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On June 14, the CFPB announced a proposed settlement, subject to approval by a federal district court, with a company that manages student loans for a defunct for-profit educational institution resolving allegations it provided substantial assistance to the institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act (CFPA). As previously reported by InfoBytes, the Bureau filed suit against the now-defunct for-profit institution in February 2014. The Bureau’s complaint against the institution alleged that the institution offered first-year students no-interest short-term loans to cover the difference between the costs of attendance and federal loans obtained by students. The complaint asserts that the institution then forced borrowers into “high-interest, high-fee” private student loans without providing borrowers an adequate opportunity to understand their loan obligations, when their short-term loans became due. In the complaint in the current matter, filed the same day as the proposed stipulated judgment, the Bureau alleges that the management company: (i) was substantially involved in the creation and operation of the loan program, including raising money and overseeing the origination and servicing of the loans; and (ii) knew, or was reckless in not knowing, the risks associated with the loan program. The proposed stipulated judgment requires the company to (i) cease enforcement and collection efforts on all outstanding loans associated with the program; (ii) discharge all outstanding loans associated with the program; and (iii) direct credit reporting agencies to delete consumers’ trade lines associated with the loan program. The company must also provide notice of these actions to affected consumers. The proposed judgment does not include a monetary penalty or require refunds to consumers.
On May 17, the CFPB announced it filed a lawsuit in the U.S. District Court for the Eastern District of New York against a New York debt-collection law firm. According to the Bureau’s complaint, between 2014 and 2016 the law firm allegedly initiated more than 99,000 collection lawsuits in an attempt to collect debts through reliance on “non-attorney support staff, automation, and both a cursory and deficient review of account files,” in violation of both the FDCPA and the Consumer Financial Protection Act. The Bureau alleges the lawsuits contained names and signatures of attorneys despite those attorneys “not being meaningfully involved in reviewing the merits of the lawsuits,” including not reviewing pertinent documentation related to the debts, such as account applications, billing statements, payment histories, and the terms and conditions governing an account. The law firm allegedly did not perform reviews of the contracts related to debt sales, despite filing lawsuits on behalf of debt buyers that have been accused of unlawful debt collection practices. The Bureau is seeking an injunction, damages, redress to consumers, and the imposition of a civil money penalty.
On May 2, the CFPB announced that it had filed a lawsuit against Utah-based credit repair telemarketers and their affiliates (defendants) for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). According to the complaint filed in the U.S. District Court for the District of Utah, the CFPB alleges the defendants charged consumers a fee for telemarketed credit repair services when they signed up for the services, and then monthly thereafter, without (i) waiting for the timeframe in which they represented their services would be provided to expire; and (ii) demonstrating that the promised results have been achieved, in the form of a consumer report issued more than six months after those results were achieved, as required by the TSR. Additionally, the CFPB alleges that certain defendants made false and misleading claims constituting deceptive acts under the CFPA. Specifically, the CFPB alleges those defendants marketed that guaranteed, or high-likelihood, loans or rent-to-own housing offers would be available through affiliates after signing up for credit repair services when in actuality, the products were not available. The CFPB is seeking restitution, civil money penalties, and injunctive relief against the defendants.
On March 21, the U.S. District Court for the Northern District of Georgia partially granted the CFPB’s motion for summary judgment against a New York-based company and three individuals for allegedly violating the CFPA and the FDCPA in a debt collection operation, but denied the motion for the remaining defendants—a Georgia-based company and one individual—determining there was a genuine issue of material fact. As previously covered by InfoBytes, in March 2015, the CFPB filed a lawsuit against participants in the debt collection operation, alleging that the participants attempted to collect debt that consumers did not owe or that they were not authorized to collect. Further, the CFPB alleged that the participants used harassing and deceptive techniques, including placing robocalls through a telephone broadcast service provider to millions of consumers, stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. As a result, according to the CFPB’s allegations, the participants received millions of dollars in profits from the targeted consumers. The CFPB moved for summary judgment on all claims.
The court granted the motion on all claims against the New York-based company and three individuals, concluding that they committed multiple violations of the CFPA and the FDCPA through, among other things, the robocalls, false legal threats, and the processing of consumer payments. With respect to the CFPA claims against certain individuals, the court found that they provided “substantial assistance” to the other participants in the operation as they committed actions in violation of the CFPA, and therefore were liable themselves. With respect to the Georgia-based company and one individual, the court concluded that there was a genuine issue of material fact as to whether either qualified as a “debt collector” under the FDCPA and, therefore denied the CFPB’s motion as to those claims. Because there are remaining issues as to some of the participants’ liability, the court concluded that a ruling on damages would be premature.
On March 15, the CFPB and the New York Attorney General (NYAG) filed opening briefs in the U.S. Court of Appeals for the 2nd Circuit in their appeal of the Southern District of New York’s (i) June 2018 ruling that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional; and (ii) the September 2018 order dismissing the NYAG’s claims under the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the Bureau and the NYAG filed a lawsuit in February 2017, alleging that a New Jersey-based finance company and its affiliates (defendants) engaged in deceptive and abusive acts by misleading first responders to the World Trade Center attack and NFL retirees with high-cost loans by mischaracterizing loans as assignments of future payment rights, thereby causing the consumers to repay far more than they received. After the defendants moved to dismiss the actions, the district court allowed the NYAG’s claims to proceed under the CFPA, even though it had dismissed the Bureau’s claims, but then reversed course. Specifically, in September 2018, the court concluded that the remedy for Title X’s constitutional defect (referring to the Bureau’s single-director structure, with a for-cause removal provision) is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. (Covered by InfoBytes here.)
In its opening brief to the 2nd Circuit, the Bureau argues that the district court erred when it held that the for-cause removal provision of the single-director structure is unconstitutional. According to the Bureau, the single director “does not undermine the President’s oversight. If anything, the Bureau’s single-director structure enhances the President’s ‘ability to execute the laws…’” because the President can still remove the director for cause, which allows the director to be held responsible for her conduct. In the alternative, the CFPB argued that should the court find the for-cause removal provision unconstitutional, the proper remedy is to sever the provision from Title X in accordance with the statute’s severability clause and not hold the entire CFPA invalid.
In a separate brief, the NYAG makes similar constitutional and severability arguments as the Bureau, but also argues that even if the entirety of Title X were to be held invalid, the state law claims should survive under the federal Anti-Assignment Act.
On March 5, the U.S. District Court for the District of South Carolina affirmed the recommendation of a Magistrate Judge and denied the motion of a law firm, one of its partners, and others’ (collectively, “defendants”) to dismiss an action alleging that the defendants violated the Federal Anti-Assignment Act (FAAA) and the Racketeer Influenced and Corrupt Organization Act (RICO). These alleged violations were based on the advance purchase of future military pension and disability benefits in exchange for current lump sum payments. According to the report of the Magistrate Judge, five military veterans (collectively, “plaintiffs”) alleged that the defendants operated a coordinated scheme to generate leads from veterans seeking money, and connected veterans to brokers and purchasers in order for the veteran to sell future pension and disability payments for a lump sum wire transfer. The plaintiffs also alleged the operators required the veterans to execute an insurance policy or structured asset agreement to ensure the loan is fully repaid upon the veteran’s death. The Magistrate Judge recommended the motions be denied, concluding that the plaintiffs sufficiently pled the details of the alleged scheme and that the defendants violated the FAAA by inducing veterans to enter into contracts to sell their retirement or disability benefits in advance of the date they are due and payable. Moreover, the Magistrate Judge found that the plaintiffs sufficiently alleged the individual plaintiffs violated RICO by engaging in a criminal enterprise that “coordinated various corporations and websites to buy the plaintiffs’ and other veterans’ benefits and funnel the proceeds through [a defendant]’s account.” Upon review of the report, the district court found “no clear error” by the Magistrate Judge, agreed with the recommendations, and denied the motions to dismiss.
As previously covered by InfoBytes, one of the individual defendants was recently fined $1 in civil money penalties by the CFPB for allegedly violating the Consumer Financial Protection Act by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments.
On February 25, the CFPB petitioned the U.S. District Court for the Southern District of New York for an order requiring a debt collection law office to comply with a civil investigative demand (CID) issued by the Bureau in June 2017. The CID requested information from the debt collection firm as part of a Bureau investigation into whether debt collectors, furnishers, or other persons associated with the collection of debt and furnishing of information have engaged or are engaging in unfair, deceptive, or abusive acts or practices in violation of the CFPA, FDCPA, and FCRA. According to the petition, the firm partially responded but withheld several responses asserting that doing so would require the firm's principal to violate professional responsibility rules in the states of New York and New Jersey. Withheld information, the Bureau claims, includes telephone calls and written correspondence with indebted consumers, disputes with consumers over the firm's credit reporting activities to third party agencies, and service contracts with creditors on whose behalf the firm collects debt. The Bureau argued that the court should direct the law firm to comply with the CID because, aside from following all applicable procedural requirements for the issuance of a CID contained within the CFPA, it “has shown that the investigation is being conducted for a legitimate purpose, that the inquiries may be relevant to that purpose, that the information sought is not already within the Bureau's possession, and that the administrative steps required by the [CFPA] and its implementing regulations have been followed. . . .” The Bureau further requested an order that the firm show cause and explain why it should not be compelled to comply with the CID.
On February 26, the FTC announced its coordination with the CFPB to reauthorize their memorandum of understanding (MOU), which outlines the two agencies’ cooperation under the Consumer Financial Protection Act to prevent duplication of efforts and ensure consistency. The interagency agreement outlines processes for, among other things, coordinated law enforcement activities; consultation on rulemaking activities, including rulemaking regarding prohibitions on unfair, deceptive, and abusive acts or practices; and coordinated sharing of supervisory and examination information, strategic and operational planning, consumer complaint information, and consumer education efforts. The MOU also addresses provisions related to information sharing and claims of confidentiality.
On February 6, the CFPB announced a settlement with an Indiana-based payday retail lender and affiliates (companies) in seven states to resolve alleged violations of the Consumer Financial Protection Act (CFPA), Truth in Lending Act (TILA), and Gramm-Leach-Bliley Act (GLBA) privacy protections. The CFPB alleges that the companies engaged in unfair acts or practices, failed to properly disclose annual percentage rates, and failed to provide consumers with required initial privacy notices.
Specifically, the Bureau alleges that the companies violated CFPA’s UDAAP provisions by, among other things, (i) failing to implement processes to prevent unauthorized charges, including those resulting from unauthorized draws on borrowers’ bank accounts; (ii) requiring loan applicants to provide contact information for their employers, supervisors, and four personal references, and then repeatedly calling employers to seek payments when borrowers became delinquent; (iii) disclosing the borrower’s financial information during those calls and, in certain instances, asking the third party to make payments on the loan; (iv) misusing personal references for marketing purposes; and (v) advertising check-cashing and telephone reconnection services they were no longer providing.
While the companies have not admitted to the allegations, they have agreed to pay a $100,000 civil money penalty and are prohibited from continuing the illegal behavior.
CFPB files proposed consent order banning certain Canadian and Maltese payday lenders from U.S. consumer lending
On February 1, the CFPB and a group of payday lenders, including individuals and corporate officials based in Canada and Malta (collectively, “defendants”), filed a proposed consent order with the U.S. District Court for the Southern District of New York that would resolve allegations that the defendants violated the Consumer Financial Protection Act. According to the Bureau’s press release, the defendants allegedly (i) misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws; (ii) misrepresented that loan agreements were not subject to federal or state laws; (iii) misrepresented that non-payment would result in lawsuits, arrests, imprisonment, or wage garnishment; and (iv) conditioned loan agreements upon irrevocable wage assignment clauses. Under the terms of the proposed order, the defendants would be, among other things, (i) permanently banned from consumer lending in the U.S.; (ii) permanently restrained from the collection or sale of existing U.S. consumer debts; and (iii) subject to certain reporting and recordkeeping requirements. The proposed order does not impose a fine on the defendants.
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Henry Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates an Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference