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Massachusetts AG reaches $1.25 million settlement with online lender
On January 21, the Massachusetts attorney general announced a $1.25 million settlement with an online marketplace lender to resolve allegations that it violated the state’s Small Loan Statute by facilitating the origination of loans with excessive interest rates to Massachusetts borrowers. According to an assurance of discontinuance (AOD) filed in the Suffolk Superior Court, the company allegedly facilitated personal loans to Massachusetts residents with interest rates exceeding the statutory interest rate cap set by the Small Loan Statute, which regulates terms for consumer loans of $6,000 or less. “Small loans” are defined by the statute as those where the disbursed amount is $6,000 or less. To determine whether a loan is a “small loan,” the Small Loan Statute provides that if, after all deductions or payments (whether on account of interest, expenses, or principal made substantially contemporaneously with the making of the loan), the amount retained by the borrower is $6,000 or less, the transaction will be deemed to be a loan in the amount of the sum retained by the borrower after deductions or payments, notwithstanding that the loan was nominally for a greater sum (the “deduction provision”). Among other things, the AG’s office claimed the company facilitated “small loans” with interest rates above the maximum permitted rate for non-licensed small loan companies, and that after the company obtained a small loan company license, it allegedly facilitated loans that exceeded the maximum permitted rate for licensed small loan companies based in part on its reading of the Act’s “deduction provision.” The company admitted no liability, agreed to pay $1.25 million to the Commonwealth, comply with Massachusetts law, and stop facilitating small loans to state residents with interest rates that exceed the maximum permissible rate based on the AG’s reading.
Miami voluntarily dismisses FHA suits against banks
On January 30, the city of Miami dismissed fair housing lawsuits against four of the largest banks in the U.S. (see orders here, here, here and here). The suits—filed in 2013—claimed that redlining by the banks led to a high rate of mortgage loan defaults, foreclosures, and property vacancies, causing property values to go down, which resulted in reduced tax revenues to the city. As previously covered by InfoBytes, in May, the U.S. Court of Appeals for the Eleventh Circuit determined that Miami made plausible claims that the lending practices of two of the banks violated the Fair Housing Act (FHA) and eventually reduced property tax revenues. Philadelphia recently reached a settlement with a large bank after making similar allegations regarding discriminatory mortgage lending practices. (Covered by InfoBytes here.)
Maryland court of appeals: state consumer protection act covers HOA collections
On January 27, the Court of Appeals of Maryland affirmed the dismissal of a homeowners association’s (HOA) confessed judgment complaint against a consumer, and stated that the HOA could not file an amended complaint. According to the opinion, the consumer owned a home that is part of an HOA, which makes annual assessments to cover the costs of general upkeep of the common areas. When she fell behind in paying her HOA assessments, the HOA drafted and the consumer signed, a promissory note (note) that contained a confessed judgment clause. The consumer defaulted on the note and the HOA filed a complaint for judgment by confession along with the note and an affidavit that stated the note did not involve a consumer transaction. The district court entered judgment for the HOA. The consumer filed a motion to vacate the judgment, claiming that the note arose from a consumer transaction, and the confessed judgment clause was prohibited under the Maryland Consumer Protection Act (MCPA). The district court agreed that the note evidenced a consumer transaction and vacated the confessed judgment and set the matter for trial. After the consumer received a notice regarding the trial on the issue, she filed a motion to dismiss, which was denied, and she appealed to the circuit court. The circuit court held that the confessed judgment was prohibited and that the complaint was required to be dismissed. The HOA filed a petition for writ of certiorari, which the Court of Appeals granted.
Upon review, the Court of Appeals found that under the MCPA (i) the HOA assessments are consumer debt; (ii) the HOA’s note was an extension of consumer credit; and (iii) confessed judgment clauses in contracts involving consumer transactions are prohibited. Further, the Court of Appeals determined that the HOA could not “circumvent the protections afforded to a debtor under the [M]CPA by inserting language into a confessed judgment clause which purports to preserve a debtor’s legal defenses.” The Court of Appeals also rejected the consumer’s assertion that the note was void as a result of the confessed judgment clause, finding instead that though the HOA should not be allowed to file an amended complaint in the current action, the HOA could file a separate action for breach of contract if the unlawful clause was severed from the note. Accordingly, the Court of Appeals stated that the current action should be dismissed without prejudice.
States urge Supreme Court to review FTC’s restitution authority
On January 30, a coalition of attorneys general from 22 states, the District of Columbia, and the Commonwealth of Puerto Rico filed an amicus brief in support of the FTC in a U.S. Supreme Court action that is currently awaiting the Court’s decision to grant certiorari. Last December, the FTC filed a petition for a writ of certiorari asking the Court to reverse an opinion issued by the U.S. Court of Appeals for the Seventh Circuit last August, which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution when enforcing consumer protections under the FTC Act. (Covered by InfoBytes here.) The AGs assert, however, that restitution is a critical FTC enforcement tool that provides direct benefits to the amici states and their residents. Arguing that the 7th Circuit’s decision will impede federal-state collaborations to combat unfair and deceptive practices—citing recent FTC restitution amounts that directly benefited consumers in Illinois, Indiana, and Wisconsin—the AGs stress that without the authority to seek restitution, the states “may be forced to redirect resources to compensate for work that would have previously been performed by the FTC.” The AGs also discuss the states’ interest in the “uniform application of federal law.” The 7th Circuit’s decision “upends decades of settled practice and precedent,” the AGs contend, and may provide the opportunity for defendants to “forum shop” as they seek to transfer their cases to take advantage of a decision that may work in their favor. As a result, the decision has created confusion where none previously existed, the AGs claim.
As previously covered by InfoBytes, the FTC filed a brief in a separate action also pending the Court’s decision to grant certiorari that similarly addresses the question of whether the FTC is empowered by Section 13(b) to demand equitable monetary relief in civil enforcement actions. In this case, the petitioners are appealing a 9th Circuit decision, which upheld a $1.3 billion judgment against them for allegedly operating a deceptive payday lending scheme. The 9th Circuit rejected the petitioners’ argument that the FTC Act only allows the court to issue injunctions, concluding that a district court may grant any ancillary relief under the FTC Act, including restitution.
Maryland court of appeals: Law firm’s collection activities do not qualify for “professional services” exemption
On January 28, the Court of Appeals of Maryland held that not all services provided by a law firm or a lawyer fall within the “professional services” exemption under the Maryland Consumer Protection Act (CPA). In this case, a homeowners association (HOA) retained a law firm to collect delinquent HOA assessments, fines, penalties, and attorney’s fees. After nine years of collection efforts, the plaintiff homeowners filed a lawsuit against the HOA, alleging the debt collection practices violated the CPA and the Maryland Consumer Debt Collection Act (MCDCA). The HOA then filed a third-party complaint against the law firm for indemnification. The circuit court granted the HOA summary judgment on the CPA claim, stating that the CPA specifically exempts lawyers from liability, and as such, the HOA could not be vicariously liable for the law firm’s actions. The court also ruled against the plaintiffs’ MCDCA claim. The Court of Special Appeals, however, held that the circuit court erred in ruling that the law firm’s “professional services” exemption shielded the HOA from either direct or vicarious liability for deceptive trade practices, reversed and remanded the circuit court’s MCDCA ruling, and reinstated the HOA’s third-party complaint against the law firm pursuant to an indemnification clause contained within professional services agreement.
The Court of Appeals granted a writ of certiorari to consider whether all services provided by a law firm fall within the CPA’s “professional services” exemption, and whether this exemption extends to an HOA facing liability arising from the law firm’s debt collection conduct. The Court of Appeals concluded that a law firm’s conduct is not covered by the exemption if (i) the law firm’s services “could be provided by any licensed debt collection agency” regardless of whether the agency is affiliated with a law firm or a lawyer; or (ii) the alleged conduct violates the MCDCA. “[A] license to practice law is not a license to engage in deceptive or unfair debt collection activities with impunity,” the Court of Appeals wrote. The Court of Appeals also addressed the question of whether the exemption also applies to the law firm’s client, and concluded that the “the plain language of the exemption does not apply to vicarious liability claims against a lawyer’s client” and that expanding the interpretation of the exemption to cover additional classes of individuals “is contrary to the purpose and intent of the CPA.”
Maryland, Hawaii, and Virginia are latest states to introduce privacy legislation
Recently, Maryland, Hawaii, and Virginia introduced privacy legislation designed to strengthen consumer access and control over personal data, joining efforts by Washington and New York to pass privacy bills containing provisions that differ from those in the California Consumer Privacy Act (CCPA), which took effect January 1. (See InfoBytes coverage on Washington here, New York here, and the CCPA here.)
On January 17, Maryland introduced HB 249 to amend the state’s Commercial Law by adding a section titled “Consumer Personal Information Privacy.” Under the proposed bill, consumers would be provided the right to opt-out of the disclosure of their personal information to third parties. HB 249 defines “disclosure” as “a transfer of a consumer’s personal information by a business to a third party, including selling, renting, releasing, disseminating, making available, transferring, or otherwise communicating by any means.” The bill clarifies that disclosure does not include (i) a transfer of personal information to a service provider by a business for an operational purpose; (ii) identification of a consumer who has opted-out to alert third parties; and (iii) a transfer of personal information to a third party “as an asset that is part of a transaction in which the third party assumes control of all or part of the business.” The bill also stipulates requirements for businesses related to the consumer opt-out process, and states that a violation of the bill’s provisions would constitute an unfair or deceptive trade practice under Maryland’s Consumer Protection Act.
The same day, SB 2451 was introduced in the Hawaii Senate to add a new section to Chapter 487J of the Hawaii Revised Statutes, which stipulates that third parties cannot use or sell personal information purchased from a business unless a consumer receives explicit notice, provides express written consent, and chooses not to opt-out after given the opportunity to do so. The proposed bill also provides consumers the opportunity to, at any time, opt-out of the sale of their personal information to third parties. Among other things, the bill outlines provisions related to the sale of personal information for consumers less than 16 years of age, as well as specific compliance requirements for businesses when providing notice to consumers. SB 2451 also defines a third party as one that is (i) not a “business that collects personal information from consumers”; or (ii) not a person who receives personal information from a business for a business purpose pursuant to a written contract that restricts further use of the personal information.
Earlier, on January 3, HB 473, known as the “Virginia Privacy Act,” was introduced. Among other things, the bill requires data controllers to be transparent about their processing activities and be responsible for, upon verified request from the consumer, (i) confirming the uses of personal data; (ii) correcting inaccuracies; (iii) deleting unnecessary personal data or data for which the consumer has withdrawn consent; (iv) limiting the processing of personal data to what is required and relevant for a specified purpose; and (v) obtaining consumer consent in order to process sensitive data. HB 473 also provides consumers the right to object at any time to the processing of personal data, including the sale of data to third parties for targeted advertising, and stipulates that third parties must honor objection requests received from third-party controllers. The bill also requires controllers to conduct risk assessments for all processing activities that involve personal data, and conduct additional assessments each time a processing change occurs that “materially increases the risk to consumers.” If enacted, violations of HB 473 would “constitute a prohibited practice” pursuant to Virginia Consumer Protection Act (VCPA) Section 59-1-200 and violators would be subject to any and all of the VCPA’s enforcement provisions.
Colorado reminds entities of retail credit seller UCCC notification requirements
On December 27, the Colorado Department of Law issued an advisory stating that consumers may not be obligated to pay finance charges on consumer credit transactions that are purchased, acquired, or otherwise assigned to retail credit sellers that have not filed applicable notifications required by the Colorado Uniform Consumer Credit Code (UCCC). According to the advisory, in these situations, entities may be “required to re-apply all payments so that the consumer is not assessed any finance charges and issue refunds to the consumer of any resulting credit balance.” The UCCC regulates the terms and conditions of consumer credit in the state, including payday loans, automobile loans, second mortgages, state-issued credit cards, and signature loans. A current list of retail credit sellers that have notifications on file with the office can be accessed here.
NYDFS provides additional time on LIBOR transition plans
On January 27, NYDFS announced an update to its industry letter, previously covered by a Buckley Special Alert, pushing back the response deadline. Regulated entities will now have until March 23 (45 additional days) to deliver their transition plans. According to the updated request, the deadline was extended after NYDFS received a number of requests to add additional time to respond.
Fannie Mae adds new entities to fake-employer list
On January 29, Fannie Mae issued a new fraud alert to mortgage lenders warning them of 15 new potentially fictitious employers that have recently been appearing on mortgage applications. As previously covered in InfoBytes, Fannie Mae’s mortgage fraud program has issued several prior alert bulletins to the mortgage industry regarding active and potentially fraudulent schemes, all of which have identified fake employers in California. This new alert adds 15 additional California companies to that list, which now includes 65 potentially fake companies. The GSE alert offers “red flags” for lenders to be aware of when processing loan applications, including high starting salaries and paystubs that lack common withholdings for such things as health insurance and 401(k). Additionally, the alert bulletin suggests that lenders verify the existence of employers listed on borrower applications, and practice careful due diligence in the entire application process.
Payday lender settles with North Carolina AG for $825,000
On January 27, the North Carolina attorney general announced that a Florida-based payday lender (lender) agreed to pay $825,000 to settle allegations of usury, lending without a license, unlawful debt collection and unfair and deceptive practices in violation of state consumer protection laws. According to the announcement, though the lender was not licensed in the state, it advanced “more than 400 loans online to financially distressed North Carolina consumers at interest rates between 78 to 252 percent,” which is markedly higher than the state interest rate limit of 30 percent. The AG claimed that the lender tried to skirt North Carolina laws by requiring some borrowers to collect their loan funds outside of the state. The AG also alleged that the lender required borrowers to secure the loans with their vehicle titles, which enabled the lender to repossess and sell the borrowers’ vehicles when they defaulted or were late on payments. In the settlement, without admitting to the AG’s allegations, the lender agreed to return to North Carolina borrowers (i) all fees and interest paid on the loans by the borrowers; (ii) all the auction proceeds exceeding the loan principal to borrowers whose vehicles were repossessed and sold at auction; and (iii) cars owned by borrowers that were repossessed but not sold at auction. Among other things, the lender will also be permanently barred from making loans to, and collecting payments from, North Carolina borrowers, and is prohibited from putting liens on and repossessing vehicles owned by borrowers.