InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OFAC issues Venezuela-related general license for some transactions
On January 9, the U.S. Treasury Department’s Office of Foreign Assets Control issued Venezuela-related General License (GL) 31B, “Certain Transactions Involving the IV Venezuelan National Assembly and Certain Other Persons.” GL 31B authorizes certain transactions ordinarily prohibited by Executive Order (E.O.) 13884, as incorporated into the Venezuela Sanctions Regulations (VSR), involving the IV Venezuelan National Assembly, its Delegated Commission, any entity established by, or under the direction of, the IV National Assembly to exercise its mandate, or any person appointed or designated by, or whose appointment or designation is retained by, the IV National Assembly, its Delegated Commission, or a IV National Assembly Entity, including their respective members and staff. GL 31B also authorizes U.S. persons to engage in all transactions prohibited by E.O. 13850, as amended by E.O. 13857 (and incorporated into the VSR), involving “any person appointed or designated by, or whose appointment or designation is retained by, the IV National Assembly, its Delegated Commission, or a IV National Assembly Entity to the board of directors (including any ad hoc board of directors) or as an executive officer of a Government of Venezuela entity (including entities owned or controlled, directly or indirectly, by the Government of Venezuela).” OFAC noted that GL 31B does not authorize transactions involving the Venezuelan National Constituent Assembly convened by Nicolas Maduro or the National Assembly seated on January 5, 2021 (including their respective members and staff), or any transactions otherwise prohibited by the Venezuela Sanctions Regulations, including those involving blocked persons unless allowed by GL 31B or separately authorized. In conjunction with GL 31B, OFAC amended related FAQs 522, 547, 660, 679, and 680.
9th Circuit affirms decision in FCRA, CFPA, and TSR suit
In December, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling holding an individual liable for violations of the FCRA, the TSR, and the CFPA after the defendant, who allegedly “played a central role” in the scheme — and other defendants — were sued by the CFPB for allegedly obtaining individuals’ credit reports illegally and charging advance fees for debt relief services. As previously covered by InfoBytes, the CFPB filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here, and here). In August 2021, the U.S. District Court for the Central District of California granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. (Covered by InfoBytes here.)
In September 2021, the district court entered judgment in favor of the Bureau against the individual defendant. While the individual defendant objected to the judgment, the district court ultimately determined that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here).
On the appeal, the 9th Circuit cited “undisputed” evidence demonstrating how the individual defendant “violated” the FCRA, TSR, and CFPA. According to the appellate court, the defendant “is individually liable for corporate violations of the CFPA.” The appellate court further noted that the individual defendant “‘participated directly’ in these deceptive practices and ‘had the authority to control them,’” had a “central role” in these practices,” was “‘recklessly indifferent to the truth or falsity of the misrepresentations,’ and did not attempt to verify the truthfulness of statements” regarding the companies he controlled.
Agencies highlight downpayment assistance, child privacy in regulatory agendas
Recently, the Office of Information and Regulatory Affairs released fall 2022 regulatory agendas for the FTC and HUD. With respect to an FTC review of the Children’s Online Privacy Protection Rule (COPPA) that was commenced in 2019 (covered by InfoBytes here), the Commission stated in its regulatory agenda that it is still reviewing comments. COPPA “prohibits unfair or deceptive acts or practices in connection with the collection, use and/or disclosure of personal information from and about children under the age of 13 on the internet,” and, among other things, “requires operators of commercial websites and online services, with certain exceptions, to obtain verifiable parental consent before collecting, using, or disclosing personal information from or about children.”
HUD stated in its regulatory agenda that it anticipates issuing a notice of proposed rulemaking in March that would address mortgage downpayment assistance programs. The Housing and Economic Recovery Act of 2018 amended the National Housing Act to add a clause that prohibits any portion of a borrower’s required minimum cash investment from being provided by: “(i) the seller or any other person or entity that financially benefits from the transaction, or (ii) any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).” According to the agenda, FHA continues to receive questions about prohibitions on persons or entities that may financially benefit from a mortgage transaction, including “whether down payment assistance programs operated by government entities are being operated in a fashion that would render such assistance prohibited.” A future NPRM would clarify the circumstances in which government entities are deriving a prohibited financial benefit.
CFPB releases regulatory agenda
Recently, the Office of Information and Regulatory Affairs released the CFPB’s fall 2022 regulatory agenda. Key rulemaking initiatives that the agency expects to initiate or continue include:
- Overdraft and NSF fees. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation Z with respect to special rules for determining whether overdraft fees are considered finance charges. According to the Bureau, the rules, which were created when Regulation Z was adopted in 1969, have remained largely unchanged despite the fact that the nature of overdraft services has significantly changed over the years. The Bureau is also considering whether to engage in pre-rulemaking activity in November regarding non-sufficient fund (NSF) fees. The Bureau commented that while NSF fees have been a significant source of fee revenue for depository institutions, recently some institutions have voluntarily stopped charging such fees.
- FCRA rulemaking. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. As previously covered by InfoBytes, on January 3, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). CFPB Director Rohit Chopra noted that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.”
- Section 1033 rulemaking. Section 1033 of Dodd-Frank provides that covered entities, such as banks, must make available to consumers, upon request, transaction data and other information concerning consumer financial products or services that the consumer obtains from the covered entity. Over the past several years, the Bureau has engaged in a series of rulemaking steps to prescribe standards for this requirement, including the release of a 71-page outline of proposals and alternatives in advance of convening a panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA). The outline presents items under consideration that “would specify rules requiring certain covered persons that are data providers to make consumer financial information available to a consumer directly and to those third parties the consumer authorizes to access such information on the consumer’s behalf, such as a data aggregator or data recipient (authorized third parties).” (Covered by InfoBytes here.) The Bureau anticipates issuing a SBREFA report in February.
- Amendments to FIRREA concerning automated valuation models. The Bureau is participating in interagency rulemaking with the Fed, OCC, FDIC, NCUA, and FHFA to develop regulations to implement the amendments made by Dodd-Frank to FIRREA concerning appraisal automated valuation models (AVMs). The FIRREA amendments require implementing regulations for quality control standards for AVMs. The Bureau released a SBREFA outline and report in February and May 2022 respectively (covered by InfoBytes here), and estimates that the agencies will issue a notice of proposed rulemaking (NPRM) in March.
- Property Assessed Clean Energy (PACE) financing. The Bureau issued an advance notice of proposed rulemaking (ANPRM) in March 2019 to extend TILA’s ability-to-repay requirements to PACE transactions. (Covered by InfoBytes here.) The Bureau is working to develop a proposed rule to implement Economic Growth, Regulatory Relief, and Consumer Protection Act Section 307 in April.
- Nonbank registration. The Bureau issued an NPRM in December to enhance market monitoring and risk-based supervision efforts by including all final public written orders and judgments (including any consent and stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of certain consumer protection laws related to unfair, deceptive, or abusive acts or practices in a database of enforcement actions taken against certain nonbank covered entities. (Covered by InfoBytes here.) In a separate agenda item, the Bureau states that the NPRM would also require supervised nonbanks to register with the Bureau and provide information about their use of certain terms and conditions in standard-form contracts. The Bureau proposes “to collect information on standard terms used in contracts that are not subject to negotiating or that are not prominently advertised in marketing.”
- Credit card penalty fees. The Bureau issued an ANPRM last June to solicit information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses. (Covered by InfoBytes here.) Under the CARD Act rules inherited by the Bureau from the Fed, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. Calling the current credit card late fees “excessive,” the Bureau stated it intends to review the “immunity provision” to understand how banks that rely on this safe harbor set their fees and to examine whether banks are escaping enforcement scrutiny “if they set fees at a particular level, even if the fees were not necessary to deter a late payment and generated excess profits.” The Bureau is considering comments received on the ANPRM as it develops an NPRM that may be released this month.
- Small business rulemaking. Section 1071 of Dodd-Frank amended ECOA to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses, and directed the Bureau to promulgate rules for this reporting. An NPRM was issued in August 2021 (covered by InfoBytes here). The Bureau anticipates issuing a final rule later this month.
CFPB releases 2023 rural or underserved counties list
Recently, the CFPB released its annual lists of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions to certain TILA regulatory requirements. In connection with these releases, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under Regulation Z.
Senators ask FTC, CFPB to investigate deceptive listing agreements
In December, Senate Banking Committee Chairman Sherrod Brown (D-OH), along with Senators Tina Smith (D-MN) and Ron Wyden (D-OR) sent a letter to the FTC and the CFPB requesting a review of a Florida-based real estate brokerage firm’s use of exclusive 40-year listing agreements marketed as a “loan alternative.” The request follows a November press release by the Florida attorney general announcing legal action against the firm for engaging in allegedly deceptive, unfair, and unconscionable business practices. According to the AG’s complaint, the firm offered homeowners $300 to $5,000 as a cash loan alternative in exchange for an agreement to use the firm as an exclusive real estate listing broker for a 40-year period. The complaint claimed the firm informs homeowners that there is no obligation to return the cash, stressing the homeowner will owe the firm nothing unless and until the home is sold. The AG asserted, however, that what is not clearly disclosed is that after accepting the payment, the firm files a 40-year lien on the property so that if at any time within 40 years the home is foreclosed upon or transferred to heirs upon the homeowner’s death, or if homeowners simply wish to cancel the deal, the firm will attempt to take three percent of the home’s value. Further, the AG claimed that the firm also failed to inform customers that the liens are filed in the public record, which can make it difficult for homeowners to refinance or access their home’s equity. The complaint seeks injunctive relief, restitution, and civil penalties.
NYDFS announces winter storm relief
On December 27, NYDFS announced actions to provide financial relief to New Yorkers in the Western and North Country regions in the aftermath of a historic winter storm. The relief is part of New York’s continuing and comprehensive efforts to address the historic winter storm that caused statewide devastation. According to the announcement, NYDFS requested that state-chartered banking organizations, federally-chartered banks, and credit unions operating in the area provide fee-free access services to nearby customers and non-customers while travel conditions remain dangerous. NYDFS will also issue temporary adjuster permits to qualified out-of-state independent insurance adjusters to expedite insurance claims in light of the winter storm. Expediting permits will increase the number of adjusters available to process claims and help New Yorkers get their claims paid faster. Insurers are encouraged to make any necessary applications on the NYDFS website. NYDFS urged the insurance industry to work towards a fair and speedy resolution of all claims and provide the necessary resources to do so.
New Jersey reaches $27.3 million settlement with merchant cash advance operation
On January 3, the New Jersey attorney general announced a $27.4 million settlement with a private equity firm, its parent company, and six other associated companies (collectively, “respondents”) to resolve allegations related to violations of the New Jersey Consumer Fraud Act (CFA). According to the press release, the respondents targeted small businesses to enter into lending arrangements disguised as merchant cash advances (MCA) on future receivables. The AG claimed these loans effectively charged interest rates far exceeding the state’s usury caps. According to the attorney general’s press release, the respondents also allegedly engaged in deceptive servicing and collection practices against small businesses.
Under the terms of the consent order, the respondents are permanently enjoined from engaging in any acts or practices that violate the CFA and any applicable Advertising Regulations. The respondents have also agreed to forgive all outstanding balances for customers who entered MCAs (approximately $21.75 million) and pay $5.625 million to cover restitution, attorneys’ fees, costs of investigation and litigation and costs of administering restitution, and penalties not to exceed $250,000. The press release stated that the respondents will also (i) dismiss any pending debt collection actions against customers who had their balances forgiven as a result of the settlement; (ii) provide current customers with the ability to request modifications to their payment terms based on actual receivables; (iii) “[i]mprove internal business practices, be transparent in any terms of future MCA agreements regarding fees and reconciliation rights, and give notice to customers before taking legal action to collect on purported unpaid balances”; and (iv) ensure that all respondents, principals, and any future business entities that may result from a change in structure comply with the terms of the consent order.
DFPI issues recommendations for engaging in crypto technologies
In December, the California Department of Financial Protection and Innovation (DFPI) issued a report identifying six recommendations for how California should engage with blockchain and Web3 industries. The report follows a May 2022 Executive Order (E.O.) from the California governor to create a regulatory and business environment for blockchain and cryptocurrency companies that balances the benefits and risks to consumers. As previously covered by InfoBytes, one of the priorities of the E.O. included for DFPI to, among other things, engage in a public process, including with federal agencies, to “develop a comprehensive regulatory approach to crypto assets harmonized with the direction of federal regulations and guidance” and “exercise its authority under the California Consumer Financial Protection Law (CCFPL) to develop guidance and, as appropriate, regulatory clarity and supervision of private entities offering crypto asset-related financial products and services” in California. The report made six recommendations to “encourage the continued growth and adoption of blockchain technology.”
- Engagement with stakeholders. The state should “continue dialogue with industry, advocates, and regulators to stay apprised of new technologies, products, definitions and risks.”
- Consumer protection and education. The state should promote consumer protection and consumer education about blockchain and crypto products, which includes, among other things: (i) training staff to better supervise regulated entities, products, and services; (ii) increasing efforts to educate Californians on how to use certain crypto-asset related financial products and services; and (iii) developing and publishing “standards for use in reviewing crypto asset-related securities to help provide more meaningful investor disclosures and to allow companies who wish to offer such securities more quickly and efficiently.”
- Legislation and regulation. The state should identify legislative gaps and clarify statutory authority regarding crypto assets. DFPI will attempt to harmonize California’s regulatory approach with federal regulators, other states, and local jurisdictions.
- Government use. The state should consider ways to use blockchain technology to “increase efficiencies, improve access, and reduce costs.”
- Environmental protection. The state should encourage more environmentally efficient blockchain technologies and explore policy interventions to reduce energy use.
- Workforce and economic development. The state should tap its higher education systems to help support and grow the blockchain sector and related technologies.
Social media users denied preliminary injunction in privacy suit
On December 22, the U.S. District Court for the Northern District of California denied plaintiffs’ motion for preliminary injunction in a privacy suit. According to the order, the plaintiffs alleged that the social media company improperly acquired their confidential health information in violation of state and federal law and in contravention of the company’s own policies regarding the use and collection of users’ data. The plaintiffs alleged that each of their healthcare providers allegedly installed the company’s software, which is a free and publicly available piece of code that the company allows third-party website developers to install on their patient portals. When the plaintiffs logged into the portal on their medical provider’s website, the software allegedly transmitted certain information to the social media company. The plaintiffs claimed that the software allowed the company to intercept personally identifiable medical information and the content of patient communications for its financial gain. The court found,however, that though the plaintiffs “raise potentially strong claims on the merits and their alleged injury would be irreparable if proven,” the “plaintiffs need to show ‘that the law and facts clearly favor [their] position, not simply that [they are] likely to succeed.’” The court also noted that the company’s “core defense is that it has systems in place to address the receipt of the information at issue and that it would be unfairly burdensome and technologically infeasible for them to take further action.” The court continued, “[w]ithout further factual development, it is unclear where the truth lies, and plaintiffs do not meet the high standard required for a mandatory injunction.”