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Massachusetts AG requires debt buyer to discharge 300K in educational debt
On July 30, the Massachusetts attorney general announced a Nevada-based debt buyer will discharge nearly $300,000 in student loan debt in connection with a for-profit education company that sold allegedly ineffective online study guides and education materials. According to the assurance of discontinuance (AOD), the education company allegedly engaged in unfair and deceptive acts in the marketing and selling of its educational materials and services, which included arranging for consumers to finance equivalency exam fees. The company arranged for consumers to obtain financing from certain credit unions and those credit unions subsequently sold the loans to other entities, including the Nevada-based debt buyer.
The AOD requires the debt buyer to discharge and cease collection of the company’s loans for each of the 76 Massachusetts consumers, amounting to nearly $300,000 in debt. Additionally, the debt buyer is required to pay Massachusetts approximately $70,600 for the attorney general to distribute to consumers who made payments to the debt prior to the action, and is prevented from reporting any negative credit information.
State AGs challenge OCC’s “valid-when-made” rule
On July 29, the California, Illinois, and New York attorneys general filed an action in the U.S. District Court for the Northern District of California challenging the OCC’s valid-when-made rule, arguing the rule “impermissibly preempts state law.” As previously covered by a Buckley Special Alert, on June 2 the OCC issued a final rule designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision. The “true lender” rule provides that “[i]nterest on a loan that is permissible under [12 U.S.C. 85 for national bank or 12 U.S.C 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.”
The attorneys general argue in their complaint that the rule is “contrary to the plain language” of section 85 (and section 1463(g)(1)) and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the complaint asserts that the OCC disregarded congressional procedures for preemption by failing to perform a case-by-case review of state laws and not consulting with the CFPB before “preempting such a state consumer-protection law.” The attorneys general further contend that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule essentially enabling “‘rent-a-bank’ schemes.” The result of the OCC’s actions, according to the attorneys general, is a rule that would allow “predatory lenders to evade state law by partnering with a federally chartered bank to originate loans exempt from state interest-rate caps.” These structures “have long troubled state law-enforcement efforts,” according to the complaint, and the rule will exacerbate these issues by “decreas[ing] licensing fees received by the States and increase[ing] the cost and burden of future supervisory, investigative, and law-enforcement efforts by the States.”
The complaint requests the court declare that the OCC violated the Administrative Procedures Act in issuing the rule and hold the rule unlawful.
3rd Circuit holds Pennsylvania’s loan servicing claims can proceed
On July 27, the U.S. Court of Appeals for the Third Circuit determined that the Commonwealth of Pennsylvania may pursue claims against a student loan servicer under the Consumer Financial Protection Act (CFPA) despite a concurrent action brought against the servicer by the CFPB. The appellate court also held that the Commonwealth’s claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law are not preempted by the federal Higher Education Act (HEA). The decision results from a lawsuit filed by the Commonwealth claiming the servicer, among other things, originated risky, high-cost student loans, steered borrowers into forbearance, failed to properly inform borrowers about income-driven repayment options, made misrepresentations related to cosigner release, and misapplied borrower payments. Because the CFPB filed a lawsuit alleging similar claims against the servicer nearly nine months prior to the Commonwealth’s suit, the servicer argued that under the applicable provision of the CFPA, the Commonwealth could not file a concurrent suit. The district court disagreed and denied the servicer’s motion to dismiss.
In addressing whether a concurrent suit is permitted, the appellate court noted, “that the clear statutory language of the [CFPA] permits concurrent state claims, for nothing in the statutory framework suggests otherwise.” With respect to whether the applicable provision of the HEA expressly and impliedly preempts the Commonwealth’s suit, the 3rd Circuit stated that the statute only expressly preempts claims “based on failures to disclose information as required by the statute,” and not claims “based on affirmative misrepresentations.” Thus, because the Commonwealth’s claims were based on alleged affirmative misrepresentations and misconduct, it affirmed the district court’s ruling that the Commonwealth’s case may proceed. The 3rd Circuit highlighted, however, a circuit split over whether the HEA impliedly preempts state-law claims, pointing to the 9th Circuit’s holding that “allowing state law causes of action to proceed would conflict with the purpose of uniformity.” The 3rd Circuit’s decision joins those issued by the 7th and 11th Circuits, which both rejected the argument that uniformity was an intended purpose of the HEA.
The CFPB and the defendants filed with the district court in May dueling motions for summary judgment in the concurrent CFPB action, but the court has yet to issue a ruling on those motions.
State AGs ask court to vacate Department of Education’s 2019 “Institutional Accountability” regulations
On July 15, a coalition of state attorneys general from 22 states and the District of Columbia filed a complaint in U.S. District Court for the Northern District of California against Secretary of Education Betsy DeVos and the Department of Education, asking the court to vacate the Department’s 2019 final Institutional Accountability regulations (2019 Rule). As previously covered by InfoBytes, the 2019 Rule—which took effect July 1, 2020—revises protections for student borrowers who were significantly misled or defrauded by their higher education institutions, and establishes standards for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.” Loans disbursed prior to July 1, 2020 remain subject to defenses under prior regulations issued in 2016 (2016 Rule). Earlier this year, H.J. Res. 76, which provided for congressional disapproval of the 2019 Rule (covered by InfoBytes here), was vetoed by President Trump.
The AGs allege in their complaint that the Department’s 2019 Rule, among other things, “completely eliminate[s] violations of applicable state consumer protection law as a viable defense to repayment of federal student loans” and “impose[s] additional requirements on a viable misrepresentation defense that are so onerous that they make this defense impossible for a student borrower to assert successfully.” Moreover, the AGs contend that the Department has “failed to meet its congressional mandate to specify actual borrower defenses” by promulgating a rule that serves only to prevent borrowers from obtaining relief. On these grounds, the AGs claim the 2019 Rule violates the Administrative Procedure Act (APA).
The AGs highlight several aspects of the 2019 Rule that support its claims, including that the elimination of the 2016 Rule’s limitations on the use of class action waivers and mandatory predispute arbitration agreements is arbitrary and capricious. According to the AGs, the Department’s “conclusion that requiring schools to disclose their use of mandatory predispute arbitration agreements and class action waivers will adequately protect borrowers is also contrary to substantial evidence and [the Department’s] own prior conclusions.”
FTC, Florida issue TRO against rate-reduction operation
On July 16, the FTC and the Florida attorney general announced that the U.S. District Court for the Middle District of Florida granted a temporary restraining order against an allegedly fraudulent credit card interest rate reduction operation. According to the complaint, the operation violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices act by targeting “financially distressed consumers and older adults” through telemarketing phone calls promising to substantially reduce their credit card interest rates and charging consumers upfront fees, ranging from $995 to $3,995. The operation typically charged the fees “during, or immediately following, the telemarketing call, often by using remotely created payment orders” against the consumer’s checking account or credit card. The complaint asserts that consumers often did not receive permanently reduced credit card interest rates, nor did they save “thousands of dollars on their credit card debt,” as promised. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, restitution, and civil money penalties.
Nevada attorney general releases Spanish translation of Covid-19 lease addendum and promissory note
On July 14, the Nevada attorney general released a Spanish translation of the Lease Addendum and Promissory Note Template for Rental Arrearages Due to Covid-19. The Nevada governor previously issued Emergency Directive 025, previously covered here, which encouraged the use of the form to cure rental payment defaults of the original lease agreements.
California AG publishes CCPA FAQs
The California attorney general recently published a set of frequently asked questions providing general consumer information on the California Consumer Privacy Act (CCPA). The CCPA—enacted in June 2018 (covered by a Buckley Special Alert) and amended several times—became effective January 1. Final proposed regulations were submitted by the AG last month as required under the CCPA’s July 1 statutory deadline (covered by InfoBytes here), and are currently with the California Office of Administrative Law for review. The FAQs—which will be updated periodically and do not serve as legal advice, regulatory guidance, or as an opinion of the AG—are intended to provide consumers guidance on exercising their rights under the CCPA.
- General CCPA information. The FAQs address consumer rights under the CCPA and reiterate that these rights apply only to California residents. This section also clarifies the definition of “personal information,” outlines businesses’ compliance thresholds, and states that the CCPA does not apply to nonprofit organizations and government agencies. The FAQs also remind consumers of their limited ability to sue businesses for CCPA violations and details the conditions that must be met before a consumer may sue a business for a data breach. The FAQs remind consumers that if they believe a business has violated the CCPA, they may file a complaint with the AG’s office.
- Right to opt-out of sale. The FAQs answer common questions related to consumers’ requests for businesses not to sell their personal information. The FAQs provide information on the steps for submitting opt-out requests, as well as explanations for why a business may deny an opt-out request. It also address circumstances where a consumer receives a response from a service provider that says it is not required to act on an opt-out request.
- Right to know. The FAQs discuss a consumer’s right to know what personal information is collected, used, shared, or sold, and clarifies what consumers should do to submit requests to know, how long a business may take to respond, and what steps should be taken if a business requests more information, denies a request to know, or claims to be a service provider that is not required to respond.
- Required notices. The FAQs outline the disclosures that businesses must provide - i.e., the “notice at collection” and privacy policy. It also discusses the common places where notices at collection and privacy policies are located.
- Request to delete. The FAQs address several questions related to consumers’ right to delete personal information, including how to submit a request to delete, businesses’ responses to and denials of requests to delete, and why a debt collector may make an attempt to collect a debt or a credit reporting agency may provide credit information even after a request to delete has been made.
- Right to non-discrimination. Consumers are reminded that a business “cannot deny goods or services, charge. . .a different price, or provide a different level or quality of goods or services just because [a consumer] exercised [his or her] rights under the CCPA.”
- Data brokers. The FAQs set forth the definition of a data broker under California law and outline steps for consumers interested in finding data brokers that collect and sell personal information, as well as measures consumers can take to opt-out of the sale of certain personal information.
Washington AG sues collection agency over time-barred debt settlement offers
On June 25, the Washington attorney general filed a complaint against a collection agency in King County Superior Court alleging the company’s settlement offers violated the state’s Collection Agency Act (CAA) and Consumer Protection Act (CPA). The complaint alleges that the company sent over 75,000 collection letters to Washington state residents and hundreds of thousands more letters to individuals in other states that told individuals they had a fixed number of days to respond to an offer to settle time-barred debts. However, according to the complaint, because the letters failed to disclose that the debts were legally unenforceable, they “had the capacity to deceive consumers into believing they could be sued on the debts if they did not pay.” These actions, the complaint claims, constitute an unfair and/or deceptive practice under the CPA. The company also allegedly violated the CAA, which, among other things, prohibits Washington-licensed collection agencies from threatening to take actions they cannot legally take. The complaint seeks injunctive relief, civil penalties, restitution, and costs.
New York AG settles with student debt relief defendants
On June 25, the U.S. District Court for the Southern District of New York entered a stipulated final judgment and order to resolve allegations concerning an allegedly fraudulent and deceptive student loan debt relief scheme. According to the New York attorney general, the defendants allegedly sold debt-relief services to student loan borrowers that violated several New York laws, including the state’s usury, banking, credit repair, and telemarketing laws, as well as the Credit Repair Organizations Act, the Telemarketing Sales Rule, and TILA. The order imposes a $5.5 million judgment against the majority of the defendants, which will be partially suspended after certain defendants pay $250,000. The AG’s case against one of the defendants, however, will continue. The order also prohibits the defendants from engaging in unlawful acts or deceptive practices such as false advertising, and, among other things, imposes compliance and reporting requirements and permanently bans the defendants from offering, providing, or selling any debt relief products and services or collecting payments from consumers related to these products and services.
New York AG settles with debt relief company for $3.6 million
On June 23, the New York attorney general announced a $3.6 million proposed settlement with a debt relief operation for allegedly making exaggerated advertisements in violation of a 2011 consent order with the state. According to the press release, the 2011 consent order was based on allegations that the company engaged in “illegal, fraudulent, and deceptive practices” related to advertising. The 2011 consent order permitted the company to advertise certain savings if those savings were achieved by a defined group of New York consumers and if the company “clearly disclosed which consumers were in that group and what approximate percentage of the whole group of New York consumers the defined group represented.” However, the attorney general alleges the company failed to follow this requirement and continued to advertise consumer savings without disclosing the details of the group who achieved the savings, noting that “the majority of New York consumers achieved less than half of the savings [the company] advertised.”
In addition to the $3.6 million in restitution for the New York consumers, the proposed settlement reinforces the 2011 consent order’s injunctive provisions and requires the company to (i) acknowledge that certain high savings numbers are not typical by “[e]xpressly stating the percentage of consumers who achieve the high end range of savings claims”; and (ii) ensure that future savings claims are based on consumers’ total debt with the company’s program.