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Financial Services Law Insights and Observations


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  • CFPB investigating bank’s account opening practices

    Federal Issues

    In September, the CFPB published documents related to an investigation into whether a national bank opened credit card accounts without customer authorization in violation of various federal laws and regulations, including the Fair Credit Reporting Act and the Consumer Financial Protection Act’s ban on unfair or abusive practices. In March 2019, the Bureau issued a civil investigative demand (CID) to the bank seeking, among other things, “a tally of specific instances of potentially unauthorized credit card accounts,” as well as a manual assessment of card accounts that were never used by the customer. The bank argued in its petition to modify or set aside the CID that it had already provided information to regulators showing that it did not have a “systemic sales misconduct issue,” and cited to the OCC’s broad review into sales practice issues at mid-size and large national banks, which has not, according to the bank, identified systemic issues with bank employees opening unauthorized accounts without consumer consent. Among other things, the bank also contended that the CID was unduly burdensome—requiring manual account-level assessments—and said the CFPB should end its investigation because the facts “refute an investigation’s initial hypothesis.” The bank further argued that the inquiry into its sales practices should be conducted by CFPB supervisory staff instead of as an enforcement investigation, which would be “the proper mechanism for resolving any remaining issues when an investigation fails to uncover evidence warranting [e]nforcement action.”

    Concerning the bank’s argument that the CID was unduly burdensome, the Bureau stated in its order denying the petition that the bank had failed to “meaningfully engage” with the Bureau during the course of the investigation in a way that merited modification to the terms of the CID. Moreover, with regard to whether the investigation should be conducted by supervisory staff, the Bureau countered that “[t]his is not a request properly made in a petition to modify or set aside a CID, for the same reasons that it is not proper to use a CID petition to ask that the Bureau close an investigation because (in the recipient’s view) it has already shown that it engaged in no wrongdoing.”

    Federal Issues CFPB Enforcement CIDs Consumer Finance Incentive Compensation

  • Tribal nation reaches settlement with national bank over account operations


    On August 22, a tribal nation issued a press release announcing a $6.5 million settlement with a national bank to resolve allegations related to the opening of deposit and credit card accounts for customers without consent. In 2018, the tribal nation’s suit was dismissed by a district court ruling (previously covered by InfoBytes here), which rejected the tribal nation’s claims under the Consumer Financial Protection Act, holding that the claims were barred by res judicata, as they had previously been litigated under the CFPB’s 2016 consent order and the tribal nation was in privity with the CFPB. (InfoBytes coverage of the CFPB action available here.) The tribal nation appealed the decision to the U.S. Court of Appeals for the 10th Circuit, and on August 20, an order granting a stipulation to dismiss the appeal with prejudice was entered by the court. While the stipulation does not provide any details, the tribal nation’s press release notes that the “settlement compensates the Nation, as well as avoids the uncertainty and expense of continued litigation.”

    Courts UDAAP Settlement Consumer Finance CFPB Incentive Compensation

  • University settles whistleblower FCA claims

    Federal Issues

    On February 11, the DOJ announced a $2.5 million settlement with a South Carolina university to resolve allegations that the university violated the False Claims Act (FCA) by submitting false claims to the U.S. Department of Education. According to the announcement, between 2014 and 2016, the university hired a company, which was partially owned by the university, to recruit students to the university and paid the company based on the number of students who enrolled in university programs, in violation of the prohibition on paying incentive compensation in Title IV of the Higher Education Act. The co-owner of the company originally brought a qui tam lawsuit against the university and will receive $375,000 from the settlement.

    Federal Issues DOJ Whistleblower Department of Education False Claims Act / FIRREA Incentive Compensation Settlement

  • District Court: Privacy claims related to incentive compensation sales program can proceed


    On December 31, 2018, the U.S. District Court for the District of Utah granted in part and denied in part a national bank’s motion to dismiss putative class action claims concerning the bank’s use of confidential customer information to open deposit and credit card accounts as part of its incentive compensation sales program. (See previous InfoBytes coverage here.) According to the court, the plaintiffs claiming accounts were opened in their name plausibly alleged that the bank benefited from an increase in the number of accounts and products, and disagreed with the bank that the misappropriation of name claim should fail because those plaintiffs’ names and identities had value beyond those of the general public. While the majority of the state claims and all federal claims were dismissed, the court allowed four state claims to remain, including invasion of privacy. However, the court requested that the parties address why it should not decline to exercise jurisdiction over the state law claims following the dismissal of all federal claims.

    Additionally, the court dismissed claims brought by “Bystander Plaintiffs” who did not allege the opening of any unauthorized accounts in their names, or claim that their information was ever improperly used or accessed or that they were subject to improper sales practices. Because the Bystander Plaintiffs claimed only that they would not have opened accounts if bank employees had told them about the alleged issues, the court dismissed their claims for lack of Article III standing, reasoning that they did not allege any injury.

    Courts Incentive Compensation Privacy/Cyber Risk & Data Security Spokeo

  • State Attorneys General fine national bank $575 million for incentive compensation, mortgage and auto lending practices

    State Issues

    On December 28, a national bank reached a $575 million multistate settlement with 50 states and the District of Columbia. Among other things, the settlement resolves allegations that have been the subject of previous litigation concerning the bank’s incentive compensation sales program (covered by InfoBytes here), as well as allegations involving certain practices related to mortgage rate-lock extension fees, auto loan force-placed insurance policies, and guaranteed asset/auto protection products. As previously covered by InfoBytes, the bank reached a settlement last year with the CFPB and the OCC to resolve allegations concerning its auto and mortgage lending practices, which were previously discontinued and for which voluntary consumer remediation was initiated by the bank.

    State Issues State Attorney General Incentive Compensation Settlement Force-placed Insurance Rate Lock

  • District Court approves $480 million settlement between national bank and investors over incentive compensation sales program


    On December 18, the U.S. District Court for the Northern District of California granted final approval following a fairness hearing to a $480 million settlement with a national bank to resolve a consolidated class action related to the bank’s previous incentive compensation sales program. As previously covered by InfoBytes, an agreement in principle was announced last May. The court’s order resolves class action allegations stemming from the September 2016 consent order between the bank and the CFPB, which resolved allegations related to the opening of deposit and credit card accounts for consumers without consent. (See previously InfoBytes coverage here.)

    Courts Settlement Incentive Compensation Securities CFPB

  • Bank settles with New York for $65 million over incentive compensation sales program

    State Issues

    On October 22, the New York Attorney General announced a $65 million settlement with a national bank to resolve allegations regarding its retail sales business model in violation of the Martin Act and New York common law. The Attorney General had alleged the bank failed to disclose to investors that the success of the bank’s incentive compensation program may encourage certain misconduct.

    As previously covered by InfoBytes, in May, the bank announced it reached an agreement in principle to pay $480 million to investors to resolve a consolidated action related to the same issues.

    State Issues Incentive Compensation Securities Settlement State Attorney General

  • Court dismisses action by a tribal nation against a national bank for claims relating to the bank’s incentive compensation sales program


    On September 25, the U.S. District Court for the District of New Mexico dismissed an action brought by a tribal nation against a national bank alleging, among other things, that the bank’s incentive compensation sales program resulted in the bank’s employees opening deposit and credit card accounts for consumers without obtaining their consent to do so. In December 2017, the tribal nation brought 17 claims against the national bank, including alleged violations of the Consumer Financial Protection Act (CFPA) and a variety of federal, state, tribal, and common law violations. The court rejected the tribal nation’s claims under the CFPA, holding they are barred by res judicata, as the claims previously had been litigated under the CFPB’s 2016 consent order (previously covered by InfoBytes here) and that the tribal nation was in privity with the CFPB. The court also rejected the tribal nation’s argument that it was entitled to civil penalties, injunctive and declaratory relief under the doctrine parens patriae, finding the tribal nation failed to allege facts sufficient to demonstrate standing for each claim and each form of relief. As for the state and tribal law claims, the court held that it lacked an independent basis for jurisdiction due to the court’s dismissal of all of the federal law claims.

    Courts Incentive Compensation CFPA CFPB

  • National bank reaches $480 million settlement with investors over incentive compensation sales program


    On May 4, a national bank announced it reached an agreement in principle to pay $480 million to certain investors to resolve a consolidated securities fraud class action, related to the bank’s previous incentive compensation sales program. The class action stems from the September 2016 consent order between the bank and the CFPB which resolved allegations that the bank’s employees opened deposit and credit card accounts for consumers without obtaining consent to do so (previously covered by InfoBytes here). The class action alleges that the bank made misrepresentations and omissions in certain securities disclosures related to its sales practices matters. The bank acknowledged the agreement, which is still pending court approval, in its May 4 10-Q securities filing.


    Securities Incentive Compensation Class Action CFPB

  • CFPB Director Challenges House Financial Services’ Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation

    Consumer Finance

    On June 14, CFPB Director Richard Cordray issued a letter to Rep. Jeb Hensarling (R-Tex.) in response to the House Financial Services Committee’s (Committee) June 6 interim majority staff report on the investigation of the role federal financial regulators played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the Bureau issued a consent order to the bank last September over allegations that the bank employees’ improper sales practice of opening unauthorized accounts as part of an incentive compensation program was unfair and abusive. In his letter, Director Cordray defended the CFPB’s role in the investigation and detailed inaccuracies and errors in the Committee’s report.

    The Committee’s report notes that immediately after the September 8 CFPB announcement, the House Financial Services Committee began a “comprehensive investigation” to answer two questions: (i) “how and why [the bank] allowed these fraudulent activities to occur at a disturbing scale across the [b]ank for well over a decade”; and (ii) “whether or not federal financial regulators were effective in detecting and remedying [the bank’s] fraudulent branch sale practices.” According to the report, “[o]ver the course of six months, the CFPB only produced 1,010 pages of records comprised almost entirely of records easily obtainable from [the bank] or the OCC”—both of which, the report contends, have cooperated fully with the investigation. In April 2017, the CFPB received a subpoena but allegedly provided records previously produced by the bank. Due to a lack of cooperation, the Committee staff recommended the possibility of issuing deposition subpoenas to CFPB employees to investigate Director Cordray’s alleged failure to respond, as well as the suggestion of bringing contempt proceedings against Director Cordray to enforce compliance with the subpoena.

    Director Cordray responded that, among others things, the majority staff of the Committee refused to receive a September 2016 follow-up briefing from Bureau staff and failed to respond to his offer to publicly testify at a Committee hearing. Furthermore, Director Cordray states that the CFPB has submitted over 57,000 pages of records “in an effort to comply with the Committee’s broadly worded requests.” He notes the complaint about the documents in the CFPB’s production being “redundant of documents received from either [the bank] or the OCC, though the same point could be made in reverse,” and that his staff has repeatedly sought guidance from the Committee to narrow the scope but has yet to receive a response.

    In response to the Committee’s query as to why it took more than a decade to uncover the bank’s practice of opening unauthorized accounts, Director Cordray responded that the Bureau opened its doors in 2011—more than 10 years after the bank’s activities commenced according to the Committee’s report—and wasn't fully operational until 2014.

    Consumer Finance CFPB House Financial Services Committee Enforcement Incentive Compensation


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