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CFTC charges commodity trading group with fraudulent digital token scheme
On April 16, the CFTC filed a complaint in the U.S. District Court for the Middle District of Florida against a commodity trading adviser and the companies he controlled (collectively, “defendants”) for allegedly soliciting customers and prospective customers to buy now-delisted and worthless digital tokens. The CFTC alleged that the defendants violated the Commodity Exchange Act by making untrue and materially misleading representations about their digital tokens’ function and the performance of a proprietary foreign exchange trading algorithm that the defendants claimed would deliver high rates of return. According to the CFTC, while the defendants knew that none of the customers could lawfully use the algorithm until the defendants’ risk disclosures were approved by the National Futures Association, they still sold the tokens and raised more than $1.6 million based on the premise that the algorithm was ready to be released on the open market. The CFTC claimed, however, that the disclosures were never approved, customers never gained access to the algorithm, and the tokens were eventually delisted by all the digital asset exchanges. The CFTC seeks to enjoin the defendants’ allegedly unlawful acts and practices and to compel compliance with the Commodity Exchange Act and regulations. In addition, the CFTC seeks restitution, civil money penalties, trading and registration bans, and other statutory, injunctive, or equitable relief as deemed necessary and appropriate.
FCRA class action dispute stayed for Supreme Court appeal
On April 15, the U.S. Court of Appeals for the Ninth Circuit granted a joint motion to stay a mandate pending a credit reporting agency’s (CRA) filing of a petition for writ of certiorari with the U.S. Supreme Court. If a petition is filed, the stay will continue until final disposition by the Court. As previously covered by InfoBytes, in February the 9th Circuit reduced punitive damages in a class action against the CRA for allegedly violating the FCRA by erroneously linking class members to criminals and terrorists with similar names in a database maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The appellate court found that all class members had standing due to, among other things, the CRA’s alleged “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm,” and rejected the CRA’s request for judgment as a matter of law or a new trial on the basis that the class had failed to provide sufficient evidence of injuries or to support the damages award. The appellate court concluded, however, that the $52 million punitive damages award was “unconstitutionally excessive,” explaining that, although the CRA’s “conduct was reprehensible, it was not so egregious as to justify a punitive award of more than six times an already substantial compensatory award.”
The CRA subsequently filed a petition for rehearing (which the appellate court denied), challenging, among other things, the 9th Circuit’s conclusion that the CRA’s decision to make the credit reports available to numerous potential creditors and employers was “sufficient to show a material risk of harm to the concrete interest of all class members.” The CRA argued that this was “exactly the sort of hypothetical risk of injury the Supreme Court has made clear does not cut it” to establish concrete injury, and that the decision was inconsistent with the 9th Circuit’s own precedent, in which the appellate court determined that “the risk of injury becomes material only when the document gets into third-party hands.” The CRA also argued that the 4 to 1 benchmark ratio between punitive damages and statutory damages was still too high, because it “conflicts not just with the Supreme Court’s commands, but with decisions from other circuits finding much lower compensatory-damages awards sufficiently ‘substantial’ to demand a 1:1 ceiling.”
FFIEC releases APR, APY computational tools
On April 16, the FFIEC, on behalf of its member agencies, announced the release of two computational tools for annual percentage rates (APR) and annual percentage yields (APY). These web-based tools are intended to assist financial institutions when complying with consumer protection laws and regulations.
The APR Computational Tool is intended to help examiners and financial institutions verify finance charges and APRs included on consumer loan disclosures subject to TILA and Regulation Z, including calculations “related to unsecured and secured installment and construction loans, including real estate-secured loans.” The tool can also be used to verify military annual percentage rates for loans subject to the Military Lending Act. The APY Computational Tool is designed to support the verification of APYs on consumer deposit account disclosures, including advertisements and periodic statements, subject to the Truth in Savings Act and Regulation DD. See FDIC FIL-45-2020 and OCC Bulletin 2020-40 regarding the release of these tools.
Fed issues enforcement actions for flood insurance violations
On April 16, the Federal Reserve Board announced enforcement actions against a New Jersey-based bank and a Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order issued against the New Jersey-based bank assesses a $28,000 penalty for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. A separate consent order issued against the Virginia-based bank assesses a $5,500 penalty and similarly does not describe the specific alleged allegations. The banks neither admitted nor denied the allegations. The maximum civil money penalty for a pattern or practice of violations of the NFIA is $2,000 per violation.
Data breach exposes SBA Emergency Injury Disaster Loan program applicants
On April 21, according to reports, the Small Business Association (SBA) acknowledged that it notified almost 8,000 applicants of the Economic Injury Disaster Loan (EIDL) program that their information may have been exposed as part of a data breach. Specifically, the agency stated that on March 25, the personal information of business owners applying for the EIDL program was potentially exposed to other applicants on the SBA’s website. The information exposed included names, social security numbers, birth dates, certain financial information, email addresses, and phone numbers. According to the SBA, there is no evidence that the exposed information has been misused. Notably, the breach only effected the applicants of the EIDL program, not the Paycheck Protection Program, which did not begin accepting applications until April 3.
CFPB video instructs non-tax filers how to receive stimulus payments
On April 21, the CFPB announced the release of a video—aimed at consumers who do not file taxes—that describes the steps those consumers should take in order to receive their economic impact payments. The video explains that most Americans will automatically receive their economic stimulus payments from the IRS, but those who do not may need to submit their information and specify how they would like to receive their payments. Consumers are informed that if they do not submit their information, they will be mailed paper checks, which will take longer to receive than a direct deposit. In the announcement, Bureau Director Kathleen Kraninger states that the video “is intended to help consumers navigate the economic impact payments as well as helping them avoid scams related to the payments.” The announcement also provides eligibility guidelines for the stimulus payments, a link to frequently asked questions about the payments, and a link to additional Bureau information related to Covid-19.
Pennsylvania enacts law allowing for remote/virtual notarization
On April 20, Pennsylvania enacted legislation allowing for remote or virtual notarization for the duration of the Covid-19 emergency and for 60 days thereafter. The statute details the requirements for such notarizations, including that the notary must create and retain an audio-visual recording of the notarial act.
Oregon Division of Financial Regulation issues bulletin permitting temporary work from home for employees of certain licensees
On April 20, the Oregon Division of Financial Regulation issued a revised Bulletin No. DFR 2020-6 temporarily authorizing certain licensees to work from home while transacting business when specific conditions are met. Among other things, the bulletin requires licensed companies to provide prior notice to the DFR of their intent to permit employees to work from home to prevent the spread of Covid-19.
Indiana Supreme Court issues order protecting stimulus payments from attachment or garnishment from creditors
On April 20, the Indiana Supreme Court issued an order in response to a petition for emergency rulemaking to protect stimulus payments under the CARES Act from attempts by private creditors to attach or garnish those payments during the Covid-19 emergency. Pursuant to the order, courts are prohibited from issuing new orders placing a hold on, attaching, or garnishing funds in a judgment-debtor’s account in a depository institution if those funds are attributable to a stimulus payment, with certain exceptions. With respect to previously issued court orders placing a hold on a judgment-debtor’s account in a depository institution, the judgement-debtor is entitled to a hearing, upon request, to determine what funds in the account are attributable to a stimulus payment and for the judgement-debtor to assert any exemption(s) under state or federal law. These measures are effective until the expiration of the Covid-19 public health emergency or until the Indiana Supreme Court suspends the order.
Banks face class actions for prioritizing large customers for PPP loans
On April 20, five class action lawsuits were filed in the U.S. District Court for the Central District of California against six of the nation’s largest banks, alleging that the banks prioritized existing, large customers over smaller businesses for the Small Business Administration’s (SBA's) Paycheck Protection Program (PPP) loans. The suits claim that the banks submitted PPP applications for existing large customers first, failing to process applications in the order they were received. Moreover, pursuant to the CARES Act, the SBA provided PPP lenders with origination fees on a sliding scale, from 1 percent to 5 percent, based on the amount of each loan. The complaints allege that higher origination fees provided incentive for the banks to process higher dollar loans ahead of smaller dollar loans. See the complaints here, here, here, here, and here.