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District Court allows CFPB, Massachusetts AG’s telemarketing suit to proceed
On August 10, the U.S. District Court for the District of Massachusetts denied a motion to dismiss filed by a credit repair organization and the company’s president and owner (collectively, “defendants”) in a joint action taken by the CFPB and the Massachusetts attorney general, which alleged the defendants committed deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA), the Massachusetts Consumer Protection Law, and the FTC’s Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, the complaint alleges the defendants, among other things, claimed their credit-repair services could help consumers substantially improve their credit scores and promised to fix “unlimited” amounts of negative items from consumers’ credit reports, but, in “numerous instances,” the defendants failed to achieve these results. The defendants also allegedly violated the TSR by engaging in abusive acts and by requesting and collecting fees before achieving any results related to repairing a consumer’s credit. The defendants moved to dismiss, arguing that they were governed by the Credit Repair Organizations Act (CROA), which cannot be reconciled with the TSR, the TSR definition of “telemarketing” is vague and violates the Due Process Clause, and that applying the TSR’s definition of telemarketing would place an unfair content-based restriction on speech that restricts when they can collect payments for their services. Moreover, the defendants claimed, among other things, that the FTC “exceeded its authority in promulgating rules targeting their conduct because Congress intended that only unsolicited telemarketing calls would be addressed by the FTC’s regulations.”
The court disagreed, holding first that that the CROA and the TSR do not conflict. “[C]ompliance with the TSR’s payment requirement would not cause defendants to violate the CROA,” the court stated. “The TSR simply adds a precondition to requesting payment…” Additionally, the court noted that the TSR’s “restriction is on conduct—the timing of the payment—not on speech,” adding that while “Congress directed the FTC to create rules regarding specific telemarketing activities. . ., Congress also authorized the FTC to create additional rules addressing ‘deceptive telemarketing acts or practices’ at its discretion.” As such, the court held that defendants did not show that “Congress intended the FTC to exclusively address unsolicited telemarketing calls.” Furthermore, the court held that the plaintiffs adequately defined the defendants’ allegedly deceptive conduct and that the alleged violations of state law are plausible.
CFTC settles AML violations with cryptocurrency derivatives platform
On August 10, the CFTC announced that the U.S. District Court for the Southern District of New York entered a consent order against several companies (defendants) charged with operating an unregistered cryptocurrency derivatives trading platform. As previously covered by InfoBytes, in October 2020, the CFTC announced that it filed a complaint against five entities and three individuals for allegedly owning and operating an unregistered cryptocurrency derivatives platform and failing to implement required anti-money laundering procedures. The complaint alleged that the platform “illegally offer[ed] leveraged retail commodity transactions, futures, options, and swaps” on cryptocurrencies without implementing key safeguards required by the Commodity Exchange Act and several CFTC regulation compliance measures, such as know-your-customer procedures or actions designed to detect and prevent illicit activities. The CFTC also claimed that the exchange operated as an unregistered futures commission merchant and did not have CFTC approval to operate as a designated contract market or swap execution facility. In addition, the defendants are permanently “restrained, enjoined, and prohibited from directly or indirectly offering to enter into retail commodity transactions,” among other things. The order notes that the defendants engaged in remedial measures, such as developing an AML and user verification program. The companies were ordered to pay a $100 million civil monetary penalty, but up to $50 million of the penalty may be offset by payments made by, or amounts credited to, the defendants pursuant to the Assessment of Civil Money Penalty entered by the Financial Crimes Enforcement Network.
DFPI takes action against student debt-relief company
On August 9, the California Department of Financial Protection and Innovation (DFPI) issued a consent order with a student loan debt relief company, resolving allegations that the company violated the California Consumer Financial Protection Law (CCFPL) by collecting illegal advance fees prohibited under the federal TSR. According to DFPI, the announcement follows a “wider crackdown” initiated in February against student loan debt-relief companies in violation of the CCFPL and the Student Loan Servicing Act (covered by InfoBytes here). The company allegedly advertised promises of reducing student debt in exchange for an initial payment as high as $899 and an ongoing monthly fee of $39. DFPI alleges that over 1,000 California student loan borrowers signed up and were charged illegal up-front fees prohibited under the federal telemarketing law. The consent order requires the company to refund California student loan borrowers the approximate $870,000 it collected in fees and to pay a $500,000 penalty to DFPI. The company also agreed to cease its illegal conduct, cancel all unlawful contracts with consumers, and refund consumers within 60 days.
SEC awards $9.5 million to whistleblowers
On August 10, the SEC announced awards totaling nearly $6 million to two whistleblowers whose information and assistance led to separate successful SEC enforcement actions. According to the first redacted order, the SEC awarded a whistleblower nearly $3.5 million for voluntarily providing original information to the Commission, which expanded an existing investigation into a new geographic area and led to a successful enforcement action. The whistleblower also traveled to meet in person with staff, identified an important witness, and provided multiple supplemental submissions that assisted the SEC with the charges in the underlying enforcement action. In the second redacted order, the SEC awarded a whistleblower approximately $2.4 million for alerting the SEC to previously unknown conduct, which initiated the opening of the investigation. The whistleblower also met in person with SEC staff, provided documents, and identified potential witnesses.
Earlier on August 6, the SEC announced awards totaling more than $3.5 million to three whistleblowers whose information and assistance led to two SEC enforcement actions. According to the first redacted order, the SEC awarded a whistleblower nearly $2 million for voluntarily providing original information to the Commission, which led to a successful enforcement action. The whistleblower also provided ongoing assistance, participated in interviews, and provided information that saved staff time and resources. In the second redacted order, the SEC awarded a whistleblower approximately $1 million and a second whistleblower approximately $500,000. The SEC noted that though both whistleblowers provided valuable information, the whistleblower who received the larger award provided information and cooperation that was more impactful in the enforcement action.
The SEC has awarded approximately $956 million to 195 individuals since issuing its first award in 2012.
CFPB, Arkansas AG settle FCRA violations
On August 4, in an action brought by the CFPB and the Arkansas attorney general, the U.S. District Court for the Eastern District of Arkansas entered a stipulated final judgment and order against a Utah-based home-security and alarm company (defendant) for allegedly failing to provide proper notices under the FCRA. As previously covered by InfoBytes here, according to the complaint, the company extended credit to its customers by allowing them to defer payment for alarm and security-system equipment over the life of a long-term contract. In extending credit to its customers, the company allegedly obtained and used consumers’ credit scores to determine the amount of activation fees it would charge for its products and services and then charged higher fees to consumers who had lower credit scores, without providing those consumers with required risk-based pricing notices in accordance with the FCRA and Regulation V. Under the terms of the order, the company is required to submit a compliance plan and pay a $600,000 civil money penalty, of which $100,000 will be offset if it pays that amount to settle related litigation with the State of Arkansas that is pending in state court. The company will also be required to provide proper risk-based pricing notices as required under the FCRA.
Fed announces flood insurance violations
On August 3, the Federal Reserve Board announced an enforcement action against a Tennessee-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H. The consent order assesses a $26,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,252 per violation.
SEC issues whistleblower awards totaling nearly $4 million
On August 2, the SEC announced whistleblower awards to four individuals totaling nearly $4 million for information provided in two separate enforcement actions. According to the first redacted order, the SEC awarded a whistleblower nearly $2 million for voluntarily providing original information to the Commission, which initiated an investigation. The whistleblower also provided ongoing assistance, participated in interviews, and identified key witnesses, which led to a successful enforcement action. In the same enforcement action, the SEC awarded over $150,000 to another whistleblower, whose information helped SEC staff expand its investigation. In the second redacted order, the SEC awarded approximately $1.1 million to an individual for reporting misconduct internally and notifying the SEC of the violations, in addition to more than $500,000 to another whistleblower for providing important, but not sufficiently timely, information.
The SEC has awarded approximately $946 million to 190 individuals since issuing its first award in 2012.
Payday lender must comply with $50 million CFPB order
On July 30, the U.S. District Court for the District of Kansas granted a petition filed by the CFPB to enforce an administrative order that assessed more than $50 million in restitution and fines against a Delaware-based online payday lender and its CEO (collectively, “respondents”) while the parties await a decision from the U.S. Court of Appeals for the Tenth Circuit. As previously covered by InfoBytes, the CFPB filed an action in 2015 against the respondents for allegedly violating TILA and EFTA and for engaging in unfair or deceptive acts or practices concerning the terms of the loans they originated. The respondents also allegedly (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked their authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges.
In January 2021, former Director Kathy Kraninger adopted an administrative law judge’s findings and conclusions, affirming the respondents violated TILA, EFTA, and the CFPA and concluding the respondents should be held jointly and severally liable for restitution amounting to more than $38.4 million. Kraninger further held the lender liable for a $7.5 million civil penalty and the CEO liable for a civil penalty of $5 million. In March, acting Director Dave Uejio issued an order denying the respondents’ motion to stay Kraninger’s final decision pending appellate review, but granted their request for a 30-day stay to allow them the opportunity to seek a stay from the 10th Circuit. In opposition to the Bureau’s petition to enforce the final order, the CEO argued, among other things, that the final order is not valid and enforceable. The court noted, however, that it is not permitted to stay enforcement of or suspend the final order. The power to suspend the final order or stay its enforcement belongs to the 10th Circuit—a request, the court noted, that the respondents did not seek when they filed their appeal. The CEO “has not cited any authority indicating that this Court may or should refuse to grant a petition for enforcement under this statute,” the court wrote. “Accordingly, the Court grants the petition for enforcement of the Final Order, and respondents are hereby ordered to comply with the Final Order by paying the restitution and civil penalties imposed and by cooperating as directed.”
FDIC releases June enforcement actions
On July 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in June. During the month, the FDIC issued 14 orders and one decision, consisting of “four Orders to Pay Civil Money Penalties, one Section 19 Application, two Orders Terminating Consent Orders, four Orders of Termination of Insurance, and six Orders of Prohibition from Further Participation.” Among the orders is a civil money penalty imposed against a South Dakota-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance.” The order requires the payment of a $30,000 civil money penalty.
The FDIC also imposed a civil money penalty against a Missouri-based bank concerning alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “made, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral.” The order requires the payment of a $1,000 civil money penalty.
FTC obtains $450,000 settlement with auto dealer over fraudulent consumer financial documents
On July 29, the FTC announced a proposed settlement with the owner and manager of a group of auto dealers with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the individual defendant advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes, in 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act (CLA) for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.” A settlement was reached with the auto dealer defendants last September (covered by InfoBytes here), which required, among other things, that the auto dealer defendants cease all business operations and pay a monetary judgment of over $7 million.
If approved by the court, the proposed order would result in a $450,000 payment to the FTC, and would prohibit the individual defendant, who neither admits nor denies the allegations, from (i) misrepresenting information in any documents associated with a consumer’s purchase, financing, or leasing of a motor vehicle; (ii) misrepresenting the costs or any other material facts related to vehicle financing; or (iii) falsifying loan information. The individual defendant would also be required to provide consumers a reasonable opportunity and sufficient time to review documents associated with the vehicle financing, and is prohibited from violating the TILA and CLA.