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New York AG settles with student debt relief companies
On February 18, the U.S. District Court for the Southern District of New York approved a settlement between the State of New York and a student loan debt relief operation including five debt relief companies and one individual (defendants) in order to resolve allegations that the defendants violated the Telemarketing Sales Rule, the Federal Credit Repair Organizations Act, TILA, state usury laws, and various other state laws. As previously covered by InfoBytes, the New York attorney general brought the lawsuit in 2018 alleging that the defendants “engag[ed] in deceptive, fraudulent and illegal conduct…through their marketing, offering for sale, selling and financing” of debt relief services to student loan borrowers. The AG claimed that, among other things, the defendants allegedly (i) charged consumers who purchased the debt relief services illegal upfront fees; (ii) misrepresented that they were part of or working with the federal government; (iii) falsely claimed that fees paid by borrowers would be applied to borrowers’ student loan balances; and (iv) induced borrowers to enter into usurious financing contracts to pay for the debt relief services.
Under the terms of the agreement, the defendants—without admitting or denying the allegations—agreed to a judgment of $2.2 million, which will be suspended if the defendants promptly pay $50,000 to the State of New York and comply with all other provisions of the agreement. The defendants are also permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Additionally, the defendants must request that any credit reporting agency to which the defendants reported consumer information in connection with the student loan debt relief services remove the information from those consumers’ credit files. The defendants also agreed not to sell, transfer, or benefit from the personal information collected from borrowers. According to the settlement, six additional defendants were not included in the agreement and the AG’s case against them continues.
District court denies auto lender’s “de minimis” $4 million TCPA class action settlement
On February 14, the U.S. District Court for the Eastern District of Pennsylvania denied the approval of a proposed $4 million class action settlement in a TCPA case based on a “confluence of a number of negative factors,” including that the court believed the defendant—a subprime auto lender—would be able to withstand a significantly higher judgement to compensate consumers allegedly harmed by its use of an automatic telephone dialing system. The complaint alleged that the defendant allegedly placed automated and prerecorded phone calls to class members on their cellphones in violation of the TCPA. In 2018, the parties reached a preliminary settlement that would give each of the 67,255 class members who opted into the settlement roughly $35.
In denying the approval, the court cited three primary concerns with the proposed settlement: “first, the lack of information available to counsel to inform their view and advise the class of the strengths and weaknesses of the case given the early posture in which the parties reached agreement; second, the emphasis on [the defendant’s] inability to pay more than $4 million when no underlying financial information was provided to the class members, compounded by the [c]ourt’s belief, after in camera review of the financials, that this statement is inaccurate; and third, the [c]ourt’s skepticism that $4 million is a fair settlement in this case, given that it will result in a de minimis per claimant recovery of $35.30.” Arguing that “de minimis class action recoveries, such as TCPA recoveries, may not be worth the costs they impose on our judicial system,” the court also noted that the TCPA provides for a private right of action and statutory damages of $500 for each violation (or actual monetary loss—whichever is greater), and does not impose a cap on statutory damages in class actions. Moreover, the court argued that the $35.30 that each class member would receive would likely not even cover the cell phone bill for one class member for one month and is, among other things, “simply trivial in light of a possible recovery of $500.”
Broker-Dealer settles with SEC for improper handling of ADRs
On February 6, the SEC announced a settlement with a broker-dealer to resolve allegations concerning the improper handling of pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent foreign shares of a foreign company.” The SEC noted in its press release that ADRs can be pre-released without the deposit of foreign shares only if: (i) the broker-dealers receiving the ADRs have an agreement with a depository bank; and (ii) the broker-dealer or the broker-dealer’s customer owns the number of foreign shares that corresponds to the number of shares the ADR represents. According to the SEC’s Order Instituting Administrative Proceedings (order), the broker-dealer improperly borrowed pre-released ADRs from other brokers that it should have known did not own the foreign shares necessary to support the ADRs. The SEC also found that the broker-dealer failed to implement policies and procedures to reasonably detect whether its securities lending desk personnel were engaging in such transactions. The broker-dealer neither admitted nor denied the SEC’s allegations, but agreed to pay more than $326,000 in disgorgement, roughly $80,970 in prejudgment interest, and a $179,353 penalty. The SEC’s order acknowledged the broker-dealer’s cooperation in the investigation and that the broker-dealer had entered into tolling agreements.
Massachusetts AG reaches $1.25 million settlement with online lender
On January 21, the Massachusetts attorney general announced a $1.25 million settlement with an online marketplace lender to resolve allegations that it violated the state’s Small Loan Statute by facilitating the origination of loans with excessive interest rates to Massachusetts borrowers. According to an assurance of discontinuance (AOD) filed in the Suffolk Superior Court, the company allegedly facilitated personal loans to Massachusetts residents with interest rates exceeding the statutory interest rate cap set by the Small Loan Statute, which regulates terms for consumer loans of $6,000 or less. “Small loans” are defined by the statute as those where the disbursed amount is $6,000 or less. To determine whether a loan is a “small loan,” the Small Loan Statute provides that if, after all deductions or payments (whether on account of interest, expenses, or principal made substantially contemporaneously with the making of the loan), the amount retained by the borrower is $6,000 or less, the transaction will be deemed to be a loan in the amount of the sum retained by the borrower after deductions or payments, notwithstanding that the loan was nominally for a greater sum (the “deduction provision”). Among other things, the AG’s office claimed the company facilitated “small loans” with interest rates above the maximum permitted rate for non-licensed small loan companies, and that after the company obtained a small loan company license, it allegedly facilitated loans that exceeded the maximum permitted rate for licensed small loan companies based in part on its reading of the Act’s “deduction provision.” The company admitted no liability, agreed to pay $1.25 million to the Commonwealth, comply with Massachusetts law, and stop facilitating small loans to state residents with interest rates that exceed the maximum permissible rate based on the AG’s reading.
CFPB settles UDAAP allegations with Texas payday lender
On February 5, the CFPB announced a settlement with a Texas-based payday lender and six subsidiaries (defendants) for allegedly assisting in the collection of online installment loans and online lines of credit that consumers were not legally obligated to pay based on certain states’ usury laws or licensing requirements. As previously covered by InfoBytes, the Bureau filed a complaint in 2017—amended in 2018—against the defendants for allegedly violating the CFPA’s prohibitions on unfair, deceptive, and abusive acts and practices by, among other things, making deceptive demands and originating debit entries from consumers’ bank accounts for loans that the defendants knew were either partially or completely void because the loans were void under state licensing or usury laws. The defendants—who operated in conjunction with three tribal lenders engaged in the business of extending and collecting the online installment loans and lines of credit—also allegedly provided material services and substantial assistance to two debt collection companies that were also involved in the collection of these loans.
Under the stipulated final consent order, the defendants are prohibited from (i) extending, servicing, or collecting on loans made to consumers in any of the identified 17 states if the loans violate state usury limits or licensing requirements; and (ii) assisting others engaged in this type of conduct. Additionally, the settlement imposes a $1 civil money penalty against each of the seven defendants. The Bureau’s press release notes that the order “is a component of the global resolution of the [defendants’] bankruptcy proceeding in the Bankruptcy Court for the Northern District of Texas, which includes settlements with the Pennsylvania Attorney General’s Office and private litigants in a nationwide consumer class action.” The press release also states that “[c]onsumer redress will be disbursed from a fund created as part of the global resolution, which is anticipated to have over $39 million for distribution to consumers and may increase over time as a result of ongoing, related litigation and settlements.”
OFAC, shipping company settle sanctions violations for $1.1 million
On January 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $1,125,000 civil settlement with a Marshall Islands shipping company (respondent) with headquarters in the U.S. for 36 apparent violations of the Burmese Sanctions Regulations (BSR). According to OFAC, between 2011 and 2014, the respondent had dealings in the property of a Burma-related company (company) that is included on the Specially Designated Nationals (SDN List), and provided shipping services that benefited the designated company, which were apparent violations of the BSR.
According to the settlement agreement, OFAC considered various aggravating factors in reaching the settlement amount, including that (i) the apparent violations “conferred significant economic benefits to Burma’s military regime”; (ii) the respondent “demonstrated reckless disregard for U.S. sanctions requirements by ignoring” the license denial letters it received from OFAC; (iii) the respondent’s former president knew about and participated in the transactions that comprise the apparent violations; and (iv) the respondent is a “commercially sophisticated shipping company” that is familiar with international shipping transactions. OFAC determined that the apparent violations represent an egregious case.
OFAC also considered various mitigating factors, including that (i) the respondent is under new management, which self-disclosed the apparent violations and cooperated with the investigation; (ii) OFAC has not issued a violation against the respondent in the five years preceding the earliest date of the transactions at issue; and (iii) the respondent undertook extensive remedial measures in response to the alleged violations, including implementing a formal compliance program.
Payday lender settles with North Carolina AG for $825,000
On January 27, the North Carolina attorney general announced that a Florida-based payday lender (lender) agreed to pay $825,000 to settle allegations of usury, lending without a license, unlawful debt collection and unfair and deceptive practices in violation of state consumer protection laws. According to the announcement, though the lender was not licensed in the state, it advanced “more than 400 loans online to financially distressed North Carolina consumers at interest rates between 78 to 252 percent,” which is markedly higher than the state interest rate limit of 30 percent. The AG claimed that the lender tried to skirt North Carolina laws by requiring some borrowers to collect their loan funds outside of the state. The AG also alleged that the lender required borrowers to secure the loans with their vehicle titles, which enabled the lender to repossess and sell the borrowers’ vehicles when they defaulted or were late on payments. In the settlement, without admitting to the AG’s allegations, the lender agreed to return to North Carolina borrowers (i) all fees and interest paid on the loans by the borrowers; (ii) all the auction proceeds exceeding the loan principal to borrowers whose vehicles were repossessed and sold at auction; and (iii) cars owned by borrowers that were repossessed but not sold at auction. Among other things, the lender will also be permanently barred from making loans to, and collecting payments from, North Carolina borrowers, and is prohibited from putting liens on and repossessing vehicles owned by borrowers.
Court approves $7 million robocall class action settlement
On January 27, the U.S. District Court for the District of Minnesota, granted final approval of a $7.05 million class action settlement between consumers and a large national retailer for allegedly making robocalls. The lead plaintiff filed a proposed class action suit in 2016 against the retailer claiming that it used an automated dialing system to place collection calls to his cell phone in violation of the TCPA. The suit additionally asserted that some plaintiffs were charged by their cellphone service providers for these collection calls.
According to the settlement approval order, the settlement class includes individuals who received debt collection calls on their cell phones from the retailer between March of 2012 and May of 2018. Additionally, the court determined that, among other things, (i) the notice plan is the best plan practicable and provides sufficient notice to class members; (ii) the settlement is “fair, reasonable, and adequate”; and (iii) the class was adequately represented in the settlement negotiations. The court approved attorneys’ fees and costs of nearly $2 million, and an incentive award of $10,000 to the lead plaintiff, both to be paid out of the funds of the settlement.
National bank settles overdraft fee MDL
On January 24, the U.S. District Court for the District of South Carolina entered final judgment for the approval of a $43 million settlement between a national bank and consumers to resolve multidistrict litigation (MDL) concerning overdraft charges. According to the settlement, since 2013, several groups of consumers have filed putative class action complaints against the bank in multiple jurisdictions alleging improper assessment and collection of overdraft fees, including claims that class members incurred overdraft fees as a result of the bank’s alleged practice of assessing fees based on an account’s available balance rather than its ledger balance. Other claims include allegations that the bank assessed overdraft fees for an ATM or one-time debit card transaction, assessed sustained overdraft fees, or assessed overdraft fees on ride-sharing transactions. In 2015 the Judicial Panel for Multi-District Litigation consolidated the actions for pretrial purposes.
In 2018, as previously covered by InfoBytes, the court dismissed one of the complaints in the MDL action, which alleged that the bank’s $20 overdraft fee is an interest charge on credit and therefore exceeds usury limits under the National Bank Act (NBA). The court noted that it had previously rejected a materially identical usury claim in December 2015 and that no new evidence or authority had been brought to light that would change its decision. In addition, the court concluded that “the law is still clear that sustained overdraft fees are not interest, and that assessing such fees cannot violate the usury provision of the NBA.” In 2019, the parties agreed to settle the action in its entirety, without any admission of liability by the bank. Under the terms of the settlement agreement, six classes of consumers will receive payouts or overdraft fee forgiveness, which will include $27 million “in the form of reductions to the outstanding balances of [class members] whose accounts were closed with amounts owed to the [bank].”
OFAC settles with lobbying firm over sanctions violations
On January 21, U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with a New York-based lobbying firm for alleged violations of the Global Terrorism Sanctions Regulations (GTSR). According to OFAC, between August 2017 and November 2017, the firm allegedly dealt in the property or interests in property of a Somalian organization designated as a Specially Designated Global Terrorist (SDGT), when it signed a contract with the organization and received payment for its lobbying services that were “outside the scope of generally authorized activities under the GTSR, including the GTSR general license for legal services.” In arriving at the settlement amount, OFAC considered various mitigating factors, including the fact that the firm voluntarily self-disclosed the issue to OFAC, and the firm implemented remedial measures, including adopting new screening procedures before entering into contracts with potential clients. OFAC also considered various aggravating factors, including that the firm’s executives had actual knowledge of the organization’s SDGT status and actively participated in signing the contract.