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Do Not Call Violations Net $280 Million Fine for FTC, States
On June 5, the U.S. District Court for the Central District of Illinois ruled in favor of the Federal Trade Commission (FTC) and the states of California, Illinois, North Carolina, and Ohio resolving Do Not Call litigation against a direct-broadcast satellite service provider. The court found the service provider liable for making millions of calls resulting in violations of the Telemarketing Sales Rule (TSR) and the Telephone Consumer Protection Act, among other things. The $280 million in civil penalties, with a record $168 million going to the FTC, is the largest civil penalty ever awarded for violation of the FTC Act.
Additionally, the court issued a permanent injunction order against the service provider. Among the requirements in the order, the service provider will show within 90 days of the order effective date that they are “fully complying with the safe harbor provisions” and “have made no prerecorded telemarketing calls at any time during the five (5) years immediately preceding the effective date.” The service provider must also hire an expert to ensure compliance with the injunction and telemarketing laws, provide semi-annual compliance materials, and ensure their compliance with the TSR.
Vehicle Financing Company Owners Plead Guilty to $11 Million Fraud
On May 25, the Massachusetts U.S. Attorney’s Office announced that two vehicle financing company owners (Defendants) entered guilty pleas admitting to counts of mail and wire fraud. The Defendants’ company raised capital by securing investments from individuals to fund its operations. In 2015, the DOJ filed a criminal complaint alleging the Defendants represented to investors that retirement account funds could be rolled over into investments held by the company without triggering the payment of income taxes on the transferred monies. Investors allegedly transferred retirement funds based on these representations, and the Company ultimately lost more than $11 million of the investors’ money. However, the Defendants allegedly never obtained approval from Treasury for the company to act as an authorized custodian or trustee of retirement funds as required in order for the rules permitting tax-free transfers to apply, and therefore solicited the investment funds based on “deceptive acts, false and fraudulent statements and misrepresentation of material facts.” The company ultimately filed for bankruptcy. The plea agreements stipulate maximum penalties of “20 years in prison, three years of supervised release, a fine of $250,000 or twice the gross gain or loss, whichever is greater, a mandatory special assessment of $100, restitution, and forfeiture to the extent charged in the Indictment” and can be accessed here and here. Sentencing is set for September 20, 2017.
Company Accused of Bilking 9/11 First Responders Out of Millions of Dollars Says CFPB Action Unlawful
On May 15, a New Jersey-based finance company and its affiliated parties filed a motion to dismiss allegations that it scammed first responders to the World Trade Center attack and NFL retirees with high-cost loans. As previously covered in InfoBytes, the CFPB and the New York Attorney General’s office (NYAG) claimed the defendants engaged in deceptive and abusive acts by misleading consumers into selling expensive advances on benefits to which they were entitled by mischaracterizing extensions of credit as assignments of future payment rights, thereby causing the consumers to repay far more than they received. The defendants’ motion to dismiss was prompted, in part, by the recent PHH v. CFPB decision in which the court held that the CFPB’s single director leadership structure is unconstitutional and, thus, that the agency must operate as an executive agency supervised by the President. Here, the defendants argue, the complaint issued against them is a “prime example of how the unchecked authority granted to the CFPB leads to administrative overreach that has a profound effect on the businesses and individuals the agency targets.”
In response to the claims that they mischaracterized credit, the defendants assert that the complaint is “based on the erroneous theory that—despite clear contractual terms and the weight of legal authority to the contrary—these transactions are not true sales, but instead are ‘extensions of credit’ under the Consumer Financial Protection Act [(CFPA)], and therefore the [defendants] deceived consumers by labeling the agreements as sales.” The CFPA defines an extension of “credit” as “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.” In this instance, the defendants contend, there is no debt, no repayment obligation, and no “right granted to defer payment of a debt” because the consumers are the sellers of the asset.
The defendants argue that (i)“the CFPB’s unprecedented structure violates fundamental constitutional principles of separation of powers, and the CFPB should be struck down as an unconstitutional administrative agency”; (ii) because these transactions do not fall into the CFPA’s definition of credit, the case lacks a federal cause of action; and (iii) “each cause of action in the [c]omplaint individually fails to state a claim for relief, including because the Government is flat out wrong in its contention that the underlying settlement proceeds are not assignable.”
FDIC Fines Wisconsin Bank and Affiliated Lenders for Overcharging Military Members
On May 11, the FDIC announced that a Wisconsin-based bank and its two institution-affiliated parties agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act. According to the FDIC, the unfair and deceptive practices, which harmed consumers including military service members and their families, included: (i) charging interest on loans that were marketed as interest-free if they were repaid within six months; (ii) selling add-on products without clearly disclosing the terms; and (iii) not allowing consumers the opportunity to use the monthly premium-payment option when they bought debt cancellation products. Under the terms of the settlement with the FDIC, the bank will establish a $3 million restitution fund for eligible consumers (and has agreed to add more if that amount is insufficient to make all of the required payments). In addition, the bank and its institution-affiliated parties are required to: (i) prepare a comprehensive restitution plan; (ii) retain an independent auditing firm to determine compliance with the plan; and (iii) provide the FDIC with quarterly written progress reports describing the actions taken by the parties to comply with the terms of the settlement. The settlement also requires the bank to pay a civil penalty of $151,000, and the institution-affiliated parties to pay civil money penalties of $54,000 and $37,000 respectively.
CFPB Seeks Public Comment on its Plans for Assessing RESPA Mortgage Servicing Rule
On May 4, the CFPB issued a request for comment on its plans for assessing the 2013 Real Estate Settlement Procedures Act (RESPA) servicing rule’s effectiveness in meeting the purposes and objectives outlined in the Dodd-Frank Act, which requires the CFPB to assess each significant rule or order it adopts under Federal consumer financial laws. According to the request for comment and a May 4 blog post on the CFPB’s website, the self-assessment will focus on objectives to ensure that: (i) “[c]onsumers are provided with timely and understandable information to make responsible decisions about financial transactions”; (ii) “[c]onsumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination”; (iii) “[o]utdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens”; (iv) “[f]ederal consumer financial law is enforced consistently”; and (v) “[m]arkets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”
In 2013, the Bureau adopted the 2013 RESPA Servicing Final Rule and further amended the rule several times to address questions raised by the industry, consumer advocacy groups, and other stakeholders. The CFPB deemed the 2013 RESPA Servicing Final Rule, effective January 10, 2014, a “significant rule” for purposes of the Dodd-Frank Act. Importantly, however, in Footnote 10 of its most-recent request for comment, the Bureau clarifies that it “is not seeking comment on the amendments to the mortgage servicing rules that became or will become effective after the January 10, 2014 effective date.” (emphasis added) Accordingly, it appears that the Bureau is not presently seeking comments on the Amendments to Regulation X and Regulation Z that the CFPB published as a Final Rule (12 CFR Parts 1024 and 1026) in the October 19, 2016 edition of the Federal Register – see earlier InfoBytes coverage here – and which are slated to take effect in part on October 19, 2017 and in full on April 19, 2018.
CFPB Sues Online Lenders Following Investigation into Debt Collection Practices
On April 27, the CFPB announced that it filed a suit against four online installment lenders for allegedly deceiving customers by collecting debts that were not legally owed. In a complaint filed in the United States District Court for the Northern District of Illinois, the Bureau claims, among other things, that the lenders engaged in unfair, abusive, and deceptive acts—a violation of Dodd-Frank—by collecting on installment loans that are partially or wholly void under state law. The Bureau further claims that lenders violated the TILA for failing to disclose the annual percentage rate for their loans when they were required to do so. The complaint alleges that the lenders originated, serviced, and collected high-cost, small-dollar installment loans. Since at least 2012, consumers could borrow between $300 and $1,200 with annual percentage rates from 440 percent up to 950 percent. These high-cost loans allegedly violate licensing requirements or usury limits in a least 17 states—thus rendering the loans void in whole or in part. The CFPB asserts that the lenders not only misrepresented that consumers were obligated to pay debts that were void, but also reinforced the misrepresentations through actions such as sending letters, making phone calls demanding payment, and originating ACH debit entries from consumers’ bank accounts.The complaint seeks a permanent injunction prohibiting the lenders from committing future violations of federal consumer financial law, as well as other legal and equitable relief including restitution to affected consumers, disgorgement of ill-gotten revenue, and civil money penalties.
Rep. Luetkemeyer Introduces CLEARR Act to Provide Regulatory Relief to Community Banks
On April 26, Rep. Blaine Luetkemeyer (R-Mo.) introduced the Community Lending Enhancement and Regulatory Relief Act of 2017 (CLEARR Act) (H.R. 2133) designed to provide community financial institutions with regulatory relief from certain burdensome federal requirements. Among other things, the CLEARR Act would limit the authority of the CFPB by raising the asset size threshold for CFPB supervision from $10 billion to $50 billion and amend Section 1031 of the Consumer Financial Protection Act of 2010 by removing the term “abusive” from the CFPB’s “unfair, deceptive, or abusive” acts or practices authority. The CLEARR Act would also provide relief in the mortgage lending area by exempting community banks from certain escrow requirements and amend the Truth in Lending Act by adding a safe harbor for qualified mortgage loans held in portfolio. Moreover, the CLEARR Act would repeal all regulations issued to implement the Basel III and NCUA capital requirements. It would also repeal the Dodd-Frank Act provision amending the Equal Credit Opportunity Act to require collection of small business and minority-owned business loan data, as well as prohibit federal banking agencies from requiring depository institutions to terminate a specific account or group of accounts unless the agency has a material reason not based solely on reputational risk.
Rep. Luetkemeyer—who is a senior member on the House Financial Services Committee and the Chairman of the Financial Institutions and Consumer Credit Subcommittee—also issued a statement after President Trump called for the Treasury Secretary to conduct reviews of the Orderly Liquidation Authority and Financial Stability Oversight Council: “As a former bank examiner, community banker, and Chairman of the Financial Institutions Subcommittee, I have long advocated for eliminating the OLA, because it puts taxpayers on the hook for bailouts, instead of putting private companies on the hook for bankruptcy. For years, I have also introduced legislation to change FSOC’s arbitrary designation processes, which lead to higher costs, fewer services, and less available credit for American consumers. The American people deserve financial independence and I look forward to working with President Trump and my colleagues to help them achieve it.”
CFPB Fines Servicemember Auto Lender for Violating Consent Order
On April 26, the CFPB issued a second consent order against an Ohio-based auto lender, specializing in extending credit to servicemembers, for violating an earlier 2015 consent order issued by the Bureau (see previous InfoBytes summary). The 2015 order required, among other things, that the lender to pay restitution of over $2 million to affected consumers in addition to a $1 million civil money penalty for allegedly engaging in unfair, abusive, and deceptive debt collection practices. The 2017 consent order claims the lender violated the earlier order by failing to provide the required consumer redress or the redress plan consistent with the 2015 consent order. The Bureau contends that the lender issued worthless account “credits” to settled-in full accounts and to consumers whose debts were discharged in bankruptcy, and failed to provide the appropriate redress to consumers making payments under settlement agreements. The consent order requires that the lender: (i) pay an additional $1.25 million civil money penalty; (ii) pay $718,900 to the Bureau, which will be sent as refunds to consumers; (iii) issue $372,157 in account credits to consumers who have account balances, in addition to properly crediting consumers making payments under settlement agreements; and (iv) pay $75,000 in redress-administration costs to the Bureau.
CFPB Takes Action Against Law Firm for Alleged FDCPA Violations Concerning Claims of Attorney Involvement in Debt Collection
On April 17, the CFPB announced that it was seeking a permanent injunction and fines against a law firm for allegedly engaging in illegal debt collection practices by making false representations regarding attorney involvement in debt collection calls and in “millions of collection letters sent to consumers.” In a complaint filed in the United States District Court for the Northern District of Ohio, the Bureau claims, among other things, that the firm violated the Fair Debt Collection Practices Act and Dodd-Frank by sending “demand letters” and making collection calls to consumers falsely implying that the consumer’s account files had been reviewed by an attorney. The complaint alleges that a majority of the demand letters were created through an automated process and, in most cases, no attorney had reviewed the account file to determine whether sending such a letter was accurate and appropriate. These letters included payment coupons through which consumers made millions of dollars in debt payments to the law firm. The complaint also alleges that a majority of the collection calls made to consumers were handled by non-attorney collectors who conveyed the impression that the matters had been reviewed by attorneys even though no attorney had in fact reviewed the account files. The complaint seeks a permanent injunction prohibiting the firm from committing future violations as well as other legal and equitable relief including restitution to affected consumers, disgorgement of ill-gotten revenue, and civil money penalties.
National Bank Agrees to $110 Million Class Action Settlement for Improper Sales Practices
On March 28, a national bank announced that it will pay $110 million to settle a 2015 class action lawsuit regarding retail sales practices that involved bank employees creating deposit and credit card accounts without obtaining consent to do so. The settlement class includes all consumers who claim that the bank—without their consent—opened an account, enrolled them in a product or service, or submitted an application for a product or service in their name during the time period from January 1, 2009 through the execution date of the settlement agreement, which must still be approved by the court. The settlement amount will be set aside for consumer compensation and is in addition to remediation amounts already paid to the Los Angeles City Attorney and the fees paid pursuant to consent orders entered into with the CFPB and OCC. The bank also noted that it agreed to the settlement notwithstanding an arbitration clause contained in the Bank’s deposit agreement. The bank is also conducting a voluntary review of accounts from 2009 - 2010 to determine and remediate any consumer harm.