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Massachusetts settles with auto lender
On February 18, the Massachusetts attorney general announced that a national auto lender entered into a settlement with the Commonwealth resolving allegations that the lender did not provide sufficient disclosures to consumers related to its debt collection practices, with over 1,000 borrowers expected to be eligible for relief. According to the Assurance of Discontinuance (AOD), the lender allegedly failed to provide certain consumers with sufficient information about the calculation methods for any deficiencies remaining on their auto loans after their cars were repossessed. The AOD requires the auto lender to pay $5.6 million in restitution to eligible borrowers, and cover administration and investigation costs associated with the matter. According to Massachusetts Attorney General Laura Healey, the “settlement, which combines cash payments with debt relief and credit repair, will help many subprime borrowers in need.”
California Privacy Protection Agency plans to finish rulemaking by Q4 of 2022
On February 17, the California Privacy Protection Agency (CPPA) Board held a public meeting to provide an update on the California Privacy Rights Act (CPRA or the Act) rulemaking process. According to sources, the CPPA, which was established under the CPRA, stated it intends to finalize rulemaking in the third or fourth quarter of 2022. As previously covered by InfoBytes, last September, the CPPA formally called on stakeholders to provide preliminary comments on proposed CPRA rulemaking. The Act (effective January 1, 2023, with enforcement delayed until July 1, 2023) was approved by ballot measure in November 2020 (covered by InfoBytes here) and amended the existing California Consumer Privacy Act. The invitation for comments highlighted several areas of interest for the CPPA, including topics concerning cybersecurity audits and risk assessments, automated decision-making, consumer privacy rights and requests to know, sensitive personal information, and dark patterns. While the CPRA established a July 1, 2022 deadline for rulemaking, CPPA Executive Director Ashkan Soltani stated during the meeting that the rulemaking process will extend into the second half of the year. Soltani noted that preliminary and informational proceedings will take place sometime this March and April, and will include instructive sessions with various subject matter experts and public sessions to obtain stakeholder input, and will take into account responses from the comment solicitation period that ended November 8, 2021. Following these proceedings, the Board will begin the formal rulemaking process during the second and third quarters, with final rules being finished by the end of the year. Soltani acknowledged that while the Board is behind schedule with respect to the July deadline, the CPPA expects to use the extra time to fill open positions at the agency.
Texas AG issues CID to video streaming company
On February 18, the Texas attorney general issued two Civil Investigative Demands (CIDs) to a video streaming company that focus on the company’s potential facilitation of human trafficking and child privacy violations, as well as other potential unlawful conduct. According to the CIDs, the company allegedly violated section 140A.002, Civil Racketeering Related to Trafficking of Persons, of the Texas Civil Practice and Remedies Code. The CID orders to company to: (i) provide answers and documents in response to the CID; (ii) preserve documents and/or other data which relate to the subject matter or requests of the CID; and (iii) consult the AG prior to processing or making copies of hard-copy documents or electronically stored information in response the CID.
FCC proposes record $45 million fine against robocaller
On February 18, the FCC released a proposed $45 million fine against a lead generator accused of conducting an illegal robocall campaign that made false claims about the Covid-19 pandemic to induce consumers into purchasing health insurance. This is the FCC’s largest ever proposed robocall fine to date. According to the FCC, the lead generator violated the TCPA by placing 514,467 robocalls to cellphones and landlines without subscribers’ prior express consent or an emergency purpose. The Florida-based lead generator allegedly purchased lists of phone numbers from third-party vendors and acquired phone numbers from consumers seeking health insurance quotes online, “without clearly disclosing that, by providing contact information, the consumers would be subject to robocalls.” It then left prerecorded voice messages marketing insurance plans sold by companies that had hired the lead generator. Many of these robocalls, the FTC claimed, were also unlawfully made to consumers on the Do Not Call Registry. FCC Chairwoman Jessica Rosenworcel issued a statement announcing that, in addition to the record fine, the Commission also established a new partnership with 16 state attorneys general in order to share information and resources to mitigate robocalls.
FTC hits investment scheme with $111 million judgment
On February 16, the FTC and the Utah Division of Consumer Protection reached a settlement in an action taken against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. As previously covered by InfoBytes, the FTC and the Utah Division of Consumer Protection claimed that the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law by marketing real estate events with false claims and using celebrity endorsements. The defendants allegedly promised consumers they would (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “a minimum of three times” the price of the workshop within six months. Additionally, consumers who received refunds were allegedly required to sign agreements preventing them from speaking with the FTC, state attorneys general, and other regulators; submitting complaints to the Better Business Bureau; or posting negative reviews. Under the terms of the settlement, the defendants are, among other things, permanently banned from marketing or selling any real estate or business coaching programs, and are restrained from making misleading earnings claims or misrepresenting any material aspect of the performance or nature of goods or services that are the subject of a sales offer. Additionally, the defendants are permanently banned from using contract terms to suppress customers’ ability to review their products or speak to law enforcement agencies, and may not release customer information in connection with any activity related to the subject matter of the order. The settlement also includes monetary judgments totaling more than $111 million.
4th Circuit affirms district court’s decision in lone class member's appeal
On February 10, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s approval of a $3 million class action settlement between a class of consumers (plaintiffs) and a national mortgage lender (defendant), resolving allegations arising from a foreclosure suit. In 2014, the lead plaintiffs alleged that the defendants violated federal and Maryland state law by failing to; (i) timely acknowledge receipt of class members’ loss mitigation applications; (ii) respond to the applications; and (iii) obtain proper documentation. After the case was litigated for six years, a settlement was reached that required the defendant to pay $3 million towards a relief fund. The district court approved the settlement and class counsel’s request for $1.3 million in attorneys’ fees and costs, but an absent class member objected to the settlement, arguing that “the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad; and the attorneys’ fee award was improper.” A magistrate judge overruled the plaintiff’s objections, finding that “both the distribution and content of the notice were sufficient because over 97% of the nearly 350,000 class members received notice,” and that “class members ‘had information to make the necessary decisions and . . . the ability to even get more information if they so desired.’”
On the appeal, the 4th Circuit rejected the class member’s argument that the magistrate judge lacked jurisdiction to approve the settlement where she had not consented to have the magistrate hear the case. The 4th Circuit noted that only “parties” are required to consent to have a magistrate hear a case and held that absent class members are not “parties,” noting that “every other circuit to address the issue has concluded that absent class members aren’t parties.” The appellate court also upheld the adequacy of the class notice, and held that the magistrate judge did not abuse his discretion in finding that the settlement agreement was fair, reasonable, and adequate.
SEC, states reach $100 million settlement over crypto lending product
On February 14, the SEC and state regulators reached a $100 million settlement with a New Jersey-based financial services company in parallel actions to resolve allegations that the company failed to register the offers and sales of its retail credit lending product—marking the SEC’s “first-of-its-kind action” taken with respect to crypto lending platforms. According to the SEC, the company offered a product whereby retail investors lent crypto assets to the company “in exchange for the company’s promise to provide a variable monthly interest payment.” Among other things, the SEC found that because the company’s product are securities under applicable law, the company was required to register its offers and sales of the product or qualify for an exemption—both of which the company failed to do. The company also allegedly violated the Securities Act by making misleading statements on its website concerning its collateral practices and the level of risk in its loan portfolio and lending activity. Additionally, the company allegedly violated the Investment Company Act by engaging in interstate commerce while failing to register as an investment company with the SEC. While the company neither admitted nor denied the findings, it agreed to pay $50 million to the SEC and another $50 million to 32 states to settle similar charges. The company also agreed to cease engaging in unregistered offers and sales of its product, and will stop offering or selling its product in the U.S. Additionally, the company’s parent company stated its intention to register the offer and sale of a new lending product under the Securities Act.
1st Circuit vacates ruling in Maine FCRA case
On February 10, the U.S. Court of Appeals for the First Circuit vacated a district court’s ruling that the FCRA preempts amendments to the Maine Fair Credit Reporting Act that govern how certain debts are reported to credit reporting agencies. As previously covered by InfoBytes, a trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—sued the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) for enacting the 2019 amendments, which, among other things, place restrictions on how medical debts can be reported by the CRAs and govern how CRAs must investigate debt that is allegedly a “product of ‘economic abuse.’” The trade association argued that the amendments, which attempt to regulate the contents of an individual’s consumer report, are preempted by the FCRA, and contended that language under FCRA Section 1681t(b)(1)(E) should be read to encompass all claims relating to information contained in consumer reports. The district court agreed, ruling that, as a matter of law, the amendments are preempted by § 1681t(b)(1)(E). According to the court, Congress’ language and amendments to the FCRA’s structure “reflect an affirmative choice by Congress to set ‘uniform federal standards’ regarding the information contained in consumer credit reports,” and that “[b]y seeking to exclude additional types of information” from consumer reports, the amendments “intrude upon a subject matter that Congress has recently sought to expressly preempt from state regulation.” The defendants appealed.
On appeal, the plaintiff argued that the phrase “relating to information contained in consumer reports” broadly preempts all state laws, but the appellate court was not persuaded and concluded that the broad interpretation “is not the most natural reading of the statute’s syntax and structure.” The 1st Circuit found “no reason to presume that Congress intended, in providing some federal protections to consumers regarding the information contained in credit reports, to oust all opportunity for states to provide more protections, even if those protections would not otherwise be preempted as ‘inconsistent’ with the FCRA under 15 U.S.C. § 1681t(a).” In addition, the court reminded the plaintiff that “even where Congress has chosen to preempt state law, it is not ousting states of regulatory authority; state regulators have concurrent enforcement authority under the FCRA, subject to some oversight by federal regulators.” As such, the appellate court held that the FCRA did not broadly preempt the entirety of Maine’s amendments, and remanded the case back to the district court to determine the scope under which the amendments may be preempted by the FCRA.
District Court says NY champerty statute bars RMBS suit
On February 8, the U.S. District Court for the Southern District of New York issued an opinion granting in part and denying in part defendants’ motion for summary judgment and denying plaintiffs’ motions for partial summary judgment in parallel actions concerning pre-2008 residential mortgage-back securities (RMBS) trusts. In both cases, plaintiffs—RMBS certificateholders—filed suit alleging breaches of contractual, fiduciary, statutory, and common law duties with respect to certificates issued by RMBS trusts for which two of the defendants’ units served as trustee. Both plaintiffs alleged that the defendants failed to follow through on obligations to monitor the pre-2008 RMBS trusts that they administered. However, the court partially ruled in favor of the defendants, concluding that one set of plaintiffs could not avoid their loss in an RMBS trustee case brought against a different national bank, in which the court deemed the plaintiffs lacked a valid legal right to sue. In that matter, the U.S. Court of Appeals for the Second Circuit issued an opinion last October, agreeing with a different New York judge that “found the assignments champertous under New York law, rendering them invalid and leaving Plaintiffs without standing.” According to the 2nd Circuit, district court findings showed it was clear that the assignments were champertous “as they were made ‘with the intent and for the primary purpose of bringing a lawsuit.’”
The district court noted that the assignments of all the claims in the current matter were essentially identical to the issue already decided by the 2nd Circuit, and saw sufficient overlap to find the plaintiffs’ vehicles “collaterally estopped” from relitigating the issues of prudential standing and champerty. “The issues decided by the court of appeals relating to champerty and prudential standing are dispositive of the present action,” the court wrote. “Without prudential standing, the [] plaintiffs cannot assert claims arising out of the certificates and the entire [] action must be dismissed.” With respect to the other set of plaintiffs, while the court allowed certain claims to stand, it declined to grant any portion of the joint partial summary judgment related to the defendants’ alleged responsibilities as trustee, ruling that plaintiffs must prove those claims at trial.
NYDFS locks maximum check-cashing fee at 2.27 percent
On February 14, NYDFS issued an emergency regulation halting annual increases on check-cashing fees and locking the current maximum fee set last February at 2.27 percent. “As our world evolves, so must our approach to regulation, which is why for the first time in Department history, we are reexamining the methodology used to determine the maximum check cashing fee,” Superintendent Adrienne A. Harris stated. “[NYDFS] has a responsibility to take a hard look at the impacts of financial products and services on New Yorkers, especially members of underserved communities.” NYDFS noted that the emergency regulation underscores its concerns over the fixed methodology used to determine annual check-cashing fees, which is based on the Consumer Price Index and is not, according to the Department, “necessarily a reliable or accurate indicator of the costs of operating within a specific sector of business, such as financial services.” NYDFS stated that it intends to promulgate a proposed regulation for a new fee methodology and will seek public comments before a final regulation is issued. The emergency regulation will remain in effect until a final regulation is adopted.