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CFPB sues company for marketing of high-yield CDs
On July 6, the CFPB filed a complaint in the U.S. District Court for the Southern District of New York against a Delaware financial-services company operating in Florida and New York along with its owner (collectively, “defendants”) for allegedly violating the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by making misleading marketing representations when advertising its high yield CD accounts. The Bureau's complaint alleges that since August 2019, the company took more than $15 million from at least 400 consumers. According to the complaint, the defendants engaged in four separate deceptive acts or practices by: (i) falsely representing that consumers’ deposits into the high yield CD accounts would be used to originate loans for healthcare professionals, when in fact, the company never used the deposits to originate loans for healthcare professionals, never sold a loan to a bank or secondary-market investor, and never entered into a contract with a buyer or investor to purchase a loan; (ii) concealing the company’s true business model by falsely representing that the consumers’ deposits, when not being used to originate healthcare loans, would be held in an FDIC- or Lloyd’s of London-insured account or a “cash alternative” or “cash equivalent” account, when in reality, consumers’ deposits were, among other things, invested in securities; (iii) falsely describing the company as a commercial bank and claiming their high yield CD accounts were comparable to a traditional savings accounts with a guaranteed return, when in fact, the company was not a commercial bank, and consumers’ deposits were actively traded in the stock market or used in securities-backed investments; and (iv) falsely representing that past high yield CD accounts allegedly paid interest at rates between 5 percent and 6.25 percent prior to 2019; however, the company did not offer CDs until August 2019, and “consumers’ principals was neither guaranteed nor insured.” Among other things, the Bureau seeks monetary relief, consumer redress, injunctive relief, and a civil money penalty.
Fed enforcement action targets flood insurance
On July 2, the Federal Reserve Board announced an enforcement action against a West Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $24,500 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 $2,000 per violation.
CFPB announces Consumer Financial Protection Week
On July 6, the CFPB announced the launch of Consumer Financial Protection Week from July 14 through July 17. Over the course of four days, the Bureau is hosting or participating in multiple virtual events, including (i) a tutorial and overview of the HMDA data browser; (ii) a discussion on the Bureau’s supervisory and enforcement prioritized assessment approach; and (iii) a discussion on the Bureau’s Taskforce on Federal Consumer Financial Law.
DOJ settles with Maryland car dealership for ECOA violations
On July 2, the DOJ announced a settlement with a Maryland used car dealership and its owner and manager (collectively, “defendants”) resolving allegations that the defendants violated ECOA by offering terms of credit based on race to consumers seeking to purchase and finance used cars. As previously covered by InfoBytes, in September 2019, the DOJ announced it filed a lawsuit in the U.S. District Court for the District of Maryland alleging that between September 2017 and April 2018, compliance testing done by the DOJ concluded that the defendants’ “actions, policies, and practices discriminate against applicants on the basis of race with respect to credit transactions. . .by offering more favorable terms to white testers than to African American testers with similar credit characteristics.” Specifically, the complaint alleged that African American testers were, among other things, (i) told they needed higher down payment amounts than white testers for the same car; (ii) quoted higher bi-weekly payments for “buy here, pay here” financing than white testers for the same car; and (iii) not offered to fund down payments in two installments, as compared to white testers.
The consent order, which is subject to court approval and does not assess a monetary penalty, requires the dealership to, among other things, (i) develop written policies designed to prevent discrimination and ensure compliance with ECOA, including standardizing procedures for all credit applicants to reduce individual discretion in determining terms and conditions of credit; (ii) post and display a non-discrimination notice; (iii) attend ECOA training; and (iv) engage in on-going compliance monitoring and recordkeeping and reporting requirements with the DOJ.
Fed issues enforcement action for flood insurance violations
On June 30, the Federal Reserve Board announced an enforcement action against a Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses an $8,500 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 $2,000 per violation.
SEC issues two separate whistleblower awards totaling over $800,000
On June 23, the SEC announced a $125,000 award to a whistleblower in an enforcement action. According to the press release, the whistleblower’s “information and assistance helped both the SEC and another agency bring successful actions against the perpetrator of a fraudulent securities offering.” The formal order notes that the whistleblower’s information helped the SEC and another agency discover “a fraudulent scheme that preyed on a vulnerable investor community” and that the whistleblower provided assistance to the SEC and the other agency throughout the investigation.
Additionally, on June 19, the SEC announced a nearly $700,000 award to a whistleblower in an enforcement action. According to the press release, the whistleblower’s “significant information helped the agency bring a successful enforcement action that resulted in the return of money to harmed investors.” The formal order notes that the whistleblower reported the concerns internally “in an effort to remedy the conduct,” and provided ongoing assistance to the agency throughout the investigation.
These press releases also noted that as of June 23, the SEC has awarded 85 individuals a total of approximately $501 million in whistleblower awards since its first award in 2012.
CFPB settles with contract for deed companies on credit reporting violations
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”
FDIC adds flood insurance penalty information to enforcement manual
On June 18, the FDIC announced an update to its “Formal and Informal Enforcement Actions Manual,” regarding the assessment of mandatory civil money penalties for certain pattern and practice violations of the National Flood Insurance Act (Act). The Act requires the FDIC to assess a penalty of up to $2,000 (adjusted annually for inflation) for each violation per loan against an insured depository institution. The FDIC will use the following two-step process to calculate the mandatory penalties for violations: (i) determine the base penalty, which takes into account the type and repeat nature of the violations; and (ii) apply the Institution Asset Size Factor, which takes into account the institution’s asset size based on the last Call Report. The manual also describes the difference between “Tier 1” violations and “Tier 2” violations and the base penalty for each.
Louisiana allows financial institutions to use e-signatures
On June 9, the Louisiana governor signed HB 722, which provides that “[e]lectronic signatures used in transactions by and with financial institutions are enforceable to the full extent of the law.” Specifically, HB 722 states that financial institutions may submit evidence in electronic signature disputes proving that the purported signer’s electronic signature is valid and enforceable, including evidence showing that the purported signer (i) “received a direct or indirect benefit or value from the transaction, such as the deposit of funds into the purported signer’s preexisting account with the financial institution;” (ii) received loan proceeds; or (iii) paid a debt. The act takes effect August 1.
FTC settlement requires retailer to provide transaction records to identity theft victims
On June 10, the FTC announced a settlement to resolve Fair Credit Reporting Act (FCRA) allegations against a Wisconsin-based retailer for failing to provide the proper transaction records to identify theft victims. According to the FTC, this is the first time the Commission has used its authority under Section 609(e) of the FCRA, which requires companies to provide identity theft victims with “‘application and business transaction records’ evidencing any transactions that the victim alleges to be the ‘result of identity theft’” within 30 days of being requested. The FTC’s complaint alleged that from February 2017 through March 2019, the retailer implemented several changes to its policy, which limited the information that identity theft victims could obtain. The retailer also allegedly refused to directly provide victims with detailed order information, stating it would only share information if the request came directly from law enforcement. Moreover, the FTC claimed that the retailer did not provide the information it was supplying within the 30-day window required by the FCRA, and on several occasions, failed to issue a denial of a victim’s request within 30 days. These unlawful actions, the FTC alleged, violated the FTC Act and the FCRA, and only ended six months after the retailer received a civil investigative demand from the FTC. Under the terms of the settlement, the retailer has agreed to pay a $220,000 civil penalty to settle the claims and must provide identify theft victims, within 30 days, valid verification of their identity and the identity theft, including business transaction records related to the theft. The retailer must also provide a notice on its website to provide identity theft victims information on how to obtain application and business records, and certify that it has provided all such records to victims who were previously denied access.