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Massachusetts AG settles with federal loan servicer to resolve allegations of unfair and deceptive practices
On February 10, the Massachusetts attorney general announced a “first-of-its-kind” settlement with one of the nation’s largest federal student loan servicers, resolving allegations that the servicer engaged in unfair and deceptive practices by overcharging borrowers and improperly processing claims for public service loan forgiveness. As previously covered by InfoBytes, the AG filed a complaint in 2017 claiming the servicer, among other things, (i) failed to timely and properly process applications for income driven repayment (IDR) plans, thereby denying borrowers the opportunity to make qualifying payments under forgiveness programs; (ii) failed to properly count qualifying payments under the Public Service Loan Forgiveness program; (iii) failed to properly process certification forms in connection with the Teacher Education Assistance for College and Higher Education Grant program, causing grants to be converted into loans; and (iv) collected amounts not legitimately due and owing and failing to refund them.
Under the terms of the settlement, more than 200,000 Massachusetts borrowers will be able to submit a claim for a detailed audit. Should the audit identify a servicing error or misrepresentation, the servicer must “restore borrowers to their rightful statuses” under the federal loan forgiveness programs; however, if corrections cannot be made, the servicer is required to provide monetary relief to borrowers. The servicer is also is required to repay teachers whose grants were converted into loans erroneously and have not already received relief from the Department of Education, and make corrections for borrowers who experienced IDR application processing delays resulting in missed opportunities for making qualifying payments towards loan forgiveness. Further, the servicer must implement an enhanced quality assurance review practice to identify servicing errors, affected borrowers, as well as root causes for the errors.
States reach $4.2 million settlement to resolve credit card interest overcharges
On February 8, state attorneys general from Pennsylvania, Iowa, Massachusetts, New Jersey, and North Carolina entered into an assurance of voluntary compliance with a national bank to resolve allegations that it overcharged credit card interest for certain consumers. According to the investigating states, between February 2011 and August 2017, the bank allegedly failed to properly reevaluate and reduce the annual percentage rate (APR) for certain consumer credit card account holders who were entitled to a reduction, as required by the CARD Act and state consumer protection laws. The announcement follows a 2018 CFPB settlement, in which the bank agreed to provide $335 million in restitution to affected consumers (covered by InfoBytes here). At the time, the Bureau noted that it did not assess civil monetary penalties due to efforts undertaken by the bank to self-identify and self-report violations to the Bureau. The states also acknowledged that the bank self-identified issues with its APR reevaluation process through an internal compliance program. The bank denied liability or that it violated the states’ consumer protection laws and has agreed to pay $4.2 million to approximately 25,000 current and former affected consumers, which will be limited to consumers who received a payment of $500 or more in restitution from the bank for the original violation.
Court holds Arizona car dealerships violated TILA and CLA
On February 5, the U.S. District Court for the District of Arizona granted in part and denied in part summary judgment in favor of the FTC, concluding the owners of a car dealership with locations in Arizona and New Mexico (collectively, “defendants”) failed to include legally required information in violation of TILA and the Consumer Leasing Act (CLA). As previously covered by InfoBytes, in August 2020, the FTC brought charges against the defendants for violations of TILA, the CLA, and FTC Act, on the grounds that the defendants purportedly falsified consumers’ income and down payments on credit applications in order to make the consumers seem more creditworthy, which resulted in consumers “default[ing] at a higher rate than properly qualified buyers.” The FTC asserted that these advertising practices were deceptive in that they concealed the true nature and terms of the financing or leasing offers and thus were in violation of federal law for failing to disclose the required terms.
Subsequently, the corporate defendants stipulated to a permanent injunction and monetary judgment and the FTC moved for summary judgment against the co-owners. As against the owners, the court granted summary judgment in favor of the FTC on the TILA and CLA claims, concluding that the advertisements were “missing legally required information such as the terms of repayment or the annual percentage rate.” However, the court denied summary judgment as to the FTC Act claims, after the defendants provided declarations from a small sample of consumers admitting to knowing the down payment and income information was misreported. The court determined that based on the declarations, a reasonable jury could infer that “consumers were not likely deceived or misled, only led astray and persuaded to participate in a lie.” However, the court did not grant full relief requested by the FTC. In particular, the court did not grant summary judgment on the FTC Act claims and held it was premature to hold one of the owners individually responsible for the TILA and CLA claims. Provided these findings presented unresolved factual issues, the court found reason to delay the entry of judgment.
NYDFS details redlining issues from nonbank lenders
On February 4, NYDFS released a report on redlining in the Buffalo metropolitan area, concluding that there is a “distinct lack of lending by mortgage lenders, particularly non-depository lenders” to majority-minority populations and to minority homebuyers in general. Among other things, the report concluded that (i) while minorities in the Buffalo region comprise about 20 percent of the population, they receive less than 10 percent of total loans made in the region; (ii) nonbank lenders lent at a lower rate in majority-minority neighborhoods than depository institutions did; and (iii) several of the nonbank mortgage lenders did not have adequate fair lending compliance programs and do not make an effort to serve majority-minority neighborhoods. The report made numerous recommendations, including a recommendation to amend the New York Community Reinvestment Act (CRA) to cover nonbank mortgage lenders and a request that the OCC and the CFPB investigate federally regulated institutions serving the Buffalo area for violations of fair lending laws.
Additionally, NYDFS announced a settlement with a nonbank lender in connection with its lending to minorities and in majority-minority neighborhoods in Buffalo and Syracuse, New York. The settlement agreement found no evidence of intentional discrimination or fair lending law violations but rather weaknesses in the lender’s compliance program. The agreement outlines efforts the lender will take to “provide more meaningful access to residential loans and financing for minorities and individuals living in majority-minority neighborhoods” in Western and Central New York. Among other things, the lender will (i) develop a compliance management plan; (ii) increase marketing to majority-minority census tracts; (iii) create a $150,000 special financing program to increase loan originations for residents of majority-minority neighborhoods; and (iv) increase annual training.
FDIC assesses bank $12.5 million BSA penalty
On January 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in December. During the month, the FDIC issued 10 orders consisting of “three consent orders, one termination of consent order, three section 19 orders, two removal and prohibition orders and two orders to pay civil money penalties.” Among the orders, the FDIC issued a $12.5 million civil money penalty order against a New York-based bank resolving allegations that the bank violated the Bank Secrecy Act (BSA) and its implementing regulations from April 2014 through September 2018, including failing to comply with the FDIC’s December 2015 consent order, which required the bank to strengthen its BSA/anti-money laundering oversight. The $12.5 million civil money penalty is reflective of the “the financial resources and good faith of the [bank], the gravity of the violations by the [bank], the history of previous violations by the [bank], and such other matters[.]”
FTC provides annual ECOA summary to CFPB
On February 3, the FTC announced it recently provided the CFPB with its annual summary of work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B during 2020. The summary discusses, among other things, the following FTC research and policy development initiatives:
- The FTC submitted a comment letter in response to the CFPB’s request for information on ways to provide additional clarity under ECOA (covered by InfoBytes here). Among other things, the FTC noted that Regulation B explicitly incorporates disparate impact and offered suggestions should the Bureau choose to provide additional detail regarding its approach to disparate impact analysis. The FTC also urged the Bureau to remind entities offering credit to small businesses that ECOA and Regulation B may apply based “on the facts and circumstances involved” and that entities cannot avoid application of these statutes based solely on how they characterize a transaction or the benefits they claim to provide.
- The FTC hosted the 13th Annual FTC Microeconomics Conference, which focused on the use of machine-learning algorithms when making decisions in areas such as credit access.
- 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 ECOA and Regulation B.”
- The FTC continued to participate in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and the federal banking regulatory agencies. The Commission also joined the newly formed Interagency Fair Lending Methodologies Working Group with the aforementioned agencies in order “to coordinate and share information on analytical methodologies used in enforcement of and supervision for compliance with fair lending laws, including ECOA.”
The summary also highlights FTC ECOA enforcement actions, business and consumer education efforts on fair lending issues, as well as blog posts discussing fair lending safeguards and the use of artificial intelligence in automated decision-making.
FTC finalizes settlement with video conferencing company
On February 1, the FTC finalized a settlement with a video conferencing provider, resolving allegations that the company violated the FTC Act by misleading users about the levels of encryption offered for securing communications during meetings. As previously covered by InfoBytes, in November 2020, the FTC announced a proposed consent order with the video conferencing provider alleging, among other things, that the company failed to implement any measures to protect users’ security, failed to monitor service providers who had access to the network, lacked a systematic process for incident response, and allegedly increased users’ risk of remote video surveillance by strangers, even though the company “touted its level of encryption as a reason for customers and potential customers to use [its] videoconferencing services.” In a 3-2 vote, the FTC finalized the proposed settlement, which (i) prohibits the company misrepresenting its privacy and security practices; (ii) includes a mandated information security program, which requires the company to assess and document security risks, develop ways to manage and safeguard against such risks, and deploy additional methods, including multi-factor authentication, to protect against unauthorized access of the network; and (iii) requires the company to obtain biennial third-party assessments of its security practices.
Acting Chairwoman Slaughter and Commissioner Chopra issued two dissenting statements, with Slaughter arguing that the final order does not adequately address the company’s privacy failings, nor does it require the company to provide any recourse to affected users, despite “widespread opposition” to the proposed settlement. Chopra argues the FTC “[r]ush[ed] to a final approval of [the] settlement,” and urges the FTC to “think beyond its status quo approach of simply requiring more paperwork, rather than real accountability relying on a thorough investigation.”
FTC settles with training companies that charged consumers to obtain credit cards
On January 29, the FTC announced a settlement with two Nevada companies and two individuals (collectively, “defendants”), resolving allegations that the defendants violated the FTC Act, the Telemarketing Sales Rule, the Credit Repair Organizations Act, and the Consumer Review Fairness Act by charging consumers thousands of dollars to apply for numerous personal credit cards in order to pay for real estate investment training programs offered by other companies. According to the complaint, the training companies (many of which, the FTC claims, have been the subject of FTC enforcement actions for operating deceptive training schemes) pitch the defendants’ funding services to individuals who want to participate in the training companies’ programs and coaching about starting businesses or becoming real estate investors. However, the FTC claims that, in reality, the defendants are not lenders and do not actually provide any form of financing themselves. Rather, the defendants charge $3,000 or more to apply for multiple credit cards with total credit lines of at least $50,000 on behalf of the individuals—a practice known as “credit card stacking.” In addition, the FTC claims that the defendants inflated individuals’ annual incomes on credit card applications and told individuals they could anticipate earning around $100,000 if they used the training companies’ program, which individuals often purchased using credit cards they obtained from the defendants. Because most individuals did not earn the expected money, they incurred substantial credit card debt and experienced significant credit score declines.
The proposed settlement imposes a $2.1 million monetary judgment against the defendants, and permanently bans the defendants from, among other things, selling consumer credit services, misrepresenting the financial status of any consumer to a financial institution, engaging in business connected with the offer or sale of a credit repair service, and applying for or obtaining credit cards for consumers in exchange for a fee.
Acting director sets out CFPB priorities
On January 28, newly appointed CFPB acting Director, Dave Uejio, released a statement he sent to staff announcing his immediate priorities for the Bureau as: (i) relief for consumers facing hardship and economic crisis due to the Covid-19 pandemic, and (ii) racial equity. Acknowledging the recently released Covid-19 Supervisory Highlights (covered by InfoBytes here), Uejio stated he was “concerned” about the findings, which noted issues with mortgage servicing, auto loan servicing, student loan servicing, and small business lending (including banks' practice of only offering Paycheck Protection Program loans to pre-existing customers). Uejio stated that going forward, the Bureau will “take aggressive action to ensure that regulated companies follow the law and meet their obligations to assist consumers during the COVID-19 pandemic,” noting that companies will have already received or should expect to receive a letter dictating “remediat[ion] [to] all of those who are harmed” and should “change policies, procedures, and practices to address the root causes of harms.” Moreover, Uejio will be reversing policies put into place by the previous administration, including reinstating examinations of the Military Lending Act and rescinding “public statements conveying a relaxed approach to enforcement.”
Additionally, Uejio said fair lending enforcement is a “top priority,” calling it “time” for the CFPB to “take bold and swift action on racial equity.” Uejio noted plans to “elevate and expand existing investigations and exams,” as well as add new ones and focus broadly on “unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”
OCC releases recent enforcement actions
On January 21, 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 is a civil money penalty order against a Texas-based bank, which requires the payment of $382,500 for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its regulations.