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  • Federal Reserve hits bank for flood insurance violations

    Federal Issues

    On January 30, the Federal Reserve Board (Fed) announced an enforcement action against a New York-based bank for allegedly violating the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $36,500 civil money 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 for each violation. The consent order was signed by both the bank and the Fed on January 24.

     

    Federal Issues Federal Reserve Enforcement National Flood Insurance Act Regulation H Flood Insurance Consent Order

  • National bank to challenge CFPB on cards suit

    Federal Issues

    On January 30, the CFPB announced that it filed suit in the U.S. District Court for the District of Rhode Island against a national bank (defendant) based upon alleged violations of the Truth in Lending Act (TILA) and its implementing Regulation Z, the Fair Credit Billing Act (FCBA), and the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The CFPB claims that among other things, when servicing credit card accounts, the defendant did not properly manage consumer billing disputes for unauthorized card use and billing errors, and did not properly credit refunds to consumer accounts resulting from such disputes. Specifically, the complaint alleges that violations included the defendant’s (i) “practice of automatically denying billing error claims or claims of unauthorized use for failure of the consumers to provide Fraud Affidavits, including agreeing to testify as witnesses”; (ii) “failure to refund related finance charges and fees when it resolved billing error notices or claims of unauthorized use in consumers’ favor”; (iii) failure “to provide written notices of acknowledgement or denial in response to billing error notices”; and (iv) failure “to provide credit counseling referrals.” The CFPB is seeking injunctive relief, monetary relief, disgorgement of defendant’s ill-gotten gains, civil money penalties, and costs of the action.

    The defendant issued a response to the suit on January 31, stating that it self-identified the issues to the Bureau five years ago while simultaneously correcting any flawed processes. According to the defendant’s statement, “the CFPB’s action is misguided” and “well beyond the expiration of the statute of limitations. The defendant vows to “vigorously challenge” the suit.

    Federal Issues CFPB Courts Enforcement CARD Act TILA Regulation Z Fair Credit Billing Act Disgorgement Credit Cards Finance Charge Notice

  • Payday lender settles with North Carolina AG for $825,000

    State Issues

    On January 27, the North Carolina attorney general announced that a Florida-based payday lender (lender) agreed to pay $825,000 to settle allegations of usury, lending without a license, unlawful debt collection and unfair and deceptive practices in violation of state consumer protection laws. According to the announcement, though the lender was not licensed in the state, it advanced “more than 400 loans online to financially distressed North Carolina consumers at interest rates between 78 to 252 percent,” which is markedly higher than the state interest rate limit of 30 percent. The AG claimed that the lender tried to skirt North Carolina laws by requiring some borrowers to collect their loan funds outside of the state. The AG also alleged that the lender required borrowers to secure the loans with their vehicle titles, which enabled the lender to repossess and sell the borrowers’ vehicles when they defaulted or were late on payments. In the settlement, without admitting to the AG’s allegations, the lender agreed to return to North Carolina borrowers (i) all fees and interest paid on the loans by the borrowers; (ii) all the auction proceeds exceeding the loan principal to borrowers whose vehicles were repossessed and sold at auction; and (iii) cars owned by borrowers that were repossessed but not sold at auction. Among other things, the lender will also be permanently barred from making loans to, and collecting payments from, North Carolina borrowers, and is prohibited from putting liens on and repossessing vehicles owned by borrowers.

    State Issues State Regulation Payday Lending Consumer Protection Fintech Debt Collection Enforcement Usury Licensing UDAP State Attorney General Settlement Interest Rate Repossession

  • Appellate Court reverses and remands FACTA action

    Courts

    On January 22, the Illinois Appellate Court, Second District, reversed the dismissal for lack of standing of a FACTA class action brought on behalf of the class by two individuals (consumers) who claimed that an entertainment company (defendant) violated the act when it printed more than the last five digits of the consumers’ payment card number on their receipts. According to the opinion, the complaint alleged that the consumers made a number of purchases from the defendant, each time receiving sales receipts with the first six digits and the last four digits of the consumers’ debit card printed on each receipt. The consumers then filed a class action suit accusing the defendant of willful violation of FACTA, and further, of knowingly or recklessly failing to adhere to the acts’ prohibition against ‘“print[ing] more than the last 5 digits of the card or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.”’ The defendants first removed the action to federal district court, which granted the consumers’ motion to remand back to state court. The defendants then argued that: (i) the consumers lacked standing because they failed to allege an injury; and (ii) the consumers failed to allege facts showing a willful violation of FACTA. The lower court granted the defendant’s motion to dismiss as to standing on the first allegation, but did not consider the second allegation of willfulness, after which the consumers appealed.

    Upon appeal, the court reversed the lower court’s dismissal for lack of standing noting that unlike federal courts, Illinois circuit courts are vested with “jurisdiction to adjudicate all controversies,” and determined that the consumers did have standing to sue even without pleading actual injury, as an allegation of the violation was sufficient. The court stated that “when a person willfully fails to comply with FACTA’s truncation requirements, the statute provides a private cause of action for statutory damages and does not require a consumer to suffer actual damages before seeking recourse.” Additionally, the court decided that the consumers had alleged “sufficient facts” to show that defendant willfully violated FACTA. The panel remanded the case to the lower court to further consider the issues.

    Courts State Issues FACTA Enforcement Class Action Consumer Protection Appellate

  • Two whistleblowers earn SEC awards totaling $322,000

    Securities

    On January 22, the SEC announced that it had awarded a total of $322,000 to two whistleblowers in two separate enforcement actions. According to the SEC’s press release, the whistleblowers “played a crucial role in helping the Commission protect Main Street investors,” and “assisted the SEC in returning money to harmed investors.” One whistleblower provided information that reportedly helped the agency “shut down an ongoing fraudulent scheme that was preying on retail investors,” and was awarded $277,000 (see award order here). The other whistleblower, a harmed investor, assisted the agency to “shut down a fraudulent scheme targeting retail investors.” The whistleblower was awarded $45,000 (see award order here). Since 2012, the SEC whistleblower program has awarded roughly $387 million to 72 whistleblowers.

    Securities Agency Rule-Making & Guidance Whistleblower SEC Enforcement Regulator Enforcement

  • Illinois AG sues credit repair companies for deceptive practices

    State Issues

    On January 13, the Illinois attorney general announced that he filed two separate suits in the Circuit Court of Cook County against two credit repair companies and three individuals who allegedly engaged in deceptive and fraudulent practices when promoting credit repair services to consumers and collecting debts in violation of the Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organization Act, and the Collection Agency Act.

    In the first complaint, the AG alleges a credit repair agency is not registered in Illinois as a credit services organization, and that it, along with its owner, a co-defendant, has not filed the statutorily required $100,000 surety bond with the Secretary of State’s office. The AG’s complaint alleges that the company charges unlawful upfront fees while making false promises that it will increase consumers’ credit scores. When the defendants fail to live up to these promises, they subsequently refuse to refund the money that consumers paid for the credit repair services they did not receive.

    In the second complaint, the AG makes the same allegations against a different credit repair company, its owner, and a former employee. In addition, the second complaint also alleges that the company operates as a debt collection agency, but does not possess the requisite state license as a collection agency. Further, the complaint claims that, among other things, the defendants extract payments for “completely fabricated” payday loan debt from consumers who do not actually owe on the loans by using threats and other abusive and harassing collection tactics.

    The AG seeks a number of remedies including injunctive relief prohibiting all defendants from engaging in any credit repair business, and prohibiting the second company and its owner and employee from engaging in any debt collection business; rescission of consumer contracts; and restitution to all affected consumers.

    State Issues Courts Advertisement Enforcement State Attorney General Consumer Protection Fraud Credit Repair Licensing Restitution Rescission CROA Consumer Complaints Debt Collection

  • OCC fines bank on flood insurance

    Federal Issues

    On January 21, the OCC assessed a nearly $18 million civil money penalty against a national bank lender for alleged violations of the Flood Disaster Protection Act (FDPA). According to the OCC, the bank allegedly maintained FDPA policies and procedures which allowed the bank’s third-party servicer to extend the 45-day period after notification to the borrower that the flood insurance did not adequately cover the collateral. The OCC alleged that this resulted in the “untimely force placement of flood insurance” on loans secured by buildings or mobile homes located in special flood hazard areas. The bank agreed to pay the penalty without admitting or denying any wrongdoing.

    Federal Issues OCC Enforcement Flood Insurance Flood Disaster Protection Act Mortgages National Flood Insurance Program

  • FTC settles with credit repair companies

    Federal Issues

    On January 17, the FTC announced it had reached settlements with a number of defendants alleged to have operated “an unlawful credit repair scam that has deceived consumers across the country.” According to the FTC’s complaint, the defendants purportedly made false representations to consumers regarding their abilities to improve credit scores, falsely promised to remove any negative entries on the consumers’ credit reports, illegally collected upfront fees from consumers before the services were fully performed, and used threats and coercion to intimidate consumers from disputing charges. The FTC alleged these misleading statements and illegal actions violated TILA, the FTC Act, the Telemarketing Act, and the Credit Repair Organizations Act, among other things. Additionally, the FTC claimed that the defendants “routinely engage in electronic fund transfers from consumers’ bank accounts without obtaining proper authorization, and use remotely created checks to pay for credit repair services they have offered through a telemarketing campaign, in violation of the TSR.” The defendants, without admitting or denying the allegations, agreed to settlements that ban the defendants from offering credit repair services through “advertising, marketing, promoting, offering for sale, or selling,” impose a total monetary penalty of nearly $14 million, and require several defendants to turn over the contents of bank and merchant accounts as well as investment and cryptocurrency accounts. See the settlements here, here, and here.

    Federal Issues Agency Rule-Making & Guidance Settlement Enforcement FTC FTC Act TILA TSR CROA Telemarketing Sales Rule Telemarketing and Consumer Fraud and Abuse Prevention Act Credit Repair

  • OCC releases December enforcement actions

    Federal Issues

    On January 16, 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 formal agreements, prohibition orders, and terminations of existing enforcement actions against individuals and banks. Included among the actions is a formal agreement issued against an Illinois-based bank on December 18 for alleged unsafe or unsound practices relating to, among other things, consumer compliance. The agreement requires the bank to (i) establish a compliance committee to monitor the bank’s progress in complying with the agreement’s provisions; (ii) report such progress to the bank’s board on a quarterly basis; and (iii) implement a written consumer compliance program. This program must also include a policies and procedures manual that covers all consumer protection laws, rules, and regulations to which the bank should adhere, an independent audit program, and training of bank personnel in the consumer protection laws, rules, and regulations as appropriate.

    Federal Issues Agency Rule-Making & Guidance Bank Compliance Enforcement OCC

  • After settlement, six remain in FTC robocalling suit

    Federal Issues

    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.

    Federal Issues Robocalls FTC Telemarketing Sales Rule FTC Act Settlement Enforcement

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