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Financial Services Law Insights and Observations

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  • Massachusetts highlights UDAP risks of representment fees

    State Issues

    On September 23, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks, issued a supervisory alert reminding financial institutions to clearly disclose representment non-sufficient funds (NSF) fees connected to deposit accounts to avoid consumer confusion as well as potential legal and regulatory risks. The alert explains that a representment NSF fee may occur when a financial institution presents the same transaction again, in an attempt to obtain declined funds. According to the alert, a “repeated merchant payment transaction can trigger the assessment of multiple NSF fees by a depository institution if the transaction is presented more than once,” causing some financial institutions to charge the consumer an NSF fee for both the original presentment as well as for each subsequent representment. The alert discusses consumer protection risks associated with the representment of NSF fees, including recent class action lawsuits for breach of contract, some of which have resulted in customer reimbursements and legal fees. Additionally, the alert highlights issues with standard industry deposit account agreements and fee schedules supplied by payment processing software vendors to financial institutions, which may not adequately explain an institution’s actual NSF fee practices as disclosed to customers. While certain disclosures and account agreements may indicate that one NSF fee will be charged “per item” or “per transaction,” these forms may not sufficiently explain that the same processed transaction may trigger multiple NSF fees. The alert reminds financial institutions charging representment fees that they risk violating state and federal UDAP law if their relevant account disclosures and agreements are not in compliance, and urges financial institutions to review deposit disclosures and contract language to ensure NSF fees are clearly and consistently communicated to consumers.

    State Issues State Regulators Fees UDAP Massachusetts Disclosures

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  • Massachusetts securities division settles with broker dealer

    Securities

    On September 15, the Massachusetts Office of the Secretary of the Commonwealth, Securities Division (Division) entered into two consent orders with a broker-dealer firm for alleged failure of supervisory and compliance procedures in violation of the Massachusetts Uniform Securities Act. According to one consent order, the firm failed to, among other things: (i) ensure that its agents with Massachusetts customers were registered in Massachusetts; (ii) have adequate policies and procedures in place regarding state-based requirements for supervisors; and (iii) supervise its agents in Massachusetts. The terms of the order require the company, among other things, to cease and desist from future violations of Massachusetts General Laws and Regulations, register its employees, enhance policy and procedures, and pay a $750,000 fine. The second consent order alleged that the firm failed to, among other things: (i) have reasonable policies in place to detect and monitor a broker-dealer agent’s social media accounts; (ii) “reasonably monitor internal communications between and among its registered persons”; and (iii) adequately discipline an employee after gaining knowledge of his personal use of social media in violation of state laws. The order requires the firm to permanently cease and desist from future violations of Massachusetts General Laws and Regulations, employ a third-party consultant to supervise the firm’s practices regarding employee trading and social media usage, conduct an annual compliance review, and pay an administrative fine of $4 million.

    Securities Massachusetts State Issues Enforcement Broker-Dealer

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  • Massachusetts investigating data breach

    State Issues

    On September 14, the Massachusetts attorney general announced the launch of an investigation to determine if an international wireless carrier had proper safeguards in place to protect consumer and mobile device information after a major data breach that allegedly compromised personally-identifying information of more than 50 million people. According to the  carrier’s announcement, in July, the carrier experienced a breach where personally-identifying information, such as names, drivers’ license information, Social Security numbers, and addresses, among other things, of approximately 13.1 million current customers and 40 million former and prospective customers were compromised. According to the AG, the office is also investigating the circumstances of the breach and the steps the company is taking to address it and notify consumers. The AG urged affected consumers to take precautions “to ensure their information is safe, and to prevent identity theft and fraud” as the carrier continues to contact individuals. She also encouraged customers to utilize the free theft protection services being offered by the carrier, such as scam and account take-over protection for their cell phones, and to take precautionary steps, such as placing a credit freeze on credit reports.

    State Issues Massachusetts State Attorney General Data Breach Privacy/Cyber Risk & Data Security

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  • Massachusetts announces $27 million settlement with auto lender

    State Issues

    On September 1, the Massachusetts attorney general announced “the largest settlement of its kind” with a Michigan-based auto finance company (defendant) resolving allegations of predatory lending and deceptive debt collection practices. The defendant allegedly made high-interest subprime auto loans that it knew or should have known that many borrowers would be unable to repay. The assurance of discontinuance states that some of the company’s borrowers were subject to hidden finance charges, which resulted in violations of Massachusetts’s 21 percent usury cap. The defendant also allegedly “failed to inform investors that it topped off securitization loan pools with higher-risk loans.” Under the terms of the settlement, the defendant must pay a total of $27.2 million and provide debt relief and credit repair to over 3,000 borrowers across the state who are expected to be eligible for settlement funds. The settlement also requires that the defendant make changes to its loan handling practices. According to the AG, this action “is part of her Office’s ongoing industry-wide review of securitization practices in the subprime auto loan market.”

    State Issues Massachusetts Auto Finance Interest Rate

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  • Massachusetts announces consent judgment against debt-collection company

    State Issues

    On August 31, the Massachusetts attorney general announced a “first-of-its-kind” consent judgment against a Massachusetts-based debt-settlement company and its chief operating officer for allegedly violating the Massachusetts Consumer Protection Act, among other things. The consent judgment settled a lawsuit in which the AG alleged that the company charged inflated and premature fees, knowingly and regularly enrolled consumers who were not able to benefit from its program, and failed to communicate the harms that consumers could encounter after enrolling in its program. According to the AG, the company “directed consumers to stop paying their debts and to stop communicating with creditors, and to instead make payments into a dedicated ‘savings’ account administered by [a] payment processor.” The AG also alleged the company “engaged in the unauthorized practice of law by continuing to represent consumers after they were sued in relation to an enrolled debt.” Under the terms of the AG’s consent order, the company is required to pay $1 million to the Commonwealth.

    As previously covered by InfoBytes, in May, the CFPB announced a settlement with the same company for allegedly violating the Telemarketing Sales Rule and the Consumer Financial Protection Act.

    State Issues State Attorney General Enforcement Massachusetts Debt Collection

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  • Massachusetts Division of Banks issues guidance to debt collectors and student loan servicers

    Recently, the Massachusetts Division of Banks published guidance related to the conduct of debt collectors, student loan servicers, and third-party loan servicers. 209 CMR 18.00 defines unfair or deceptive acts or practices for entities servicing loans or collecting debts within the commonwealth, and provides licensing, registration, and supervision procedures. Those provisions of the regulation that govern fair debt collection and third party loan servicing practices apply both to licensed entities, and entities exempt from licensure. Additionally, the regulation specifies that licensed debt collectors are not required to register as third party loan servicers but must still comply with all relevant state and federal laws and regulations that govern third party loan servicers when acting in that capacity. Student loan servicers engaged in third party loan servicing activities or debt collection activities within the scope of student loan servicing activities described within Massachusetts’ law are also required to comply with all applicable state and federal laws and regulations governing third party loan servicers and debt collectors when acting in such capacity. Additionally, 209 CMR 18.00 outlines, among other things, (i) licensing application requirements; (ii) licensing standards; (iii) registration procedures and standards; (iv) notice, reporting, and recordkeeping requirements; (v) collection practices and consumer communication restrictions; (vi) prohibitions related to harassment or abuse, false or misleading representations, and unfair, deceptive, or unconscionable practices; (vii) debt validation requirements; (viii) mortgage loan servicing practices; (ix) student loan servicing practices; and (x) confidentiality provisions. The regulation took effect July 1.

    Licensing State Issues State Regulators Massachusetts Debt Collection Student Lending Student Loan Servicer Third-Party Compliance

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  • Massachusetts regulator allows work from home for some entities

    State Issues

    On July 12, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulations (Division) issued guidance that authorizes its licensees and registrants to continue permitting their personnel to operate remotely from non-licensed locations subject to certain conditions and restrictions. Among other things, the licensee or registrant: (i) cannot hold the unlicensed location out to the public as a place of business; (ii) must ensure that the individual working remotely only engages in activities that can be completed safely and in compliance with all applicable laws, regulations, and Division guidance; (iii) must ensure that the individual working remotely is strictly prohibited from engaging in any in-person customer interactions at the remote location; (vi) must have established security protocols to securely access systems through a virtual privacy network or other secure system; (v) must have policies and procedures to protect data; (vi) must protect sensitive customer information; and (vii) must ensure adequate supervision of remote personnel. The guidance also notes that the work location for mortgage loan originators (MLOs) has been the subject of various inquiries over the years and clarifies that MLOs are not required to live within a certain distance of a branch office and that “the Division will look to determine that the [branch] manager is able to provide adequate supervision for the given number and location of MLOs under his/her supervision.” The guidance replaces any previous guidance issued by the Division regarding telework and will continue, unless modified or withdrawn.

    State Issues Massachusetts Covid-19 Licensing Mortgages Mortgage Origination

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  • Massachusetts Securities Division extends relief from certain filing requirements

    State Issues

    On September 30, the Massachusetts Securities Division issued an amended Emergency Notice extending temporary relief from signature and notarization requirements in corporate filings and for registered financial professional filings until October 31. As under previous iterations of the notice (covered here and here), the Division will allow electronic signatures or copies of signed documents for securities applications and securities notice filings among others. However, the temporary waiver of notarization requirements for certain corporate finance filings and the CORI form, and relief from annual update filings and document delivery requirements for investment advisers were not extended.

    State Issues Covid-19 Massachusetts Securities Notary ESIGN

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  • Massachusetts AG requires debt buyer to discharge 300K in educational debt

    State Issues

    On July 30, the Massachusetts attorney general announced a Nevada-based debt buyer will discharge nearly $300,000 in student loan debt in connection with a for-profit education company that sold allegedly ineffective online study guides and education materials. According to the assurance of discontinuance (AOD), the education company allegedly engaged in unfair and deceptive acts in the marketing and selling of its educational materials and services, which included arranging for consumers to finance equivalency exam fees. The company arranged for consumers to obtain financing from certain credit unions and those credit unions subsequently sold the loans to other entities, including the Nevada-based debt buyer.

    The AOD requires the debt buyer to discharge and cease collection of the company’s loans for each of the 76 Massachusetts consumers, amounting to nearly $300,000 in debt. Additionally, the debt buyer is required to pay Massachusetts approximately $70,600 for the attorney general to distribute to consumers who made payments to the debt prior to the action, and is prevented from reporting any negative credit information.

    State Issues State Attorney General Massachusetts Debt Buyer Student Lending Debt Collection

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  • Massachusetts Securities Division extends emergency notice easing certain requirements for securities filings

    State Issues

    On July 30, the Massachusetts Securities Division extended its emergency notice (previously covered here), which grants relief from signature and notarization requirements in corporate finance filings and grants relief for registered financial professionals during the Covid-19 outbreak. Specifically, the division will not require manual signatures or notarizations for securities applications and securities notice filings, among others, and will instead accept evidence of electronic signatures or copies of signed documents. With respect to certain financial professionals, the division has also provided relief relating to (i) physical signatures required on Forms U4, (ii) the submission of Criminal Offender Record Information forms in connection with an application for registration, and (iii) annual update filings and document delivery requirements. The relief is effective through August 31, 2020, unless extended or rescinded.

    State Issues Covid-19 Massachusetts Securities ESIGN Notary Fintech

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