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FTC and States Target "Cardholder Services" Robocalls
On November 1, the FTC announced that courts have granted temporary restraining orders in five cases in which the FTC alleged that the defendants placed automated calls to consumers to make allegedly deceptive “no-risk” offers to substantially reduce the consumers’ credit card interest rates in exchange for an upfront fee. The telemarketers claimed to be calling from the consumers’ credit card company, or otherwise used the generic “Cardholder Services” title to suggest a relationship with a bank or credit card company, the FTC says. Each complaint alleges that the defendants violated the FTC Act by misrepresenting that consumers who buy their services will have their credit card interest rates reduced substantially and will save thousands of dollars as a result. Four of the five complaints also charge that the defendants violated the FTC Act by making other misrepresentations, such as promises of faster debt payoff. The FTC also charges that the defendants violated the Telemarketing Sales Rule (TSR) by misrepresenting their services, calling numbers on the Do Not Call Registry, making illegal robocalls, and collecting up-front fees. The FTC coordinated with multiple state entities, including the attorneys general of Arizona and Arkansas and the Florida Department of Agriculture and Consumer Services, each of which took separate actions against other companies for similar alleged activities.
California AG Notifies Mobile Application Developers of Non-Compliance
On October 30, California Attorney General (AG) Kamala Harris announced that her office’s Privacy Enforcement and Protection Unit sent letters to numerous mobile application developers advising those entities of their noncompliance with state privacy law. Specifically, the AG alleges that the targeted mobile application developers failed to post a privacy policy that is reasonably accessible to the consumer, as required by the California Online Privacy Protection Act. Under the state unfair competition law, violation of the Act may result in penalties of up to $2,500 per violation. A violation in this instance is each download of a mobile application that does not properly include a privacy policy. The letters provide thirty-day notice of noncompliance as required by the Act, within which each developer must provide specific plans and a timeline for compliance, or an explanation of why the application is not covered by the Act.
Nevada AG Obtains Multi-Million Dollar Settlement of MBS Investigation
On October 24, Nevada Attorney General (AG) Catherine Cortez Masto announced the resolution of an investigation into a financial institution’s purchasing and securitization of subprime and payment option adjustable rate mortgages. The Nevada AG’s investigation concerned potential misrepresentations by lenders with regard to loans with such terms as adjustable rates, stated income, 100 percent financed, extended amortization periods, prepayment penalties, and/or initial teaser rate. The Nevada AG was examining whether the securitizer knowingly purchased such loans and substantially assisted the lenders by financing and purchasing their potentially deceptive loans. To resolve the investigation, the securitizer agreed to pay $42 million and to abstain from financing, purchasing, or securitizing Nevada subprime mortgage loans in the future unless it has engaged in a “reasonable review” of such loans and determined that the loans comply with the Nevada Deceptive Trade Practices Act.
Former Florida Attorney General Comments on the Use of Outside Counsel by State AGs
On October 16, former Florida Attorney General (AG) Bill McCollum was featured during a STAGE Network webinar on the "Use of Outside Counsel by State AGs to Enforce Federal and State Law."AG McCollum referred to his own experiences, including his leadership in Florida's adoption of the innovative Transparency in Private Attorney Contracts (TiPAC) law, to provide a perspective on issues related to state AGs' engagement of outside counsel. AG McCollum also examined the prospect of an increased role for state AGs in the enforcement of federal laws, particularly the consumer protection related aspects of the Dodd-Frank financial reform statute. Finally, he discussed the comparative restrictions on state and federal actors in engaging outside counsel, particularly due to Executive Order 14333 regarding compensation for outside legal services. The archived webcast can be reviewed in its entirety at this link.
South Carolina Attorney General Discusses Decision To Intervene In Case Challenging Dodd-Frank Act
On October 5th, South Carolina Attorney General (AG) Alan Wilson, in an interview with the STAGE Network, discussed the reasons why he and the AG’s of Oklahoma and Michigan determined to join an earlier existing lawsuit in order to dispute the Orderly Liquidation Authority powers granted by Title II of the Dodd-Frank Act. AG Wilson also gave his perspectives on the appropriate balance between effective consumer protection and unduly burdensome regulation, and commented on the increased coordination among state AG’s in financial services related investigations and litigation. A webcast featuring AG Wilson’s views can be reviewed in its entirety at https://www1.gotomeeting.com/register/348234897.
Federal Nonbank Charter Legislation Faces Opposition from State AGs
On October 5, forty-one state attorneys general (state AGs) reasserted their interest in enforcing state laws regulating short-term, small dollar lenders, including payday lenders. The National Association of State Attorneys General sent a letter to the leadership of the U.S. House of Representatives and the U.S. Senate urging them to oppose H.R. 6139, the Consumer Credit Access, Innovation, and Modernization Act. As previously reported, the Act, introduced by Reps. Luetkemeyer (R-MO) and Baca (D-CA), would allow the OCC to establish a federal charter for certain nonbanks. The state AGs charge that H.R. 6139 would preempt state laws governing consumer lending and generally would undermine states’ authority with regard to consumer protection enforcement. The state AGs acknowledge that the bill would allow them to enforce violations of federal law, but argue that state laws designed for local markets would be preempted and the state AGs’ ability to target abuses as they emerge would be impaired. During a July hearing on the legislation, the OCC and the Conference of State Bank Supervisors also expressed opposition to the legislation.
NY AG Files First RMBS Working Group Action, Expects More to Follow
On October 2, the Residential Mortgage-Backed Securities (RMBS) Working Group announced its first legal action. The civil complaint, filed against a major bank by New York Attorney General Eric Schneiderman on behalf of the people of that state, alleges that an underwriter acquired by the bank made fraudulent misrepresentations and omissions in the sale of RMBS to investors. The suit claims that losses resulting from the allegedly fraudulent sales total approximately $22.5 billion to date, but the complaint does not specify the damages sought. In announcing the suit, Attorney General Schneiderman, as well as Acting U.S. Associate Attorney General Tony West and other federal Working Group members, described the coordinated efforts that culminated in this filing. Specifically, Working Group members stressed the assistance provided by the SEC and the FHFA. Indeed, the allegations in the New York Attorney General’s complaint are similar to allegations previously made by the FHFA on behalf of Fannie Mae and Freddie Mac against numerous financial institutions. The allegations also parallel those made by private plaintiffs. On behalf of the RMBS Working Group, which was first announced by President Obama during his 2012 State of the Union address, Mr. Schneiderman has promised more civil, and potentially criminal, enforcement activity against other financial institutions.
Three State AGs Join Challenge to Dodd-Frank Act and CFPB Appointment
On September 20, the Attorneys General (AGs) of Michigan, Oklahoma, and South Carolina joined an earlier-filed lawsuit in the U.S. District Court for the District of Columbia that challenges aspects of the Dodd-Frank Act, including the CFPB and its director. The AGs joined an amended complaint that seeks to challenge as unconstitutional the “formation and operation” of the CFPB, and that argues the President side-stepped constitutional checks and balances by refusing to submit his nominee for CFPB Director to the Senate. The AGs also charge that the “orderly liquidation authority” (OLA) for financial institutions provided to the Treasury Secretary by the Dodd-Frank Act violates the separation of powers doctrine, as well as the Fifth Amendment’s bar against the taking of property without due process. The AGs cite their state pension funds—each of which is invested in “a variety of institutions” subject to the OLA—as their basis for standing, claiming that the OLA exposes the states and their funds to “the risk that their credit holdings could be arbitrarily and discriminatorily extinguished.” Finally, the private plaintiffs that originally filed the suit also contest based on a separation of powers argument the “unconstitutional creation” of the Financial Stability Oversight Council.
Massachusetts AG Outlines Foreclosure Expectations for Fannie Mae and Freddie Mac
On August 23, Massachusetts Attorney General Martha Coakley sent a letter to FHFA Director Edward DeMarco in which she advised Fannie Mae and Freddie Mac about their obligation to comply with a recently enacted state law that will make it harder to initiate foreclosures. The letter states that like all creditors, Fannie Mae and Freddie Mac are expected to follow the new statutory requirements and generally should “pursue common-sense loan modifications for borrowers” when economically beneficial to borrowers. The letter also asks the FHFA to reconsider its decision to not require Fannie Mae and Freddie Mac to offer principal forgiveness. Also on August 23, the Massachusetts Division of Banks announced that it will hold a public hearing on August 29, 2012 to gather input regarding regulations it is required to develop to implement the state’s new foreclosure law.
Federal Court Declines to Enjoin AG Prosecution of Claims Subject to Class Settlement
On August 22, the U.S. District Court for the Middle District of Florida denied a major bank’s motion to enjoin prosecution by two state attorneys general of claims related to the bank’s credit card payment protection products. Spinelli v. Capital One Bank, USA, No. 08-cv-00132, 2012 WL 3609028 (M.D. Fla. Aug. 22, 2012). In 2010 the bank entered a global class action settlement to release certain claims regarding payment protection, including those by all natural persons who have or had credit card accounts with the bank and who were charged for payment protection during a defined time period. After the Attorneys General of Hawaii and Mississippi (the state AGs) filed cases earlier this year regarding the same products, the bank petitioned the court that approved the class settlement to enjoin the state AGs, as well as any other person or entity with knowledge of the class settlement, from prosecuting similar claims against the bank. The bank argued that the state AG actions were brought on behalf of citizens who were bank customers released as part of the class settlement. The court held that a state’s sovereign interests cannot be compromised by a private settlement, the AGs were not bound by the class settlement, and an injunction would violate due process. The court also held that it no longer retained jurisdiction over the matter and that the courts hearing the state AG claims must decide whether the claims can properly proceed.