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FTC to ban “deceptive” mobile-banking app
On March 29, the FTC announced a proposed stipulated final order against the operators of a mobile banking app to settle allegations that the defendants deceived users about their supposedly high-interest bank accounts and falsely promised users “24/7” access to their funds. As previously covered by InfoBytes, the FTC alleged, among other things, that the defendants represented that users would receive “‘minimum base’ interest rates” of at least 0.2 percent or 1.0 percent, but that users actually received a starting interest rate of 0.04 percent and stopped earning any interest if they requested that their funds be returned. The FTC also claimed that while the defendants promised users 24/7 access to their funds and represented they could make transfers out of their accounts and receive requested funds within three to five business days, some users waited weeks or months to receive funds despite repeated complaints to the defendants, while other users stated they never received their money.
The proposed stipulated final order bans the defendants from operating or advertising a mobile banking app or any other product or service that can be used to deposit, store, or withdraw funds, and prohibits them from misrepresenting the interest rates, restrictions, and other aspects of any financial product or service. Additionally, the defendants must issue full refunds, including interest, to all customers. The FTC vote approving the stipulated final order was 3-1, with Rohit Chopra, President Biden’s nominee to head the CFPB, voting no. Commissioner Chopra has not published a statement explaining his vote.
SEC awards more than $500,000 to whistleblower under “safe harbor” provision
On March 29, the SEC announced a more than $500,000 whistleblower award in connection with an enforcement action. According to the redacted order, the whistleblower raised concerns about alleged securities violations internally, which prompted an investigation by the company. The company then reported the information to an outside agency, which in turn made a referral to Commission staff, thus prompting the opening of the SEC’s investigation. The SEC noted that the whistleblower also provided helpful documents and met with Commission staff, allowing the SEC and another agency to quickly file actions and shut down the ongoing fraudulent scheme. Additionally, the SEC explained that because the whistleblower also submitted a tip to the SEC within 120 days of reporting the violations internally to the company, the whistleblower satisfied the SEC’s whistleblower rule’s “safe harbor” provision, thereby allowing the SEC to treat the whistleblower’s information “as though it had been made on the date that the [whistleblower] provided that same information to his/her employer[].”
The SEC has now paid approximately $760 million to 145 individuals since the inception of the whistleblower program in 2012. The Commission noted that, with this award, it has now “awarded 40 individuals this fiscal year, surpassing last year’s record of 39 individual awards,” and has “awarded whistleblowers nearly $200 million in the first half of FY21 alone.”
Court rules CFPB lacked authority to bring suit while its structure was unconstitutional
On March 26, the U.S. District Court for the District of Delaware dismissed a 2017 lawsuit filed by the CFPB against a collection of Delaware statutory trusts and their debt collector, ruling that the Bureau lacked enforcement authority to bring the action when its structure was unconstitutional. As previously covered by InfoBytes, the Bureau alleged the defendants filed lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations, which allowed them to obtain over $21.7 million in judgments against consumers and collect an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested. In 2020, the court denied a motion to approve the Bureau’s proposed consent judgment, allowing the case to proceed. The defendants filed a motion to dismiss, arguing that the Bureau lacked subject-matter jurisdiction because the defendants should not have been under the regulatory purview of the agency, and that former Director Kathy Kraninger’s ratification of the enforcement action, which followed the Supreme Court holding in Seila Law LLC v. CFPB that that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert), came after the three-year statute of limitations had expired. While the Bureau acknowledged that the ratification came more than three years after the discovery of the alleged violations, it argued that the statute of limitations should be ignored because the initial complaint had been timely filed and that the limitations period had been equitably tolled.
The court rejected the subject-matter jurisdiction argument because it held that the term “covered persons” as used in the Consumer Financial Protection Act, 12 U.S.C. § 5481(6), is not a jurisdictional requirement. However, the court then determined that the Bureau’s claims were barred by the statute of limitations. The Bureau filed the complaint while operating under a structure later found unconstitutional in Seila Law, and Director Kraninger’s subsequent ratification of the action came after the limitations period had expired. The court concluded that this made the complaint untimely. It also rejected the Bureau’s equitable tolling argument based on the Bureau’s failure to take actions to preserve its rights during the period when its constitutionality was in question. The court also noted that the Bureau “failed to pursue this very argument seriously in its brief,” which presented the equitable tolling argument in a “brief and conclusory” fashion.
FTC restructures rulemaking as justices debate its limits on consumer redress
On March 25, FTC acting Chairwoman Rebecca Kelly Slaughter announced a new rulemaking group within the FTC’s Office of the General Counsel created to streamline and strengthen the Commission’s rulemaking process and coordinate rulemaking among various units. The FTC’s current rulemaking process is decentralized, according to Slaughter, with individual bureaus and divisions responsible for particular rules. “The new structure will aid the planning, development, and execution of rulemaking,” she said, noting that with the “new group in place, the FTC is poised to strengthen existing rules and to undertake new rulemakings to prohibit unfair or deceptive practices and unfair methods of competition.” Slaughter also emphasized the critical importance of effective rulemaking “given the risk that the Supreme Court substantially curtails the FTC’s ability to seek consumer redress under Section 13(b)” through enforcement actions.
As previously covered by InfoBytes, last year the Court granted review in two cases that had reached different conclusions regarding the availability of restitution under Section 13(b) of the FTC Act: (i) the 9th Circuit’s decision in FTC v. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s ruling in FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
The same day, Acting Chairwoman Slaughter released the FTC’s 2020 Annual Highlights. Among other things, it discusses the Commission’s response to the Covid-19 pandemic and efforts to educate consumers about Covid-19-related scams, as well as businesses’ responsibilities concerning honest advertising.
Italian company settles with OFAC for violating Iranian Transactions and Sanctions Regulations
On March 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $950,000 settlement to resolve alleged violations of the Iranian Transactions and Sanctions Regulations with an Italian company that produces and reexports air pressure switches. According to OFAC’s accompanying web notice, between 2013 and 2017, the company allegedly “knowingly reexported 27 shipments of air pressure switches procured from a U.S. company intended for as many as ten customers in Iran and caused a U.S. company to indirectly export its goods to Iran.” OFAC also alleged that the company engaged in efforts to obfuscate its reexportation of goods from the U.S. to Iranian end-users by, among other things, having employees use deceptive replacement terms for Iran in communications with the U.S company in order to avoid referencing Iranian end-users, and requesting that the term “Made in USA” be removed from the switches to disguise their origin.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that (i) the company willfully reexported air pressure switches even though it knew it was violating U.S. sanctions; (ii) company management “either failed to provide effective oversight of its employees and operations or chose to ignore these prohibited trade practices”; and (iii) the conduct caused over $2.5 million worth of goods to be diverted from the U.S. to Iran.
OFAC also considered various mitigating factors, including that the company (i) has not received a penalty notice from OFAC in the proceeding five years; (ii) ceased the conduct at issue and took remedial measures, including implementing a sanctions compliance program and agreeing to enhanced compliance commitments; and (iii) cooperated with OFAC’s investigation.
HUD approves settlement resolving alleged lending discrimination
On March 19, HUD released a Conciliation Agreement between an individual consumer and a mortgage lender to resolve allegations that the lender violated the Fair Housing Act by denying the consumer’s loan for a group home for persons with disabilities. The lender denied any discriminatory behavior, and agreed to resolve the complaint by (i) paying the consumer $125,000; (ii) implementing additional training for employees, including home mortgage consultants, managers, and underwriters; and (iii) ensuring its policies comply with the Fair Housing Act.
Digital asset company to pay $6.5 million to settle CFTC allegations
On March 19, the CFTC announced a $6.5 million settlement with a California-based digital asset company to resolve allegations of false, misleading, or inaccurate reporting concerning its digital asset transactions that violated the Commodity Exchange Act or CFTC regulations. According to the CFTC, from January 2015 to September 2018, the company allegedly operated at least two trading programs that generated orders that, at times, matched each other. The CFTC claimed, among other things, that the transactional information provided on the company’s website and given to reporting services resulted “in a perceived volume and level of liquidity of digital assets. . .that was false, misleading or inaccurate.” Additionally, the CFTC alleged that the company was vicariously liable for a former employee’s use of “a manipulative or deceptive device” to intentionally place buy and sell orders that matched each other, creating a misleading appearance of interest in certain cryptocurrencies. The company did not admit or deny the CFTC’s findings and agreed to pay a $6.5 million civil penalty.
Fed targets flood insurance violations
On March 18, the Federal Reserve Board announced an enforcement action against a Pennsylvania-based bank for alleged violations of the National Flood Insurance Act (NFIA) and its implementing Regulation H. The consent order assesses a $105,000 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 $2,000 per violation.
FCC issues record $225 million fine for spoofed robocalls
On March 17, the FCC issued a record $225 million fine against two Texas-based telemarketers and their associated companies for allegedly transmitting roughly one billion illegally spoofed robocalls falsely claiming to offer plans issued by well known-health insurance companies. The Truth in Caller ID Act prohibits telemarketers from manipulating caller ID information with the intent to harm, defraud or wrongfully obtain anything of value. According to the FCC’s investigation, one of the companies’ allegedly spoofed robocalls “caused at least one company whose caller IDs were spoofed to become overwhelmed with angry call-backs from aggrieved consumers.” One of the telemarketers also apparently admitted that he placed millions of spoofed calls each day, including to numbers on the Do Not Call list. FCC acting Chairwoman Jessica Rosenworcel issued a statement commenting on the agency’s “largest fine ever,” in which she noted that the “individuals involved didn’t just lie about who they were when they made their calls—they said they were calling on behalf of well-known health insurance companies on more than a billion calls. That’s fraud on an enormous scale.”
CFPB sues student loan debt-relief operation
On March 16, the CFPB sued a California-based student loan debt relief company, its owner, and manager (collectively, “defendants”) for allegedly charging borrowers more than $3.5 million in unlawful advance fees. The complaint alleged that between 2015 and 2019, the defendants violated the Telemarketing Sales Rule (TSR) and the CFPA by unlawfully marketing and enrolling borrowers in the company’s purported debt relief services. Defendants allegedly charged and collected advance fees from borrowers with federal student loans to file paperwork on their behalf in order to access free Department of Education debt-relief programs. According to the Bureau, the defendants violated the TSR by requesting and receiving payment of fees before renegotiating, settling, reducing, or altering the terms of at least one debt pursuant to an agreement, and before the consumer made at least one payment pursuant to that agreement. The Bureau also alleged that the owner defendant formed a California limited liability company (relief defendant) and unlawfully transferred a portion of the funds received from the advance fees into the relief defendant’s bank account. The complaint seeks injunctive relief, as well as restitution and civil money penalties. The complaint also seeks to have the relief defendant disgorge or compensate consumers for the funds it received.