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Ninth Circuit Orders Tribal Lenders to Comply with CFPB Investigative Demands
On January 20, the Ninth Circuit issued an opinion affirming the U.S. District Court for the Central District of California’s 2014 order enforcing the investigative demands against three tribal lending entities. The investigative demands are centered on determining whether small-dollar online lenders or other persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, provision, or collection of small-dollar loan products, in violation the Dodd-Frank Act and other Federal consumer financial laws. According to the opinion, the court claims that in “the Consumer Financial Protection Act, a generally applicable law, Congress did not expressly exclude tribes from the Bureau’s enforcement authority” and thereby, the tribes cannot claim tribal sovereign immunity.
Nation's Biggest Bank Agrees to $55 Million Settlement with DOJ Regarding Allegations of Discriminatory Lending Practices
On January 18, the DOJ filed a lawsuit in the United States District Court for the Southern District of New York accusing a national bank of discriminating against minorities in home lending. According to the government’s complaint, the DOJ alleges, among other things, that the bank “failed to adequately monitor for and fully remedy the effects of race and national origin disparities in APR” and did not “maintain adequate data to determine whether it was discriminating” before ending its wholesale lending practice in late 2009. Two days later, on January 20, the bank agreed to settle the matter and will pay $55 million, while denying any wrong doing. The bank maintains its view that the DOJ’s case is based on legacy allegations that concern pricing decisions of independent third-party brokers. The details of the settlement have not been released as of the publication date of this post.
Global Money Service Business Settles Alleged AML and Consumer Fraud Allegations; Fined $586 Million in Settlement
On January 19, the DOJ announced that it had entered into Deferred Prosecution Agreement with a global money services business regarding allegations the company failed to maintain effective anti-money laundering program and aiding and abetting wire fraud. The announcement claims that between 2004 and 2012, the company “violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.” Under the terms of the Agreement, the business must forfeit $586 million and “implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.”
In a related case, the company also agreed to a consent order with the FTC to resolve parallel allegations by the FTC in a complaint filed on January 19 in the U.S. District Court for the Middle District of Pennsylvania. The complaint alleges that the company’s conduct violated Section 5 of the FTC Act and the Telemarketing Sales Rule.
Prudential Regulators Fine Mortgage Company Over "Significant Deficiencies" in Foreclosure-Related Services
On January 24, the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency filed an amended Consent Order fining a foreclosure services provider $65 million for “improper actions” conducted by the company’s predecessor. The fine replaces all obligations to complete the “Document Execution Review” required in the original 2011 consent order between the same agencies and the servicer’s predecessor. In the 2011 order, the agencies claimed, among other things, that the predecessor company’s actions resulted in significant deficiencies in the foreclosure-related services it provided to mortgage servicers.
FTC Halts Scheme to Enroll Consumers in Credit Monitoring Service
On January 10, the FTC filed a complaint against an online company that owns three “free credit report” websites as well as three individuals connected to the company with claims that they illegally lured consumers to their websites. The scheme, as alleged in the complaint, made use of Craigslist ads promoting non-existent or unauthorized apartments and houses for rent as the means of encouraging consumers to request additional information, which would then prompt them to click on a link to one of the three websites owned by the company to get a “free” credit check. The consumers allegedly were then enrolled in a credit monitoring service, supposedly without their knowledge or consent. The company has purportedly accrued millions of dollars using this method. On January 11, the U.S. District Court for the Northern District of Illinois entered a temporary restraining order against the defendants.
John Doe Lawsuit Says CFPB Action Unlawful After PHH
On January 10, a California-chartered finance company with its principal place of business in Manila, Philippines filed an action to enjoin the CFPB from, among other things, disclosing the existence of an investigation of the plaintiff and taking any action against the plaintiff unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). The action was prompted, in part, by the recent PHH v. CFPB decision in which the court held that the CFPB’s single director leadership structure is unconstitutional and, thus, that the agency must operate as an executive agency supervised by the President. Here, the John Doe plaintiff argues that because the CFPB has requested review of the PHH decision, the court’s remedy in regarding the CFPB’s structure has not taken effect and thus agency is operating in violation of the Constitution. Therefore, plaintiff asserts, the CFPB can take no further action against it—including publication of the CFPB’s investigation of plaintiff or initiation of enforcement action against plaintiff.
We note, that on the same day the plaintiff filed its complaint, the court issued an order reflecting its decision that the plaintiff be able to proceed in its action against the CFPB under a pseudonym. In so doing, the court noted that where a company has filed an action to protect against the government’s disclosure of its identity, it would be “counterintuitive that a court should require that same company to disclose its identity in the parallel court proceedings.” Judge Rudolph Contreras of the U.S. District Court for the District of Columbia has given the CFPB until Jan. 25 to respond to the company’s complaint and motion to proceed under a pseudonym.
CFPB Files Suit Against Nation's Largest Student Loan Company
On January 18, the CFPB initiated an enforcement action against the nation’s largest student loan servicer based upon alleged violations of the CFPA, FCRA, and FDCPA. In a complaint filed with the Middle District of Pennsylvania, the Bureau charged that the student lender “systematically and illegally” created “obstacles to repayment” and “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB “seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief.”
Later that day, the lender issued a statement categorically rejecting the CFPB's charges, explaining: “[T]he suit improperly seeks to impose penalties [] based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.” The company also noted that “the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations.”
Misleading Mortgage Investors Costs Germany's Largest Bank $7.2 Billion
On January 17, the Department of Justice (DOJ) announced a $7.2 billion settlement with Germany’s largest lender, resolving federal civil claims that a German global bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. Under the terms of the settlement agreement, the bank must pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and must provide $4.1 billion in consumer relief. The DOJ described the settlement as “one of the largest FIRREA penalties ever paid.”
As a part of the settlement, the bank acknowledged misleading investors in the packaging, securitization, marketing, sale, and issuance of RMBS. Pursuant to the agreement, an independent monitor will determine whether the bank has satisfied its consumer relief obligations. In connection with the settlement, the DOJ released an appendix containing credit and compliance due diligence results from a selection of the bank’s RMBS, along with a list of the RMBS at issue. The settlement— described by the DOJ as “one of the largest FIRREA penalties ever paid”—does not release any individuals from potential criminal or civil liability. The bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.
OFAC Settles with Canadian Bank for Apparent Violations of Cuban Assets Control Regulations and Iran Sanctions
On January 13, Treasury’s Office of Foreign Asset Control (OFAC) announced a $516,105 settlement agreement with a Canadian-based bank and its online-brokerage subsidiaries in connection with accounts held and transactions processed on behalf of certain Specially Designated Nationals and Blocked Persons located in Cuba, Iran and other locations in the Middle East. OFAC also identified general “shortcomings in the bank’s OFAC compliance policies, procedures, and programs” including the bank’s failure to screen for any potential nexus to an OFAC-sanctioned country or entity prior to processing related transactions through the U.S. financial system and occurring due to shortcomings in the banks policies and procedures. The settlement agreement does, however, note that the Apparent Violations constituted a non-egregious case, that the Bank voluntarily self-disclosed the Apparent Violations, and that the applicable total base penalty amount for the apparent violations was $955,750—well above the $516,105 amount OFAC assessed.
Notably, in the agreement’s concluding paragraph, OFAC highlights, as a general matter, the risks associated with both “subsidiaries in high-risk industries–such as securities firms” and, in particular “online payment platforms when the financial institution is unable to restrict access for individuals and entities located in comprehensively sanctioned countries.”
CFPB Orders Medical Debt Collection Law Firms to Refund $577,135 to Consumers
On January 9, the CFPB entered into a Consent Order and Stipulation against two medical debt-collection law firms and their president for alleged violations of the FDCPA and FCRA. Based on these allegations, the CFPB ordered the Respondents to provide $577,135 in relief to affected consumers, correct their business practices, and pay a $78,800 civil money penalty. According to the allegations set forth in the consent order, between January 2012 and August 2016, debt collectors working for the firms violated the FDCPA by giving the false impression that the firm’s “Demand Letters were from an attorney or that the firm’s attorneys were meaningfully involved in reviewing the consumer’s case or had reached a professional judgment that sending a Demand Letter or making a collection call was warranted.” The Bureau also found that the firms notarized consumer affidavits for use in debt-collection lawsuits without properly verifying the truth of the signature. The CFPB also alleged that the firms violated FCRA’s Regulation V by failing to establish, implement, and periodically review and update reasonable written policies and procedures regarding the accuracy and integrity of consumer information furnished to consumer reporting agencies.