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  • Colorado Attorney General fines debt collector $500,000 for collecting on illegal loans

    State Issues

    On January 16, the Colorado State Attorney General (AG) reached a settlement agreement with a third-party debt collection company that is ordered to pay $500,000 to the State. The company previously contracted to collect debt from consumers on behalf of unlicensed lending entities associated with Native American tribes, or Tribal Lending Entities (TLEs). According to the settlement agreement, none of the TLEs were licensed Colorado lenders and all of their loan agreements with consumers contained finance charge terms that exceeded the Uniform Consumer Credit Code’s 12 percent finance charge cap on unlicensed lenders—with most having interest rates that exceeded 500 percent APR and some up to 900 percent APR. The AG alleged that, between 2017 and 2022, the company violated the Colorado Fair Debt Collection Practices Act by using “unfair or unconscionable means” to collect on defaulted TLE-issued loans by representing to consumers that the entire loan balance was owed to the TLEs, that the company was legally authorized to collect the payments, and that consumers were legally obligated to pay the full amount. The company denies that its conduct violated any state law and otherwise denies all allegations of wrongdoing. Along with the penalty, the company will be barred from collecting on any debt where the loan’s APR exceeded the 12 percent cap and will provide the State with a list of affected consumers within 30 days. 

    State Issues Colorado State Attorney General Enforcement Consumer Finance

  • CFPB, seven State AGs file suit against debt-relief company

    Federal Issues

    On January 19, the CFPB and seven state attorneys general (Colorado, Delaware, Illinois, Minnesota, New York, North Carolina, and Wisconsin) announced a lawsuit against a debt-relief company, its subsidiaries, and its two individual owners (defendants) for allegedly facilitating an unlawful debt relief service. According to the complaint, the company used third parties to solicit consumers with large debts and direct them to contact defendants. The company then, allegedly, advised consumers to enroll in their debt-relief service that will negotiate reduced payoff amounts with consumers’ creditors and represent consumers. Additionally, individual defendants implicated in the action created law firms paired with one of the company’s subsidiaries, which performed little to no work on behalf of consumers, while non-attorney negotiators from the company were tasked with renegotiating a consumer’s debt. The CFPB and the AGs alleged that the company charges fees ($84 million since 2016) before and during the service, that left consumers with additional debt, lower credit scores, lawsuits with creditors, and had none of their original debts settled or reduced.

    Among other things, the CFPB claimed the company violated the Telemarketing Sales Rule (TSR) by (i) charging advance fees before a consumer has made at least one payment under a debt settlement plan; (ii) collecting fees after settling some of a consumer’s debts when the fees are not proportional to the amount of debt defendant successfully settled or based on a fixed percentage of the amount saved; and, (iii) supporting its subsidiary law firms that the company knew or knowingly avoided knowing engaged in abusive acts or practices. The complaint sought permanent and preliminary injunctive relief, redress for consumers, and a civil money penalty. On January 11, the court granted the Bureau’s request for a temporary restraining order.

    Federal Issues CFPB State Attorney General Colorado Delaware Illinois Minnesota New York North Carolina Wisconsin Debt Relief

  • Student loan servicer fined $1.8 million by Massachusetts Attorney General

    State Issues

    On January 11, the Massachusetts Attorney General (AG) announced a $1.8 million settlement with a student loan servicer, to resolve allegations that the company did not properly communicate Income-Driven Repayment (IDR) plan renewals to borrowers. According to the settlement, IDR plans are a “helpful tool for managing unaffordable federal student loan debt and avoiding the consequences of default… [and respondent] is required to follow specific procedures intended to ensure that borrowers are able to successfully navigate the enrollment and annual recertification processes required for IDR.” The AG alleged that the respondent violated state law by sending written notices that did not meet regulatory requirements and failed to send required notices.

    Under the terms of the settlement, respondent will (i) pay $1.8 million; (ii) include certain disclosures in renewal notice correspondence to borrowers; (iii) comply with requirements for FFELP loans owned by the DOE and enrolled in certain repayment plans; (iv) clearly disclosure to certain borrowers that failure to timely provide certain information about income or family size will result in increased monthly payments; and (v) retain copies of each written communication that it sends to borrowers regarding their IDR plans. The student loan servicer enters into this agreement for settlement purposes only (without admission).

    State Issues Massachusetts Student Loan Servicer Settlement Student Loans State Attorney General Income-Driven Repayment Lending Enforcement

  • District Court denies motion to dismiss State Attorneys’ General case against “subprime lender”

    Courts

    On January 12, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion to dismiss a case brought by five State Attorneys General (State AGs) from Pennsylvania, New Jersey, Oregon, Washington, and D.C. seeking to enforce the CFPA. The State AGs allege the defendant engaged in “predatory lending practices” that violate state and federal law. As covered by InfoBytes, in Spring 2022, the CFPB issued an interpretive rule clarifying that states have the authority to enforce federal financial consumer protection laws, such as the CFPA. This interpretive rule led to partisan attacks claiming the CFPB was “colluding” with state regulators, as covered by InfoBytes here.

    The defendant is a state-licensed and regulated “subprime installment lender” operating in 28 states. As noted in the opinion, the defendant offers loans between $1,000 and $25,000, with terms between 12 and 60 months and charges interest at rates ranging from 18.99% to 35.99% with an average APR of 28%, and average loan size of around $3,650.

    In addition to the complaint regarding subprime loans, the State AGs assert that the defendant “deceptively ‘adds-on’” various insurance options to consumers’ loans and targets a financially vulnerable population: those with a credit score of 629 or less who “often already have significant… debt[.]”. The State AGs seek injunctive and other relief. 

    Courts Pennsylvania CFPB CFPA State Attorney General New Jersey Washington Oregon District of Columbia

  • 26 State Attorneys General opine on FCC’s Notice of Inquiry regarding AI telemarketing

    Federal Issues

    On January 17, the State Attorneys General from 26 states submitted reply comments to the FCC’s Notice of Inquiry (the Notice) on how artificial intelligence (AI) technologies are impacting consumers. The information gleaned in response to the Notice is intended to help the FCC better protect consumers from AI-generated telemarketing in violation of the TCPA. The State AGs urged that any AI-generated voice should be considered an “artificial voice” under the TCPA to avoid “opening the door to potential, future rulemaking proceedings” that allow telemarketing agencies to use AI-assisted technologies in outbound calls without the prior written consent of a consumer. 

    Federal Issues State Attorney General FCC Artificial Intelligence Telemarketing TCPA

  • States endorse the CFPB’s rule to regulate fintechs

    Federal Issues

    Recently, 19 state attorneys general submitted a comment letter supporting the CFPB’s proposed rule that would expand the CFPB’s supervisory authority to regulate nonbank fintech firms that offer digital payment services. They emphasized the importance of regulating nonbank financial institutions, including popular digital payment applications. The proposed rule aims to protect consumers from fraud, unregulated investment risks, and data privacy concerns. It addresses issues such as the lack of FDIC insurance for funds stored in digital payment applications, customer service problems, and potential risks associated with investment activities. The state attorneys general commend the CFPB for exercising its authority to improve the regulation of consumer financial products and urge prompt publication and implementation of the final rule.

    Fintech State Attorney General Comment Letter CFPB

  • U.S. district court holds state laws partially preempted by FCRA

    Courts

    On January 9, the U.S. District Court of Maine entered judgment, determining that Maine law is only partially preempted by the federal Fair Credit Reporting Act (FCRA). The plaintiff, a trade association that represents the major credit reporting agencies, filed the suit as a facial challenge to certain provisions of Maine law, naming the Maine Attorney General and the Superintendent of the Maine Bureau of Consumer Credit Protection as defendants.

    According to the complaint, the Maine Medical Debt Reporting Act and the Maine Economic Abuse Debt Reporting Act amended the Maine Fair Credit Reporting Act, adding state-specific restrictions on information inclusion in consumer credit reports. The plaintiff argued that the federal FCRA preempts these provisions and that enforcing these amendments threatens the accuracy, integrity, and reliability of consumer report information.

    The court held that while federal law does not “preempt all state laws relating to information contained in consumer reports,” the federal FCRA did preempt provisions of the Maine Medical Debt Reporting Act related to the timing of reporting on veterans’ medical debts by nationwide consumer reporting agencies.  The court noted, however, that sections §§ 1681c(a)(7) and (a)(8) of the federal FCRA do not preempt the Maine Medical Debt Reporting Act to the extent that they regulate non-veterans’ medical debt.

    Regarding the Maine Economic Abuse Debt Reporting Act, the court held that the provisions related to identity-theft in the federal FCRA preempt state law requirements when identify theft is the only method of economic abuse identified by the consumer.  In such cases, the court held that “the blocking of reporting activity on identity-theft-related grounds must proceed according to federal requirements and state requirements are of no effect.” The court noted that its ruling does not “support preemption of Maine’s Economic Abuse Debt Reporting Act insofar as a consumer’s debt is alleged to be the product of economic abuse carried out by means other than or in addition to identity theft.”

    Courts Maine Credit Reporting Agency Consumer Protection State Attorney General Preemption

  • Title lender reaches settlement with Pennsylvania AG

    State Issues

    On January 10, Pennsylvania AG Michelle Henry announced a settlement with a national auto title lending company, resolving alleged violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law and the Loan Interest and Protection Law (LIPL). According to the settlement, since 2016, the lender made thousands of vehicle title loans to Pennsylvania residents, with interest rates exceeding 100 percent without the necessary license required by the Consumer Discount Company Act.

    The AG also noted that some of the loans resulted from leads that they bought from third parties who purported to have physical offices in Pennsylvania, when in fact, neither the lender nor its lead generators were in Pennsylvania. The AG also said that most Pennsylvania-based borrowers drove to one of the lender’s Delaware locations. Nonetheless, the AG said, “Pennsylvania usury laws apply because [the lender] collected money from Pennsylvania consumers and repossessed vehicles in Pennsylvania.” In the settlement, the lender denies all allegations of unlawful conduct, including the assertion that it knowingly acquired leads from third parties leading to loans for Pennsylvania residents. The lender explained its position that until the U.S. Court of Appeals for the Third Circuit rendered its opinion in another matter in January 2022, it held a “good faith and reasonable belief” based on then-existing law, particularly the Commerce Clause of the U.S. Constitution, that its operations were lawful.

    Among other things, the settlement (i) requires the lender to pay $2.2 million in consumer restitution; (ii) requires the lender to cancel approximately $3.7 million in existing loans; (iii) enjoins and prohibits the lender from violating the LIPL; and (iv) requires the lender to return any repossessed vehicles at no charge and refund consumers of all repossession fees previously charged.

    State Issues Settlement Enforcement Pennsylvania State Attorney General Lending Title Loans Interest

  • Montana AG opines that EWA products are not loans

    State Issues

    On December 22, the Attorney General from the State of Montana opined that Earned Wage Access (EWA) products are not loans under a certain set of conditions. EWA products provide employees with fast access to cash by accessing cash before they are paid by their employer. In Montana, the Speaker from the House of Representatives asked the Attorney General whether EWA products meet the definition of either a “consumer loan” or “deferred deposit loan” under the Montana Code. If so, then EWAs would have a right to repayment and a presumption of interest or other fees, as do other loans under Montana law. The Attorney General opined, however, that EWAs are not loans given a certain set of conditions: (i) they are fully non-recourse, (ii) they do not have interest fees or other expenses, and (iii) they do not exceed the cash value of the consumer’s accrued income. The Attorney General cited the CFPB’s Payday Lending Rule as evidence that the “accrued cash value of income is effectively the worker’s own money and providing no-cost access to that income does not constitute a loan.”

    State Issues State Attorney General Montana Earned Wage Access Loans

  • Crypto platform to pay $22 million to resolve NY AG suit

    Securities

    On December 13, the New York State Supreme Court entered a stipulation and consent order resolving a suit brought in March against a crypto platform for operating as an unregistered broker-dealer, among other things. As previously covered by InfoBytes, the suit was brought by New York State Attorney General Letitia James who noted this was one of the first times a regulator claimed in court that one of the largest cryptocurrencies available in the market qualified as a security.

    As a result of the consent order, the platform is obligated to refund over $16.7 million worth of crypto in its control “by allowing users to withdraw those balances and transferring any remaining balances after ninety days to a third-party fund administrator,” to more than 150,000 investors in New York. In addition, the platform must pay an additional $5.3 million to the state. As part of the agreement, the platform is barred from trading securities and commodities in New York or from making its platform available to New York residents. 

    Securities New York State Attorney General Consent Order Settlement

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