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On November 22, the CFPB announced a settlement with an employment background screening company resolving allegations that the company violated the FCRA. In the complaint, the Bureau asserts that the company failed to “employ reasonable procedures to assure maximum possible accuracy” in the consumer reports it prepared. Specifically, the Bureau claims that until October 2014, the company matched criminal records with applicants based on only two personal identifiers, which created a “heightened risk of false positives” in commonly named individuals. The company also had a practice of including “high-risk indicators,” sourced from a third party, in its consumer reports and did not follow procedures to verify the accuracy of the designations. Additionally, the Bureau asserts that the company failed to maintain procedures to ensure that adverse public record information was complete and up to date, resulting in reporting outdated adverse information in violation of the FCRA. Under the stipulated judgment, in addition to injunctive relief, the company will be required to pay $6 million in monetary relief to affected consumers and a $2.5 million civil money penalty.
On November 6, the CFPB filed an amicus brief with the Court of Appeals of Maryland in a case challenging a private class action settlement against a structured settlement company, which purports to “release the Bureau’s claims in a pending federal action, to enjoin class members from receiving benefits from the Bureau’s lawsuit, and to assign any benefits the Bureau might obtain for class members to the class-action defendants.” As previously covered by InfoBytes, in 2017, the U.S. District Court for the District of Maryland allowed a UDAAP claim brought by the CFPB to move forward against the same structured settlement company, where the Bureau alleged the company employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. A similar action was also brought by the Maryland attorney general against the company. In addition to the state and federal enforcement actions, the plaintiffs filed a private class action against the company, and a trial court approved a settlement. The Court of Special Appeals reversed the lower court’s approval of the settlement, concluding that it “interferes with the [state’s] and Bureau’s enforcement authority.” The company appealed.
In its brief to the Maryland Court of Appeals, the Bureau argues that the Court of Special Appeals decision should be affirmed because the settlement provisions “threaten to interfere with the Bureau’s authority under the [Consumer Financial Protection Act] in two significant ways.” Specifically, the Bureau argues that the settlement (i) could interfere with the Bureau’s statutory mandate to remediate consumers harmed through the Civil Penalty Fund; and (ii) would interfere with the Bureau’s authority to use restitution to remediate consumer harm. The Bureau states that “the risk of windfalls to such wrongdoers could force the Bureau to decline to award Fund payments to victims,” and would “threaten to offend basic principles of equity.”
District Court orders millions in restitution and civil penalties against two foreclosure relief companies
On November 4, the U.S. District Court for the Western District of Wisconsin ordered restitution and disgorgement, civil penalties, and permanent injunctive relief in an action brought by the CFPB against two former foreclosure relief companies and their principals (collectively, “defendants”) for violations of Regulation O. As previously covered by InfoBytes, in 2014, the CFPB, FTC, and 15 state authorities took action against foreclosure relief companies and associated individuals, including the defendants, alleging the use of deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. Specifically, the CFPB alleged that the companies and individuals (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers, in violation of Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule. Among other things, the court order holds company one and its principals jointly and severally liable for over $18 million in restitution, while company two and its same principals are jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
On October 25, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in September. According to the press release, the FDIC issued 24 orders, which include “one consent order; five removal and prohibition orders; six assessments of civil money penalty; three voluntary terminations of deposit insurance; six section 19 orders; and three terminations of orders of restitution.”
Among other actions, the FDIC assessed separate civil money penalties (CMPs) against four banks for alleged violations of the Flood Disaster Protection Act:
- New Jersey-based bank CMP: Failure to (i) notify borrowers that they should obtain flood insurance; and (ii) follow force-placement flood insurance procedures;
- Wisconsin-based bank CMP: Failure to (i) maintain flood insurance coverage for the term of a loan; (ii) follow force-placement flood insurance procedures; and (iii) provide written notice to borrowers concerning flood insurance coverage prior to extending, increasing, or renewing a loan;
- Wisconsin-based bank CMP: Failure to (i) follow escrow requirements for flood insurance; and (ii) provide borrowers with notice of the availability of federal disaster relief assistance;
- Wisconsin-based bank CMP: Failure to (i) obtain flood insurance coverage on loans at the time of origination; (ii) obtain adequate flood insurance; (iii) follow escrow requirements for flood insurance; (iv) follow force-placement flood insurance procedures; and (v) provide borrowers with notice of the availability of federal disaster relief assistance.
The FDIC also assessed a CMP against an Oregon-based bank for allegedly violating RESPA and the TCPA by (i) placing telemarketing calls to consumers listed on the Do-Not-Call registry; and (ii) using an automated dialing system to send pre-recorded calls or text messages to consumers’ cell phones.
Additionally, the FDIC entered a notice of charges and hearing against a Georgia-based bank relating to alleged weaknesses in its Bank Secrecy Act compliance program.
On October 16, Maxine Waters, Chairwoman of the House Financial Services Committee, released a majority staff report titled, “Settling for Nothing: How Kraninger’s CFPB Leaves Consumers High and Dry,” which details the results of the majority’s investigation into the CFPB’s handling of consumer monetary relief in enforcement actions since Richard Cordray stepped down as director in November 2017. The report argues that, under the leadership of Acting Director Mick Mulvaney and Director Kathleen Kraninger, the Bureau’s enforcement actions “have declined in volume and failed to compensate harmed consumers adequately.” Specifically, the report states that under Cordray’s leadership, “the average enforcement action by the [Bureau] returned $59.6 million to consumers, as compared to an average $31.4 million per action under Mulvaney,” but notes that $335 million of the $345 million in consumer relief obtained during Mulvaney’s tenure resulted from one settlement with a national bank (previously covered by InfoBytes here). With respect to Director Kraninger, the report acknowledges that the pace of enforcement actions increased compared to Mulvaney; however, the Bureau ordered “only $12 million in consumer relief” during her first six months, as compared to “approximately $200 million in consumer relief” during a similar six months of Cordray’s tenure.
The report highlights specifics from the investigation into settlements announced in early 2019, which resulted in civil penalties but not consumer monetary relief. The report argues that, based on the review of the internal documents received from the Bureau, the lack of consumer relief was due to the “politicization of the [Bureau],” which “contributed to the decline in the [Bureau]’s enforcement activity” rather than the merits of the enforcement actions, notwithstanding that the internal documents reflect the assessment of certain weaknesses in the Bureau’s positions. The report attributes such politicization to the introduction of political appointee positions throughout the Bureau that oversee each of the divisions. The report concludes by urging Congress to pass the Consumers First Act (HR 1500), which, among other things, seeks to limit the number of political appointees at the Bureau.
On September 12, the CFTC issued an order against an Illinois-based futures commission merchant imposing a $1.5 million fine for allegedly failing to protect its systems from cybersecurity threats and not alerting its customers in a reasonable timeframe after a breach occurred. According to the order, the CFTC claims the merchant failed to adequately implement and comply with cybersecurity policies and procedures as well as a written information systems security program, and “policies and procedures related to customer disbursements by its employees.” The CFTC contends that because of these failures the merchant’s email system was breached, which allowed access to customer information and convinced the merchant’s customer service specialist to mistakenly wire $1 million in customer funds. While the merchant approved reimbursement of the funds shortly after discovery, instituted measures to prevent additional fraudulent transfers, and notified regulators the same day, the CFTC alleges it failed to disclosure the breach or the fraudulent wire in a timely manner to current or prospective customers. Under the terms of the order, the merchant must pay a civil money penalty of $500,000 plus post-judgment interest, as well as restitution of $1 million. The merchant’s previous reimbursement of customer funds when the fraud was discovered was credited against the restitution amount.
On August 30, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in July. The list reflects that the FDIC issued fourteen orders and one notice of charges, which include “four stipulated consent orders; four terminations of consent orders; four Section 19 orders; one stipulated civil money penalty order; one stipulated removal and prohibition order; and one notice of charges and hearing.”
Among other actions, the FDIC assessed a civil money penalty (CMP) against a Louisiana-based bank for alleged violations of the Flood Disaster Protection Act, including, among other things, (i) failing to obtain flood insurance coverage on loans at the time of origination, increase, renewal, or extension; or (ii) failing to maintain flood insurance coverage for the term of a loan secured by property located or to be located in a special flood hazard area.
On July 26, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in May and June. The list reflects that the FDIC issued 15 orders, which include “one stipulated consent order; three termination of consent orders; five Section 19 orders; one stipulated civil money penalty order; two stipulated removal and prohibition orders; two voluntary terminations of deposit insurance; and one adjudicated civil money penalty order.”
Among other actions, the FDIC assessed a civil money penalty (CMP) against a Wisconsin-based bank for alleged violations of the Flood Disaster Protection Act and National Flood Insurance Act, including, among other things, failing to (i) obtain flood insurance coverage on loans at the time of origination; (ii) obtain adequate flood insurance coverage on loans; (iii) meet escrow requirements for flood insurance; (iv) follow force-placement flood insurance procedures; or (v) provide borrowers with notice of the availability of federal disaster relief assistance when reviewing loans or within a reasonable timeframe.
The FDIC Board also adopted and affirmed an administrative law judge’s recommended decision and issued a CMP against a Louisiana-based bank for alleged violations of the National Flood Insurance Act. The findings stem from a 2015 compliance examination, and included failures to (i) obtain or maintain flood insurance coverage; (ii) obtain sufficient flood insurance coverage; and (iii) properly notify borrowers of coverage discrepancies.
On May 16, 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. The new enforcement actions include personal cease-and-desist orders, removal and prohibition orders, notice of charges against an individual, and terminations of existing enforcement actions against individuals and banks. The release also includes two civil money penalty orders discussed below.
On April 9, the OCC assessed $35,000 in civil money penalties against an Oklahoma-based bank for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its implementing regulations. Additionally, on April 24, the OCC assessed $136,000 in civil money penalties against a Texas-based bank for an alleged pattern or practice of failing to ensure timely notification and force-placement of flood insurance on property in special flood hazard areas, in violation of the National Flood Insurance Act.
On May 1, the CFPB announced a $3.9 million settlement with a student loan servicing company. The settlement resolves allegations that the company engaged in unfair practices by failing to make adjustments to loans made under the Federal Family Education Loan Program to account for circumstances such as deferment, forbearance, or entrance into the Income-Based Repayment (IBR) program. According to the consent order, between 2005 and 2015, certain accounts requiring manual adjustments to principal loan balances based on program participation were allegedly placed in “queues” to process the adjustments, which took, in some cases, years to process. The servicer allegedly did not inform affected borrowers that it did not complete the processing of their principal balances associated with the deferment, forbearance, or IBR participation. The queues allegedly resulted in some borrowers paying off incorrect loan amounts and other borrowers experiencing delays in loan consolidation while waiting for the servicer to adjust principal balances. In addition to the $3.9 million civil money penalty, the consent order requires the servicer to make the proper adjustments to the principal balances of the affected accounts or pay restitution to borrowers who paid off loans with inaccurate loan balances. The servicer is also required to comply with certain compliance monitoring, reporting, and recordkeeping requirements.
- 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
- Sasha Leonhardt to discuss "Cybersecurity basics for compliance staff" at a NAFCU webinar
- 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
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the MBA's Servicing Solutions Conference & Expo 2020
- 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