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Maryland files charges against title company for allegedly making unlicensed, usurious consumer loans
On April 11, the Maryland Attorney General announced an administrative proceeding taken against a title company, its owner, and related businesses for allegedly making unlicensed and usurious title loans secured by consumers’ motor vehicles. According to the AG’s charges, the defendants, among other things, allegedly engaged in unfair or deceptive trade practices by offering consumers high-interest, short-term title loans with typical annual interest rates of 360 percent. The AG contends that the loans offered by the defendants qualify as consumer loans under Maryland law and therefore are subject to state interest rate caps. Furthermore, the AG alleges that the defendants were never licensed by the Maryland Commissioner of Financial Regulation to make consumer loans in the state. The AG seeks an order compelling the defendants “to permanently cease and desist from making unlicensed and usurious consumer loans in Maryland, to pay restitution to all affected consumers, and to pay civil penalties.”
On April 17, Kathy Kraninger, Director of the CFPB, spoke before the Bipartisan Policy Center where she reiterated the Bureau’s focus on prevention of harm and announced a symposium that will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act. In her remarks, Kraninger touched on the four “tools” the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. The Bureau wants to help consumers protect their own interests and choose the right products and service to help themselves. Specifically, the Bureau is focusing on ensuring that American consumers learn to save to be able to absorb a financial shock.
- Rulemaking. The Bureau will comply with Congressional mandates to promulgate rules or address specific issues through rulemaking, but when the Bureau has discretion, it will focus on “preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices which undermine the ability of consumers to choose the products and services that are best for them.” In the coming weeks, the Bureau will release its proposed rules to implement the FDCPA, which will include (i) bright line limits on the number of calls consumers can receive from debt collectors on a weekly basis; (ii) clarity on how collectors may communicate through new technology such as, email and text messages; and (iii) requiring more information at the outset of collection to help consumers better identify debts and understand payment and dispute options. Kraninger stated, “the CFPB must acknowledge that the costs imposed on regulated entities absolutely affect access to, and the availability of, credit to consumers.”
- Supervision. This tool is the “heart of the agency,” according to Kraninger, as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau will keep in mind that it is not the only regulator examining most entities and will focus on coordination and collaboration with the other regulators so as not to impose unmanageable burdens in examinations.
- Enforcement. The Bureau will continue to enforce against bad actors that do not comply with the law, as enforcement is “an essential tool that Congress gave the Bureau.” The Bureau will have a “purposeful enforcement regime” to foster compliance and help prevent consumer wrongs. Kraninger is “committed to ensuring that enforcement investigations proceed carefully and purposefully to ensure a fair and thorough evaluation of the facts and law… [and ensuring they] move as expeditiously as possible to resolve enforcement matters, whether through public action or a determination that a particular investigation should be closed.”
Kraninger also touched on how the Bureau plans to measure success going forward. Kraninger noted that in the past, the Bureau touted its outgoing statistics as a measurement, such as amount of consumer redress and number of complaints handled. However, according to Kraninger, if the Bureau succeeds in fostering a goal of prevention of harm, certain outputs like meritorious complaints would actually be lower. Therefore, the Bureau’s success should be based on how it uses all of its tools. Lastly, Kraninger announced a symposia series that would convene to discuss consumer protections in “today’s dynamic financial services marketplace.” The first will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act, specifically, to address issues with the “reasonableness” standard. There are no additional details on the date for the symposium but Kraninger noted that this would be the next step in exploring future rulemaking on the issue. The series will also have future events discussing behavioral law and economics, small business loan data collection, disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.
Additionally, on April 9, acting Deputy Director, Brian Johnson, spoke at the George Mason University Law & Economics Center's Ninth Annual Financial Services Symposium. In his prepared remarks, Johnson emphasized that regulatory rules should be “as simple as possible” when dealing with complex markets as they are easier for a greater portion of actors to understand and adapt to and also promote compliance, “which has the ancillary benefit of making it easier for consumers (not to mention regulators) to distinguish between good and bad actors.” Johnson argued that regulators should not try and dictate specific outcomes in rulemaking. Instead, Johnson stated that “financial regulators should recognize that complex market systems are not a means to accomplish their specific goals” and should “narrowly-tailor rules to address a discrete market failure.” Johnson also touched on the Bureau’s new Office of Innovation, noting that the Bureau’s proposed No Action Letter Program and Product Sandbox will offer firms “the opportunity to expand credit while still preserving important consumer protections,” while assisting the Bureau in learning about new technologies and potential consumer risks. As for the Bureau’s cost-benefit analysis, Johnson said that this activity will not be limited to future actions, but will also be used for “periodic retrospective analysis” because financial markets are “constantly changing, requiring constant reappraisal and verification of the rules that govern the system.”
On April 11, the FTC announced that a payment processing company and its owner agreed to a $1.8 million settlement resolving allegations that the company repeatedly violated a 2009 court order. That order found that the payment processer knowingly or consciously avoided knowing that debit card transactions it processed, on behalf of an allegedly fraudulent enterprise, were not authorized by the consumers. The FTC alleged that the company violated the 2009 order by, among other things, (i) failing to engage in a reasonable investigation of prospective clients before processing payments on their behalf; (ii) failing to monitor clients’ transactions to ensure that clients were not engaged in illegal behavior; and (iii) failing to adhere to administrative requirements of the order, including submitting a written compliance report to the agency. In addition to the monetary penalty, the new settlement permanently bans the company from working as a payment processor and subjects the company to reporting and recordkeeping requirements.
5th Circuit: District courts lack jurisdiction over claims arising from FDIC enforcement proceedings
On March 28, the U.S. Court of Appeals for the 5th Circuit held that federal district courts lacked subject matter jurisdiction over claims arising out of certain FDIC enforcement proceedings. According to the opinion, the FDIC brought two enforcement actions against the bank and its directors (plaintiffs), alleging violations of various banking laws and regulations, which resulted in civil money penalties and cease-and-desist orders. The plaintiffs petitioned the 5th Circuit for review. While the first appeal was pending, the plaintiffs filed a lawsuit in federal district court alleging the FDIC committed constitutional violations during the enforcement actions. Specifically, the plaintiffs alleged that the FDIC (i) targeted the bank due to the bank president’s age and denied it equal protection; and (ii) violated due process by preventing the plaintiffs from offering certain evidence and preventing the president’s ability to talk with his counsel at certain times. These allegations were raised and rejected during the FDIC’s second enforcement proceeding. The FDIC moved to dismiss the action for a lack of subject matter jurisdiction, asserting that the statutory review process precludes district court jurisdiction over actions arising from enforcement proceedings. The district court agreed and dismissed the action without prejudice, indicating that the bank could assert its claims in the district court on direct review of the agency’s final order. The bank appealed.
On appeal, the 5th Circuit noted that the language in the statute “virtually compels” it to concede that Congress intended to preclude district court jurisdiction over claims against the FDIC arising from enforcement proceedings. The appellate court then addressed whether the claims raised by the plaintiffs were the type of claims Congress intended to be reviewed within the statutory scheme. The appellate court determined that the Federal Deposit Insurance Act allows for “meaningful judicial review,” by authorizing review of challenges to a final agency order by a federal circuit court. Moreover, the court rejected the plaintiffs’ argument that its claims are “wholly collateral” to the administrative order because they did not challenge the merits of the order but rather, the claims “arise directly from alleged irregularities in the agency enforcement proceedings.” Lastly, the court found that the plaintiffs’ constitutional claims do not fall outside of the agency’s expertise. Based on the foregoing, the court found that the district court correctly dismissed the action.
On March 19, the California Department of Business Oversight (DBO) filed an administrative action to revoke the license and void loans made by a Southern California auto title lender for allegedly violating state lending laws. According to the DBO announcement, the lender allegedly, among other things, (i) charged consumers more interest than permitted by state law; (ii) failed to consider the borrower’s ability-to-repay; and (iii) engaged in “false and misleading” advertising. Specifically, DBO alleges that, in two separate examinations, it determined the lender included DMV fees in borrowers’ principal loan amounts to bring the loans above $2,500. DBO alleges these loans carried interest rates over 100 percent, while the state law cap is 30 percent for loans under $2,500. DBO also alleges the lender violated state law by failing to report the profits it made from a “duplicate-key fee” and made loans from unlicensed locations.
In addition to the formal accusation, the DBO also has commenced an investigation to determine whether the more than 100 percent interest rates that the lender charges on most of its auto title loans may be unconscionable under the law.
On March 19, the OCC announced that a national bank has agreed to pay a $25 million civil money penalty to resolve alleged violations of the Fair Housing Act. According to the OCC’s consent order, (i) from August 2011 to April 2015, the bank did not properly train loan officers about available mortgage discounts under its Relationship Loan Program (RLP); (ii) from August 2011 to November 2014, the bank failed to provide explicit instructions within their written guidelines that employees should offer those discounts to all eligible customers; and (iii) from August 2011 to November 2014, the bank did not require loan officers to document the reason for a customer’s rejection. Moreover, according to the OCC, the bank did not require loan officers to inform customers about potential mortgage discounts from August 2011 to January 2015. As a result, the OCC stated that certain borrowers allegedly did not receive RLP benefits for which they were eligible and were adversely affected on the basis of their race, color, national origin, and/or sex. The bank—which did not admit nor deny the allegations and self-reported the problems in 2015—initiated and has nearly completed a reimbursement plan, which will deliver roughly $24 million in restitution to the approximately 24,000 borrowers who may have missed out on the appropriate RLP benefit.
On March 20, the CFPB and the FTC released (here and here) their annual report to Congress on the administration of the FDCPA, which highlights the 2018 efforts of the agencies. The agencies coordinate in enforcement; share supervisory and consumer complaint information; and collaborate on education under a memorandum of understanding that was reauthorized in February. (Covered by InfoBytes here.) In the report, the Bureau acknowledges its intent to release a Notice of Proposed Rulemaking on debt collection covering issues such as “communication practices and consumer disclosures” in spring 2019. In addition to highlighting the Bureau’s debt collection education efforts, the report also states that in 2018 the Bureau (i) received approximately 81,500 debt collection complaints related to first-party and third-party collections; (ii) initiated six public enforcement actions alleging violations of the FDCPA, one resulting in an $800,000 civil money penalty; and (iii) identified one or more violations of the FDCPA through supervisory examinations.
As for the FTC, in addition to education efforts, the report states that in 2018 the agency (i) initiated or resolved seven enforcement actions, three of which were related to phantom debt collection, obtaining more than $58.9 million in judgments; (ii) returned money to thousands of consumers who were targeted by phantom debt collection operations; and (iii) banned 32 companies and individuals from working in the debt collection market.
In March 2019, the DOJ amended its FCPA Corporate Enforcement Policy, including to clarify the agency’s position on the use of ephemeral messaging apps by companies seeking full cooperation credit under the policy. Ephemeral messaging apps such as Signal, WhatsApp, and Telegram, now common in many workplaces, allow users to send messages that may not be preserved and retrievable later in the same way as e-mails. To the DOJ, the impermanence of ephemeral messaging makes uncovering details about past events more difficult. Prior to the amendments, the DOJ’s initial Corporate Enforcement Policy had indicated that full cooperation credit would not be available to companies which allowed employees to use “software that generates but does not appropriately retain business records or communications.”
The updated policy softens this position and specifically addresses ephemeral messaging platforms. Companies using the platforms may now be eligible for full cooperation credit, provided that they “implement appropriate guidance and controls on the use of personal communications and ephemeral messaging platforms that undermine the company’s ability to appropriately retain business records or communications or otherwise comply with the company’s document retention policies or legal obligations.” While the amendment may allow companies to take advantage of the beneficial aspects of ephemeral messaging, it also begs new questions as to what constitutes “appropriate” guidance and controls.
The March 2019 amendments also provide additional clarification on de-confliction; add a new comment explaining how the DOJ will implement a presumption of a declination in cases where a company involved in a merger or acquisition “uncovers misconduct through thorough and timely due diligence . . . and voluntarily self-discloses,” with the potential for a declination for the acquiring company even where there are aggravating circumstances regarding the acquired company; and enlarge the voluntary self-disclosure of individuals category to include information not just about “all individuals involved in the violation,” but “all individuals substantially involved in or responsible for the violation.”
In his March 8, remarks to the American Bar Association’s National Institute on White Collar Crime, Assistant Attorney General Brian A. Benczkowski referenced the updates and emphasized the importance of reviewing the 12 previous case declinations made under the policy as supplemental guidance in understanding the policy.
On March 15, the FTC released its annual report highlighting the agency’s privacy and data security work in 2018. Among other items, the report highlights consumer-related enforcement activities in 2018, including:
- an expanded settlement with a global ride-sharing company over allegations that the company violated the FTC Act by deceiving consumers regarding the company’s privacy and data practices (covered by InfoBytes here).
- a settlement with a global online payments system company to resolve allegations that its payment and social networking service failed to adequately disclose to consumers that transfers to external bank accounts were subject to review and that funds could be frozen or removed based on a review of the underlying transaction (covered by InfoBytes here).
- a settlement with a Texas-based company over allegations that it violated the FCRA by failing to take reasonable steps to ensure the accuracy of tenant-screening information furnished to landlords and property managers (covered by InfoBytes here).
The report also highlighted the FTC’s hearings on big data, privacy, and competition conducted through its Hearings on Competition and Consumer Protection in the 21st Century initiative. (Covered by InfoBytes here and here.)
DOJ announces $1.59 million settlement with real estate management company for alleged SCRA violations
On March 15, the DOJ announced a $1.59 million settlement with a real estate management company resolving allegations that the company and its entities violated the Servicemembers Civil Relief Act (SCRA) by obtaining unlawful court judgments and charging unlawful lease termination fees. According to the complaint, from 2006 to 2017, the company obtained at least 152 default judgments against 127 “SCRA-protected servicemembers” by failing to accurately disclose their military status in affidavits filed with the court. Additionally, the DOJ alleged that the company wrongfully withheld security deposits and imposed early lease termination fees on servicemembers who sought termination due to qualifying military orders under the SCRA. Under the terms of the settlement, the company will pay (i) nearly $1.5 million to compensate 127 servicemembers who had allegedly unlawful default judgments entered against them; (ii) nearly $35,000 to compensate 10 servicemembers who were charged early lease termination fees; and (iii) a civil money penalty of $62,000. The settlement also requires the company to develop policies and procedures related to SCRA lease terminations and default judgments, conduct SCRA compliance training for employees involved with lease issues, and request that major credit reporting agencies delete trade lines and negative credit information for the affected servicemembers.
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Buckley Webcast: The future of the Community Reinvestment Act
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Buckley Webcast: Amendments to the CFPB's proposed debt collection
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- APPROVED Webcast: State and SAFE Act licensing requirements for banks
- John C. Redding to discuss "TCPA compliance in the era of mobile" at the Auto Finance Risk Summit
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: Data breach litigation and biometric legislation
- Buckley Webcast: Trends in e-discovery technology and case law
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium