Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On March 7, the FTC announced the expansion of an existing enforcement action against several payday lending firms and their owner alleging that they sought to force borrowers throughout the country to travel to South Dakota to appear before a tribal court that did not have jurisdiction over their cases. The defendants are facing a number of claims relating to alleged attempts to garnish employees’ wages without appropriate court orders. The amended complaint adds allegations that the loan contracts issued by the defendants illegally state that the contracts are subject solely to the jurisdiction of the Cheyenne River Sioux Tribe. The defendants have brought suit in the tribal court against non-tribal members to obtain garnishment orders. The FTC contends that the tribal court does not have jurisdiction over claims against people who do not belong to the Cheyenne River Sioux Tribe and who do not reside on the reservation or elsewhere in South Dakota.
On February 21, the FTC announced that, at its request, a U.S. federal court stopped the operations of entities the FTC alleges collected over $5 million of payday loan debts that either did not exist or were owed to another entity. The FTC asked the court to freeze the assets of the firm while it continues its investigation and prosecution. The FTC charges that the defendants, California-based American Credit Crunchers LLC and affiliated entities and individuals, violated the FTC Act and the Fair Debt Collection Practices Act by posing as law enforcement and demanding immediate payment of payday loan debts from consumers that had no such debt.
On February 10, the FTC released a letter it recently submitted to the Federal Reserve Board (FRB) that reviews the FTC’s efforts in 2011 to enforce certain consumer financial services laws. The information provided in the letter will be used by the FRB in its 2011 Annual Report to Congress. In addition to reviewing past activity, the letter also outlines the FTC’s plans to exercise new authorities provided by the Dodd-Frank Act, including new or enhanced authority with regard to payment cards, motor vehicles, and mortgage disclosures.
On February 14, the FTC announced consent orders banning U.S. Mortgage Funding, Inc., and other related companies and individuals from conducting any mortgage relief business. The FTC had charged the defendants with violating the FTC Act and the FTC’s Telemarketing Sales Rule by using direct mail, the Internet, and telemarketing to target borrowers and falsely promise successful mortgage modification programs in exchange for an up-front fee. In addition to the bans, the orders, which were approved by the United States District Court for the Southern District of Florida, require the defendants to pay monetary judgments and forfeit certain property.
On February 7, the FTC announced that it had warned three mobile application marketers that their mobile background screening applications may be violating the Fair Credit Reporting Act (FCRA). The FTC described some of the six applications at issue as including criminal record histories, which are a type of information typically used in employment and tenant screening. While the FTC has not made a determination as to whether these firms are violating FCRA, it reminded the companies that if they have reason to believe the mobile applications include information about individuals’ character, reputation, or personal characteristics that is used or expected to be used for purposes such as employment, housing or credit, the marketers and their customers must comply with FCRA. Under FCRA, firms that assemble or evaluate such information to provide to third parties qualify as consumer reporting agencies and are required to (i) take reasonable steps to ensure the user of each report has a “permissible purpose” to use the report, (ii) take reasonable steps to ensure the maximum possible accuracy of the information conveyed in its reports, and (iii) provide users of its reports with information about their obligations under the FCRA.
On February 1, the Federal Trade Commission (FTC) announced a settlement with two individuals alleged to have operated businesses that improperly collected consumer information and then used that data to enroll consumers in negative-option programs that promised to match consumers with payday lenders. The FTC claimed the operators enrolled consumers in the payday lender matching program without consumer consent and refused to provide promised refunds. Under the settlement agreement, the individuals must pay nearly $10 million and will be prohibited from marketing secured loan products. The agreement also bars the individuals from making certain misrepresentations and prohibits the conduct at issue.
On January 30, the FTC and the DOJ announced that a Michigan-based debt buyer had agreed to pay a $2.5 million civil penalty to settle allegations of misconduct in connection with the company's debt collection activities. The FTC alleged that the debt buyer violated the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act by, among other things, (i) misrepresenting without substantiation that consumers owed a debt, (ii) failing to disclose that certain time-barred debt did not have to be repaid, (iii) knowingly providing false information to credit reporting agencies, and (iv) failing to investigate disputes raised by credit reporting agencies. In addition to paying the civil penalty, the company must address the failures and misconduct alleged by the FTC. For example, it must inform consumers when a debt is too old to be legally enforceable. Further, the company is prohibited from engaging in certain conduct, such as placing debt on consumer credit reports without notifying the consumer. Concurrent with the announcement, the FTC released a publication to help consumers understand their rights with regard to time-barred debt.
On January 25, the CFPB, the Department of Defense, the FTC, and the New York Attorney General announced a partnership to develop the Repeat Offenders Against Military (ROAM) Database to track enforcement actions against entities or individuals engaged in consumer financial frauds against military personnel, veterans, and their families. The database, which should be available by mid-February, will compile publicly available information about completed civil and criminal legal actions and will be accessible and searchable by state attorneys general, U.S. Attorneys, and Judge Advocates from all branches of the armed services. The Consumer Protection Committee of the National Association of Attorneys General already has sent a letter to state attorneys general asking them to populate the new database with their enforcement action information. The FTC noted that the ROAM database will complement its Consumer Sentinel Network, which collects and provides wide access to consumer complaints, including those related to the frauds against servicemembers and their families.
On January 23, the CFPB and the FTC announced that the agencies had entered into a memorandum of understanding (MOU) to facilitate coordination of the agencies’ consumer financial rulemaking, enforcement, and supervision activities. The MOU establishes regular meetings between the two entities, as well as processes for providing notice of enforcement activities. Under the MOU, the CFPB and the FTC will be able to share consumer complaint information, and the FTC can request CFPB examination reports and confidential supervisory information.
FTC Enhances Confidentiality of Investigations and Proposes Rule to Expedite Investigatory Processes
On January 13, by a vote of 5-0, the FTC adopted a new rule of practice (Rule 2.17) that streamlines internal procedures for staff seeking a court order to prevent investigation targets from learning about subpoenas and civil investigative demands issued by the FTC. The rule allows individual FTC Commissioners or the FTC’s general counsel to authorize the filing of a court action to delay notification to individuals required under the Right to Financial Privacy Act and the Electronic Communications Privacy Act when the FTC is seeking records from financial institutions or service providers.
Also on January 13, the FTC proposed additional changes to Parts 2 and 4 of its Rules of Practice to expedite Commission investigations and ensure that the FTC’s investigatory processes keep pace with electronic discovery advances. Among the proposed changes is a requirement for an accelerated meet-and-confer schedule to resolve electronic discovery disputes, as well as a proposal to relieve parties of their obligations to preserve documents after a year passes with no written communication from the FTC. The public can comment on the proposed rule changes through March 23, 2012.
- Sherry-Maria Safchuk to speak on the "California Consumer Privacy Act (CCPA) Workshop" panel at the California Mortgage Banker's 2019 Legal Issues & Regulatory Compliance Conference
- Jon David D. Langlois to discuss "Legal and operational considerations" at the Mortgage Bankers Association's Whole Loan Trading Workshop
- Daniel P. Stipano to discuss “Connecting the dots on your CDD program” at the ABA/ABA Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss “Beneficial Ownership: You have questions – We have quick answers” at the ABA/ABA Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at an American Bar Association webinar
- Kari K. Hall and Christopher M. Walczyszyn to speak on the "Understanding updates to Regulation CC to ensure effective check processing" at a National Association of Federal Credit Unions webinar