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FTC fines company $62 million for FTC Act violations
On August 1, the FTC announced a consent order against an online home buying firm for allegedly making misleading claims. According to the complaint, the company allegedly advertised to potential sellers using misleading and deceptive information. The complaint also alleged that the company violated provisions of the FTC Act by, among other things, misrepresenting: (i) market value prices when making offers to buy homes by including downward adjustments to such values; (ii) the manner in which it made money on transactions; (iii) that consumers likely would have paid the same amount in repair costs whether they sold their home through the company or in traditional sale; and (iv) that consumers paid less in costs. The firm issued a statement regarding the FTC settlement stating that, among other things, it “strongly disagree[s] with the FTC’s allegations,” and that the FTC’s allegations “are related to activity that occurred between 2017 and 2019 and target marketing messages the company modified years ago.” The statement also noted that the settlement will allow the firm to “focus on helping consumers buy, sell and move with simplicity, certainty and speed.”
According to the consent order, the company is required to pay the FTC $62 million, which is expected to be used for consumer redress. The company is also prohibited from making deceptive, false, and unsubstantiated claims to consumers about how much money they will receive or the costs they will have to pay to use its service. Additionally, the company is required to have “competent and reliable evidence” to support any representations made about the costs, savings, or financial benefits associated with using its service, and any claims about the costs associated with traditional home sales.
Agencies seek comment on CRE loan statement
On August 2, the FDIC, OCC, and NCUA (collectively, “the agencies”) issued a notice in the Federal Register soliciting public comment on an updated policy statement regarding accommodations and workouts for commercial real estate (CRE) loans whose borrowers are experiencing financial difficulty. In 2009, the Policy Statement on Prudent Commercial Real Estate Loan Workouts was issued by the FFIEC, which the agencies view “as being useful for both agency staff and financial institutions in understanding risk management and accounting practices for [] CRE loan workouts.” Among other things, the statement would include (i) a new section on short-term loan accommodations; (ii) information about changes in accounting principles since 2009; and (iii) revisions and additions to examples of CRE loan workouts. The new updated statement would also “address relevant accounting changes on estimating loan losses and provide updated examples of how to classify and account for loans modified or affected by loan accommodations or loan workout activity.” Specifically, the agencies seek input on how the document reflects sound practices in CRE loan accommodation and what additional information can be included to optimize the guidance of managing CRE loan portfolios.
CFPB gets $29.2 million judgment in mortgage relief suit
On August 1, the U.S District Court for the Western District of Wisconsin granted over $29.2 million to the CFPB, revising a $59 million judgment that was thrown out by the U.S. Court of Appeals for the Seventh Circuit last year. As previously covered by InfoBytes, in July 2021, the 7th Circuit vacated a 2019 restitution award in an action brought by the CFPB against two former mortgage-assistance relief companies and their principals (collectively, “defendants”) for violations of Regulation O. In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, including the defendants, alleging they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). The district court’s 2019 order (covered by InfoBytes here) held one company and its principals jointly and severally liable for over $18 million in restitution, while another company and its principals were held jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
According to the recent opinion and order, the district court concluded that it would be “appropriate” to characterize the redress as legal restitution because the “plaintiff’s claim is against defendants generally and not one, identifiable fund or asset,” calling it “valid and necessary” for consumers to be compensated for the advance fees they paid. Instead of ordering “complete restitution,” the district court noted it would require the defendants to “refund 50% of the moneys paid, which plaintiff shall return directly to the injured parties to the extent practical,” because the 7th Circuit “found that defendants' conduct was not the product of reckless disregard of the CFPA, but rather a failure to fit themselves under an exception for the delivery of legal services.”
States request extension of PSLF forgiveness waiver
On July 29, a coalition of state attorneys general sent a letter to President Biden and Department of Education Secretary Miguel Cardona, requesting the extension of the deadline for individuals to file claims under the Public Service Loan Forgiveness (PSLF) program. As previously covered by InfoBytes, in October 2021, the Department announced several significant changes to its PSLF program, including that approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically, and another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment. According to the AGs, “it is critically important to extend the waiver at least until new PSLF regulations take effect and to grandfather in waiver benefits for borrowers who miss administrative deadlines.” The AGs also asked the Biden administration to count all forbearance periods toward loan forgiveness, rather than making exceptions for servicemembers and longer periods of forbearance for everyone else. The letter stated that “[f]ailure to automatically count periods of forbearance toward loan forgiveness ignores pervasive and well-established servicing problems and inappropriately shifts the burden to borrowers to identify and prove that they were victims of servicer misconduct.” The AGs urged the Biden administration “to exercise its authority to synchronize the One-Time Adjustment and Limited PSLF Waiver into a unified adjustment policy.” The letter specifically stated that the “simplest way of doing so may be to incorporate certain critical aspects of the waiver into the One-Time Adjustment, including that qualifying employment at the time of forgiveness is not necessary and that consolidations (whether of FFEL or Direct Loans) occurring prior to the completion of the One-Time Adjustment do not negate past qualifying employment periods for PSLF.”
NYDFS imposes $30 million fine against trading platform for cybersecurity, BSA/AML violations
On August 2, NYDFS announced a consent order imposing a $30 million fine against a trading platform for alleged violations of the Department’s Virtual Currency Regulation (23 NYCRR Part 200), Money Transmitter Regulation (3 NYCRR Part 417), Transaction Monitoring Regulation (3 NYCRR Part 504), Cybersecurity Regulation (23 NYCRR Part 500), and for failing to maintain adequate Bank Secrecy Act/anti-money laundering (BSA/AML) obligations. According to a Department investigation, the platform’s BSA/AML compliance program contained significant deficiencies, including an inadequate transaction monitoring system. Among other things, the platform failed to timely transition its manual system to an automated transaction monitoring system, which was unacceptable for a program of its size, customer profiles, and transaction volumes, and did not devote sufficient resources to adequately address risks. The Department also found “critical failures” in the platform’s cybersecurity program, which failed to address operational risks, and that specific policies within the program did not fully comply with several provisions of the Department’s cybersecurity and virtual currency regulations. According to the press release, pursuant to NYDFS’s Transaction Monitoring Regulation and Cybersecurity Regulation, companies should only file a Certificate of Compliance with the Department if their programs are fully compliant with the applicable regulation.
In light of the program’s deficiencies, NYDFS stated that the platform’s 2019 certifications to the Department attesting to compliance with these regulations should not have been made and thus violated the law. The platform also “failed to comply with the Supervisory Agreement by failing to promptly notify the Department of (a) actual or material potential actions, proceedings, or similar process that were or may have been instituted against [the platform] or any affiliated entity by any regulatory body or governmental agency; and (b) of the receipt by [the platform], or any affiliated entity, of any subpoena from any regulatory body or governmental agency in which [the platform], or any affiliated entity, was the target of the investigation.” NYDFS determined that in addition to the penalty, the platform will be required to retain an independent consultant that will perform a comprehensive evaluation of its compliance with the Department’s regulations and the platform’s remediation efforts with respect to the identified deficiencies and violations.
A Buckley Special Alert is forthcoming.
Connecticut issues money transmitter advisory
Recently, the Connecticut Department of Banking (Department) issued an advisory on money transmission, providing general guidance on what types of activities and entities must be licensed. According to the advisory, transmission can occur whenever “a person takes possession or control of monetary value belonging to another person” and holds it for a period of time, or transmits it to a third party. The Department noted that “[t]he increased use of technology to enable immediate payment mechanisms, as well as the explosion of virtual currency, has caused significant disruption to traditional money transmission systems.” The Department also acknowledged that many consumers do “not realize or understand the regulatory landscape that applies” to using money transmitters. Among other things, the advisory listed entities that traditionally provide transmission services like bill payers, payroll processors, and issuers and sellers of prepaid cards and money orders. The advisory also discussed Connecticut’s license application and penalties for unlicensed transmission, explaining that licensure goes through the Nationwide Multistate Licensing System and involves disclosing pertinent information concerning all “control persons.”
CFPB, DOJ issue letter to auto companies on SCRA provisions
On July 29, the CFPB and DOJ issued a joint letter reminding auto finance companies of legal protections for military families under the Servicemembers Civil Relief Act (SCRA). Among other things, the letter outlines several SCRA provisions that apply to vehicle financing, including: (i) prohibiting vehicle repossession without a court order during the borrower’s military service if a borrower financed or leased the vehicle prior to entering military service; (ii) permitting servicemembers and joint lessee dependents to terminate motor vehicle leases early, and without penalty, after entering military service or receiving qualifying military orders during active duty; and (iii) capping the amount of interest on loans incurred prior to military service to 6 percent per year.
OFAC sanctions Iranian petrochemical network
On August 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13846 against companies used by one of Iran’s largest petrochemical brokers to facilitate the sale of Iranian petroleum and petrochemical products from Iran to East Asia. The designations follow OFAC sanctions announced on July 6 against a network of individuals and entities for facilitating the delivery and sale of hundreds of millions of dollars’ worth of Iranian petroleum and petrochemical products from Iranian companies to East Asia through a web of Gulf-based front companies (covered by InfoBytes here). As a result of the sanctions, all property and interests in property of the sanctioned persons subject to U.S. jurisdiction, as well as any entities owned 50 percent or more by such persons, are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from entering into transactions with the sanctioned persons. Additionally, OFAC warned that “any foreign financial institution that knowingly facilitates a significant transaction for any of the individuals or entities designated today could be subject to U.S. sanctions.”
FDIC, Fed issue CDO against crypto brokerage firm
On July 28, the FDIC and the Federal Reserve Board issued a joint letter demanding that a crypto brokerage firm cease and desist from making false and misleading statements regarding the company’s FDIC deposit insurance status and take immediate corrective action to address these false statements. The agencies claimed that the firm made false and misleading representations online, including on its website, stating or suggesting that: (i) it is FDIC–insured; (ii) customers who invested with the firm’s cryptocurrency platform would receive FDIC insurance coverage for all funds provided to, and held by, the firm; and (iii) the FDIC would insure customers against the failure of the firm. The FDIC noted that the false and misleading statements Violate the FDIC Act. The FDIC demanded that the firm take corrective actions by removing the misrepresentations or false statements and provide written confirmation to the FDIC and Board of Governors that it has fully complied with the removal request within two days.
FDIC issues advisory on crypto companies’ deposit insurance claims
On July 29, the FDIC announced an advisory addressing certain misrepresentations about FDIC deposit insurance made by some crypto companies. The advisory, among other things, reminded insured banks that they must be aware of how FDIC insurance operates as well as the need to assess, manage, and control risks arising from third-party relationships, including those with crypto companies. The advisory noted that recently “some crypto companies have suspended withdrawals or halted operations," and that in certain cases, "these companies have represented to their customers that their products are eligible for FDIC deposit insurance coverage, which may lead customers to believe, mistakenly, that their money or investments are safe.” In dealing with crypto companies, the agency cautioned that “FDIC-insured banks should confirm and monitor that these companies do not misrepresent the availability of deposit insurance.” The FDIC also issued a Fact Sheet reminding the public that the FDIC only insures deposits held in insured banks and savings associations and only in the event of an insured bank’s failure. The FDIC does not insure assets issued by non-bank entities, such as crypto companies.