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District Court rules on CFPB’s motion to bar credit agency executive’s advice of counsel defense
On July 26, the U.S. District Court for the Northern District of Illinois granted in part and denied in part a discovery-related order in a case brought by the CFPB against a large credit reporting company and its executive for allegedly violating the terms of a 2017 consent order. The CFPB’s motion asked the court “to bar [the executive] from claiming or relying on an advice-of-counsel defense as a penalty for violating the court’s December 26, 2023 discovery order.” The CFPB’s motion was prompted by the executive’s alleged failure to produce certain documents and interrogatory responses following a discovery order, based on a claim of privilege. While the court declined to permanently bar the executive from asserting an advice of counsel defense, it concluded that the executive “may not assert the [attorney-client] privilege to avoid producing evidence related to his advice-of-counsel defense insofar as he intends to assert such a defense.” The court made clear that the executive must supplement his answers to certain interrogatories if he intends to rely on the advice of counsel defense.
Fed enters into agreement with bank as part of an OCC enforcement
On June 25, the Fed announced the execution of a written agreement with a registered savings and loan holding company, and its affiliate banks, to oversee its consent order requirements deriving from an OCC consent order from October 2023. Under the agreement, the bank will have 60 days to prepare a written plan to the Fed to strengthen board oversight and must include actions to (i) maintain effective risk management programs, (ii) ensure those risk management programs will be managed appropriately, (iii) monitor adherence to applicable laws and regulations, (iv) improve supervision of, and maintain control over, operations and activities, and (v) improve the comprehensiveness and quality of reports reviewed by the board. The bank will also have 60 days to submit a written strategic plan and budget to the Fed that will outline the firm’s short- and long-term strategic goals, the firm’s financial condition, a budget for the remainder of 2024, and a budget review process. Additionally, the Fed will require the banks to submit a written statement on their planned uses of cash for the remainder of 2024.
FDIC orders bank to plan termination of relationships with “significant” fintech partners
Recently, the FDIC released a consent order against a Tennessee bank as part of its release of January Enforcement Decisions and Orders. The FDIC stated that within sixty days of the effective date of the consent order, the bank must “submit a general contingency plan to the Regional Director… [on] how the [b]ank will administer an effective and orderly termination with significant third-party FinTech partners,” as part of its Third-Party Risk Management program for the bank. The Program must assess and manage the risks posed by all fintech firms associated with the bank. It will include policies related to due diligence and risk assessment criteria that are appropriate to the products and services provided by the fintech partner. The bank must also engage an independent firm for completion of a comprehensive Banking-as-a-Service Risk Assessment Report.
The bank further consented, without admitting or denying any charges of unsafe or unsound banking practices, to board supervision of the bank’s management and approval of the bank’s policies and objectives, qualified management, the Regional Director’s prior consent for new or expanded lines of business that would result in an annual 10 percent growth in total assets or liabilities, and a comprehensive strategic plan.
SEC, DFPI charge unregistered crypto platform
On February 7, the SEC and DFPI announced charges against a Florida-based crypto platform, for failing to register the offer and sale of a crypto lending product that allowed U.S. investors to deposit or purchase crypto assets into an account in exchange for promised interest payments.
The SEC found that crypto asset accounts with the “interest feature” were offered and sold by the company as securities in the form of investment contracts but failed to register its offer and sale as required by law. Despite voluntarily halting the offering of the interest feature in 2022, the company agreed to pay a $1.5 million penalty to settle the SEC's charges. The SEC also noted that the company announced its intention to terminate all crypto-related products and services in the U.S. on February 22.
In addition, DFPI also entered a consent order with the platform to settle an investigation into the platform’s interest-earning program. The resolution is part of a multistate settlement facilitated by a task force led by California and Washington, comprising of eight state securities regulators. The investigation found that from 2020 through 2022, the platform engaged in the unregistered offer and sale of securities through its crypto interest-earning program. The platform offered the program to investors, allowing them to passively earn interest on crypto assets loaned to the platform. The platform maintained “total discretion” over revenue-generating activities to generate returns for investors, DFPI added. As part of the settlement with DFPI, the company agreed to pay a $1.5 million penalty to the DFPI on behalf of 51 U.S. jurisdictions, mirroring a similar settlement with the SEC for the same amount.
Bank to pay $1.9 million to resolve redlining suit
On January 17, the DOJ announced a $1.9 million settlement with a national bank resolving allegations that the bank engaged in unlawful redlining in Memphis, Tennessee by intentionally not providing home loans and mortgage services to majority-Black and Hispanic neighborhoods, thereby violating the Fair Housing Act, ECOA, and Regulation B. In the complaint, the DOJ alleged that from 2015 through at least 2020, the bank (i) concentrated marketing and maintained nearly all its branches in majority-white neighborhoods; (ii) was aware of its redlining risk and failed to address said risk; (iii) generated disproportionately low numbers of loan applications and home loans during the relevant period from majority-Black and Hispanic neighborhoods in Memphis, compared to similarly-situated lenders; (iv) maintained practices that denied equal access to home loans for those in majority-Black and Hispanic neighborhoods, and otherwise “discouraged” those individuals from applying; and others.
Under the consent order, which is subject to court approval, the bank will, among other things, invest $1.3 million in a loan subsidy fund to enhance home mortgage, home improvement, and home refinancing access in the specified neighborhoods. The bank will also allocate $375,000 in advertising, outreach, and financial counseling to specified neighborhoods, and allocate $225,000 to community partnerships for services boosting residential mortgage credit access in the specified areas. Additionally, the bank will assign at least two mortgage loan officers to serve majority-Black and Hispanic neighborhoods in the bank’s service area and appoint a Director of Community Lending who will oversee the continued development of lending in communities of color.
FTC settles with lead generator for deceiving consumers
On January 2, the FTC filed a complaint against a California-based lead generator (the “Company”), alleging that the Company operated as a “consent farm” that deceived consumers into providing their consent to be contacted for telemarketing purposes, then selling those consents to telemarketers, sellers, or intermediaries. Relying on the Company’s purported consent from consumers, those parties then inundated consumers with telemarketing calls. These calls included robocalls and calls made to telephone numbers on the National Do Not Call Registry. Since 2019, the defendants are alleged to have operated over 50 websites focused on lead generation.
The FTC charged the Company with violating the FTC Act for misrepresenting the collection of consumers’ personal information, and for violating the Telemarketing Sales Rule for assisting and facilitating telemarketers in breaking the Rule.
On the same day the complaint was filed, the FTC announced a proposed settlement in which the Company was ordered to pay $7 million for its alleged use of deception and dark patterns to trick consumers into providing personal information. Additionally, the proposed stipulated order banned the Company from initiating or helping anyone make telemarketing robocalls, calling phone numbers on the National Do Not Call Registry, and selling consumer information connected with lead generation. The stipulated order must first be approved by the court before it comes into effect. The Company neither admits nor denies any of the allegations
CFPB fines and shuts down debt collector for alleged FDCPA, FCRA violations
On December 15, the CFPB announced a consent order against a Pennsylvania-based nonbank medical debt collection company for alleged violations of the FCRA and FDCPA. According to the order, the company failed to (i) establish and implement reasonable written policies and procedures for ensuring the accuracy and integrity of information furnished to consumer reporting agencies; (ii) conduct reasonable investigations into direct and indirect consumer disputes about furnished information; (iii) report direct dispute investigation results to consumers; and (iv) indicate disputed items when furnishing information to reporting agencies. The company also allegedly lacked a reasonable basis for debt-related representations made to consumers and engaged in collection activities after receiving a written dispute within 30 days of the consumer’s receipt of a debt validation notice but before obtaining and mailing a verification of the debt.
The consent order permanently bans the company from involvement or aid in debt collection, purchasing or selling of any debts, or any consumer reporting activities. The company must also request credit reporting agencies to delete all collection accounts previously reported by the company. Additionally, the company is obligated to pay a $95,000 civil money penalty and must display on its website information that informs consumers about the option to file a complaint with the CFPB.
Crypto platform to pay $22 million to resolve NY AG suit
On December 13, the New York State Supreme Court entered a stipulation and consent order resolving a suit brought in March against a crypto platform for operating as an unregistered broker-dealer, among other things. As previously covered by InfoBytes, the suit was brought by New York State Attorney General Letitia James who noted this was one of the first times a regulator claimed in court that one of the largest cryptocurrencies available in the market qualified as a security.
As a result of the consent order, the platform is obligated to refund over $16.7 million worth of crypto in its control “by allowing users to withdraw those balances and transferring any remaining balances after ninety days to a third-party fund administrator,” to more than 150,000 investors in New York. In addition, the platform must pay an additional $5.3 million to the state. As part of the agreement, the platform is barred from trading securities and commodities in New York or from making its platform available to New York residents.
CFPB announces $5.5 million loss mitigation settlement
On December 18, the CFPB announced a settlement with a mortgage servicer for allegedly violating the CFPA and RESPA’s implementing regulation, Regulation X, due to widespread failures in the handling and processing of homeowners’ applications for loss mitigation options. According to the consent order, which was entered with the mortgage servicer’s successor in interest, the mortgage servicer violated Regulation X by, among other things, failing to (i) state in the acknowledgement notices the additional documents and information borrowers needed to submit to complete loss mitigation applications; (ii) provide a reasonable due date for submission of borrower documents; (iii) properly evaluate borrowers for all loss mitigation options available to them; and (iv) treat certain applications as “facially complete” in accordance with Regulation X. Additionally, the consent order states that the servicer’s alleged failure to “accurately review, process, track, and communicate to borrowers information regarding their applications for loss mitigation options” is an unfair act or practice and the alleged failure to send accurate acknowledgement notices is a deceptive act or practice. The Bureau asserts that the servicer’s failures delayed or deprived some borrowers of a reasonable opportunity to obtain the benefits of a loss mitigation option, resulting in additional harm such as negative credit reporting, additional late fees, and additional interest.
The consent order requires the successor in interest to pay nearly $5 million in total redress to over 11,000 consumers. The consent order also imposes a $500,000 civil money penalty and includes requirements for operational changes should the successor in interest resume mortgage servicing operations.
CFPB outlines application process for early termination of consent orders
On October 5, the CFPB issued a policy statement outlining the application process for entities seeking to terminate a consent order before the original expiration date. Generally, consent orders issued by the Bureau carry five-year terms, although the term may be extended in certain circumstances. While reiterating the essential role consent orders play in the Bureau’s enforcement work, the Bureau recognizes that consent orders can impose costly and resource-intensive reporting and record-keeping requirements, and may impact a regulated depository institution’s ability to open new branches or merge or acquire other financial institutions. Acknowledging that there may be “exceptional circumstances” where early termination may be appropriate, the policy statement sets forth eligibility criteria that entities must meet, and lays out the standards that the Bureau intends to use when evaluating early termination applications. It also notes that only entities are permitted to apply for early termination of a consent order. Individuals are not eligible do so.
Among other things, an entity applying for early termination must demonstrate that it (i) has fully complied with the consent order’s terms and conditions; and (ii) has a “satisfactory” compliance management system in its institutional product line or compliance area under which the consent order was issued. Entities must also meet certain timing and threshold eligibility criteria. The policy statement further specifies that an entity may not apply if it has been banned from participating in a certain industry, if the consent order involves violations of an earlier order, or if any criminal activity is involved. Once an application is determined to be complete, the Bureau states that it “generally intends to complete [its] compliance review within six months.”
The policy statement takes effect October 8.