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Federal Reserve Board Issues Consent Order for the Alleged Deceptive Marketing of Balance Transfer Credit Cards
On October 26, the Federal Reserve Board (Fed) announced it had entered into a consent order with Mid America Bank & Trust Company (Mid America) over allegations that the bank engaged in deceptive practices in violation of the FTC Act involving balance transfer credit cards issued to consumers through third party independent service organizations. On the same day, the Fed announced its approval of an application by Reliable Community Bankshares, Inc. to acquire Mid America’s holding company, Mid America Banking Corporation. The allegations pertain to the adequacy of marketing materials, disclosures and other customer communications that described certain terms of the balance transfer cards such as credit reporting, available credit, and application of the statute of limitations to transferred balances. The Fed’s order requires the bank to refund certain fees, account balances and payments to its cardholders and other non-monetary actions, including compliance program enhancements. The order did not impose a civil money penalty.
Illinois AG and FTC Reach $9 Million Settlement With Phantom Debt Collector
On October 31, Illinois Attorney General Lisa Madigan and the Federal Trade Commission (FTC) announced settlements with three operators of a fake debt collection scheme in Chicago. According to the Attorney General’s office, the three individuals and associated companies identified people who had recently applied for or received a short-term loan and then posed as a law firm to collect on the debt. The companies also sold fictitious loan debt portfolios to other debt buyers, who then attempted to collect on the fake debts. The settlements require the operators to surrender at least $9 million in assets (which will be used to refund impacted consumers) and, among other things, ban them from the debt collection business and from selling debt portfolios.
FTC Settles Suit Against Credit Score Site Schemers
On October 26, the FTC agreed to a settlement of $760,000 with two affiliate marketers of a credit score business who allegedly committed deceptive acts to lure consumers into signing up for their monthly credit monitoring service for $30.00.
The settlement partly resolves a suit the FTC filed in January against the credit score company, the owner, and the company’s affiliate marketers. The FTC alleged that the defendants posted fake rental ads on Craigslist and required persons responding to the ads to obtain a purportedly “free” credit report from the company’s websites before viewing the property. The defendants, however, used the credit or debit card information consumers entered to obtain the credit report and enrolled consumers for a negative option credit monitoring service with a $30.00 monthly fee.
The order suspended the balance of the total $6.8 million judgment on the condition that the affiliate marketers pay the FTC the settled amounts. The claims against the company and the owner are ongoing.
Virginia AG Announces Settlement With Internet Lender Over Licensing Claims and Excessive Interest
On October 25, Virginia Attorney General Mark R. Herring announced a settlement with a Nevada-based internet lender to resolve allegations that the lender violated the Virginia Consumer Protection Act by misrepresenting it was licensed by the state’s Bureau of Financial Institutions and collecting interest exceeding the state’s general usury limit. According to a press release issued by the Attorney General’s office, the settlement requires the lender to provide refunds and interest forgiveness of more than $265,000 to borrowers, and pay the state $50,000 in civil money penalties, costs, and fees. A permanent injunction also prohibits the lender from, among other things, misrepresenting its licensing status and collecting interest exceeding the amount allowed by the state’s general usury statute.
State Attorneys General Announce $220 Million Settlement With German Bank for Allegedly Artificially Manipulating LIBOR Interest Rates
On October 25, New York Attorney General Eric T. Schneiderman announced, in coordination with 44 other state attorneys general, a $220 million settlement with a German bank (bank) to resolve allegations that the bank manipulated the U.S. Dollar London InterBank Offered Rate (LIBOR) and other benchmark interest rates and defrauded government and non-profit entities across the nation. The settlement is the second related to alleged LIBOR manipulations brought by state attorneys general, and is more than twice the amount announced last year with a London-based financial institution and related international investment bank. (See previous InfoBytes summary here.) According to AG Schneiderman, the multi-state investigation revealed that from 2005 to 2010, the bank failed to disclose to “affected governmental and not-for-profit counterparties” that (i) it had made false LIBOR submissions inflating borrowing costs linked to the London and U.S. dollar interbank offered rates; (ii) bank traders tried to influence other banks’ LIBOR submitters to make rate alterations in order to benefit their own trading positions; and (iii) the bank was cognizant of the fact that other banks manipulated LIBOR submissions and that “LIBOR was a false rate.” Under the terms of the settlement, affected entities will be eligible to receive a portion of the settlement fund, with the remainder to be used for investigation expenses and other purposes.
FTC Obtains Default Judgment Against Operations That Allegedly Sold Counterfeit Payday Loan Debt Portfolios
On October 17, the FTC issued a press release announcing a default judgment in an action brought against two Kansas-based operations and their owner (defendants), who allegedly violated the Federal Trade Commission Act by selling lists of counterfeit payday loan debt portfolios to debt collectors. The allegations claimed that in numerous instances, the portfolios listed “loans that the identified lenders have not, in fact, made to the identified consumers,” and that the defendants “have not purchased, or otherwise obtained, any rights to collect loan debts originated by the lenders listed . . ., nor have they engaged in any transaction that authorizes them to collect, sell, distribute, or transfer any valid loans originated by those lenders.” As a result, numerous consumers were contacted by various debt collectors demanding repayment of the fake debts, and in some instances, consumers made payments to either stop the collection calls or because they feared becoming delinquent. Under the terms of the default judgment, the defendants (i) must pay more than $4.1 million as equitable monetary relief; (ii) are banned from handling sensitive financial information, such as “bank account numbers, credit or debit card numbers, or social security numbers”; and (iii) are prohibited from misrepresenting material facts.
Seventh Circuit Upholds Ruling That Excludes Insurance Coverage for Overdraft Fees
On October 12, the U.S. Court of Appeals for the Seventh Circuit affirmed an Indiana District Court’s 2016 ruling, agreeing that an insurance company does not bear the responsibility for covering a bank’s $24 million class action settlement under a policy provision that excludes coverage for any case involving fees. In upholding the lower court’s decision, the three judge panel concluded that the insurance company had no duty to defend or indemnify the bank on the basis that the underlying overdraft fee claims fall under “Exclusion 3(n)” in the bank's professional liability insurance policy, which states that the insurance company “shall not be liable for [l]oss on account of any [c]laim . . . based upon, arising from, or in consequence of any fees or charges.” Class claims alleging that the bank manipulated its debit processing to “maximize overdraft revenue” by charging purportedly excessive fees to consumers who overdraw their checking and savings accounts triggered the exclusion. The panel also noted that an insurance company’s decision to include fee exclusions in banking liability policies is designed to prevent the “moral hazard” of allowing banks to “freely create other customer fee schemes” knowing they could easily secure coverage.
New York AG, Auto Dealers Reach Settlement Over Advance Fee Allegations That Triggered Inflated Vehicle Prices
On October 12, New York Attorney General Eric T. Schneiderman announced separate settlements (here and here) with two auto dealer groups to resolve allegations that they violated state and federal law by charging upfront fees for “after-sale” credit repair and identity theft protection services, which were provided by a third party, and bundling those fees into vehicle sale or lease prices. According to the settlements, the groups—which have neither admitted nor denied the allegations—are required to pay affected consumers more than $900,000 in restitution and pay a $135,000 fine to the state. The settlements also prohibit the groups from selling or marketing credit repair or identity theft protection services and require that consumers be informed—both orally and in writing—of any other “after-sale” products.
OFAC Settles Alleged Sudanese Sanction Violations with Connecticut-Based Paper Company
On October 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had reached a $372,465 settlement with a Connecticut-based paper company for three alleged violations of Sudanese Sanctions. OFAC asserted that the company “facilitated the sale and shipment of . . . Canadian-origin paper from Canada to Sudan” in April and December 2013. OFAC alleged that each instance of this conduct, which the company did not voluntarily self-disclose, violated OFAC’s Sudanese Sanctions Regulations, 31 C.F.R. part 538. Had the company not settled, OFAC determined that civil monetary penalties ranged from approximately $445,000 to $853,746. In establishing the penalty, OFAC considered that the company: (i) “exhibited reckless disregard for U.S. sanctions requirements by failing to exercise a minimal degree of caution or care with regard to the apparent violations”; (ii) “attempted to conceal the ultimate destination of the goods from its bank”; (iii) knew that supervisory or managerial personnel “had actual knowledge of and were actively involved in, or had reason to know of, the conduct that led to the apparent violations”; (iv) is “sophisticated” but had a non-existent, inadequate compliance program; and (v) failed to initially cooperate with OFAC’s investigation by submitting “materially inaccurate, incomplete, and/or misleading information.” As for mitigating factors, OFAC determined that (i) the company has no prior sanctions history with OFAC, and (ii) the company took remedial action by implementing an OFAC compliance program.
CFTC Orders Large Financial Institution to Pay for Supervision Failures
On September 28, the Commodity Futures Trading Commission (CFTC) announced a concurrent filing and settling of charges against a large financial institution/clearing firm (Firm) for failing to adequately supervise fee processing. The Order alleges that between 2009 and 2016, the Firm did not implement and maintain adequate procedures and systems that could account for and help prevent the risk of overcharging customers for exchange and clearance fees. In 2015, according to the Order, the Firm modified its processes to prevent future overcharges to customers.
The settlement requires the Firm to pay a $500,000 civil penalty.