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  • FTC announces second request for public comment on rule to ban “junk fees”

    Federal Issues

    On October 11, the FTC released a notice of proposed rulemaking meant to prohibit unfair and deceptive, costly fees, also known as “junk fees.” After announcing its Advance Notice of Proposed Rulemaking last year (covered by InfoBytes here), and after considering more than 12,000 public comments, the FTC determined that some businesses misrepresent overall costs by omitting mandatory fees from advertised prices until consumers are “well into completing the transaction,” and fail to adequately explain the nature and amount of fees. The Commission is seeking another round of comments for its proposed rule, which, for any entity that “offers goods or services” to consumers, would prohibit:

    • Offering, displaying, or advertising an amount a consumer may pay without “clearly and conspicuously” disclosing the “total price,” which must be displayed “more prominently than any other pricing information.”
    • Misrepresenting “the nature and purpose of any amount a consumer may pay.”
    • Disclosing “any other pricing information” besides the total price “more prominently” than disclosures of the total price in an “offer, display, or advertisement.”

    The proposed rule would also grant the FTC more robust enforcement authority to seek refunds for harmed consumers and impose monetary penalties of up to $50,120 per violation. The proposed rule also requires businesses to include any mandatory costs for ancillary goods or services in their price disclosures.

    The FTC is working alongside the CFPB, OCC, FCC, HUD and the Department of Transportation to develop and implement rules banning junk fees. The CFPB has also issued guidance emphasizing that large banks and credit unions are prohibited from imposing unreasonable obstacles on customers, such as charging excessive fees, for basic information about their accounts. Further, the White House has called on federal agencies “to reduce or eliminate hidden fees, charges, and add-ons for everything from banking services to cable and internet bills to airline and concert tickets.” 

    The Commission is seeking public input on 37 questions, with comments due 60 days after publication in the Federal Register.

    Federal Issues Agency Rule-Making & Guidance FTC Junk Fees Consumer Protection Federal Register Fees

  • Software provider settles allegations related to data breach

    Privacy, Cyber Risk & Data Security

    On October 5, a software provider serving nonprofit fundraising entities agreed to pay almost $50 million to settle claims with 49 states and the District of Columbia alleging that the provider maintained insufficient data security measures and inadequately responded to a 2020 data breach. Specifically, the settlement resolved claims that the software provider violated state consumer protection laws, breach-notification laws, and the Health Insurance Portability and Accountability Act (HIPAA).

    According to the allegations, the data breach exposed donor information, including Social Security numbers and financial records, of over 13,000 nonprofit groups and organizations and the provider waited two months before informing these clients of the breach.

    The settlement requires the provider to improve its cybersecurity protections and breach notification procedures.

    Earlier this year, the software provider also settled claims with the SEC for $3 million to address allegations of misleading disclosures relating to the same 2020 data breach.

     

    Privacy, Cyber Risk & Data Security SEC Data Breach HIPAA Consumer Protection Settlement

  • California enacts amendments to the Consumers Legal Remedies Act: Advertisements

    State Issues

    On October 7, the California governor approved SB 478 (the “Act”), enacting amendments to the Consumers Legal Remedies Act designed to prohibit “drip pricing,” which involves advertising a price that is lower than the actual price a consumer will have to pay for a good or service. The Act, with specified exceptions, will make advertising the price of a good or service excluding additional fees or charges other than taxes, unlawful. The California Legislature declared that the Act is not intended to prohibit any particular method of determining prices for goods or services, including algorithmic or dynamic pricing. Instead, it is intended to regulate how prices are advertised, displayed, and/or offered.

    The Act is effective July 1, 2024.

    State Issues State Legislation Advertisement Unfair California Consumer Protection

  • FTC data spotlight reveals social media as primary source for scams over other contact methods

    Federal Issues

    On October 6, the FTC released a data spotlight showing that more scams have originated on social media than on any other method of contact with consumers, accounting for $2.7 billion in consumer losses from 2021 to 2023. The FTC reports that the most frequently reported frauds in 2023 were online shopping scams on social media. However, promotions of fake investment opportunities, mostly those relating to cryptocurrency, on social media had the largest overall monetary losses. The FTC also provided a list of tips for consumers to limit their risks of fraud on social media, including restricting who can contact them on these platforms.

    Federal Issues Agency Rule-Making & Guidance Cryptocurrency Fraud Social Media Consumer Protection FTC

  • Fed finalizes rule establishing capital requirements for supervised insurers

    Federal Issues

    On October 6, the Fed approved a final rule to implement a rule establishing capital requirements for insurers it supervises. The final rule includes the Building Block Approach (BBA) framework, which is a regulatory framework for assessing capital requirements for insurance companies, tailored to their specific risks by leveraging state-based requirements. It sets a minimum standard comparable to the 8 percent minimum total capital ratio for insured depository institutions (IDIs).

    Specifically, the rule requires a Fed-supervised insurance organization (SIO) to aggregate the available capital and required capital of its top-tier company with its subsidiaries to determine whether the aggregate ratio meets the Board’s minimum requirement and “capital conservation buffer.” Among other things, the final rule gives SIOs two options to show compliance with Section 171(b) of Dodd-Frank: (i) demonstrate that it meets, on a fully consolidated basis, the minimum risk-based capital requirements that apply to IDIs; or (ii) demonstrate that it meets the minimum IDI risk-based capital requirements on a partially consolidated basis, excluding the assets and liabilities of certain subsidiary insurers. Should SIOs choose the second option, there are two possible treatments for unconsolidated insurance subsidiaries: (i) “a deduction from qualifying capital of the aggregate amount of the outstanding equity investment in the subsidiary, including retained earnings”; or (ii) “inclusion of the net investment in the subsidiary as an asset subject to a risk weight of 400 percent, consistent with the current treatment of certain equity exposures under the regulatory capital rules applicable to IDIs.”

    Governor Michelle Bowman commented that although she supports the final rule, she cannot support the delegation of authority to staff within the current package. Concerned that the package grants broad authority to staff to make various determinations regarding the rule’s application, Bowman argues that the Board should have the opportunity to review specific cases where such authority would be exercised and suggests that it would be more appropriate to establish clear guidelines for the use of delegated authority in the context of actual determinations.

    The Fed noted that the final rule is “substantially similar” to the 2019 proposed rule. The final rule is effective on January 1, 2024.

    Federal Issues Agency Rule-Making & Guidance Federal Reserve Supervision Capital Requirements

  • CFPB announces new advisory committee members

    Federal Issues

    On October 5, the CFPB released new membership details for its advisory boards and councils, including the Consumer Advisory Board, Community Bank Advisory Council, Credit Union Advisory Council, and Academic Research Council. The Bureau noted that under Dodd-Frank, it is tasked with establishing a Consumer Advisory Board to provide insights on various consumer finance matters. These board members represent different districts of the Fed and are recommended by Federal Reserve Bank presidents.  The Community Bank Advisory Council and Credit Union Advisory Council guide the CFPB on financial issues concerning community banks and credit unions respectively. Meanwhile, the Academic Research Council contributes to shaping research plans and agendas, and offers feedback on research methodologies and data collection strategies.

    Members of these advisory boards and councils serve voluntarily and do not receive compensation. They also cannot officially represent the CFPB or the Fed, and their selection does not imply endorsement of their respective organizations.

    Federal Issues CFPB Consumer Finance

  • 3rd Circuit Limits furnishers’ labeling authority

    Courts

    On October 2, the U.S. Court of Appeals for the Third Circuit ruled that a collection agency who was acting as a furnisher of credit reporting information could not shirk its duty to investigate a dispute by labeling the dispute “frivolous” when the complaint was referred for investigation by a credit reporting agency (CRA).  The decision overturned the lower court’s ruling which had sided with the furnisher.

    According the ruling, the plaintiff in this action claimed that a fraudulent account had been opened in his name with a television service provider. Plaintiff was described as having first disputed the account directly with the television service provider, but failed to provide supporting documents which the television service provider had requested.  Following the plaintiff’s failure to provide the requested documentation, the television service provider referred the disputed account to the collection agency, who in turn reported the delinquent account to the CRA.

    The ruling states that when the disputed account appeared on the plaintiff’s consumer report, the plaintiff made an indirect dispute of the information with the CRA, who in turn forwarded the dispute to the collection agency for investigation. The ruling notes that the collection agency undertook no further investigation in response to the dispute, and instead merely confirmed the account information and updated the plaintiff’s address, which the court noted took only 13 seconds.

    The court noted that although the FCRA does allow for the recipient of disputes “to preliminarily vet the dispute for frivolousness or irrelevance before investigating,” once a CRA has referred a dispute to a furnisher, “the furnisher does not have such discretion.” Because in this case the collection agency had been referred to it by a CRA, it “had a duty to investigate [plaintiff’s] indirect dispute when it received notice thereof from [the CRA].”

    Courts Third Circuit Appeals Debt Collection CRA Credit Furnishing

  • Supreme Court hears oral argument in challenge to CFPB

    Courts

    On October 3, the Supreme Court heard oral argument in CFPB v. Community Financial Services Association of America —a case presenting the most significant challenge yet to the constitutionality of the CFPB. As previously covered by InfoBytes, a panel of the U.S. Court of Appeals for the Fifth Circuit agreed with the plaintiff industry groups that the CFPB’s funding structure violates the appropriations clause. At oral argument, the U.S. Solicitor General observed that the lower court decision was the “first time any court in our nation’s history has held that Congress violated the Appropriations Clause by enacting a statute providing funding.”  She noted that Congress has approved similar “standing appropriations” for agencies including the U.S. Customs Service, the U.S. Post Office, and the U.S. Mint.

    Several conservative justices pushed back against the CFPB’s and Solicitor General’s stance. For example, Chief Justice Roberts called it “very aggressive view” of Congress’ authority, and Justice Alito emphasized that the CFPB’s funding mechanism was unique in that its funding comes from the Federal Reserve, which is itself not funded through normal appropriations. However, Justice Thomas challenged counsel for the industry groups, noting that “we need a finer point” on “what the constitutional problem is,” beyond the uniqueness of the funding mechanism. Justice Barrett, too, stated she was “struggling to figure out” what standard courts might use in determining whether a cap on an agency’s appropriation is too high. 

    Find continuing InfoBytes coverage on CFPB v. Community Financial Services Association of America here.

    Courts U.S. Supreme Court CFPB Hearing Constitution Funding Structure

  • District Court grants summary judgement for bank in “spoofing” case

    Courts

    On September 29, the U.S. District Court for the Southern District of New York granted summary judgement on all claims in favor of the defendant bank, while denying summary judgement for the New Jersey-based plaintiff. The plaintiff alleged violations of the UCC, breach of contract, and gross negligence arising from a “spoofing” fraud incident that resulted in more than $8.5 million being wired from the plaintiff’s account with the defendant. The district court reasoned that the plaintiff was not entitled to a refund because the plaintiff’s employees authorized the wires – and claims under Section 4-A of the UCC require that a payment order be both not authorized and not effective in order to refund a payment. The court rejected the plaintiff’s argument that the wires were improper because the bank’s policy prohibited bank employees from authorizing wires over $500,000 – noting that the policy was for “internal use only,” and solely for the bank’s protection. Further, the court rejected the plaintiff’s common law claims as pre-empted by Article 4-A.

     

    Courts New York Fraud Breach of Contract

  • NYDFS settles with bank for compliance failures

    State Issues

    On September 29, NYDFS announced a settlement with a South Korean-based bank’s American subsidiary to resolve allegations of repeated violations of AML requirements, the Bank Secrecy Act (BSA), and New York law. According to the consent order, the respondent was repeatedly examined seven times in less than 10 years by DFS and entered into a consent order with the FDIC in 2017 for BSA/AML compliance, among other things. DFS claims that respondents violated (i) New York Banking Law § 44 by conducting their business in an unsafe and unsound manner; (ii) 3 NYCRR § 116.2 by failing to maintain an effective AML compliance program; and (iii) 23 NYCRR § 504.4 by incorrectly certifying compliance with Part 504. To resolve the claims, the respondent agreed to pay a $10 million civil money penalty, and write a written plan detailing improvements to its compliance policies and procedures, among other things.

    State Issues NYDFS Civil Money Penalties Enforcement New York Anti-Money Laundering Bank Secrecy Act Settlement

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