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OFAC Announces Settlement Agreement with Insurance Company
On August 6, OFAC announced a $271,815 settlement with a New York-based insurance company with an overall focus on marine insurance and related lines of business, professional liability insurance, and commercial umbrella and primary and excess casualty businesses. According to OFAC, from May 8, 2008 to April 1, 2011, the company and its London branch office, “issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that occurred in or involved Iran, Sudan, or Cuba—some of which led to the payment of claims.” The company’s willingness to engage with OFAC-sanctioned countries resulted in 48 alleged violations of Foreign Assets Control Regulations, Executive Order 13466 of June 26, 2008, North Korea Sanctions Regulations, Iranian Transactions and Sanctions Regulations, Sudanese Sanctions Regulations, and Cuban Asset Control Regulations. OFAC stated that (i) the company did not maintain a formal compliance program at the time it issued the P&I insurance policies; and (ii) the company’s London office personnel “misinterpreted the applicability of OFAC sanctions regulations.” The final settlement amount reflects the fact that managers and supervisors knew or had reason to know that the majority of the insurance policies and claims payments at issue involved OFAC-sanctioned countries; the company is a commercially sophisticated financial institution; and it did not have a formal OFAC compliance program in place at the time the apparent violations occurred. Mitigating factors included the company’s cooperation with OFAC’s investigation; lack of prior enforcement action; and its remedial action plan to implement a sufficient OFAC compliance program.
FTC Settles with Operators of Alleged Credit Repair Scheme
On August 4, the FTC announced a settlement with a California-based company and its employees for allegedly violating the FTC Act and the Credit Repair Organizations Act. According to the associated complaint filed by the FTC in March 2015, the defendants operated a bogus credit repair scheme targeting Spanish-speaking consumers. The FTC alleged that the company and the four named employees deceived consumers with false representations that the company was affiliated with the FTC and false promises that they could repair consumers' credit reports and guarantee that the consumer would have a credit score of 700 or higher within six months or less for a fee of approximately $2,000. The FTC’s final orders against the individuals and the Company (i) hold the defendants jointly and severally liable for a $2.4 million monetary judgment; (ii) prohibit the defendants from selling or advertising credit repair services to consumers, and from deceiving consumers about any good or service they are selling, and (iii) bar the defendants from benefiting, through sale or otherwise, from having customers’ personal information. The final orders were approved by the Commission in a 5-0 vote and filed in the U.S. District Court for the Central District of California, Western Division on July 30 and August 3.
Former Derivatives Trader Convicted and Sentenced in U.K. on Libor Manipulation Charges, Also Facing Criminal Charges in U.S.
On August 3, a jury in the United Kingdom convicted former derivatives trader Tom Hayes on eight counts of fraud for his role in the manipulation of the London Interbank Offered Rate (Libor) for Japanese Yen. Hayes was subsequently sentenced to 14 years in prison. Prosecutors had argued that Hayes, a former trader at two international banks, had asked traders at his bank who were responsible for submitting the bank’s daily Libor submissions for publication – as well as submitters at other banks and brokers involved in the Libor process – to raise or lower their submissions for the Yen Libor from 2006 to 2010 to help Hayes increase the profit on his trades. Hayes was the first individual to be tried in U.K. courts for Libor manipulation, with some of Hayes’ alleged co-conspirators set to go to trial in late September. Hayes is also facing criminal charges for the same conduct in the U.S.
OFAC Levies Penalty for Violations of the Iranian Transactions and Sanctions Regulations
On July 29, OFAC announced that it levied a $82,260 civil penalty against Blue Robin, Inc. for violating certain provisions of the Iranian Transactions and Sanctions Regulations. According to OFAC, from 2009 through 2010, Blue Robin conducted 33 transactions valued at over $200,000, where Blue Robin imported web development services from PersiaBMW, an Iranian company. The services rendered by PersiaBMW were used to develop web-based systems and applications to streamline online business processes and operations for Blue Robin’s customers. In its consideration of the penalty amount, OFAC determined that “Blue Robin acted recklessly because it knew it was importing services from an Iranian company over a period of more than five years, it sent payments through unlicensed money exchangers instead of through traditional commercial banking channels, and it appears that the company did not take any steps to research the legality of funds transfers to Iran or the importation of services from Iran until after it lost contact with its unlicensed money exchanger.” Nevertheless, due to Blue Robin’s self-disclosure and substantial cooperation with OFAC’s investigation, the penalty amount imposed against Blue Ribbon was below the base penalty amount for the violations.
CFPB Orders Mortgage Servicer to Pay $1.6 Million over Servicing Practices
On July 30, the CFPB ordered a Texas-based mortgage servicer to pay $1.5 million in restitution and $100,000 in civil money penalties for allegedly engaging in faulty servicing practices, according to a settlement announced by the CFPB. The CFPB alleged that, beginning in 2009, the mortgage servicing firm failed to honor “in-process” modifications—trial modifications that were pending when a loan was transferred to the company—until it determined that the prior servicer should have agreed to the trial modification. In addition, the CFPB alleged that the servicing firm provided inaccurate account statements to borrowers related to their loan balance, interest rates, payment due dates, and the amount available in escrow accounts. The CFPB further contends that, in certain instances, the servicing firm coerced consumers into waiving certain legal protections as a condition to being allowed to pay off delinquent payments in installments. Under the terms of the consent order, the servicing firm agreed to, among other things, (i) provide $1.5 million in restitution to consumers whose loan modifications were not acknowledged; (ii) pay a $100,000 civil money penalty; (iii) mitigate the impact of its allegedly unlawful practices by, for example, converting “in-process” loan modifications to permanent modifications and stopping foreclosure processes for certain borrowers; and (iv) honor loss-mitigation agreements entered into by prior servicers and “in-process” loan modifications and engage in outreach to contact borrowers and offer them loss-mitigation options.
CFPB Settles with Payment Processor and Mortgage Servicer over Deceptive Mortgage Advertisement Allegations
On July 28, the CFPB announced that a Colorado-based payment processor, along with a Virginia-based mortgage servicer, agreed to pay a total of $38.5 million to resolve allegations that both entities used misleading advertisements related to a mortgage payment program. The CFPB alleged that both entities advertised the “Equity Accelerator Program” as a program that would help consumers save on interest payments by making mortgage payments biweekly rather than monthly. However, according to the CFPB, the program failed to make the biweekly payments, and no more than a “tiny” percentage of consumers enrolled in the program benefitted from the promised savings. Under the terms of the consent orders, the payment processor agreed to provide $33.4 million in restitution to affected consumers and pay a $5 million civil money penalty. The mortgage servicer will pay a $100,000 civil money penalty. Both entities also agreed to ensure that any advertisements concerning the mortgage program’s benefits complied with federal law.
FDIC and California Department of Business Oversight Levy $140 Million Penalty Against California Bank for Ongoing BSA/AML Deficiencies
On July 22, the FDIC, along with the Commissioner of the California Department of Business Oversight (“DBO”), announced the assessment of a $140 million civil money penalty against a California state-chartered bank to resolve allegations that it failed to implement and maintain an adequate BSA/AML Compliance Program over an extended period of time. In 2012, the bank entered a consent order with the FDIC and the DBO (fka California Department of Financial Institutions), requiring that it “address the weaknesses and correct deficiencies” in its BSA and AML programs. According to the DBO, the bank has since failed to implement the corrective actions stipulated in the consent order, which required the bank to, among other things, (i) establish internal controls to “detect and report illicit financial transactions and other suspicious activities”; (ii) hire a qualified BSA officer and sufficient staff; (iii) provide adequate BSA training; and (iv) conduct effective independent testing. Additionally, since the 2012 consent order, the DBO and FDIC have discovered “new, substantial violations of the BSA and anti-money laundering mandates over an extended period of time.” Under terms of the joint order, the bank will pay $40 million to the DBO and $100 million to the Department of the Treasury to satisfy the full $140 million penalty.
CFPB Reaches $700 Million Settlement to Resolve Credit Card Ancillary Products Investigation
On July 21, the CFPB announced a nearly $700 million settlement against a leading financial institution and its subsidiaries. According to the consent order, the Bureau alleges that the entities engaged in deceptive marketing, billing, and collection practices related to various credit card ancillary products, including debt protection and credit monitoring services. Specifically, the Bureau alleges that the institution or its vendors marketing practices, consisting of telemarketing calls, online enrollment, point-of-sale application, and direct enrollment at retailers, mislead consumers into enrolling for certain ancillary products. The Bureau further alleges that, in some instances, telemarketers failed to accurately disclose the cost and fees associated with the ancillary products. With respect to the unfair billing allegations, the Bureau contends that the institution or its vendors improperly charged consumers, without authorization, for services that were not rendered, and failed to provide full product benefits of the services marketed to consumers. In addition, the Bureau alleges that the institution misrepresented payment fee information to consumers by failing to disclose the actual purpose of the fee associated with making payments by phone on delinquent credit card accounts. Under terms of the settlement, the institution and its subsidiaries agreed to (i) provide $479 million in consumer relief related to its marketing practices; (ii) pay roughly $220 million in restitution related to its payments collection practices and for consumers not receiving the full benefits of services promised; and (iii) pay a $35 million civil money penalty.
In a parallel enforcement action, the OCC imposed a separate $35 million civil money penalty against the institution for engaging in similar practices, and requires the institution to strengthen its oversight of third-party vendors and develop a comprehensive risk management program for ancillary products marketed or sold by the bank.
CFPB and DOJ Reach $24 Million Settlement with Indirect Auto Lender to Resolve Discriminatory Pricing Allegations
On July 14, the CFPB and DOJ announced a $24 million settlement with an indirect auto lender to resolve allegations that the lender offered higher interest rates to minority borrowers compared to white borrowers with a similar credit risk profile. Specifically, both agencies contended that the lender allowed their partnering dealers excessive discretion to increase the lender’s base interest rate with a “dealer markup” on auto loan contracts, which resulted in discriminatory pricing. Under terms of the settlement, the lender agreed to, among other things, (i) pay $24 million in restitution to affected borrowers, (ii) impose dealer markup rate caps on auto loans, and (iii) improve its policies and procedures related to auto loan pricing and compensation program. Notably, the Bureau did not impose a civil money penalty due to the lender’s responsible conduct. The Bureau filed its consent order in an administrative enforcement action. In a separate announcement, the DOJ filed its complaint and consent order in federal court, which will require judicial approval. The lender was represented in the matter by BuckleySandler.
New York AG Schneiderman Settles with Auto Dealers Over Alleged Deceptive Auto Advertising
On July 14, New York Attorney General Eric Schneiderman announced two settlements with auto dealers over allegedly deceptive advertising practices. The first settlement was reached with a White Plains-based auto dealer that allegedly misled consumers by promoting, in its print and online ads, illusory sale and lease prices by including “discounts or rebates that were not available to most consumers, and thus, did not represent the actual sale or lease prices.” According to the Attorney General, rebates or discounts offered to “military” or “college graduates” were among the deceptive advertisements used by the auto dealer. An investigation by the AG’s Office revealed that the dealership would only make the rebates or discounts available to certain military personnel and recent college graduates. In addition to failing to comply with the Attorney General’s Advertising Guidelines for Automobile Dealers, the Attorney General alleged that the ads used footnotes and asterisks that contradicted or materially modified the principal message of the advertisements. The dealership will pay $32,500 to the state and has agreed to reform its advertising practices.
In a separate action, the Attorney General announced a settlement resolving allegations that 22 dealerships “persistently defrauded consumers with misleading promotions and fraudulent sales tactics.” According to the Attorney General’s office, the dealers’ advertisements included certain game cards that led consumers to believe that they would be guaranteed winners of certain items – such as cash, a free vehicle, or an Apple iPad – if they received a winning ticket containing three matching symbols. However, virtually none of the consumers won a prize when they brought in their winning tickets to the dealers. In addition to misleading game cards, the dealers were alleged to have charged unauthorized fees for vehicle maintenance plans that had not been requested by purchasers and to have upcharged the retail sales price on cars to effectively nullify discounts offered to consumers. Under the terms of the settlement agreement, the dealers will pay $310,000 in penalties and restitution.