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  • FTC settles with photo app developer over its facial recognition technology

    Federal Issues

    On May 7, the FTC announced a final settlement with the developer of a California-based photo app (defendant) for allegedly deceiving consumers concerning its use of facial recognition technology and its retention of the photos and videos of users who previously deactivated their accounts. The FTC filed a complaint in January claiming, among other things, that the defendant violated the FTC Act by misleading users about their ability to control the face recognition feature and remove photos after account deletion. According to the FTC’s complaint, the defendant automatically activated its face recognition feature for all mobile app users except those consumers who lived in Texas, Illinois, Washington and the European Union. The FTC alleged that the defendant also failed to keep its promise to delete the photos and videos of users who deactivated their accounts and instead retained them indefinitely. Under the terms of the stipulated final order, the defendant must “clearly and conspicuously disclose to the User from whom Respondent has collected the Biometric Information, separate and apart from any ’privacy policy,’ ’terms of use‘ page, or other similar document, all purposes for which Respondent will use, and to the extent applicable, share, the Biometric Information; and obtain the affirmative express consent of the User from whom Respondent collected the Biometric Information.” The settlement also calls for the deletion of all photos and videos that were collected from users who requested deactivation of their accounts.

    Federal Issues FTC Settlement FTC Act Deceptive Privacy/Cyber Risk & Data Security Enforcement

  • CFPB Office of Servicemember Affairs releases annual report on servicemembers’ financial needs

    Federal Issues

    On May 6, the CFPB’s Office of Servicemember Affairs (OSA) released its annual report, which provides an overview of OSA’s activities in fulfilling its statutory responsibilities for fiscal year 2020 and covers the period between January 1, 2020 to December 31, 2020. The report also addresses concerns raised by military consumers based on approximately 40,000 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:

    • Financial help due to the Covid-19 pandemic. In response to Covid-19, the Bureau released an online resource “to highlight tools and information that consumers can use to protect themselves and manage their finances, including information on topics such as mortgage and housing assistance, student loans, and avoiding scams.” For servicemembers, the page connects to an OSA blog detailing resources that military personnel can use for immediate financial assistance and to sustain long-term financial well-being.
    • Misadventures in Money Management (MiMM). MiMM serves as an online educational tool that provides young servicemembers with an important “baseline of financial education through the power of storytelling and gamification.”
    • Consumer Financial Protection Week and Military Consumer Protection Month. OSA took part in a joint webinar with the CFPB’s Office of Older Americans and the Office of Community Affairs, which highlighted initiatives for vulnerable populations and emphasized the “importance of research in understanding the financial well-being of military consumers.” The webinar also unveiled the Bureau’s “first research report that studied how the credit records of young servicemembers coevolve with military service.”
    • National Veterans and Military Families Month. During November 2020, OSA organized with other agencies and organizations to encourage the military community to leverage available resources to help improve their financial well-being. These initiatives included, among other things: (i) publishing OSA’s Debt and Delinquency after Military Service research report; (ii) participating in the Bureau’s Financial inTuition Repayment Podcast Series; and (iii) convening “a virtual military consumer webinar with partner agencies and organizations to discuss financial challenges facing servicemembers, veterans, and their families in the financial marketplace.”
    • Education and empowerment. The Bureau also “deployed and amplif[ied] [its] financial education tools through partners, engaging servicemembers and military families at townhall-style listening sessions at military installations.”

    Federal Issues CFPB Servicemembers Agency Rule-Making & Guidance Consumer Complaints Consumer Finance SCRA Military Lending Act

  • DOJ files criminal charges against individual who operated bitcoin money laundering service

    Federal Issues

    On April 28, the DOJ announced the arrest of a dual Russian-Swedish national on criminal charges related to his alleged operation of a bitcoin money laundering service on the darknet. The DOJ referred to the individual’s money-laundering service as the “longest-running cryptocurrency ‘mixer,’” stating that it moved over 1.2 million bitcoin valued at approximately $335 million at the time of transactions over the course of 10 years. According to the DOJ, the majority of the cryptocurrency came from darknet marketplaces tied to illegal narcotics, computer fraud, and abuse activities. The individual is charged with (i) money laundering; (ii) operating an unlicensed money transmitting business; and (iii) money transmission without obtaining a license in the District of Columbia.

    Federal Issues Digital Assets Financial Crimes DOJ Cryptocurrency Fintech Anti-Money Laundering Of Interest to Non-US Persons Money Service / Money Transmitters

  • CFPB reports on use of payday, auto title, and pawn loans

    Federal Issues

    On May 5, the CFPB released a new report surveying the prevalence, persistence of use, and other credit sources accessible for consumers who utilize payday, auto title, and pawn loans. The report uses the first two rounds of the Bureau’s Making Ends Meet survey, which was conducted before the Covid-19 pandemic in June 2019, and offers a nationally representative assessment of consumers with credit records (covered by InfoBytes here). As such, the survey allows the possibility of combining a survey of the same consumers spanning over two years with credit record data to understand consumers’ decisions about debt. Report highlights include:

    • “In June 2019, 4.4 percent of consumers had taken out a payday loan in the previous six months, 2.0 percent had taken out an auto title loan, and 2.5 percent had taken out a pawn loan.” These consumers are more concentrated in the age group between 40 and 61. The report discloses that “because the number of consumers using these loans in the survey is small, there is some survey uncertainty in these estimates.”
    • “77 percent of consumers using alternative financial services experienced a shock and had difficulty paying a bill or expense during the same timeframe in which they also reported borrowing a payday, auto title, or pawn loan.”
    • “Payday, auto title, and pawn users who experience difficulty paying a bill or expense tend to also use other available credit, suggesting that for some consumers, these loans might be part of a broader and more complicated debt portfolio to deal with difficulties.”

     

    Federal Issues CFPB Consumer Finance Payday Lending Auto Lending

  • CFPB settles with additional debt-relief defendants

    Federal Issues

    On May 4, two additional settlements were reached with defendants in an action by the CFPB against a lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in 2020 in the U.S. District Court for the Central District of California claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that the defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here and here).

    The May 4 settlement reached with one of the defendant companies requires the payment of a $1 civil money penalty to the Bureau because of the defendant’s limited ability to pay. The defendant, who neither admits nor denies the allegations, is ordered to promptly take dissolution steps and is banned from offering or providing consumer financial products or services. The defendant is also prohibited from using or obtaining consumer reports for any purpose and must comply with reporting requirements.

    A second settlement was reached the same day with one of the individual defendants. Under the terms of the settlement, the defendant also is required to pay a $1 civil money penalty, as well as $3,000 out of $7 million in consumer redress, of which full payment is suspended provided other obligations are fulfilled. The defendant, who neither admits nor denies the allegations, is permanently banned from providing debt relief services or telemarketing consumer financial products or services. The defendant is also prohibited from using or obtaining “prescreened consumer reports” for any purpose, and is further required to, among other things, comply with reporting requirements and fully cooperate with any other investigations.

    Federal Issues Courts CFPA Telemarketing Sales Rule FCRA Consumer Finance CFPB

  • Michael J. Hsu named acting Comptroller of the Currency

    Federal Issues

    On May 7, Michael J. Hsu was designated acting Comptroller of the Currency, effective May 10. Previously, Hsu served as an associate director in the Federal Reserve’s Division of Supervision and Regulation where he led the Large Institution Supervision Coordinating Committee Program, which supervises global systemically important banking companies operating in the U.S. Hsu’s career over the past 19 years also included positions at the SEC, Treasury Department, and International Monetary Fund. In accepting the position, Hsu stated his focus “will be on solving urgent problems and addressing pressing issues until the 32nd Comptroller is confirmed.”

    Hsu issued a statement to agency staff the same day outlining planned areas of focus including:

    • Addressing the “disproportionate impact” of the Covid-19 pandemic on rural and minority communities;
    • Confronting the risks and challenges of climate change, as well as the acceleration of technological development and digitization in the industry;
    • Understanding how “complacency about risk-taking is of increasing supervisory concern as [the industry enters] a phase of growth and heightened competition”; and
    • Reviewing key regulatory standards, as well as other matters pending before the agency, which will take into account both external and internal views.

    Federal Issues OCC Covid-19 Climate-Related Financial Risks Fintech Supervision Bank Regulatory

  • HUD charges mortgage modification service with Fair Housing Act violations

    Federal Issues

    On April 30, HUD announced a Charge of Discrimination against a California-based mortgage modification service (respondents) for allegedly violating the Fair Housing Act by discriminating against Hispanic homeowners. According to HUD, the complainants alleged that the respondents targeted them for illegal or unfair loan modification assistance based on their national origin, and that as a result, “they were diverted from obtaining legitimate assistance” and “were at risk of foreclosure.” Specifically, the respondents allegedly marketed and sold loan modification services to financially distressed California homeowners, the majority of whom were Hispanic. The allegations claim that most of the advertisements were in Spanish or were aired on Spanish-language stations and contained allegedly deceptive information regarding the respondents’ ability to obtain loan modifications, as well as its payment structure. Additionally, the complainants stated that they were discouraged from seeking free loan modification assistance, and were, among other things, (i) charged fees before the respondents completed the promised mortgage modifications; (ii) advised to stop making payments without being informed about the risks involved in not paying their mortgages; (iii) provided inaccurate information about the respondents’ services, including that clients would receive services from an attorney; and (iv) instructed to stop communicating with their lenders and to instead forward all lender communications to the respondents if threatened with foreclosure. The charge will be heard by a United States Administrative Law Judge unless a party elects to have the case heard in federal district court.

    Federal Issues HUD Enforcement Fair Housing Act Mortgages Fair Lending Consumer Finance

  • FDIC releases March enforcement actions

    Federal Issues

    On April 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in March. During the month, the FDIC issued 10 orders consisting of “five Prohibition Orders, three Orders to Pay Civil Money Penalties, two Section 19 Applications, one Order to Correct Conditions, and one Order Terminating Consent Order.” Among the orders is a civil money penalty imposed against a Puerto Rico bank related to alleged violations of the Flood Disaster Protection Act for failing to “timely force place insurance in connection with loans secured by a dwelling located within a special flood hazard area” on 27 occasions. The order requires the payment of a $40,500 civil money penalty.

    The FDIC also imposed a civil money penalty against a Tennessee bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claims that the bank (i) failed to obtain flood insurance at or before the origination, increase, renewal, or extension of loans in 61 instances; (ii) failed to maintain an adequate amount of flood insurance in 88 instances; (iii) failed to provide required lender-placed flood insurance notices to borrowers within 45-days of force placement in 10 instances; (iv) provided an incomplete lender-placed flood insurance notice to a borrower; and (v) failed to provide timely notice of special flood hazards and the availability of federal disaster relief assistance in 37 instances. The order requires the payment of a $172,500 civil money penalty.

    Federal Issues FDIC Enforcement Flood Insurance Flood Disaster Protection Act Mortgages Bank Regulatory

  • FTC reaches $20 million settlement with company for misusing consumer credit reports

    Federal Issues

    On April 29, the FTC announced a civil complaint and stipulated order filed by the DOJ on its behalf against a home security and monitoring company accused of allegedly violating the FCRA by improperly obtaining consumers’ credit reports to help potential customers qualify for financing for its products and services. According to the complaint, company employees allegedly engaged in a process known as “white paging,” in which the credit history of another individual with the same or similar name as the potential customer is used to qualify the potential customer for the company’s financing program. Additionally, the FTC claimed that company sales representatives allegedly added “impermissible co-signers” to accounts for unqualified customers by unlawfully using the credit history of the “co-signers” without their permission. In the event a customer defaulted on a loan, the company referred the impermissible co-signer to its debt buyer, potentially harming the co-signer’s credit score and subjecting the individual to debt collections, the FTC stated. According to the complaint, the company was aware of the misconduct, terminated hundreds of sales representatives as a result of these practices, but later rehired some of the same sales representatives because they generated millions of dollars in revenue.

    Under the terms of the stipulated order—the largest to date for an FTC FCRA action—the company is required to pay a $15 million civil money penalty, as well as $5 million to compensate harmed individuals. Additionally, the company must (i) implement an employee monitoring and training program to prevent further FCRA violations; (ii) establish and maintain an identity theft prevention program; (iii) establish a customer service task force to verify all accounts that reference more than one address or include a co-signer before referring the accounts to a debt collector and assist individuals who were improperly referred to debt collectors; and (iv) obtain biennial assessments by an independent third party to ensure compliance.

    While the Commission voted 4-0 to approve the stipulated final order, Commissioner Rohit Chopra issued a separate statement noting that he believes the FTC “should have also alleged that the company violated the FTC Act’s prohibitions on deceptive practices by falsifying credit applications,” and that because the company “turned a blind eye to obvious compliance failures by its sales force” it also allegedly “violated the FTC Act’s prohibition on unfair practices.”

    Federal Issues FTC Enforcement FTC Act FCRA Credit Report Consumer Finance

  • FDIC announces Kentucky and Alabama disaster relief

    Federal Issues

    On April 30, the FDIC issued FIL-31-2021 and FIL-32-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky and Alabama affected by severe storms. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.

    Federal Issues FDIC Disaster Relief Kentucky Alabama Consumer Finance CRA Bank Regulatory

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