Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • SEC approves Bitcoin use in 11 exchange-traded products

    Securities

    On January 10, the SEC issued an order approving 11 exchange-traded products (ETPs) holding Bitcoin to be publicly traded. According to the order, the SEC found that the proposed ETPs are consistent with the Securities Exchange Act of 1934, specifically Section 6(b)(5), which requires that the rules prevent fraudulent and manipulative acts and practices and protect investors and the public interest. The SEC also found that the 11 proposed ETPs are consistent with Section 11A(a)(1)(C)(iii) which states that it is in the public interest to make the ETPs available to brokers, dealers, and investors. The order goes into further detail and outlines how the two subsections of the ‘34 Act are applied.

    As previously covered on InfoBytes, the SEC originally denied a similar application from a company but had to reexamine that company’s application following the D.C. Court of Appeals overturning of the SEC’s initial rejection. The appellate court alleged the SEC “acted arbitrarily and capriciously by denying the listing of [the company]’s proposed bitcoin ET[F],” and members of Congress also urged the Chair of the SEC to approve Bitcoin’s use within ETPs in a September 2023 letter (covered in InfoBytes here).

    Securities Exchange-Traded Funds Bitcoin Cryptocurrency Securities Exchange Act

  • FTC acts against fintech app for misrepresentations made about cash advances

    Federal Issues

    On January 2, the FTC issued a complaint and stipulated order against a personal finance mobile application that offers its users short-term cash advances through “floats.” According to the complaint, the defendant misrepresented its claims to induce users into enrolling in a subscription plan. Specifically, the defendant advertised that its users could instantly receive a cash advance larger than available, claimed cash advance limits would increase over time, and promised to make cash available “instantly” for no extra fee.

    According to the complaint, employees have admitted that the defendant company “lie[s]” to users. Users allegedly received misleading advertisements that stated how cash advances or “floats” constitute “free money” when there is actually a $1.99 subscription fee listed in tiny font. Additionally, the defendant advertised that users would receive “money in minutes” for “free” with “no hidden fees” despite having to pay a hidden $4 fee to receive their money instantly. The FTC alleges from user responses that many of them would have not enrolled in this program had they known they would be advanced less than promised. Further, the FTC alleges the defendant discriminates against consumers by categorically refusing to provide cash advances to consumers who receive public assistance benefits or derive income from gig work––even after they pay subscription fees.

    Under this order, the FTC found the defendant violated the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), as well as ECOA and its implementing rule, Regulation B. The stipulated order, which names the company’s cofounders in addition to the company itself, prohibits the company from further misrepresentations, requires implementation of a fair lending program, requires a simple cancellation mechanism, and provides for a monetary judgment of $3 million.

    Federal Issues FTC Enforcement ROSCA FTC Act ECOA Regulation B

  • FTC alleges data broker company mishandled consumer location data

    Federal Issues

    On January 9, the FTC released a proposed order and complaint against a data broker that sells consumer location data to companies. According to the complaint, which alleges seven violations of the FTC Act, the data broker company had no policies or procedures in place to remove any of the raw data from the location data sets that it sold, which could be used to identify sensitive personal information. The FTC alleges that because of this, the data broker company failed to provide “necessary technical safeguards” to ensure that consumers’ privacy choices were honored. The FTC also alleges that the data broker’s contracts with entities to purchase the data were “insufficient to protect consumers from the substantial injury caused by the collection, transfer, and use of the consumers’ location data” as they visit sensitive locations, such as churches, healthcare facilities, and schools.

    The data broker company collected 10 billion location data points daily worldwide throughout its apps, but it failed to inform its consumers that it sold this data to advertisers, employers, or government contractors. The FTC further alleges that the data broker’s business practices are likely to cause substantial injury to consumers due to its lack of reasonable data security measures.

    According to the proposed order, the company must comply with FTC mandates that include requiring it to prohibit misrepresentations using the data, prohibit the use, sale, or disclosure of sensitive location data, and implement a sensitive location data program. The data broker neither admits nor denies any wrongdoing and the FTC did not levy a money judgment.

    Federal Issues Data Brokers Consumer Data FTC Act Privacy, Cyber Risk & Data Security

  • Agencies adjust civil money penalties for 2024

    Agency Rule-Making & Guidance

    Recently, the CFPB, NCUA, FDIC, FTC, and OCC provided notice in the Federal Register of adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, FDIC here, OCC here, FTC here, and NCUA here) adjusts the maximum civil money penalties available and documents the inflation-adjusted maximum amounts associated with the penalty tiers for each type of violation within a regulator’s jurisdiction. For violations occurring on or after November 2, 2015, the OCC’s adjusted maximum penalties go into effect as of January 8; the CFPB and FDIC’s adjustments go into effect January 15; and the FTC and NCUA’s adjustments go into effect January 10.

    Agency Rule-Making & Guidance Federal Issues Bank Regulatory OCC CFPB Assessments Fees Civil Money Penalties

  • FTC, Connecticut file complaint against auto dealer for deceptive and unfair practices

    Federal Issues

    On January 4, the FTC and the State of Connecticut issued a joint complaint against an auto dealer and its owner for alleged violations of the FTC Act and the Connecticut Unfair Trade Practices Act. According to the complaint, the dealership allegedly imposed additional fees, including certification fees, add-on charges, and government charges, without consumers’ explicit consent. The FTC alleged that the dealership made misrepresentations regarding advertised prices, charging consumers additional fees when they would attempt to purchase vehicle, and charged customers for certification fees for vehicles that had been advertised as “certified.” The complaint also alleged that the dealership would charge consumers for add-ons, such as GAP insurance, service contracts, maintenance contracts, and total loss protection with or without express consent, and at times after the consumer specifically declined the add-on. The complaint further alleged that the dealership often stated in advertisements that a vehicle was certified but did not report the sale of that vehicle or pay the certification fee to the manufacturer, so consumers did not receive the actual benefits. The complaint seeks consumer redress, disgorgement of ill-gotten money, civil penalties, and a permanent injunction.

    Federal Issues State Issues FTC Connecticut Deceptive Enforcement FTC Act

  • Oregon amends money transmission law with respect to a required security device

    On January 9, the State of Oregon enacted a new bill on money transmission licensing, specifically stating that “each license application shall be accompanied by a security device in the amount of $25,000.” A security device is defined by Oregon law as a surety bond or an irrevocable letter of credit. If an applicant engages in business at more than one location, the security device will increase by $5,000 per location, with a maximum of $150,000. The bill further states that in place of security devices, an applicant could deposit securities such as interest-bearing stocks, bonds, notes, etc., and be held under the same obligations as the security device. The bill concludes that the security device will remain in effect until its cancellation and remain in place no longer than five years following a licensee ceasing its money transmission operations in Oregon. In the event of the bankruptcy of the licensee, the security device will be held in trust for the benefit of purchasers and holders of the licensee’s outstanding payment instruments.

    Licensing Oregon Bond Securities

  • Idaho Department of Finance publishes proposed rule changes on its Mortgage Practices Act

    On January 3, the Idaho Department of Finance published a bulletin on proposed rule changes to Vol. 23-10 of the Idaho Administrative Bulletin, specifically to section 12.01.10 – Rules Pursuant to The Idaho Residential Mortgage Practices Act; a redline of the bill’s section changes is here. According to the bill, the rule changes aim to “reduce regulatory burden by removing outdated requirements,” and the rulemaking changes were made pursuant to Executive Order 2020-01.

    There were several changes to the bill. First, the section on “Deceptive Advertising” was struck from the bill. Second, and under “Written Disclosures,” the portion on “Receipt of an Application” was struck from the bill. Third, and under “Prohibited Practices” and further under “Engage in Deceptive Advertising,” the proposed changes include the addition of two subsections: one on engaging in bait and switch advertising; and another on misleading someone to believe a solicitation is from a person’s current mortgage holder, or government agency, among others. Fourth, the section on “Borrowers Unable to Obtain Loans” was struck entirely.

    Licensing Consumer Finance Mortgages

  • Federal court grants California DFPI motion for summary judgment on commercial financing disclosure requirements

    Courts

    Recently, the California DFPI announced it was granted a summary judgment by a federal court to uphold the DFPI’s commercial financing disclosure requirements applicable to small businesses as implemented by SB 1235, including the amount of funding provided, APR, finance charges, and payment amounts. The bill was adopted in 2018 and was previously covered by InfoBytes here, as well as when the California Office of Administrative Law approved the DFPI’s commercial financial disclosure regulations here in June 2022.

    In this case, the plaintiff is an advocacy organization that sued the Commissioner of the DFPI, asserting two claims: (i) that the DFPI violated 42 U.S.C. § 1983 based on a violation of the First Amendment; and (ii) that the DFPI’s regulation is preempted by the Truth in Lending Act (TILA). The DFPI disagreed and sought summary judgment on three grounds: (i) the plaintiff lacks the standing to challenge the regulations; (ii) the regulations do not violate the First Amendment; and (iii) the regulations are not preempted by TILA.

    The court granted the DFPI’s motion for summary judgment because it found that although the plaintiff had standing to bring suit, the DFPI’s disclosure requirements were lawful under the First Amendment and were not preempted by federal law.

    Courts DFPI TILA

  • CFPB files amicus brief on FDCPA case regarding scienter

    Courts

    On January 2, the CFPB announced its filing of an amicus brief in the U.S. Court of Appeals for the First Circuit that takes the position that debt collectors can and should be held strictly liable under the FDCPA regardless of whether they knowingly or unknowingly made a false statement. As the administrator and enforcer of the FDCPA, the CFPB cites that under Section 1692e of the FDCPA, debt collectors are prohibited from “us[ing] any false, deceptive, or misleading representation or means in connection with the collection of any debt.” According to the brief, Section 1692e’s general prohibition does not include a scienter requirement and does not require that a “representation be knowingly or intentionally false, deceptive, or misleading to violate that prohibition.” The CFPB continues that since Congress selectively included an express scienter requirement, which is a level of intent or knowledge required to establish liability, in specific provisions of the FDCPA, but did not include one in Section 1692e, that indicates Congress did not implicitly intend for Section 1692e to include a scienter requirement. The CFPB also noted that “every federal court of appeals to have addressed this issue (8 in total) has held that Section 1692e does not include a scienter requirement.”

    Courts CFPB FDCPA Debt Collection

  • Biden Administration, DOE withhold payments to student loan servicers

    Federal Issues

    On January 5, the Biden Administration and the U.S. Department of Education (DOE) announced they are withholding payments to three student loan servicers as part of their efforts to strengthen protections for student loan borrowers and ensure accountability among servicers. The three servicers were found to have collectively failed in sending timely billing statements to a total of 758,000 borrowers during their first month of repayment. Consequently, the DOE is withholding $2 million from one servicer, $161,000 from the second, and $13,000 from the third servicer based on the number of affected borrowers.

    U.S. Secretary of Education Miguel Cardona emphasized that the DOE “will continue to engage in aggressive oversight of student loan servicers and put the interests of borrowers first.” During this period, borrowers will not be required to make payments, and any accrued interest will be adjusted to zero. Additionally, the months spent in administrative forbearance will count toward forgiveness programs like Public Service Loan Forgiveness or income-driven repayment forgiveness. The DOE aims to ensure that borrowers are not negatively affected by these errors.

    Furthermore, to protect borrowers from penalties due to late or missed payments during the repayment transition, the DOE recently sent a letter to credit reporting agencies and credit scoring companies to remind them that borrowers’ current payment behavior may not accurately reflect their ability or willingness to make payments.

    Federal Issues Department of Education Biden Student Loan Servicer Student Lending

Pages

Upcoming Events