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DOJ, HUD resolve redlining claims with New Jersey-based bank
On September 17, the DOJ and HUD announced a settlement with a New Jersey-based bank to resolve “redlining” lending discrimination allegations. The DOJ’s complaint claimed that from 2018 through at least 2022, the bank failed to provide mortgage lending services to predominantly Black, Hispanic, and Asian neighborhoods in certain counties, and discouraged people seeking credit in those communities from obtaining home loans. The DOJ alleged the bank disproportionately concentrated its outreach to, and advertising efforts and presence in, majority-white neighborhoods.
To resolve the DOJ’s claims, the bank entered into a proposed consent order with HUD. Under the terms of the order, the bank is required to: (i) invest at least $14 million in a loan subsidy fund to enhance access to home mortgage, home improvement, and refinance loans for residents of majority-Black, Hispanic, and Asian neighborhoods in Middlesex, Monmouth, and Ocean Counties; (ii) spend $400,000 on community partnerships for credit, financial education, homeownership, and foreclosure prevention services; (iii) spend $700,000 on advertising, outreach, financial education, and credit counseling in these neighborhoods; (iv) open a loan production office, maintain a full-service branch in these areas, and assign at least one mortgage loan officer to each location. Finally, the bank will be required to conduct a community credit needs assessment, evaluate its fair lending compliance systems, conduct staff training on fair lending, and hire a director of community lending to oversee mortgage lending development in communities of color. The DOJ acknowledged the bank's cooperation in resolving the issues.
District Court grants preliminary approval of $1.5M class action settlement for insurance company data breach
On August 27, the U.S. District Court for the Eastern District of North Carolina granted a plaintiff’s unopposed motion for preliminary approval of a class action settlement related to an insurance company’s data breach that occurred in December 2022. The court certified a plaintiff class, including all individuals in the U.S. whose private information was compromised in the breach.
The court found the proposed $1.5 million settlement to be “fair, reasonable, and adequate.” The settlement included both monetary and non-monetary benefits and according to the court, the parties agreed to the settlement through “good faith, arms’ length negotiations.” The court has approved the proposed notice program, which included informing class members of their rights and the process for submitting claims, objecting to the settlement, or opting out. Class members wishing to exclude themselves must submit a written request by the specified opt-out date, while those wishing to object must file a written notice by the objection deadline. Participating class members can claim a period of free credit monitoring and request up to $10,000.
Class proposes $64M settlement to resolve SCRA, MLA suit
On August 2, a proposed class of former and current servicemembers filed a memorandum in the U.S. District Court for the Eastern District of North Carolina proposing an unopposed settlement agreement between the class and the defendant, a national bank. The plaintiffs had alleged that the defendant bank failed to apply reduced interest rates to credit card accounts and other loans since 2009, as required by the Servicemembers Civil Relief Act (SCRA), the Military Lending Act (MLA), and the bank’s program, among other violations. Although the OCC, by consent order, had previously required the defendant bank to remediate the issue, the class argued that such remediation did not fully compensate the class.
The proposed settlement would provide approximately $64.2 million in compensation to the class members. Named plaintiffs will receive $20,000 each for their service, and class counsel may request 27.5 percent of the settlement amount for fees and expenses. The defendant denies all allegations of wrongdoing.
Retailer and bank settle credit card servicing suit
Recently, a large retailer (plaintiff) and a bank (defendant) agreed to settle a credit contract dispute. In April 2023, the retailer filed a complaint in the U.S. District Court of the Southern District of New York against the bank regarding the termination of a contract under which the bank would issue branded credit cards for the retailer. The retailer claimed that the bank did not meet important contract requirements, and invoked its right to terminate. The bank denied the retailer’s termination right, prompting the retailer to seek a judicial declaration of its right to terminate the contract. According to the complaint, the contract required the bank to provide “carefully defined levels of service to [the retailer] and its customers.” The retailer claimed, however, that the bank failed to meet certain requirements, such as including mailing a credit card replacement to customers within five business days.
Earlier this year, the court granted partial summary judgement in favor of the retailer because the contract terms “clearly dictate that [the bank’s] repeated customer service failures entitled [the retailer] to invoke Termination Right and terminate the parties’ ongoing partnership.”
In a letter sent to the court, the parties indicated they have agreed to a settlement that will resolve the matter and concurrently filed a stipulation of voluntary dismissal with prejudice as to all claims and counterclaims.
FINRA fines firm for insufficient ACH monitoring
Recently, FINRA accepted a letter of acceptance, waiver and consent from a brokerage firm to settle alleged rule violations. The settlement concerns a series of unauthorized Automated Clearing House (ACH) transfers from a senior trust customer's brokerage account. Between December 2019 and April 2020, $332,457.73 was allegedly illegally transferred out of the account through 278 ACH transfers initiated by third parties that illegally obtained information relating to a checking feature attached to the consumer’s account.
According to the letter, FINRA Rule 3110(a) mandates that member firms must establish systems to supervise associated persons and reasonably ensure compliance with securities laws, regulations, and FINRA rules, including the responsibility to investigate and act on red flags indicating misconduct. The failure to do so also constitutes a violation of FINRA Rule 2010, which “requires a firm to observe high standards of commercial honor and just and equitable principles of trade in the conduct of its business.”
The respondent firm allegedly failed to maintain an adequate system to review and monitor externally-initiated ACH transfers of consumer funds as their proprietary tool only monitored internally-initiated ACH transfers. As a result, none of the fraudulent transactions were flagged. The respondent firm also failed to identify several red flags in connection with such ACH transfers, including that the transactions were out of character for the customer, the volume of transactions as compared to any other account, and not identifying five fraudulent transactions that were included on an end-of-year report.
Despite these oversights, the bank processing the ACH transfers ultimately credited back all the stolen funds to the customer's account, and the respondent provided information to the bank to support the remediation.
Respondent agreed to a censure and to pay a $225,000 fine.
District Court approves $3.65 mil. settlement against student loan servicer
On June 24, the U.S. District Court for the Western District of Pennsylvania approved a class action settlement involving student loan borrowers brought against a student loan servicer. The class alleged that from December 2018 to October 2023, the defendant assessed improperly certain convenience fees to process Perkins loan payments from student borrowers by telephone, IVR, or over the internet. The settlement fund of $3.65 million represents 25 percent of the total processing fees collected from hundreds of thousands of borrowers over roughly five years. The parties agreed that, in the event any funds remain after the first distribution, a second distribution will be made to class members.
HUD and mortgage lender reach agreement on Montana fair lending complaint
On May 13, HUD announced an agreement with a mortgage lender to resolve allegations of Fair Housing Act violations. According to the redacted agreement, a complaint was filed with HUD last August accusing the mortgage company of engaging in housing discrimination based on race, in violation of the Fair Housing Act. The complainants claim they faced discriminatory housing terms, were denied housing, and were subject to racially discriminatory notices and advertisements. The mortgage company denied all allegations of discrimination, asserted its commitment to fair housing and equal opportunity, and agreed to a Conciliation Agreement to resolve the matter without admitting any wrongdoing or liability.
The mortgage company agreed to a $65,000 settlement and will commit to upholding its fair lending policies, ensuring applicants on Native American reservations are able to obtain residential mortgage loans without fear of discrimination based on race, color or national origin. Respondent will also contribute at least $30,000 towards initiatives designed to enhance housing conditions, financial literacy, and homeownership education for Native Americans near reservations. During the three-year term of the agreement, HUD may review compliance and conduct fair housing tests, among other oversight methods. The terms of the agreement also required the mortgage company to submit a training curriculum on its fair lending training courses for new employees and perform annual trainings with current employees; additionally, the mortgage company must submit an annual report on the mortgage company’s progress and performance in complying with the public interest provisions of the agreement. The agreement has been approved by the regional director of the Office of Fair Housing and Equal Opportunity.
11th Circuit rejects a proposed TCPA class action settlement
On May 13, the U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a proposed TCPA class action settlement agreement. The class, consolidated from three class actions, accused the defendant, the “world’s largest services platform for entrepreneurs,” of violating the TCPA by using an automatic telephone dialing system to send unwanted calls and text messages to promote its products. The $35 million settlement and attorney’s fees, up to $10.5 million, was approved preliminarily in 2020.
According to the appellate court’s opinion, the district court abused its discretion in approving a proposed $35 million settlement because it: (i) did not consider the 2018 amendments to Rule 23(e)(2); (ii) overlooked possible collusion in the settlement agreement; and (iii) inadequately informed class members about the case. Additionally, the court incorrectly calculated the attorneys’ fees and wrongly treated the settlement as a common fund rather than a claims settlement. The class’s counsel was criticized for appearing to represent their own interests over those of the class since they were supposed to receive $10.5 million in fees. The court also found issues with the opt-out process, which was deemed overly complex and likely to discourage class members from opting out. As a result, the judgment was vacated.
New York AG settles with bank over EIPA violations
On April 17, the New York attorney general (AG) announced a settlement with a bank (respondent) to resolve allegations that respondent improperly froze customer accounts and paid out consumer funds to debt collectors, and failed to properly oversee its service providers engaging in similar activity, in violation of the Exempt Income Protection Act (EIPA). The EIPA requires that banks, among other things, “not restrain consumers’ use of statutorily exempt funds, such as social security benefits, veterans benefits, and disability insurance… in consumers’ bank accounts up to an amount set every three years by New York’s Department of Financial Services.” New York law also bars debt collectors from acquiring funds that include certain government benefits.
According to the settlement, respondent typically employs the assistance of specific third-party servicer providers to market and deliver banking products like debit cards, prepaid cards, payroll cards, or gift cards to consumers while respondent holds the funds loaded onto those cards. Servicer providers administer the program and interact with consumers, including by clearing transactions through a network processor approved by respondent, and generally handling transaction disputes and preparing account statements, while respondent oversees and monitors the program and the service provider while retaining full control of the funds. The AG claimed that respondents failed to ensure its servicer providers complied with the EIPA, and that on numerous occasions, servicer providers allegedly froze accounts holding exempt funds or accounts with balances below legal thresholds, then paid debt collectors with the frozen funds under the instruction of respondent.
According to the AG, respondent’s servicer providers also engaged in deceptive acts and practices by allegedly falsely labeling legal processes as “court orders” instead of documents from debt collectors. Respondents also allegedly provided false information that account freezes could not be lifted even when account balances were below legal thresholds, and falsely claiming only debt collectors could release the freeze. Additionally, servicer providers allegedly directed consumers to debt collectors who often sought deals to release account freezes for a portion of the account balance, despite the freezes being void and subject to the protected wage threshold.
Under the terms of the settlement, respondent will refund $79,664 plus interest to approximately 88 New Yorkers whose funds were wrongfully turned over to debt collectors and amend its policies and procedures. Respondent must also pay a civil money penalty of $627,000, and comply with ongoing monitoring and compliance requirements.
Department of Energy discontinues crypto mining survey following a settlement agreement
On March 1, a cryptocurrency company (plaintiff) and the U.S. Department of Energy submitted a settlement agreement to the U.S. District Court for the Western District of Texas to discontinue an emergency crypto mining survey once approved by the Office of Management and Budget.
According to the settlement agreement, the Department of Energy initiated an emergency three-year collection of a Cryptocurrency Mining Facilities Survey in January, which the plaintiff claimed did not comply with various statutory and regulatory requirements for the emergency collection of information. Following the court’s approval of the plaintiff’s temporary restraining order, which protected plaintiffs from completing the survey issued by the Department of Energy and protected any information they may have already submitted, the Department of Energy discontinued its emergency collection, and said it will proceed through notice-and-comment procedures for approval of any collection of information covering such data. As a result of the discontinuation of the emergency collection request, no entity or person is required to respond to the survey.
As part of the settlement agreement, the Department of Energy will destroy any information it had already received from survey responses. In addition to a $2,199.45 payment for the plaintiffs’ litigation expenses, the Department of Energy also agreed to publish a new Federal Register notice of a proposed collection of information and withdraw its original notice.