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  • District Court dismisses FDCPA suit; clarifies debt collector communication on identity theft

    Courts

    On December 5, the U.S. District Court of New Jersey dismissed an FDCPA suit brought against a debt collector. According to the opinion, plaintiff originally filed suit because they received a letter from defendant regarding an outstanding cell phone bill. The letter provided instructions on what to do if the recipient suspected identity theft. Additionally, the letter contained a summary of plaintiff’s account and a QR code that linked to defendant’s website for online payment. Plaintiff contended that the dual approach of offering assistance while simultaneously pursuing collection of a debt was false and misleading. A District Court judge, however, disagreed and dismissed the case, at which point the plaintiff filed an amended complaint.

    The amended complaint alleges that the debt collector breached the FDCPA by using false, deceptive or misleading representations regarding the rights of the plaintiff and the obligations of the debt collector with respect to communications concerning identity theft. Specifically, plaintiff argued defendant was in violation of § 1681m(g) of the FDCPA, which obligates a debt collector to take certain steps upon being notified of identity theft, but the court disagreed, finding that the collector’s specific steps taken were in accordance with the Act.

    The court emphasized that plaintiff did not introduce any new factual claims in the amended complaint, and merely clarified how the facts already outlined in the initial complaint breached the FDCPA. The judge ruled that the letter not only allows plaintiff to inform defendant about potential identity theft, but also may serve to bring potential identity theft to plaintiff’s attention. The ruling stated that there is no obligation to extensively explain recommended procedures in the case of an identity theft occurrence, and only an “idiosyncratic reading” of the letter would lead to the conclusion that the letter misrepresents defendant’s obligations.

    Courts Debt Collection FDCPA New Jersey Identity Theft Disclosures

  • Basel Committee publishes report on recalibration of shocks for interest rate risk

    On December 12, the Basel Committee released a report on the “Recalibration of shocks for interest rate risk in the banking book,” as an adjustment to the Committee’s 2016 commitment to recalibrate the interest rate shock parameters.

    The Committee began its calibration of interest rate shocks before the March 2023 banking issues transpired and is now following up on fundamental shortcomings in traditional risk management of banks, including interest rate risks. The report is brief and focuses on specified topics: for the first topic, the current calibration and methodology outlining current interest rate shocks (measured in basis points), the calculation of average interest rates from 2000 to 2015, the application of three tiers for shock parameters, and problems with the methodology; for the second topic, a proposal of a new methodology and calibration using a formula with outlined steps for countries to adopt, a comparison between the existing and new methodology, and a recalibration table; and, the third and final topic emphasizes additional issues and next steps, including caps, non-parallel shocks, and impact assessment.

    The Committee noted in its press release that these changes “are needed to address problems with how the current methodology captures interest rate changes during periods when interest rates are close to zero.” Comments can be submitted to the Committee until March 28, 2024.

    Bank Regulatory Basel Committee Interest Rate Risk Management

  • Crypto platform to pay $22 million to resolve NY AG suit

    Securities

    On December 13, the New York State Supreme Court entered a stipulation and consent order resolving a suit brought in March against a crypto platform for operating as an unregistered broker-dealer, among other things. As previously covered by InfoBytes, the suit was brought by New York State Attorney General Letitia James who noted this was one of the first times a regulator claimed in court that one of the largest cryptocurrencies available in the market qualified as a security.

    As a result of the consent order, the platform is obligated to refund over $16.7 million worth of crypto in its control “by allowing users to withdraw those balances and transferring any remaining balances after ninety days to a third-party fund administrator,” to more than 150,000 investors in New York. In addition, the platform must pay an additional $5.3 million to the state. As part of the agreement, the platform is barred from trading securities and commodities in New York or from making its platform available to New York residents. 

    Securities New York State Attorney General Consent Order Settlement

  • NY state court granted decision to continue its new check cashing fee methodology

    State Issues

    On December 7, the Supreme Court of the State of New York granted a motion to dismiss a challenge made to NYDFS’s check cashing regulation and ruled in favor of NYDFS. As previously covered in InfoBytes, the January regulation’s methodology capped the maximum percentage check cashing fee for most check types (social security, unemployment, emergency relief, veterans’ benefits) at 2.2 percent or $1, whichever is greater, and eliminated automatic fee increases based on CPI every year that had been in place since 2005.

    Shortly after the rule took effect in June, several plaintiffs sued NYDFS alleging that the amended regulation was arbitrary and capricious, violated the purpose of the banking law, and was an unconstitutional property deprivation. The NY Supreme Court found that the amended regulation had a rational basis and was supported by the administrative record. Because NYDFS neither violated the NY state banking law nor the Administrative Procedures Act, the court further declared that the “amended regulation did not constitute a deprivation of property in the absence of either procedural or substantive due process.” Because the court dismissed the petition entirely in NYDFS’s favor, the court denied the plaintiffs’ motion for preliminary injunction as merely “academic.” 

    State Issues Courts Check Cashing Fees Consumer Finance NYDFS CPI

  • 3rd Circuit affirms district court’s decision that losing a debt collection case does not necessarily violate FDCPA

    Courts

    On December 12, the U.S. Court of Appeals for the Third Circuit affirmed a U.S. District Court’s order denying a consumer’s motion for reconsideration of the grant of summary judgment against the consumer. After the consumer successfully defended herself in a debt collection action in municipal court, she sued the debt collection agency that had brought suit against her in federal court alleging that the agency violated the FDCPA by utilizing false or deceptive means in collecting debts that she did not owe in violation of 15 U.S.C. § 1692e and unfair or unconscionable means in the collection of any debt in violation of 15 U.S.C. § 1692f.  

    The district court granted judgment to the debt collection company and denied the individual’s motion for reconsideration. The appellate court found that the consumer failed to produce evidence that proved the debt collection agency made any false or deceptive representations or acted unfairly or unconscionably in bringing the debt collection action against the consumer. Although the agency failed to meet its burden of proof in the municipal action, the court noted that “losing a debt collection lawsuit does not in itself mean a defendant violated the FDCPA.” 

    Courts FDCPA Debt Collection

  • FSB report addresses financial risk concerns with third-party relationships

    Agency Rule-Making & Guidance

    On December 4, the Financial Stability Board (FSB) published a report titled “Enhancing Third-Party Risk Management and Oversight: A Toolkit for Financial Institutions and Financial Authorities,” as summarized in this press release. The report provides a toolkit that: (i) defines common terms to improve consistency among financial institutions, including “third-party service relationship,” “service provider,” and “critical service,” among others; (ii) outlines tools for financial institutions to identify critical third-party services and manage potential risks throughout the service lifecycle, onboarding and monitoring of service providers, and reporting incidents, among others; and (iii) outlines tools for financial authorities to manage third-party risks, including how to identify third-party dependencies and potential systemic risks. In preparing the report, the FSB received public feedback over the past summer regarding risk concerns stemming from outsourcing and third-party service relationships.

    Agency Rule-Making & Guidance FSB Third-Party Third-Party Risk Management Of Interest to Non-US Persons Financial Institutions

  • FDIC Director McKernan suggests phasing ‘underdeveloped’ parts of Basel III

    On December 12, a member of the FDIC Board of Directors, Jonathan McKernan, expressed concerns about its Endgame proposal’s reliance on Basel Committee decisions. In his speech at a conference on trading book capital, he highlighted the lack of explanation behind design choices, leaving banking regulators unable to justify or comprehend certain reform aspects. The board member added that the absence of rationale hindered public feedback and raised doubts about the reform’s legitimacy.

    McKernan suggested an approach to defer less developed areas of the reforms while implementing uncontested aspects—acknowledging the proposal’s goal to address weaknesses in the trading book framework and citing concerns about specific design decisions. McKernan notes certain design decisions like the profit-and-loss attribution test and non-modellable risk factors. McKernan explained that the PLA attribution test assesses the alignment between a bank’s risk management and front office models. McKernan said that for both designs, there is very little public information on the Basel Committee’s threshold formulation and that they are based on simulated data, which is viewed as a preliminary estimate still under development. Finally, McKernan supported enhancing the regulatory capital framework but stressed the need to validate the rationale behind key design decisions in the Basel reforms. 

    Bank Regulatory FDIC Basel Bank Supervision Basel Committee

  • FDIC releases semiannual update on Restoration Plan

    On December 7, the FDIC released its semiannual update on the Restoration Plan for the agency’s Deposit Insurance Fund (DIF). The Federal Deposit Insurance Act (the FDI Act) requires that the FDIC board adopt a Restoration Plan wherein the DIF balance falls below the statutory minimum reserve ratio by the required deadline. The FDIC detailed that after the first half of 2020 and the onset of Covid-19, insured deposit growth caused a steep decline in the reserve ratio—the ratio of the fund balance relative to insured deposit—so the FDIC initiated the Restoration Plan in September 2020 to restore the DIF reserve ratio to 1.35 percent by the anticipated deadline. In 2022, however, the FDIC revised the plan after recognizing the risk of not meeting the required minimum by the deadline. The Amended Restoration Plan (covered by InfoBytes here) raised deposit insurance assessment rates by two basis points for all insured depository institutions, effective from the first quarterly assessment period of 2023.

    The FDIC reported that as of June 30, the DIF balance was $117 billion, and the reserve ratio decreased from 1.25 percent to 1.1 percent due to increased loss provisions, which is on track to meet the statutory threshold ahead of the September 30, 2028, deadline. 

    Bank Regulatory Federal Issues FDIC Deposit Insurance Federal Deposit Insurance Act

  • FTC announces settlement of charges against operators of alleged telemarketing training scheme

    Agency Rule-Making & Guidance

    On December 11, the FTC issued a press release announcing proposed orders against the CEO and other related individuals and businesses of an income telemarketing training scheme. In connection with the settlement, the FTC filed a complaint in the U.S. District Court of the Middle District of Tennessee alleging violations of the FTC Act and the Telemarking and Consumer Fraud and Abuse Prevention Act. The FTC alleged that the defendants, a Tennessee-based group of companies, practiced deceptive and unlawful advertising, marketing, promotion, distribution, and selling of money-making and investment opportunities in offering a sales mentor program. The complaint alleges defendants performed these acts through several business entities via a telemarketing sales training and coaching program and through marketing practices on social media platforms. Since 2019, consumers paid more than $29 million to defendants for access to this sales training program.

    The FTC filed two stipulated judgments for “permanent injunction, monetary judgment, and other reliefs.” The orders contain a total monetary judgment of $16.4 million. The stipulated orders also prohibit the defendants from: (i) making misleading earnings claims, so if the defendants make earnings claim in the future, they have to have a reasonable basis for those claims; and (ii) misrepresenting any sales of goods or services, including the description of the good or service, any past performance, any testimonials, any future predictions of profit earnings, among others.  The defendants will also be required to turn over a total of $1 million to be used to refund harmed consumers, with one CEO ordered to pay $600,000 and the other defendants ordered to pay $400,000. All defendants neither admit nor deny any of the allegations in the complaint.

    Agency Rule-Making & Guidance FTC Telemarketing Telemarketing and Consumer Fraud and Abuse Prevention Act FTC Act Fraud

  • OCC reports on the federal banking system’s mortgage performance during the third quarter

    Federal Issues

    On December 12, the OCC released a report on first-lien mortgage performance for the third quarter of 2023. The OCC compares the third quarter’s statistics to this year’s second quarter statistics, as well as a year-over-year analysis in comparison to the third quarter of 2022.

    The OCC found that there was a 0.1 percent increase in “current and performing” mortgages and a 0.2 percent drop in mortgages that are seriously delinquent from the previous year. As for mortgage servicing, there were 7,436 loan modifications completed in the third quarter of 2023, which is a 13.8 percent decrease from the second quarter. The OCC notes that while the third quarter saw an increase in foreclosures from the previous quarter, such figures still represent a decrease from the number of foreclosures from last year. The report breaks down several statistics for each state, including the number of mortgage modification actions, the number of modification actions in combination actions, the changes in monthly principal and interest payments by state, and the number of re-defaults for loans modified six months previously.

    Federal Issues OCC Mortgages Foreclosure

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