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On September 30, the DOJ announced it filed a lawsuit in the U.S. District Court for the District of Maryland alleging that a Maryland used car dealership and its owner and manager violated ECOA by offering different terms of credit based on race to consumers seeking to finance cars. According to the complaint, between September 2017 and April 2018, compliance testing done by the DOJ concluded that the defendants’ “actions, policies, and practices discriminate against applicants on the basis of race with respect to credit transactions…by offering more favorable terms to white testers than to African American testers with similar credit characteristics.” Specifically, the complaint alleged that African American testers were, among other things, (i) told they needed higher down payment amounts than white testers for the same car; (ii) quoted higher bi-weekly payments for “buy here, pay here” financing than white testers for the same car; and (iii) not offered to fund down payments in two installments, as compared to white testers. The DOJ also alleges that the conduct was “intentional, willful, and taken in disregard of the rights of others” and seeks injunctive relief and monetary relief.
On October 1, the CFPB and the South Carolina Department of Consumer Affairs filed an action in the U.S. District Court for the District of South Carolina against two companies and their owner, alleging that the defendants violated the Consumer Financial Protection Act (CFPA) and the South Carolina Consumer Protection Code (SCCPC) by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. The complaint alleges that the majority of the credit offers are brokered for veterans with disability pensions or retirement pensions. The defendants allegedly did not disclose to consumers the interest rates associated with the products, marketing the contracts as sale of payments and not credit offers. The defendants also allegedly did not disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits. The Bureau and South Carolina are seeking injunctive relief, restitution, damages, disgorgement, and civil money penalties.
The Bureau’s announcement notes that this is the third action in 2019 related to the marketing or administration of high-interest credit to veterans. As previously covered by InfoBytes, in January 2019, the Bureau settled with an online loan broker resolving allegations that the broker violated the CFPA 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. Additionally, in August 2019, the Bureau and the Arkansas attorney general announced a proposed settlement with three loan brokerage companies, along with their owner and operator, for allegedly misrepresenting high-interest credit offers to veterans and other consumers as purchases of future pension or disability payments (covered by Infobytes here).
On September 30, 16 Republican members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the upcoming expiration of a safe harbor to the Remittance Rule (the Rule), which allows certain insured depository institutions to estimate exchange rates and certain fees they are required to disclose to customers about remittance transactions. As previously covered by InfoBytes, the CFPB issued a Request for Information (RFI) last April on two aspects of the Rule that require financial institutions handling international money transfers, or remittance transfers, to disclose to individuals transferring money information about the exact exchange rate, fees, and the amount expected to be delivered. The RFI also sought feedback on a possible extension of the current statutory exception, which is set to expire July 21, 2020. While lawmakers recognize the CFPB’s interest in mitigating negative effects that may result from the exception’s expiration, they urged the CFPB to “take every available step” to ensure that consumers may continue to access remittance services. The lawmakers stressed that it is often difficult, if not “virtually impossible,” for depository institutions to calculate the exact cost of certain remittance transactions. The letter further noted that “depository institutions cannot readily covert all foreign currencies at the time a transfer is conducted, and if the currency exchange takes place after the transfer is initiated, a consumer’s financial institution may only be able to estimate the applicable exchange rate.” Accordingly, if the exception expired, it could cause many depository institutions to discontinue providing remittance services due to increased compliance risk, or cease transfers to certain countries or beneficial banks due to non-compliance risks.
The lawmakers urged the CFPB to use its statutory authority under the Electronic Fund Transfer Act or Dodd-Frank to make the exception permanent “so financial institutions are able to make long-term decisions regarding the provision of these services.”
On September 25, the CFPB released the latest quarterly consumer credit trends report, which examines how the volume and types of bankruptcy filings have changed from 2001 to 2018. The report focuses on consumers who filed for Chapter 7 or Chapter 13 bankruptcy during the reported timeframe. Key findings of the report include: (i) in 2005, there was a rush to file for bankruptcy before the income limits of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect, increasing the share of Chapter 7 filings to 80 percent of all personal bankruptcy filings that year; (ii) from 2015 to 2018, with the effects of the recession fading, Chapter 7 filings appear to have stabilized at about 63 percent; (iii) Chapter 7 and 13 filers, on average, had more than twice the mortgage debt during the recession than in the periods before and after; and (iv) median credit scores increase steadily from year-to-year after consumers file a bankruptcy petition, with Chapter 7 filers’ scores increasing more quickly than Chapter 13, on average.
On September 27, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in August. According to the press release, the FDIC issued 13 orders, which include “four consent orders; one removal and prohibition order; four civil money penalty orders; two terminations of consent orders; and five section 19 orders.” Notably, the FDIC assessed a civil money penalty against a Texas-based bank for alleged violations of the Flood Disaster Protection Act, including failing to (i) obtain flood insurance coverage on loans at the time of origination, increase, extension, or renewal; (ii) maintain flood insurance coverage for the term of a loan; (iii) follow force-placement flood insurance procedures; or (iv) provide borrowers with notice of the availability of federal disaster relief assistance “in all cases whether or not flood insurance is available under the [National Flood Insurance Act] for the collateral securing the loan.”
On September 25, the CFPB filed a complaint in the U.S. District Court for the District of Maryland against a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”) for allegedly violating the Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and the Consumer Financial Protection Act (CFPA). In the complaint, the Bureau alleges that the defendants violated the FCRA and its implementing Regulation V by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnishing information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The Bureau separately alleges that the violations of the FCRA and Regulation V constitute violations of the CFPA. Additionally, the Bureau alleges that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts. The Bureau is seeking an injunction, damages, redress to consumers, disgorgement, the imposition of a civil money penalty, and costs.
On September 23, Department of Treasury Deputy Secretary Justin Muzinich delivered remarks at the 2019 Treasury Market Structure Conference. He discussed broadly the Department’s domestic and international finance priorities, including housing finance reform, digital taxation, cryptocurrency, and securities. Muzinich first addressed Treasury’s housing finance reform plan released September 5 (previously covered by InfoBytes here), stating that the “plan includes nearly 50 recommended legislative and administrative reforms that are incremental, realistic, and balanced, and aim to preserve widespread and affordable access to the 30-year fixed-rate mortgage.” With respect to digital taxation, Muzinich discussed the disproportionate effect of taxing digital businesses’ revenue on U.S. firms, and stated that the Department is actively seeking a multilateral solution. He next addressed several concerns regarding the use of cryptocurrency to evade existing legal frameworks, such as those governing taxation, anti-money laundering, and countering the financing of terrorism. Muzinich emphasized that the existing legal frameworks “apply to digital assets in no uncertain terms,” and referred to guidance released by the Department’s Office of Foreign Assets Control, which clarified that U.S. sanctions compliance obligations are the same regardless of whether a transaction is denominated in digital currency or traditional fiat currency (previously covered by InfoBytes here.) Muzinich noted, however, that there still exist several concerns that the government must consider regarding the effect cryptocurrency has on financial stability, the monetary base, consumer protection and privacy. The Deputy Secretary noted that these issues are being discussed both internationally and domestically. Muzinich closed his remarks by discussing the securities market and announced, among other things, that the Department is working with the Financial Industry Regulatory Authority to begin publicly releasing aggregated data on Treasury volumes, which will ensure that all market participants have access to the same comprehensive data.
On September 25, the U.S. House passed the SAFE Banking Act (H.R. 1595) by a vote of 321-103. As previously covered by InfoBytes, in March, the House Financial Services Committee passed the bipartisan measure, which would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry.
Additionally, on September 23, a bipartisan group of 21 state attorneys general wrote to members of Congress to urge the advancement of a different piece of legislation that would allow banks to serve marijuana-related businesses in states and territories that have legalized certain uses of marijuana. Specifically, the letter expresses support for the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act), which “would allow each [s]tate and territory to determine, for itself, the best approach to marijuana legalization within its borders, while at the same time creating protections to ensure that such regulation does not impose negative externalities on those states and territories that choose other approaches.” The AGs emphasize that neither the SAFE Act (S.B. 1028 and H.R. 2093) nor the letter serve as an endorsement of any “particular approach to cannabis policy,” but rather are intended to prevent residents of states and territories that have legalized some form of marijuana from being subjected to “a confusing and dangerous regulatory limbo.” The STATES Act would effectively exempt marijuana from the Controlled Substances Act (CSA) in states where the drug has been legalized. In addition to providing an exemption from the CSA, the STATES Act would reduce businesses’ reliance on cash-only models—which, the AGs argue, make it more difficult to track revenue for tax and regulatory compliance purposes—and provide certain protections for states that choose to operate in this industry.
On September 19, 26 Republican members of the House Financial Services Committee wrote to the OCC, urging the agency to update its interpretation of the definition of “interest” under the National Bank Act (NBA) to limit the impact of the U.S. Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The letter argues that Madden deviated from the longstanding valid-when-made doctrine—which provides that if a contract that is valid (not usurious) when it was made, it cannot be rendered usurious by later acts, including assignment—and has “caused significant uncertainty and disruption in many types of lending programs.” Specifically, the letter asserts that the decision “threatens bank-fintech partnerships” that may provide better access to capital and financing to small business and consumers. The letter acknowledges the recently filed amicus brief in the U.S. District Court for the District of Colorado by the OCC and the FDIC, which criticized the Madden decision for disregarding the valid-when-made doctrine and the “stand-in-the-shoes-rule” of contract law (previously covered by InfoBytes here), and requests that the OCC prioritize rulemaking to address the issue.
On September 24, the FTC announced a proposed $23 million settlement with a Belizean bank resolving allegations that it assisted various entities in deceiving U.S. consumers into purchasing parcels of land in a luxury development in Belize. As previously covered by InfoBytes, in November 2018, the FTC filed charges and obtained a temporary restraining order against the operators of an international real estate investment scheme, which allegedly violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land through the use of deceptive tactics and claims. The FTC asserted that consumers who purchased lots in the development purchased them outright or made large down payments and sizeable monthly payments, including HOA fees, and that defendants used the money received from these payments to fund their “high-end lifestyles,” rather than invest in the development. The FTC argued that “consumers either have lost, or will lose, some or all of their investments.” At the time, the FTC filed separate charges against the Belizean bank for allegedly assisting and facilitating the scam.
According to the FTC, the bank has now agreed to the proposed consent order to settle the allegations. The consent order requires the bank to pay $23 million, which will be used to provide equitable relief, including consumer redress, and to cease all non-liquidation business activities permanently. Additionally, the consent order prohibits the liquidator or anyone else from seeking to re-license and operate the bank’s business. The consent order must be approved by the U.S. District Court for the District of Maryland.
- Daniel P. Stipano to discuss "BSA/AML culture of compliance roundtable" at the FiSCA Annual Conference
- Daniel P. Stipano to discuss "Is there a better way to fight money laundering" at the FiSCA Annual Conference
- Michelle L. Rogers to discuss "What's trending in enforcement" at the Mortgage Bankers Association Annual Convention & Expo
- Kathryn L. Ryan and Moorari K. Shah to discuss "Today's regulatory environment - Are you in the know?" at the Equipment Leasing and Finance Association Annual Convention
- Buckley Webcast: Smoke and mirrors: Navigating the regulatory landscape in banking the marijuana industry
- H Joshua Kotin to discuss "CMS - Components of a successful monitoring program" at the RegList Annual Workshop
- Tim Lange to discuss "Temporary authority to operate - Are you prepared? Hear what the states are doing" at the RegList Annual Workshop
- Sherry-Maria Safchuk to discuss "Cybersecurity" at the RegList Annual Workshop
- Jeffrey P. Naimon to discuss "Hot topics in mortgage origination" at the Conference on Consumer Finance Law Annual Consumer Financial Services Conference
- Sherry-Maria Safchuk to discuss "CCPA: Countdown to compliance – A discussion of common questions and what is next on the CA privacy horizon" at the Conference on Consumer Finance Law Annual Consumer Financial Services Conference
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "Adapting to the rapidly changing compliance landscape involving marijuana and marijuana-related businesses" at an ACAMS webinar
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference