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On August 12, the CFPB announced a proposed settlement with a defunct for-profit educational institution to resolve allegations that the defendant engaged in unfair and abusive acts and practices in violation of the Consumer Financial Protection Act through its private student loan origination practices. As previously covered by InfoBytes, the CFPB filed a lawsuit in 2014 alleging, among other things, that the defendant offered new students short-term zero-interest loans to cover the difference between the cost of attendance and federal loans obtained by students, but when the short-term loans came due at the end of the students’ first academic year, the defendant forced borrowers into “high-interest, high-fee” private student loans knowing that borrowers could not afford them. According to the Bureau, this practice resulted in a 64 percent default rate on the loans. The terms of the proposed settlement include a $60 million judgment against the defendant as well as an injunction prohibiting the defendant from offering or providing student loans in the future.
Earlier in June, the Bureau announced a settlement with a company that managed student loans for the defendant, which includes approximately $168 million in student loan forgiveness. (See previous InfoBytes coverage here.) The company has also agreed to permanently cease enforcing, collecting, or receiving payments on any of its loans.
On July 29, the FTC and the Ohio attorney general announced temporary restraining orders and asset freezes issued by the U.S. District Court for the Western District of Texas against a payment processor and a credit card interest-reduction telemarketing operation (see here and here). According to the FTC, the payment processor defendants allegedly violated the FTC Act, the Telemarketing Sales Rule (TSR), and various Ohio laws by, among other things, generating and processing remotely created payment orders or checks that allowed merchants—including deceptive telemarketing schemes—the ability to withdraw money from consumers’ bank accounts. The FTC asserted that the credit card interest-reduction defendants deceptively promised consumers significant credit card interest rate reductions, along with “a 100 percent money back guarantee if the promised rate reduction failed to materialize or the consumers were otherwise dissatisfied with the service.” However, the FTC claimed that most customers never received the promised rate reduction, were refused refund requests, and often received collection or lawsuit threats. Additionally, the credit card interest-reduction defendants allegedly violated the TSR by charging advance fees, failing to properly identify the service in telemarketing calls, and failing to pay to access the FTC’s National Do Not Call Registry.
On July 26, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in May and June. The list reflects that the FDIC issued 15 orders, which include “one stipulated consent order; three termination of consent orders; five Section 19 orders; one stipulated civil money penalty order; two stipulated removal and prohibition orders; two voluntary terminations of deposit insurance; and one adjudicated civil money penalty order.”
Among other actions, the FDIC assessed a civil money penalty (CMP) against a Wisconsin-based bank for alleged violations of the Flood Disaster Protection Act and National Flood Insurance Act, including, among other things, failing to (i) obtain flood insurance coverage on loans at the time of origination; (ii) obtain adequate flood insurance coverage on loans; (iii) meet escrow requirements for flood insurance; (iv) follow force-placement flood insurance procedures; or (v) provide borrowers with notice of the availability of federal disaster relief assistance when reviewing loans or within a reasonable timeframe.
The FDIC Board also adopted and affirmed an administrative law judge’s recommended decision and issued a CMP against a Louisiana-based bank for alleged violations of the National Flood Insurance Act. The findings stem from a 2015 compliance examination, and included failures to (i) obtain or maintain flood insurance coverage; (ii) obtain sufficient flood insurance coverage; and (iii) properly notify borrowers of coverage discrepancies.
On July 25, the U.S. Court of Appeals for the 9th Circuit held that the Commodity Future Trading Commission (CFTC) had the enforcement authority to bring a $290 million fraud action against a trading platform, concluding that the district court improperly dismissed the action. According to the opinion, the CFTC brought an action against a trading platform alleging that it was an illegal and unregistered leveraged retail commodity transaction market for precious metals. The platform moved to dismiss the action, arguing that the Dodd-Frank Act did not give the CFTC the power to pursue stand-alone fraud claims without allegations of manipulation and that the Commodity Exchange Act’s “registration provisions do not apply to retail commodities dealers who ‘actual[ly] deliver’ the commodities to customers within twenty-eight days.” The district court agreed, and dismissed the action.
On appeal, the 9th Circuit concluded the district court erred in dismissing the CFTC’s claims, holding that the CFTC had the authority under Section 6(c)(1) of the CEA to take action against the entity for fraudulently deceptive activity. Specifically, the appellate court held that the CFTC could bring an action for “fraudulently deceptive activity, regardless of whether it was also manipulative,” concluding the district court erred when it interpreted the use of the word “or” in the CEA’s prohibition of the use of “any manipulative or deceptive device or contrivance” to mean “and.” Moreover, the appellate court rejected the platform’s “actual delivery” argument, concluding that the platform’s practice of storing the goods in depositories, and “maintain[ing] total control over accounts,” with the ability to liquidate at any time, amounts to “sham delivery, not actual delivery.” The appellate court looked to the legislative history of Dodd-Frank and observed that, “[i]f Congress wanted only to ensure enough inventory it could have said so. It did not; it required ‘actual delivery,’” which would require some “meaningful degree of possession or control by the customer.”
On July 23, the SEC announced a $500,000 award to an overseas whistleblower whose “expeditious reporting” on an important witness assisted the Commission in bringing a successful enforcement action. The SEC’s order noted that the whistleblower’s tip was the first information that the Commission received on the charged misconduct, and that without the information—which was substantiated by other witnesses—the violations would have been difficult to identify and prove partly because the misconduct happened abroad. The order does not provide any additional details regarding the whistleblower or the company involved in the enforcement action. Since the program’s inception in 2012, the SEC has awarded approximately $385 million to 65 whistleblowers.
On July 18, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include personal cease-and-desist orders, civil money penalties, formal agreements, prompt corrective action directives, removal and prohibition orders, and terminations of existing enforcement actions. Included in the list is a formal agreement issued against a Texas-based bank on June 20 for alleged unsafe or unsound practices related to, among other things, compliance risk management and violations of laws and regulations concerning the Flood Disaster Protection Act (FDPA), Bank Secrecy Act, TILA, RESPA, and the Expedited Funds Availability Act. Among other things, the agreement requires the bank to (i) appoint a compliance committee responsible for submitting a written progress report detailing specific corrective actions; (ii) ensure that it has “sufficient and competent management”; (iii) prepare a risk-based consumer compliance program, which must include revised policies and procedures related to the Servicemembers’ Civil Relief Act, TILA-RESPA Integrated Disclosure rule, and the FDPA; and (iv) take measures to “ensure that current and satisfactory credit and proper collateral information is maintained on all loans.”
On July 18, Kathy Kraninger, Director of the CFPB, spoke before the Exchequer Club where she discussed the Bureau’s strategy for preventing consumer harm. Kraninger discussed her ongoing “listening tour”—in which she has met with and received feedback from “more than 600 consumer groups, consumers, state and local government officials, military personnel, academics, non-profits, faith leaders, financial institutions, and former and current Bureau officials and staff”—and commented on ways in which feedback received from these stakeholders has helped shape her approach. Kraininger highlighted four “tools” that the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. According to Kraninger, the Bureau’s focus reflects a “consumer-centric definition of financial well-being” designed to empower consumers when protecting their own interests and choosing the appropriate financial products and services. Specifically, Kraninger referred to the Bureau’s “Misadventures in Money Management” financial education tool for active-duty servicemembers, as well as its “Start Small, Save Up” initiative, which is designed to increase consumers’ ability to handle urgent expenses.
- Rulemaking. Kraninger commented that the Bureau will continue to comply with Congressional mandates to promulgate rules or address specific issues through rulemaking. However, where the Bureau has discretion, it “will focus on preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices that undermine the ability of consumers to choose the products and services that are best for them.” Kraninger spoke of the need for increased transparency and deregulatory efforts and highlighted a recent change to the comment period for the Bureau’s Payday and Debt Collection rulemakings, as well as the consideration of potential changes to the existing Remittances Rule based on responses to a call for evidence.
- Supervision. Kraninger stressed that “[s]upervision is the heart of the agency,” as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau’s approach will focus on ensuring supervision is effective, efficient, and consistent, and will explore ways to incentivize institutions to have in place good compliance management systems. Kraninger noted that, as chair of the Federal Financial Institutions Examination Council, she will focus on coordinating and collaborating with the other agencies to advance consumer protections.
- Enforcement. Kraninger noted that the Bureau will continue to enforce against bad actors that do not comply with the law, as “[a] purposeful enforcement regime can foster compliance, deter unlawful conduct, help prevent consumer harm, and right wrongs.” She referenced the Bureau’s history of collaborating with state and federal partners on enforcement actions, and stressed her commitment to ensuring enforcement matters are handled as expeditiously as possible. Kraninger also specifically drew attention to the Bureau’s collaborative approach in its recent advisory on elder financial exploitation (previously covered by InfoBytes here).
On July 11, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 19-23, which provides clarifying guidance on enforcement credit for firms or individuals that provide “extraordinary cooperation” in investigations that exceed FINRA’s rule requirements. Specifically, FINRA defines “extraordinary cooperation” as including (i) self-reporting violations prior to regulator detection and intervention; (ii) taking voluntary, extraordinary steps to correct problems; (iii) making voluntary remediation to customers prior to detection; and (iv) providing a substantial amount of assistance to FINRA’s investigation. The notice, which supplements prior guidance issued in 2008, also clarifies the difference between required cooperation and extraordinary efforts, and outlines the types of credit firms or individuals may receive.
On July 11, the FTC announced it was charging a student loan debt relief operation with violations of the FTC Act and the Telemarketing Sales Rule for allegedly engaging in deceptive practices when marketing and selling their debt relief services. The complaint alleges the operators of the scheme allegedly, among other things, (i) charged borrowers illegal advance fees; (ii) falsely claimed they would service and pay down their student loans; and (iii) obtained borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers. According to the FTC, the defendants allegedly collected more than $23 million from consumers, and when asked why their payments were not being applied to their loans, the defendants “informed consumers that their entire payments had been collected as ‘handling’ or ‘management’ fees.” On July 10, the U.S. District Court for the Central District of California issued a temporary restraining order and asset freeze at the FTC’s request. The FTC seeks a permanent injunction against the defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
On July 10, the New York attorney general announced a settlement with two ticket resale companies that allegedly deceived thousands of consumers by selling event tickets that the companies did not actually own. According to the announcement, the defendants’ practice of selling “speculative tickets” to consumers involved listing and selling tickets the companies did not possess and attempting to purchase such tickets only after a consumer had already placed an order. The attorney general claimed the defendants often charged premiums or inflated prices for tickets then “kept the difference between the price they actually paid and the price at which the speculative ticket was sold to a consumer.” Additionally, one of the defendants also allegedly misled consumers in instances when tickets could not be provided by blaming technical errors or vague supplier issues. While the defendants have not admitted any liability, under the terms of the settlement—subject to court approval—they have agreed to pay $1.55 million and adopt reforms designed to protect ticket purchasers in the future, including, where appropriate, providing clear and conspicuous disclosures stipulating that the ticket seller does not possess the listed tickets and is merely offering to obtain such tickets on a consumer’s behalf.
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Benjamin W. Hutten to discuss "BSA program reporting, management and board of directors responsibilities" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference