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North Carolina AG Announces $9 Million Settlement with Online Lenders
On June 21, North Carolina AG Roy Cooper, together with Commissioner of Banks Ray Grace, announced a settlement with two online lenders to resolve allegations that they violated state usury laws. According to the complaint, the lenders offered North Carolina consumers personal loans of $850 to $10,000 and charged annual interest rates of approximately 89 to 342 percent, significantly exceeding the rates allowed under state law. In 2015, Special Superior Court Judge Gregory P. McGuire issued a preliminary injunction to ban the companies from making or collecting loans in North Carolina. In addition to permanently barring the companies from collecting on loans made to North Carolina borrowers, the consent judgment requires the companies to (i) cancel all loans owed by North Carolina consumers; (ii) have the credit bureaus remove negative information on consumers’ credit reports related to the loans; (iii) pay $9,025,000 in refunds to North Carolina consumers, with the remaining $350,000 of the settlement allocated to covering the costs of the investigation, lawsuit, and administering the settlement; and (iv) cease unlicensed lending in North Carolina. The settlement represents North Carolina’s first successful action to ban an online payday-type lender that used affiliation with an Indian tribe in an effort to evade state usury laws.
New York AG Settles with Auto Dealership over Alleged Deceptive Practices
On June 21, New York AG Eric Schneiderman settled with a New York-based auto dealership to resolve allegations of deceptive sales and advertising practices. Specifically, AG Schneiderman alleged that the company charged consumers up to $5,000 for warranties and service contracts without their authorization and convinced consumers to purchase and finance vehicles on terms they could not afford, falsely promising to refinance the loans on more favorable terms in the subsequent months. In addition, the AG’s office received a number of consumer complaints alleging that the company (i) engaged in various bait and switch tactics, including crediting consumers for less than previously agreed on vehicle trade-ins; (ii) charged consumers a greater price for a vehicle than promised; (iii) charged consumers a higher interest rate on the auto loan than promised; (iv) falsely promised lower yearly mileage limits for lease contracts; and (v) forged consumer signatures on contracts. Pursuant to the settlement agreement, the company must pay restitution ranging from $198 for alleged illegal fee charges to more than $4,000 for unauthorized warranties and services contracts, for a total of more than $101,000 to 119 consumers. The settlement further requires that the company “pay restitution to other consumers who come forward within the next three months and who were subjected to the deceptive and illegal practices uncovered by the investigation, with a cap of $50,000.”
AG’s Schneiderman’s settlement comes after the New York State Police completed a raid and seizure of the company’s business records in May 2012. The company’s finance manager was subsequently arrested for second-degree Scheme to Defraud and third-degree Criminal Possession of a Forged Instrument.
Michigan AG Announces Default Judgment against Auto Title Loan Company
On June 8, Michigan AG Bill Schuette announced that a Michigan court entered a Default Judgment and Final Order for Permanent Injunction against an auto title loan company, several associated alias companies, and the company manager. The Judgment and Order found the defendants in violation of Michigan law for: (i) engaging in consumer lending without requisite authority or license in Michigan; (ii) charging or receiving interest on title loans in excess of 36%; (iii) misrepresenting in communications with borrowers the status of legal action taken or threatened to be taken in violation of Michigan’s Regulation of Collection Practices Act; (iv) engaging in conduct deemed unlawful under the Michigan Consumer Protection Act during the course of soliciting, selling, and collecting upon unauthorized title loans with illegal interest rates; and (v) transacting business in Michigan without a certificate of authority since at least June 28, 2013. Under the court’s judgment, the company is prohibited from, among other things, (i) making loans in Michigan without proper licensure; (ii) making, servicing, or collecting on any title loans sold or issued to certain Michigan consumers; (iii) accepting title loan interest or other payments made by certain Michigan consumers; (iv) engaging in any collection activities on title loans issued by defendants for certain Michigan consumers; (v) asserting a security interest in any vehicles allegedly pledged as security for repayment of a title loan; and (vi) selling or otherwise transferring interest in any motor vehicle associated with a title loan. The company must also pay a total of $2,208,698, $790,050 of which will be paid to the State and $1,418,648 of which is allocated for consumer restitution.
Colorado AG Settles with Lenders Over Alleged Violations of Consumer Credit Protection Laws
On June 8, Colorado AG Cynthia Coffman announced a settlement with various lenders to resolve allegations that they violated Colorado’s consumer credit protection laws by making, servicing, and collecting high-cost loans. According to AG Coffman, the lenders made unlawful personal loans to more than 5,000 Colorado consumers, some of which had annual interest rates exceeding 355%. The AG’s office asserted that, in “the most egregious cases, consumers paid over five times the amount they borrowed in unlawful fees and interest.” Pursuant to a consent judgment entered by the Denver District Court, the lenders must pay $7,384,005.12 in disgorgement and restitution. The settlement comes after the State of Colorado obtained a $565,000 consent judgment against various entities in January 2014 arising out of similar conduct, making this the second Colorado AG settlement in connection with high-cost loans.
California AG Harris Continues Fight Against For-Profit Schools Allegedly Defrauding Consumers
On June 2, California AG Kamala Harris sent a letter to the U.S. Department of Education requesting that it revoke the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a recognized accreditor of for-profit schools. In the letter, AG Harris cited to state and federal enforcement actions taken against Corinthian Colleges, Inc. (Corinthian) – a non-profit school accredited by ACICS – for engaging in allegedly predatory and deceptive marketing practices. According to AG Harris, “ACICS failed to uphold their commitment ‘to the importance of a quality education experience for all students’ when they continued to accredit Corinthian campuses in the face of regulatory and enforcement actions.” AG Harris joins 13 other state Attorneys General in opposition to ACICS’s application for renewal as an accreditor. In a letter submitted to the Department of Education in April of this year, those 13 other state Attorneys General discussed similar alleged failings by ACICS in their respective states.
AG Harris’s recent letter comes after a February 25, 2016 statement requesting that the Department of Education revise its proposed regulations relating to debt relief for students affected by for-profit schools’ allegedly deceitful practices, and also follows the AG’s $1.1 billion judgment against Corinthian.
Vermont AG Announces Settlement with Arizona Payment Processor of Internet Loans
Recently, Vermont AG William Sorrell announced a settlement of approximately $178,000 with an Arizona-based electronic payment processor to resolve alleged violations of state consumer protection laws prohibiting unfair and deceptive practices. According to AG Sorrell’s office, the company processed internet loans on behalf of unlicensed lenders in violation of the state’s consumer protection laws. Under the settlement, which is the state's fourth and largest against a payment processor of high interest, unlicensed loans, the company must credit consumer bank accounts a total of $153,282 and pay $25,000 in civil penalties and costs to Vermont.
Texas AG Settles with Online Payments System over Security Practices
On May 20, Texas AG Ken Paxton announced that his office reached a settlement agreement with a California-based online payments system to resolve allegations that a money transfer mobile application – of which the payments system is the parent company – violated the Texas Deceptive Trade Practices Act (DTPA). According to the state’s investigation into the payments system, the mobile application allegedly (i) used consumers’ phone contacts without clearly disclosing how it would use the contacts; (ii) failed to clearly disclose how consumers’ transactions and interactions with each other would be shared; and (iii) misrepresented certain communication features. In addition to agreeing that the mobile application will reform its privacy and security disclosure practices, the online payment system must pay the state $175,000.
AG Schneiderman Announces Settlement with Real Estate Brokerages for Alleged Housing Discrimination Based on Income Source
On May 23, New York AG Eric Schneiderman announced that his office reached settlements with three real estate brokerages operating in New York City, Nassau County, and Westchester County. According to the AG’s press release, the three firms unlawfully discriminated against potential housing applicants with Section 8 vouchers, which provide rental assistance and a home ownership option to low income households in New York State. During the AG’s investigation, undercover phone testers posing as prospective tenants with Section 8 vouchers were allegedly told by one firm that they would be placed on a months-long waitlist for the apartment in question; in contrast, testers who did not mention the vouchers were told that the units were immediately available. That firm’s manager allegedly testified, in substance, that “a waitlist was essentially used to reject unwanted prospective tenants.” Similarly, the other two firms allegedly “told undercover testers that Section 8 and other government assistance programs would not be accepted at certain properties.” The press release also emphasized that one firm failed to follow its written policy prohibiting income-source discrimination, and another firm did not have a written fair-housing compliance policy at all. Under the settlement agreements, the brokerages must: (i) forward any complaints and documentation regarding housing discrimination to the AG; (ii) develop new non-discriminatory policies; (iii) maintain rental information about certain properties and provide such information to the AG for compliance review; and (iv) pay fines ranging from $13,000 to $40,000. Two of the firms must also have their employees attend training on fair housing.
Nebraska AG Peterson and Department of Banking Announce Settlement with Loan Companies for Alleged Deceptive Practices
Recently, Nebraska AG Doug Peterson, in conjunction with the Director of the Department of Banking and Finance, Mark Quandahl, announced a settlement with four loan companies and their owners for alleged violations of three state laws, the Consumer Protection Act (CPA), the Uniform Deceptive Trade Practices (UDTPA), and the Nebraska Installment Loan Act (NILA). According to AG Peterson, three of the companies managed and facilitated almost every aspect of the fourth companys business. The complaint alleged that the fourth company acted as an unlicensed lender to originate usury-based internet loans to Nebraska consumers by way of electronic transfer. In violation of the CPA and the UDTPA, AG Peterson alleged that the fourth companys loan agreements deceptively stated that it was a tribal entity subject to the exclusive jurisdiction of Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation when it was not; rather, according to the complaint, it is a limited liability company whose profits were distributed directly to its owner. Pursuant to the Department of Banking and Finances authority to enforce the NILA, Director Quandahl alleged that the defendants charged loan origination fees in excess of the states maximum origination fee permitted for installment loan licensees and non-licensed lenders. Under the terms of the settlement, the companies and their owners will pay $150,000 to the state and establish a restitution fund of $950,000 to repay, pro rata, excess interest and fees paid by Nebraska consumers. In addition, more than $557,000 in loans taken out by Nebraska consumers and held by one of the four companies will be forgiven, and credit reporting agencies will be notified to remove the history of the loans. The companies and their owners are prohibited from originating loans in Nebraska until they comply with state law.
Supreme Court: Special Counsel Using State AG Letterhead Not in Violation of FDCPA
On May 16, the Supreme Court reversed the Sixth Circuit’s ruling that special counsel using Ohio AG letterhead to collect debts owed to the state is false or misleading in violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §1692. Sheriff v. Gillie, No. 15-338 (U.S. May 16, 2016). In a unanimous 8-0 opinion delivered by Justice Ginsburg, the Court opined that its “conclusion is bolstered by the character of the relationship between special counsel and the [AG].” Specifically, the Court determined that, because special counsel acts on behalf of the AG to provide legal services to state clients, a “debtor’s impression that a letter from special counsel is a letter from the [AG’s] Office is scarcely inaccurate.” The Court further opined that, being required by the AG’s office to send debt collection communications, special counsel “create no false impression in doing just what they have been instructed to do.” The Court rejects the Sixth Circuit’s argument that consumers may have concern regarding the letters’ authenticity: "[t]o the extent that consumers may be concerned that the letters are a ‘scam,’ the solution is for special counsel to say more, not less, about their role as agents of the [AG]. Special counsel’s use of the [AG’s] letterhead, furthermore, encourages consumers to use official channels to ensure the legitimacy of the letters, assuaging the very concern the Sixth Circuit identified.” The Court concludes by emphasizing the AG’s authority, as the top law enforcement official, to take punitive action against consumers who owe debts, commenting that §1692e of the FDCPA prohibits collectors from deceiving or misleading consumers, but “it does not protect consumers from fearing the actual consequences of their debts.”
The Court’s opinion does not address the question of whether or not special counsel rank as “state officers” within the meaning of the FDCPA, noting that even if it were to assume as much, arguendo, special counsel’s use of AG letterhead does not offend § 1692e. The Supreme Court remanded the issues surrounding §1692e back to the Sixth Circuit for further consideration.