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On July 30, the U.S. District Court for the District of Kansas granted a petition filed by the CFPB to enforce an administrative order that assessed more than $50 million in restitution and fines against a Delaware-based online payday lender and its CEO (collectively, “respondents”) while the parties await a decision from the U.S. Court of Appeals for the Tenth Circuit. As previously covered by InfoBytes, the CFPB filed an action in 2015 against the respondents for allegedly violating TILA and EFTA and for engaging in unfair or deceptive acts or practices concerning the terms of the loans they originated. The respondents also allegedly (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked their authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges.
In January 2021, former Director Kathy Kraninger adopted an administrative law judge’s findings and conclusions, affirming the respondents violated TILA, EFTA, and the CFPA and concluding the respondents should be held jointly and severally liable for restitution amounting to more than $38.4 million. Kraninger further held the lender liable for a $7.5 million civil penalty and the CEO liable for a civil penalty of $5 million. In March, acting Director Dave Uejio issued an order denying the respondents’ motion to stay Kraninger’s final decision pending appellate review, but granted their request for a 30-day stay to allow them the opportunity to seek a stay from the 10th Circuit. In opposition to the Bureau’s petition to enforce the final order, the CEO argued, among other things, that the final order is not valid and enforceable. The court noted, however, that it is not permitted to stay enforcement of or suspend the final order. The power to suspend the final order or stay its enforcement belongs to the 10th Circuit—a request, the court noted, that the respondents did not seek when they filed their appeal. The CEO “has not cited any authority indicating that this Court may or should refuse to grant a petition for enforcement under this statute,” the court wrote. “Accordingly, the Court grants the petition for enforcement of the Final Order, and respondents are hereby ordered to comply with the Final Order by paying the restitution and civil penalties imposed and by cooperating as directed.”
On July 12, the U.S. District Court for the District of Maryland issued an opinion denying several motions filed by parties in litigation stemming from a 2016 complaint filed by the CFPB, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by encouraging consumers to take advances on their structured settlements and falsely representing that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” After the court rejected several of the defendants’ arguments to dismiss based on procedural grounds and allowed the CFPB’s UDAAP claims against the structured settlement buyer and its officers to proceed, the CFPB filed an amended complaint in 2017 alleging unfair, deceptive, and abusive acts and practices and seeking a permanent injunction, damages, disgorgement, redress, civil penalties and costs.
In the newest memorandum opinion, the court considered a motion to dismiss the amended complaint and a motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired. The court reviewed, among other things, whether the doctrine of equitable tolling saved the case from dismissal and cited a separate action issued by the Middle District of Pennsylvania which concluded that an “action was timely filed under existing law, at a time where there was no finding that a provision of the Dodd-Frank Act was unconstitutional.” While noting that the ruling was not binding, the court found the facts in that case to be similar to the action at issue and the analysis to be persuasive. As such, the court denied the motion to dismiss and the motion for judgment on the pleadings, and determined that the Bureau may pursue the enforcement action originally filed in 2016.
On June 25, the FDIC released a list of administrative enforcement actions taken against banks and individuals in May. During the month, the FDIC issued 10 orders and one notice consisting of “two Orders to Pay Civil Money Penalties, four Section 19 Applications, three Orders Terminating Consent Orders, one Order of Prohibition from Further Participation, and Notice of Intention to Prohibit from Further Participation, one Notice of Assessment of Civil Money Penalties, Findings of Fact, Conclusions of Law, Order to Pay, and Notice of Hearing.” Among the orders is a civil money penalty imposed against an Oregon-based bank concerning allegations of unfair and deceptive practices related to a wholly-owned subsidiary’s debt collection practices for commercial equipment financing. As previously covered by InfoBytes, the bank’s subsidiary allegedly violated Section 5 of the FTC Act by, among other things, unfairly and deceptively charging various undisclosed collection fees—such as collection call and letter fees and third-party collection fees—to borrowers with past due accounts. The bank, which did not admit or deny the violations, agreed to voluntarily pay an approximately $1.8 million civil money penalty.
The FDIC also imposed a civil money penalty against an Iowa-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank (i) “[m]ade, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “[f]ailed to timely notify the borrower that the borrower should obtain flood insurance, at the borrower’s expense, upon determining that the collateral was not covered by flood insurance at some time during the term of the loan”; and (iii) “[f]ailed to timely purchase flood insurance on the borrower’s behalf when the borrower failed to do so within 45 days of being advised to obtain adequate flood insurance.” The order requires the payment of a $8,000 civil money penalty.
On June 14, the FTC announced additional charges against two New York-based small-business financing companies and a related entity and individuals (collectively, “defendants”). Last June, the FTC filed a complaint against the defendants for allegedly violating the FTC Act and engaging in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, and making unauthorized withdrawals from consumers’ accounts (covered by InfoBytes here). The amended complaint alleges that the defendants also violated the Gramm-Leach-Bliley Act’s prohibition on using false statements to obtain consumers’ financial information, including bank account numbers, log-in credentials, and the identity of authorized signers, in order “to withdraw more than the specified amount from consumers’ bank accounts.” Additionally, the FTC’s press release states that the defendants “engaged in wanton and egregious behavior, including laughing at consumer requests for refunds from [the defendants’] unauthorized withdrawals from customer bank accounts; abusing the legal system to seize the business and personal assets of their customers; and threatening to break their customers’ jaws or falsely accusing them of child molestation during collection calls.” The amended complaint seeks a permanent injunction against the defendants, along with civil money penalties and monetary relief including “rescission or reformation of contracts, the refund of monies paid, and other equitable relief.”
On May 21, the CFPB announced a settlement with a California-based auto-loan lender to resolve allegations that the company engaged in unfair practices with respect to its Loss Damage Waiver (LDW) product, in violation of the Consumer Financial Protection Act. The CFPB alleged that the company engaged in unfair practices by illegally charging interest for late payments on its LDW product without customers’ knowledge. According to the consent order, if consumers had insufficient insurance coverage for their vehicles, the company would add the LDW product to their accounts. For these consumers, the cost of the LDW product was added to the principal of the loan, resulting in an increase to the total loan balance and the amortized loan payment. The company allegedly disclosed the increase in the consumer’s monthly payment as an LDW fee but failed to disclose to consumers that interest accrues on late payments of that fee. The Bureau alleged that the company’s practice of charging consumers interest for late LDW fee payments without their consent caused “substantial injury that was not reasonably avoidable or outweighed by any countervailing benefit to consumers or to competition.”
Under the terms of the consent order, the company is required to provide $565,813 of relief to 5,782 impacted consumers, as well as pay a $50,000 civil money penalty. The order also permanently enjoins the company from charging interest on LDW fees without “clearly and conspicuously disclosing the material terms and conditions to consumers.”
On May 10, the FDIC announced that an Oregon-based bank has agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the FTC Act related to a wholly owned subsidiary’s debt collection practices for commercial equipment financing. According to the FDIC, the subsidiary unfairly and deceptively charged various undisclosed collection fees—such as collection call and letter fees and third-party collection fees—to borrowers with past due accounts. The FDIC additionally claimed that some of the subsidiary’s collection practices were also unfair and deceptive, including (i) placing excessive and sequential collection calls to borrowers even after requests were made to stop the calls; (ii) disclosing borrowers’ debt information to third parties; and (iii) telling borrowers that their commercial debt would be reported as delinquent to the consumer reporting agencies (CRAs), even though its policy and practice was to not report such delinquencies to the CRAs. Under the terms of the settlement order, the bank, which does not admit nor deny the violations, will voluntarily pay an approximately $1.8 million civil money penalty.
On March 9, the CFPB denied a request made by a Delaware online payday lender and its CEO (collectively, “respondents”) to stay a January 2021 final decision and order requiring the payment of approximately $51 million in restitution and civil money penalties, pending appellate review. As previously covered by InfoBytes, in 2015, the Bureau filed a notice of charges alleging the respondents (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the lender’s authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges. Former Director Kathy Kraninger issued the final decision and order in January, affirming an administrative law judge’s recommendation that the respondents’ actions violated TILA, EFTA, and the CFPA’s prohibition on unfair or deceptive acts or practices by, among other things, deceiving consumers about the costs of their online short-term loans.
The Bureau’s March 9 administrative order determined that respondents (i) failed to show they have a substantial case on the merits with respect to their argument regarding ratification as an appropriate remedy for the respondents’ alleged constitutional violation; (ii) failed to show they “suffered irreparable harm” because the Bureau’s final decision does not infringe on the respondents’ constitutional rights and merely requires them to pay money into an escrow account; and (iii) failed to demonstrate that staying the final decision would not harm other parties and the public interest because the respondents might “dissipate assets during the pendency of further proceedings,” potentially impacting future consumer redress. The administrative order, however, granted a 30-day stay to allow respondents to seek a stay from the U.S. Court of Appeals for the Tenth Circuit.
On March 3, the CFPB filed a complaint against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Sales Rule. According to the complaint, the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau stated, noting that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized. The Bureau noted that the defendants also responded to inquiries from police departments across the country concerning consumer complaints about being defrauded by the defendants. Further, the Bureau cited high return rates experienced by the tech-support clients, including an average unauthorized return rate of 14 percent—a “subset of the overall return rate where the reason for the return provided by the consumer is that the transaction was unauthorized.” The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
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.
On October 13, the CFPB announced a settlement with the Texas-based auto-financing subsidiary of a Japanese automobile manufacturer to resolve allegations that the servicer violated the Consumer Financial Protection Act by engaging in illegal repossession and collection practices. The CFPB alleged that the servicer engaged in unfair and deceptive practices by (i) wrongfully repossessing vehicles even though customers made payments to decrease their delinquency to less than 60 days past due or kept a promise to pay; (ii) limiting the ability of borrowers who pay over the phone to select payment options with significantly lower fees; (iii) making false statements in loan extension agreements, which “created the net impression that consumers could not file for bankruptcy”; and (iv) knowing its repossession agents were charging customers upfront storage fees before returning personal property left inside repossessed cars.
Under the terms of the consent order, the servicer must pay a $4 million civil money penalty, as well as up to $1 million in consumer redress. The servicer must also credit any outstanding fees stemming from the repossession and pay consumers redress for each day it wrongfully held their vehicles. The servicer is also ordered to, among other things, (i) cease using language that creates the impression that customers may not file for bankruptcy; (ii) conduct a quarterly review to identify and remediate any future wrongful repossessions; (iii) adopt policies and procedures to correct its repossession practices; (iv) prohibit its repossession agents from charging fees to get personal property returned; and (v) clearly disclose phone payment fees to consumers.
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