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SEC charges online auction portal with violating whistleblower protection laws
On November 4, the SEC announced the filing of an amended complaint in an action against an online auction portal and its CEO (collectively, “defendants”), along with the CEO’s wife as a relief defendant. The original complaint, filed in May, alleged that defendants operated a $23 million fraudulent securities offering and misappropriated investor proceeds. The amended complaint adds, among other things, a new count for “Impeding: Rule 21F-17 of the Exchange Act,” alleging that the defendants took actions to impede individuals from communicating with the SEC and other agencies regarding misconduct at the company by conditioning the return of investor money on signing agreements with confidentiality clauses purportedly prohibiting the reporting of potential securities law violations to law enforcement agencies. The SEC seeks preliminary and permanent injunctions, disgorgement plus prejudgment interest, and penalties.
OFAC extends two Ukraine-related general licenses
On November 1, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) announced it extended the expiration date to March 31, 2020 of two Ukraine-related general licenses (GLs) by issuing GL 13M, which supersedes GL 13L, and GL 15G, which supersedes GL 15F. OFAC also noted that GL 15G includes an expanded authorization for certain safety-related activity and a new authorization for certain activities to comply with environmental regulatory requirements.
Visit here for continuing InfoBytes coverage of actions related to Ukraine.
District Court certifies payday lending class action
On October 31, the U.S. District Court for the District of New Jersey certified two classes of consumers alleging a payday lender and its subsidiaries charged usurious, triple-digit interest rates on short-term loans originated by a nonparty entity run by a member of a federally recognized Indian tribe. The lawsuit—which alleges, among other things, usury and consumer fraud in violation of New Jersey law, common law restitution and unjust enrichment, and violations of the Racketeer Influenced and Corrupt Organizations Act—was filed in 2016 with the defendants arguing that the claims were subject to an arbitration provision accompanying the loan agreement. However, as previously covered by InfoBytes, the U.S. Court of Appeals for the Third Circuit upheld the district court’s decision that the tribal arbitration forum referenced in the loan agreement does not actually exist and, “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.
According to the plaintiffs, the defendants evaded state law usury limits by attempting to use the sovereignty of an Indian tribe, with most loans carrying an annual percentage interest rate of 139 percent. While the defendants challenged the notion that common questions about the loan agreements predominated over the individual concerns of each class member, the court determined that the loan agreements at issue have an identical structure of interest amortized over a fixed payment schedule. “Plaintiffs have therefore shown that they can use common evidence to prove their [Consumer Fraud Act] claims, and that common questions predominate,” the court stated. “Namely the nearly identical, allegedly usurious loan agreements, which caused an out of pocket loss in the form of usurious interest.” The court also dismissed the defendants’ argument that the plaintiffs’ suit was inferior to a 2018 CFPB action, which resulted in a $10.3 million civil money penalty but no restitution (previous InfoBytes coverage here), stating that “[i]ncredibly, [d]efendants argue that this CFPB action, which denied any recovery to the putative class members here, is a superior means for them to obtain relief.”
Terrorist Financing Targeting Center designates network supporting IRGC and Hizballah
On October 30, the U.S. Treasury Department announced that the seven member nations of the Terrorist Financing Targeting Center (TFTC) have jointly designated 25 targets for allegedly supporting Iran’s Islamic Revolutionary Guard Corps and Hizballah, as part of Treasury’s efforts to “bolster the fight against terrorist financing.” The targets include 21 entities that comprise a “vast network of businesses providing financial support to the Basij Resistance Force” through the use of shell companies and other measures within Iran’s automotive, mining, metals, and banking industries, along with four Hizballah-affiliated individuals allegedly involved in related financial activities in Iraq. The seven members—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and the U.S.—coordinate disruptive actions, share financial intelligence information, and enhance member state capacity in order to target activities posing national security threats to TFTC members, including the disruption of financial networks used to fund terrorism.
Visit here for additional InfoBytes coverage on actions involving Iran and Hizballah.
Michigan AG sues online tribal lender
On October 31, the Michigan attorney general announced it filed a lawsuit against an online lender alleging the lender violated the CFPA and Michigan law by allegedly offering usurious loans in an “unfair, deceptive, and abusive manner” with interest rates between 388 percent and 1,505 percent. The complaint alleges that the online lender is using its affiliation with a federally recognized Indian tribe located in California to circumvent Michigan’s interest rate cap, but, “is not an arm of the tribe and therefore is not entitled to assert tribal sovereign immunity from suit.” Moreover, the complaint argues that because the lender offers loans to Michigan residents, it is operating outside of tribal boundaries and, therefore, is subject to any and all applicable state and federal laws. In addition to usurious interest rates, the complaint alleges the lender misrepresented contract terms, including various rates and fees, and refused to let consumers pay off loans early. The attorney general is seeking declaratory and injunctive relief to prevent the lender from “providing usurious loans in Michigan in the future.” Notably, this is Michigan’s first-ever lawsuit alleging violations of the CFPA.
District Court certifies class suing Department of Education over borrower defense claims
On October 30, the U.S. District Court for the Northern District of California certified a class of borrowers who allegedly applied for student loan relief based on their higher education institution’s misconduct but have yet to receive a decision from the Department of Education. The borrowers allege that the Department has arbitrarily and capriciously stonewalled its own process for adjudicating the borrowers’ defense claims under the Higher Education Act, which “allows the Department to cancel a student federal loan repayment based on a school’s misconduct.” The borrowers claim the Department has failed to decide a borrower defense claim since June 2018. According to the borrowers—former students of for-profit schools with claims dating back to 2015—“the Department’s inaction continues to cause putative class members ongoing harm.” The Department argued, however, that the class should not be certified because the borrowers’ claims rely too much on individual circumstances and fail to prove a “systemic policy of inaction[.]” The court disagreed and certified the class, stating that the borrowers “have identified a single uniform policy—namely, the Department’s alleged ‘blanket refusal’ to adjudicate borrower defenses—which ‘bridges all their claims.’” Moreover, the court noted that “this alleged uniform policy is supported by the undisputed fact that the Department has failed to adjudicate a single borrower defense claim in over a year.” The class does not include borrowers who are part of a separate action filed against the Department (covered by InfoBytes here).
Agencies adjust threshold for Regulations Z and M
On October 31, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) to credit transactions, as required by the Dodd-Frank Act (published in the Federal Register here and here). Each year the thresholds must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2020, based on the annual percentage increase in the CPI-W, is now $58,300 or less, except for private student loans and loans secured by real property, which are subject to TILA regardless of the amount.
Senate Democrats press CFPB to investigate Pennsylvania servicer’s PSLF management
On October 28, 23 Senate Democrats wrote to CFPB Director Kathy Kraninger urging the Bureau to open an enforcement investigation into a Pennsylvania-based student loan servicer’s alleged mismanagement of the Public Service Loan Forgiveness (PSLF) program. The Senators contend that the servicer’s failure to properly administer the PSLF program “has resulted in widespread violations of federal law,” referring to reports by the CFPB, the Government Accountability Office, and the Department of Education Inspector General that claim that missteps and errors have caused public service workers to be denied loan forgiveness. The CFPB’s Student Loan Ombudsman’s report cites to the servicer’s “‘flawed payment processing, botched paperwork and inaccurate information,’” while the GAO report claims “that public service workers [have] improperly been denied loan forgiveness because of [the servicer’s] inability to properly account for qualifying payments and reliance on inaccurate information.” The letter requests that the Bureau investigate the servicer’s servicing practices, its management of the PSLF program, and other potential violations of federal consumer financial laws.
As previously covered by InfoBytes, on October 3, the New York attorney general filed an action against the servicer for violating the Consumer Financial Protection Act and New York law through its mishandling of income driven repayment plans and misconduct related to the administration of PSLF program applications.
District Court approves $12.5 million settlement in TCPA class action
On October 28, the U.S. District Court for the Northern District of Illinois granted final approval of a $12.5 million TCPA class action settlement between a group of consumers and three cruise lines and their marketing group (collectively, “defendants”). According to the opinion, a consumer filed the action against the defendants alleging they violated the TCPA’s prohibition of the use of an autodialer without prior consent. While the motion for class certification was pending, the parties reached an agreement-in-principle for a class-wide settlement. The settlement requires the defendants to, among other things, set up a common fund of $12.5 million to permit each claimant to “recover for up to three calls per telephone number, with a maximum value for each call set at $300.” The court noted that after deducting attorneys’ fees, other costs, and an incentive award for the principal plaintiff, the nearly 275,000 class members will be eligible to receive an average of about $22 per claim. The court noted that while $22 is “significantly below the $500 recovery available under the statute for each call… a settlement does not need to provide the class with the maximum possible damages in order to be reasonable.” The court went on to state that the settlement “still serves the purpose of punishing [the cruise lines] for their role in the controversy,” and the total settlement fund is a “deterrent to potential future defendants who might think twice about violating the TCPA in an effort to boost business.”
SEC seeks input on RMBS asset-level disclosure requirements
On October 30, the SEC requested public input on asset-level disclosure requirements for residential mortgage-backed securities (RMBS). The current requirements, which were adopted in 2014 in response to the financial crisis, require issuers to disclose a wide range of data on each mortgage loan in the underlying pool at the time of an offering and on an ongoing basis. As previously covered by InfoBytes, in September, the U.S. Treasury Department released a Housing Reform Plan, which, among other things, recommended that the SEC review the RMBS asset-level disclosure requirements to assess the number of required reporting fields and to clarify certain defined terms for SEC-registered private-label securitization offerings. In response to Treasury’s plan, Chairman Clayton requests that SEC staff assess the “RMBS asset-level disclosure requirements with an eye toward facilitating SEC-registered offerings,” and seeks public input on a variety of questions related to the topic, including (i) whether the circumstances in the RMBS market have changed since the financial crisis and the 2014 adoption of the requirements; (ii) whether one or more data points in the requirements should be revised and why; and (iii) whether any data points should be eliminated and if elimination would result in any adverse effects. The announcement does not contain a deadline for members of the public to submit their input.