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Massachusetts AG fines auto dealer $1.5 million for predatory lending
On March 9, the Massachusetts attorney general announced a consent judgment to resolve a 2017 lawsuit brought against an auto dealership and its in-house lender alleging that the dealership misled consumers into purchasing unfavorable sale packages in violation of Massachusetts’ consumer protection law. As previously covered by InfoBytes, the complaint alleged that more than half of the auto dealer’s sales failed or ended in repossession due to misleading sales practices, predatory lending, and faulty underwriting. The consent judgment follows a January court decision awarding summary judgment in favor of the AG’s office. According to the AG’s press release, the auto dealer agreed to provide monetary and injunctive relief to resolve the entirety of the lawsuit’s allegations. The relief includes (i) paying $1.5 million, half of which will go towards reducing ongoing payments on active loans for consumers who purchased cars prior to 2018; (ii) providing eligible consumers who had their vehicles repossessed the option to cancel outstanding debts and repair their credit from the repossession; (iii) improving business practices to ensure provision of fair disclosures and enhanced repair services; and (iv) developing a structured process for handling consumer complaints received by the AG.
California AG says federal privacy legislation should not include preemption
On February 25, California Attorney General Xavier Becerra sent a letter to the chairmen and ranking members of the Senate Committee on Commerce, Science and Transportation and the House Committee on Energy and Commerce, asking lawmakers to not preempt state laws as they draft federal privacy legislation. While Becerra expressed his appreciation for Congress’ efforts to address consumer privacy issues through legislation, he stated, “I encourage Congress to favor legislation that sets a federal privacy-protection floor rather than a ceiling, allowing my state—and others that may follow—the opportunity to provide further protections tailored to our residents.” To emphasize his position, Becerra provided an update on the California Consumer Privacy Act (CCPA), which confers significant new privacy rights to California consumers concerning the collection, use, disclosure, and sale of their personal information by covered businesses, service providers, and third parties. The CCPA took effect January 1 but will not be enforced until July 1 following promulgation of the attorney general’s CCPA regulations. (See continuing InfoBytes coverage on the CCPA here.)
Becerra outlined several criteria for Congress to consider when drafting privacy legislation, encouraging Congress to “develop a final bill that builds on the rights afforded by [the] CCPA” as well as the additional guidance within the proposed regulations. These include the right for consumers to (i) “access, correct, and delete personal information that has been collected”; (ii) “minimize data collection, processing, and retention”; (iii) “data portability among services”; and (iv) “know what data is collected and processed and for what reasons.” In addition, Becerra stated that Congress should make clear that state attorneys general have “parallel enforcement authority” and that consumers are granted a private right of action to protect their rights.
Maryland orders vehicle title lender to pay $2.2 million
On February 21, the Maryland attorney general announced the issuance of a final order against a vehicle title lender, its owner, and related businesses (defendants) for making unlicensed and usurious consumer loans in violation of the Maryland Consumer Protection Act. According to the AG’s Consumer Protection Division (Division), the defendants offered consumers short-term, high-interest loans secured by a consumer’s motor vehicle title. The defendants allegedly kept the vehicle’s title, and, if the consumer failed to make a payment on the loan, would repossess or sell the vehicle. The Division claimed that these transactions, which the defendants claimed were pawn transactions, were actually consumer loans under Maryland law and carried interest rates of 360 percent. Under the terms of the final order, all loans the defendants made to Maryland consumers are void and unenforceable. The defendants are also ordered to, among other things, permanently cease engaging in unlicensed lending activities in the state and may not make loans that exceed the maximum allowed rate of interest, charge fees that are not permitted under state law, repossess secured vehicles or other personal property, or operate without requisite surety bonds. In addition, the defendants may not repossess consumers’ vehicles and must return any repossessed vehicles still in their possession. Finally, the defendants must pay at least $2.2 million in restitution to affected consumers, a $1.2 million civil penalty, a $50,000 claims procedure fee, and $73,000 in costs.
FTC, New York settle with debt collection schemer
On February 25, the FTC and the New York attorney general announced a settlement with an individual defendant who controlled a New York-based debt collection operation for allegedly violating the FTC Act, the FDCPA, and New York state law by using false or deceptive tactics to collect money from consumers. As previously covered by InfoBytes, the FTC and the New York AG filed a complaint against the operation in 2018, alleging that operation employees threatened consumers with arrest or lawsuits and sometimes falsely posed as law enforcement officials or attorneys. In addition, the FTC and New York AG claimed employees allegedly increased pressure on consumers by telling them they owed more than indicated in the operation’s records, using forms that showed both the actual balance owed by the consumer as well as a higher balance the collectors claimed the consumers owed—a practice known as “overbiffing.” Under the terms of the settlement, the defendant—who neither admitted nor denied the allegations—is permanently banned from participating in debt collection activities and “is prohibited from misleading consumers about any financial-related products” or services. The settlement also imposed a $1.7 million judgment, of which all but $30,000 is suspended due to the defendant’s inability to pay.
CFPB, South Carolina, and Arkansas file charges in pension-advance scheme
On February 20, the CFPB, the South Carolina Department of Consumer Affairs, and the Arkansas attorney general filed a complaint in the U.S. District Court for the District of South Carolina against a South Carolina-based company and two of its managing partners (defendants) for allegedly violating the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by working with a series of broker companies that brokered contracts offering high-interest credit to disabled veterans and other consumers in exchange for the assignment of some of the consumers’ unpaid earnings, monthly pensions, or disability payments. Under federal law, agreements under which a person acquires the right to receive a veteran’s pension or disability payment are void, and South Carolina law—which governs these contracts—“prohibits sales of unpaid earnings and prohibits assignments of pensions as security on payment of a debt.”
The complaint alleges that the defendants substantially assisted broker companies that allegedly engaged in deceptive and unfair acts or practices through the marketing and administration of high-interest credit. (Covered by InfoBytes here.) The defendants’ alleged actions include: (i) “developing a pre-approval or risk-assessment process for the contracts and conducting underwriting”; (ii) “approving or denying consumers’ applications to enter into the transactions”; (iii) “directing and administering the execution of the contracts”; (iv) “serving as the payment processor for the initial lump-sum payment and fees”; and (v) “continuing to serve as the transactions’ payment processor, tracking and controlling the collection and distribution of consumers’ payments on the contracts.” In addition, the Bureau alleges, among other things, that the defendants provided substantial assistance to the broker companies’ deceptive misrepresentations that consumers could be subjected to criminal prosecution if they breached their contracts. In addition, the defendants also allegedly collected on contracts brokered by the broker companies that were void from inception “by initiating ACH debts to take payments from consumers’ bank accounts,” demanding payments through letters and other communications, and filing suit against consumers who failed to make payments.
The complaint seeks injunctive relief, restitution, damages, disgorgement, and civil money penalties.
New York AG settles with student debt relief companies
On February 18, the U.S. District Court for the Southern District of New York approved a settlement between the State of New York and a student loan debt relief operation including five debt relief companies and one individual (defendants) in order to resolve allegations that the defendants violated the Telemarketing Sales Rule, the Federal Credit Repair Organizations Act, TILA, state usury laws, and various other state laws. As previously covered by InfoBytes, the New York attorney general brought the lawsuit in 2018 alleging that the defendants “engag[ed] in deceptive, fraudulent and illegal conduct…through their marketing, offering for sale, selling and financing” of debt relief services to student loan borrowers. The AG claimed that, among other things, the defendants allegedly (i) charged consumers who purchased the debt relief services illegal upfront fees; (ii) misrepresented that they were part of or working with the federal government; (iii) falsely claimed that fees paid by borrowers would be applied to borrowers’ student loan balances; and (iv) induced borrowers to enter into usurious financing contracts to pay for the debt relief services.
Under the terms of the agreement, the defendants—without admitting or denying the allegations—agreed to a judgment of $2.2 million, which will be suspended if the defendants promptly pay $50,000 to the State of New York and comply with all other provisions of the agreement. The defendants are also permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Additionally, the defendants must request that any credit reporting agency to which the defendants reported consumer information in connection with the student loan debt relief services remove the information from those consumers’ credit files. The defendants also agreed not to sell, transfer, or benefit from the personal information collected from borrowers. According to the settlement, six additional defendants were not included in the agreement and the AG’s case against them continues.
Special Alert: California attorney general modifies proposed CCPA regulations
The California attorney general last week released modifications to the proposed regulations announced last October (covered by a Buckley Special Alert) implementing the California Consumer Privacy Act (CCPA). The CCPA—enacted in June 2018 (also covered by a Buckley Special Alert) and amended several times—became effective Jan. 1.
This Special Alert contains a summary of key modifications to the proposed regulations.* * *
Click here to read the full special alert.
If you have any questions regarding the CCPA or other related issues, please visit our Privacy, Cyber Risk & Data Security practice page or contact a Buckley attorney with whom you have worked in the past.Washington AG sues timeshare exit defendants for unfair and deceptive practices
On February 4, the Washington state attorney general filed a complaint in King County Superior Court against a group of defendants who market services claiming they can release consumers from timeshare contracts. The AG alleges that since 2012, the defendants have unfairly and deceptively contracted with over 32,000 consumers seeking to release timeshare contracts, collecting millions in upfront fees. According to the complaint, the defendants, among other things, advertise their timeshare exit services as being “risk-free” with a 100 percent money-back guarantee; however, the defendants allegedly refuse to issue refunds to clients who face foreclosure, damaged credit ratings, and other negative financial consequences claiming that such outcomes are successful because the clients “technically” no longer own the timeshares. In addition, the AG alleges that the defendants charge clients upfront fees for each timeshare to be exited, and then outsource more than 95 percent of their clients’ files to third-party vendors for significantly discounted rates. These vendors are allegedly left to accomplish the timeshare exits without input or supervision from the defendants and often without a contract governing their work. The complaint alleges violations of the Consumer Protection Act, the Debt Adjusting Act, and the Credit Services Organization Act. The AG seeks numerous remedies including injunctive relief prohibiting the defendants from selling their services and $2,000 in civil penalties per violation of the Consumer Protection Act.
Massachusetts AG reaches $1.25 million settlement with online lender
On January 21, the Massachusetts attorney general announced a $1.25 million settlement with an online marketplace lender to resolve allegations that it violated the state’s Small Loan Statute by facilitating the origination of loans with excessive interest rates to Massachusetts borrowers. According to an assurance of discontinuance (AOD) filed in the Suffolk Superior Court, the company allegedly facilitated personal loans to Massachusetts residents with interest rates exceeding the statutory interest rate cap set by the Small Loan Statute, which regulates terms for consumer loans of $6,000 or less. “Small loans” are defined by the statute as those where the disbursed amount is $6,000 or less. To determine whether a loan is a “small loan,” the Small Loan Statute provides that if, after all deductions or payments (whether on account of interest, expenses, or principal made substantially contemporaneously with the making of the loan), the amount retained by the borrower is $6,000 or less, the transaction will be deemed to be a loan in the amount of the sum retained by the borrower after deductions or payments, notwithstanding that the loan was nominally for a greater sum (the “deduction provision”). Among other things, the AG’s office claimed the company facilitated “small loans” with interest rates above the maximum permitted rate for non-licensed small loan companies, and that after the company obtained a small loan company license, it allegedly facilitated loans that exceeded the maximum permitted rate for licensed small loan companies based in part on its reading of the Act’s “deduction provision.” The company admitted no liability, agreed to pay $1.25 million to the Commonwealth, comply with Massachusetts law, and stop facilitating small loans to state residents with interest rates that exceed the maximum permissible rate based on the AG’s reading.
States urge Supreme Court to review FTC’s restitution authority
On January 30, a coalition of attorneys general from 22 states, the District of Columbia, and the Commonwealth of Puerto Rico filed an amicus brief in support of the FTC in a U.S. Supreme Court action that is currently awaiting the Court’s decision to grant certiorari. Last December, the FTC filed a petition for a writ of certiorari asking the Court to reverse an opinion issued by the U.S. Court of Appeals for the Seventh Circuit last August, which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution when enforcing consumer protections under the FTC Act. (Covered by InfoBytes here.) The AGs assert, however, that restitution is a critical FTC enforcement tool that provides direct benefits to the amici states and their residents. Arguing that the 7th Circuit’s decision will impede federal-state collaborations to combat unfair and deceptive practices—citing recent FTC restitution amounts that directly benefited consumers in Illinois, Indiana, and Wisconsin—the AGs stress that without the authority to seek restitution, the states “may be forced to redirect resources to compensate for work that would have previously been performed by the FTC.” The AGs also discuss the states’ interest in the “uniform application of federal law.” The 7th Circuit’s decision “upends decades of settled practice and precedent,” the AGs contend, and may provide the opportunity for defendants to “forum shop” as they seek to transfer their cases to take advantage of a decision that may work in their favor. As a result, the decision has created confusion where none previously existed, the AGs claim.
As previously covered by InfoBytes, the FTC filed a brief in a separate action also pending the Court’s decision to grant certiorari that similarly addresses the question of whether the FTC is empowered by Section 13(b) to demand equitable monetary relief in civil enforcement actions. In this case, the petitioners are appealing a 9th Circuit decision, which upheld a $1.3 billion judgment against them for allegedly operating a deceptive payday lending scheme. The 9th Circuit rejected the petitioners’ argument that the FTC Act only allows the court to issue injunctions, concluding that a district court may grant any ancillary relief under the FTC Act, including restitution.