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Virginia Attorney General sues pension sale lender who targeted retired veterans and government employees; obtains full restitution for customers of online lender
On March 7, the Virginia Attorney General took action against Delaware- and Nevada-based installment lenders (defendants) for allegedly making illegal loans with excessive annual interest rates that were disguised as “lump sum” cash payouts to Virginia consumers, in violation of the Virginia Consumer Protection Act (VCPA). According to the complaint, the defendants disguised the high interest loans to Virginia pensioners as “Purchase and Sale Agreements” involving a “sale” or “pension advance” in an effort to bypass consumer lending laws, including TILA and Regulation Z disclosure requirements. Furthermore, the complaint alleges that the loans charged interest rates as high as 183 percent, far exceeding the state’s 12 percent annual usury cap, but because they were misrepresented as sales, defendants avoided potential private actions brought by consumers to recover excessive interest payments. The complaint seeks injunctive and monetary relief.
Separately, on February 23, the Virginia Attorney General announced a settlement with a group of affiliated online lenders and debt collectors (defendants) to resolve violations of the VCPA through the offering of unlawful open-end credit plan loans and engaging in illegal debt collection practices. According to the Assurance of Voluntary Compliance approved earlier in February, between January 2015 through mid-June 2017, the defendants (i) offered open-end credit plan loans and imposed bi-monthly “service fees” that—when calculated with the advertised interest—greatly increased the loan’s cost and exceeded the state’s 12 percent annual limit; (ii) imposed illegal finance charges and other service fees on borrowers during the required 25-day grace period; (iii) contacted consumers in an effort to collect on these loans; and (iv) contacted the consumers' employers to implement wage assignments and garnish wages from consumers' paychecks. Under the terms of the settlement, defendants will provide nearly $150,000 in restitution and debt forgiveness, pay $105,000 in civil penalties and attorneys’ fees, and are permanently enjoined from consumer lending and debt collection activities in the state.
On February 7, Virginia’s Attorney General, Mark R. Herring, announced a $2.7 million settlement with a Virginia affiliate of a New York-based internet lender to resolve alleged violations of the Virginia Consumer Protection Act (VCPA). According to the announcement, between January 2017 and July 2017, the online lender (i) offered installment loans with interest rates as high as 359 percent without qualifying for an exception to the state’s 12 percent interest cap; (ii) falsely claimed it was licensed by Virginia’s Bureau of Financial Institutions; and (iii) charged state residents an unlawful check-processing fee of $15 for payments made by check on closed-end installment loans. The attorney general’s office stated that the settlement requires the lender to disgorge more than $2 million in illegal interest payments received, provide over $300,000 in refunds to affected state consumers, and pay the state $30,000 in civil money penalties, costs, and fees. The settlement also contains a permanent injunction that prohibits the lender from misrepresenting its status as a licensed Virginia lender.
On November 30, Virginia Attorney General Mark R. Herring announced a settlement with a Chicago-based “open-end credit plan internet lender” to resolve alleged violations of the Virginia Consumer Protection Act (VCPA). Specifically, the Attorney General’s Office alleged that the lender misrepresented that it was licensed to conduct lending activity in Virginia and charged unlawful origination fees during a statutorily required grace period. According to a press release issued by the Attorney General’s office, the settlement requires the lender to provide more than $3 million of refunds and interest forgiveness to borrowers, and pay the state $30,000 in civil money penalties, costs, and fees. The settlement also contains a permanent injunction that prohibits the lender from misrepresenting its status as a licensed Virginia lender and violating the VCPA.
On October 25, Virginia Attorney General Mark R. Herring announced a settlement with a Nevada-based internet lender to resolve allegations that the lender violated the Virginia Consumer Protection Act by misrepresenting it was licensed by the state’s Bureau of Financial Institutions and collecting interest exceeding the state’s general usury limit. According to a press release issued by the Attorney General’s office, the settlement requires the lender to provide refunds and interest forgiveness of more than $265,000 to borrowers, and pay the state $50,000 in civil money penalties, costs, and fees. A permanent injunction also prohibits the lender from, among other things, misrepresenting its licensing status and collecting interest exceeding the amount allowed by the state’s general usury statute.
On September 26, Massachusetts Attorney General Maura Healey announced a lawsuit against a large auto dealership and its in-house lender for allegedly misleading consumers into purchasing unfavorable sale packages. According to the Commonwealth’s complaint, filed in the Suffolk County Superior Court, the auto dealer purportedly (i) sold consumers cars priced at more than double their retail value; (ii) extended loans to consumers with an APR of 20 percent, regardless of credit qualifications; and (iii) combined these sales with an expensive and limited service contract. The complaint further alleges that because of these sales practices and a faulty underwriting process, more than half of the auto dealer’s sales fail or end in repossession. The complaint seeks injunctive relief, restitution, civil penalties, and attorney fees.
On September 15, Illinois Governor Bruce Rauner signed into law amendments to the state’s Residential Real Property Disclosure Act to change provisions under its Predatory Lending Database Article. Public Act 100-0509 sets forth the following changes, among others: (i) certificates of compliance or certificates of exemption must now contain at least “one of the borrower’s names on the mortgage loan and the property index number for the subject property”; (ii) amends the definitions of “counseling” by removing the reference to “telephone counseling” and “originator” to reference “mortgage loan originator”; (iii) eliminates the requirement that originators shall provide information regarding affiliated or third party service providers or monies received from a broker or originator for inclusion in the predatory lending database; and (iv) provides additions to the information that must be collected and submitted by the title insurance company or closing agent for inclusion in the predatory lending database, such as a detailed list of all notices provided to the borrower at closing, including information in connection with the Integrated Closing Disclosure and the Integrated Loan Estimate Disclosure required under TILA-RESPA. The amendments took effect September 15, 2017.
CFPB, 13 State Attorneys General Take Action Against Private Equity Firm for Allegedly Aiding For-Profit College Company’s Predatory Lending Scheme
On August 17, the CFPB announced a proposed settlement against a private equity firm and its related entities for allegedly aiding a now bankrupt for-profit college company in an illegal predatory lending scheme. In 2015, the CFPB obtained a $531 million default judgment against the company based on allegations that it made false and misleading representations to students to encourage them to take out private student loans. (See previous InfoBytes summary here.) However, the company was unable to pay the judgment because it had dissolved and its assets were distributed in its bankruptcy case that year. Because of the company’s inability to pay, the CFPB indicated that it would continue to seek additional relief for students affected by the company’s practices. In a complaint filed by the CFPB on August 17 in the U.S. District Court for the District of Oregon, the Bureau relied on its UDAAP authority to allege that the private equity firm engaged in abusive acts and practices when it funded the college company’s private student loans and supported the college company’s alleged predatory lending program. Specifically, the CFPB alleged that the private equity firm enabled the company to “present a façade of compliance” with federal laws requiring that at least 10 percent of the for-profit school’s revenue come from sources other than federal student aid in order to receive Title IV funds. The Bureau further alleged that both the company and the private equity firm knew that the high-priced loans made under the alleged predatory lending scheme had a “high likelihood of default.” According to the complaint, the private equity firm continues to collect on the loans made under the alleged predatory lending program. In regard to these loans, the proposed order requires the private equity firm to, among other things: (i) forgive all outstanding loan balances in connection with certain borrowers who attended one of the company’s colleges that subsequently closed; (ii) forgive all outstanding balances for defaulted loans; and (iii) with respect to all other outstanding loans, reduce the principal amount owed by 55 percent, and forgive accrued and unpaid interest and fees more than 30 days past due.
Relatedly, New York Attorney General Eric T. Schneiderman, announced on August 17 that his office, in partnership with the CFPB and 12 other state attorneys general, had reached a $183.3 million nationwide settlement with the private equity firm in partnership with the CFPB. According to a press release issued by AG Schneiderman’s office, under the terms of the settlement, an estimated 41,000 borrowers nationwide who either defaulted on their loans or attended the company’s colleges when it closed in 2014 are entitled to full loan discharges—an amount estimated to be between “$6,000 and $7,000.”
Following the April 26 lawsuit filed by the Conference of State Bank Supervisors (CSBS) opposing the OCC’s fintech charter (see previous InfoBytes post), the New York Department of Financial Services (NYDFS) filed its own lawsuit on May 12, asking the court to block the OCC from creating a new special purpose fintech charter. “The OCC’s charter decision is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other state regulators,” NYDFS Superintendent Maria T. Vullo said in a statement announcing the lawsuit. “This charter puts New York financial consumers . . . at great risk of exploitation by newly federally chartered entities seeking to be insulated from New York’s strong consumer protections.” NYDFS’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that the OCC’s charter would include “vast preemptive powers over state law.” Specific concerns include the risk of (i) weakened regulatory controls on usury, payday loans, and other predatory lending practices; (ii) consolidation of multiple non-depository business lines under a single federal charter, thus creating more “too big to fail” institutions; and (iii) creating competitive advantages for large, well-capitalized fintech firms that could overwhelm smaller market players and thus restrict innovation in financial products and services. The complaint also asserts that the “OCC’s action is legally indefensible because it grossly exceeds the agency’s statutory authority.” Finally, the complaint claims that the proposed fintech charter would injure NYDFS monetarily because the regulator’s operating expenses are funded by assessments levied by the OCC on New York licensed financial institutions. According to NYDFS, every non-depository financial firm that receives a special purpose fintech charter from the OCC in place of a New York license deprives NYDFS of crucial resources that are necessary to fund its regulatory function.
Citing violations of the National Bank Act and conflicts with state law in violation of the Tenth Amendment of the U.S. Constitution, NYDFS seeks declaratory and injunctive relief that would declare the fintech charter proposal to be unlawful and prohibit the OCC from taking further steps toward creating or issuing the charter without express Congressional authority.
In a press release issued the same day, the CSBS said it “strongly supports the [NYDFS] lawsuit” and reiterated that the OCC “does not have the authority to issue federal charters to non-banks, and its unlawful attempt to do so will harm markets, innovation and consumers.”
FTC Issues Summary of ECOA Enforcement and Educational Activity to CFPB as Bureau Prepares Annual Report
On February 3, the FTC provided the CFPB with an overview of its work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B. The letter discusses, among other items, the Commission’s fair lending research, policy development and educational initiatives such as (i) surveying consumers about their experiences in buying and financing automobiles; (ii) providing a report to businesses to help them avoid exclusionary or discriminatory outcomes when using big data analytics; (iii) creating a FinTech forum series that explores emerging financial technology and its implications for consumers; (iv) issuing a report to Congress on Commission efforts in African American and Latino communities related to fraud prevention; (v) hosting a workshop to examine marketplace changes based on population changes and diversity trends; and (vi) attending Interagency Task Force on Fair Lending meetings to share information on lending discrimination, predatory lending enforcement, and policy issues. The letter also discusses the Commission’s business and consumer education efforts on fair lending issues.
On April 18, Senators Sherrod Brown (D-OH), Jeffrey Merkley (D-OR), and Jeanne Shaheen (D-NH) sent a letter to the Government Accountability Office (GAO) requesting that it complete a study on the fintech industry. Under the Dodd-Frank Act, the GAO is required to examine the regulatory structure of person-to-person (P2P) lending. While the letter recognizes that the GAO issued a report on P2P lending in 2011, the senators urged the GAO to recognize that the lending platforms of financial technology firms (often called fintech) “has changed dramatically and evolved beyond consumer lending,” and that “P2P lending, now generally called marketplace lending, is not the only form of fintech that has developed over the last several years.” The letter further cautions that, “gaps in understanding and regulation of emerging financial products may result in predatory lending, consumer abuse, or systemic issues.” Finally, Senators Brown, Merkley, and Shaheen urged the GAO to provide responses to questions relating to, among other things, (i) the size and structure of the loan portfolios maintained by privately owned fintech lenders; (ii) how fintech lenders’ relationships with financial institutions impact both the financial system at large and regulatory framework; (ii) whether the risks that may arise from the investor base shifting from individual investor to institutional investor have grown since this issue was first noted in the GAO’s 2011 report; and (iii) the anti-money laundering, data security, and privacy requirements fintech companies are subject to.
- Daniel R. Alonso to discuss "The international compliance situation and new challenges" at the World Compliance Association Covid Compliance Conference
- Benjamin W. Hutten to discuss "Understanding OFAC sanctions" at a NAFCU webinar
- Garylene D. Javier to discuss "Navigating workplace culture in 2020" at the DC Bar Conference