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District Court dismisses suit alleging improper inspection fees
On June 6, the U.S. District Court for the District of New Jersey granted a defendant bank’s motion to dismiss, ruling that the plaintiff’s inspection fee allegations are barred on collateral estoppel grounds. The plaintiff filed a class action suit claiming the defendant’s computer software orders property inspections after borrowers’ loans are in default and then charges borrowers for the improper inspection fees. According to the opinion, the defendant initiated foreclosure proceedings in 2012 against the plaintiff in state court after she missed payments. The parties litigated the matter for several years in state court, and in 2018, the plaintiff filed a motion for leave to add class action claims related to the defendant’s inspection fee collection system. The state court denied plaintiff’s motion, finding the proposed claims to be without merit and futile. Final judgment of foreclosure was granted to the bank. Similar proceedings involving the same class action counterclaims occurred after the defendant requested that the judgment be vacated to add an additional lien holder as a defendant. The defendant again applied for entry of final judgment, but withdrew this application allegedly in response to the Covid-19 pandemic. Ultimately the state court dismissed the foreclosure action without prejudice for lack of prosecution. The plaintiff filed an instant complaint in federal court.
The defendant argued that the plaintiff “should be collaterally estopped from bringing these claims because the New Jersey Superior Court ruled on the exact issues [plaintiff] raises here in the prior foreclosure action brought by [defendant] against [plaintiff] in state court, ultimately dismissing them with prejudice.” The plaintiff countered “that because the foreclosure action was dismissed without entry of judgment, collateral estoppel does not apply.” In agreeing with the defendant, the court stated that “the doctrine of collateral estoppel applies whenever an action is ‘sufficiently firm to be accorded conclusive effect,” adding that the state court’s orders in the foreclosure action are “sufficiently firm as to warrant conclusive effect.” According to the court, “[t]hese decisions—particularly the second dismissal with prejudice—were clearly intended to be the final adjudication of the precise issues that [plaintiff] is now attempting to relitigate in the instant action.”
NYDFS releases stablecoin guidance
On June 8, NYDFS released new regulatory guidance on the issuance of U.S. dollar-backed stablecoins, establishing criteria for regulated virtual currency companies seeking to issue stablecoins in the state. The guidance outlines baseline criteria for USD-backed stablecoins, including that: (i) a “stablecoin must be fully backed by a Reserve of assets,” such that the Reserve’s market value “is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day”; (ii) stablecoin issuers “must adopt clear, conspicuous redemption policies, approved in advance by [NYDFS] in writing, that confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the Issuer in a timely fashion at par for the U.S. dollar”; (iii) Reserve assets must be segregated from an issuer’s proprietary assets and “held in custody with U.S. state or federally chartered depository institutions and/or asset custodians”; (iv) a Reserve must consist of specific assets subject to NYDFS-approved overcollateralization requirements and restrictions; and (v) a Reserve must undergo an examination of its management’s assertions at least once a month by a licensed certified public accountant.
NYDFS emphasized that these criteria are not the only requirements it may impose when issuing stablecoins, and informed regulated entities that it will also consider a range of potential risks prior to granting a regulated entity authorization to issue stablecoins. This includes risk related to “cybersecurity and information technology; network design and maintenance and related technology and operational considerations; Bank Secrecy Act/anti-money-laundering [] and sanctions compliance; consumer protection; safety and soundness of the issuing entity; and the stability/integrity of the payment system, as applicable.” Additional requirements may be imposed on regulated entities to address any of these risks.
NYDFS noted that the regulatory guidance is not applicable to USD-backed stablecoins listed, but not issued, by regulated entities, and stated it “does expect regulated entities that list USD-backed stablecoins to consider this guidance when submitting a request for coin issuance or seeking approval for a coin self-certification policy.”
District Court granted final approval of a $63 million data breach settlement
On June 7, the U.S. District Court for the District of Columbia granted final approval of a class action settlement resolving claims that a government agency and its contractor (collectively, defendants) did not detect hackers because they failed to establish reasonable safeguards that led to a data breach. According to the memorandum of law in support of the plaintiff’s motion for preliminary approval, a data breach occurred in June 2015 that compromised financial records, Social Security numbers, and other personal information of anyone who underwent a background check at the agency since 2000. The agency allegedly controlled numerous electronic systems without valid authorizations, failed to implement multi-factor authentication for accessing systems, failed to patch, segment, and continuously monitor systems, and failed to implement centralized data security protocols. According to the plaintiff’s motion, the settlement (if granted final approval) would require the U.S. government to pay $60 million of the settlement fund and the contractor to pay $3 million. The settlement agreement provides that “[e]ach valid claim will be paid at $700, except that if the actual amount of documented loss exceeds $700, the claim will be paid in that amount, up to $10,000.”
Senate Banking Committee sends letter to Yellen on consumer data activities
On June 7, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Sherrod Brown sent a letter to Treasury Secretary Janet Yellen requesting that the Financial Stability Oversight Council conduct a review on the effect of the collection and sale of consumer data by financial institutions to determine whether such activities pose a systemic threat to U.S. financial stability and security. The letter raised concerns that such data could be used for nefarious purposes including "glean[ing] consumers’ tolerance for price hikes, or using certain people’s spending patterns to target them for blackmail or ransomware.”
OFAC amends Cuban Assets Control Regulations
On June 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a final rule amending the Cuban Assets Control Regulations, and further implementing portions of President Biden’s foreign policy to increase support for Cuban people. Specifically, the final rule “authorizes group people-to-people educational travel to Cuba and removes certain restrictions on authorized academic educational activities, authorizes travel to attend or organize professional meetings or conferences in Cuba, removes the $1,000 quarterly limit on family remittances, and authorizes donative remittances to Cuba.” The final rule is effective June 9.
In conjunction with the announcement, OFAC published a number of new and updated Cuba-related frequently asked questions addressing, among other things, remittance transactions, travel activities, and authorized imports.
OFAC sanctions actors throughout the Western Balkans
On June 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against two prominent officials in Bosnia and Herzegovina. This is the third action taken under E.O. 14033. According to the Under Secretary of the Treasury for Terrorism and Financial Intelligence, the designated individuals “have each sought to pursue ethnonationalist and political agendas at the expense of the democratic institutions and citizens of Bosnia and Herzegovina.” As a result of the sanctions, all assets belonging to the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. U.S. persons are generally prohibited from engaging in dealings involving any property or interests in property of the blocked or designated persons.
District Court: Company must face data breach claims
On June 1, the U.S. District Court for the District of Arizona ruled that a health care company must face a proposed class action related to claims that its failure to implement cybersecurity safeguards led to a data breach that compromised individuals’ personal health information. In granting in part and denying in part defendant’s motion to dismiss, the court declined to dismiss several of the plaintiffs’ claims for negligence, ruling that the second amended complaint sufficiently alleged that the defendant employed inadequate data security and that plaintiffs suffered an actual injury as a result of the data breach because the monitoring services offered by the defendant were insufficient and offered for too short of time causing certain plaintiffs to purchase additional identity protection products and/or services. However, other negligence claims were dismissed after the court determined that some of the plaintiffs failed to allege any actual damages or out-of-pocket expenses. Additionally, while the court allowed several state law claims to proceed, it dismissed claims brought under the California Consumer Protection Act due to the plaintiff’s failure to provide the requisite pre-suit notice within the 30-day time period as required by law, finding the failure could not be cured by the passage of time. Other state law claims, involving violations of the Wisconsin Deceptive Trade Practices Act and Pennsylvania Unfair Trade Practices and Consumer Protection Law, were also dismissed due to a failure to articulate cognizable losses.
FTC bans MCA providers, returns $2.7 million to consumers
On June 6, the FTC obtained a stipulated court order permanently banning a company and owner from participating in the merchant cash advance and debt collection industries. As previously covered by InfoBytes, last June the FTC filed an amended complaint against two New York-based small-business financing companies and a related entity and individuals (including the settling defendants), claiming the defendants engaged in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, deceiving consumers about personal guarantees, forcing consumers and businesses to sign confessions of judgment, providing less funding than promised due to undisclosed fees, and making unauthorized withdrawals from consumers’ accounts. Under the terms of the stipulated order, the settling defendants are required to pay a more than $2.7 million monetary judgment to go towards refunds for harmed consumers and must vacate any judgments against former customers and release any liens against their customers’ property. The announcement notes that the settling defendants are also “prohibited from misleading consumers about any key facts about any good or service, including any fees, the total cost of the product, and other facts that reflect their deceptions in this case.”
Earlier in January, a stipulated order was entered against two other defendants (covered by InfoBytes here), which permanently banned them from participating in the merchant cash advance and debt collection industries and required the payment of a $675,000 monetary judgment.
FTC shares 2021 enforcement report with CFPB
On June 3, the FTC announced that it submitted its 2021 Annual Financial Acts Enforcement Report to the CFPB. The report covers FTC enforcement activities regarding the Truth in Lending Act (TILA), the Consumer Leasing Act (CLA), and the Electronic Fund Transfer Act (EFTA). Highlights of the enforcement matters covered in the report include, among other things:
- Automobile Credit and Leasing. The report discussed the FTC’s July 2021 settlement with the owners of car dealerships in Arizona and New Mexico (collectively, “defendants”) resolving claims that the defendants misrepresented consumer information on finance applications and misrepresented financial terms in advertisements in violation of TILA and CLA (covered by InfoBytes here).
- Payday Lending. The report highlighted the FTC’s settlement against a payday lending enterprise for allegedly overcharging consumers millions of dollars, deceiving them about the terms of their loans, and failing to make required loan disclosures. According to the report, the owners and operators of the settling entities are banned from making loans or extending credit, nearly all debt held by the company will be deemed paid in full, and the companies involved are being liquidated, with the proceeds to be used to provide redress to consumers harmed by the company.
- Credit Repair and Debt Relief. The report discussed the FTC’s settlement with the operators of a student loan debt relief scheme, who were charged with falsely promising consumers the company could lower or eliminate student loan balances, illegally imposing upfront fees for credit repair services, and signing consumers up for high-interest loans to pay the fees without making required loan disclosures in violation of TILA. The order bans the defendants from providing debt relief services and collecting any further payments from consumers who purchased the services, and requires the defendants to return money to be used to refund consumers.
Additionally, the report addressed the FTC’s research and policy efforts and highlighted the FTC’s Military Task Force’s work on military consumer protection issues.
FinCEN issues ANPRM on no-action letter process
On June 3, FinCEN issued an Advance Notice of Proposed Rulemaking (ANPRM) soliciting comments on questions related to implementing a no-action letter process at the agency. The ANPRM is part of FinCEN’s implementation of the Anti-Money Laundering Act of 2020, which directed the agency to conduct an assessment of a no-action letter process concerning how anti-money laundering or countering the financing of terrorism laws may apply to specific conduct. The ANPRM follows FinCEN’s June 2021 report to Congress (covered by InfoBytes here), which concluded that the agency should undertake rulemaking to establish a process for issuing no-action letters that will supplement its current forms of regulatory guidance and relief. FinCEN noted in its announcement that the addition of a no-action letter process (“generally understood to be a form of enforcement discretion where an agency states by letter that it will not take an enforcement action against the submitting party for the specific conduct presented to the agency”) could overlap with and “affect other forms of regulatory guidance and relief that FinCEN already offers, including administrative rulings and exceptive or exemptive relief.” The agency is seeking public input on whether the process should be implemented and, if so, how the process should work. Included in the ANPRM are questions concerning, among other things, FinCEN jurisdiction (specifically “[w]hat is the value of establishing a FinCEN no-action letter process if other regulators with jurisdiction over the same entity do not issue a similar no-action letter”), whether there should be limitations on which factual circumstances could be considered, and whether the scope of a no-action letter should be limited so that requests may not be submitted during a Bank Secrecy Act examination. The ANPRM also asked questions related to changes in circumstances, revocations, denials and withdrawals, confidentiality and consultation concerns, and criteria for distinguishing no-action letters from administrative rulings or exceptive/exemptive relief.
Comments on the ANPRM are due August 5.