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OCC fines bank on flood insurance
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.
FTC settles with credit repair companies
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.
OCC releases December enforcement actions
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.
After settlement, six remain in FTC robocalling suit
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.
CFPB denies petitioner’s request to postpone CID pending Seila decision
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.
Senate Democrats ask IG to investigate CFPB restitution penalties
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.”
ISP pays $15 million to settle with two more states on hidden fees and false advertising
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.
Fed issues enforcement order for BSA/AML compliance
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.
New York proposes state-level increase in consumer finance oversight
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.
District Court stays proceedings in structured settlement case pending outcome of Seila Law
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.”