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FTC Submits Annual Report on 2015 Enforcement Actions to CFPB
On June 6, the FTC announced that it submitted its 2015 Annual Financial Acts Enforcement Report to the CFPB. The report covers the FTC’s enforcement activities related to compliance with Regulation Z (TILA), Regulation M (Consumer Leasing Act or CLA), and Regulation E (Electronic Fund Transfer Act or EFTA), as well as the FTC’s related activities in rulemaking, research, policy development, and consumer/business education related to TILA. According to the report, the FTC’s enforcement efforts in 2015 concerning TILA involved mortgage-related credit and non-mortgage credit, including automobile purchases and financing, car title loans, payday lending, and consumer electronics financing. Regarding mortgage-related credit activity, the report highlights continued litigation involving mortgage assistance relief services/forensic audit scams: “[i]n these scams, mortgage assistance relief providers offer, for a substantial fee, to review or audit the mortgage documents of distressed homeowners to identify violations of TILA, Regulation Z, and other federal laws.” The report further noted that under Regulation M and as part of the FTC’s Operation Ruse Control sweep on the auto industry, the FTC issued five final administrative consent orders and one consent agreement for public comment. Finally, regarding the FTC’s enforcement activities related to compliance with the EFTA, the report states that four of the FTC’s seven cases involving the EFTA in 2015 arose in the context of “negative option” plans, where consumers agreed to a trial period in which they received certain goods or services for no additional charge or at a reduced price, but later incurred recurring charges due to failure to cancel before the trial period ended.
California AG Harris Continues Fight Against For-Profit Schools Allegedly Defrauding Consumers
On June 2, California AG Kamala Harris sent a letter to the U.S. Department of Education requesting that it revoke the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a recognized accreditor of for-profit schools. In the letter, AG Harris cited to state and federal enforcement actions taken against Corinthian Colleges, Inc. (Corinthian) – a non-profit school accredited by ACICS – for engaging in allegedly predatory and deceptive marketing practices. According to AG Harris, “ACICS failed to uphold their commitment ‘to the importance of a quality education experience for all students’ when they continued to accredit Corinthian campuses in the face of regulatory and enforcement actions.” AG Harris joins 13 other state Attorneys General in opposition to ACICS’s application for renewal as an accreditor. In a letter submitted to the Department of Education in April of this year, those 13 other state Attorneys General discussed similar alleged failings by ACICS in their respective states.
AG Harris’s recent letter comes after a February 25, 2016 statement requesting that the Department of Education revise its proposed regulations relating to debt relief for students affected by for-profit schools’ allegedly deceitful practices, and also follows the AG’s $1.1 billion judgment against Corinthian.
SEC Announces Stephen Cohen's Departure
On June 3, the SEC announced that Stephen L. Cohen, Associate Director of the Enforcement Division, plans to leave the agency later this month. Cohen joined the SEC in 2004 as the Assistant Chief Litigation Counsel in the Enforcement Division, served as a senior advisor to former SEC Chairman Mary Schapiro from 2009 to 2011, and was appointed Associate Director of Enforcement in 2011. Under Cohen’s direction, the SEC brought enforcement actions addressing a variety of market participants’ alleged violations of federal securities laws.
CFPB Takes Action Against Former Loan Officer for "Fee-Shifting" Practices, Alleges RESPA Violations
On May 26, the CFPB announced a consent order against a former mortgage loan originator of a San Francisco-based bank for allegedly violating Section 8(a) of the Real Estate Settlement Procedures Act (RESPA). The CFPB alleges that, from at least November 2013 through February 2015, the loan officer and an escrow company in California “engaged in a scheme in which they manipulated escrow fees, at [the loan officer’s] direction, by shifting them among loans in order to structure no-cost mortgage transactions.” The CFPB further contends that the loan officer referred settlement-services business for federally related mortgages to the escrow company in exchange for allowing him to dictate the escrow fees. According to the CFPB, the arrangement between the loan officer and the escrow company constituted providing a “thing of value” – prohibited under RESPA – because it allowed the officer to consistently deliver “no closing cost” loans to his clients, which “ultimately increased the number of loans he was able to close and, as a result, the commissions he earned.” The CFPB’s consent order imposes an $85,000 civil penalty and prohibits the loan officer from participating in the mortgage industry for one year.
FTC Releases 2015 Annual Highlights
On April 6, the FTC released its 2015 Annual Highlights report, which is comprised of four key sections: (i) enforcement; (ii) policy; (iii) education; and (iv) stats and data. Regarding enforcement highlights in 2015, the report covers a range of administrative and court actions related to, among other things, technological innovations that pose fraud and security risks, the security of consumers’ personal identifiable information, and alleged payday loan scams. Significant actions summarized in the enforcement section include the FTC’s (i) December settlement with a leading U.S.-based hotel and resort chain resolving charges that its data security practices were unfair and deceptive; (ii) Operation Ruse Control, a nationwide cross-border crackdown designed to protect consumers from alleged fraud within the auto industry; and (iii) Operation Collection Protection, a federal, state, and local initiative implemented to combat alleged abusive and deceptive debt collection practices. The policy and education sections of the report separately highlight the agency’s efforts to provide guidance and recommendations to government bodies and lawmakers at the state and federal levels regarding best practices for implementing competition principals into proposed laws, regulations, or policies, as well as its education outreach program, such as Start with Security, a conference designed to provide companies with tips for implementing effective data security. Notably, according to the stats and data section of the report, the FTC received more than three million consumer complaints in 2015, with debt collection, “other,” and identity theft leading the numbers at 897,655, 512,022, and 490,220 complaints, respectively.
OFAC Issues Finding of Violation for Alleged Violations of the Reporting, Procedures, and Penalties Regulations
On March 16, OFAC issued a Finding of Violation to a New York-based international digital payments solutions and technology company for allegedly violating the Reporting, Procedures and Penalties Regulations (RPPR), 31 C.F.R. part 501. According to OFAC, the company failed to report that it held accounts – albeit dormant – in which two Iranian banks on OFAC’s SDN List had an interest. OFAC asserted that, while no company personnel appeared to have knowledge of the conduct that led to the violations, the company had reason to know that it maintained funds associated with the sanctioned Iranian banks because it is “a large and commercially sophisticated company that deals primarily with banks and other financial institutions.” OFAC also noted that the company’s failure to report the accounts resulted in OFAC’s reports to Congress being incomplete, that the failure to record interest on the accounts reduced the value of the blocked accounts, and that the company apparently did not have internal controls sufficient to prevent or identify the violations. On the other hand, OFAC acknowledged that there was no actual knowledge of the violations or a history of similar violations, that the funds did not reach the sanctioned parties, and that the company eventually disclosed the issue and then fully cooperated with the investigation.
Massachusetts AG Healey Continues Subprime Auto Loan Review; Lenders to Pay $7.4 Million in Consumer Relief
On March 16, Massachusetts AG Maura Healey announced that two national auto lenders, based in South Carolina and California respectively, agreed to collectively pay $7.4 million in relief to more than two thousand Massachusetts consumers to resolve allegations that they charged excessive interest rates on subprime auto loans. Under the terms of the assurance of discontinuance, the companies will eliminate the alleged excessive interest on certain loans resulting from add-on GAP insurance coverage, forgive outstanding interest on the loans, and reimburse consumers that already paid interest. The South Carolina-based lender will pay approximately $1.7 million in relief to consumers, while the California-based lender will pay the remaining $5.7 million. The settlement agreements further require the lenders to pay $225,000 for implementation of the agreements and to undergo additional auditing to determine if other loans are subject to refunds.
These settlements are part of AG Healey’s subprime loan review initiative. In November 2015, as part of this initiative, AG Healey announced a $5.4 million settlement with a national auto lender to resolve allegations similarly related to the practice of charging inflated interest rates because of add-on GAP insurance coverage.
OCC Releases Bulletin Outlining BSA Noncompliance Enforcement Process
On February 29, the OCC released Bulletin 2016-6, supplementing information in Bulletin 2007-36, “BSA Enforcement Policy,” and rescinding Bulletin 205-45, “Process for Taking Administrative Enforcement Actions Against Banks Based on BSA Violations.” Applicable to OCC-supervised institutions, the bulletin describes the OCC’s enforcement process for banks’ noncompliance with BSA requirements and dealing with repeated or uncorrected BSA compliance problems. As outlined in the bulletin, this administrative enforcement process is comprised of four distinct parts: (i) notice and opportunity to respond, during which bank management has 15 days to respond to the OCC’s written notice regarding potential noncompliance; (ii) consideration of enforcement actions, when the OCC’s supervisory office and legal department reviews relevant materials and makes a recommendation to the OCC Supervision Review Committee, which then determines whether the OCC should pursue an enforcement action or if the determination should instead be delegated to the Senior Deputy Comptroller; (iii) initiation of BSA enforcement actions, at which point the bank receives the final letter or report of examination, a proposed cease-and-desist order, and notice regarding potential civil money penalties upon approval of the action; and (iv) coordination with other agencies, when the OCC notifies FinCEN of any informal and formal actions taken against the alleged perpetrator, and when the OCC ensures that all suspicious activity reports are filed and coordinated with other appropriate law enforcement agencies.
Medical Device Subsidiary Agrees to DPA with DOJ Related to Health Care Bribes
On March 1, a Miami-based medical device company entered into a deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA and violating the FCPA in connection with improper payments and benefits to health care practitioners at government-owned facilities in Central and South America. The company, which is a majority-owned subsidiary of the United States’ largest distributor of endoscopes and related medical equipment, agreed to pay a $22.8 million penalty and admitted its criminal conduct.
According to the company’s admissions, from 2006 through August 2011, it “designed and implemented a plan to increase medical equipment sales in Central and South America by providing personal benefits, including cash, money transfers, [ ] travel, free or heavily discounted equipment, and other things of value to certain health care practitioners” employed at government-owned health care facilities. The improper payments totaled nearly $3 million, which resulted in the recognition of more than $7.5 million in profits.
Under the terms of the DPA, the DOJ will defer criminal prosecution for a period of three years and the company will appoint a compliance monitor and implement numerous compliance measures. In reaching the resolution, the DOJ gave the company a 20 percent reduction on its penalty as a result of its cooperation, which included “conducting an extensive internal investigation, translating documents, and collecting, analyzing, and organizing voluminous evidence and information.” However, in assessing the penalty, the DOJ noted that the company did not voluntarily disclose the misconduct in a timely manner.
CFPB Announces Actions against New York-Based Financial Institution and Debt Collection Law Firms
On February 23, the CFPB announced two separate actions, one against a New York-based financial institution and another against the same financial institution, two of its affiliates, and two debt collection law firms, alleging that the respondents’ debt sales and debt collection practices constituted unfair or deceptive acts or practices under the CFPA. In the first action, the CFPB asserted that, between 2010 and 2012, the financial institution “failed to identify and timely remit to Debt Buyers over 9,500 payments totaling $701,000 made by Consumers to Respondent relating to accounts Respondent sold.” The CFPB further alleged that, between February 2012 and June 2013, the financial institution overstated the APR information in sales files, ultimately providing debt buyers with inaccurate APR data. As a result, the Bureau claimed that consumers “likely made payments based on Debt Buyers’ misstatements about the amount owed on their Accounts, and were likely subjected to inaccurate credit reporting and to collection efforts by Debt Buyers when the Consumers had already paid off their Accounts.” In addition to $4.89 million in redress to impacted consumers and $3 million in civil money penalties to the CFPB, the consent order requires the financial institution to enhance its processes, systems, and controls so that they (i) ensure accurate documentation of the financial institution’s debt sales; (ii) prevent the financial institution from selling debt that is undocumented, unverifiable, or within 150 days of the expiration of any applicable statute of limitations; (iii) include provisions in the financial institution’s debt sales contracts that require debt buyers to send borrowers debt validation notices and prohibit debt buyers from reselling debt or collecting post-sale interest on debt except under certain limited circumstances; (iv) require that the financial institution provide consumers with information about their debt, including the name of the original creditor, the credit agreement, and recent account statements; (v) ensure that the financial institution timely forwards consumer payments on sold accounts; and (vi) ensure that the financial institution provides training to employees and service providers on the enhancements to its processes, systems, and controls.
In a separate action, the CFPB issued consent orders to the same financial institution, two of its affiliates, and two debt collection law firms, because the law firms altered affidavits, sworn statements, certifications of proof, and other such declarations (collectively “declarations”) after their execution and then filed those declarations with New Jersey courts. In May 2011, the financial institution discovered the law firms’ conduct and self-reported it to the New Jersey Courts Administration. In response, the Superior Court of New Jersey ordered the financial institution and its affiliates to refund $11 million to impacted consumers and to cease collection efforts on an additional $34 million in debts. Citing to its 2013 Responsible Business Conduct Compliance Bulletin, the CFPB has opted not to impose civil money penalties against either the financial institution or its affiliates. However, the Bureau is requiring, among other things, that the financial institution and its affiliates fully comply with the New Jersey state court order and enhance their oversight and compliance management systems surrounding the execution of declarations. In contrast, the consent orders that the CFPB entered into with the debt collection law firms impose civil money penalties of $15,000 on one firm and $65,000 on the other.