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Rent-to-own payment plan company settles deceptive representation allegations with FTC
On April 20, the FTC filed a complaint against a rent-to-own payment plan company for allegedly making false, misleading, and deceptive representations in violation of the FTC Act to consumers regarding the marketing, sale, and terms of their payment plans. In its complaint, the FTC alleged that while the company offered “same as cash” and “no interest” payment plans to consumers seeking to purchase items at retailers nationwide, it actually charged consumers substantially more than the item’s retail price. Accessing the actual terms of the payment plans was confusing for consumers, the FTC contended, and allegedly led to consumers frequently paying roughly twice the item’s sticker price if they made the initial and all scheduled recurring payments. According to the FTC, the company (i) received tens of thousands of consumer complaints; (ii) was aware consumers were confused by the terms of their payment plans; and (iii) had been presented with concerns from retailers regarding the company’s training materials, which, among other things, instructed sales associates to say “‘there actually isn’t an interest rate, because it’s not a loan.” Under the terms of the proposed settlement, the company is, among other things, (i) prohibited from misrepresenting the costs, nature, terms, and any other material facts related to its payment plans; (ii) required to clearly and conspicuously disclose the total cost to own a product when marketing its plans; (iii) ordered to monitor third parties, including retailers that offer the company’s payment plans to ensure compliance with the terms of the settlement; and (iv) required to receive express, informed consent from consumers prior to billing them for a plan. The company is also required to pay $175 million in equitable monetary relief.
Korean bank settles investigation into Iran transfers; resolves BSA/AML violations allegations
On April 20, the U.S. Attorney for the Southern District of New York and the New York attorney general announced that a Korean bank will pay $51 million in penalties to resolve a six-year investigation into the bank’s transfer of more than $1 billion to Iranian entities in violation of U.S. economic sanctions. According to the U.S. Attorney’s press release and deferred prosecution agreement and statement of facts (as well as a press release from the state attorney general), the bank violated the Bank Secrecy Act (BSA) by “willfully failing to establish, implement, and maintain an adequate anti-money laundering (‘AML’) program” at its New York branch—even though its compliance officer repeatedly asked it to do so—which led to the illegal transfer of approximately $1 billion in transactions to Iran in violation of the International Emergency Economic Powers Act. According to the government, the bank’s lack of an effective AML program resulted in its failure to detect and report $10 million in payments through the bank and other U.S. financial institutions from Korean entities to Iranian entities, as well as its failure to “report the balance of the $1 billion of such sanctioned transactions” between the parties. Furthermore, the bank also failed to self-report to the U.S. Treasury Department’s Office of Foreign Assets Control its wrongdoing in a timely manner or its willful violations of the BSA prior to the investigation. Under the terms of the deferred prosecution agreement, the bank will pay $51 million through a civil forfeiture action, half of which will go to the United States Victims of State Sponsored Terrorism Fund, and will undergo regular reviews of its AML and sanctions compliance programs.
The bank also reached a separate agreement with NYDFS for violating state regulations, under which it will pay an additional $35 million penalty for violations of BSA/AML laws. Among other things, NYDFS found that the compliance program of the bank’s New York branch failed to achieve satisfactory levels until its 2019 examination. “While the department applauds the bank for its ultimate efforts after eight examination cycles of noncompliance, one positive examination report does not equate to a sustainable, safe and sound financial institution,” NYDFS said in its consent order. Under the terms of the order, the bank is required to revise its BSA/AML compliance program and enhance its customer due diligence program to ensure compliance with relevant state laws and regulations. NYDFS acknowledged the bank’s substantial cooperation in the matter, including remediating identified shortcomings.
District court says $267 million robocall verdict is not unconstitutionally excessive
On April 17, the U.S. District Court for the Northern District of California issued an order granting in part and denying in part several motions pertaining to a class action lawsuit, which accused a debt collection agency (defendant) of violating the TCPA, FDCPA, and the California Rosenthal Fair Debt Collection Practices Act by using repeated robocalls and pre-recorded voices messages to collect debt. As previously covered by InfoBytes, last September the court entered a $267 million final judgment against the defendant, consistent with a jury’s verdict that found the defendant liable for violating the TCPA by making more than 500,000 unsolicited robocalls using autodialers. Under the terms of the judgment each class member was awarded $500 per call. The defendant argued that the award was unconstitutionally excessive and violated due process, and requested that the court reduce the per violation amount. The court was unpersuaded and upheld the judgment, stating that the defendant failed to identify (and the court could not find) any “Ninth Circuit authority on how a district court should reduce damages that are found to be unconstitutionally excessive.” While acknowledging that the award was “significant,” the court stated that it also “evidences the fervor with which the United States Congress was attempting to regulate the use of autodialers for non-consensual calls” and that “the unilateral slashing of an award does not only ignore the plain words of the statute, the task is devoid of objectivity.” Among other actions, the court granted the defendant’s request to amend the final judgment to reflect that allegations concerning “willful and/or knowing violations of the TCPA” were dismissed with prejudice and that the defendant succeeded at summary judgment on the FDCPA and state law claims. However, the court denied the defendant’s request to release any surplus or residue amounts not distributed to a class member back to the company. The court also approved the class counsel’s motion for more than $89 million in attorneys’ fees and non-taxable costs of $277,416.28, and awarded the named plaintiff a $25,000 service award.
District court approves $2.3 million class settlement resolving violations of Massachusetts debt collection laws
On March 23, the U.S. District Court for the District of Massachusetts issued an order granting final approval to a nearly $2.3 million class action settlement, reached through mediation, to resolve allegations that a subsidiary of a large U.S. retailer (defendant) made excessive debt collection calls to Massachusetts consumers. The named plaintiff claimed that the defendant violated the Massachusetts Consumer Protection Act and state debt collection regulations by calling consumers more often than twice in a seven-day period. The order also lowered the plaintiff’s attorneys’ fees because, according to the court, the case was not as risky as the attorneys claimed and not complex enough to warrant taking approximately one-third of the settlement fund.
7th Circuit rejects request to void $17.5 million TCPA settlement
On February 25, the U.S. Court of Appeals for the Seventh Circuit denied a request to overturn a $17.5 million settlement agreement arising out of a national bank’s alleged violations of the TCPA. Six different class actions had been filed against the bank in different federal courts, all alleging that the bank had violated the TCPA by making robocalls and autodialed calls and sending text messages to the class members even though they were not customers of the bank. The settlement resolved all six cases, involving roughly 440,000 total class members. An individual claiming to be a class member sought to object to the settlement, but the district court found that he lacked standing to object because he could not show that he had received a call or text, and the bank’s records indicated that he had not, and therefore he was not a member of the class.
Upon appeal, the 7th Circuit affirmed the lower court’s determination that the objector was not a class member in a brief, unsigned order. The panel corrected the objector’s misrepresentation of the lower court’s ruling that the objector’s own testimony could not prove that he was a class member, stating that “[t]he problem here is that [the objector’s] account was so vague—no dates, no subject matter, and not even whether the calls were ‘artificial or pre-recorded’”—that the court reasonably discounted it in comparison to the evidence from [the bank] that [the objector] never received one of the disputed types of calls.”
Pharmaceutical company settles FCPA-related allegations with SEC
On February 28, an Ohio-based pharmaceutical company agreed to pay over $8.8 million to settle SEC claims that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, the pharmaceutical company’s former Chinese subsidiary maintained and operated marketing accounts for a European dermocosmetic company, and was the exclusive product distributor for the company in China. The SEC alleged that the dermocosmetic company directed the day-to-day activities of former subsidiary employees who “used the marketing account funds to promote the dermocosmetic company's products” and “directed payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions.” The pharmaceutical company also allegedly received a percentage of profits from sales derived from the improper payments through a profit-sharing agreement.
While the pharmaceutical company “determined that other marketing accounts should be terminated because of their significant FCPA-related compliance risks,” the SEC alleged that the pharmaceutical company “inaccurately assessed the risks of the arrangements with the dermocosmetic company as minimal” and failed to apply its full internal accounting controls to these accounts. The SEC alleged that as a result, the former subsidiary routinely authorized and made payments from the marketing accounts without being able “to provide reasonable assurance that the transactions were executed in accordance with management’s general or specific authorization, and failed accurately to record on its books and records payments made from the accounts.”
In entering into the administrative order, the SEC considered the pharmaceutical company’s self-disclosure, cooperation, and remedial efforts. Without admitting or denying wrongdoing, the pharmaceutical company consented to a cease and desist order, and agreed to pay a $2.5 million civil money penalty and approximately $6.3 million in disgorgement and pre-judgment interest.
OFAC settles with Swiss technology provider over sanctions violations
On February 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $7.8 million settlement with a Swiss provider of commercial telecommunications and information technology services to the civilian air transportation industry for 9,256 alleged violations of the Global Terrorism Sanctions Regulations. According to OFAC, between April 2013 and February 2018, the company allegedly provided commercial services and software subject to U.S. jurisdiction that may have benefitted certain airlines designated as specially designated global terrorists (SDGTs) pursuant to Executive Order 13224. These sanctioned airlines, OFAC noted, were member-owners in the company’s organization.
In arriving at the settlement amount, OFAC considered various mitigating factors, including (i) OFAC has not issued a violation against the company in the five years preceding the earliest transaction at issue; (ii) the company has undertaken remedial efforts to minimize the risk of similar violations from occurring in the future; (iii) the company cooperated with the investigation and executed multiple tolling agreements; and (iv) the company terminated the membership of the SGDT airlines.
OAC also considered various aggravating favors, including that (i) the company did not voluntarily self-disclose the alleged violations; (ii) the company had actual knowledge that it was providing services and software to SDGTs; (iii) the company’s actions “facilitated the operations of, or otherwise benefitted, airlines that were sanctioned for supporting terrorism”; and (iv) the company is “commercially sophisticated” with operations in every county in the world.
District court approves $18.5 million “rent-a-tribe” payday loan settlement
On February 25, the U.S. District Court for the Eastern District of Virginia granted preliminary approval of an $18.5 million class action settlement to resolve allegations including violations of the Racketeer Influenced and Corrupt Organizations Act, state usury and lending laws, and unjust enrichment against a financial technology company and a tribal corporation (defendants). According to the complaint, the company evaded state law usury limits by attempting to use the sovereignty of an Indian tribe (“rent-a-tribe”) in order to issue payday loans carrying annual percentage interest rates as high as 460 percent. While the defendants have denied any wrongdoing, they have agreed to, among other things, (i) cancel loans originated during the class period “on the basis that the debt is disputed”; (ii) no longer sell any outstanding loans and cease all collection activity; (iii) contact all consumer reporting agencies to request the permanent removal of any missed payment marks on loans originated during the class period; (iv) no longer sell class members’ personal identifying information to third parties; and (v) establish an $18.5 million fund to go towards costs, service awards, attorneys’ fees, and cash awards to class members.
FTC, New York settle with debt collection schemer
On February 25, the FTC and the New York attorney general announced a settlement with an individual defendant who controlled a New York-based debt collection operation for allegedly violating the FTC Act, the FDCPA, and New York state law by using false or deceptive tactics to collect money from consumers. As previously covered by InfoBytes, the FTC and the New York AG filed a complaint against the operation in 2018, alleging that operation employees threatened consumers with arrest or lawsuits and sometimes falsely posed as law enforcement officials or attorneys. In addition, the FTC and New York AG claimed employees allegedly increased pressure on consumers by telling them they owed more than indicated in the operation’s records, using forms that showed both the actual balance owed by the consumer as well as a higher balance the collectors claimed the consumers owed—a practice known as “overbiffing.” Under the terms of the settlement, the defendant—who neither admitted nor denied the allegations—is permanently banned from participating in debt collection activities and “is prohibited from misleading consumers about any financial-related products” or services. The settlement also imposed a $1.7 million judgment, of which all but $30,000 is suspended due to the defendant’s inability to pay.
SEC settles with blockchain company over unregistered ICO
On February 19, the SEC announced a settlement with a blockchain technology company resolving allegations that the company conducted an unregistered initial coin offering (ICO). According to the order, the company raised approximately $45 million from sales of its digital tokens to raise capital to develop a digital asset trade-testing platform and to build a cryptocurrency-related data marketplace. The SEC alleges that the company violated Section 5(a) and 5(c) of the Securities Act because the digital assets it sold were securities under federal securities laws, and the company did not have the required registration statement filed or in effect, nor did it qualify for an exemption to the registration requirements. The order, which the company consented to without admitting or denying the findings, imposes a $500,000 penalty and requires the company to register its tokens as securities, refund harmed investors through a claims process, and file timely reports with the SEC.