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Maryland establishes student loan servicer provisions, prohibits unfair, abusive, or deceptive trade practices
On March 13, the Maryland governor signed HB 594, which establishes various provisions with respect to student loan servicing in the state. Among other things, student loan servicers are prohibited from (i) employing—either directly or indirectly—“any scheme, device, or artifice to mislead a student loan borrower”; (ii) engaging in any unfair, abusive, or deceptive trade practice with regard to the servicing of student loans; (iii) misrepresenting or omitting material information, including fees, payment amounts, repayment options, terms and conditions, or student borrower obligations; (iv) obtaining property through the misrepresentation or omission of material fact; (v) knowingly or recklessly misapplying or refusing to correct a misapplication of payments to the balance of any student loan; (vi) providing inaccurate information to a consumer credit reporting agency; (vii) refusing to communicate with a student loan borrower’s authorized representative; (viii) making false statements or omitting material facts in connection with an investigation; and (ix) violating federal laws concerning student loan servicing. In addition, on or after February 1, 2020, student loan servicers are also prohibited from “allocat[ing] a nonconforming payment in a manner other than as directed by the student loan borrower” provided the borrower meets certain criteria. The Act also requires student loan servicers to respond to a borrower’s inquiry or complaint within 30 days of receipt, authorizes the Commissioner of Financial Regulation (Commissioner) to enforce the Act’s provisions, and provides that the Student Loan Ombudsman many refer borrower complaints to the Commissioner for investigation. The Act is effective October 1.
2nd Circuit: FDCPA statute of limitations triggered by violation, not notice
On May 13, the U.S. Court of Appeals for the 2nd Circuit held that the FDCPA’s statute of limitations period starts when the violation occurs, rather than when the plaintiff receives notice of the violation. According to the opinion, a law firm (defendant) seeking to collect a debt against a borrower sent a restraining notice to a national bank, which erroneously referenced the plaintiff’s social security number and address. The bank froze the plaintiff’s accounts on December 13, 2011. The bank lifted the freeze two days later after the plaintiff contacted the bank about the freeze. On December 14, 2012, the plaintiff filed a lawsuit against the debt collector, alleging FDCPA violations. The plaintiff claimed the action was filed within the one-year statute of limitations because he did not learn about the restraining notice until December 14, 2011. In 2016, the district court, however, held that the statute of limitation was triggered when the defendant mailed the restraining notice (December 6), and thus the complaint was time-barred. The plaintiff appealed, and the 2nd Circuit held that an FDCPA violation occurs when an individual is injured by unlawful conduct and not when the notice is mailed. On remand, the parties conducted limited discovery, which confirmed that the bank placed a freeze on the plaintiff’s accounts on December 13, which was also the date that the plaintiff learned about the freeze. The defendant then moved for summary judgment, arguing that the complaint is time barred given that it was filed one year and one day after the date of the account freeze. The district court agreed, and the plaintiff filed a second appeal.
On the second appeal, the 2nd Circuit affirmed the district court’s decision. The appellate court reminded the plaintiff that a violation of the FDCPA occurs when an individual is injured by unlawful conduct—which in this case was the date the accounts were frozen—and emphasized that the panel’s earlier holding was not intended to “expand the FDCPA’s statute of limitations by requiring that individuals also receive ‘notice of the FDCPA violation.’” Because the plaintiff’s suit was filed one year and one day after the bank froze his accounts, his claim was time-barred.
District court denies arbitration in FDCPA action
On May 13, the U.S. District Court for the District of New Jersey denied a debt collector’s motion to compel arbitration in an FDCPA action, concluding that the existence of an arbitration agreement was not yet apparent based on the amended complaint. According to the opinion, a consumer brought a putative class action against a debt collector alleging the three collection letters it sent were “deceptive and misleading” under the FDCPA because the letters contained language regarding the possibility of IRS reporting, even though the debt was under the $600 threshold required for reporting. As previously covered by InfoBytes, the district court dismissed the action on its merits, without reaching the defendant’s motion to compel arbitration. The U.S. Court of Appeals for the 3rd Circuit reversed, finding “the least sophisticated debtor could be left with the impression that reporting could occur” and therefore the language could signal a potential FDCPA violation, notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled.
On remand, the debt collector moved to compel arbitration of the claims arising from the three letters on an individual basis, arguing that the credit agreement between the consumer and the original creditor contained an arbitration provision and providing an example of the original creditor’s credit card agreement. The plaintiff rejected the example agreement, arguing that it was merely a generic exemplar that did not “demonstrate its applicability” to the consumer. In denying the debt collector’s motion, the court directed the parties to conduct limited discovery on the existence of an enforceable arbitration agreement between the parties. The court also denied the debt collector’s motion to dismiss new claims added to the amended complaint as time-barred because they “relate back” to the original complaint.
CFPB announces regulatory review plan; seeks comment on Overdraft Rule impact on small businesses
On May 13, the CFPB announced a plan to review its regulations under Section 610 of the Regulatory Flexibility Act (RFA), which specifies that agencies should review certain rules within 10 years of their publication, consider the rules’ effect on small businesses, and invite public comment on each rule undergoing the review. The announcement notes that RFA requires an agency to consider multiple factors when reviewing a rule, including (i) whether there is a continued need for the rule; (ii) the complexity of the rule; (iii) whether the rule overlaps, duplicates, or conflicts with federal, state, or other rules; and (iv) the degree to which factors, such as technology and economic conditions, have changed the relevant market since the rule was evaluated. Comments will be due within 60 days of the plan’s publication in the Federal Register.
The CFPB also announced that its first RFA review will be of the 2009 Overdraft Rule (Rule), which was originally issued by the Federal Reserve Board and limits the ability of financial institutions to assess overdraft fees for ATM and one-time debit card transactions that overdraw consumers’ accounts. The Bureau is seeking public comment on the economic impact of the Rule on small entities, including requesting feedback on topics such as (i) the impacts of the reporting, recordkeeping, and other compliance requirements of the Rule; and (ii) how the Bureau could reduce the costs associated with the Rule for small entities. Comments on the economic impact of the Rule will be due within 45 days of publication in the Federal Register.
FTC Commissioners discuss state privacy preemption
On May 8, the FTC Commissioners participated in a subcommittee hearing before the House Committee on Energy and Commerce entitled, “Oversight of the Federal Trade Commission: Strengthening Protections for Americans’ Privacy and Data Security.” During the hearing, the Commissioners were questioned about the agency’s privacy and data security enforcement and regulatory activities, including whether they would support preemption of state privacy laws by a federal privacy statute. Using the California Consumer Privacy Act (covered by InfoBytes here) as an example, some Congressmen worried about the prospect of conflicting privacy legislation in other states, creating “confusion and uncertainty in the business community.”
Split along party lines, Democratic Commissioners expressed caution with federal preemption of state privacy laws; Commissioner Chopra, citing to federal preemption laws leading up to the mortgage crisis, warned of “unintended consequences.” Democratic Commissioner Slaughter recognized the “desire for uniformity, consistency, clarity, and predictability” that a federal law would provide, but noted that the appropriateness of preemption should be based on “whether a federal law meets or exceeds…the level of protections that states can provide and whether it allows them the opportunity to fill any gaps that may remain after a federal law is developed.” Republican Commissioners stressed the importance of having a federal law that would preempt the current “patchwork” of state laws, which Commissioner Phillips argued is “essential” in order to provide businesses clarity and reduced compliance costs, while also providing consumers with more power to understand expectations. FTC Chairman Simons noted that even if federal law preempts state privacy laws, Congress should grant concurrent enforcement authority to the states’ attorneys general.
The hearing also discussed, among other things, (i) the need for additional resources to increase agency staff focused on privacy issues; (ii) giving the FTC authority to levy civil money penalties, as Section 5 of the FTC act does not allow the Commission to seek civil penalties for first-time privacy violations; and (iii) the need for targeted rule-making authority.
Indiana amends delinquency charge provisions for consumer credit sales and consumer loans
On May 6, the Indiana governor signed HB 1136, which amends the state’s Uniform Consumer Credit Code (UCCC) to, among other things, revise provisions related to authorized delinquency charges on consumer credit sales and consumer loans. Specifically, the amendments authorize a creditor to collect a delinquency charge of not more than (i) $5 for installments not paid in full within 10 days after the scheduled due date if installments are due every 14 days or less; (ii) $25 for installments not paid in full within 10 days after the scheduled due date if installments are due every 15 days or more; or (iii) $25 on single installments due at least 30 days after the consumer loan is made if the installment is not paid within 10 days after its scheduled due date. Furthermore, creditors are prohibited from collecting—whether directly or indirectly—a delinquency charge on any payment that (i) is paid within 10 days following its scheduled due date; and (ii) “is otherwise a full payment of the payment due for the applicable installment period. . .if the only delinquency with respect to a consumer credit sale, refinancing, or consolidation is attributable to a delinquency charge assessed on an earlier installment.” In addition, HB 1136 amends the maximum transaction fee for revolving loan accounts to the greater of 2 percent of the transaction amount or $10. The amendments take effect July 1.
11th Circuit continues flood insurance action against mortgage servicer
On May 8, the U.S. Court of Appeals for the 11th Circuit affirmed in part and reversed in part the dismissal of a consumer’s putative class action against her reverse mortgage servicer for the alleged improper placement of flood insurance on her home. The consumer claimed violations of the FDCPA and multiple Florida laws, including the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), based on allegations that the mortgage servicer improperly executed lender-placed flood insurance on her property, even though the condo association had flood insurance covering the property. The lender-placed flood insurance resulted in $5,200 in premiums added to the balance of the loan, and an increase in financing costs on the mortgage. The district court dismissed the action, concluding the mortgage servicer was required by federal law to purchase the flood insurance and the monthly account statements were not collection letters under the FDCPA or state law.
On appeal, the 11th Circuit agreed with the district court that the monthly account statements of the reverse mortgage, which prominently stated “this is not a bill” in bold, uppercase letters, and did not request or demand payment, were not an attempt to collect a debt under the FDCPA. Additionally, the appellate court concluded that the consumer failed to allege the mortgage servicer was a debt collector within the meaning of the FDCPA because the complaint does not allege that the debt was in default. The appellate court also affirmed the district court’s dismissal of the state debt collection claims for similar reasons. However, the appellate court reversed the district court’s dismissal of the consumer’s FDUTPA claims, noting that the mortgage servicer failed to cite to a state or federal law requiring it to purchase flood insurance “when it has reason to know that the borrower is maintaining adequate coverage” in the form a condo association insurance.
OFAC imposes additional oil sector sanctions connected to Venezuela’s defense and intelligence sector
On May 10, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had determined that persons operating in Venezuela’s defense and security sector may be subject to sanctions. Additionally, OFAC imposed sanctions against two companies for their alleged involvement in the transportation of oil from Venezuela to Cuba, which provides support to former President Maduro’s defense and intelligence sector. According to the Treasury Secretary Steven T. Mnuchin, “[OFAC’s] action today puts Venezuela’s military and intelligence services, as well as those who support them, on notice that their continued backing of the illegitimate Maduro regime will be met with serious consequences.” Furthermore, OFAC also referred financial institutions to Financial Crimes Enforcement Network advisories FIN-2019-A002, FIN-2017-A006, and FIN-2018-A003 for further information concerning the efforts of Venezuelan government agencies and individuals to use the U.S. financial system and real estate market to launder corrupt proceeds, as well as human rights abuses connected to corrupt foreign political figures and their financial facilitators.
Visit here for continuing InfoBytes coverage of actions related to Venezuela.
FinCEN issues new guidance on virtual currency regulatory framework
On May 9, the Financial Crimes Enforcement Network (FinCEN) issued new guidance designed to consolidate and clarify current FinCEN regulations, guidance, and administrative rulings related to money transmissions involving virtual currency. FinCEN noted that the guidance, “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVC),” serves to “remind persons subject to the Bank Secrecy Act (BSA) how FinCEN regulations relating to money services businesses (MSBs) apply to certain business models involving money transmission denominated in value that substitutes for currency, specifically, convertible virtual currencies (CVCs).” The guidance does not create any new expectations but instead “applies the same interpretive criteria to other common business models involving CVC.” These business models include peer-to-peer exchangers, CVC wallets, CVC money transmission services through electronic terminals (CVC kiosks), decentralized (or distributed) applications (DApp), anonymity-enhanced CVC transactions, CVC payment processors, and internet casinos. Finally, the guidance also specifies specific business models that may be exempt from the definition of a money transmitter. The same day, FinCEN also issued an “Advisory on Illicit Activity Involving Convertible Virtual Currency” to highlight threats posed by the criminal exploitation of CVCs for money laundering, sanctions evasion, and other illicit financing purposes, and to provide identification and reporting guidance for financial institutions.
President Trump issues new Iran Executive Order targeting Iran's metal sector; OFAC publishes related FAQs
On May 8, President Trump issued Executive Order 13871 (E.O. 13871) authorizing the imposition of sanctions on persons determined to operate in Iran’s iron, steel, aluminum, and copper sectors. The order is intended to target sectors of the Iranian economy that OFAC has identified as providing “funding and support for the proliferation of weapons of mass destruction, terrorist groups and networks, campaigns of regional aggression, and military expansion.” Among other things, E.O. 13871 authorizes the Secretaries of Treasury and State to impose sanctions on a foreign financial institution if it is determined that it has knowingly conducted or facilitated any significant financial transactions in these sectors, or for or on behalf of a blocked person. These sanctions are intend to curtail such institutions’ access to the U.S. financial system by prohibiting the opening of, or impose strict conditions on maintaining, a correspondent account or payable-through account by such foreign financial institutions in the United States.
The same day, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) released a set of FAQs connected to the issuance of E.O. 13871, including a discussion of the relevant 90-day wind-down period for affected transactions as well as sanction exceptions.
Visit here for additional InfoBytes coverage of actions related to Iran.