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  • NYDFS settles with bank for compliance failures

    State Issues

    On September 29, NYDFS announced a settlement with a South Korean-based bank’s American subsidiary to resolve allegations of repeated violations of AML requirements, the Bank Secrecy Act (BSA), and New York law. According to the consent order, the respondent was repeatedly examined seven times in less than 10 years by DFS and entered into a consent order with the FDIC in 2017 for BSA/AML compliance, among other things. DFS claims that respondents violated (i) New York Banking Law § 44 by conducting their business in an unsafe and unsound manner; (ii) 3 NYCRR § 116.2 by failing to maintain an effective AML compliance program; and (iii) 23 NYCRR § 504.4 by incorrectly certifying compliance with Part 504. To resolve the claims, the respondent agreed to pay a $10 million civil money penalty, and write a written plan detailing improvements to its compliance policies and procedures, among other things.

    State Issues NYDFS Civil Money Penalties Enforcement New York Anti-Money Laundering Bank Secrecy Act 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

  • Bank to pay $25 million to settle alleged misleading ESG claims

    Securities

    On September 25, the SEC announced two enforcement actions against a subsidiary (respondent) of a German multinational investment bank and financial services company, in which the respondent agreed to pay a total of $25 million in penalties arising from (i) purportedly misleading statements respondent made regarding its Environmental, Social, and Governance (ESG) program; and (ii) its failure to develop a mutual fund Anti-Money Laundering (AML) program. According to the order, respondent allegedly marketed itself to clients and investors as a leader in ESG that adhered to specific policies for integrating ESG considerations into its investments but failed to implement certain provisions of its global ESG integration policy. The order contains a number of statements that respondent made concerning its ESG program that the SEC found to be materially misleading.  For example, respondent allegedly represented through its ESG Policy that its research analysts were required to include financially material and reputation relevant ESG aspects into its valuation models, investment recommendations and research reports and consider material ESG aspects as part of their investment decision, but respondent’s internal analyses allegedly showed that research analysts have inconsistent levels of documented compliance with this requirement.  The SEC determined that respondent’s failure to implement certain policies and procedures violated multiple sections of the Advisers Act, including Section 206(2), “which prohibits an investment adviser, directly or indirectly, from engaging ‘in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.’”

    Through the ESG order, respondent has agreed to pay a $19 million civil penalty and to cease and desist from committing any further violations of the violated sections of the Advisors Act. The SEC also charged respondent with a separate Anti-Money Laundering order, for failure to comply with the Bank Secrecy Act and FinCen regulations. Respondent did not admit nor deny the SEC’s claims.

    Securities SEC Enforcement ESG Anti-Money Laundering Bank Secrecy Act FinCEN Settlement

  • Tech giant to pay $62M in smartphone location tracking suit

    Courts

    On September 14, 2023, in the U.S. District Court of the Northern District of California, San Jose Division, plaintiffs filed a motion for preliminary approval of a proposed Class Action Settlement Agreement and Release pursuant to which a tech giant will pay $62 million to resolve claims that it illegally tracked and stored such users’ private location information even after users opted out. According to the filing, the proposed settlement “would be used to pay for the costs of Notice and Settlement administration, any Court-awarded attorneys’ fees and expenses and Class Representative Service Awards” with the balance being “distributed to one or more Court-approved cy pres recipients” each of which must be “independent 501(c)(3) organizations with a track record of addressing privacy concerns on the Internet.”

    The company also agreed to injunctive relief for a period of at least three years, requiring it to, among other things: (i) “maintain a policy whereby (a) Location Information stored through Location History (“LH”) and Web & App Activity (“WAA”) is automatically deleted by default after a period of at least 18 months when users opt into these settings for the first time, and (b) users can set their own auto-delete periods;” (ii) provide users with instructions on how to disable each data collection setting, delete the data collected, and set retention limits; and (iii) confirm that the company “does not now share users’ precise Location Information collected in LH or WAA with third parties (except for valid legal reasons).” The settlement class includes as many as 247 million smartphone users whose location information the company stored “while “Location History” was disabled” from January 1, 2014, through the notice date.

    In a statement on September 15, a spokesperson for the company said “[c]onsistent with improvements we've made in recent years, we have settled this matter, which was based on outdated product policies that we changed years ago."

    Courts Privacy, Cyber Risk & Data Security Consumer Protection Settlement

  • NY credit union gets final approval on $2.2M overdraft fee deal

    Courts

    On September 7, the U.S. District Court for the Northern District of New York issued a Final Order approving a more than $2.2 million settlement deal to end a class action over a credit union’s overdraft and insufficient funds fee practices.

    The deal includes a $2.1 million settlement fund. After payment of attorneys’ fees to customers’ counsel, 80% of the settlement fund will go to customers who were allegedly charged overdraft fees on debit card transactions that did not overdraw their accounts when the transactions were authorized, and 20% will go to customers who were allegedly hit with multiple insufficient funds fees on a single transaction. In addition, the credit union will forgive, waive and not collect nearly $165,000 in uncollected fees.

    On December 7, 2022, plaintiffs filed a putative class action complaint in the United States District Court for the Northern District of New York that consolidated two putative class action cases in which the plaintiffs alleged the credit union’s assessment of more than one insufficient funds fee on a single transaction and assessment of overdraft fees on debit card transactions that did not overdraw the customers’ accounts was a breach of contract, breach of the covenant of good faith and fair dealing, and violative of New York General Business § 349, et seq. Shortly after the actions were consolidated, the parties notified the court that they were working towards a settlement.

    Courts Overdraft Settlement New York Class Action

  • California AG announces settlement with mortgage servicer

    State Issues

    On September 1, California Attorney General (AG) Rob Bonta announced a settlement with a mortgage servicer for its alleged failure to properly process and grant mortgage deferment requests from California military reservists called to active duty. California’s Military and Veterans Code, which includes the California Military Families Financial Relief Act, allows reservists to delay paying mortgages, credit cards, property taxes, car loans, utility bills, and student loans. To defer payment, they must submit a written request and their military orders to the entity to which their payments are due. The AG noted that the California Department of Justice investigated the mortgage servicer’s processes for handling mortgage deferment requests and found that the servicer delayed granting the deferment requests, requested information for eligibility review outside of the 30-day timeframe to do so, and improperly denied deferment requests, on at least 10 occasions. Furthermore, the servicer allegedly attempted to collect payment from some borrowers during the requested deferral period by making calls and sending notices that warned that the servicer would foreclose on the borrowers’ properties if they failed to pay. The servicer also allegedly incorrectly charged some borrowers late fees and other charges for nonpayment of payments that should have been deferred. Finally, the servicer allegedly provided incorrect negative credit information to credit reporting agencies.

    Under the terms of the settlement, the servicer agreed to, among other things, (i) pay $58,000 in civil money penalties; (ii) “remediate consumer harm”; (iii) disclose deferment request status to borrowers; and (iv) provide annual reports to the AG documenting compliance with the injunctive terms.

    State Issues Settlement State Attorney General California Consumer Finance Mortgage Servicing Military Lending

  • CFPB reaches $2.6 billion settlement with credit repair telemarketers

    Federal Issues

    On August 28, the CFPB announced a proposed settlement with Utah-based credit repair telemarketers and various affiliates (collectively, "defendants") for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by collecting illegal advance fees. As previously covered by InfoBytes, in its initial lawsuit the CFPB alleged the defendants requested and received payment of “prohibited” upfront fees for telemarketed credit repair services when they signed up. In June, a district court ruling put a hold on the Bureau’s initial attempt to impose the settlement because of “outstanding issues of fact” which precluded it from entering the agency’s requested relief at that time (covered by InfoBytes here). The Bureau and defendants have now agreed to a new settlement which will, among other things, (i) impose over $2.7 billion in redress (understanding that the principal corporate defendant is in Chapter 11 bankruptcy proceedings); (ii) impose over $64 million in civil money penalties; (iii) ban defendants from telemarketing and from doing business with certain marketing affiliates for ten years; and (iv) require defendants to send a notice of the settlement to “any remaining enrolled customers who were previously signed up through telemarketing.”

    The proposed settlement is subject to final approval by the court.

    Federal Issues CFPB Settlement CFPA Consumer Finance TSR Consumer Protection Credit Repair Enforcement

  • Bank enters into settlement agreement with SEC for charging advisory fees

    Securities

    On August 25, the SEC entered into a settlement agreement with a national bank that requires the bank to pay a $35 million civil penalty for overcharging more than 10,900 investment advisory accounts over $26.8 million in advisory fees. According to the order, the bank and its predecessors agreed to reduce standard advisory fee rates for certain clients when clients agreed to open accounts at the bank via handwritten or typed notes and changes on the clients’ standard investment advisory agreements; however, these reduced rates were not entered into the bank’s billing systems when setting up client accounts. As a result, the clients were overcharged advisory fees for years, because the bank also failed to adopt policies and procedures to prevent overbilling.

    The agreement “underscores the need for firms growing their businesses through acquisition to ensure that their growth does not come at the expense of client protection,” said the Director of the SEC’s Enforcement Division, Gurbir S. Grewel. He further noted that “[i]nvestment advisers must adopt and implement policies and procedures to ensure that they honor their agreements with all of their clients, including legacy clients of predecessor firms.” 

    In addition to the $35 million civil penalty, the bank also paid affected accountholders approximately $40 million to reimburse clients for the overcharging. The bank did not admit or deny the SEC’s charges set forth in the agreement.

    Securities SEC Settlement Enforcement Civil Money Penalties

  • 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

  • District Court orders individual to pay $148 million in student debt-relief scam

    Courts

    On July 7, the U.S. District Court for the Central District of California entered a final judgment and order against an individual defendant accused of operating and controlling a deceptive student loan debt relief operation. As previously covered by InfoBytes, in 2019, the CFPB, along with the Minnesota and North Carolina attorneys general and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation for allegedly deceiving thousands of student loan borrowers. The Bureau and the states alleged that since at least 2015, the debt relief operation violated the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), FDCPA, and various state laws by charging and collecting over $95 million in illegal advance fees from student loan borrowers. In addition, the Bureau and the states claimed that the debt relief operation engaged in deceptive practices by misrepresenting the purpose and application of the fees they charged and the nature and benefits of their services. Specifically, the debt relief operation allegedly failed to inform borrowers that, among other things, (i) they would request that the loans be placed in forbearance and interest would continue to accrue during the forbearance period, thereby increasing the borrowers’ overall loan balances; and (ii) it was their practice to submit false information about the borrowers to student loan servicers to try to qualify borrowers for lower monthly payments. The individual defendant was accused of owning, controlling, and managing the student loan debt relief operation, materially participating in the operation’s affairs, and providing substantial assistance or support while knowing or consciously avoiding knowledge that the operation was engaging in illegal conduct.

    The individual defendant was held liable, jointly and severally, in the amount of approximately $95,057,757, for the purpose of providing redress to affected borrowers. Because the individual defendant was found to have recklessly violated the TSR and the CFPA, the court also imposed second-tier civil monetary penalties of $147,985,000 to the Bureau, of which $5,000 will be paid to each state. The final judgment also imposes various forms of injunctive relief, including permanent bans on engaging in consumer financial products or services and violating the TSR, CFPA, and similar laws in Minnesota, North Carolina, and California. The individual defendant is also prohibited from disclosing, using, or benefiting from customer information obtained in connection with the offering or providing of the debt relief services, and may not “attempt to collect, sell, assign, or otherwise transfer any right to collect payment from any consumer who purchased or agreed to purchase” a debt relief service from any of the defendants.

    Courts Federal Issues State Issues CFPB Consumer Finance Enforcement Student Lending Debt Relief State Attorney General CFPA TSR FDCPA Debt Collection Settlement

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