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On January 10, the FTC announced that it entered into two settlement agreements: one with a call center and two individuals, and one with an additional individual (together, “the settling defendants”) that it claims made illegal robocalls to consumers as part of a cruise line’s telemarketing operation allegedly aimed at marketing free cruise packages to consumers. According to the two settlements (see here and here), the settling defendants “participated in unfair acts or practices in violation of . . . the FTC Act, and the FTC’s Telemarketing Sales Rule [(TSR)]” by “(a) placing telemarketing calls to consumers that delivered prerecorded messages; (b) placing telemarketing calls to consumers whose telephone numbers were on the National Do Not Call Registry; and (c) transmitting inaccurate caller ID numbers and names with their telemarketing calls.” The defendants are permanently banned from making telemarketing robocalls, and have been levied judgments totaling $7.8 million, all but $2,500 of which has been suspended due to the defendants’ inability to pay.
Also on January 10, the FTC filed a complaint in the U.S. District Court for the Middle District of Florida against the remaining six defendants allegedly involved in the telemarketing operation, for violations of the FTC Act and TSR based on the same actions alleged against the settling defendants.
On December 26, the CFPB denied a petition by a student loan relief company to modify or set aside a civil investigative demand (CID) issued by the Bureau last October. According to the company’s petition, the CID requested information as part of an investigation into the company’s promotion of student loan debt relief programs. As previously covered by InfoBytes, stipulated orders were entered against the company by the FTC and the Minnesota attorney general for violations of TILA and the assisting and facilitating provision of the Telemarketing Sales Rule, which resulted in the company being permanently banned from engaging in transactions involving debt relief products and services or making misrepresentations regarding financial products and services. In its petition, the company argued that the CFPB’s requests were duplicative of the FTC’s earlier investigation. The company also argued that the documents and materials sought in the CID were overly burdensome and the time frame to respond was too short. Furthermore, the company stated that until the U.S. Supreme Court issues a decision in Seila Law v. CFPB on whether the Bureau’s structure violates the Constitution’s separation of powers under Article II, the CID should either be withdrawn or stayed because of the uncertainty surrounding the Bureau’s ability to proceed with enforcement actions.
The Bureau denied the petition, arguing that “the administrative CID petition process is not the proper forum for raising and deciding constitutional challenges to provisions of the Bureau’s statute.” The Bureau also noted that the company failed to show that it engaged with Bureau staff on ways to alleviate undue burden, such as proposing modifications to the substance of the requests, and that even though the Bureau proposed an extension to the CID deadline, the company did not seek such an extension.
On January 13, fifteen Democratic Senators, led by Senators Catherine Cortez Masto (D-NV) and Sherrod Brown (D-OH) sent a letter to the Inspector General of the Federal Reserve Board calling for an investigation into the CFPB’s restitution penalties levied against companies accused of wrongdoing. The Senators claim that the Bureau’s restitution approach “creates a perverse incentive for companies to violate the law by allowing them to retain all or nearly all of the funds they illegally obtain from consumers.” The letter asks the Inspector General to investigate four recent settlements to examine how the Bureau determines restitution awards and whether the applied standard for restitution differs from the standard applied by courts and in prior CFPB settlements.
Included among the examples of actions for which consumers were provided limited to zero restitution is a recent settlement with a debt collector accused of engaging in improper debt collection tactics. As previously covered by InfoBytes, the company agreed to pay $36,878 in redress to harmed consumers, limiting the restitution to “only those consumers who affirmatively ‘complained about a false threat or misrepresentation’” by the company, the Senators wrote. Specifically, the Senators seek to determine the number of consumers who may have been excluded from the settlement because they did not affirmatively complain about the company’s behavior. A second example highlights an action taken against a group of payday lenders that allegedly, among other things, misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws. (Previously covered by InfoBytes here.) According to the Senators, the settlement “dropped the requests for restitution and other relief for victimized consumers.” The letter also references a report released last October by the House Financial Services Committee (covered by InfoBytes here) following an investigation into these particular settlements, in which the Bureau responded “that it did not seek restitution in these cases because it could not determine ‘with certainty’ which consumers had been harmed or the amount of the harm.”
On January 9, the Minnesota attorney general announced that an internet service provider (ISP) agreed to pay nearly $9 million in order to resolve allegations that it overcharged customers for phone, internet and cable services. In a separate action, on December 10, the Washington attorney general’s office announced that it entered into a $6.1 million consent decree with the same ISP to resolve similar claims of deceptive acts and practices. As previously covered by InfoBytes, the ISP entered into settlements over the same alleged actions with the states of Colorado on December 19, and Oregon on December 31.
On January 9, the Federal Reserve Board announced that it entered into a cease and desist order on December 30 with a Texas state-chartered bank due to “significant deficiencies” in the bank’s Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program that were discovered in its latest examination of the bank. The requirements set out for the bank in the order include:
- Board oversight. The bank must submit a board-approved, written plan to improve oversight of BSA/AML requirements.
- BSA/AML compliance program. The bank must submit a written BSA/AML compliance program that includes BSA/AML training; independent testing of the compliance program; management of the program by a qualified compliance officer with adequate staffing support; BSA/AML compliance internal controls; and a BSA/AML risk assessment of the bank, its products and services, and its customers.
- Customer due diligence. The bank must submit a revised customer due diligence program that includes policies and procedures to ensure accurate client account information; a plan to bring existing accounts into compliance with due diligence requirements; a method to assign risk ratings to account holders; policies and procedures to ensure proper customer information is obtained according to the risk of the account holder; and risk-based monitoring procedures and updates to accounts.
- Suspicious activity monitoring and reporting. The bank must submit a written suspicious activity monitoring and reporting program that includes a documented process for establishing monitoring rules; policies and procedures for review of monitoring rules; customer and transaction monitoring; and policies and procedures for the review of suspicious activity.
On January 8, the New York governor released a proposal that would, among other things, expand the entities subject to NYDFS’ enforcement authority and harmonize state regulator authority to bring actions against entities engaging in unfair, deceptive, or abusive acts or practices with federal authority. Proposed within the 2020 State of the State agenda are several initiatives designed to increase the state’s oversight and enforcement of the financial services industry. Key measures include:
- Abusiveness claims. The proposal would make New York consumer protection law consistent with federal law by aligning the state’s UDAAP powers with those of the CFPB, thereby empowering state authorities to bring abusiveness claims under state law.
- Eliminate certain exemptions. The proposal would end exemptions from state oversight for certain, unspecified consumer financial products and services. “With the current federal administration reducing the number and breadth of enforcement actions brought by the CFPB, it is crucial that state consumer protection laws apply to all the same consumer products and services subject to Dodd-Frank,” the proposal states.
- Closing loopholes and creating a level playing field. Under the proposal, state-licensed cryptocurrency companies would be required to pay assessment fees similar to other financial services companies. Currently, only supervised entities licensed under the state’s insurance law or banking law are required to pay assessments to NYDFS to cover examination and oversight costs.
- Fines. In order to effectively deter illegal conduct, the proposal would amend the state’s insurance law to increase fines. Additionally, instead of the current Financial Services Law (FSL) penalty of $5,000 per violation, the governor proposes “capping penalties at the greater of $5,000, or two times the damages, or the economic gain attributed to the violation,” while also updating the FSL to provide “explicit authority for [NYDFS] to collect restitution and damages.”
- Debt collection. Debt collectors under the proposal would be required to be licensed by NYDFS, thus allowing the department to examine and investigate suspected abuses. Additionally, NYDFS’ new oversight authority would allow it to bring punitive administrative actions against debt collectors, which may result in significant fines or the loss of a license. The proposal would also codify the FTC’s rule prohibiting confessions of judgment in consumer loans.
As previously covered by InfoBytes, the proposal would also, among other things, expand access to safe and affordable financial services through a collaborative initiative between the state’s Community Development Financial Institutions, NYDFS, and other state agencies designed to improve outreach and financial literacy education to the unbanked and underserved communities.
On December 23, the U.S. District Court for the District of Maryland granted a motion to stay in an action between the CFPB and parties of a structured-settlement company, pending the U.S. Supreme Court’s decision in CFPB v. Seila Law. According to the court, a decision in Seila Law that the CFPB’s structure violates the Constitution’s separation of powers under Article II may render the CFPB unable prosecute the case. A determination by the Court is expected later this year (previous InfoBytes coverage here).
As previously covered by InfoBytes, the court allowed to move forward the Bureau’s UDAAP claim, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The defendants asked the court to stay the proceedings pending the outcome of two cases: Seila Law and a case pending in the Maryland Court of Appeals involving a different structured settlement company (covered by InfoBytes here). The court determined that a stay is not appropriate based on the Maryland case since it is not known when the case may be decided. The court also disagreed with the defendants’ argument that if the Maryland Court of Appeals upholds the settlement, the Bureau would be precluded from obtaining relief from the defendants. According to the court, “the extent to which the settlement is preclusive is unclear” and the provision that would preclude action by the Bureau is being disputed on appeal. However, the court concluded that a stay pending the outcome in Seila Law is warranted because “one of the Supreme Court’s paths in Seila Law may render the CFPB unable to prosecute this action; the stay would not be lengthy; and the interests of judicial efficiency and potential harm to the movants justify the stay.”
On December 19, the Colorado attorney general announced that an internet service provider (ISP) agreed to pay nearly $8.5 million in order to resolve allegations that it “unfairly and deceptively charg[ed] hidden fees, falsely advertis[ed] guaranteed locked prices, and fail[ed] to provide discounts and refunds it promised” to Colorado consumers in violation of the Colorado Consumer Protection Act. According to the announcement, in 2017 the AG’s office investigated the ISP and compiled information that the ISP had “systematically and deceptively overcharged consumers for services” since 2014 (see the complaint filed by the AG here). In the settlement, the ISP agreed to an order that requires it, among other things, to (i) refrain from making false and misleading statements to consumers in the marketing, advertising and sale of its products and services; (ii) accurately communicate monthly base charges as well as one-time fees, taxes, and other fees and surcharges to consumers; (iii) disclose any “internet cost recovery fee” or “broadband recovery fee” to consumers being charged the fees and allow the affected consumers to switch to different services if they wish to avoid the fees; (iv) refrain from charging an “internet or broadband cost recovery fee” on new orders; and (v) provide refunds to customers who were overcharged for services and to those customers who did not previously receive discounts that the ISP promised.
In a separate action, on December 31, the Oregon attorney general’s office announced that it entered into a $4 million Assurance of Voluntary Compliance with the same ISP to resolve similar claims of deceptive acts and practices in the advertising, sale, and billing of the ISP’s internet, telephone and cable services in violation of the Oregon Unlawful Trade Practices Act. According to the announcement, the Oregon DOJ started an investigation of the ISP in 2014 for allegedly “misrepresenting the price of services, failing to inform consumers of terms and conditions that could affect the price, and billing consumers for services they never received.” The ISP agreed to requirements that are very similar to those in the Colorado settlement. The announcement notes that the “Oregon DOJ will continue to lead a separate securities class action lawsuit arising from the same conduct.”
On December 27, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in November. The 14 orders include “two consent orders; one civil money penalty; one order terminating consent order; one supervisory prompt corrective directive action; five section 19 orders (prohibiting persons who have been convicted of any criminal offense involving dishonesty, breach of trust, or money laundering from serving as institution-affiliated parties with respect to an insured depository institution); two removal and prohibition orders; and two orders terminating prompt supervisory corrective action directives.” In one action, the FDIC issued a consent order against an Illinois-based bank related to alleged weaknesses in its Bank Secrecy Act (BSA) compliance program. Among other things, the bank is ordered to (i) implement a revised, written BSA compliance program to address BSA and FinCEN regulation provisions, such as suspicious activity reporting, customer due diligence, and beneficial ownership; (ii) update its Customer Due Diligence Program to assure the reasonable detection of suspicious activity; (iii) implement a process for account transaction monitoring; (iv) retain qualified BSA management to ensure compliance with applicable laws and regulations; (v) implement a comprehensive BSA training program for appropriate personnel; (vi) address automated clearing house (ACH) activity and update policies and procedures to monitor credit risk associated with ACH transactions; and (vii) refrain from entering into any new lines of business prior to conducting appropriate due diligence.
On December 9, the SEC announced a settlement with a broker to resolve allegations concerning the improper handling of pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent foreign shares of a foreign company.” The SEC noted in its press release that ADRs can be pre-released without the deposit of foreign shares only if: (i) the brokers receiving the ADRs have an agreement with a depository bank; and (ii) the broker or the broker's customer owns the number of foreign shares that corresponds to the number of shares the ADR represents. According to the SEC’s order, the broker improperly borrowed pre-released ADRs from other brokers that it should have known did not own the foreign shares necessary to support the ADRs. The SEC also found that the broker failed to implement policies and procedures to reasonably detect whether its securities lending desk personnel were engaging in such transactions. The broker neither admitted nor denied the SEC’s allegations, but agreed to pay more than $2.2 million in disgorgement, roughly $468,000 in prejudgment interest, and a $1.25 million penalty. The SEC’s order acknowledged the broker’s cooperation in the investigation and that the broker had entered into tolling agreements.
- Andrew W. Schilling to moderate "Expectations of in-house counsel from their law firm partners" at the ACI's 7th Annual Advanced Forum on False Claims and Qui Tam
- Buckley Webcast: Tips for navigating changes to the FHA recertification process
- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference
- Kari K. Hall and Michelle L. Rogers to discuss "Overdrafts and regulatory trends" at the CLE Alabama Banking Law Update
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the 17th Puerto Rican Symposium of Anti Money Laundering 2020 conference
- APPROVED Checkpoint Webcast: CFL overview
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference