InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
District Court: Approval of data breach settlement denied due to several deficiencies
On January 28, the U.S. District Court for the Northern District of California denied preliminary approval of a proposed class action settlement after identifying several deficiencies with the deal. The proposed settlement was intended to resolve allegations concerning security failures by a global internet company, which led to three data breaches between 2013 and 2016 that exposed consumers’ personal information (previously covered by InfoBytes here). The proposed settlement would have required the internet company to (i) establish a $50 million settlement fund; (ii) pay additional attorneys’ fees of up to $35 million; (iii) pay costs and expenses of up to $2.5 million, as well as service awards of up to $7,500 for each class representative; (iv) provide customers with two years of credit monitoring and identity theft protection services; and (v) improve its data security. However, the court stated that the proposed settlement agreement, among other things, inadequately disclosed the sizes of the settlement fund and class, as well as the scope of non-monetary relief, and “appears likely to result in an improper reverter of attorneys’ fees.” Moreover, the court held that the proposed agreement provided insufficient detail about how much the settlement would cost the defendant in total, and did not disclose the costs of credit monitoring or how much the defendant would budget for data security, thus preventing class members from assessing the reasonableness of the settlement or the attorneys’ fee request—which the court indicated seem “unreasonably high.” The court also noted that “[t]he parties’ lack of disclosure also inhibits the court's ability to assess the reasonableness of the settlement.”
District Court approves $30 million settlement for post-payment interest charges on FHA mortgages
On January 25, the U.S. District Court for the Northern District of California granted final approval of a $30 million settlement resolving allegations that a national bank improperly collected post-payment interest on FHA-insured mortgages but did not use the FHA-approved form to provide the appropriate disclosures to consumers before doing so. The settlement covers a nationwide class of borrowers who, between June 1996 and January 2015, obtained an FHA-insured mortgage loan. Participating class members are expected to receive between $25 and $33 each. The court also approved a $7.5 million award for class counsel attorneys’ fees, of which $7,500 and $5,000 will be awarded to the named plaintiffs.
Florida Attorney General settles with car rental company for misleading fee disclosures
On January 22, the Florida Attorney General announced a settlement with a car rental automotive group resolving allegations the company did not adequately disclose add-on fees for cashless tolls and other related add-on charges. According to the settlement, the Attorney General launched an investigation after receiving consumer complaints alleging the company did not clearly disclose that consumers would be charged $15 per cashless toll, in addition to the actual toll fees. Additionally, consumers who opted into an add-on product that would allow them to go through cashless tolls without penalty alleged the company misled them regarding that product’s fees. The settlement requires the company to (i) clearly and conspicuously disclose all fees regarding cashless tolls or associated products within written agreements; (ii) provide clear disclosures regarding fees on their website, online reservation system, confirmation emails and at the rental counters; (iii) refund fees paid for tolls or the associated add-on product to consumers who were charged between January 1, 2011 and January 7, 2019, and who submit claim forms; and (iv) provide accurate disclosures on damage waivers. The settlement also prohibits the company from charging consumers for a higher car class when the car class reserved by a consumer is unavailable.
California small-dollar lender reaches settlement resolving interest rate allegations
On January 22, the California Department of Business Oversight (DBO) announced a $900,000 settlement with a California-based lender for allegedly steering borrowers into high-interest loans to avoid statutory interest rate caps. According to the DBO, the lender’s practice of overcharging interest and administrative fees violated the California Financing Law, which caps interest on small-dollar loans up to $2,499 at rates between 20 percent and 30 percent, but does not provide a cap for loans of $2,500 and higher. The DBO also asserts that the lender’s brochures, which advertised loans of “‘up to $5,000’ without stating that the minimum loan amount offered by [the lender] was $2,501,” were false, misleading, or deceptive. Moreover, the lender allegedly failed to allow certain borrowers the opportunity to make advance payments “in any amount on any loan contract at any time.”
Additionally, the DBO alleges that the lender overcharged roughly $700,000 in payday loan transactions by (i) collecting charges twice; (ii) allowing borrowers to take out a new loan before paying off the old one; and (iii) depositing some borrowers’ checks prior to the specified date in the loan agreement without their written authorization.
Under the terms of the consent order, the lender will, among other things, provide $800,000 in refunds to qualifying borrowers, pay $105,000 in penalties and other costs, and provide accurate verbal disclosures to borrowers concerning loan amounts and interest rate caps.
CFPB settles with loan broker over veteran pension loans
On January 23, the CFPB announced a settlement with an online loan broker resolving allegations that the broker violated the Consumer Financial Protection Act by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments. Specifically, the CFPB alleges the broker (i) misrepresented the contracts he facilitated as valid, when, in fact, under federal law veterans’ pension payments are unassignable; (ii) misrepresented to consumers that the offer was a “sale” of a product not a high-interest credit offer; (iii) misrepresented to consumers when they would receive their loan funds; and (v) failed to disclose the applicable interest rate on the loans. Under the program, veterans were also required to obtain life insurance policies in order to ensure the outstanding amount would be repaid even if the veteran died. Under the terms of the consent order, the broker is prohibited from engaging in the specified conduct in the future and is required to assist the Bureau in identifying and locating the veterans who were harmed. The Bureau required the broker to pay $1 in civil money penalties, based on his financial statements.
Retailer settles multistate data breach investigation for $1.5 million
On January 8, a national retailer reached a $1.5 million multistate settlement with 43 states and the District of Columbia to resolve an investigation following a 2013 data breach of customer payment card information. According to the Illinois Attorney General’s announcement, the retailer will implement provisions to prevent future breaches, such as (i) complying with Payment Card Industry Data Security Standard requirements; (ii) maintaining a system to collect and monitor network activity; (iii) updating software that maintains and safeguards personal information; and (iv) devaluing payment card information through the use of encryption and tokenization technology to obfuscate payment card data. The retailer must also retain a third-party professional responsible for conducting an information security assessment and report, as well as outlining corrective measures.
NYDFS, New York Attorney General reach $9 million settlement with student loan servicer
On January 4, NYDFS and the New York Attorney General announced a joint $9 million settlement with a national student loan servicer to resolve allegations that the servicer, among other things, deceived student loan borrowers about their repayment options and steered them into higher-cost repayment plans. According to a press release issued by the Attorney General’s office, the servicer “steered distressed borrowers away from available income-based repayment plans towards other, more expensive options, thus costing them money and increasing their risk of default.” Additionally, the consent order alleges that the servicer misinformed borrowers—including servicemembers—about their repayment options, such as telling borrowers they were not eligible for Public Service Loan Forgiveness plans when they may have qualified after consolidating their loans. Furthermore, the servicer allegedly (i) improperly processed applications for income-based repayment; (ii) allocated underpayment for certain borrowers to maximize late fees; (iii) improperly processed payments; (iv) failed to accurately report information to credit reporting agencies; (v) failed to “properly recalculate monthly payments for servicemembers when adjusting their interest rates under the Servicemembers’ Civil Relief Act”; (vi) charged improper late fees; and (vii) did not provide borrowers notification of their eligibility for a co-signer release.
The servicer, while neither admitting nor denying the findings alleged by NYDFS and the Attorney General, has agreed to pay $8 million in restitution to New York borrowers and a $1 million fine. Moreover, the servicer has agreed to stop servicing private and federal loans—with the exception of Perkins Loans—over the next five years.
State Attorneys General fine national bank $575 million for incentive compensation, mortgage and auto lending practices
On December 28, a national bank reached a $575 million multistate settlement with 50 states and the District of Columbia. Among other things, the settlement resolves allegations that have been the subject of previous litigation concerning the bank’s incentive compensation sales program (covered by InfoBytes here), as well as allegations involving certain practices related to mortgage rate-lock extension fees, auto loan force-placed insurance policies, and guaranteed asset/auto protection products. As previously covered by InfoBytes, the bank reached a settlement last year with the CFPB and the OCC to resolve allegations concerning its auto and mortgage lending practices, which were previously discontinued and for which voluntary consumer remediation was initiated by the bank.
Bank settles SEC allegations of mishandled American Depositary Receipts
On December 26, the SEC announced a settlement with a national bank to resolve allegations that the bank mishandled the pre-release of American Depositary Receipts (ADRs)—U.S. securities that represent shares in foreign companies. The SEC noted in its press release that ADRs can be pre-released without the deposit of foreign shares only if: (i) the brokers receiving the ADRs have an agreement with a depository bank; and (ii) the broker or the broker's customer owns the number of foreign shares that corresponds to the number of shares the ADR represents. The SEC alleged that the bank improperly provided thousands of pre-released ADRs where neither the broker nor its customers possessed the required shares. According to the SEC’s order, the bank’s alleged practice of allowing pre-released ADRs, that were in many instances not backed by ordinary shares, violated the Securities Act of 1933. The bank has neither admitted nor denied the SEC’s allegations, but has agreed to pay more than $71 million in disgorgement, roughly $14.4 million in prejudgment interest, and an approximate $49.7 million penalty. The SEC’s order further acknowledges the bank’s cooperation in the investigation and implementation of remedial measures.
Kansas company agrees to $400,000 forfeiture in first U.S. BSA action against a broker-dealer
On December 19, the United States Attorney for the Southern District of New York announced it filed charges against a Kansas-based broker-dealer for allegedly willfully failing to file a suspicious activity report (SAR) in connection with the illegal activities of one of its customers in violation of the Bank Secrecy Act (BSA). According to the announcement, this is the first criminal BSA action ever brought against a U.S. broker-dealer. The allegations are connected to the actions of the broker-dealer’s customer, who was the owner of a Kansas-based payday lending scheme that was ordered to pay a $1.3 billion judgment for making false and misleading representations about loan costs and payments in violation of the FTC Act (previously covered by InfoBytes here). The U.S. Attorney alleges the broker-dealer, among other things, failed to follow its customer identification procedures, disregarded “red flags that were known prior to [the customer] opening the accounts,” and continued to ignore additional red flags that arose over time. Additionally, the U.S. Attorney alleges the broker-dealer failed to monitor transactions using its anti-money laundering (AML) tool, which led to numerous suspicious transactions going undetected and unreported until long after the customer was convicted at trial for his actions in the scheme.
Along with the announcement of the filing, the U.S. Attorney’s Office further stated it had entered into a deferred prosecution agreement with the broker-dealer in which it agreed to accept responsibility for its conduct, pay a $400,000 penalty, and enhance its BSA/AML compliance program.
The SEC also settled with the broker-dealer for the failure to file the SARs. The settlement requires the broker-dealer to hire an independent consultant to review its AML and customer identification program and implement any recommended changes. The independent consultant will monitor for compliance with the recommendations for two years.