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Senators, Reps request record retention information from the FTC
On August 18, members of the House and the Senate issued a letter to the FTC with various inquiries related to the FTC’s preservation of agency records. The letter notes that the FTC “has struggled to comply” with the Federal Records Act citing a February 2022 memo from the FTC Inspector General issuing two recommendations for improving records management. The letter further indicates that the FTC has not provided explanations for instances of document deletion and have asked for responses by the end of the month to identify (i) what records have been deleted and why; (ii) how the FTC is working to company with retention requirements; (iii) whether it has notified National Archives and Records Administration of any deleted records; and (iv) how it has addressed prior recommendations.
Key Takeaways from the CFPB’s First Public Enforcement Action Alleging Violations of RESPA Section 8 Since 2017
The Consumer Financial Protection Bureau (CFPB) has issued a consent order to a residential mortgage loan originator to resolve allegations that it provided illegal incentives to real estate brokers and agents in exchange for mortgage loan referrals. This is the CFPB’s first public enforcement action alleging violations of RESPA Section 8 since 2017.
The CFPB issued a parallel consent order against a real estate brokerage firm for accepting the incentives in exchange for referrals.
Allegations Against the Lender
The consent order against the lender alleges that the lender paid for several subscription services – for example, to a service that provided information concerning property reports, comparable sales and foreclosure data – and then provided free access to such services to real estate agents and brokers, which the CFPB determined to be a thing of value. According to the consent order, the agents and brokers who received access to the subscription services also referred mortgage business to the lender, which the CFPB alleges was in exchange for the free services and therefore violated RESPA Section 8(a).
The consent order also alleges that the lender hosted and subsidized events, including paying for food, beverages and entertainment, for the benefit of real estate agents and brokers. The consent order further alleges that the lender gave real estate agents and brokers free tickets to sporting events, charity galas and other events where the real estate agents and brokers would have otherwise needed to pay for their own admission, food, and alcohol. The CFPB alleges that these events frequently cost the lender several thousand dollars or more. The CFPB asserts that the lender’s contributions to these events constituted a thing of value to the real estate agents and brokers and were given to create, maintain and strengthen mortgage referral relationships, in violation of RESPA Section 8(a).
Finally, the CFPB alleges that the lender had marketing services agreements (“MSAs”) with numerous real estate brokerages, and that many of the compensable services were either performed by the lender itself rather than the brokerages or, based on the Bureau’s allegations against the broker, were not performed by the brokerages.
Also, the consent order noted that the MSAs required the real estate brokers to promote the lender to the broker’s own agents rather than to consumers. The lender also encouraged its MSA partners to use a third-party smartphone app. The real estate agents shared the app with their clients. The app featured a photo of the lender’s loan officer and the lender’s logo and included buttons where consumers could contact the lender’s loan officer for assistance. As a result, the CFPB alleges that the payments the lender made to the brokerages were structured and implemented to generate referrals, rather than to compensate the brokerages for any marketing services they actually performed.
Allegations Against the Real Estate Broker
The consent order against the broker alleges that the broker’s real estate agents and brokers accepted the subscription services and subsidized events. It also alleges that the broker received payments in connection with an MSA that was primarily focused on the lender getting referrals from the broker’s brokers and agents rather than the broker marketing the lender to the public, and that the broker failed to perform many of the marketing tasks required by the MSA but received payments anyway. For example, the consent order alleges that the MSA required the broker to send 15,000 marketing emails a month while allocating 50% of the content to the lender, display video advertisements for the lender at its physical locations and create a number of property websites displaying the lender’s content. However, the broker allegedly failed to perform any of these marketing services.
Takeaways
We note several key takeaways from these consent orders:
- Taken at face value, none of the conduct alleged to violate RESPA Section 8(a) is novel or particularly notable. The crux of the alleged violations involved paying for obvious things of value in exchange for referrals and entering into MSAs where the contemplated marketing services were either not provided or directed to potential referral sources and not consumers. The consent orders, therefore, are largely consistent with prior RESPA enforcement actions involving lenders and real estate brokers.
- This is the first public CFPB enforcement action alleging violations of RESPA Section 8 since 2017, which makes clear that although the CFPB’s focus on RESPA Section 8 may have waned somewhat from the Cordray era, it is still monitoring for RESPA Section 8 violations and will bring public enforcement actions when violations are discovered. Coupled with February’s Advisory Opinion on Digital Mortgage Comparison Shopping Platforms, the CFPB is clearly still engaged in RESPA compliance.
- The reference to the mobile app with a loan officer’s photo and the lender’s logo, and the ability for the consumer to reach out to the lender directly, is in accord with longstanding CFPB and HUD guidance that exclusivity is indicative of a referral to the extent that it “affirmatively influences” a consumer to select a particular provider of settlement services. This viewpoint was recently espoused in the CFPB’s Advisory Opinion on Digital Mortgage Comparison Shopping Platforms, and it appears that the CFPB views this principle as generally applicable.
Penalties
In addition to agreeing to cease engaging in the conduct alleged, the lender was ordered to pay a civil monetary penalty of $1.75 million and also agreed to implement a compliance program designed to prevent any future violations should the lender resume retail mortgage operations. The lender also agreed to meet certain recordkeeping and reporting requirements.
In addition to agreeing to cease engaging in the conduct alleged, the broker was ordered to pay a civil monetary penalty of $200,000 and meet certain recordkeeping and reporting requirements.
In agreeing to enter into the consent orders, the lender and broker did not admit or deny any findings of fact or conclusions of law related to the violations alleged by the CFPB.
Read the lender’s consent order.
Read the broker’s consent order.
Read the CFPB’s press release.
Want to learn more? Contact John Kromer or Steve vonBerg.
SBA offers disaster assistance to businesses and residents
On August 16, the Small Business Administration (SBA) announced the availability of low-interest disaster loans available to businesses and residents across the nation.
- Mississippi – In light of damage from severe storms, straight-line winds, and flooding that occurred between June 14-19, certain private non-profit businesses (PNP) that do not provide critical services of a governmental nature are eligible to apply for low-interest disaster loans. PNP organizations may borrow up to $2 million with an interest rate of 2.375% to repair or replace damage. SBA is also offering economic injury disaster loans to help meet the needs of PNP organizations. The filing deadline is Oct 11, and the deadline to submit economic injury applications is May 13, 2024.
- Illinois – Following the announcement of the presidential disaster declaration due to severe storms and flooding June 29-July 2, SBA is offering affected businesses and residents in Illinois low-interest loans. SBA detailed that disaster loans up to $500,000 are available to homeowners to replace or repair damage, and “[i]nterest rates are as low as 4% for businesses, 2.375% for nonprofit organizations, and 2.5% for homeowners and renters, with terms up to 30 years.” The filing deadline is Oct 16, and the deadline to submit economic injury applications is May 13, 2024.
- New Jersey – In light of damage from severe storms and flooding that occurred June 14-19, certain PNP organizations that do not provide critical services of a governmental nature are eligible to apply for low-interest disaster loans. PNP organizations may borrow up to $2 million with an interest rate of 2.375% with terms up of to 30 years to repair or replace damage. SBA is also offering economic injury disaster loans to help meet the needs of PNP organizations. The filing deadline is Oct 10, and the deadline to submit economic injury applications is May 13, 2024.
- Oklahoma – SBA is making low-interest federal disaster loans available for certain PNP organizations in certain counties following the announcement of the presidential disaster declaration. PNP organizations may borrow up to $2 million with an interest rate of 2.375% with terms of up to 30 years to repair or replace damage. “SBA can also lend additional funds to help with the cost of improvements to protect, prevent or minimize the same type of disaster damage from occurring in the future.”
District court declines to reconsider BIPA accrual ruling
On August 14, an Illinois District Court denied in part and granted in part a tech company’s motion to dismiss a class-action suit that alleged violations of the Illinois Biometric Information Privacy Act (“BIPA”). The complaint alleged that the tech giant failed to safeguard the facial data in its photo service as closely as it protected other types of data and violated its own policy governing biometric identifier storage. BIPA requires companies to store, transmit, and protect biometric data using the reasonable standard of care within the company’s industry and to protect that data in either the same or more protective manner as it protects other types of confidential data.
In permitting the complaint to move forward, the court noted that the defendant’s internal documents allegedly show that it made minimal investment in its photo service and made no attempt to identify flaws in the system. Further, the court referred to allegations in the complaint that the defendant devotes fewer resources and staffing to protecting the photo service. The court noted that the allegations were sufficient because the lack of protocols made consumers’ critical metadata “vulnerable to attacks.”
In granting the motion related to violation of the defendant’s policies, the court noted that plaintiffs did not show they were personally injured by the alleged violation. The defendant’s policy requires it to delete files for accounts that have been abandoned for two years, for which image recognition was disabled, or where user deleted their photo account. However, the court concluded that the complaint did not allege that plaintiffs did any of these actions.
USDA urges Supreme Court to overturn FCRA 3rd Circuit ruling
On August 15, the USDA filed a brief urging the U.S. Supreme Court to overturn a U.S. Court of Appeals for the Third Circuit decision to reverse its FCRA lawsuit brought by a plaintiff who alleged that the consumer credit reporting agency reported two loans as past due even though he claimed both were closed with a $0 balance. In August 2022, the 3rd Circuit reversed a district court’s decision to grant a student loan servicer, consumer credit reporting agency, and the USDA’s (defendants) motion to dismiss a case finding that Congress unambiguously waived the government’s sovereign immunity in enacting FCRA (covered by InfoBytes here). The USDA argues that the district court was wrong in its decision, and that the FCRA does not waive the U.S.’s sovereign immunity for claims under 15 U.S.C. 1681n and 1681o because, among other things, (i) a waiver of sovereign immunity requires “unmistakably clear” statutory language; (ii) the FCRA does not create a cause of action that “‘expressly authorizes suits against sovereigns,’ and ‘recognizing immunity’ would ‘negate[]’ that express authorization”; (iii) the FCRA uses “persons” in a way that does not distinguish between sovereign and non-sovereign senses; (iv) “inexplicable incongruencies” with the term “person” within the context of §§ 1681n and 1681o includes a sovereign entity, which would not only expose the federal government but also individual states to potential lawsuits seeking monetary damages; and (v) interpreting the FCRA to permit lawsuits against the U.S. would significantly broaden the scope of liability for federal agencies, creating “overlap” already provided by the Privacy Act.
District Court dismisses suit challenging Biden’s student debt relief plan
On August 14, the U.S. District Court for the Eastern District of Michigan dismissed without prejudice a lawsuit filed against the federal government aimed at blocking the Biden administration’s effort to provide debt relief to student borrowers (covered by InfoBytes here). U.S. District Judge Thomas L. Ludington held that the plaintiffs lacked standing because they failed to plausibly demonstrate how the government’s plans would impact their efforts to recruit participants as qualified employers under the Public Service Loan Forgiveness program. The court detailed that “[Plaintiffs] merely make vague and conclusory statements that some ‘undisclosed’ number of borrowers will receive credit toward loan forgiveness for some periods of forbearance” but “do not allege that any current employee received Adjustment credit.” Furthermore, any such “hypothetical injur[y]” would be traceable to “Plaintiffs’ own employees or prospective employees, not the Adjustment.” Because there was no standing, the court dismissed the complaint without prejudice and denied the plaintiffs’ motion for a temporary restraining order and preliminary injunction as moot.
FDIC announces Mississippi disaster relief
On August 15, the FDIC issued FIL-36-2023 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Mississippi affected by severe storms, straight-line winds, and tornadoes from June 14 - June 19. The FDIC acknowledged the serious impact of the inclement weather faced by affected institutions and encouraged those institutions to work with impacted borrowers to adjust and alter terms on existing loans, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements and instructed institutions to contact the Dallas Regional Office if they expect delays in making filings or are experiencing difficulties in complying with publishing or other requirements.
OCC updates bank accounting guidance
On August 15, the OCC released an annual update to its Bank Accounting Advisory Series (BAAS) which is intended to address a variety of accounting topics and promote consistent application of accounting standards and regulatory reporting among OCC-supervised banks. The BAAS reflects updates to clarify the accounting standards issued by the Financial Accounting Standards Board related to, among other things, the elimination of recognition and the measurement of troubled debt restructurings by creditors, loan modifications, and credit losses. The August 2023 edition also includes answers to frequently asked questions from industry and bank examiners. Additionally, the OCC notes that the BAAS does not represent OCC rules or regulations but rather “represents the Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance based on the facts and circumstances presented.”
Chopra announces rulemaking for data brokers
On August 15, CFPB Director Rohit Chopra delivered remarks at the White House Roundtable on the harms of data broker practices. Referencing the prevalence of artificial intelligence in data surveillance, Chopra highlighted a common practice employed by companies: the gathering, leveraging, and sharing of data concerning consumers, including individual pieces of data or consumer profiles, without consumers’ awareness with third parties that employ AI to formulate forecasts and decisions. These detailed data sets can also easily be exploited by bad actors, Chopra warned. Chopra announced that after conducting an inquiry into data broker practices, the Bureau will endeavor to make rules regulating data broker surveillance to ensure sensitive data is not misused and on par with FCRA requirements.
Two proposals are being considered: the first proposal would define the term “consumer reporting agency” to include a data broker that sells certain types of consumer data, thereby triggering requirements to ensure accuracy and to govern disputes concerning the reporting of inaccurate information. The second proposal will address existing confusion by clarifying the existing confusion concerning “the extent to which credit header data constitutes a consumer report, [and] reducing the ability of credit reporting companies to impermissibly disclose sensitive contact information that can be used to identify people who don’t wish to be contacted, such as domestic violence survivors.” The rulemaking will also complement efforts put forth by the FTC.
DFPI launches actions against crypto scams, initiates education campaign
On August 9, the California Department of Financial Protection and Innovation (DFPI) announced that it issued cease and desist orders against three entities (orders here, here, and here) for allegedly offering and selling unqualified securities, and making material misrepresentations and omissions to investor related to cryptocurrency investments. The entities allegedly created high-yield investment programs (HYIPs), which DFPI characterizes as “investment frauds that typically promise high returns with low risk, promise overly consistent returns, provide little details about the people running the HYIP, use vague language to describe how the HYIP makes money, offer referral bonuses, facilitate deposits and withdrawals with crypto assets, and use social media to gain attention and attract investors.”
The cease and desist orders are just one of the tools DFPI employs to address investment scams involving crypto assets, also using enforcement actions, social media, and a Crypto Scam Tracker. DFPI has posted videos to its social media accounts that are directed towards the same group of individuals targeted by the crypto community in order to educate investors about its enforcement actions and violations of law. The Crypto Scam Tracker was launched earlier this year to help Californian’s identify and avoid scams involving cryptocurrency. (Covered by InfoBytes here).