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CFPB files suit against New York-based debt-collection law firm
On May 17, the CFPB announced it filed a lawsuit in the U.S. District Court for the Eastern District of New York against a New York debt-collection law firm. According to the Bureau’s complaint, between 2014 and 2016 the law firm allegedly initiated more than 99,000 collection lawsuits in an attempt to collect debts through reliance on “non-attorney support staff, automation, and both a cursory and deficient review of account files,” in violation of both the FDCPA and the Consumer Financial Protection Act. The Bureau alleges the lawsuits contained names and signatures of attorneys despite those attorneys “not being meaningfully involved in reviewing the merits of the lawsuits,” including not reviewing pertinent documentation related to the debts, such as account applications, billing statements, payment histories, and the terms and conditions governing an account. The law firm allegedly did not perform reviews of the contracts related to debt sales, despite filing lawsuits on behalf of debt buyers that have been accused of unlawful debt collection practices. The Bureau is seeking an injunction, damages, redress to consumers, and the imposition of a civil money penalty.
House committee examines CFPB’s proposal to repeal payday rule
On May 16, the House Committee on Oversight and Reform’s Subcommittee on Economic and Consumer Policy held a hearing to examine the CFPB’s proposal to repeal parts of its “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). (See previous InfoBytes coverage on the proposed repeal here.) Thomas Pahl, Policy Associate Director of the Research, Markets and Regulations Division at the Bureau, testified on the Bureau’s rulemaking and its position on the Rule. Committee Chairman Raja Krishnamoorthi (D-IL) opened the hearing by discussing the Bureau’s five years of research on the payday loan industry, which resulted in the issuance of the Rule in 2017. Krishnamoorthi claimed that Americans overwhelmingly support the requirement that lenders must determine a borrower’s ability to repay before making payday, title, and other high-cost installment loans, and provided an example of a consumer’s experience in this industry.
In his opening remarks, Pahl stressed that a complete picture of the Bureau’s activities concerning payday lenders requires understanding the use of the CFPB’s range of tools provided under the Dodd-Frank Act, such as its (i) consumer financial education initiatives; (ii) supervision of payday lenders to ensure compliance with federal statutes and regulations; and (iii) enforcement actions that target bad actors. Pahl emphasized that enforcement remains a key part of the Bureau’s consumer protection efforts, and highlighted five consent orders as well as two final judgments obtained against payday lenders. According to Pahl, the “payday loan cases are a testament to the agency’s commitment to use its enforcement tool to take decisive action against wrongdoers and send a clear message to the marketplace that should deter unlawful behavior and support a level playing field.” Pahl next discussed the Rule, stating that the Mandatory Underwriting Provisions rest on a determination that it is an unfair and abusive practice to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay. According to Pahl, the Bureau found that these provisions would lead to a decrease in the number of payday loans of between 51 and 52 percent (short-term vehicle title loans would decrease between 89 and 93 percent) and a decrease in revenue of between 67 and 68 percent, resulting in a contraction in the number of payday and vehicle title lenders. Pahl discussed the Bureau’s February 6 notice of proposed rulemaking (NPRM), which sought comments on repealing the ability-to-repay provision (see InfoBytes coverage here), since the Bureau “has come to have serious doubts as to whether the appropriate legal standards were applied and whether the evidence was sufficiently robust and reliable to support the Bureau's determination that small dollar lenders engage in an unfair or abusive act or practice if they make loans without making a reasonable determination that consumers can repay them.” A second NPRM was issued the same day to delay the Rule’s compliance date, and Pahl commented that the Bureau has begun to evaluate the comments received on both NPRMs.
During the hearing, Krishnamoorthi also questioned Pahl as to whether there is a threshold at which point an interest rate on a payday loan would be considered unfair and abusive or unconscionable. Pahl responded that the Dodd-Frank Act prohibits the Bureau from imposing any usury requirements and that “unconscionability is a matter of state law traditionally.”
Federal Reserve issues enforcement actions for flood insurance, BSA/AML violations
On May 16, the Federal Reserve Board (Board) announced an enforcement action against a Nebraska-based bank for allegedly violating the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $69,000 penalty against the bank, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty for a pattern or practice of violations under the NFIA is $2,000 per violation.
The same day, the Board issued an order of prohibition against a former employee and institution-affiliated party of an Illinois-based bank for allegedly engaging in unsafe and unsound lending practices, including engaging in improper lending practices and failing to implement adequate Bank Secrecy Act/anti-money laundering controls and training. The terms of the order prohibit the individual from, among other things, “participating in any manner in the conduct of the affairs of any financial institution or organization specified in section 8(e)(9)(A) of the [Federal Deposit Insurance Act],” or “voting for a director, or serving or acting as an institution-affiliated party.”
FinCEN renews GTOs covering 12 metropolitan areas; continued focus on AML risk in related shell companies
On May 15, the Financial Crimes Enforcement Network (FinCEN) announced the renewal of its Geographic Targeting Order (GTO), which requires U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for high-end residential real estate in 12 major metropolitan areas. The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the 12 covered areas.
The renewed GTO takes effect May 16, and covers certain counties within the following areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
FinCEN FAQs regarding GTOs are available here.
Previous InfoBytes coverage on FinCEN GTOs available here.
Vermont streamlines mortgage licensing
On May 14, the Vermont governor signed S.154, which, among other things, amends the state’s mortgage licensing statute. Specifically, the legislation repeals various provisions of the state’s licensing process for mortgage lenders and servicers and replaces the provisions with a new chapter (8 V.S.A. Chapter 72) intended to streamline the law and bring more clarity and cohesion to the licensing process. The bill is effective July 1.
California Reinvestment Coalition sues CFPB alleging data collection failures
On May 14, the California Reinvestment Coalition (CRC) announced it filed a lawsuit in the U.S. District Court for the Northern District of California against the CFPB for allegedly failing to implement Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to small, women, and minority-owned businesses. In the complaint, the CRC argues that the failure to implement Section 1071 violates two provisions of the Administrative Procedures Act. Specifically, the CRC alleges the that Bureau has “unlawfully withheld and unreasonably delayed” the implementation of Section 1071 since Dodd Frank’s passage in 2011, and also, that the Bureau has acted “arbitrarily and capriciously” by informing financial institutions to “not to make [the] inquiries, nor compile, maintain, and submit [the loan application] data” required by Section 1071. The CRC claims that the failure to collect and publish the data has harmed its ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color. The CRC is seeking the court to invalidate the Bureau’s countermanding of Section 1071’s requirements on financial institutions and an order or writ compelling the Bureau to issue a final rule implementing Section 1071.
Supreme Court holds FCA relators have 10 years to bring nonintervened suit
On May 13, the U.S. Supreme Court unanimously held that a relator has up to 10 years to bring a qui tam suit under the False Claims Act (FCA) whether or not the government intervenes in the suit. According to the opinion, in November 2013, a relator brought a suit against two defense contractors alleging they defrauded the U.S. Government by submitting false payment claims for security services in Iraq through early 2007. The relator claimed he told federal officials about the allegedly fraudulent conduct in November 2010, but the Government declined to intervene. The defendants moved to dismiss the action as barred by the six year statute of limitations under 31 U. S. C. §3730(b)(1), while the relator claimed the action was timely under §3730(b)(2)— which states that a FCA civil action may not be brought “more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.” The district court dismissed the action, while the U.S. Court of Appeals for the 11th Circuit reversed the decision, concluding that §3730(b)(2) applies in “nonintervened actions, and the limitations period begins when the Government official responsible for acting knew or should have known the relevant facts.”
Upon review, the Supreme Court rejected the defendants’ argument that the six year statute of limitations in §3731(b)(1) applies to all relator-initiated actions (whether the Government intervenes or not), while § 3731(b)(2) applies only to qui tam actions when the Government intervenes, arguing the interpretation is “at odds with fundamental rules of statutory interpretation.” Moreover, the Court concluded that the relator in a nonintervened suit is not “the official of the United States” whose knowledge triggers §3731(b)(2)’s three-year limitations period, as it was not what Congress intended, and a private relator is neither “appointed as an officer of the United States nor employed by the United States.”
Kraninger says Dept. of Ed hindering CFPB's supervision of student loan servicers
On May 16, Senator Warren (D-MA) released an April 23 letter from CFPB Director Kathy Kraninger outlining the Bureau’s efforts to oversee student loan servicers, which was sent in response to an inquiry by six democratic senators. As previously covered by InfoBytes, the senators wrote to the CFPB seeking additional information on the Bureau’s oversight of student loan companies and servicers involved in the administration of the federal Public Service Loan Forgiveness Program (PSLF) and asking about the effect of the Department of Education’s (Department) December 2017 guidance to loan servicing contractors not to produce documents directly to other government agencies. In response, Kraninger noted that since December 2017, the Bureau has conducted “several exams” of student loan servicers, some that included questions regarding PSLF. However, and most notably, Kraninger stated that, “[s]ince December 2017, student loan servicers have declined to produce information requested by the Bureau for supervisory examinations related to Direct Loans and Federal Family Education Loan Program (FFELP)…based on the Department’s guidance.” The Bureau has pursued “options” to obtain the information necessary for these examinations, according to Kraninger. Additionally, Kraninger noted that creating a new Memorandum of Understanding with the Department is a priority for the Bureau, once a new Student Loan Ombudsman is hired.
Brazilian telecom settles World Cup ticket bribery charges for $4.125 million
On May 9, Brazilian telecom company settled SEC charges that it spent $621,756 on 2014 World Cup tickets and hospitality for Brazilian and foreign government officials. The company will pay $4.125 million to settle SEC claims that it violated internal accounting controls and recordkeeping requirements connected to providing 124 World Cup tickets and hospitality to 93 government officials at an average cost per guest of $3,204. The SEC took the company’s remediation efforts into account, including “enhanced internal accounting controls” and “adopting a new anti-corruption policy and compliance structure.”
Hawaii man sentenced to 30 months for bribery conspiracy
On May 13, a Hawaiian businessman was sentenced to 30 months imprisonment to be followed by three years of supervised release after pleading guilty in January to a charge of conspiracy to bribe a Micronesian official in violation of the FCPA. The DOJ alleged that the businessman’s consulting company paid $440,000 in bribes to officials to obtain and keep contracts with the Micronesian government worth more than $10 million. One of the officials also pleaded guilty in April. See more previous coverage here.