InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DOJ, national bank settle Fair Housing Act discrimination claims
On July 23, the DOJ and U.S. Attorney’s Office for the Eastern District of New York filed a complaint and proposed settlement agreement with a national bank to settle charges that the bank engaged in a pattern or practice of discrimination against people with disabilities in violation of the Fair Housing Act. According to the complaint, policies put in place by the bank beginning in January 2010 allegedly denied mortgage and home equity loans to adults with disabilities living under guardianships or conservatorships. The complaint further claims that the bank, in certain circumstances, denied mortgage loans to applicants who “made explicit requests” for the bank to “reconsider its denial” and accept court orders specifically permitting the guardian or conservator to act on behalf of the disabled individual. These policies were changed in 2016 for mortgage loans and in 2017 for home equity loans, the DOJ noted. The bank, however, denied the allegations, asserting that it did not, and does not, unlawfully discriminate on any prohibited basis, and that during the time period in question, it made “mortgage loans to persons with handicaps and disabilities without restrictions, including some adult applicants who had legal guardians or conservatorships.” Under the terms of the proposed settlement, the bank has agreed to pay $4,000 to each affected loan applicant, with a total expected payout of approximately $300,000. The bank is also required to (i) maintain the revised loan underwriting policies; (ii) train employees on the new policies; and (iii) monitor loan processing and underwriting activities to ensure Fair Housing Act compliance.
District court approves MDL data breach settlement
On July 21, the U.S. District Court for the Northern District of California issued an order approving a $117.5 million class action settlement, including $23 million in attorneys’ fees, with a global internet company to resolve multidistrict litigation concerning the exposure of class members’ sensitive information stemming from multiple data breaches. The settlement approval follows a fairness hearing, as the court originally denied preliminary approval due to several identified deficiencies (covered by InfoBytes here), including that the settlement inadequately disclosed the sizes of the settlement fund and class, as well as the scope of non-monetary relief, and “appear[ed] likely to result in an improper reverter of attorneys’ fees.” Last July, the court preliminarily signed off on a revised settlement, conditionally certifying a class of U.S. and Israeli residents and small businesses with accounts between 2012 and 2016 that were affected by the breaches. These class members have been certified in the final approved settlement, which requires the company to provide class members with either two years of credit monitoring services or alternative compensation for members who already have credit monitoring. Among other things, the company will allocate at least $66 million each year to its information security budget until 2022, will increase the number of full-time security employees from current levels, and will “align its information security program with the National Institute of Standards and Technology Cybersecurity Framework” and “undertake annual third-party assessments to ensure compliance” with the framework.
CFPB proposes settlement with student debt-relief operation
On July 8, the CFPB announced a proposed settlement with a Florida-based student debt-relief company and three of its owners and officers (collectively, “defendants”), which would resolve allegations that the defendants violated the Telemarketing Sales Rule (TSR) by charging advance fees for services to renegotiate, settle, reduce, or alter the terms of federal student loans. According to the complaint, filed with the U.S. District Court for the Southern District of Florida on the same day as the proposed order, the Bureau alleges that from 2016 through October 2019, the defendants used telemarketing campaigns to solicit over 7,300 consumers to pay up to $699 in fees to have their federal student loan monthly payments reduced or eliminated through government-offered programs. The Bureau alleges that—not only are government programs (such as loan consolidation, income-based repayment, or certain loan-forgiveness options) available without charge—the defendants violated the TSR by charging and receiving upfront fees from consumers for their services before the terms of the student debt had been altered or settled.
On August 12, the court entered a stipulated final judgment and order, which permanently bans the defendants from providing debt-relief services and imposes a suspended $3.8 million in consumer redress, upon the owners and officers each paying between $5,000 and $10,000 individually. Additionally, each defendant is required to pay $1 in civil money penalties.
CFPB settles claims with debt relief executive
On July 7, a settlement was reached with another of the defendants in an action taken by the CFPB against a mortgage lender and several related individuals and companies (collectively, “the defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January in the U.S. District Court for the Central District of California claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education. An $18 million settlement was reached with several of the defendants in May (covered by InfoBytes here).
The settlement reached with the chief operating officer/part-owner of one of the defendant companies requires the defendant to pay $25,000 of a $7 million settlement—of which the full payment will be suspended provided several obligations are fulfilled. The defendant, who neither admits nor denies the allegations, is permanently banned from providing debt relief services and from accessing, using, or obtaining “prescreened consumer reports” for any purpose. The defendant is also prohibited from using or obtaining consumer reports for any business purposes aside from “underwriting or otherwise evaluating mortgage loans.” The defendant is further required to, among other things, (i) pay a $1 civil money penalty; (ii) comply with reporting requirements; and (iii) fully cooperate with any other investigations.
OFAC settles with global e-commerce, digital service provider over multiple sanctions violations
On July 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $134,523 settlement with a Washington-based company that provides retail, e-commerce, and digital services worldwide. According to OFAC, due to deficiencies in the company’s sanctions screening process, between 2011 and 2018, the company provided goods and services to OFAC sanctioned persons; to persons located in the sanctioned region or countries of Crimea, Iran, and Syria; and “for persons located in or employed by the foreign missions of Cuba, Iran, North Korea, Sudan, and Syria.” Additionally, the company allegedly accepted and processed orders that primarily consisted of low-value retail goods and services from persons listed on OFAC’s List of Specially Designated Nationals and Blocked Persons who were blocked pursuant to sanctions regulations involving the Democratic Republic of Congo, Venezuela, Zimbabwe, among others. These apparent violations occurred “primarily because [the company’s] automated sanctions screening processes failed to fully analyze all transaction and customer data relevant to compliance with OFAC’s sanctions regulations,” OFAC stated, claiming the company also “failed to timely report several hundred transactions conducted pursuant to a general license issued by OFAC that included a mandatory reporting requirement, thereby nullifying that authorization with respect to those transactions.”
In arriving at the settlement amount, OFAC considered various mitigating factors, including that the apparent violations were non-egregious and (i) the company voluntarily disclosed the violations and cooperated with the investigation; and (ii) the company has undertaken significant remedial efforts to address the deficiencies and to minimize the risk of similar violations from occurring in the future.
OFAC also considered various aggravating factors, including that the company failed to exercise due caution or care to ensure its sanctions screening process was able to properly flag transactions involving blocked persons and sanctioned jurisdictions. “This case demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls,” OFAC stated. “[G]lobal companies that rely heavily on automated sanctions screening processes should take reasonable, risk-based steps to ensure that their processes are appropriately configured to screen relevant customer information and to capture data quality issues.”
District court preliminarily approves $6.8 million TCPA settlement
On July 6, the U.S. District Court for the Eastern District of California granted preliminary approval to a nearly $6.8 million settlement between class members and a collection agency that allegedly violated the TCPA, FDCPA, and California’s Rosenthal Fair Debt Collection Practices Act by making calls using an autodialer or prerecorded voice in an attempt to collect purported debts. The lead plaintiff filed a proposed class action suit in 2016 against the collection agency claiming he received at least 25 calls to his cell phone even though he never consented to receiving such calls in the first place and had instructed the collection agency to stop calling him.
According to the court’s order, the settlement consists of two sub-classes: (i) one class of individuals from anywhere in the U.S. who subscribed to call management applications and received automated calls from the defendant without providing the proper consent; and (ii) another class of individuals living in California who received automated calls from the defendant regarding their purported debts. The terms of the settlement provides for a $1.8 million cash fund and requires the forgiveness of nearly $5 million in outstanding debts for class members with existing accounts owned by either the collection agency or one of its affiliates.
Online payday lender settles usury suit for $141 million
On June 26, the U.S. District Court for the Eastern District of Virginia approved a preliminary settlement to resolve putative class allegations against an online payday lending company and related entities (defendants) accused of issuing high interest loans through a “rent-a-tribe” lending operation. According to the class’s second amended complaint, the defendants’ “rent-a-tribe” operation was an “attempt to circumvent state and federal law by issuing high interest loans in the name of a Native American tribal business entity that purports to be shielded by the principle of tribal sovereign immunity.” The class—which consists of borrowers from throughout the U.S.—alleged that the defendants provided “financing and various lending functions” carrying “extortionately high interest rates for short-term loans” that were “far beyond legal limits,” and that the unlawful interest rates were not disclosed to borrowers during the application process. Additionally, the class alleged that the defendants failed to provide key loan terms or misrepresented the loan terms, including repayment schedules, finance charges, and the total amount of payments due. Under the terms of the settlement, the defendants will pay a $65 million cash payment, cancel $76 million in high-interest loans, and provide other non-monetary relief.
Global pharmaceutical company’s current and former subsidiaries settle alleged FCPA violations with DOJ
On June 25, the DOJ announced it had entered into a deferred prosecution agreement with a subsidiary of a Switzerland-based global pharmaceutical company to pay $225 million in criminal penalties related to alleged violations of the FCPA’s anti-bribery and books and records provisions. The DOJ also entered into a separate deferred prosecution agreement with a former subsidiary of the pharmaceutical company (current subsidiary of a multinational eye care company) for approximately $8.9 million in criminal penalties related to alleged violations of the FCPA’s books and records provisions.
According to the DOJ, between 2012 and 2015, the current pharmaceutical subsidiary violated the FCPA by engaging in a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Greece to increase the sales of its products. Moreover, between 2009 and 2010, the pharmaceutical subsidiary made improper payments, in connection with an epidemiological study, to providers in order to increase sales of certain prescription drugs. The DOJ alleged that the pharmaceutical subsidiary “knowingly and willfully conspired with others to cause [the pharmaceutical parent company] to mischaracterize and falsely record improper payments…in [the parent company]’s books, records, and accounts.” Under the terms of the agreement with the pharmaceutical subsidiary, the subsidiary agreed to cooperate with ongoing investigations, and both the subsidiary and its parent agreed to enhance their compliance programs and report to the DOJ on those improvements.
In the DPA with the former eye care subsidiary, the DOJ alleged that between 2011 and 2014, while still a subsidiary of the pharmaceutical parent company, the former subsidiary “knowingly and willfully conspired with others to cause [the pharmaceutical parent company] to maintain false books, records and accounts, as a result of a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Vietnam.” The agreement notes that the former eye care subsidiary and its current parent company have since implemented and will continue to implement enhanced FCPA compliance controls and will report to the government on the implementation.
The DOJ recognized that both subsidiaries engaged in remedial measures, including (i) terminating and disciplining individuals involved in the misconduct; (ii) adopting heightened controls and anti-corruption protocols; and (iii) increasing the resources devoted to compliance.
The SEC simultaneously announced a resolution with the pharmaceutical parent company to pay over $112 million in a related matter.
New York AG settles with debt relief company for $3.6 million
On June 23, the New York attorney general announced a $3.6 million proposed settlement with a debt relief operation for allegedly making exaggerated advertisements in violation of a 2011 consent order with the state. According to the press release, the 2011 consent order was based on allegations that the company engaged in “illegal, fraudulent, and deceptive practices” related to advertising. The 2011 consent order permitted the company to advertise certain savings if those savings were achieved by a defined group of New York consumers and if the company “clearly disclosed which consumers were in that group and what approximate percentage of the whole group of New York consumers the defined group represented.” However, the attorney general alleges the company failed to follow this requirement and continued to advertise consumer savings without disclosing the details of the group who achieved the savings, noting that “the majority of New York consumers achieved less than half of the savings [the company] advertised.”
In addition to the $3.6 million in restitution for the New York consumers, the proposed settlement reinforces the 2011 consent order’s injunctive provisions and requires the company to (i) acknowledge that certain high savings numbers are not typical by “[e]xpressly stating the percentage of consumers who achieve the high end range of savings claims”; and (ii) ensure that future savings claims are based on consumers’ total debt with the company’s program.
CFPB settles with contract for deed companies on credit reporting violations
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”