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Financial Services Law Insights and Observations


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  • FTC and NY AG settle with phantom debt operation

    Federal Issues

    On July 1, the FTC announced, together with the New York attorney general, a settlement with two New York-based phantom debt operations and their principals (collectively, “defendants”) resolving allegations that the operations bought, placed for collection, sold lists of, and collected on fake debts that consumers did not owe. As previously covered by InfoBytes, the June 2018 complaint alleged that the defendants ran a deceptive and abusive debt collection scheme in violation of the FTC Act, the FDCPA, and New York state law. The settlement order against one company and its owners bans the defendants from debt collection activities, including buying, placing for collection, and selling debt. The order requires the defendants to pay a combined $676,575, suspending the total judgment of $6.75 million, due to inability to pay. The settlement order against the other company and its owner prohibits the defendants from engaging in unlawful collection practices and requires the payment of $118,000, suspending the total judgment of $4.94 million, due to inability to pay.

    Federal Issues State Issues Enforcement FTC State Attorney General Debt Collection FTC Act FDCPA Settlement

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  • Split 9th Circuit reverses dismissal of class action alleging bank-assisted fraud


    On June 24, the U.S. Court of Appeals for the 9th Circuit reversed the dismissal of a non-customer class action against a California bank alleging the bank knowingly assisted a fraudulent scheme, in violation of California law. The class action asserts eight claims against the bank under California law, including aiding and abetting fraud and conspiracy to commit fraud, for allegedly “knowingly assist[ing] a $125 million fraudulent scheme” initiated by one of the bank’s clients. The district court dismissed the action, holding the consumers “had not pleaded sufficient facts giving rise to a plausible inference that [the bank] knew [its client] was misappropriating funds.”

    On appeal, the 9th Circuit disagreed, concluding the consumers plausibly alleged specific allegations concerning the bank’s actual knowledge of the client’s misappropriation and fraud. The appellate court noted that while generally banks owe no duty to non-customers under California law, an exception exists when a bank “‘knowingly makes itself a party to a fraud, [it] must make good the loss that results from the misappropriation.’” The appellate court concluded that several allegations made by the consumers were plausible based on the bank using “atypical banking procedures,” which included “repeatedly making advances at [the client]’s request without obtaining supporting documentation or verifying that [the client] used the advanced proceeds appropriately (despite indications to the contrary) and extending maturity dates on short-term loans year after year (even when [the client] was in default).”

    In dissent, a panel judge argued that the consumers made no specific allegations of the bank’s actual knowledge of the fraud, noting that the complaint is “vague and lengthy” and just “a series of common banking practices dressed up in ominous language.” Additionally, the judge noted that California courts traditionally only find actual knowledge in “‘extreme circumstances,’” and have previously “refused to hold banks liable in far more egregious cases than this.”

    Courts Appellate Ninth Circuit Fraud State Issues

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  • 23 states agree to streamline money service licensing process for fintech companies


    On June 24, the Conference of State Bank Supervisors (CSBS) announced that financial regulators from 23 states have now agreed to a multi-state compact that will offer a streamlined licensing process for money services businesses (MSB), including fintech firms. As previously covered by InfoBytes, in February 2018, the original agreement included seven states. According to the announcement, 15 companies are currently involved in the initiative, and as of June 20, they have received 72 licenses. The 23 states participating in the MSB licensing agreement are: California, Connecticut, Georgia, Iowa, Idaho, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Mississippi. North Carolina, North Dakota, Nebraska, Ohio, Rhode Island, South Dakota, Texas, Tennessee, Utah, Vermont, Washington, and Wyoming.


    Fintech State Issues State Regulators Licensing CSBS Money Service / Money Transmitters Compliance Vision 2020

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  • 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

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  • Mortgage servicer agrees to pay $7.8 million in escrow interest in CDBO action

    State Issues

    On June 18, the California Department of Business Oversight (CDBO) announced a $7.8 million settlement with a mortgage servicer to pay allegedly overdue escrow interest to more than 94,000 California homeowners. According to the stipulation reflecting the settlement, the allegations result from a 2017 CDBO mortgage servicing examination, which found that the servicer “had failed to pay [two percent] interest on escrow impounds in violation of” California Fin. Code § 50202(d) and California Civ. Code § 2954.8. The settlement requires the servicer to pay the two percent interest for the period of July 1, 2014, through December 31, 2018, to 94,483 borrowers with escrow impound accounts. The servicer also agreed to pay two percent interest on escrow impound accounts for California residential mortgages going forward, although it reserved the right to stop paying interest in certain circumstances, including a final civil order or decision from the California Supreme Court or U.S. Court of Appeals for the 9th Circuit finding that Financial Code Section 2954.8 is not applicable to national banks or their subsidiaries.

    State Issues CDBO Enforcement State Regulators Escrow

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  • Nevada authorizes a regulatory sandbox program

    State Issues

    On June 13, the Nevada governor approved SB 161, which requires the Director of the Department of Business and Industry to establish and administer the “Regulatory Experimentation Program for Product Innovation.” If the Director approves an applicant to participate in the Program, the participant’s product or service will be generally exempt from certain statutory and regulatory requirements related to financial products or services. Under the legislation, any consumer of the product or service must be a resident of Nevada and not more than 5,000 consumers may be provided the product or service during the period of testing, unless the Director approves up to 7,500 consumers. Participants must make certain disclosures to consumers, including, if applicable, that the participant does not hold a license to provide a product or service outside of the program and method of submitting a complaint to the Director. The Director may also require additional disclosures.  The legislation also authorizes the Director to establish participant-reporting requirements by regulation and generally limits participation in the program to 2 years, although a participant may seek an extension of this period to apply for any license or other authorization otherwise required for the product or service. The legislation is effective on June 13 for the purpose of adopting any regulations and performing any other preparatory administrative tasks that are necessary to carry out the provisions of the bill, and on January 1, 2020, for all other purposes.

    State Issues State Regulators State Legislation Regulatory Sandbox Fintech

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  • Hawaii extends relief to full-time National Guard; adds vehicle lease terminations

    State Issues

    On June 7, the Hawaii governor signed HB 991, which extends the state’s military civil relief protections to persons serving on full time National Guard duty under Section 101(19) of Title 32 of the U.S. Code. Additionally, the bill amends other provisions of the state’s military civil relief law to align with the federal Servicemembers Civil Relief Act, including (i) extending the duration of a stay of any action from 60 days to 90 days after a period of military service ends, and (ii) extending the termination of lease provisions to cover motor vehicle leases, in addition to residential leases. The bill became effective on June 7.  

    State Issues State Legislation Military Lending SCRA

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  • Texas prohibits collection actions and arbitrations on time-barred debt

    State Issues

    On June 14, the Texas governor signed HB 996, which prohibits debt buyers from commencing an action against or initiating arbitration with a consumer for the purpose of collecting a consumer debt after the statute of limitations (SOL) has expired. The bill defines “debt buyer” as “a person who purchases or otherwise acquires a consumer debt from a creditor or other subsequent owner of the consumer debt, regardless of whether the person collects the consumer debt, hires a third party to collect the consumer debt, or hires an attorney to pursue collection litigation in connection with the consumer debt.” Additionally, the bill (i) prevents a collection action on a debt that is passed the SOL from being revised by any activity on the debt, including payment; and (ii) requires a debt buyer to provide a specific written notice in the initial collection communication, including a statement that the debt is time-barred and the debt collector would not sue the consumer for it. The bill is effective September 1.

    State Issues State Legislation Debt Collection Debt Buyer Statute of Limitations

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  • Nevada expands prohibition on credit discrimination

    State Issues

    On June 1, the Nevada governor signed SB 311, which expands the state’s prohibition on discrimination against a person who seeks to obtain credit to include race, color, creed, religion, disability, national origin or ancestry, sexual orientation, and gender identity or expression, in addition to the existing law’s current protection of sex or marital status. Additionally, the bill permits an applicant who has no credit history and was/is married to request that the creditor deem the applicant’s credit history to be identical to that of the applicant’s spouse during the marriage; and violation of this provision is deemed to be “discrimination based on marital status.” Lastly, the bill requires the Nevada Commissioner of Financial Institutions to study the nature and extent of any discrimination based on the bill’s protected classes and requires the Division to assist with programs designed to prevent or eliminate such discrimination. The bill is effective October 1.


    State Issues State Legislation Underwriting Fair Lending

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  • Texas approves temporary authority to act as a registered mortgage loan originator

    State Issues

    On June 10, the Texas governor signed SB 2330, which provides, among other things, for a federally-registered mortgage loan originator (MLO) who does not hold a state license to have temporary authority to act as a state-licensed MLO for a period not to exceed 120 days while their state MLO license application is pending. Subject to certain conditions, a federally-registered MLO who becomes employed by an entity that is licensed or registered in Texas for mortgage loan origination may temporarily act as a state-licensed  MLO in the state before their license is issued for up to 120 days if (i) the individual was registered in the Nationwide Mortgage Licensing System and Registry as a loan originator within one year of the state application; or (ii) is licensed by another state or governmental jurisdiction to engage in mortgage loan origination. The bill is effective on November 24.


    State Issues Mortgage Licensing Licensing Mortgages State Legislation NMLS

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