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California AG Harris Issues Data Breach Report
On February 16, California AG Kamala Harris released a report analyzing data breaches reported to her office from 2012 through 2015. During that time period, the report identifies 657 data breaches that compromised more than 49 million Californians’ personal information. The report summarizes the scope of California’s existing breach notice law and notes that notification laws in 46 other states were modeled after California’s original law. According to the report, federal data breach proposals currently under consideration in Congress would, among other things, (i) set the consumer protection bar very low; (ii) infringe on state-based innovation; (iii) encroach on enforcement by state attorneys general; (iv) narrowly define harm and personal information; and (v) set “overly rigid timelines for notification.” The report provides recommendations for organizations and state policymakers on how to improve data security. Specifically, the report recommends that organizations: (i) adopt the Center for Internet Security’s Critical Security Controls relevant to the organization’s specific environment; (ii) use multi-factor authentication to protect critical systems and data, and make the multi-factor authentication available on consumer-facing online accounts containing sensitive personal information; (iii) consistently use strong encryption to protect personal information on laptops and other portable devices; and (iv) encourage persons affected by a breach of Social Security or driver’s license numbers to place a fraud alert on their credit files. Finally, the report recommends that state policymakers “collaborate in seeking to harmonize state breach laws on some key dimensions.”
State AGs Urge Senate to Pass Bill Banning Debt Collection Robocalls
On February 10, Indiana Attorney General Greg Zoeller and Missouri Attorney General Chris Koster, along with 23 other state attorneys general, wrote to the Senate Committee on Commerce, Science, and Transportation (Committee) urging it to pass legislation repealing a recent amendment to the Telephone Consumer Protection Act (TCPA) that allows debt collection robocalls to consumers’ cellphones. According to the AGs’ letter, the TCPA currently “permits citizens to be bombarded by unwanted and previously illegal robocalls to their cell phones if the calls are made pursuant to the collection of debt owed to or guaranteed by the United States.” The letter references the FCC’s efforts to slow the proliferation of robocalling and calls the recent amendment to the TCPA a “step backward in our law enforcement efforts” to protect consumers from “unwanted and unwelcome robocalls.”
New York AG Schneiderman Announces Settlement with New York-Based Financial Institution Regarding RMBS Practices
On February 11, New York AG Schneiderman announced a $3.2 billion settlement that includes $550 million for New York with a New York-based financial institution over its alleged deceptive practices involving the sales and issuance of Residential Mortgage-Backed Securities (RMBS) leading up to the financial crisis. According to the settlement agreement, the financial institution (i) increased the acceptable risk levels for loans held in its securitized pools; (ii) securitized certain loans that did not comply with underwriting guidelines and did not have adequate compensating factors; (iii) purchased and securitized loans which its credit and compliance team advised it not to purchase; and (iv) allowed for the purchase of loans it knew to be risky without a loan file review for credit and compliance. The settlement requires the financial institution to (i) provide at least $400 million in consumer relief directly to struggling families and communities across the state; and (ii) pay $150 million “in consideration for the settlement of potential legal claims by the NYAG as compensation for harms to the State of New York allegedly resulting from [its] creation, packaging, marketing, underwriting, sale, structuring, arrangement, and issuance of RMBS in 2006 and 2007.”
New York AG Schneiderman’s settlement is in conjunction with other settlements with members, including the DOJ, of the RMBS Working Group, which was formed in 2012 as a joint federal and state enforcement effort for investigating the RMBS market for fraud and abuse. Finally, in a similar effort last week, the FDIC, as the receiver of affected banks, announced an RMBS-related settlement with the same New York-based financial institution.
Virginia AG Herring Announces Settlement with Banks Over Alleged Mortgage-Backed Securities Fraud
On January 22, Virginia State AG Mark Herring announced a settlement with eleven banks over their alleged misrepresentation of residential mortgage-backed securities to the Commonwealth of Virginia and the Virginia Retirement System. Virginia recovered more than $63 million collectively from the banks involved, making it the “largest non-healthcare-related recovery ever obtained in a suit alleging violations of the Virginia Fraud Against Taxpayers Act,” and, according to AG Herring, “one of the largest of its kind in the nation.” As part of the settlement, the Commonwealth dismissed the claims against the defendants with prejudice and the defendants did not admit liability.
Massachusetts AG Healey Expands Abandoned Housing Initiative
On January 25, Massachusetts AG Maura Healey announced that she was expanding her Abandoned Housing Initiative (AHI) in response to an increasing number of cities and towns seeking assistance to revitalize their neighborhoods. Under the AHI, the AG’s office seeks to have delinquent owners bring their distressed and abandoned residential properties into code compliance. If the owner refuses, a court-approved receiver completes repairs on the property and receives compensation, utilizing funds from the nationwide state-federal settlement over unlawful foreclosures, once the property is sold. According to Helen Zucco, Executive Director at Chelsea Restoration Corporation, the program “gives banks an incentive to approve construction loans, allows funds to be loaned to receivers at very low interest, and creates a streamlined process for receivers to obtain the funds they need to achieve their important role in [the] process.”
New York AG Schneiderman Takes Action Against Auto Dealers for Deceptive Practices
On January 20, New York AG Schneiderman announced a lawsuit against several auto dealerships located in Queens, New York, alleging that the dealerships used deceptive sales tactics to sell add-on products and services, including credit repair and identity theft protection services. According to the lawsuit, the dealerships charged “consumers for services while concealing such charges from the consumers, or [misrepresented] that the services were free,” collecting more than $1 million from consumers between January 2013 and November 2014 for the identity theft and credit repair services alone. The lawsuit further alleges that consumers did not receive the services for which they were charged, including VIN etching and key replacement services. AG Schneiderman alleges these products and services were “bundled into the vehicle sales price and not separately itemized,” ultimately inflating the stated price of the car on the purchase and lease documents. The lawsuit seeks a court order that would (i) prohibit the dealerships from engaging in deceptive practices; and (ii) order the dealerships to refund “all illegally obtained overcharges” back to consumers.
As part of his initiative to end dealerships’ practices of charging consumers for “hidden purchases,” AG Schneiderman simultaneously announced separate settlements with dealerships in Nassau and Suffolk Counties that allegedly sold credit repair and identity theft protection services to consumers. This is in addition to similar 2015 settlements with a “credit repair and identity theft protection” company and a group of dealerships in Queens and Westchester Counties, the latter potentially totaling $14 million.
FTC and Florida AG Take Action Against Payment Processing Operation
On January 8, the FTC and Florida Attorney General Pam Bondi announced an amended complaint against a California-based processing sales organization, its three executives, and three telemarketing company owners (collectively “the defendants”) for alleged violations of the (i) Telemarketing and Consumer Fraud and Abuse Protection Act; (ii) the FTC Act; (iii) the FTC’s Telemarking Sales Rule; and (iv) the Florida Deceptive and Unfair Trade Practices Act. According to the complaint, the defendants operated a nation-wide debt relief scam by cold calling consumers and making false promises that they could “reduce consumers’ interest rates on their credit cards, save consumers thousands of dollars in a short time period, and refund consumers’ money if the promised savings were not realized.” The FTC and AG Bondi allege that, from at least November 2012 to October 2014, the defendants solicited at least 26 “‘straw men’” to act as signatories on “shell businesses and dummy merchant accounts” that were used to process consumer credit card payments. The FTC is seeking injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, the disgorgement or ill-gotten monies, and other equitable relief; Florida AG Bondi is seeking injunctive relief, restitution, costs and attorneys’ fees, as well as other equitable relief.
FTC Announces New Enforcement Actions Under the Operation Collection Protection Initiative
On January 7, the FTC announced four separate actions under its Operation Collection Protection initiative against collectors allegedly engaging in abusive and deceptive debt collection practices. It also announced that other federal and state law enforcement officials have taken 12 more actions as part of the initiative. The FTC’s actions targeted the following practices: (i) impersonating investigators, law enforcement agencies, or process servers; (ii) threatening consumers with arrest, lawsuits, or wage garnishment for nonpayment; (iii) failing to inform consumers of the amount of debt and the creditor’s name, as well as their right to dispute the alleged debt, as required by the FDCPA; and (iv) collecting on debts that consumers did not owe. The four actions, each with a separate set of defendants, include the following:
- A preliminary injunction prohibiting the use of illegal collection tactics, pending litigation;
- A stipulated order for permanent injunction banning debt collection activities and imposing a judgment of over $2 million;
- A proposed stipulated order for permanent injunction prohibiting misrepresentation of material facts while collecting debts and imposing a judgment of $194,888, which is suspended due to the defendants’ inability to pay; and
- A summary judgment granting a permanent injunction against an individual defendant, banning him from debt collection activities and ordering him to pay more than $565,000.
This brings the Operation Collection Protection initiative to a total of 130 actions with more than 70 law enforcement agencies participating in the last year.
New York AG Announces Settlement Payments to Consumers Affected by Alleged Predatory Lending Scheme
On December 22, New York AG Schneiderman announced that more than 3,000 consumers received partial compensation from funds stemming from a global settlement negotiated by AG Schneiderman and the CFPB. In July 2014, the CFPB and 13 state AGs announced a consent order with a military consumer lender requiring it to provide $92 million in debt relief to approximately 17,000 U.S. servicemembers and other consumers affected by the company’s alleged predatory lending scheme. At the time of the order, the company was in Chapter 7 bankruptcy and the redress requirement was suspended until it complied with the debt-relief provisions of the consent order. The recent redress payment exceeds $3.7 million and was issued to 82 victims in New York.
Massachusetts AG Takes Action Against Debt Collection Law Firm
On December 21, Massachusetts AG Maura Healey filed a lawsuit against a Massachusetts-based debt collection law firm and its two owners for allegedly violating consumer protection laws by suing consumers for debts that were inaccurate or for debts they did not owe. The AG claims that, since 2011, the law firm: (i) pursued consumers who had exempt income, serving some of them with civil arrest warrants; (ii) demanded payments on old debts without having meaningful proof that the consumer owed the debt or that the debt amount was accurate; (iii) sued consumers without meaningful attorney involvement in the lawsuits; (iv) used sworn statements by debt buyers in collection lawsuits, even though it knew the affidavits were often generated without meaningful documentation or knowledge of the debt; (v) demanded payment of debts that may not have been within the statute of limitations for bringing a lawsuit; and (vi) continued to demand payments on alleged debts even after the cases were dismissed in court for lack of proof. The AG’s suit seeks injunctive relief, restitution to consumers, and civil penalties.