InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB Announces Proposed Consent Order with Debt Collection Law Firm
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.
FDIC and Federal Reserve Announce Settlement with Connecticut-Based Financial Aid Company Over Deceptive Practices
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.
FinCEN Settles with Card Club Gaming Establishment for BSA Violations
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.
New York DFS Announces Enforcement Action Against Pakistan-Based Bank's New York Branch
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.
Former Russian Government Official Sentenced For Nuclear Energy Conspiracy Involving FCPA Violations
On December 15, a former Russian government official, Vadim Mikerin, was sentenced to 48 months in prison for conspiracy to commit money laundering in connection with $2 million in bribe payments he accepted to award government contracts with a Russian state-owned nuclear energy corporation. U.S. District Judge Theodore D. Chuang of the District of Maryland also ordered Mikerin, who resides in Maryland, to forfeit $2.1 million. Between 2004 and October 2014, Mikerin received bribe payments intended to improperly influence him in his role as a key official at a subsidiary of a Russian state-owned nuclear energy corporation and to secure improper business advantages for U.S. companies that did business with the subsidiary. Mikerin admitted that, in connection with the FCPA violations, he conspired with others to transmit approximately $2,126,622 from the United States to shell company bank accounts in Cyprus, Latvia and Switzerland. Mikerin also admitted to using consulting agreements and code words to conceal the bribes. Two of Mikerin’s co-conspirators – Daren Condrey and Boris Rubizhevsky – also pleaded guilty to conspiracy charges and are awaiting sentencing.
FTC Announces Settlements with Alleged Mortgage Modification Scammers
On December 15, the FTC announced stipulated court orders banning four individuals from selling debt relief products and services. According to the FTC, the individuals “promised consumers help getting their mortgages modified, but instead stole their mortgage payments, leading some to foreclosure and bankruptcy.” The FTC’s April 2015 complaint states that the defendants targeted homeowners facing foreclosure and “engaged in a course of conduct to advertise, market, sell, provide, offer to provide, or arrange for others to provide [Mortgage Assistance Relief Services], including loan modifications.” The complaint further alleged that consumers never received modifications, lenders did not receive their trial payments, and consumers’ payments were never refunded. The court orders prohibit the individuals from engaging in the practices they respectively exploited, such as telemarketing, selling credit-related financial products and services, using aliases, and using material misrepresentations and unsubstantiated claims to sell financial products and services. Combined, the individuals will pay more than $6,250,000 in monetary judgments.
FTC Settles with Hotel and Resort Chain Over Data Security Practices
On December 9, the FTC announced a settlement with a leading United States-based hotel and resort chain to resolve charges that the company’s data security practices were unfair and deceptive under Section 5 of the FTC Act. The settlement follows the Third Circuit’s August 24 ruling affirming the FTC’s authority to take action against companies with deficient cybersecurity practices that fail to protect consumer data against hackers. The settlement terms require the company for the next 20 years to establish, implement, and maintain a comprehensive information security program that is designed to protect the security, confidentiality, and integrity of cardholder data. In addition, the company must obtain annual written assessments of its information security program. The assessments must certify (i) the “untrusted” status of franchisee networks that may store, process, or transmit cardholder data; (ii) the extent of the company’s compliance with the risk management protocol; and (iii) that the assessments were completed by a qualified and independent auditor free from any conflicts of interest. The settlement also requires that in the event of another data breach affecting more than 10,000 consumers, the company must obtain an assessment of the breach within 180 days and report the findings of the assessment to the FTC within 10 days of its completion.
CFPB Takes Action Against Nationwide Credit Reporting Company and Owner
On December 3, The CFPB took action against a nationwide credit reporting company and its owner over alleged violations of the Fair Credit Reporting Act. According to the CFPB, the defendants (i) obtained consumer reports, without permissible purpose, from third-party CRAs to generate marketing presentations for prospective clients; and (ii) failed to investigate consumer disputes, including those relating to identity theft. The CFPB further alleged that the company “routinely failed” to provide consumer dispute information to furnishers. In addition to an $8 million civil money penalty, the consent order requires the defendants to submit to the CFPB a compliance plan that ensures their “practices for obtaining Consumer Reports and conducting reinvestigations of disputes [comply] with all applicable federal consumer financial laws, as defined in the CFPA.” Finally, the order prohibits the company from engaging in certain practices, such as the selling or reselling of any consumer report to any person whose purpose for obtaining the report is to consider purchasing any service provided by the defendants, or to generate a lead.
Mortgage Company Resolves DOJ Allegations of False Claims Act Violations
On December 2, a Tennessee mortgage company agreed to pay the United States $70 million to resolve allegations that it violated the False Claims Act. According to the DOJ, the company, acting as a direct endorsement lender, knowingly originated and accepted FHA-insured mortgage loans that did not meet applicable HUD underwriting and quality control requirements. As part of the settlement agreement, the company admitted to engaging in the following conduct between January 1, 2006 and March 31, 2012: (i) employing unqualified junior underwriters to complete important underwriting tasks; (ii) setting high quotas for underwriters and disciplining them if the quotas were not met; and (iii) offering underwriters bonuses based in part on the number of loan files reviewed as incentive to increase loan production. Even though deficiencies in the loan underwriting process were identified in post-close audits, the company did not make any self-reports until 2009 and, even then, “[v]ery few of these self-reported loans were reported for containing serious underwriting deficiencies.” As a result of the company’s conduct, the FHA insured loans that were not eligible, purportedly suffering “substantial losses when it later paid insurance claims on those loans.”
Massachusetts AG Announces Settlements with Student Debt Relief Companies; Reveals Initiative to Aid Student Borrowers
On November 24, Massachusetts AG Maura Healey announced settlements with two student debt relief companies over allegations of charging consumers upfront fees prior to delivering the services offered. According to the AG’s Office, at least 200 students were affected by the companies’ deceptive practices, which included misleading consumers to believe that the companies were affiliated with the government or had special connections with the Department of Education and, therefore, could assist borrowers lower their monthly loan payments. To resolve the AG’s allegations, the companies will pay $56,000 and $40,000, respectively and agree to no longer provide or advertise services in Massachusetts.
Concurrent with the settlement announcements, the AG’s Office revealed an initiative designed to assist borrowers repay their loans. Working with trained attorneys in the Insurance and Financial Services Division, the new Student Loan Assistance Unit will provide borrowers with access to a dedicated hotline and mediation program. The program will review current student loan and payment situations to help borrowers (i) get out of default or delinquency; (ii) apply for various income-driven repayment plans offered by the federal government; and (iii) advocate for complete discharges of the loans in appropriate circumstances.