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CFPB, South Carolina, and Arkansas file charges in pension-advance scheme
On February 20, the CFPB, the South Carolina Department of Consumer Affairs, and the Arkansas attorney general filed a complaint in the U.S. District Court for the District of South Carolina against a South Carolina-based company and two of its managing partners (defendants) for allegedly violating the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by working with a series of broker companies that brokered contracts offering high-interest credit to disabled veterans and other consumers in exchange for the assignment of some of the consumers’ unpaid earnings, monthly pensions, or disability payments. Under federal law, agreements under which a person acquires the right to receive a veteran’s pension or disability payment are void, and South Carolina law—which governs these contracts—“prohibits sales of unpaid earnings and prohibits assignments of pensions as security on payment of a debt.”
The complaint alleges that the defendants substantially assisted broker companies that allegedly engaged in deceptive and unfair acts or practices through the marketing and administration of high-interest credit. (Covered by InfoBytes here.) The defendants’ alleged actions include: (i) “developing a pre-approval or risk-assessment process for the contracts and conducting underwriting”; (ii) “approving or denying consumers’ applications to enter into the transactions”; (iii) “directing and administering the execution of the contracts”; (iv) “serving as the payment processor for the initial lump-sum payment and fees”; and (v) “continuing to serve as the transactions’ payment processor, tracking and controlling the collection and distribution of consumers’ payments on the contracts.” In addition, the Bureau alleges, among other things, that the defendants provided substantial assistance to the broker companies’ deceptive misrepresentations that consumers could be subjected to criminal prosecution if they breached their contracts. In addition, the defendants also allegedly collected on contracts brokered by the broker companies that were void from inception “by initiating ACH debts to take payments from consumers’ bank accounts,” demanding payments through letters and other communications, and filing suit against consumers who failed to make payments.
The complaint seeks injunctive relief, restitution, damages, disgorgement, and civil money penalties.
CSBS technology platform will modernize state examinations
On February 19, the Conference of State Bank Supervisors announced the launch of a technology platform called the State Examination System (SES) to increase transparency and collaboration with regulated entities. State regulators, who are the primary regulators of non-bank and fintech firms, can use the system for investigations, enforcement actions and complaints. According to the press release, “state regulators will be able to enhance supervisory oversight of nonbanks while making the process more efficient for regulators and companies alike.” Among other things, SES is designed to: (i) “[s]upport networked supervision among state regulators”; (ii) “[s]tandardize workflow, business rules and technology across states”; (iii) [f]acilitate secure collaboration between licensees and their regulators”; (iv) allow examiners to “focus…on higher risk cases”; and (v) promote efficiency by “[m]ov[ing] state supervision towards more multistate exams and fewer single-state efforts.” SES will be managed by the State Regulatory Registry, which also manages the Nationwide Multistate Licensing System.
New York AG settles with student debt relief companies
On February 18, the U.S. District Court for the Southern District of New York approved a settlement between the State of New York and a student loan debt relief operation including five debt relief companies and one individual (defendants) in order to resolve allegations that the defendants violated the Telemarketing Sales Rule, the Federal Credit Repair Organizations Act, TILA, state usury laws, and various other state laws. As previously covered by InfoBytes, the New York attorney general brought the lawsuit in 2018 alleging that the defendants “engag[ed] in deceptive, fraudulent and illegal conduct…through their marketing, offering for sale, selling and financing” of debt relief services to student loan borrowers. The AG claimed that, among other things, the defendants allegedly (i) charged consumers who purchased the debt relief services illegal upfront fees; (ii) misrepresented that they were part of or working with the federal government; (iii) falsely claimed that fees paid by borrowers would be applied to borrowers’ student loan balances; and (iv) induced borrowers to enter into usurious financing contracts to pay for the debt relief services.
Under the terms of the agreement, the defendants—without admitting or denying the allegations—agreed to a judgment of $2.2 million, which will be suspended if the defendants promptly pay $50,000 to the State of New York and comply with all other provisions of the agreement. The defendants are also permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Additionally, the defendants must request that any credit reporting agency to which the defendants reported consumer information in connection with the student loan debt relief services remove the information from those consumers’ credit files. The defendants also agreed not to sell, transfer, or benefit from the personal information collected from borrowers. According to the settlement, six additional defendants were not included in the agreement and the AG’s case against them continues.
Four trade groups sue Maine over privacy law
On February 14, four trade groups filed suit against Maine in the U.S. District Court for the District of Maine, alleging that a recently enacted state privacy law (covered by InfoBytes here) infringes the rights of Internet Service Providers (ISPs). The complaint claims that L.D. 946 “imposes unprecedented and unduly burdensome restrictions on ISPs’, and only ISPs’, protected speech,” and is “not remotely tailored to protecting consumer privacy.” Among other things, the trade groups claim that because the law only stifles the use of consumer data by ISPs and not by other similarly situated companies, it violates their First Amendment protected speech rights. The groups also argue that the Maine law is much stricter to ISPs than other state privacy laws which “provide opt-out rights for most consumer data and reserve opt-in consent for a narrow subset of sensitive personal information,” whereas L.D. 946 uses an opt-in system. L.D. 946 also restricts the ISPs’ use of non-sensitive information that is not personally identifying and prohibits the ISPs from providing customer discounts or rewards programs to consumers who opt-in to sharing information.
Indiana Supreme Court: Statute of limitations begins when lender exercises optional acceleration clause
On February 17, the Indiana Supreme Court reversed a trial court’s decision to dismiss a lender’s action as time-barred, holding that under the state’s two statutes of limitation, “a cause of action for payment upon a promissory note with an optional acceleration clause can accrue on multiple dates”—one of which “is when a lender exercises its option to accelerate before a note matures.” According to the opinion, the consumer executed a promissory note and mortgage in 2007 and stopped making payments in 2008. The note was subsequently transferred to the lender, and in 2016, the lender accelerated the debt and demanded payment in full. The lender sued to recover the note in 2017. The consumer argued that the claim was barred by a six-year statute of limitations for a cause of action upon a promissory note under Ind. Code Ann. § 34-11-2-9, and the trial court agreed, granting the consumer’s motion to dismiss. The Indiana Court of Appeals affirmed the decision, finding that the lender did not accelerate the debt within six years of the initial default, and clarified, on rehearing, that the relevant Uniform Commercial Code statute of limitations (Ind. Code Ann. § 26-1-3.1-118(a)) should also apply.
The Indiana Supreme Court reversed the trial court’s ruling, determining, among other things, that the six-year statute of limitations did not start running until the lender exercised the optional acceleration clause in 2016, which was well within the applicable statutes of limitations. “We find that. . .under either applicable statute of limitations, [the lender’s] claim is timely,” the Court wrote. “We thus reverse the trial court’s order dismissing [the lender’s] complaint and remand.”
Special Alert: California attorney general modifies proposed CCPA regulations
The California attorney general last week released modifications to the proposed regulations announced last October (covered by a Buckley Special Alert) implementing the California Consumer Privacy Act (CCPA). The CCPA—enacted in June 2018 (also covered by a Buckley Special Alert) and amended several times—became effective Jan. 1.
This Special Alert contains a summary of key modifications to the proposed regulations.* * *
Click here to read the full special alert.
If you have any questions regarding the CCPA or other related issues, please visit our Privacy, Cyber Risk & Data Security practice page or contact a Buckley attorney with whom you have worked in the past.Washington AG sues timeshare exit defendants for unfair and deceptive practices
On February 4, the Washington state attorney general filed a complaint in King County Superior Court against a group of defendants who market services claiming they can release consumers from timeshare contracts. The AG alleges that since 2012, the defendants have unfairly and deceptively contracted with over 32,000 consumers seeking to release timeshare contracts, collecting millions in upfront fees. According to the complaint, the defendants, among other things, advertise their timeshare exit services as being “risk-free” with a 100 percent money-back guarantee; however, the defendants allegedly refuse to issue refunds to clients who face foreclosure, damaged credit ratings, and other negative financial consequences claiming that such outcomes are successful because the clients “technically” no longer own the timeshares. In addition, the AG alleges that the defendants charge clients upfront fees for each timeshare to be exited, and then outsource more than 95 percent of their clients’ files to third-party vendors for significantly discounted rates. These vendors are allegedly left to accomplish the timeshare exits without input or supervision from the defendants and often without a contract governing their work. The complaint alleges violations of the Consumer Protection Act, the Debt Adjusting Act, and the Credit Services Organization Act. The AG seeks numerous remedies including injunctive relief prohibiting the defendants from selling their services and $2,000 in civil penalties per violation of the Consumer Protection Act.
NYDFS encourages financial institutions to assist Puerto Rico
On February 5, the New York governor announced measures to assist with disaster relief for hurricane and earthquake-ravaged Puerto Rico. In an Industry Letter, NYDFS informed state-regulated financial institutions that they may receive Community Reinvestment Act (CRA) credit for “community development activities that revitalize or stabilize designated disaster areas” in Puerto Rico. The letter included the Federal Reserve Bank of New York’s Investment Connection program as one way for New York financial institutions to earn CRA credit. The announcement also mentioned the Guidance to New York State Regulated Banks and Credit Unions Regarding the Earthquakes in Puerto Rico issued on the same day by NYDFS. The guidance urged financial institutions with customers based in Puerto Rico to “consider all reasonable and prudent steps to assist such customers affected by the recent earthquakes in Puerto Rico.” Some of the specific suggestions included (i) waiving ATM fees, overdraft fees, and late payment fees; (ii) increasing ATM daily withdrawal limits and credit card limits; and (iii) working with customers to defer payments or extend payment due dates on loans. The NYDFS guidance also encouraged state-regulated financial institutions to assist in collecting charitable donations and in notifying their customers how they can donate to help Puerto Rico to recover.
NYDFS to take action against check cashing companies for BSA/AML violations
On February 3, NYDFS announced it intends to take enforcement action through an administrative proceeding against several check cashing entities for alleged violations of New York Banking Law and federal laws and regulations related to the business of check cashing. According to NYDFS, examinations revealed multiple concerns related to the entities’ Bank Secrecy Act/anti-money laundering (BSA/AML) program and transaction monitoring, including (i) inaccurate books and records; (ii) cashing post-dated checks; (iii) insufficient BSA/AML compliance; and (iv) inadequate risk-assessment procedures and customer identification and Know Your Customer programs. NYDFS also stated that management at the identified entities failed to implement effective controls to mitigate and manage BSA/AML compliance programs and Office of Foreign Assets Control risks despite “repeated criticism of the entities’ performance.”
NYDFS conducted a subsequent investigation, which found additional alleged violations that circumvented Federal and state banking laws, such as (i) hiring undisclosed employees who were paid “off the books”; (ii) conducting an unlicensed mobile check-cashing business; and (iii) and engaging in an illegal check-cashing scheme that structured transactions and falsified business records to give the appearance that checks were cashed on multiple dates, when in fact they were all cashed on a single date. The administrative proceeding to revoke the entities’ licenses and seek civil penalties will begin February 24.
Colorado announces roadmap to cannabis banking
On February 3, the Colorado governor announced plans to create a regulatory landscape to provide guidance and clarity for state-chartered financial services industries that serve, or wish serve, legal cannabis-related businesses. The Roadmap to Cannabis Banking & Financial Services—primarily driven by the state’s Division of Banking and the Division of Financial Services—is intended to increase the number of financial service providers in the state who serve cannabis-related businesses and cultivate opportunities for cannabis-related businesses that currently do not have access to banking services. According to the announcement, the roadmap outlines seven primary areas of focus, which include “providing clear regulatory guidance, encouraging new and emerging technologies in the banking and financial services space, reducing barriers while upholding consumer protection guardrails, and demonstrating state support for financial businesses wishing to explore cannabis banking.” The press announcement noted that the governor was joined by the lead sponsor of the federal SAFE Banking Act (H.R. 1595), which, as previously covered by InfoBytes, passed the House last September and currently awaits action in the Senate.