InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
District Court grants MSJ to creditor in FCRA case
On February 4, the U.S. District Court for the Middle District of Florida granted a defendant creditor’s motion for judgment on the pleadings in a case alleging FCRA violations. The plaintiff alleged that the payment status for a tradeline appearing on her credit report incorrectly showed it as “90 days past due” despite the account being paid and closed. She filed suit against the defendant and two consumer reporting agencies (CRAs) claiming the information furnished by the defendant to the CRAs was inaccurate and that the CRAs prepared and issued credit reports containing “inaccurate and misleading information.” Under the FCRA, entities that furnish information to CRAs are required to ensure the accuracy of the information. If an entity receives a notice of dispute from a consumer it is required to conduct an investigation and report the results to the CRAs—actions, the plaintiff claimed, the defendant failed to do. She further contended that the “pay status” field—which she claimed “is ‘specifically designed to be understood as the current status of the account’”—was causing her credit score to be lower than if it was marked as closed. However, upon review, the court determined that when objectively viewing the plaintiff’s credit reports in their entirety, it is apparent that the account is accurate and not misleading. According to the court, “the only reasonable reading of the [disputed] account is that the account was past due in September 2020, at which time the account was updated one last time and closed—zeroing out the balance. It does not indicate, as [the plaintiff] argues, that she is currently 60 days (or 90 days) past due.” Moreover, no reasonable creditor would look at the report and be misled into believing that the plaintiff had a present pending amount due, the court added.
Treasury releases study on illicit finance in the high-value art market
On February 4, the U.S. Treasury Department published a study examining the high-value art market’s money laundering and terrorist financing risks to the U.S. financial system. The study also identified efforts U.S. government agencies, regulators, and other market participants should explore to mitigate the laundering of illicit proceeds through this industry. Treasury’s Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art found that while there is some evidence of money laundering risk in the high-value art market, there was limited evidence of a nexus between terrorist financing risk and high-value art (which the study theorizes is in part due “to a disconnect between the high-value art market and the physical geographies where terrorist groups are most active”). Participants most vulnerable to money laundering in the art market, the study noted, are financial services companies that offer art-collateralized loans but that are not subject to comprehensive anti-money laundering/countering the financing of terrorism (AML/CFT) requirements. Banks that facilitate payments between customers and art market institutions also present unique money laundering risks, the study found, while asset-based lending can disguise the original source of funds and provide liquidity to criminals. The study further cautioned that entities with large annual sales turnover present higher money laundering risks, and stressed that the emerging digital art market (including non-fungible tokens or NFTs) “may present new risks, depending on the structure and market incentives of certain activity in this sector of the market.”
To address the identified risks, the study recommended the following: (i) supporting “private sector information-sharing programs to encourage transparency among art market participants”; (ii) “updating guidance and training for law enforcement, customs enforcement, and asset recovery agencies”; (iii) using recordkeeping and reporting authorities to support information collection and money laundering activity analyses; and (iv) “applying comprehensive AML/CFT requirements to certain art market participants.” Treasury noted that it will consider “how these measures could mitigate identified money laundering risk, the potential burden on smaller art market participants, privacy considerations, as well as progress on addressing systemic AML/CFT issues, such as the abuse of shell companies.”
District Court rules transmitting debtor information to third-party violates FDCPA
On February 2, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion for judgment on the pleadings, ruling that transmitting a debtor’s personal information to a third-party mail vendor for the purposes of sending a debt collection letter constitutes a communication “in connection with the collection of any debt” under the FDCPA. As previously covered by InfoBytes, in Hunstein v. Preferred Collection & Management Services, the U.S. Court of Appeals for the Eleventh Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” The district court found this reasoning “persuasive,” ruling that the plain text of the statute encompasses communications with a third party mail vendor. The district court also rejected the defendant’s arguments that the CFPB and FTC had tacitly endorsed third-party mailers by not pursuing enforcement actions against them: “[B]ecause the agencies tasked with regulating and enforcing the FDCPA have not addressed the use of letter vendors by debt collectors in any legally significant way, and because the statutory language is not subject to a different reading, the Court will afford no deference to the indeterminate actions of the CFPB and FTC.”
Illinois Supreme Court rules Workers’ Compensation Act does not bar BIPA privacy claims
On February 3, the Illinois Supreme Court unanimously ruled that the Illinois Workers’ Compensation Act (Compensation Act) does not bar claims for statutory damages under the state’s Biometric Information Privacy Act (BIPA). According to the opinion, the plaintiff sued the defendant and several other long-term care facilities in 2017 for violations of BIPA, alleging their timekeeping systems scanned her fingerprints without first notifying her and seeking her consent. The defendant countered that the Compensation Act preempted the plaintiff’s claims, but in 2020 the Illinois Appellate Court, First District, held that it failed to see how the plaintiff’s claim for liquidated damages under BIPA “fits within the purview of the Compensation Act, which is a remedial statute designed to provide financial protection for workers that have sustained an actual injury.” As such, the appellate panel concluded that the Compensation Act’s exclusivity provisions “do not bar a claim for statutory, liquidated damages, where an employer is alleged to have violated an employee’s statutory privacy rights under the Privacy Act, as such a claim is simply not compensable under the Compensation Act.”
In affirming the appellate panel’s decision, the Illinois Supreme Court agreed that the “personal and societal injuries caused by violating [BIPA’s] prophylactic requirements are different in nature and scope from the physical and psychological work injuries that are compensable under the Compensation Act. [BIPA] involves prophylactic measures to prevent compromise of an individual’s biometrics.” Additionally, the Illinois Supreme Court held that the plain language of BIPA supports a conclusion that the state legislature did not intend for it to be preempted by the Compensation Act’s exclusivity provisions. Noting that it is aware of the consequences the legislature intended as a result of BIPA violations, the Illinois Supreme Court wrote that the “General Assembly has tried to head off such problems before they occur by imposing safeguards to ensure that the individuals’ privacy rights in their biometric identifiers and biometric information are properly protected before they can be compromised and by subjecting private entities who fail to follow the statute’s requirements to substantial potential liability . . . whether or not actual damages, beyond violation of the law’s provisions, can be shown.” Moreover, if a “different balance should be struck under [BIPA] given the category of injury,” that is “a question more appropriately addressed to the legislature.”
D.C. reaches nearly $4 million settlement with online lender to resolve usury allegations
On February 8, the District of Columbia attorney general announced a nearly $4 million settlement with an online lender to resolve allegations that lender marketed high-costs loans carrying interest rates exceeding D.C.’s interest rate cap. As previously covered by InfoBytes, the AG filed a complaint in 2020, claiming the lender violated the District of Columbia Consumer Protection Procedures Act (CPPA) by offering two loan products to D.C. residents carrying annual percentage rates (APR) ranging between 99-149 percent and 129-251 percent. Interest rates in D.C., however, are capped at 24 percent for loans with the rate expressed in the contract (loans that do not state an express interest rate in the contract are capped at six percent), and licensed money lenders that exceed these limits are in violation of the CPPA. According to the AG, the lender—who allegedly never possessed a money lending license in D.C.—violated the CPPA by (i) unlawfully misrepresenting it was allowed to offer loans in D.C. and failing to disclose or adequately disclose that its loans contain APRs in excess of D.C. usury limits; (ii) engaging in unfair and unconscionable practices through misleading marketing efforts; and (iii) violating D.C. usury laws.
Under the terms of the settlement, the company is required to (i) pay at least $3.3 million in restitution to refund alleged interest overcharges to D.C. borrowers; (ii) provide more than $300,000 in debt forgiveness to D.C. borrowers who would have paid future interest amounts in connection with an outstanding loan balance; and (iii) pay $450,000 to the District. According to the announcement, the company has also agreed that it “will not on its own, or working with third parties such as out of state banks, engage in any act or practice that violates the CPPA in its offer, servicing, advertisement, or provision of loans or lines of credit to District consumers.” The company is also prohibited from charging usurious interest rates, must delete negative credit information associated with its loans and lines of credit, and may not represent that it can offer loans or lines of credit in D.C. without first obtaining a D.C. money lender license.
Georgia reaches settlement with rent-to-own company over deceptive business practices
On February 8, the Georgia attorney general announced a settlement with a rent-to-own company accused of allegedly engaging in deceptive sales and marketing practices and violating the FDCPA. While the company did not admit to the allegations, it agreed to pay $145,590 in civil money penalties, with an additional $170,910 due if the company violates any of the settlement terms. The company is also required to (i) ensure its advertising, sales, and marketing practices comply with the Georgia Fair Business Practices Act and the Georgia Lease-purchase Agreement Act; (ii) refrain from engaging in harassing and unlawful debt collection practices; and (iii) verify debts are accurate before placing them with a third-party collection agency. “Our office takes seriously allegations of deceptive business practices, and companies that take advantage of our citizens will be held accountable,” the AG stated.
District Court orders debt-relief company to pay $41.1 million CMP
On February 7, the U.S. District Court for the Northern District of Illinois entered a default judgment and order against a debt-relief company (default defendant) accused of allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act. As previously covered by InfoBytes, the Bureau filed the complaint in 2020 alleging that the company and its two owners (collectively, “defendants”) misrepresented material aspects of their student loan debt-relief services, and violated the TSR by requesting and receiving payment of disproportionate fees for their services before they altered or resolved the terms of the debts. The judgment against the default defendant imposes both permanent injunctive relief and monetary remedies including a $41.1 million civil monetary penalty. The default defendant must also pay $2.1 million in consumer restitution and is permanently enjoined from participating in the financial-advisory, debt-relief, or credit-repair service markets in any way, including through marketing or ownership of such services.
Fannie Mae to pay $53 million to settle fair housing violations
On February 7, the Fair Housing Advocates of Northern California, along with the National Fair Housing Alliance and 19 local fair housing organizations from across the country announced a $53 million settlement with Fannie Mae to resolve allegations that Fannie Mae allowed foreclosed homes in predominantly White neighborhoods to be better maintained and marketed than similar homes in communities of color, a claim corroborated by a four year-long investigation of over 2,300 Fannie Mae real estate owned (REO) properties in 39 metropolitan areas. The plaintiffs alleged that they attempted to get Fannie Mae to voluntarily comply with the Fair Housing Act and change its discriminatory policies and practices, but claimed that Fannie Mae “continued to maintain its REO properties differently based on the predominant race and national origin of neighborhoods” and caused “particularized and concrete injury to those homeowners and residents.”
Under the terms of the settlement, Fannie Mae is required to pay $53 million to cover claims for damages, attorneys’ fees, and cost. Nearly $35.4 million of the settlement amount will be used to address community needs, including “addressing home ownership, neighborhood and/or community stabilization, access to credit, property rehabilitation, residential development in African American and Latino communities, fair housing education and outreach, counseling, and other fair housing activities” in the allegedly harmed areas.
The announcement further noted that the plaintiffs—who will manage and disburse the settlement funds—intend to provide grants that will go towards down-payment assistance for first-generation homebuyers and renovations for homes that languished in foreclosure, as well as innovative programs and partnerships to promote fair housing. The announcement also noted that Fannie Mae has implemented several measures to avoid similar occurrences in the future, such as increasing its oversight of maintenance of its REO properties, prioritizing owner-occupants instead of investors as purchasers of REOs, ensuring compliance with fair housing laws, and providing fair housing training to its employees and vendors. According to the announcement, this case marks the first time a federal court confirmed that the Fair Housing Act has covered the maintenance and marketing of REO properties.
Following the announcement, HUD released a statement applauding the settlement. “It is our hope that settlement of these cases will bring about much needed positive outcomes for these undeserved communities,” Principal Deputy Assistant Secretary for HUD’s Office of Fair Housing and Equal Opportunity Demetria L. McCain said. “We also hope mortgage lenders across the country will take steps to avoid fair housing violations in their own REO portfolios.”
OFAC issues Ethiopia sanctions regulations and amendments for civil penalties
On February 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions regulations pursuant to Executive Order 14046 of September 17, 2021, “Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia.” According to the final rule, OFAC “intends to supplement these regulations with a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.” The regulations become effective February 9, upon publication in the Federal Register.
OFAC also announced that it is amending its regulations to implement the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which adjusts for inflation the maximum amount of the civil monetary penalties that may be assessed under relevant OFAC regulations. The amendments become effective February 9, upon publication in the Federal Register.
FinCEN releases statement on NPRM for beneficial ownership
On February 8, FinCEN disclosed that the comment period from a December 2021 notice of proposed rulemaking (NPRM) related to the reporting of beneficial ownership information (the “Reporting NPRM”) received more than 230 public comments and is now closed. As previously covered by InfoBytes, in December, FinCEN issued a NPRM implementing the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA), which addressed who must report beneficial ownership information, when to report it, and what information they must provide. FinCEN noted that “the next step in the CTA rulemaking series will be FinCEN’s publication of proposed rules on BOI access and disclosure requirements (the 'Access NPRM'), which FinCEN anticipates publishing later this year.” According to FinCEN, some public comments included requests for the opportunity to submit, supplement, or amend their comments on the Reporting NPRM after having the opportunity to review the Access NPRM.