InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FTC report to Congress suggests legislative enhancements on consumer protection
On April 10, the FTC issued a report addressed to Congress detailing its efforts to collaborate with state attorneys general (AGs) from across the U.S. on consumer protection law enforcement goals. The report, titled “Working Together to Protect Consumers: A Study and Recommendations on FTC Collaboration with the State Attorneys General,” was issued pursuant to the FTC Collaboration Act of 2021 and included legislative recommendations to enhance the FTC’s consumer protection efforts. The report followed a request for information issued by the FTC in June 2023, seeking public comments on how the FTC might improve collaboration with state AGs to protect consumers from fraud and ensure fairness in the marketplace.
The FTC's report was divided into three main sections:
- The first section outlined the existing collaborative practices between the FTC and state AGs, detailing their shared roles in combating frauds and scams, the respective law enforcement authority of the FTC and the AGs, and the ways federal and state enforcers can share the information they gather, including through networks such as the Consumer Sentinel Network consumer complaint database.
- The second section described best practices to ensure effective collaboration between the FTC and state AGs, including strong information-sharing practices and coordination of enforcement actions. It also suggested ways to expand the sharing of technical resources and expertise between federal and state agencies.
- The third section provided legislative recommendations aimed at improving collaboration efforts by providing the FTC with clearer authority to pursue legal actions. This section emphasized a request for Congress to restore the FTC’s authority to seek monetary refunds for consumers who have been defrauded, following a 2021 U.S. Supreme Court decision holding that such relief was not available to the Commission (covered by InfoBytes here). Additionally, this section suggested giving the FTC independent authority to seek civil penalties and clear authority to take legal action against facilitators of unfair or deceptive practices.
In its report to Congress, the FTC emphasized the importance of a collaborative approach to consumer protection among enforcement agencies and states, continuing to seek ways to strengthen its ties with state AGs to address future challenges.
Massachusetts’ attorney general issues AI guidance related to state UDAP law
On April 16, the Attorney General for Massachusetts (AG) released an advisory notice on how developers, suppliers and users of artificial intelligence (AI) should avoid “unfair and deceptive” practices to comply with consumer protection laws. The AG noted how AI systems could pose consumer harms, including through bias, lack of transparency, and data privacy issues – since consumers often lack the ability to avoid or test the “appropriateness” of AI systems forced upon them. Chapter 93A of Massachusetts law, the Massachusetts Consumer Protection Act, protected consumers against “unfair and deceptive” practices, the definition of which has changed over time. In addition to the consumer protection law, the AG highlighted several other state and federal consumer protections, including the ECOA, to bolster her advisory.
The AG’s advisory construed Chapter 93A to apply to AI, clarifying that the following practices may qualify as “unfair or deceptive”: (i) a company falsely advertising the quality of its AI systems; (ii) a company suppling a defective or impractical AI system; (iii) a company misrepresenting the reliability or safety of its AI system; (iv) a company putting an AI system up for sale in breach of warranty, meaning that the system was unfit for the purpose for which it was sold; (v) a company using multimedia content to impersonate or deceive (such as using a deep fake, voice cloning, or chatbots within fraud); (vi) or a company failing to comply with other Massachusetts’ statutes.
Seventeen State Attorneys General comment on CFPB overdraft proposal
State attorneys general (AGs) from 17 states recently sent a letter to the CFPB endorsing its proposed rule to amend TILA. The 17 states included New York as principal, California, Colorado, Connecticut, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, North Carolina, Oregon, Pennsylvania, and Washington. As previously covered by InfoBytes, the proposed amendments would treat overdraft credits as loans, which would make them subject to consumer protections.
The AGs argued that the historical basis for excluding overdraft fees from TILA protections would be obsolete due to how the fees are assessed, the high fee amount, and the large number of overdraft transactions. The AGs wrote that closing the loophole would protect consumers by providing customers with disclosures so they can better understand the cost and enable them to comparison shop. The AGs supported a benchmark fee of $3, which is the lowest fee amount proposed by the CFPB, and argued that even a $6 fee would “undercount the volume of transactions generating a fee post-enactment” of the proposed rule. Finally, the AGs urged the CFPB to extend the proposed rule to both “very large financial institutions” (those with more than $10 billion in assets) and small financial institutions.
District Court grants full remedies to CFPB, State AGs
On March 31, the U.S. District Court for the Western District of Virginia entered an order granting the plaintiff state attorneys general and CFPB’s requested remedies in full against a defendant accused of violating consumer protection laws in administering “immigration bonds” for indigent consumers facing deportation. As previously covered by InfoBytes, in 2021 the CFPB, and the Massachusetts, New York, and Virginia State Attorneys General filed a 17-count complaint against the defendant, a subsidiary of a bond service for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The complaint accused the defendant of misrepresenting the cost of immigration bond services and deceiving migrants into continuing to pay monthly fees by making false threats of deportation for failure to pay. Last May, the court entered default judgment against defendants (covered by InfoBytes here). In the court’s most recent order, it granted the plaintiff’s request for injunctive relief, stating that the CFPB met the standard for injunctive relief under the CFPA, and it would “undoubtedly serve the public interest.” The court also noted that the plaintiffs’ claims supported injunctive relief under state laws as well. The order also included (i) $230.9 million in restitution to the CFPB; (ii) a $111 million civil money penalty to the CFPB; (iii) a $7.1 million civil money penalty to Virginia; (iv) a $3.4 million civil money penalty to Massachusetts; and (v) a $13.89 million civil money penalty to New York.
State AGs sue to block Biden's SAVE Plan for student loan forgiveness
On April 1, 10 state attorneys general filed a lawsuit in the U.S. District Court for the District of Kansas against President Biden, the Secretary of Education, and the Department of Education seeking to block the enactment of the SAVE Plan. As previously covered by InfoBytes, the SAVE Plan was an income-driven repayment plan, intended to calculate payments based on a borrower’s income and family size, rather than the loan balance, and forgave balances after several years since repayment. According to the complaint, the government released a rule for the new SAVE Plan intended to eliminate at least $156 billion in student debt as the second step in a three-part loan forgiveness initiative. The first step involved an attempt to cancel $430 billion in student loans under the HEROES Act, which the U.S. Supreme Court ruled unconstitutional in Biden v. Nebraska.
The SAVE Plan assumed $430 billion in loans would be forgiven beforehand, but after the Supreme Court's decision, the defendants allegedly did not revise the cost estimate in anticipation of overturning the case. This oversight led to a significant underestimation of the SAVE Plan's true cost; plaintiffs alleged.
Plaintiffs further claimed that the SAVE Plan was written before the Supreme Court's ruling in Biden v. Nebraska and thus included outdated statements of confidence in the defendants' authority to pursue debt relief. The rule would take effect on July 1, but defendants allegedly have already started forgiving loans for some individuals before this date. The complaint alleged that on February 21, the Department of Education forgave the debt of 153,000 borrowers, which the state attorneys general claimed violated Biden v. Nebraska.
Plaintiffs brought claims under the Administrative Procedure Act, contending that the Department of Education exceeded its authority under the Higher Education Act of 1965 by issuing the rule and that the rule would be arbitrary and capricious since defendants failed to account for the full cost of the rule.
Trade groups sue Colorado Attorney General to block enforcement of law limiting out-of-state bank charges on consumer credit
On March 25, three trade groups filed a lawsuit in the U.S. District Court for the District of Colorado, against the Colorado Attorney General and the Administrator of the Colorado Uniform Consumer Credit Code to prevent enforcement of Section 3 of House Bill 23-1229, which was signed into law last year to limit out-of-state bank charges on consumer credit (the “Act”). As previously covered by InfoBytes, the Act amended the state’s Uniform Consumer Credit Code to opt out of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) provision that allowed state-chartered banks to charge the interest allowed by the state where they are located, regardless of the location of the borrower and regardless of conflicting out-of-state law. The Act would go into effect on July 1.
According to the complaint, the Act “far exceed[s]” the authority Congress granted Colorado under DIDMCA and would be deemed “invalid on its face.” Plaintiffs alleged that Colorado ignored the federal definition of where a loan was deemed to be “made,” imposing “its state interest-rate caps on any ‘consumer credit transaction[] in’ Colorado,” including “any loan to a Colorado consumer by any state-chartered bank that advertises on the internet in Colorado.” Plaintiffs further alleged that the Act’s opt out “is preempted by DIDMCA and violates the Supremacy Clause of the U.S. Constitution by attempting to expand the federally granted opt-out right to loans not actually ‘made in’ Colorado under federal law,” and “violates the Commerce Clause because it will impede the flow of interstate commerce and subject state-chartered banks to inconsistent obligations across different states.” The Plaintiffs also alleged that Colorado’s stated goal of combatting “predatory, payday-style lending” will not be accomplished through the opt out, as plaintiffs’ members are not payday lenders and offer “a wide variety of useful, familiar, everyday credit products” that “are provided at a range of rate and fee options, which sometimes—to account for credit risk—are above Colorado’s rate and fee caps, but within the rate caps allowed by DIDMCA.” Furthermore, plaintiffs warn that the Act “will prevent Plaintiffs’ members from offering these mainstream products to many Colorado consumers,” while “national banks will still offer these very same loan products to Colorado residents at interest rates in excess of Colorado’s interest-rate and fee caps.” Plaintiffs urged the court to issue a ruling stating that the Act “is void with respect to loans not ‘made in’ Colorado as defined by applicable federal law” and to enjoin Colorado from enforcing or implementing the Act with respect to those loans.
Washington State Attorney General obtains civil penalties against debt collection agency for medical debt collection practices
On March 19, the Washington State Attorney General (AG) obtained an order from the King County Superior Court providing that a debt collection agency must pay civil penalties for allegedly failing to comply with the Washington Collection Agency Act and Consumer Protection Act when collecting medical debts, specifically by failing to provide the required disclosures in its consumer communications. The court found that the debt collection agency sent 82,729 debt collection notices to medical debtors without the necessary disclosures, which included notification of the debtor’s right to request the original or redacted account number assigned to the debt, the date of last payment, and an itemized statement. The notices also did not inform the debtor that the debtor may be eligible for charity care from the hospital or provided contact information for the hospital. According to the AG’s Office, the collection agency “unlawfully collected payments from … patients without providing critical information about their rights when faced with medical debt. By excluding the legally required disclosures about financial assistance in its collection letters, [the collection agency] created barriers that kept patients who likely qualified for financial assistance from learning about and accessing help with their hospital bills.”
The court ordered a civil penalty of $10 per violation for the debt collection agency’s 82,729 alleged violations of the state Consumer Protection Act, totaling $827,290. Additionally, the court ordered the debt collection agency to reimburse the AG’s office for the costs of bringing the case, which is estimated to exceed $400,000 and to update its practices to comply with Washington law. In determining the civil penalty amount, the court found, among other things, that the debt collection agency acted in bad faith by “fail[ing] to take basic compliance steps,” and “fail[ing] to obtain the correct license … maintain an office in the state, and … include the mandatory disclosures on medical and hospital debt.”
As previously covered by InfoBytes, the AG successfully sued the nonprofit health system in early February, entering a consent decree pursuant to which the health system must pay $158 million in patient refunds, debt forgiveness, and AG costs.
New York Attorney General sues over 25 lenders for predatory lending operation
On March 5, New York Attorney General Letitia James released a verified petition against 27 lenders accusing them of a “large-scale, predatory lending” operation in which they allegedly misrepresented themselves in order to issue small businesses short-term loans at “sky-high interest rates” in violation of New York Executive Law §63(12). According to the petition, the 27 lenders (Respondents) have issued “illegal, usurious” and fraudulent loans in the form of Merchant Cash Advances (MCAs), which imposed triple-digit interest rates as high as 820 percent. The NYAG noted such rates are beyond both the maximum civil usury interest rate (16 percent) and the maximum criminal usury interest rate (25 percent). The petition also alleged the Respondents misrepresented their transactions in court, making the court an “unwitting part of their illegal scheme.”
The petition asked the court to permanently enjoin Respondents from committing any further fraudulent or illegal practices, cease all MCA collection payments, and void and rescind all MCAs. The NYAG also will seek and order that the Respondents disgorge all profits and award civil penalties of $5,000 for each fraudulent MCA transaction and $2,000 in costs from each Respondent.
Pennsylvania Attorney General settles with data collection company for failing to disclose data use
On February 22, the Attorney General for the State of Pennsylvania, Michelle A. Henry, announced a settlement with a company for selling consumers’ data information without clearly notifying those consumers pursuant to the Unfair Trade Practices and Consumer Protection Law and the Telemarketer Registration Act (TRA) and required the defendant pay $25,000 in monetary relief. The defendant operated various websites that collected consumers’ personal information with offers of free samples or payments for online surveys. The Pennsylvania AG alleged the defendant failed to properly disclose to consumers that the purpose of collecting their data was for lead generation, made misrepresentations regarding free samples and brand affiliations, and failed to obtain necessary consumer requests and agreements.
As part of the settlement, the Pennsylvania AG required the defendant to provide certain disclosures, including the collection of consumer data is for lead generation, consumer information may be sold to third parties, and defendant functions as an aggregator of promotional offerings. The settlement further enjoined the defendant from making certain misrepresentations to consumers. There were also orders related to telemarketing practices and consumer usage data, including a requirement that defendant not “use, sell, transfer or share any [c]onsumer [d]ata obtained from Pennsylvania consumers[.]”
California Attorney General warns small banks and credit unions on fees
On February 22, California State Attorney General, Rob Bonta, issued a letter to small banks and credit unions cautioning that overdraft and returned deposited item fees may infringe upon California’s Unfair Competition Law (UCL) and the CFPA. The letter, directed at institutions in California with assets under $10 billion, highlighted concerns that such fees disproportionately burden low-income and minority consumers. Bonta emphasized that these fees often catch consumers off guard, leading to significant financial strain, and urged the financial institutions in California to comply with state and federal laws by eliminating such practices.
The letter underscores how overdraft and returned deposited item fees can harm consumers, and potentially constitute unfair acts against them. Bonta also pointed out how overdraft fees cannot be reasonably anticipated due to the complexities of transaction processing, making it challenging for consumers to make informed financial decisions. Furthermore, the letter warned that imposition of returned deposited item fees, which are charges by financial institutions when a consumer deposits a check that bounces (due to an issue with the check originator such as insufficient funds or a stop payment order), is likely an unfair business practice in violation of the UCL and CFPA because consumers are usually unable to reasonably avoid the fee.
This action by the California Attorney General is notable for its focus on smaller financial institutions that were expressly excluded from the CFPB’s proposed rule last month on overdraft fees (previously covered by InfoBytes here); however, the action is broadly consistent with the CFPB’s guidance on returned deposited item fees (also covered by InfoBytes here).