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  • New York AG Schneiderman Takes Action Against Auto Dealers for Deceptive Practices

    Consumer Finance

    On January 20, New York AG Schneiderman announced a lawsuit against several auto dealerships located in Queens, New York, alleging that the dealerships used deceptive sales tactics to sell add-on products and services, including credit repair and identity theft protection services. According to the lawsuit, the dealerships charged “consumers for services while concealing such charges from the consumers, or [misrepresented] that the services were free,” collecting more than $1 million from consumers between January 2013 and November 2014 for the identity theft and credit repair services alone. The lawsuit further alleges that consumers did not receive the services for which they were charged, including VIN etching and key replacement services. AG Schneiderman alleges these products and services were “bundled into the vehicle sales price and not separately itemized,” ultimately inflating the stated price of the car on the purchase and lease documents. The lawsuit seeks a court order that would (i) prohibit the dealerships from engaging in deceptive practices; and (ii) order the dealerships to refund “all illegally obtained overcharges” back to consumers.

    As part of his initiative to end dealerships’ practices of charging consumers for “hidden purchases,” AG Schneiderman simultaneously announced separate settlements with dealerships in Nassau and Suffolk Counties that allegedly sold credit repair and identity theft protection services to consumers. This is in addition to similar 2015 settlements with a “credit repair and identity theft protection” company and a group of dealerships in Queens and Westchester Counties, the latter potentially totaling $14 million.

    State Attorney General Auto Finance Enforcement

  • CFPB Takes Action Against Colorado-Based "Buy-Here Pay-Here" Auto Dealer

    Consumer Finance

    On January 21, the CFPB filed a consent order to resolve allegations that a Colorado-based subprime auto dealer violated the TILA and the CFPA by engaging in abusive financing and marketing schemes. Specifically, the CFPB alleged that, from January 2012 through May 2014, the auto dealer (i) failed to make purchase prices available to credit consumers until the very end of the transaction; (ii) hid finance charges and improperly disclosed the resulting APRs; (iii) refused to negotiate car prices with credit consumers; and (iv) used abusive marketing tactics by failing to disclose to purchasers the “complete and accurate credit terms” of the automobile financing. The CFPB’s consent order requires the auto dealer to (i) pay $700,000 in redress to consumers affected by its practices; (ii) clearly and prominently post the purchase price on all automobiles; (iii) stop misrepresenting interest rates, finance charges, amounts financed, other credit terms, or any other fact material to the financing of a motor vehicle; and (iv) disclose in writing to the consumer information concerning the terms of the financing offer (including the APR), the purchase price of the car, the total number of payments required before the consumer owns the car, and the duration of the purchase financing contract. The CFPB suspended its civil money penalty of $100,000 as long as redress is paid.

    CFPB Auto Finance Enforcement

  • Oil and Gas Company Files Lawsuit Against Drilling Partners Challenging Post-FCPA Settlement Reticence

    Federal Issues

    On January 11, a Houston-based oil and gas company filed suit in the U.S. District Court for the Southern District of Texas against its drilling partners in the company’s Guinean operations. The company claims that the drilling partners have unjustly delayed performing the work called for by their operating agreement because of uncertainty over whether the government of Guinea would terminate its drilling agreement with the company in light of the FCPA investigation into the company. That investigation was resolved by a declination letter issued by DOJ in May 2015 and a settlement with the SEC in October 2015. (See previous InfoBytes coverage of that investigation here and here.) The company is seeking a ruling that the drilling partners are in violation of the operating agreement and an order forcing them to fulfill their obligations.

    In a November 2015 SEC filing, the company reported a complete lack of operating revenue and warned that further delays in fulfilling requirements imposed by the government of Guinea could result in a loss of the company’s concession to drill in the country. This case illustrates the potential business risks posed by an FCPA investigation—even if it is resolved on relatively favorable terms.

    FCPA SEC DOJ Enforcement

  • FTC and Florida AG Take Action Against Payment Processing Operation

    Consumer Finance

    On January 8, the FTC and Florida Attorney General Pam Bondi announced an amended complaint against a California-based processing sales organization, its three executives, and three telemarketing company owners (collectively “the defendants”) for alleged violations of the (i) Telemarketing and Consumer Fraud and Abuse Protection Act; (ii) the FTC Act; (iii) the FTC’s Telemarking Sales Rule; and (iv) the Florida Deceptive and Unfair Trade Practices Act. According to the complaint, the defendants operated a nation-wide debt relief scam by cold calling consumers and making false promises that they could “reduce consumers’ interest rates on their credit cards, save consumers thousands of dollars in a short time period, and refund consumers’ money if the promised savings were not realized.” The FTC and AG Bondi allege that, from at least November 2012 to October 2014, the defendants solicited at least 26 “‘straw men’” to act as signatories on “shell businesses and dummy merchant accounts” that were used to process consumer credit card payments. The FTC is seeking injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, the disgorgement or ill-gotten monies, and other equitable relief; Florida AG Bondi is seeking injunctive relief, restitution, costs and attorneys’ fees, as well as other equitable relief.

    FTC State Attorney General Enforcement Telemarketing Sales Rule

  • FTC Announces New Enforcement Actions Under the Operation Collection Protection Initiative

    Consumer Finance

    On January 7, the FTC announced four separate actions under its Operation Collection Protection initiative against collectors allegedly engaging in abusive and deceptive debt collection practices. It also announced that other federal and state law enforcement officials have taken 12 more actions as part of the initiative. The FTC’s actions targeted the following practices: (i) impersonating investigators, law enforcement agencies, or process servers; (ii) threatening consumers with arrest, lawsuits, or wage garnishment for nonpayment; (iii) failing to inform consumers of the amount of debt and the creditor’s name, as well as their right to dispute the alleged debt, as required by the FDCPA; and (iv) collecting on debts that consumers did not owe. The four actions, each with a separate set of defendants, include the following:

     

     

    This brings the Operation Collection Protection initiative to a total of 130 actions with more than 70 law enforcement agencies participating in the last year.

    FTC State Attorney General Debt Collection Enforcement

  • FTC Announces Settlements with Online Payday Lenders Over Alleged Violations of TILA and EFTA

    Consumer Finance

    On January 5, the FTC announced separate settlements with two online payday lenders to resolve charges dating back to April 2012 that the defendants violated TILA, the Federal Trade Commission Act (FTC Act), and the Electronic Fund Transfer Act (EFTA). According to the FTC, the defendants (i) violated TILA by failing to accurately disclose information regarding the loan terms, such as the finance charge, annual percentage rate, payment schedule, and the total of payments; (ii) violated the FTC Act’s prohibition on deceptive acts or practices by misrepresenting how much loans would cost consumers; and (iii) violated the EFTA by conditioning extension of credit to consumers on the consumers’ repayment by preauthorized debits from their bank accounts. In addition to prohibiting the defendants from engaging in practices that violate the TILA and EFTA, the FTC’s final orders require the defendants to each pay $2.2 million and collectively waive $68 million in uncollected fees to consumers. Combined with other settlements, the FTC has recovered approximately $25.5 million in connection with its case against several payday lending companies and related individuals.

    FTC Payday Lending TILA Enforcement Electronic Fund Transfer

  • CFPB Announces Proposed Consent Order with Debt Collection Law Firm

    Consumer Finance

    On December 28, the CFPB filed a proposed consent order to resolve allegations that a Georgia-based law firm operated a debt-collection lawsuit mill by collecting millions of dollars from consumers who may not have owed the debts in the amounts claimed, or may not have owed debts at all. According to the July 2014 complaint, the firm violated the FDCPA and engaged in unfair and deceptive practices by (i) intimidating consumers through the use of automatically-filed lawsuits that did not involve attorneys; and (ii) using sworn statements from its clients to support its lawsuits, even though the signers could not have known the details to which they were attesting. The CFPB’s proposed consent order would prohibit the firm and its partners from (i) filing lawsuits or threatening to sue to enforce debts unless they are able to prove, through specific documentation, that the debt is enforceable; (ii) filing or threatening lawsuits unless specific documentation regarding a consumer’s debt was reviewed by an attorney; and (iii) using affidavits as evidence to collect debts unless the signer’s knowledge of the facts and the documents are specifically and accurately described in the statements. The proposed order also seeks a $3.1 million civil money penalty.

    CFPB FDCPA Debt Collection Enforcement

  • FDIC and Federal Reserve Announce Settlement with Connecticut-Based Financial Aid Company Over Deceptive Practices

    Consumer Finance

    On December 23, the FDIC announced separate settlements with a Connecticut-based financial aid company and an affiliated Utah-based bank for alleged deceptive practices in violation of the FTC Act. Separately, the Federal Reserve announced a settlement solely with the Connecticut-based company for allegedly violating the FTC Act by employing deceptive practices. The company provides financial aid disbursements to higher education institutions for its students. According to the agencies, the company omitted material facts about its financial aid disbursement business, such as: (i) details about alternative disbursement methods available to students; (ii) a full and complete fee schedule; and (iii) information regarding the locations of fee-free ATMs. In addition, the agencies alleged that the company prominently displayed school logos, suggesting to students that schools had endorsed its refund product.

    The FDIC’s orders against the company and the bank require each to pay a civil money penalty of $2.23 million and $1.75 million, respectively. In addition, the company and the bank together will pay approximately $31 million in restitution to roughly 900,000 consumers. Under the terms of the Federal Reserve’s order, the company will: (i) pay approximately $24 million in restitution to an estimated 570,000 consumers; (ii) pay a civil money penalty of more than $2 million; (iii) adopt a consumer compliance risk-management program; and (iv) refrain from future violations of section 5 of the FTC Act.

    FDIC Federal Reserve Student Lending UDAAP Enforcement Settlement

  • FinCEN Settles with Card Club Gaming Establishment for BSA Violations

    Consumer Finance

    On December 17, FinCEN announced a $650,000 settlement with a “card club” gaming establishment in California for willfully violating the program and reporting requirements of the Bank Secrecy Act (BSA). The gaming establishment allegedly trained its staff using misleading and inaccurate AML policy, which either failed to provide instructions at all, or provided incorrect instructions regarding the establishment’s obligations and reporting requirements under the BSA. As an example, the establishment “encouraged employees to provide notice to patrons if they were about to conduct a cash transaction that would put them over the $10,000 threshold for the filing of a Currency Transaction Report, thereby possibly encouraging structured transactions.” In addition, since the establishment’s policy did not contain instructions regarding when an employee should file a Suspicious Activity Report (“SAR”), it failed to file SARs in 2009 and 2010. Card clubs are gaming facilities that generally host only games involving cards; like casinos, card clubs are defined as financial institutions under the BSA, rendering them subject to FinCEN’s rules and regulatory authority.

    Anti-Money Laundering FinCEN Bank Secrecy Act Enforcement

  • New York DFS Announces Enforcement Action Against Pakistan-Based Bank's New York Branch

    Federal Issues

    On December 17, the New York DFS announced an enforcement action against a New York branch of a Pakistan-based bank. The Federal Reserve Bank of New York (FRBNY) and the DFS recently conducted an examination of the branch and found significant risk management and compliance failures with regard to state and federal laws, rules, and regulations relating to anti-money laundering (AML) compliance. Under the terms of the DFS’s order, the branch agreed to reform its policies and procedures to ensure compliance with AML laws. Per the order, the bank must submit to the DFS, within 60 days of the order, a number of written programs regarding its (i) corporate governance and management oversight; (ii) BSA/AML compliance review; (iii) customer due diligence; and (iv) suspicious activity monitoring and reporting. The branch must also hire an independent third-party approved by the DFS and the FRBNY to review the effectiveness of the bank’s compliance program, and to prepare a written report of its findings, conclusions, and recommendations for the program. Because the branch’s compliance with OFAC regulations was insufficient, the order also mandates that the bank retain an independent third-party to examine its U.S. dollar-clearing transactions between October 2014 and March 2015. Significantly, the order does not require the branch to pay a civil money penalty.

    Examination Anti-Money Laundering Bank Secrecy Act Bank Compliance Enforcement OFAC Risk Management NYDFS

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