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District court approves final settlement resolving breach of contract and conversion claims related to debit card overdraft fees
On May 28, the U.S. District Court for the Southern District of California granted final approval to a roughly $24.5 million settlement resolving class action allegations that a credit union unfairly charged optional overdraft protection fees on certain debit card transactions. In 2017, the plaintiffs challenged the credit union’s practices, alleging breaches of contract, covenant of good faith and fair dealing, and conversion. Specifically, the plaintiffs challenged whether the language in the accountholder agreements prohibited the credit union from assessing and collecting optional overdraft protection fees on certain debit card transactions that were authorized against positive available account balances. In 2018, the court granted in part and denied in part the credit union’s motion to dismiss, allowing the plaintiffs’ breach of contract and conversion claims to proceed. The parties entered into settlement discussions, and reached an agreement. Under the terms of the settlement, the credit union will provide $24.5 million in relief to class members, along with approximately $6.1 million in attorneys’ fees. However, the court denied a request to reimburse plaintiffs’ expert witness for work completed after the settlement agreement was preliminary approved last year, stating “as a matter of awarding funds from the [s]ettlement [f]und, the [c]ourt cannot find reasonable the $109,100.00 price tag for an exercise that appears to post-date the preliminary approval order and which merely confirmed what the parties already understood to be the class’s potential recovery.”
On March 21, the Federal Reserve Board announced the release of its biennial report on debit card transactions in 2017. The report is the fifth in a series published every two years pursuant to Section 920 of the Electronic Fund Transfer Act (EFTA). As in prior years, the 2017 report reflected that issuers’ costs of authorizing, clearing, and settling debit card transactions (excluding issuer fraud losses) varied significantly across respondents. Among other things, data compiled in the report estimates that (i) in 2017, payment card networks processed 68.5 billion debit and prepaid card transactions valued at $2.62 trillion in the U.S.; (ii) debit and prepaid card fraud losses to all parties increased to 11.2 basis points in 2017 from 10.3 basis points in 2015; and (iii) the median covered issuer had average fraud prevention and data security costs of 1.5 cents per transaction, down from 1.7 in 2015.
New Mexico Attorney General announces settlement with payment card companies to resolve excessive interchange fees
On April 18, the New Mexico Attorney General’s office announced a $3.4 million settlement with the country’s two largest payment card networks to resolve allegations that the companies charged excessive interchange fees during credit and debit card transactions. In 2014, the state filed a lawsuit claiming that the companies’ conduct violated New Mexico’s Antitrust Act and Unfair Practices Act along with various common law theories, including unjust enrichment and civil conspiracy. According to the terms of the settlement, the companies are required to pay a total of $3.4 million into the state’s settlement fund for “law enforcement efforts to prevent and prosecute financial fraud or unfair or deceptive acts or practices, including anti-competitive behavior, and to investigate, enforce, and prosecute other illegal conduct related to financial services or consumer protection and antitrust laws.” In agreeing to the terms of the settlement, the companies did not admit any liability or wrongdoing, did not admit the truth of any allegations or circumstances, and did not waive any defenses.
On March 15, the Mississippi governor signed House Bill 1338, which amends sections of the Mississippi Code by authorizing state chartered or domiciled banks that offer open-end credit to assess finance charges, credit service charges, and other fees and charges “at rates and amounts . . . that financial institutions domiciled in other states are permitted to impose and collect when extending credit to Mississippi customers. . . .” In doing so, the amendment strives to retain existing financial services within the state. The amendment takes effect July 1.
CFPB Encourages Alternatives to Deferred Interest Promotional Offers to Provide Transparency to Consumers
On June 8, the CFPB reported that it sent letters encouraging top retail credit card companies to consider consumer financing promotions that are more transparent than the often-used deferred-interest credit card. These deferred-interest cards offer no interest on the promotional balance, but only if it is paid off by the end of the promotional period. If any promotional balance remains when the promotional period ends, consumers are charged retroactive interest on the entire promotional balance from the time of purchase.
The CFPB suggests that a zero percent introductory interest rate is a better option for consumers who are sometimes confused by the retroactive interest in the deferred-interest products. Unlike with deferred interest, under 0% interest promotions, consumers are not assessed interest retroactively if the promotional balance is not paid in full by the end of the promotional period. As previously reported in InfoBytes, some consumers may have difficulty understanding the different credit terms when comparing deferred-interest promotions to zero interest promotions. According to the letters, because deferred-interest programs may be more difficult to understand than zero interest promotions, they require credit card companies to have robust compliance management systems and third party oversight measures to ensure consumers are fully informed of the true costs of the promotional financing.
In a blog post from June 8, the CFPB explains the differences between zero interest promotions and deferred-interest promotions, and offers examples of each promotion.
Connecticut Law Expands Credit Card Fraud Statutes, Addresses Penalties for Rent Collections on Foreclosed Property
On June 6, Connecticut Governor Dannel Malloy signed into law Public Act No. 17-26, which expands the statutes on credit card fraud to cover crimes involving debit cards—including payroll and ATM cards—and outlines larceny penalties for collecting rent on foreclosed property. Paper and electronic checks or drafts are excluded from the definition of debit card under revised measure. Additionally, the law specifies changes pertaining to how “notice of a card’s revocation must be sent for purposes of these crimes and expands certain credit card crimes to cover falsely loading payment cards (credit or debit cards) into digital wallets.” Regarding larceny penalties, the law provides that a “previous mortgagor of real property against whom a final judgment of foreclosure has been entered” cannot continue to collect rent after the final judgment if there is no lawful right to do so. Penalties vary from a class C misdemeanor to a class B felony depending on the amount involved. The law takes effect October 1.
On June 8, a U.S. District Court Judge sentenced a Filipino national to over five years in prison and two years of supervised release after pleading guilty to conspiracy to commit bank fraud last year. The defendant operated a $9 million international cybercrime operation that utilized stolen credit and debit accounts to process unauthorized financial transactions, according to an investigation led by the District of New Jersey U.S. Attorney’s Office. To obtain credit and debit card account information, the defendant engaged in computer hacking and ATM skimming, whereby millions of dollars were “monetized” through a “global network of ‘cashers’” who encoded the data onto counterfeit cards and then used the cards to withdraw money and make purchases.
On May 22, the Federal Reserve Board announced its lists of institutions that either are or are not exempt from the its debit card interchange fee standards found in Regulation II, which implements section 920 of the Electronic Fund Transfer Act (EFTA). The lists are intended to facilitate compliance by assisting payment card networks and others in determining which issuers qualify for the statutory exemption. The lists were generated from available data and contain institutions in existence on Dec. 31, 2016. Exempt institutions, together with their affiliates, have reported assets of less than $10 billion and are not subject to the interchange fee standards under the statute. Institutions that are not exempt have, either individually or together with their affiliates, reported assets of $10 billion or more, and therefore must comply with the interchange fee standards under the statute. Debit card issuers that do not appear on either of the lists must certify to their participating payment card networks that they are exempt from the interchange fee standards. The EFTA requires the Fed to biennially report on interchange fee revenue and costs incurred by debit card issuers and payment card networks. The Fed’s last report—for calendar-year 2015—cites interchange fees across all debit and general-use prepaid cards totaled $18.41 billion.
On November 30, the Fed announced the release of its annual report on debit card transactions in 2015. The report is the fourth in a series to be published every two years pursuant to Section 920 of the Electronic Fund Transfer Act (EFTA). As in prior years, the 2015 report reflected that issuers’ costs of authorizing, clearing, and settling debit card transactions (excluding issuer fraud losses) varied greatly across respondents. Data compiled in the report estimates that debit-card fraud losses to all parties (merchants, cardholders, and issuers) increased by 44 percent from 2013 to an estimated total of $2.41 billion in 2015. The median covered issuer had average fraud prevention and data security costs of 1.9 cents per transaction.
Today, the DOJ unsealed an eighteen-count indictment in Brooklyn, New York charging a Turkish citizen (Defendant) with organizing worldwide cyberattacks against at least three U.S. payment processors’ computer networks. The Defendant’s organization allegedly used “sophisticated intrusion techniques” to hack the computer systems, stealing prepaid debit card data and subsequently using the stolen data to make ATM withdrawals in which standard withdrawal limits were manipulated to allow for greater withdrawals. According to the indictment, the Defendant managed a group of co-conspirators responsible for distributing the stolen card information to “cashing crews” around the world, who then used the information to conduct tens of thousands of fraudulent ATM withdrawals and fraudulent purchases. Within two days – February 27 and 28, 2011 – the DOJ alleges that the “cashing crews withdrew approximately $10 million through approximately 15,000 fraudulent ATM withdrawals in at least 18 countries.” The remaining two operations, occurring in late 2012 and early 2013, resulted in ATM withdrawals of roughly $5 million and $40 million, respectively. The Defendant, along with other high-ranking members of the conspiracy, received the funds from the fraudulent operations via wire transfer, electronic currency, and personal delivery of U.S. and foreign currency. The Defendant was arrested in Germany on December 18, 2013, and was extradited to the United States on June 23, 2015. The charges against the Defendant follow previous charges against members of the conspiracy, including the arrest of a member of the New York cashing crew.
- Andrew W. Schilling to moderate "Expectations of in-house counsel from their law firm partners" at the ACI's 7th Annual Advanced Forum on False Claims and Qui Tam
- Buckley Webcast: Tips for navigating changes to the FHA recertification process
- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference
- Kari K. Hall and Michelle L. Rogers to discuss "Overdrafts and regulatory trends" at the CLE Alabama Banking Law Update
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the 17th Puerto Rican Symposium of Anti Money Laundering 2020 conference
- APPROVED Checkpoint Webcast: CFL overview
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference