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On July 8, the CFPB announced a proposed settlement with a Florida-based student debt-relief company and three of its owners and officers (collectively, “defendants”), which would resolve allegations that the defendants violated the Telemarketing Sales Rule (TSR) by charging advance fees for services to renegotiate, settle, reduce, or alter the terms of federal student loans. According to the complaint, filed with the U.S. District Court for the Southern District of Florida on the same day as the proposed order, the Bureau alleges that from 2016 through October 2019, the defendants used telemarketing campaigns to solicit over 7,300 consumers to pay up to $699 in fees to have their federal student loan monthly payments reduced or eliminated through government-offered programs. The Bureau alleges that—not only are government programs (such as loan consolidation, income-based repayment, or certain loan-forgiveness options) available without charge—the defendants violated the TSR by charging and receiving upfront fees from consumers for their services before the terms of the student debt had been altered or settled.
The proposed settlement, if approved by the court, permanently bans the defendants from providing debt-relief services and imposes a suspended $3.8 million in consumer redress, upon the owners and officers each paying between $5,000 and $10,000 individually. Additionally, each defendant would be required to pay $1 in civil money penalties.
On July 6, the CFPB filed a complaint in the U.S. District Court for the Southern District of New York against a Delaware financial-services company operating in Florida and New York along with its owner (collectively, “defendants”) for allegedly violating the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by making misleading marketing representations when advertising its high yield CD accounts. The Bureau's complaint alleges that since August 2019, the company took more than $15 million from at least 400 consumers. According to the complaint, the defendants engaged in four separate deceptive acts or practices by: (i) falsely representing that consumers’ deposits into the high yield CD accounts would be used to originate loans for healthcare professionals, when in fact, the company never used the deposits to originate loans for healthcare professionals, never sold a loan to a bank or secondary-market investor, and never entered into a contract with a buyer or investor to purchase a loan; (ii) concealing the company’s true business model by falsely representing that the consumers’ deposits, when not being used to originate healthcare loans, would be held in an FDIC- or Lloyd’s of London-insured account or a “cash alternative” or “cash equivalent” account, when in reality, consumers’ deposits were, among other things, invested in securities; (iii) falsely describing the company as a commercial bank and claiming their high yield CD accounts were comparable to a traditional savings accounts with a guaranteed return, when in fact, the company was not a commercial bank, and consumers’ deposits were actively traded in the stock market or used in securities-backed investments; and (iv) falsely representing that past high yield CD accounts allegedly paid interest at rates between 5 percent and 6.25 percent prior to 2019; however, the company did not offer CDs until August 2019, and “consumers’ principals was neither guaranteed nor insured.” Among other things, the Bureau seeks monetary relief, consumer redress, injunctive relief, and a civil money penalty.
On July 2, the Federal Reserve Board announced an enforcement action against a West Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $24,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
On July 6, the CFPB announced the launch of Consumer Financial Protection Week from July 14 through July 17. Over the course of four days, the Bureau is hosting or participating in multiple virtual events, including (i) a tutorial and overview of the HMDA data browser; (ii) a discussion on the Bureau’s supervisory and enforcement prioritized assessment approach; and (iii) a discussion on the Bureau’s Taskforce on Federal Consumer Financial Law.
On July 2, the DOJ announced a settlement with a Maryland used car dealership and its owner and manager (collectively, “defendants”) resolving allegations that the defendants violated ECOA by offering terms of credit based on race to consumers seeking to purchase and finance used cars. As previously covered by InfoBytes, in September 2019, the DOJ announced it filed a lawsuit in the U.S. District Court for the District of Maryland alleging that between September 2017 and April 2018, compliance testing done by the DOJ concluded that the defendants’ “actions, policies, and practices discriminate against applicants on the basis of race with respect to credit transactions. . .by offering more favorable terms to white testers than to African American testers with similar credit characteristics.” Specifically, the complaint alleged that African American testers were, among other things, (i) told they needed higher down payment amounts than white testers for the same car; (ii) quoted higher bi-weekly payments for “buy here, pay here” financing than white testers for the same car; and (iii) not offered to fund down payments in two installments, as compared to white testers.
The consent order, which is subject to court approval and does not assess a monetary penalty, requires the dealership to, among other things, (i) develop written policies designed to prevent discrimination and ensure compliance with ECOA, including standardizing procedures for all credit applicants to reduce individual discretion in determining terms and conditions of credit; (ii) post and display a non-discrimination notice; (iii) attend ECOA training; and (iv) engage in on-going compliance monitoring and recordkeeping and reporting requirements with the DOJ.
On June 30, the Federal Reserve Board announced an enforcement action against a Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses an $8,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
On June 23, the SEC announced a $125,000 award to a whistleblower in an enforcement action. According to the press release, the whistleblower’s “information and assistance helped both the SEC and another agency bring successful actions against the perpetrator of a fraudulent securities offering.” The formal order notes that the whistleblower’s information helped the SEC and another agency discover “a fraudulent scheme that preyed on a vulnerable investor community” and that the whistleblower provided assistance to the SEC and the other agency throughout the investigation.
Additionally, on June 19, the SEC announced a nearly $700,000 award to a whistleblower in an enforcement action. According to the press release, the whistleblower’s “significant information helped the agency bring a successful enforcement action that resulted in the return of money to harmed investors.” The formal order notes that the whistleblower reported the concerns internally “in an effort to remedy the conduct,” and provided ongoing assistance to the agency throughout the investigation.
These press releases also noted that as of June 23, the SEC has awarded 85 individuals a total of approximately $501 million in whistleblower awards since its first award in 2012.
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”
On June 18, the FDIC announced an update to its “Formal and Informal Enforcement Actions Manual,” regarding the assessment of mandatory civil money penalties for certain pattern and practice violations of the National Flood Insurance Act (Act). The Act requires the FDIC to assess a penalty of up to $2,000 (adjusted annually for inflation) for each violation per loan against an insured depository institution. The FDIC will use the following two-step process to calculate the mandatory penalties for violations: (i) determine the base penalty, which takes into account the type and repeat nature of the violations; and (ii) apply the Institution Asset Size Factor, which takes into account the institution’s asset size based on the last Call Report. The manual also describes the difference between “Tier 1” violations and “Tier 2” violations and the base penalty for each.
On June 9, the Louisiana governor signed HB 722, which provides that “[e]lectronic signatures used in transactions by and with financial institutions are enforceable to the full extent of the law.” Specifically, HB 722 states that financial institutions may submit evidence in electronic signature disputes proving that the purported signer’s electronic signature is valid and enforceable, including evidence showing that the purported signer (i) “received a direct or indirect benefit or value from the transaction, such as the deposit of funds into the purported signer’s preexisting account with the financial institution;” (ii) received loan proceeds; or (iii) paid a debt. The act takes effect August 1.
- Jonice Gray Tucker to discuss "Fair servicing in wake of Covid-19" at an American Bar Association webinar
- APPROVED Webcast: Maximizing vendor value
- Daniel P. Stipano to discuss "Cram for the exam: Best prep strategies for a regulatory examination" at an ACAMS webinar
- Daniel R. Alonso to discuss "The United States in the age of Covid-19: The financial stimulus and the battle against fraud and corruption" at the Argentine Association of Ethics and Compliance Compliance Officers’ Club
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)
- Amanda R. Lawrence to discuss "New privacy legislation: Preparing for a major source of class action and enforcement activity going forward" at the American Conference Institute Consumer Finance Class Actions, Litigation & Government Enforcement Actions