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U.S. Senators Introduce Automobile-Focused Cybersecurity Legislation
On July 21, Senators Blumenthal (D-CT) and Markey (D-MA) introduced legislation, the Security and Privacy in Your Car Act (“SPY Car" Act), that would protect drivers’ privacy while allowing them to remain connected to the growing technological advances in the automobile industry. In addition to directing the National Highway Traffic Safety Administration (NHTSA) and the FTC to develop federal cybersecurity and privacy standards that would secure motor vehicles manufactured for sale in the United States and protect drivers, the SPY Car Act seeks to establish a rating system, or “cyber dashboard,” that “informs consumers about how well the vehicle protects drivers’ security and privacy” beyond the minimum standards potentially set by the NHTSA and the FTC. The requirements that motor vehicles: (i) be equipped with reasonable measures to protect against hacking attacks; (ii) maintain the ability to reasonably secure data collected within electronic systems; and (iii) be equipped with capabilities to immediately detect, report, and stop attempts to intercept driving data or control the vehicle, are among the cybersecurity standards outlined in the SPY Car Act. In regards to privacy standards, the legislation proposes the following: (i) transparency, such that owners or lessees are explicitly aware of the collection, transmission, retention, and use of driving data; (ii) consumer choice, allowing owners or lessees to opt out of data collection and retention without losing access to other features, such as key navigation; and (iii) marketing prohibition, which would ban companies from using personal driving information for advertising purposes without obtaining the affirmative express consent of the owner or lessee. The introduction of the SPY Car Act follows Senator Markey’s 2015 Tracking & Hacking: Security & Privacy Gaps Put American Drivers at Risk report, which showed gaps in the auto industry’s ability to prevent hackers from accessing internet-connected features in vehicles.
FinCEN Issues Advisory on FATF's List of Jurisdictions with AML/CFT Deficiencies
On July 20, FinCEN issued an advisory to financial institutions with updates to the Financial Action Task Force’s (FATF) list of jurisdictions containing strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies. According to FinCEN’s Advisory, on June 26, FATF updated two documents to reflect changes that have the potential to affect U.S. financial institutions’ due diligence obligations and risk-based policies, procedures, and practices. The first document, the FATF Public Statement, identifies jurisdictions that are subject to Enhanced Due Diligence or countermeasures due to the jurisdiction’s AML/CFT deficiencies. Revisions to the FATF Public Statement include the removal of Ecuador from the Public Statement because of progress in addressing its FATF action plan. Ecuador now appears on the list of jurisdictions requiring general due diligence. The second document to be updated, Improving Global AML/CFT Compliance: On-going Process, identifies new jurisdictions with AML/CFT deficiencies. Bosnia and Herzegovina have been downgraded to the Improving Global AML/CFT Compliance: On-going Process document due to its “strategic deficiencies in its AML/CFT regime." However, the country has made a “high-level political commitment” to work with FATF and regional authorities to address their deficiencies. Indonesia was removed from the listing and monitoring process, according to the Advisory, for “its significant progress in establishing the legal and regulatory framework to address all or nearly all of its strategic AML/CFT deficiencies.”
CFPB Reaches $700 Million Settlement to Resolve Credit Card Ancillary Products Investigation
On July 21, the CFPB announced a nearly $700 million settlement against a leading financial institution and its subsidiaries. According to the consent order, the Bureau alleges that the entities engaged in deceptive marketing, billing, and collection practices related to various credit card ancillary products, including debt protection and credit monitoring services. Specifically, the Bureau alleges that the institution or its vendors marketing practices, consisting of telemarketing calls, online enrollment, point-of-sale application, and direct enrollment at retailers, mislead consumers into enrolling for certain ancillary products. The Bureau further alleges that, in some instances, telemarketers failed to accurately disclose the cost and fees associated with the ancillary products. With respect to the unfair billing allegations, the Bureau contends that the institution or its vendors improperly charged consumers, without authorization, for services that were not rendered, and failed to provide full product benefits of the services marketed to consumers. In addition, the Bureau alleges that the institution misrepresented payment fee information to consumers by failing to disclose the actual purpose of the fee associated with making payments by phone on delinquent credit card accounts. Under terms of the settlement, the institution and its subsidiaries agreed to (i) provide $479 million in consumer relief related to its marketing practices; (ii) pay roughly $220 million in restitution related to its payments collection practices and for consumers not receiving the full benefits of services promised; and (iii) pay a $35 million civil money penalty.
In a parallel enforcement action, the OCC imposed a separate $35 million civil money penalty against the institution for engaging in similar practices, and requires the institution to strengthen its oversight of third-party vendors and develop a comprehensive risk management program for ancillary products marketed or sold by the bank.
Federal Reserve Announces Members of Faster Payments and Secure Payments Task Force
On July 21, the Federal Reserve Board of Governors announced the members of the Faster Payments and Secure Payments Task Force as described in the Strategies for Improving the U.S. Payment System white paper released earlier this year. The committees will advise the Federal Reserve task force chair on meeting agendas, and help prioritize various task force activities, among other payments initiatives. The members include various interest groups representing industry, tech, and government, among others. More information about the task forces and the Fed’s payments improvement initiatives can be found at fedpaymentsimprovement.org.
Department of Treasury Seeks Public Feedback on Online Marketplace Lending
On July 20, the Federal Register published the Department of the Treasury’s Request For Information on Expanding Access to Credit Through Online Marketplace Lending (RFI). The RFI seeks public comment on the three specific areas relating to the online marketplace lending industry: (i) business models of and products offered to consumers and small businesses; (ii) potential expansion of access to credit to the historically underserved; and (iii) the ways in which the financial regulatory framework can develop to support safe growth within the industry. According to the RFI, online marketplace lending delivers lower costs and faster decision times than traditional lenders, but, so far, the loans are usually only originated to prime or near-prime consumers. However, some online marketplace lenders are developing product structures and underwriting models that may allow for originating loans to non-prime borrowers at lower interest rates. With the rapid growth occurring in the online lending industry, the RFI aims to assist the Treasury Department in examining online lenders’ potential “to expand access to credit, and how the financial regulatory framework can develop to ensure the industry grows safely.” Comments are due August 31, 2015.
Special Alert: CFPB Officially Delays TRID Rule Until October 3
The CFPB finalized a rule today that delays the effective date of the TILA-RESPA Integrated Disclosure (“TRID”) rule, including all amendments, from August 1 to October 3, 2015. This is consistent with the proposed rule issued last month, which we wrote about here.
The CFPB considered implementing a “dual compliance period” that would have permitted creditors to voluntarily comply with the TRID rule early, but it ultimately declined to do so, citing concerns that “dual compliance could be confusing to consumers and complicated for industry, including vendors, the secondary market, and institutions who act both as correspondent lenders and originators.”
In addition, although the CFPB declined to create a “hold harmless” or “safe harbor” period following the effective date, it stated that it “continues to believe that the approach expressed in Director Cordray’s letter to members of Congress on June 3, 2015,” which we wrote about, remains fitting:
[O]ur oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the Rule on time. My statement . . . is consistent with the approach we took to implementation of the Title XIV mortgage rules in the early months after the effective dates in January 2014, which has worked out well.
The rule also implements two technical corrections to the requirements governing the “Calculating Cash to Close” and “Summaries of Transactions” tables in the Closing Disclosure. Specifically, the instructions for the “Adjustments and Other Credits” line are being amended to include the cost of any personal property excluded from the contract sales price. In addition, the instructions for calculating the “Closing Costs Paid at Closing” disclosure in the “Summaries of Transactions” table are being amended to account for general lender credits applied at closing.
For additional information and resources on the TRID rule, please visit our TRID Resource Center.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Melissa Klimkiewicz, (202) 349-8098
CFPB and DOJ Reach $24 Million Settlement with Indirect Auto Lender to Resolve Discriminatory Pricing Allegations
On July 14, the CFPB and DOJ announced a $24 million settlement with an indirect auto lender to resolve allegations that the lender offered higher interest rates to minority borrowers compared to white borrowers with a similar credit risk profile. Specifically, both agencies contended that the lender allowed their partnering dealers excessive discretion to increase the lender’s base interest rate with a “dealer markup” on auto loan contracts, which resulted in discriminatory pricing. Under terms of the settlement, the lender agreed to, among other things, (i) pay $24 million in restitution to affected borrowers, (ii) impose dealer markup rate caps on auto loans, and (iii) improve its policies and procedures related to auto loan pricing and compensation program. Notably, the Bureau did not impose a civil money penalty due to the lender’s responsible conduct. The Bureau filed its consent order in an administrative enforcement action. In a separate announcement, the DOJ filed its complaint and consent order in federal court, which will require judicial approval. The lender was represented in the matter by BuckleySandler.
FIFA Investigation Update: First FIFA Official Extradited to United States
On July 15, after 50 days of detention, a high-ranking FIFA official widely reported to be former FIFA Vice President Jeffrey Webb was extradited from Switzerland to the United States. Webb ultimately agreed to be extradited despite initially contesting his extradition at a hearing following his arrest. Six other FIFA officials arrested in connection with DOJ’S corruption investigation are continuing to fight extradition. The Swiss Federal Office of Justice is overseeing the extradition proceedings.
All seven officials were formally indicted by the DOJ on May 27.
Previous BuckleySandler coverage of this investigation can be found here
LBI Enters Into DPA and Former Executives Plead Guilty to Resolve DOJ FCPA Investigation
On July 17, the DOJ announced that Louis Berger International Inc. (“LBI”) had agreed to enter into a Deferred Prosecution Agreement to resolve the DOJ’s FCPA investigation into the New Jersey-based construction management company’s operations in India, Indonesia, Vietnam, and Kuwait. LBI also agreed to pay a $17.1 criminal penalty. LBI admitted that it bribed foreign officials to secure government construction management contracts around the world. According to the company’s admissions regarding a conspiracy to violate the anti-bribery provisions of the FCPA, from 1998 to 2010, LBI concealed $3.9 million in corrupt payments through various methods, including (i) using inflated and fictitious invoices that were used for the payments of bribes through intermediaries, and (ii) paying fictitious “commitment fees,” “counterpart per diems,” “marketing fees,” and “field operation expenses.”
Under the terms of the DPA, the DOJ will defer criminal prosecution of LBI for a period of three years and the company will retain an independent compliance monitor for three years. In addition, Richard Hirsch of the Philippines and James McClung of the United Arab Emirates, both former executives of LBI, each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA. They are scheduled to be sentenced on Nov. 5, 2015. Continuing its recent trend, the DOJ emphasized the company’s self-disclosure and cooperation, as well as remediation efforts.
Ninth Circuit Bars Qui Tam Relator's Whistleblower Recovery in False Claims Act Suit Over Conviction
On July 16, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s dismissal of a qui tam relator from a False Claims Act suit, holding that the False Claims Act requires dismissal of a relator convicted of any conduct giving rise to the fraud at issue, however minor, and prevents the relator from collecting any share of a whistleblower award. United States ex rel. Schroeder v. CH2M Hill, No. 13-35479 (9th Cir. July 16, 2015). The relator submitted false time cards while working for a contractor who engaged in fraudulent billing practices. The Ninth Circuit held that the False Claims Act permits reducing relator awards for planners and initiators of the subject fraud, but dismisses and does not permit collection by all “relators convicted of criminal conduct arising from the fraudulent conduct at issue in the qui tam suit,” even those that did not plan or initiate the fraud. Congress’s hierarchy for relator awards, reasoned the court, “may satisfy other values, such as the deterrent effect of preventing criminally culpable individuals from gaining from their conduct, and the investigatory benefits of actions brought by planners and initiators who often have greater knowledge about co-conspirators and the scope of a fraudulent scheme.” The court rejected the idea that the statute “contain[s] an exception for minor participants” who were nonetheless convicted of the subject criminal conduct.