly providing false information in support of its Paycheck Protection Program (PPP) loan forgiveness application.

    According to the DOJ’s allegations, the automotive management company certified it was a small business with fewer than 500 employees when in fact it shared common operational control with dozens of automobile dealerships with more than 3,000 employees in total.

    Federal Issues DOJ False Claims Act / FIRREA Small Business Fees Consumer Finance PPP Settlement

  • DOJ and RI-based bank settlement agreement regarding redlining claims

    Federal Issues

    On September 27, the DOJ announced a $9 million settlement agreement with a Rhode Island-based community bank to resolve allegations that the bank engaged in a pattern or practice of lending discrimination by engaging in “redlining” in Rhode Island. The DOJ’s complaint claimed that from  2016 to at least 2021, the bank failed to provide mortgage lending services in majority-Black and Hispanic neighborhoods in Rhode Island. The DOJ also alleged that all of the bank’s branches were concentrated in majority-white neighborhoods, and that the bank did not take meaningful measures to compensate for not having a physical presence in majority-Black and Hispanic communities.

    Under the proposed consent order, the bank will, among other things, (i) invest at least $7 million in a loan subsidy fund for majority-Black and Hispanic neighborhoods in Rhode Island to increase access to credit for home mortgage, improvement, and refinance loans, and home equity loans and lines of credit; (ii) invest $1 million towards outreach, advertising, consumer financial education, and credit counseling initiatives; (iii) invest $1 million in developing community partnerships to expand access to residential mortgage credit for Black and Hispanic consumers; (iv) establish two new branches, ensure at least two mortgage loan officers, and employ a “Director of Community Lending” in majority-Black and Hispanic neighborhoods in Rhode Island; (v) conduct a community credit needs assessment; and (vi) produce a fair lending status report and compliance plan and conduct fair lending training. The announcement cited the bank’s cooperation with the DOJ to remedy the identified redlining concerns.

    Federal Issues Redlining Enforcement Discrimination Fair Lending Settlement Consumer Finance DOJ

  • DOJ announces international malware action, recovers $8.6 million in illicit profits

    Privacy, Cyber Risk & Data Security

    On August 29, the DOJ announced a multinational operation involving the U.S., France, Germany, the Netherlands, the UK, Romania, and Latvia to “disrupt” a malware’s infrastructure called Qakbot. Attorney General Merrick B. Garland stated that, “[t]ogether with our international partners, the Justice Department has hacked Qakbot’s infrastructure, launched an aggressive campaign to uninstall the malware from victim computers in the United States and around the world, and seized $8.6 million in extorted funds. ” The main method by which the Qakbot malware spreads to target computers is via spam emails that contain harmful attachments or links. Upon successfully infecting a target computer, the DOJ mentioned that Qakbot gains the capability to introduce other types of malware, such as ransomware. Over the past few years, many ransomware collectives have used Qakbot as an initial avenue for initiating infections and has caused hundreds of millions of dollars in damages. The DOJ highlighted that “[t]he action represents the largest U.S.-led financial and technical disruption of a botnet infrastructure leveraged by cybercriminals to commit ransomware, financial fraud, and other cyber-enabled criminal activity.”

    Privacy, Cyber Risk & Data Security Federal Issues Financial Crimes DOJ Malware Enforcement

  • DOJ, Oklahoma bank agree to consent order over redlining

    Federal Issues

    On August 28, the DOJ announced a settlement agreement to resolve allegations of redlining by an Oklahoma-based bank. According to the complaint, defendant allegedly engaged in redlining by refraining from providing home loans and other mortgage-related services, and also engaged in biased behavior, to deter individuals residing in or seeking credit within predominantly Black and Hispanic neighborhoods in Tulsa from pursuing mortgage opportunities. According to the proposed consent order, without admitting or denying the allegations, defendant agreed to (i) invest $1.15 million to increase credit opportunities in neighborhoods of color; (ii) invest at least $950,000 in a loan subsidy fund for predominantly Black and Hispanic neighborhoods in Tulsa; (iii) invest $100,000 for advertising, outreach and consumer education; (iv) invest $100,000 for community partnerships to improve access to residential mortgage credit services; (v) “open a new community-oriented loan production office in the historically Black area of Tulsa”; and (vi) assign at least two mortgage loan officers to solicit mortgage applications in predominantly Black and Hispanic neighborhoods in Tulsa, among other things.

    The DOJ press release makes reference to the 1921 Tulsa Race Massacre. The bank's press release announcing the settlement responded by stating that “[a]s Oklahomans, we carry a profound sense of sorrow for the tragic events of the Tulsa Race Massacre over a century ago. It is with deep concern that we note the Justice Department’s decision to reference this distressing historical event in its complaint against our bank, established a mere 25 years ago.”

    Federal Issues DOJ Oklahoma Redlining Settlement Mortgages Consumer Finance

  • 2nd Circuit affirms leveraged loans are not securities

    Courts

    On August 24, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s order dismissing plaintiff’s claim that a national bank’s nearly $1.8 billion syndicated loan for a drug testing company were securities. The drug testing company filed for bankruptcy subsequent to a $256 million global settlement with the DOJ in qui tam litigation involving the company’s billing practices.

    Plaintiff, a trustee of the drug testing company, brought claims to the New York Supreme Court in 2017 against defendant for violations of (i) state securities laws; (ii) negligent misrepresentation; (iii) breach of fiduciary duty; (iv) breach of contract; and (v) breach of the implied contractual duty of good faith and fair dealing. Defendant filed a notice of removal to the U.S. District Court for the Southern District of New York, where the district court denied plaintiff’s motion to remand after concluding it had jurisdiction under the Edge Act, and later granted defendant’s motion to dismiss because plaintiff failed to plead facts plausibly suggesting the notes are securities. 

    The 2nd Circuit held that the district court had subject matter jurisdiction pursuant to the Edge Act. The court then applied a “family resemblance” test to determine whether a note is a security and examined four separate factors to help uncover the context of a note. In comparing the loan note to “judicially crafted” list of instruments that are not securities, the court found that the defendant’s note “‘bears a strong resemblance’” to one, therefore concluding that the note is not a security and affirming the district court’s earlier decision.

    Courts Appellate Loans Securities Second Circuit New York DOJ Qui Tam Action Consumer Finance

  • E-commerce company fined $25 million for alleged COPPA violations

    Federal Issues

    On July 19, the DOJ and FTC announced that a global e-commerce tech company has agreed to pay a penalty for alleged privacy violations related to its smart voice assistant’s data collection and retention practices. The agencies sued the company at the end of May for violating the Children’s Online Privacy Protection Act Rule and the FTC Act, alleging it repeatedly assured users that they could delete collected voice recordings and geolocation information but actually held onto some of this information for years to improve its voice assistant’s algorithm, thus putting the data at risk of harm from unnecessary access. (Covered by InfoBytes here.)

    The stipulated order requires the company to pay a $25 million civil money penalty. The order also imposes injunctive relief requiring the company to (i) identify and delete any inactive smart voice assistant children’s accounts unless requested to be retained by a parent; (ii) notify parents whose children have accounts about updates made to its data retention and deletion practices and controls; (iii) cease making misrepresentations about its “retention, access to or deletion of geolocation information or voice information, including children’s voice information” and delete this information upon request of the user or parent; and (iii) disclose its geolocation and voice information retention and deletion practices to consumers. The company must also implement a comprehensive privacy program specific to its use of users’ geolocation information.

    Federal Issues Privacy, Cyber Risk & Data Security DOJ FTC Enforcement COPPA FTC Act Consumer Protection

  • Feds, states launch “Operation Stop Scam Calls”

    Federal Issues

    On July 18, the FTC, along with over 100 federal and state law enforcement partners nationwide, including the DOJ, FCC, and attorneys general from all 50 states and the District of Columbia, announced a new initiative to combat illegal telemarketing calls, including robocalls. The joint initiative, “Operation Stop Scam Calls,” targets telemarketers and the companies that hire them, lead generators that provide consumers’ telephone numbers to robocallers and others who falsely represent that consumers consented to receive the calls. The initiative also targets Voice over Internet Protocol (VoIP) service providers that facilitate illegal robocalls, many of which originate overseas.

    In connection with Operation Stop Scam Calls, the FTC has initiated five new cases against companies and individuals allegedly responsible for distributing or assisting in the distribution of illegal telemarketing calls to consumers across the country. According to the announcement, the actions reiterate the FTC’s position “that third-party lead generation for robocalls is illegal under the Telemarketing Sales Rule (TSR) and that the FTC and its partners are committed to stopping illegal calls by targeting anyone in the telemarketing ecosystem that assists and facilitates these calls, including VoIP service providers.” The announcement also states that more than 180 enforcement actions and other initiatives have been taken by 48 federal and 54 state agencies as part of Operation Stop Scam Calls.

    Among the new actions announced a part of Operation Stop Scam Calls is a complaint filed against a “consent farm” lead generator, which allegedly uses “dark patterns” to collect consumers’ broad agreement to provide their personal information and receive robocalls and other marketing solicitations through a single click of a button or checkbox via its websites. Under the terms of the proposed order, the defendant would be required to pay a $2.5 million civil penalty and would be banned from engaging in, assisting, or facilitating robocalls. The defendant would also be required to implement measures to limit its lead generation practices, establish systems for monitoring its own advertising and that of its affiliates, comply with comprehensive disclosure requirements concerning the collection of consumers’ consent to the sale of their information, and delete all previously collected consumer information.

    Other actions were taken against a California-based telemarketing lead generator, a telemarketing company that provides soundboard calling services to clients who use robocalls to sell a range of products and services, a New Jersey-based telemarketing outfit that placed tens of millions of calls to consumers whose numbers are listed on the National Do Not Call Registry, and Florida-based defendants accused of assisting and facilitating the transmission of roughly 37.8 million illegal robocalls by providing VoIP services to over 11 foreign telemarketers.

    Federal Issues State Issues Courts FTC Enforcement Robocalls Consumer Protection State Attorney General TSR Telemarketing Lead Generation DOJ FCC

  • Agencies charge crypto platform and former executives

    Federal Issues

    On July 13, the FTC announced a proposed settlement to resolve allegations that a crypto platform engaged in unfair and deceptive acts or practices in violation of the FTC Act. The FTC also alleges that the defendants violated the Gramm-Leach-Bliley Act by acquiring customer information from a financial institution regarding someone else by providing false or misleading statements. The New Jersey-based crypto company offers various cryptocurrency products and services to customers, such as interest-bearing accounts, personal loans backed by cryptocurrency deposits, and a cryptocurrency exchange. On the heels of its bankruptcy filing in July 2022, the FTC lodged a complaint in federal court alleging that three former executives falsely promised that deposits would be “safer” than bank deposits and always available for withdrawal, and that the platform posed “no risk” or “minimal risk.”

    The proposed stipulated order imposes a $4.72 million judgment against the corporate defendants, which is suspended based on their financial condition. The order also bans the corporate defendants from, among other things, “advertising, marketing, promoting, offering, or distributing, or assisting in the advertising, marketing, promoting, offering, or distributing of any product or service that can be used to deposit, exchange, invest, or withdraw assets, whether directly or through an intermediary.” 

    Other agencies also took action against the company and its former CEO on the same day, including the SEC, which alleges the company sold unregistered crypto asset securities in one of its program offerings. The SEC’s complaint further alleges the company made false and misleading statements and engaged in market manipulation. Additionally, the DOJ unsealed an indictment charging the former CEO and the company’s former chief revenue officer with conspiracy, securities fraud, market manipulation, and wire fraud for illicitly manipulating the price of the company’s token. Additionally, the CFTC filed a civil complaint charging the company and former CEO with fraud and material misrepresentations in connection with the operation of the company’s digital asset-based finance platform. The CFTC alleges the company operated as an unregistered commodity pool operator (CPO), and its former CEO operated as an unregistered associated person of a CPO. The complaint also accuses the former CEO of violating the Commodity Exchange Act and CFTC regulations, among other things. According to the press release, the company agreed to resolve the complaint, while the former CEO is continuing litigation.

    Federal Issues Digital Assets Securities Fintech Cryptocurrency FTC FTC Act Gramm-Leach-Bliley Enforcement Consumer Protection Deceptive SEC CFTC DOJ

  • Highlights from the CFPB’s 2022 fair lending report

    Federal Issues

    On June 29, the CFPB issued its annual fair lending report to Congress which outlines the Bureau’s efforts in 2022 to fulfill its fair lending mandate. Much of the Bureau’s work in 2022 was directed towards unlawful discrimination in the home appraisal industry and addressing redlining. According to the report, the CFPB also honed its efforts on factors that influence fair access to credit which included insight into factors affecting consumers’ credit profiles. The report highlights one fair lending enforcement action from 2022, where the CFPB and DOJ filed a joint complaint and proposed consent order against a company for allegedly violating ECOA, Regulation B, and the CFPA by discouraging prospective applicants from applying for credit. Notably, the Bureau notes that under section 704 of ECOA, it must refer any cases with instances of a creditor being believed to have engaged in a “pattern or practice of lending discrimination” to the DOJ. According to the report, the FDIC, NCUA, Federal Reserve Board, and CFPB collectively made 23 such referrals to the DOJ in 2022, a 91 percent increase from 2020. Five of the 23 matters were sent by the CFPB, four of which involved alleged racial discrimination in redlining, and one involving alleged discrimination in underwriting based on receipt of public assistance income. The report also discusses the CFPB’s risk-based prioritization process that resulted in initiatives concerning small business lending, policies and procedures on exclusions in underwriting, and the use of artificial intelligence. Moving forward, the Bureau will continue its collaborative approach with other agencies and prioritize areas such as combating bias in home appraisals, redlining, and the use of advanced technologies in financial services. Additionally, the report states that by focusing on restorative outcomes, comprehensive remedies, and equal economic opportunities, the CFPB aims to create a fair, equitable, and nondiscriminatory credit market for consumers.

    Federal Issues CFPB Fair Lending DOJ ECOA Enforcement Consumer Finance Redlining Artificial Intelligence Supervision

Pages

Upcoming Events