Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • CFTC Director of Enforcement Offers Incentives to Regulated Companies for Self-Reporting and Cooperation

    Securities

    On September 25, the U.S. Commodity Futures Trading Commission Director of the Division of Enforcement James McDonald spoke before the New York University Institute for Corporate Governance & Finance to address the Division’s priorities and outline its self-reporting and cooperation program. Director McDonald described the Division’s enforcement actions as part of a “broader mission to facilitate healthy, robust, and resilient markets,” with the goal of deterring misconduct. “Optimal deterrence,” he stressed, requires receiving buy-in from regulated companies and financial institutions, which is the premise of the Division’s cooperation and self-reporting program. The Division’s program requires companies to comply with three specific criteria: (i) voluntarily report wrongdoing to the Division in a timely and fully disclosed manner prior to the announcement of a government investigation; (ii) proactively cooperate with the Division throughout the investigation; and (iii) engage in timely and appropriate remedial measures to prevent future misconduct, and implement fixes to internal compliance and control programs. Should a company follow these steps, Director McDonald stated, the Division “will recommend a substantial reduction in the penalty,” and in “extraordinary circumstances . . . may recommend declining to prosecute a case.”

    Securities Agency Rule-Making & Guidance CFTC Enforcement Financial Institutions Compliance

  • Massachusetts AG Takes Action Against Auto Dealer for Deceptive Marketing and Sales Tactics

    Lending

    On September 26, Massachusetts Attorney General Maura Healey announced a lawsuit against a large auto dealership and its in-house lender for allegedly misleading consumers into purchasing unfavorable sale packages. According to the Commonwealth’s complaint, filed in the Suffolk County Superior Court, the auto dealer purportedly (i) sold consumers cars priced at more than double their retail value; (ii) extended loans to consumers with an APR of 20 percent, regardless of credit qualifications; and (iii) combined these sales with an expensive and limited service contract. The complaint further alleges that because of these sales practices and a faulty underwriting process, more than half of the auto dealer’s sales fail or end in repossession. The complaint seeks injunctive relief, restitution, civil penalties, and attorney fees.

    Lending State Attorney General UDAAP Auto Finance Enforcement Predatory Lending

  • SEC Announces Two Enforcement Initiatives Designed to Combat Cyber Threats

    Privacy, Cyber Risk & Data Security

    On September 25, the SEC announced the expansion of its Enforcement Division’s focus on cyber-related misconduct with the creation of a Cyber Unit and a Retail Strategy Task Force. The Cyber Unit will focus on areas such as (i) market manipulation schemes involving electronically-transferred false information; (ii) data breaches intended to obtain nonpublic information; (iii) distributed ledger technology and initial coin offering violations; (iv) misconduct through the use of the dark web; (v) retail brokerage account intrusions; and (vi) cyber-related threats targeting trading platforms and other critical market infrastructures. The Cyber Unit will complement the SEC’s internal assessment of its cybersecurity risk profile. (See previous InfoBytes coverage here.) The goal of the Retail Strategy Task Force will be to “develop proactive, targeted initiatives to identify misconduct impacting retail investors [and] apply the lessons learned from those cases and leverage data analytics and technology to identify large-scale misconduct affecting retail investors.”

    Privacy/Cyber Risk & Data Security Digital Assets SEC Enforcement Fintech Distributed Ledger Initial Coin Offerings Retail Banking

  • NYDFS Announces Settlement to Provide Restitution and Loan Forgiveness to Consumers Affected by Payday Lending Practices

    Consumer Finance

    On September 25, New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo announced the Department had entered into a consent order with a payday loan debt collector and payday loan servicer (together, “defendants”) for allegedly collecting on illegal payday loans made to New York consumers between 2011 to 2014. Payday lending, according to NYDFS’ press release, is illegal in the state, and debt collectors who “collect or attempt to collect outstanding payments from New Yorkers on payday loans violate debt collection laws.” The consent order notes that in 2013, NYDFS circulated a guidance letter to all debt collectors operating in the state to remind them that usurious loans made by non-bank lenders with interest rates exceeding the statutory maximum—and the attempts to collect debts on these types of loans—are “void and unenforceable and violate state and federal law.” However, one of the defendants continued to collect on payday loans for more than a year. The alleged actions, NYDFS asserted, are violations of the Fair Debt Collection Procedures Act, New York Debt Collection Procedures Law, and New York General Business Law.

    Pursuant to the consent order, which includes a notice letter to be sent to affected consumers, the debt collector defendant must comply with the following: (i) cease all collection on payday loans in New York; (ii) release and discharge more than $11.8 million in outstanding applicable payday loan debts; (iii) move to vacate any judgments obtained on payday loan accounts; and (iv) “[r]elease any pending garnishments, levies, liens, restraining notices, or attachments relating to any judgments on New Yorkers’ payday loan accounts.” The loan servicer defendant must close any pending accounts in the state and cease communications with consumers regarding their accounts.

    Consumer Finance State Issues NYDFS Enforcement Settlement Payday Lending Debt Collection FDCPA

  • CFTC Files Anti-Fraud Enforcement Action Against New York-Based Corporation Concerning Bitcoin Investments

    Courts

    On September 21, the U.S. Commodity Futures Trading Commission (CFTC) filed a complaint in the U.S. District Court for the Southern District of New York against a New York-based corporation and its CEO (defendants) for allegedly engaging in fraudulent acts and practices in violation of the Commodity Exchange Act and CFTC Regulations by issuing false account statements in connection with Bitcoin investment solicitations. According to the complaint, the “Bitcoin Ponzi scheme” solicited more than $600,000 from approximately 80 customers to be placed in a pooled fund, executed by the defendants’ computer program called “Jigsaw,” which traded the virtual currency. The CFTC alleges that defendants’ strategy was fake and the “purported performance reports” were false in that they created the appearance of positive Bitcoin trading increases, but the gains were “illusory.” The CFTC further asserts that the “payouts of supposed profits to [pool participants] in actuality consisted of other customers’ misappropriated funds.” In addition, the CFTC alleges that defendants orchestrated a “fake computer ‘hack’” to conceal the scheme. The suit seeks, among other things, disgorgement of profits, civil monetary penalties, restitution, and a ban on commodities trading for the defendants.

    Courts Bitcoin Litigation Enforcement Virtual Currency Fraud CFTC

  • DOJ Announces Settlement With Financial Institution Over Alleged SCRA Violations Concerning Auto Repossessions

    Consumer Finance

    On September 18, the DOJ announced a settlement with a large financial institution resolving allegations that the financial institution had illegally repossessed 164 active-duty servicemembers’ vehicles without first obtaining necessary court orders in violation of the Servicemembers Civil Relief Act (SCRA). The DOJ filed its complaint against the financial institution in the U.S. District Court for the Northern District of Texas the same day the settlement agreement was reached. According to the complaint, the financial institution repossessed the vehicles between 2007 and 2010, when it completed the sale of its automobile lending and servicing arm to a different company. As part of a separate enforcement action against the company that acquired the accounts, the DOJ discovered that the financial institution allegedly violated the SCRA by arranging “for the physical repossession of the automobile and later [selling] the account to [the new company], which attempted to collect fees relating to the unlawful repossession.” Further, the complaint alleges that the financial institution conducted repossessions without SCRA-required court orders, even though the company possessed information “in its own records suggesting that a borrower could be a SCRA-protected servicemember,” or knew that “the borrower was in military service or had received orders to report for military service” and “nevertheless continued repossession efforts and eventually succeeded in repossessing the [servicemembers’] vehicles.”

    While the financial institution has denied the allegations, it agreed to compensate affected servicemembers $907,000, 163 of whom are to receive $5,000 each, in addition to the $5,000 previously received as partial compensation from a separate settlement the DOJ reached with the company that acquired the accounts. The remaining impacted servicemember, who did not receive partial compensation, will receive $10,000 from the escrow account. All 164 servicemembers will also receive $500 for “lost equity” and accrued interest. In addition, the financial institution must provide credit repair relief to each affected servicemember and any co-borrowers, and are required to cooperate with an “Independent Settlement Administrator” who will monitor compliance. Further, should the financial institution resume originating or servicing automobile loans, it is required to provide notice to the DOJ every six months of any SCRA or military-related complaint.

    Consumer Finance DOJ Enforcement Settlement SCRA Auto Finance

  • House Financial Services Committee Issues Second Interim Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation

    Federal Issues

    On September 19, the Majority Committee Staff of the House Financial Services Committee (Committee) released a second interim report and supporting documents on the investigation of the role the CFPB played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the first interim report, issued June 6, accused Director Richard Cordray, among other things, of failing to cooperate with the Committee’s “comprehensive investigation.” The second interim report claims the CFPB and Director Cordray failed to comply with the Committee’s repeated requests for documents related to the investigation into the bank’s practices, never conducted its own independent investigation (but, instead, “relied primarily, if not exclusively,” on a third party report), and withheld a crucial Recommendation Memorandum from the Committee for over a year that disclosed analysis of the legal and factual components of the Bureau’s investigation, as well as an evaluation of whether to enter into a settlement. The Committee’s accusations also include claims that Director Cordray allegedly misled Congress about the agency's investigation into the bank’s illegal sales practices and may have “rushed” a settlement with the bank, which resulted in a $100 million fine when it was potentially liable for a statutory civil monetary penalty exceeding $10 billion. Chairman Jeb Hensarling (R-Tex.) said in a press release that “[t]he premature suspension of its investigation means that the CFPB also potentially lost the opportunity to discover recently revealed instances of further consumer harm.”

    Federal Issues CFPB House Financial Services Committee Settlement Enforcement Fraud Investigations

  • CFPB Files Complaint Against Company that Allegedly Made False Loan Offers

    Consumer Finance

    On September 19, the CFPB announced it had filed a complaint in the U.S. District Court for the Southern District of New York against a New Jersey-based company and two associated individuals (defendants) that allegedly offered loans to consumers who were awaiting payouts from legal settlements or statutory- or victim-compensation funds. According to the complaint, the company engaged in deceptive acts and practices in violation of the Consumer Financial Protection Act by purportedly representing itself as a direct lender, when in actuality it did not provide loans to consumers, but instead brokered transactions while charging a commission for the service. Among other things, the defendants allegedly (i) misrepresented the annual percentage rates (APR) on the advances given to consumers, often representing that interest rates were as small as one to two percent when the actual APR was much higher; (ii) falsely claimed that it had offices in all 50 states and employed a staff of accounting, financial, and legal professionals; and (iii) misled consumers by stating in their marketing materials that consumers could receive loan proceeds within one hour, when the process took longer.

    According to the proposed final judgment and order, which must be approved by the district court, the defendants shall be banned from offering these types of loans or advances to consumers in the future. In addition, the company and the owner—who was responsible for decision-making and operations—are jointly liable for a $60,000 civil money penalty to the CFPB. The second individual—who was responsible for recruiting consumers through marketing materials and websites—must pay a $10,000 civil money penalty to the CFPB. The Bureau noted in the announcement that the low penalties take into account the defendants’ inability to pay greater amounts.

    Consumer Finance CFPB Enforcement Lending UDAAP CFPA

  • Data Breach Fallout Continues: Lawsuit Filed by Massachusetts AG, NYDFS Cybersecurity Regulation to Possibly Include Credit Reporting Agencies, and Joint Letter Sent From 34 States Requesting Fee-Based Credit Monitoring Service Be Disabled

    Privacy, Cyber Risk & Data Security

    The impact from the September 7 announcement that a major credit reporting agency suffered a data breach continues to be far reaching. On September 15, the agency issued a press release announcing additional information concerning its internal investigation, as well as responses to consumer concerns about arbitration and class-action waiver provisions in the Terms of Use applicable to its support package and regarding security freezes.

    Massachusetts AG Lawsuit. On September 19, Massachusetts Attorney General Maura Healey announced it had filed the first enforcement action in the nation against the credit reporting agency. The complaint, filed in Massachusetts Superior Court, alleges that the agency ignored cybersecurity vulnerabilities for months before the breach occurred and claims that the agency could have prevented the data breach had it “implemented and maintained reasonable safeguards, consistent with representations made to the public in its privacy policies, industry standards, and the requirements of [the Massachusetts Data Security Regulations],” which went into effect March 1, 2010. The failure to secure the consumer information in its possession, the complaint asserts, constitutes an “egregious violation of Massachusetts consumer protection and data privacy laws.” Causes of action under the complaint arise from (i) the agency’s failure to provide prompt notice to the commonwealth or the public; (ii) the agency’s failure to safeguard consumers’ personal information; and (iii) the agency engaging in unfair or deceptive acts or practices under Massachusetts law. The commonwealth seeks, among other things, civil penalties, disgorgement of profits, and restitution.

    NYDFS Cybersecurity Regulation. On September 18, New York Governor Andrew M. Cuomo directed NYDFS to issue a proposed regulation that would expand the state’s “first-in-the-nation” cybersecurity standard to include credit reporting agencies and to require the agencies to register with NYDFS. The annual reporting obligation would, according to a press release issued by NYDFS, grant it the authority to deny or revoke a credit reporting agency’s authorization to do business with New York’s regulated financial institutions should the agency be found in violation of certain prohibited activities, including engaging in unfair, deceptive or predatory practices. Under the proposed regulation, credit reporting agencies would be subject to compliance examinations by NYDFS, would be required to initially register with NYDFS by February 1, 2018 and annually thereafter, and would be required to comply with cybersecurity regulations starting on April 4, 2018, in accordance with a phased-in compliance schedule. On the same day, NYDFS issued a separate press release urging New York state chartered and licensed financial institutions to take immediate action to protect consumers in light of the recent credit reporting agency data breach. The guidance presented in the release by the NYDFS is provided in conjunction with the state’s cybersecurity regulations.

    State Attorneys General Request. On September 15, a letter co-authored by 34 state attorneys general was sent to the credit reporting agency’s legal counsel. The letter expresses concern over the agency’s conduct since the disclosure of the breach, including the offer of both fee-based and a free credit monitoring services, the waiver of certain consumer rights under the agency’s terms of service, and the charges incurred by consumers for a security freeze with other credit monitoring companies. Specifically, the attorneys general objected to the agency “using its own data breach as an opportunity to sell services to breach victims,” and argued that “[s]elling a fee-based product that competes with [the agency’s] own free offer of credit monitoring services to [data breach victims] is unfair, particularly if consumers are not sure if their information was compromised.” Accordingly, the letter requests that the agency temporarily disable links to fee-based services and extend the offer of free services until at least January 31, 2018. Further, the letter also expresses concern that consumers must pay for a security freeze with other credit monitoring companies and states that the agency should reimburse consumers who incur fees to completely freeze their credit.

    Privacy/Cyber Risk & Data Security Credit Reporting Agency State Attorney General NYDFS Enforcement Data Breach Security Freeze 23 NYCRR Part 500

  • CFPB Takes Action Against Delaware Trusts, Debt Collector for Allegedly Filing Illegal Student Loan Debt Collection Lawsuits

    Consumer Finance

    On September 18, the CFPB announced it had filed a complaint in the U.S. District Court for the District of Delaware against a collection of 15 Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. According to the CFPB, between 2001 and 2007, the trusts bought and securitized more than 800,000 private student loans, while the trusts contracted with the debt collector to collect on delinquent and defaulted loans. The complaint alleges that the trusts and debt collector engaged in deceptive and unfair practices between November 2012 and the end of April 2016 by: (i) filing false and misleading affidavits, including more than 25,000 affidavits that were notarized by notaries who had not witnessed the documents being signed; (ii) filing at least 2,000 suits to collect loans without the necessary documentation to show that the trusts owned the loans or to prove that a debt was owed; (iii) filing at least 486 collection suits after the statute of limitations had expired; and (iv) in some instances, providing court testimony consistent with the false affidavit statements. As a result, the trusts and the debt collector allegedly obtained over $21.7 million in judgments against consumers and collected an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested.

    According to the proposed consent judgment, which must be approved by a judge in the district court, the trusts are required to pay at least $3.5 million in restitution to more than 2,000 consumers who made payments resulting from the improper collection suits, to pay $7.8 million in disgorgement to the Treasury Department, and to pay an additional $7.8 million civil money penalty to the CFPB. In addition, the trusts must: (i) hire an independent auditor, subject to the Bureau’s approval, to audit all 800,000 student loans in the portfolio to determine if collection efforts must be stopped on additional accounts; (ii) cease collection attempts on loans that lack proper documentation or that are time-barred; and (iii) ensure false or misleading documents are not filed and that documents requiring notarization are handled properly.

    A separate consent order issued against the debt collector orders the company to pay a $2.5 million civil money penalty to the CFPB.

    Consumer Finance CFPB Student Lending Debt Collection Enforcement

Pages

Upcoming Events