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Financial Services Law Insights and Observations


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  • Massachusetts’ attorney general issues AI guidance related to state UDAP law

    Privacy, Cyber Risk & Data Security

    On April 16, the Attorney General for Massachusetts (AG) released an advisory notice on how developers, suppliers and users of artificial intelligence (AI) should avoid “unfair and deceptive” practices to comply with consumer protection laws. The AG noted how AI systems could pose consumer harms, including through bias, lack of transparency, and data privacy issues – since consumers often lack the ability to avoid or test the “appropriateness” of AI systems forced upon them. Chapter 93A of Massachusetts law, the Massachusetts Consumer Protection Act, protected consumers against “unfair and deceptive” practices, the definition of which has changed over time. In addition to the consumer protection law, the AG highlighted several other state and federal consumer protections, including the ECOA, to bolster her advisory.

    The AG’s advisory construed Chapter 93A to apply to AI, clarifying that the following practices may qualify as “unfair or deceptive”: (i) a company falsely advertising the quality of its AI systems; (ii) a company suppling a defective or impractical AI system; (iii) a company misrepresenting the reliability or safety of its AI system; (iv) a company putting an AI system up for sale in breach of warranty, meaning that the system was unfit for the purpose for which it was sold; (v) a company using multimedia content to impersonate or deceive (such as using a deep fake, voice cloning, or chatbots within fraud); (vi) or a company failing to comply with other Massachusetts’ statutes.

    Privacy, Cyber Risk & Data Security Massachusetts State Attorney General Artificial Intelligence UDAP CFPB

  • Student loan servicer fined $1.8 million by Massachusetts Attorney General

    State Issues

    On January 11, the Massachusetts Attorney General (AG) announced a $1.8 million settlement with a student loan servicer, to resolve allegations that the company did not properly communicate Income-Driven Repayment (IDR) plan renewals to borrowers. According to the settlement, IDR plans are a “helpful tool for managing unaffordable federal student loan debt and avoiding the consequences of default… [and respondent] is required to follow specific procedures intended to ensure that borrowers are able to successfully navigate the enrollment and annual recertification processes required for IDR.” The AG alleged that the respondent violated state law by sending written notices that did not meet regulatory requirements and failed to send required notices.

    Under the terms of the settlement, respondent will (i) pay $1.8 million; (ii) include certain disclosures in renewal notice correspondence to borrowers; (iii) comply with requirements for FFELP loans owned by the DOE and enrolled in certain repayment plans; (iv) clearly disclosure to certain borrowers that failure to timely provide certain information about income or family size will result in increased monthly payments; and (v) retain copies of each written communication that it sends to borrowers regarding their IDR plans. The student loan servicer enters into this agreement for settlement purposes only (without admission).

    State Issues Massachusetts Student Loan Servicer Settlement Student Loans State Attorney General Income-Driven Repayment Lending Enforcement

  • Massachusetts State Appeals Court orders a consumer has standing to sue in state court under the FCRA without federal standing


    On January 11, the Massachusetts Court of Appeals ordered that an employee has standing to sue in state court, despite lacking standing to sue in a federal court. The employee (plaintiff) sued a prospective employer for allegedly conducting a background check in a manner that violated the FCRA. The defendant successfully sought to have the case moved from state court to federal court. In federal court, the defendant was granted a motion to dismiss on the grounds that plaintiff lacked standing under Article III, which requires that the plaintiff allege a “concrete” injury. Ultimately, the case was remanded to state court, where the Superior Court dismissed the FCRA claims. The plaintiff appealed, and the appellate court ruled that the plaintiff had alleged facts sufficient to support standing to sue in state court, as the applicable standard did not require a showing of “concrete” harm. 

    Courts Massachusetts FCRA Appellate Standing

  • Massachusetts AG settles with household goods rental company for unfair debt collection practices

    State Issues

    On November 28, the State AG of Massachusetts filed an assurance of discontinuance with a household goods rental company for unfair and deceptive debt collection practices. The company offers household goods under a rent-to-own payment contract as part of its business model. According to the assurance, customers would rent a good and then pay it off over several months to several years to obtain ownership; however, the assurance of discontinuance alleges that, for customers who failed to make payment or never returned the item, the company resorted to aggressive tactics: sending employees out to collect payments by making house visits, “pounding on doors, turning doorknobs to see if they were unlocked, and demanding to be let in.”

    In addition to these collection tactics, the assurance of discontinuance states that the company would file criminal complaints. The AG of Massachusetts finds this to be an improper use of “the criminal process, [such as] the threat of arrest or prosecution, as a [d]ebt collection tool.” Additionally, if a customer failed to make timely payments or return the rented property, the company would file a criminal complaint alleging their customers were committing larceny. In the assurance, the company agrees to pay $8.75 million, and the company must cease filing criminal complaints against customers.

    State Issues Massachusetts State Attorney General Debt Collection

  • Tenant screening company subject to FHA


    On July 26, a federal judge in the U.S. District Court for the District of Massachusetts ruled that a tenant screening algorithm is subject to the Fair Housing Act, including the FHA's ban on racial discrimination in housing. The court held that even though the company is not itself is not a landlord, as property owners allegedly relied solely on the company's decisions to deny prospective renters' applications, the company was effectively granting it authority to make housing decisions.

    Plaintiffs alleged in an amended complaint that a tenant-screening service operated by the defendants violated the Fair Housing Act, 42 U.S.C. § 3604 and Massachusetts anti-discrimination and consumer protection laws. The Plaintiffs claimed that the services discriminate against holders of rental vouchers and applicants of certain races and income classes, in violation of the FHA, resulting in less housing availability, less favorable terms and conditions in rental agreements, and discriminatory provision of services in connection with housing, in each case based on race and national origin.

    Defendants, in their respective motions to dismiss, argued that the FHA does not apply to a tenant-screening service, such as the defendant, because the service does not “make housing decisions.” In denying the motion to dismiss on this count, the court reasoned that the FHA provisions do not limit liability to people or entities that “make housing decisions” but rather “focuses on prohibited acts,” and reiterated that the Supreme Court has already held that “language of the Act is broad and inclusive.” The court observed that while housing providers are the typical target of FHA claims, other entities are often held liable under the Act. The court reasoned that the application of the FHA “beyond direct housing providers” is a “logical extension[] which effectuate[s] the purpose of the FHA,” as “a housing provider could simply use an intermediary to take discriminatory and prohibited actions on its behalf and defeat the purpose of the FHA.”

    Massachusetts antidiscrimination laws, among other things, make it unlawful to discriminate in the “terms, conditions, or privileges” of the sale or rental of housing or provision of such services “to aid, abet, incite, compel or coerce the doing of any of the acts forbidden under this chapter,” which includes Sections 4(6) and 4(10). Plaintiffs allege that the discriminatory rental application process was facilitated by the tenant score produced by the defendants. The court held that the chapter is construed broadly and reiterated the Massachusetts Supreme Court finding that defendants who play a role in the tenant selection process may be held liable under certain sections even if they only “aid[ed] or abet[ted]” a violation of Section 4(10). As such, the court held that the plaintiff’s claims for disparate impact discrimination for race or source of income under both FHA and Massachusetts antidiscrimination laws were sufficient to survive the motion to dismiss.

    Courts Federal Issues FHA HUD CFPB Consumer Finance Landlords Massachusetts Discrimination

  • Massachusetts AG reaches $6.5M settlement over deceptive auto-renewal and collection practices

    State Issues

    The Massachusetts attorney general recently reached a $6.5 million settlement with a home security services company, its sister companies, and its CEO to resolve allegations that the defendants violated Massachusetts consumer protection laws by trapping customers in auto renewal contracts and engaging in illegal debt collection practices. The final judgment by consent, filed in Suffolk County Superior Court, resolves a 2019 lawsuit alleging the defendants engaged in unfair and deceptive tactics to prevent customers from canceling their contracts, charged for services during system outages or for services that were never provided, steered customers into contract renewal instead of cancellation, and engaged in aggressive and illegal debt collection practices. Under the terms of the settlement, the defendants are required to pay $1.8 million and waive and forgive $4.7 million of outstanding customer debt. Although they denied the allegations, the defendants have agreed to implement changes to their business practices, including taking measures to come into compliance with the attorney general’s debt collection regulations, offering credits to customers who purchased non-functional systems that cannot be repaired, implementing new complaint procedures, and permitting existing customers to cancel their contracts by telephone, email, and web portal. Additionally, the defendants will make several revisions to the terms of their contracts relating to auto-renewal practices, monitoring charges, cancellation policies and procedures, late fees and other costs.

    State Issues State Attorney General Massachusetts Settlement Debt Collection Consumer Finance

  • Massachusetts reaches settlement in unfair debt collection and mortgage servicing matter

    State Issues

    On December 22, the Massachusetts attorney general announced a settlement with a South Carolina mortgage servicer to resolve claims that it allegedly failed to assist homeowners avoid foreclosure and engaged in unfair debt collection and mortgage servicing practices. According to an assurance of discontinuance filed in Suffolk Superior Court, the servicer allegedly violated the Massachusetts’ Act to Prevent Unlawful and Unnecessary Foreclosures, which requires servicers to make a good faith effort to help borrowers with certain unfair loan terms avoid foreclosure. Among other things, the servicer allegedly failed to (i) properly review borrowers’ income, debts, and obligations when assessing affordable loan modifications; (ii) provide borrowers with the results of these assessments; or (iii) provide borrowers with notice of their right to present a counteroffer after being offered a loan modification. The servicer also allegedly violated the state’s debt collection regulations by failing to timely issue compliant debt validation notices, and calling borrowers more than twice in a seven-day period. While denying the allegations, the servicer agreed to pay $975,000 to the state and will undertake significant business practice changes and provide ongoing reporting to the AG to ensure compliance.

    State Issues Enforcement State Attorney General Massachusetts Mortgage Servicing Mortgages Debt Collection Consumer Finance Foreclosure

  • Debt collection company issued a CDO for operating without a license

    On November 3, the Massachusetts Division of Banks issued a cease directive to a formerly-licensed debt collector company for allegedly operating for more than six years without a license. According to the order, the debt collecting company was a foreign company conducting business in Massachusetts with a main address in Florida. According to records maintained on file with the Division and the NMLS, the Commissioner initially issued a debt collector license to the company to engage in the business of debt collection in Massachusetts on or about January 14, 2010. In December 2012, the debt collector license expired due to the company's failure to respond to license items placed on the NMLS account of the company. In May 2013, the debt collector license was placed into a status of “Terminated – Expired.” During an examination of a separate debt collector licensee, the Division became aware that the company continued to engage in now unlicensed debt collection activity in Massachusetts on behalf of the licensee being examined. As a result, the Division directed the company to immediately cease collecting debts on any accounts in Massachusetts until it obtained the proper license to do so. The company was also been directed to provide a complete record of all funds collected from Massachusetts consumers from January 2019 through November 3, 2022, as well as a detailed record of the Massachusetts accounts it is holding for collection. The company can request a hearing to contest the Division’s allegations and has 30 days from November 3 to request such hearing. If it does not do so or fails to appear at a scheduled hearing, it will have been deemed to have consented to the issuance of the cease directive.

    Licensing State Issues Massachusetts Enforcement Debt Collection

  • Massachusetts settles with debt payment processor

    State Issues

    On November 7, the Massachusetts attorney general announced a settlement with a payment processing company to resolve claims that it provided substantial assistance to a debt settlement provider engaged in unlawful business practices that charged consumers premature and inflated fees in violation of state and federal law. According to an assurance of discontinuance filed in Suffolk Superior Court, the company processed settlement and fee payments for consumers enrolled in various debt settlement programs, including those offered by a debt settlement provider that was previously fined $1 million by the AG’s office for allegedly harming financially-distressed consumers. (Covered by InfoBytes here.) The newest settlement resolves claims that the company transferred unlawful fee payments to the debt settlement provider despite having knowledge of the alleged misconduct and even after the provider was sued by the AG’s office. Without admitting any facts, liability, or wrongdoing, the company has agreed to pay $600,000 to the Commonwealth, and will, according to the announcement, “make meaningful business practice changes that would prevent it from transferring untimely fees from any Massachusetts consumer account to any debt settlement company.”

    State Issues State Attorney General Massachusetts Debt Settlement Payment Processors Consumer Finance Fees Enforcement

  • Massachusetts reaches settlement with mortgage servicer over foreclosure practices

    State Issues

    On August 17, the Massachusetts attorney general announced that a national mortgage servicer must pay $3.2 million to resolve allegations that its mortgage servicing, debt collection, and foreclosure practices were unfair and deceptive. According to the assurance of discontinuance, the servicer allegedly violated Massachusetts’ Act Preventing Unlawful and Unnecessary Foreclosures by not providing notice and opportunity for borrowers to apply and be reviewed for loan modifications. Among other things, the servicer also allegedly placed debt collection calls exceeding the number of calls permitted by state law, did not inform borrowers of their right to request verification of the amount of their debt, unfairly charged foreclosure-related fees prior to obtaining authority to foreclose, and failed to send required debt validation notices. While the servicer denied the allegations, it agreed to pay borrowers $2.7 million in the form of principal forgiveness on eligible loans as well as a $500,000 fine. The servicer also agreed to “make significant changes” to its business practices.

    State Issues Enforcement Massachusetts State Attorney General Consumer Finance Foreclosure Debt Collection Mortgages Mortgage Servicing


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