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Financial Services Law Insights and Observations


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  • Global tech corporation fined $888 million for GDPR violations

    Privacy, Cyber Risk & Data Security

    Recently, a global technology corporation disclosed a $746 million euro (approximately $888 million USD) fine issued by the Luxembourg National Commission for Data Protection (CNPD) for alleged violations of the EU’s General Data Protection Regulations (GDPR). The corporation’s Form 10-Q for second quarter 2021 states that on July 16, the CNPD issued a decision against the corporation’s European headquarters, claiming its “processing of personal data did not comply with the [GDPR].” In addition to the fine, the decision also requires corresponding practice revisions, the details of which were not disclosed. The corporation noted that the decision is “without merit” and stated it intends to defend itself “vigorously” in this matter. According to sources, the decision follows an investigation started in 2018 when a French privacy group claiming to represent the interests of Europeans filed complaints against several large technology companies to ensure European consumer data is not manipulated for commercial or political purposes.

    Privacy/Cyber Risk & Data Security EU Data Protection GDPR Of Interest to Non-US Persons

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  • FDIC clarifies LIBOR transition on regulatory capital instruments

    Agency Rule-Making & Guidance

    On July 29, the FDIC issued FIL-54-2021 to provide answers to frequently asked questions (FAQs) about the impact on regulatory capital instruments under 12 CFR 324 when transitioning from LIBOR to another reference rate. Among other things, the FDIC clarifies that “such a transition would not change the capital treatment of the instrument, provided the alternative rate is economically equivalent with the LIBOR-based rate.” Specifically, the FAQs clarify that the FDIC “does not consider the replacement or amendment of a capital instrument that solely replaces a reference rate linked to LIBOR with another reference rate or rate structure to constitute an issuance of a new capital instrument for purposes of the capital rule.” Additionally, such a replacement or amendment would not create an incentive to redeem, provided “there are no substantial differences from the original instrument from an economic perspective.” Supervised financial institutions should conduct an appropriate analysis demonstrating that the replacement or amended instrument is not substantially different from the original instrument from an economic perspective and may be asked to provide the analysis to the FDIC. “Considerations for determining that a replacement or amended capital instrument is not substantially different from the original instrument from an economic perspective could include, but are not limited to, whether the replacement or amended instrument has amended terms beyond those relevant to implementing the new reference rate or rate structure,” the FAQs state. The OCC and Federal Reserve Board will also issue similar FAQs.

    Find continuing InfoBytes coverage on LIBOR here.

    Agency Rule-Making & Guidance FDIC LIBOR

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  • FTC obtains $450,000 settlement with auto dealer over fraudulent consumer financial documents

    Federal Issues

    On July 29, the FTC announced a proposed settlement with the owner and manager of a group of auto dealers with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the individual defendant advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes, in 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act (CLA) for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.” A settlement was reached with the auto dealer defendants last September (covered by InfoBytes here), which required, among other things, that the auto dealer defendants cease all business operations and pay a monetary judgment of over $7 million.

    If approved by the court, the proposed order would result in a $450,000 payment to the FTC, and would prohibit the individual defendant, who neither admits nor denies the allegations, from (i) misrepresenting information in any documents associated with a consumer’s purchase, financing, or leasing of a motor vehicle; (ii) misrepresenting the costs or any other material facts related to vehicle financing; or (iii) falsifying loan information. The individual defendant would also be required to provide consumers a reasonable opportunity and sufficient time to review documents associated with the vehicle financing, and is prohibited from violating the TILA and CLA.

    Federal Issues FTC Enforcement Auto Finance Consumer Finance FTC Act Consumer Leasing Act TILA

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  • CFPB, FHFA release updated data on borrowers’ mortgage experiences

    Federal Issues

    On July 29, the CFPB and FHFA released updated loan-level data for public use, which provides insights into borrowers’ experiences during the process of obtaining residential mortgages, as well as their perceptions of the mortgage market and future expectations. The data, collected through the National Survey of Mortgage Originations, adds mortgage data from 2018 through 2019. Key highlights include: (i) the percentage of respondents who reported not being concerned about qualifying for a mortgage during the application process increased from 48 to 51 percent for home purchase mortgages and 57 to 66 percent for refinances; (ii) having an option for a paperless online mortgage process continued to remain relatively high in terms of importance (40 percent for home purchase mortgages and 44 percent for refinances); and (iii) the percentage of respondents who applied for a mortgage through a mortgage broker increased from 42 to 46 percent for home purchase mortgages and 30 to 38 percent for refinances, whereas the percentage of respondents who applied directly through a bank or credit union decreased from 54 to 49 for home purchase mortgages and 67 to 61 for refinances.

    Federal Issues CFPB FHFA Mortgages Mortgage Origination Consumer Finance

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  • Commissioners discuss importance of restoring FTC’s authority

    Federal Issues

    On July 28, the House Committee on Energy and Commerce’s Subcommittee on Consumer Protection and Commerce held a hearing titled “Transforming the FTC: Legislation to Modernize Consumer Protection” to discuss, among other things, the importance of restoring the Commission’s ability to secure monetary relief from companies and individuals that violate the law. Testifying before the subcommittee were FTC Chair Lina M. Khan and Commissioners Noah Joshua Phillips, Rohit Chopra, Rebecca Kelly Slaughter, and Christine S. Wilson. Khan and the Commissioners discussed pending federal legislation intended to modify the FTC’s authority and addressed severe resource constraints affecting the FTC’s attempts to address the increasing number of global mergers and acquisitions, as well as the large number of consumer complaints related to Covid-19 pandemic-related marketplace abuses. They noted that despite these challenges, “thanks in part to the civil penalty authority provided by this Subcommittee in the COVID-19 Consumer Protection Act,” (covered by InfoBytes here) “the Commission has successfully halted dozens of COVID-related scams.”

    Khan and the Commissioners also discussed the importance of restoring the FTC’s ability to secure monetary relief from those that violate the law, which was limited following the U.S. Supreme Court’s recent decision in AMG Capital Management v. FTC (covered by InfoBytes here). “[P]ending cases today involve $2 billion in potential relief to victims, which is not available after AMG,” the testimony provided. “Unless the agency has clear authority to obtain monetary relief, this decision will continue to impede our ability to provide refunds to Americans harmed by deceptive, unfair, or anticompetitive conduct.” Moreover, a recent decision issued by U.S. Court of Appeals for the Third Circuit “held that the language in Section 13(b) of the FTC Act describing a company that ‘is engaged in, or is about to engage in’ illegal conduct means the FTC can initiate enforcement actions only when a violation is either ongoing or ‘impending’ at the time the suit is filed.” This decision, the FTC claimed, “limits the Commission’s ability to hold accountable entities who engaged in illegal conduct that occurred entirely in the past. 

    Federal Issues FTC Consumer Protection Enforcement

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  • District Court approves supplemental $22 million class action foreclosure settlement


    On July 26, the U.S. District Court for the Northern District of California granted preliminary approval of a proposed supplemental class settlement, adding new class members who were not part of the list of borrowers included in the court’s October 2020 original settlement order. The supplemental settlement provides more than $21.8 million for additional class members who lost their homes after allegedly being denied loan modifications from a national bank. Class members include borrowers who allegedly should have qualified for loan modifications but were not offered a home loan modification or repayment plan “due to excessive attorney’s fees being included in the loan modification decisioning” and “whose home[s] [the bank] sold in foreclosure.” According to the court’s order granting class certification, a software glitch allegedly caused a calculation error, which resulted in certain fees being misstated and led to incorrect mortgage modification denials. The original settlement set aside $1 million to compensate borrowers who endured “severe emotional distress” as a result of the error, and the supplemental settlement will provide new class members the same opportunity to apply for additional settlement amounts.

    Courts Class Action Settlement Mortgages Foreclosure

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  • 5th Circuit overturns ruling that insurer must defend data breach


    On July 21, the U.S. Court of Appeals for the Fifth Circuit reversed a lower court’s decision to grant summary judgement for a Houston-based insurer (defendant), finding that publication of material that violates a person’s right of privacy under the insurer’s policy can include making credit card information generally available. According to the opinion, a retail company (plaintiff) was sued by a branch of a national bank (bank) for alleged violations of an agreement that led to a $20 million data breach dispute. In response, the plaintiff filed a separate suit in Texas court against the defendant for breaching the insurance policy. The district court granted the defendant’s motion and dismissed all the claims. In doing so, “the district court held that the bank’s complaint did not allege a ‘publication’ of material that violated a person’s right to privacy because it asserted only that ‘[a] third party hacked into [the] credit card processing system and stole customers’ credit card information.’” Furthermore, the district court found that the complaint also did not allege a violation of a person’s right to privacy because the bank involves the payment processor’s contract claims, not the cardholders’ privacy claims.

    On appeal, the 5th Circuit adopted a broad definition of “publication” because such term was undefined, and found that the contract dispute brought by the bank against the plaintiff “plainly alleges” that hackers published the credit card information of the plaintiff customers in several ways. First, the bank accused the plaintiff of publishing its customers’ credit cards to hackers. Then, the hackers allegedly published the information by using it to make fraudulent purchases. The appellate court then examined whether the defendant “has a duty to defend [the plaintiff] in the [u]nderlying [bank] [l]itigation.” The appellate court applied Texas’s “eight-corners rule,” which compares the “four corners of the [p]olicy to the four corners of the [bank’s] complaint.” In doing so, the appellate court found that the bank’s “alleged injuries arise from the violations of customers' rights to keep their credit card data private,” and “[u]nder the eight-corners rule, [the defendant] must defend [the plaintiff] in the underlying [bank’s] litigation.”

    Courts Data Breach Appellate Fifth Circuit Privacy/Cyber Risk & Data Security

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  • OCC takes measures to address climate change risks

    Federal Issues

    On July 27, the OCC appointed Darrin Benhart as its Climate Change Risk Officer and announced its membership in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). OCC’s membership in NGFS will allow the agency to collaborate with central banks and peer supervisors, share best practices, and contribute to the development of climate risk management in the financial sector. The appointment of Benhart to the newly created position “will significantly expand the agency’s capacity to collaborate with stakeholders and to promote improvements in climate change risk management at banks,” acting Comptroller Michael J. Hsu stated, adding that Benhart “brings a wealth of supervisory, policy, and leadership experience to the role.” Hsu emphasized that “[p]rudently managing climate change risk is a safety and a soundness issue,” noting that these changes “will enable the agency to be more proactive in accelerating the development and adoption of robust climate change risk management practices, especially at the larger banks.”

    Federal Issues OCC Climate-Related Financial Risks Climate NGFS

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  • District Court grants Georgia regulator default judgment against unauthorized bank

    State Issues

    On July 26, the Georgia Department of Banking and Finance (Department) announced that the Superior Court of DeKalb County entered an order granting default judgment against defendants for unauthorized banking activities and the unapproved use of the word “bank.” Under Georgia law, it is unlawful to conduct, advertise, or be affiliated with a banking business in the state without a bank charter. Georgia law also prohibits the use of the words “bank” and/or “trust” in any entity’s name without permission from the Department. In 2020, the Department issued a cease and desist order against the defendants after the Department determined that it had no records of the entity and had not approved it or the individual defendant to organize a bank and/or conduct a banking business in or from Georgia. Nor had the Department granted the entity defendant the ability to use the word “bank” in its name. The Department later discovered that the defendants violated the cease and desist order by continuing to engage in unauthorized banking activities and continuing to advertise using the word “bank” without approval. The court ordered the defendants to comply with the cease and desist order and permanently enjoined them from, among other things, using bank nomenclature and advertising or providing financial products or services from within Georgia without written authorization from the Department.

    State Issues State Regulators Courts Georgia Compliance

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  • OFAC sanctions Syrian officials and entities

    Financial Crimes

    On July 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Orders 13894 and 13572 against eight Syrian prisons run by the Assad regime’s intelligence apparatus, as well as five senior security officials of regime entities that control these detention facilities. A Syrian armed group and two of the group’s leaders were also sanctioned. “Today’s designations promote accountability for abuses committed against the Syrian people and deny rogue actors access to the international financial system,” OFAC Director Andrea M. Gacki stated. “This action demonstrates the United States’ strong commitment to targeting human rights abuses in Syria, regardless of the perpetrator.” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons are blocked, and “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” OFAC’s announcement further noted that OFAC regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons unless exempt or otherwise authorized by a general or specific license.

    Financial Crimes OFAC Department of Treasury OFAC Sanctions SDN List Of Interest to Non-US Persons OFAC Designations Syria

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