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  • District court dismisses six PPP agent fee class actions

    Federal Issues

    On September 21, the U.S. District Court for the Southern District of New York dismissed six class actions alleging that the Paycheck Protection Program (PPP) and its implementing regulations entitle accountants who assist borrowers in securing PPP loans to a portion of the fees banks receive from the Small Business Administration (SBA).The six class actions were brought by a collection of accountants and accounting firms alleging that the banks did not pay agent fees reportedly due under the PPP, even though they had not entered into agreements with the banks to receive the fees. The district court, following a similar decision by a Florida federal district court (covered by InfoBytes here), dismissed the class actions, concluding that absent an agreement to do so, banks are not required to pay agent fees under the CARES Act—which created the PPP—and its implementing regulations. Specifically, the court noted that although the law and implementing regulations impose limits on agents fees, those limits “do not entitle agents to fees but simply regulate how such fees would be paid when they are to be paid.” The court also rejected a variety of state law and common law claims, which were “largely premised on the same theory,” and dismissed all six class actions in their entirety.

    Federal Issues Covid-19 CARES Act SBA Agent Lending Courts

  • Fed: Lenders must consider pre-pandemic condition when underwriting Main Street Lending Program loans

    Federal Issues

    On September 18, the Federal Reserve Board, in conjunction with the FDIC and the OCC, revised the Main Street Lending Program (MSLP) FAQs (for-profit here, nonprofit here) to clarify underwriting expectations, supervisory expectations, and details regarding co-borrower loans. Specifically, the FAQs note that a lender is expected to “conduct an assessment of each potential borrower’s pre-pandemic financial condition and post-pandemic prospects” when reviewing an application to determine approval. Additionally, the FAQs state that Fed supervisors will “not criticize” lenders for originating loans in accordance with MSLP requirements, even when “such loans are considered non-pass at the time of origination,” provided the weaknesses are due to the Covid-19 pandemic and expected to be temporary. Finally, the FAQs include new details covering co-borrower loans, as the Federal Reserve Bank of Boston anticipates the MSLP will accept loans made to multiple co-borrowers starting next week.

    Federal Issues Covid-19 Federal Reserve Main Street Lending Program FDIC OCC Compliance

  • E-SIGN modernization bill passes Senate committee

    Federal Issues

    On September 16, the U.S. Senate Committee on Commerce, Science, and Transportation voted 14-12 to approve S. 4159 (the “E-SIGN Modernization Act”), sponsored by Senator Thune, the majority whip. As previously covered by Infobytes, the E-SIGN Modernization Act would amend E-SIGN to remove the requirement that consumers reasonably demonstrate they can access documents electronically before they can receive an electronic version. Instead, consumers would be allowed to obtain documents electronically once they are provided with disclosure information and consent to receiving documents through such means. The E-SIGN Modernization Act was opposed by several consumer advocacy groups, including the National Consumer Law Center, which argued in a letter to the committee that the bill “would increase fraud and effectively prevent access to legally required information and records about the transactions to which consumers are bound.”

    Committee Ranking Member Senator Cantwell had offered, but later withdrew, an amendment that would have rejected all the changes introduced under the E-SIGN Modernization Act and, among other things, required the Secretary of Commerce and the Federal Trade Commission to evaluate and report to Congress, within a year after S. 4159’s enactment, the benefits and burdens of E-SIGN’s requirement for consumers to reasonably demonstrate that they can access documents electronically before receiving electronic versions.

    The legislation is currently pending approval by the full Senate.

    Federal Issues Federal Legislation E-SIGN Act E-Signature U.S. Senate

  • Special Alert: HUD finalizes new disparate impact regulation

    Federal Issues

    The Department of Housing and Urban Development earlier this month issued a final disparate impact regulation under the Fair Housing Act (Final Rule). HUD’s new Final Rule is intended to align its disparate impact regulation, adopted in 2013 (2013 Rule), with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (Inclusive Communities). While the new Final Rule is a notable development, the relatively recent Supreme Court decision makes it unclear to what extent courts and federal agencies will look to the rule for guidance.

    Federal Issues HUD Disparate Impact Agency Rule-Making & Guidance Fair Housing Act FHA Fair Lending Special Alerts

  • OFAC sanctions Russian cybercriminals for $16.8 million crypto scam

    Financial Crimes

    On September 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned two Russian nationals who were allegedly involved in phishing campaigns targeting virtual asset service providers in 2017 and 2018, resulting in losses of at least $16.8 million. Specifically, the Russian nationals spoofed web domains of legitimate virtual currency exchanges to steal customers’ login information and gain access to their real accounts. According to OFAC, they used a “variety of methods to exfiltrate their ill-gotten virtual currency” and subsequently laundered the money to a personal account, attempting to “conceal the nature and source of the funds by transferring them in a layered and sophisticated manner through multiple accounts and multiple virtual currency blockchains.” OFAC designated the individuals pursuant to Executive Order 13694, which targets “malicious cyber-enabled activities, including those related to the significant misappropriation of funds or personal identifiers for private financial gain.”

    OFAC emphasized that anti-money laundering and countering the financing of terrorism regimes “pose a critical chokepoint in countering and deterring” this type of cybercriminal activity. As a result, all property and interests in property belonging to the designated individuals subject to U.S. jurisdiction are blocked, and “U.S. persons generally are prohibited from dealing with them.”

    Financial Crimes OFAC Department of Treasury Sanctions Of Interest to Non-US Persons Virtual Currency Russia Anti-Money Laundering OFAC Designations

  • NYDFS enforces its debt collection regulation for the first time

    State Issues

    On September 16, NYDFS filed a statement of charges against a debt collector for allegedly failing to honor consumers’ requests for substantiation of debt. This is the first enforcement action alleging violations of New York’s Debt Collection Regulation, 23 NYCRR Part 1, which was promulgated in 2015. New York law dictates that substantiation must be provided within 60 days after receiving a request, and specifies what documentation must be provided to substantiate the debt. Charges filed against the company allege that requests made by consumers for information proving the validity of the debt and the company’s right to collect the debt were not honored in several ways, such as failing to provide (i) any substantiation to dozens of consumers; (ii) sufficient substantiation to hundreds of consumers, for example, by omitting a complete chain of title or underlying transaction documents; and (iii) substantiation within the required timeframes. NYDFS maintains that the company’s actions violate 23 NYCRR Part 1, Section 1.4, and that such violation carries civil penalties of up to $1,000 per offense under state law. Additionally, NYDFS claims that “each failure to provide any substantiation, timely substantiation, or sufficient substantiation of debt constitutes an independent offense.” A hearing is scheduled for January 12, 2021 before a hearing officer to be appointed by the Superintendent of Financial Services.

    State Issues NYDFS Debt Collection Enforcement

  • 2nd Circuit denies arbitration for sandwich chain in TCPA action

    Courts

    On September 15, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s denial of arbitration, concluding that a national sandwich chain’s website did not provide sufficient notice of the terms and conditions. According to the opinion, a consumer filed a TCPA action against the sandwich chain relating to unsolicited text messages he received after he entered his phone number on a promotional page of the company’s website in order to receive a free sandwich at his next visit. After entering his number, the consumer clicked a button stating “I’M IN,” which the sandwich chain argued “constituted assent to the terms and conditions contained on a separate webpage that was accessible via a hyperlink on the promotional page.” The terms and conditions included an agreement to arbitrate. The sandwich chain moved to compel arbitration of the consumer’s TCPA action and the district court denied the motion, finding that no arbitration agreement existed because “the terms and conditions were not reasonably clear and conspicuous on the promotional page itself.”

    On appeal, the 2nd Circuit agreed with the district court, noting that the webpage “was relatively cluttered.” Specifically, the appellate court noted that the webpage lacked language “informing the user that by clicking ‘I’M IN’ the user was agreeing to anything other than the receipt of a coupon.” Moreover, the appellate court held that the link to the terms and conditions was not conspicuous to a reasonable user as it was in small font at the bottom of the page and was “introduced by no language other than the shorthand ‘T & Cs.’” Because the company did not provide sufficient evidence demonstrating the consumer’s knowledge of the terms and conditions, the appellate court affirmed the denial of arbitration.

    Courts Appellate Second Circuit TCPA Arbitration

  • CFPB denies petition to set aside CID; cites authority to seek “reasonably relevant” information

    Federal Issues

    On August 27, the CFPB denied a petition by an auto financing company to set aside a civil investigative demand (CID) issued by the Bureau in June. The CID requested information from the company to determine, among other things, “whether auto lenders or associated persons, in connection with originating auto loans (including marketing and selling products ancillary to such loans), servicing loans, collecting debts (including through repossessing vehicles), or consumer reporting” may have violated the Consumer Financial Protection Act’s UDAAP provisions, as well as the FCRA and TILA. The company petitioned the Bureau to set aside the CID. Among other things, the company argued that because certain aspects of the CID do not fall within a “reasonable construction of the CID’s notification of purpose,” and thus failed to provide fair notice as to what the Bureau is investigating, the CID should be “modified to strike each of these requests or clearly confine them to the enumerated topics.”

    The Bureau rejected the company’s request to set aside or modify the CID, countering that (i) the particular requests that the company objects to are “all reasonably relevant to the Bureau’s inquiry as described in the notification of purpose,” and that the company cannot rewrite the CID’s notification of purpose to describe only four specific topics and then argue that the Bureau is asking for irrelevant information; and (ii) the Bureau has broad authority to seek information that may be “reasonably relevant” to an investigation, and that the Bureau’s “own appraisal of relevancy must be accepted so long as it is not obviously wrong.” According to the Bureau, the company failed to overcome this “high hurdle established in the judicial precedent.” However, the Bureau granted the company’s request for confidential treatment of its petition and attached exhibits by agreeing to redact certain proprietary business information and confidential supervisory information.

    Federal Issues CFPB CIDs Auto Finance CFPA TILA FCRA

  • Fannie Mae updates Covid-19 selling FAQs

    Federal Issues

    On September 17, Fannie Mae updated its Covid-19 FAQs for sellers to include a new question about whether federal student loan payments that are placed in a Covid-related forbearance should count towards a borrower’s debt-to-income ratio. Additionally, Fannie Mae updated previous questions covering the purchase of loans that are in forbearance, including whether a lender owes the loan level pricing adjustment (LLPA). Specifically, the FAQs state that if a forbearance begins any time on the sale date of the loan, lenders owe the LLPA to Fannie Mae.

    Federal Issues Fannie Mae Mortgages Covid-19

  • New York AG settles data breach lawsuit with national coffee chain

    Privacy, Cyber Risk & Data Security

    On September 15, the New York attorney general announced a settlement with a national franchisor of a coffee retail chain to resolve allegations that the company violated New York’s data breach notification statute and several state consumer protection laws by failing to protect thousands of customer accounts from a series of cyberattacks. As previously covered by InfoBytes, the AG claimed that, beginning in 2015, customer accounts containing stored value cards that could be used to make purchases in stores and online were subject to repeated cyberattack attempts, resulting in more than 20,000 compromised accounts and “tens of thousands” of dollars stolen. Following the attacks, the AG alleged that the company failed to take steps to protect the affected customers or to conduct an investigation to determine the extent of the attacks or implement appropriate safeguards to limit future attacks. The settlement, subject to court approval, would require the company to (i) notify affected customers, reset their passwords, and refund any stored value cards used without permission; (ii) pay $650,000 in penalties and costs; (iii) maintain safeguards to protect against similar attacks in the future; and (iv) develop and follow appropriate incident response procedures.

    Privacy/Cyber Risk & Data Security Courts Settlement Data Breach State Issues

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