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  • Broker to pay nearly $4 million to settle ADR mishandling claims

    Securities

    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.

    Securities American Depository Receipts SEC Enforcement Settlement

  • Kraninger discusses coordinated state supervision and enforcement efforts

    Federal Issues

    On December 10, in a speech before the National Association of Attorneys General Capital Forum, CFPB Director Kathy Kraninger discussed partnership with the states, as well as recent efforts between the Bureau and states in the areas of supervision and enforcement, including innovation policies. Kraninger also discussed the Bureau’s small dollar and debt collection rules. Noting that the Bureau will “effectively enforce the law to fulfill our consumer protection mission … after thoroughly reviewing the facts,” Kraninger recapped FY 2019 enforcement actions and settlements, which have resulted in more than $777 million in total consumer relief, which included over $600 million in consumer redress and more than $174 million in other relief. These actions, Kraninger stated, have resulted in more than $185 million in civil money penalties, not taking into account suspended amounts. Kraninger also highlighted several joint efforts with states and other agencies over the past year, including (i) a multi-agency action resolving a 2017 data breach (InfoBytes coverage here); (ii) a joint action with the New York Attorney General against a network of New York-based debt collectors that allegedly engaged in improper debt collection tactics (InfoBytes coverage here); (iii) a coordinated action with the Minnesota Attorney General’s Office, the North Carolina Department of Justice, and the Los Angeles City Attorney concerning a student loan debt relief operation (InfoBytes coverage here); and (iv) an action with the South Carolina Department of Consumer Affairs against an operation that offered high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments (InfoBytes coverage here).

    Kraninger also discussed the Bureau’s recently-announced American Consumer Financial Innovation Network (ACFIN), which is designed to enhance coordination among federal and state regulators to facilitate financial innovation. (InfoBytes coverage here). ACFIN currently includes nine state attorneys general and four state financial regulators. Kraninger noted that the Bureau is presently reviewing approximately 190,000 comments concerning proposed changes related to certain payday lending requirements and mandatory underwriting provisions (InfoBytes coverage here), as well as over 14,000 comments submitted in response to its Notice of Proposed Rulemaking issued in May concerning amendments to the debt collection rule (InfoBytes coverage here). Kraninger stressed that the Bureau plans to release a Supplemental Notice of Proposed Rulemaking “very early” in 2020, and will be “interested in practical and pragmatic ideas of how to make time-barred debt disclosures work.”

    Federal Issues CFPB Supervision Enforcement State Attorney General State Regulators Payday Lending Debt Collection

  • FTC obtains $191 million from for-profit school for deceptive ads

    Federal Issues

    On December 10, the FTC announced a settlement with a for-profit school and its parent company to resolve allegations that they employed deceptive advertisements in violation of the FTC Act that gave the impression that the school had relationships and job opportunities with various technology companies and tailored curricula to those jobs. In the complaint, the FTC claims the defendants relied upon false and misleading advertisements to attract prospective students that gave the impression that the school’s relationship with certain companies would create employment opportunities. In addition, the FTC alleges that while the defendants claimed the companies also worked with the school to develop its courses, in reality the partnerships were primarily marketing relationships that did not create jobs or curricula for the school’s students. Moreover, the FTC claims that some of these advertisements specifically targeted current and former military members and Hispanic consumers. Under the terms of the settlement, the school is required to pay $50 million in consumer redress and cancel approximately $141 million in student loan debts owed to the school by former students who first enrolled during the covered period.

    The FTC’s press release notes, however, that the “settlement will not affect student borrowers’ federal or private loan obligations,” and directs borrowers to the Department of Education’s income-driven repayment plans for guidance on lowering monthly payments. The FTC also states that borrowers who believe they may have been defrauded or deceived can apply for loan forgiveness through the Borrower Defense to Repayment procedures.

    Federal Issues FTC Enforcement FTC Act UDAP Advertisement Student Lending

  • FTC says British data analytics firm misled consumers about collection of personal information

    Federal Issues

    On December 6, the FTC issued an unanimous opinion against a British consulting and data analytics firm, finding that the firm violated the FTC Act by engaging in “deceptive practices to harvest personal information from tens of millions of [a social media company’s] users.” The information—which was allegedly collected through an application that told users it would not harvest identifiable information—was then used to target potential voters. The opinion also found that the firm engaged in deceptive practices relating to its participation in the EU-U.S. Privacy Shield framework. The opinion follows an administrative complaint issued against the firm in July (previously covered by InfoBytes here). Under the terms of the administrative final order, the firm is prohibited from misrepresenting “the extent to which it protects the privacy and confidentiality of personal information as well as its participation in the EU-U.S. Privacy Shield framework and other similar regulatory or standard-setting organizations,” and it must apply Privacy Shield protections to personal information collected during its participation in the program or return or delete the information. Among other things, the firm also must delete or destroy the personal information collected from consumers through the app, as well as any other information or work product that originated from the information.

    Federal Issues FTC Act Enforcement Privacy/Cyber Risk & Data Security UDAP Deceptive

  • Senate holds hearing on privacy law proposals

    Federal Issues

    On December 4, the Senate Commerce Committee held a hearing titled “Examining Legislative Proposals to Protect Consumer Data Privacy” to discuss how to “provide consumers with more security, transparency, choice, and control over personal information both online and offline.” Among the issues discussed at the hearing was how consumer privacy rights should be enforced. As previously covered by InfoBytes, some FTC commissioners, at a hearing earlier this year, expressed that authorization to enforce federal privacy laws should vest not only in the FTC, but also in the states’ attorneys general. At the Senate hearing, there was testimony suggesting that the FTC is spread too thin to be in charge of enforcing new privacy laws. At least one witness championed state privacy regulation, while other witnesses endorsed preemption of the state laws by the envisioned federal privacy law. Although different views were expressed regarding what the law should look like, the hearing participants generally seemed to agree that a federal privacy law may be needed now in light of recent state legislative agendas and, as one Senator raised, the growing use of artificial intelligence.

    Federal Issues Privacy/Cyber Risk & Data Security FTC U.S. Senate Hearing Preemption Enforcement

  • FDIC posts enforcement actions manual

    Agency Rule-Making & Guidance

    On December 2, the FDIC announced the release of its full enforcement manual (manual). According to Financial Institution Letter (see FIL-76-2019), the manual, which was posted to the FDIC website, is meant to “support the work of field office, regional office, and Washington office staff involved in processing and monitoring enforcement actions.” The letter states that the manual was released to promote “greater transparency” to FDIC-insured institutions and other concerned parties as to the agency’s enforcement policies and procedures. Additionally, the letter cautions that the manual “does not interpret any law or regulation” nor does it “establish supervisory requirements” or “industry guidance.”

    Agency Rule-Making & Guidance FDIC Banking Enforcement

  • OFAC announces settlement with company that allegedly processed payments for sanctioned entity

    Financial Crimes

    On November 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $466,912 civil settlement with a California-based technology company to resolve alleged violations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR). According to OFAC, the company voluntarily disclosed that it hosted a sanctioned Slovenian software developer on its platform and collected more than $1 million in payments from customers who downloaded the developer’s apps. The company’s actions—which included hosting, selling, and facilitating the transfer of the developer’s software and associated content, as well as processing 47 payments between 2015 and 2017—were in violation of the FNKSR because OFAC’s List of Specially Designated Nationals and Blocked Persons identified the developer as a significant foreign narcotics trafficker (SDNTK).

    In arriving at the settlement amount, OFAC considered various mitigating factors, including that (i) the company voluntarily disclosed the violations and continued to cooperate by promptly responding to information requests; (ii) the volume and payment amounts were not significant when compared to the company’s annual total volume of transactions; (iii) OFAC has not issued a violation against the company in the five years preceding the earliest date of the transactions at issue; and (iv) the company has strengthened its compliance program to minimize the risk of recurrence.

    OFAC also considered various aggravating factors, including that (i) the alleged conduct demonstrated a “reckless disregard for U.S. sanctions requirements”; (ii) the company’s processing of payments conferred a significant economic benefit to the developer; and (iii) the company failed to timely take corrective actions after identifying the developer as a SDNTK and continued to process payments.

    Financial Crimes Sanctions Of Interest to Non-US Persons Enforcement Department of Treasury OFAC

  • Kraninger hints at new consent order policy

    Federal Issues

    On November 22, in a speech at The Clearing House + Bank Policy Institute Annual Conference, CFPB Director Kathy Kraninger noted that the Bureau is considering changes to its consent order process to “ensur[e] consent orders remain in effect only as long as needed to achieve their desired effects.” Specifically, Kraninger discussed that while most consent orders are effective for five-year periods and companies can request early termination or termination of indefinite orders, the Bureau has only terminated “a few” consent orders in the past. Similar to the Bureau’s recent changes to its Civil Investigative Demand (CID) policy (covered by InfoBytes here), Kraninger stated that the Bureau intends to announce an updated consent order policy “soon,” in order to “provide clarity and consistency.”

    Federal Issues CFPB Enforcement Consent Order CIDs

  • Warren and Brown ask CFPB for breakdown on fair lending enforcement

    Federal Issues

    On November 25, Senators Elizabeth Warren (D-Mass) and Sherrod Brown (D-Ohio) wrote to CFPB Director Kathy Kraninger requesting a breakdown of how the Bureau enforces fair lending laws in light of recent allegations brought against a global financial services company that reportedly offered lower credit limits to women than to similarly creditworthy men. According to the Senators, the allegations raise questions as to whether a pattern of sex discrimination exists in the underwriting of the credit product and “underscore the importance of the CFPB adequately monitoring the lending practices of financial institutions . . . that are new to the consumer lending space.” The Senators also expressed concern that adjustments to the structure of the Bureau under President Trump’s administration have affected its “commitment to enforcing fair lending laws and carrying out its statutory responsibilities.” (Previous InfoBytes coverage here.) The Senators stated: “We’re concerned that this new structure, where many offices have varying degrees of authority, may allow new potentially discriminatory products to get to market without adequate oversight.” Specifically, the Senators asked the Bureau to respond to the following questions by December 9: (i) how does the Bureau “prioritize and evaluate risk when determining which financial institutions to examine for compliance with fair lending laws”; (ii) has the Bureau ever conducted a supervisory examination of the global financial services company’s fair lending compliance management system; (iii) have changes made to the Bureau’s structure affected its fair lending enforcement abilities; and (iv) are the Bureau’s standards used to determine violations of ECOA different under Director Kraninger. 

    Federal Issues CFPB U.S. Senate Fair Lending Enforcement

  • CFPB settles with two military loan companies

    Federal Issues

    On November 25, the CFPB announced a settlement with two companies that originated and serviced travel-related loans for military servicemembers and their families. According to the consent order with the lender and its principal, the lender (i) charged fees to customers who obtained financing, at a higher rate than those customers who paid in full, but failed to include the fee in the finance charge or APR; (ii) falsely quoted low monthly interest rates to customers over the phone; and (iii) failed to provide the required information about the terms of credit and the total of payments in violation of TILA and the TSR. The consent order prohibits future lending targeted to military consumers and requires the lender and its principal to pay a civil money penalty of $1. The order also imposes a suspended judgment of almost $3.5 million, based on an inability to pay.

    In its consent order against the servicer, the Bureau asserts the servicer engaged in deceptive practices by overcharging servicemembers for debt-cancellation products and, in violation of the FCRA’s implementing Regulation V, never established or maintained written policies and procedures regarding the accuracy of information furnished to credit reporting agencies. The consent order issues injunctive relief and requires the servicer to (i) pay a $25,000 civil money penalty; (ii) provide redress to consumers who were allegedly overcharged for the debt-cancellation product; (iii) pay over $54,000 in restitution to borrowers with no outstanding balance on their loans and issue additional account credits to borrowers with outstanding balances; and (iv) establish reasonable policies and procedures for accurate reporting to consumer reporting agencies.

    Federal Issues CFPB Military Lending Servicemembers TILA TSR CFPA FCRA Enforcement Settlement

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