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  • 5th Circuit: Non-party plaintiff cannot bring action to enforce violation of CFPB consent order

    Courts

    On March 4, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment in favor of a debt collector (defendant) accused of violating the FDCPA and the terms of a CFPB consent order. According to the opinion, the defendant attempted to collect a credit card debt from the plaintiff that the plaintiff did not recognize. In December 2014, the defendant filed suit to collect the past due debt. In the meantime, the CFPB issued a consent order against the defendant for violations of the FDCPA (covered by InfoBytes here) while the parties awaited trial. Thereafter, the plaintiff filed a complaint with the CFPB regarding the validity of the debt, but the Bureau closed that complaint after verifying the defendant’s ownership of the plaintiff’s debt. The plaintiff responded by filing his own lawsuit in March 2017, claiming the defendant violated the FDCPA by (i) “lacking validation of his debt prior to his January 2016 trial”; (ii) failing to timely validate his debt in violation of provisions of its consent order with the CFPB; and (iii) “misrepresenting that it intended to prove ownership of his debt if contested.” The district court granted summary judgment for the defendant based on the plaintiff’s failure to prove actual damages.

    On appeal, the appellate court determined that the district court erred in ruling that the plaintiff failed to plead actual damages, finding that “the FDCPA does not require proof of actual damages to ground statutory damages.” However, the appellate court did not reverse the district court’s decision. Instead, the appellate court affirmed, holding that the plaintiff’s debt validation claims were time-barred because he did not file suit within the FDCPA’s one-year statute of limitations. Regarding the other two claims, the appellate court stated that while the claims were not time-barred, the plaintiff lacked standing because “private persons may not bring actions to enforce violations of consent decrees to which they are not a party.” The CFPB’s consent order with the defendant specified that the CFPB was the enforcer of the order, and its text could not be read to invoke a private right of action permitting the plaintiff’s suit. Accordingly, the appellate court affirmed summary judgment against the plaintiff on these remaining two claims.

    Courts Appellate Fifth Circuit Debt Collection FDCPA CFPB Consent Order Statute of Limitations Time-Barred Debt

  • CFPB settles UDAAP allegations with Texas payday lender

    Federal Issues

    On February 5, the CFPB announced a settlement with a Texas-based payday lender and six subsidiaries (defendants) for allegedly assisting in the collection of online installment loans and online lines of credit that consumers were not legally obligated to pay based on certain states’ usury laws or licensing requirements. As previously covered by InfoBytes, the Bureau filed a complaint in 2017—amended in 2018—against the defendants for allegedly violating the CFPA’s prohibitions on unfair, deceptive, and abusive acts and practices by, among other things, making deceptive demands and originating debit entries from consumers’ bank accounts for loans that the defendants knew were either partially or completely void because the loans were void under state licensing or usury laws. The defendants—who operated in conjunction with three tribal lenders engaged in the business of extending and collecting the online installment loans and lines of credit—also allegedly provided material services and substantial assistance to two debt collection companies that were also involved in the collection of these loans.

    Under the stipulated final consent order, the defendants are prohibited from (i) extending, servicing, or collecting on loans made to consumers in any of the identified 17 states if the loans violate state usury limits or licensing requirements; and (ii) assisting others engaged in this type of conduct. Additionally, the settlement imposes a $1 civil money penalty against each of the seven defendants. The Bureau’s press release notes that the order “is a component of the global resolution of the [defendants’] bankruptcy proceeding in the Bankruptcy Court for the Northern District of Texas, which includes settlements with the Pennsylvania Attorney General’s Office and private litigants in a nationwide consumer class action.” The press release also states that “[c]onsumer redress will be disbursed from a fund created as part of the global resolution, which is anticipated to have over $39 million for distribution to consumers and may increase over time as a result of ongoing, related litigation and settlements.”

    Federal Issues CFPB Consumer Finance Debt Collection Installment Loans UDAAP CFPA Courts Settlement Consent Order Unfair Deceptive Online Lending Payday Lending Civil Money Penalties Consumer Redress

  • Federal Reserve hits bank for flood insurance violations

    Federal Issues

    On January 30, the Federal Reserve Board (Fed) announced an enforcement action against a New York-based bank for allegedly violating the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $36,500 civil money penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 for each violation. The consent order was signed by both the bank and the Fed on January 24.

     

    Federal Issues Federal Reserve Enforcement National Flood Insurance Act Regulation H Flood Insurance Consent Order

  • Point-of-sale finance company enters into consent order with California DBO

    State Issues

    On January 16, the California Department of Business Oversight (DBO) and a point-of-sale finance company entered into a consent order to resolve the DBO’s allegations that the company had made loans without a license to California consumers. According to the order, the company applied for a license under the California Financing Law (CFL) in September 2019. The DBO initially denied the company’s license application on December 30, 2019 (previously covered by InfoBytes here) and issued a statement of issues explaining its reasoning. The DBO found that the company’s transactions were disguised loans subject to the CFL. The company had argued that its transactions were credit sales not subject to the CFL. Ultimately, the company agreed to resolve the matter and pay $282,000 in refunds to consumers and a $28,200 fine for unlicensed lending. Additionally, the company agreed to “cease providing loans or extensions of credit to California residents by means of purchasing credit sales contracts from merchants” and “only provide loans or extensions of credit to California residents under the authority of a license issued by the Commissioner under the CFL.” Simultaneous with the announcement of the consent order, the DBO issued the company a license.

    State Issues Consumer Finance Consumer Lending | Consumer Finance Licensing Consent Order Fintech CDBO

  • Kraninger hints at new consent order policy

    Federal Issues

    On November 22, in a speech at The Clearing House + Bank Policy Institute Annual Conference, CFPB Director Kathy Kraninger noted that the Bureau is considering changes to its consent order process to “ensur[e] consent orders remain in effect only as long as needed to achieve their desired effects.” Specifically, Kraninger discussed that while most consent orders are effective for five-year periods and companies can request early termination or termination of indefinite orders, the Bureau has only terminated “a few” consent orders in the past. Similar to the Bureau’s recent changes to its Civil Investigative Demand (CID) policy (covered by InfoBytes here), Kraninger stated that the Bureau intends to announce an updated consent order policy “soon,” in order to “provide clarity and consistency.”

    Federal Issues CFPB Enforcement Consent Order CIDs

  • FTC settles with Belizean bank over real estate scheme

    Federal Issues

    On September 24, the FTC announced a proposed $23 million settlement with a Belizean bank resolving allegations that it assisted various entities in deceiving U.S. consumers into purchasing parcels of land in a luxury development in Belize. As previously covered by InfoBytes, in November 2018, the FTC filed charges and obtained a temporary restraining order against the operators of an international real estate investment scheme, which allegedly violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land through the use of deceptive tactics and claims. The FTC asserted that consumers who purchased lots in the development purchased them outright or made large down payments and sizeable monthly payments, including HOA fees, and that defendants used the money received from these payments to fund their “high-end lifestyles,” rather than invest in the development. The FTC argued that “consumers either have lost, or will lose, some or all of their investments.” At the time, the FTC filed separate charges against the Belizean bank for allegedly assisting and facilitating the scam.

    According to the FTC, the bank has now agreed to the proposed consent order to settle the allegations. The consent order requires the bank to pay $23 million, which will be used to provide equitable relief, including consumer redress, and to cease all non-liquidation business activities permanently. Additionally, the consent order prohibits the liquidator or anyone else from seeking to re-license and operate the bank’s business. The consent order must be approved by the U.S. District Court for the District of Maryland.

    Federal Issues FTC FTC Act Courts Telemarketing Sales Rule Settlement Consent Order

  • FTC approves settlement with software provider over FTC Act and GLBA data security failures

    Federal Issues

    On September 6, the FTC voted 5-0 to approve a final settlement under which a software provider agreed to better protect the data it collects, resolving allegations that the company failed to implement reasonable data security measures and exposed personal consumer information obtained from its auto dealer clients in violation of the FTC Act and the Standards for Safeguarding Customer Information Rule, issued pursuant to the Gramm-Leach-Bliley Act.

    As previously covered by InfoBytes, in its complaint, the FTC alleged the company’s failure to, among other things, (i) implement an organization information security policy; (ii) implement reasonable guidance or training for employees; (iii) use readily available security measures to monitor systems; and (iv) impose reasonable data access controls, which resulted in a hacker gaining unauthorized access to the company’s database containing the personal information of approximately 12.5 million consumers. The approved settlement requires the company to, among other things, implement and maintain a comprehensive information security program designed to protect the personal information it collects, including implementing specific safeguards related to the FTC’s allegations. Additionally, the settlement requires the company to obtain third-party assessments of its information security program every two years and have a senior manager certify compliance with the order every year.

    Federal Issues FTC Privacy/Cyber Risk & Data Security FTC Act Enforcement Settlement Consent Order Gramm-Leach-Bliley

  • Japanese bank pays $33 million to settle NYDFS claims of weak BSA/AML controls

    State Issues

    On June 24, the New York Department of Financial Services (NYDFS), together with the New York Attorney General, announced a $33 million settlement with a Japanese bank resolving allegations the bank’s internal controls—specifically, its anti-money laundering (AML), Bank Secrecy Act (BSA), and Office of Foreign Assets Control (OFAC) sanctions compliance programs—at its New York Branch were “systematically deficient” between November 2014 and November 2018. This allegedly resulted in violations of state and federal laws and regulations, as well as two previous NYDFS consent orders from 2013 and 2014. The settlement resolves an action that was commenced by the bank against NYDFS in connection with a 2017 application with the OCC to convert its state-licensed branches in New York, Illinois, and California and its state-licensed agency offices in Texas to federally licensed branches and agency offices. The action sought to block a NYDFS order that would keep the bank under its supervisory purview notwithstanding the OCC’s granting of the federal charter. The settlement indicates that neither NYDFS, NYAG, or the bank admit any wrongdoing, but have agreed to dismiss all outstanding claims, upon the bank’s monetary payment. The settlement states that NYDFS releases the bank of any further obligations related to the previous consent orders and notes that it “will not attempt to exercise any visitorial power or other supervisory, regulatory, or enforcement authority over [the bank] or its branches or agencies.”

    State Issues NYDFS State Attorney General Bank Secrecy Act Anti-Money Laundering Financial Crimes Consent Order Supervision OCC

  • SEC separately settles ADR allegations against international bank subsidiary and securities company

    Securities

    On June 14, the SEC announced a $42 million settlement with a wholly-owned subsidiary of an international bank to resolve allegations that certain associated persons on its securities lending desk allegedly improperly pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent shares in foreign companies.”  The SEC announcement explains that “[t]he practice of ‘pre-release’ allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving them have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADRs represent.” According to the SEC, the subsidiary “improperly obtained pre-released ADRs from depositary banks when [the subsidiary] should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.” The SEC asserts that this resulted in an inflated total number of foreign issuer’s tradeable securities and short selling and dividend arbitrage. The SEC alleged that these practices violated the Securities Act of 1933 and claimed that the subsidiary failed to reasonably supervise its securities personnel. The consent order requires the subsidiary to pay more than $24 million in disgorgement, roughly $4.4 in prejudgment interest, and a civil money penalty of approximately $14.3 million. The order acknowledges the subsidiary’s cooperation in the investigation.

    On the same day, the SEC announced an $8.1 million consent order with a securities company to resolve allegations that the company allegedly improperly pre-released American Depositary Receipts (ADRs). According to the SEC, the company, in violation of the Securities Act of 1933, “improperly obtained pre-released ADRs from depositary banks when [the company] should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.” The SEC announcement asserts that the lack of shares to support the ADRs resulted in an inflated total number of foreign issuer’s tradeable securities and short selling and dividend arbitrage. Additionally, the SEC alleges the company failed to establish and implement effective policies and procedures to address whether the company was in compliance with its obligations in connection with pre-release transactions. The consent order requires the company to pay more than $4.8 million in disgorgement, approximately $800,000 in prejudgment interest, and a civil money penalty of more than $2.4 million. The order acknowledges the company’s cooperation in the investigation.

     

    Securities SEC American Depositary Receipts Enforcement Consent Order

  • SEC settles American Depositary Receipts allegations against international bank subsidiary

    Securities

    On June 14, the SEC announced a $42 million settlement with a wholly-owned subsidiary of an international bank to resolve allegations that certain associated persons on its securities lending desk allegedly improperly pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent shares in foreign companies.” According to the SEC, the subsidiary “improperly obtained pre-released ADRs from depositary banks when [the subsidiary] should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.” The SEC asserts that this resulted in an inflated total number of foreign issuer’s tradeable securities and short selling and dividend arbitrage. The SEC alleged that these practices violated the Securities Act of 1933 and claimed that the subsidiary failed to reasonably supervise its securities personnel. The consent order requires the subsidiary to pay more than $24 million in disgorgement, roughly $4.4 in prejudgment interest, and a civil money penalty of approximately $14.3 million. The order acknowledges the subsidiary’s cooperation in the investigation.

     

    Securities American Depositary Receipts Settlement Consent Order

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