InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FTC provides 2021 ECOA summary to CFPB
On February 23, the FTC announced it recently provided the CFPB with its annual summary of activities related to ECOA enforcement, focusing specifically on the Commission’s activities with respect to Regulation B. The summary discussed, among other things, the following FTC enforcement, research, and policy development initiatives:
- The FTC filed a joint amicus curiae brief with the CFPB, DOJ, and Federal Reserve Board in the U.S. Court of Appeals for the Seventh Circuit last December asserting that the term “applicant,” as used in ECOA and its implementing rule, Regulation B, includes both those currently seeking credit as well as persons who have sought and have received credit (i.e., current borrowers). (Covered by InfoBytes here.)
- Last October, the FTC released a staff report, Serving Communities of Color, that discusses the Commission’s enforcement and outreach efforts related to the impact of fraud on majority Black and Latino communities. One of the studies examined disparities related to payment methods received from consumers who live in communities of color compared to consumers who live in majority White communities. (Covered by InfoBytes here.)
- The FTC’s Military Task Force continued to work on military consumer protection issues, including military consumers’ “rights to various types of notifications as applicants for credit, including for adverse action, and information about the anti-discrimination provisions, in the ECOA and Regulation B.”
- The FTC continued to participate in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and federal banking regulatory agencies. The Commission also continued its participation in the Interagency Fair Lending Methodologies Working Group to “coordinate and share information on analytical methodologies used in enforcement of and supervision for compliance with fair lending laws, including the ECOA, among others.”
The summary also highlighted FTC ECOA enforcement actions, business and consumer education efforts on fair lending issues, as well as blog posts discussing discrimination and potential bias affecting protected classes and the risks of using artificial intelligence in automated decision-making.
CFPB releases comment letter on FTC enforcement action
On February 18, the CFPB released a comment letter in response to the FTC’s request for comments on its proposed order with a business credit reporting agency alleging that the respondent engaged in deceptive and unfair practices. (Covered by InfoBytes here). In commending the FTC, the CFPB noted that “there are troubling conflicts of interest when the purveyor of credit reports also sells ancillary services.” The CFPB also discussed that the FCRA “may not have contemplated the serious challenges that small businesses face with respect to business credit reports and associated services such as the provision of credit scores,” and that small business “may not benefit” from the FCRA. The Bureau noted that “[b]usiness credit reporting companies should not be able to unfairly harm a small business’s and their owner’s or operator’s financing opportunities.” In supporting “greater remedial authorities for the FTC to be more in line with other civil law enforcement agencies,” the comment letter argued that “[s]tronger authorities for the FTC may help to remediate this full range of harms,” and that the Bureau “stands ready to work with the FTC and other federal and state law enforcement partners to examine whether there are other unlawful practices related to small business credit reporting by other providers.” According to the CFPB, the Bureau will be working with the FTC “to ensure that small businesses are treated fairly when it comes to accessing loans.” The CFPB also noted that it is “working on a rule to shine more light on small business lending, by gathering more data about whether and how small businesses are able to access credit,” and will provide regulators the opportunity “to understand the landscape of credit availability to small businesses that for too long have had to rely on opaque business credit reporting agencies as gatekeepers of financing,” according to the comment letter.
SEC announces $6.3 million FCPA settlement with largest South Korean telecommunications company
On February 17, the SEC announced that South Korea’s largest telecommunications company agreed to pay $6.3 million to settle the SEC’s claims that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, the company “lacked sufficient internal accounting controls over expenses, including executive bonuses and purchases of gift cards, which enabled managers and executives to generate slush funds.” This allegedly allowed company employees to provide improper benefits and payments to government officials in Korea and Vietnam and to seek business from government customers.
With respect to the company’s conduct in Korea, the SEC alleged that from “at least 2009 through 2017, high-level [company executives] maintained slush funds, comprised of both off-the-books accounts and physical stashes of cash, in order to provide items of value to government officials, among others.” These slush funds were then allegedly used for gifts and entertainment, as well as illegal political contributions to Korean government officials who had the ability to influence company business. The SEC also stated that between 2015 and 2016, the company allegedly made more than $1.6 million in payments to three organizations at the request of high-level government officials. All these payments were recorded as either charitable donations or sponsorships, and the company took no measures to determine whether the payments were legitimate donations, the SEC said.
Concerning the company’s conduct in Vietnam, the SEC alleged that between 2014 and 2018, company employees “internally discussed providing money to third parties connected to government officials in Vietnam in order to obtain contracts for two projects.” The company allegedly arranged with a construction company to pay roughly $95,000 to a high-level official in 2014 in order to obtain a contract, and then later allegedly falsely booked a $200,000 payment to the construction company as “[s]upport/consulting for performance of the business (completed).” During this time, the SEC claimed the company “lacked sufficient internal accounting controls regarding third parties and no relevant compliance policies regarding due diligence,” and allegedly “took no meaningful steps in response to allegations of improper payments in connection with the contracts.”
Without admitting or denying wrongdoing, the company consented to a cease and desist order, and agreed to pay approximately $3.5 million in civil penalties and $2.8 million in disgorgement and prejudgment interest. The company and 14 executives were indicted by South Korean authorities in November 2021 for criminal violations related to political contributions.
FCC proposes record $45 million fine against robocaller
On February 18, the FCC released a proposed $45 million fine against a lead generator accused of conducting an illegal robocall campaign that made false claims about the Covid-19 pandemic to induce consumers into purchasing health insurance. This is the FCC’s largest ever proposed robocall fine to date. According to the FCC, the lead generator violated the TCPA by placing 514,467 robocalls to cellphones and landlines without subscribers’ prior express consent or an emergency purpose. The Florida-based lead generator allegedly purchased lists of phone numbers from third-party vendors and acquired phone numbers from consumers seeking health insurance quotes online, “without clearly disclosing that, by providing contact information, the consumers would be subject to robocalls.” It then left prerecorded voice messages marketing insurance plans sold by companies that had hired the lead generator. Many of these robocalls, the FTC claimed, were also unlawfully made to consumers on the Do Not Call Registry. FCC Chairwoman Jessica Rosenworcel issued a statement announcing that, in addition to the record fine, the Commission also established a new partnership with 16 state attorneys general in order to share information and resources to mitigate robocalls.
OCC releases enforcement actions
On February 17, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included in the release is a formal agreement between OCC and an Alabama-based bank on January 31 in connection with alleged unsafe or unsound practices relating to strategic planning, loan portfolio management, and internal audits. The agreement requires the bank to (i) establish a compliance committee to monitor the bank’s progress in complying with the agreement’s provisions; (ii) report such progress to the bank’s board on a quarterly basis; and (iii) develop, implement, and adhere to a written risk-based internal audit program.
FTC publishes ANPR on bogus money-making opportunities
On February 17, the FTC announced an advanced notice of proposed rulemaking (ANPR), which “launched a proceeding to challenge bogus money-making claims used to lure consumers, workers, and prospective entrepreneurs into risky business ventures that often turn into dead-end debt traps.” According to the FTC, a rule in this area would permit “the Commission to recover redress for defrauded consumers, and seek steep penalties against the multilevel marketers, for-profit colleges, ‘gig economy’ platforms, and other bad actors who prey on people’s hopes for economic advancement.” The FTC summarized recent actions against “coaching or mentoring schemes, multi-level marketing companies, work-from-home, e-commerce, or other business opportunity scams, chain referral schemes, gig companies and employers, job scams, and businesses purporting to offer educational opportunities,” but noted that “the recent Supreme Court decision in the AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act.” (Covered by InfoBytes here). The ANPR gives notice of a new possibility of rulemaking for false, misleading, and unsubstantiated earnings claims, and, if adopted, the FTC will have the ability to return money to consumers injured by deceptive income claims, while holding bad actors accountable with civil penalties. The ANPR also solicits public comment on: (i) whether earnings claims are prevalent among all or only some industries; (ii) how a rule addressing earnings claims should be drafted; (iii) the benefits to consumers from such a rule and the costs to businesses; and (iv) whether the potential rule should address disclaimers, lifestyle claims, or liability for agents’ claims.
Education Dept. to forgive $72 million of student loans after FTC action
On February 16, the FTC announced that the Department of Education (Department) will forgive $71.7 million in federal loans for approximately 1,800 former students deceived by a for-profit university. In 2016, the FTC sued university operators for allegedly advertising that 90 percent of graduates found jobs in their fields within six months of graduation, and that graduates had a 15 percent higher income on average than graduates of all other colleges or universities one year after graduation. The announcement expands on a prior FTC settlement, which required the university to pay $49.4 million in partial refunds to qualifying students and $50.6 million in debt relief. The forgiven debt included the full balance owned on all private unpaid student loans issued by the university to students as well as debts for items such as tuition, books, and lab fees. According to the Department’s announcement, these are the first approved borrower defense claims associated with a currently operating institution. The Department noted that it intends to recoup discharge costs from the university and anticipates an increase in the number of approved claims related to the university as it continues to review pending applications.
The Department stated in total it is cancelling $415 million in student loan debt under the borrower defense to repayment program, noting that several other actions will provide borrower defense discharges to nearly 14,000 borrowers attending other colleges and universities. “The Department remains committed to giving borrowers discharges when the evidence shows their college violated the law and standards,” said U.S. Secretary of Education Miguel Cardona. The Department further noted that it is working on new regulations to improve the borrower defense to repayment program, as well as other discharge programs to provide more protections for students and taxpayers. “This includes writing a new borrower defense regulation, proposing to re-establish a gainful employment regulation to hold career training programs accountable for unaffordable debt, and proposing to create financial triggers so that the Department has monetary protection against potential losses, including borrower defense liabilities,” the Department said in its announcement.
FTC hits investment scheme with $111 million judgment
On February 16, the FTC and the Utah Division of Consumer Protection reached a settlement in an action taken against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. As previously covered by InfoBytes, the FTC and the Utah Division of Consumer Protection claimed that the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law by marketing real estate events with false claims and using celebrity endorsements. The defendants allegedly promised consumers they would (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “a minimum of three times” the price of the workshop within six months. Additionally, consumers who received refunds were allegedly required to sign agreements preventing them from speaking with the FTC, state attorneys general, and other regulators; submitting complaints to the Better Business Bureau; or posting negative reviews. Under the terms of the settlement, the defendants are, among other things, permanently banned from marketing or selling any real estate or business coaching programs, and are restrained from making misleading earnings claims or misrepresenting any material aspect of the performance or nature of goods or services that are the subject of a sales offer. Additionally, the defendants are permanently banned from using contract terms to suppress customers’ ability to review their products or speak to law enforcement agencies, and may not release customer information in connection with any activity related to the subject matter of the order. The settlement also includes monetary judgments totaling more than $111 million.
FTC sues weight-loss companies alleging COPPA and FTC Act violations
On February 16, the FTC filed a complaint for permanent injunction in the U.S. District Court for the Northern District of California against an international weight loss service organization and its subsidy (collectively, “defendants”) for allegedly using unfair and deceptive practices to obtain personal information of underage users without parental consent. According to the complaint, the defendants violated the Children’s Online Privacy Protection Act and Section 5 of the FTC Act by collecting and keeping personal information from children under 13 without providing notice to or obtaining consent from their parents. The complaint alleges that the defendants, among other things, failed to: (i) “provide through the App and website a clear, understandable, and complete direct notice to parents of [the] Defendants’ practices”; (ii) “make reasonable efforts, taking into account available technology, to ensure that parents receive the direct notice”; and (iii) “obtain verifiable parental consent before any collection, use, or disclosure of personal information from children.” The proposed settlement is pending court approval.
Courts order VoIP providers to give information to FTC
On February 14, the FTC announced that two federal courts in California ordered two Voice-over-Internet Protocol (VoIP) service providers to produce information that the agency is seeking as part of a continuing investigation into possible illegal robocalls. According to the first order, the VoIP service provider is required to comply with a CID as part of an FTC investigation. According to the FTC, “[a]lthough the CID directed [the respondent] to produce selected information and documents by the end of February 2021, the company produced only a small fraction of the required information, even after receiving an extension of the response deadline from Commission staff.” The FTC filed a petition in federal court seeking to compel compliance with the CID when further efforts to cooperate with the respondent were “unsuccessful.” The assigned magistrate judge issued a report and recommendation in December 2021, finding “that the FTC is entitled to enforcement of the remainder of the CID,” and recommending that the district judge enter an order requiring the respondent to comply. The court accepted that recommendation, and issued an order compelling the respondent’s compliance with the CID. The second VoIP service provider was likewise ordered to turn over information required under an FTC CID, issued to in January 2021. After failing to respond to the CID, the FTC filed suit to enforce compliance and claimed that “neither the company nor its principals had responded to the CID, which ‘materially impeded the FTC’s investigation.’” According to the FTC, the court granted the FTC’s petition, and in response, the respondent turned over the required information.