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DOJ Proposes Legislation Intended to Advance Anti-Corruption Efforts
On May 5, the DOJ announced that it plans to submit to Congress proposals for legislative amendments that would provide the DOJ with additional tools to advance anti-corruption work in the areas of pursuing illegal proceeds of transnational corruption and modifying the substance of criminal corruption offenses. The DOJ’s proposals regarding the illegal proceeds of transnational corruption would amend various sections of the U.S.C. to (i) expand foreign money laundering predicate crimes to include any violation of foreign law that, if committed in the U.S., would be a money laundering predicate; (ii) allow administrative subpoenas for money laundering investigations; (iii) enhance law enforcement’s ability to obtain overseas records by allowing access to foreign bank or business records by serving subpoenas on foreign bank branches located in the United States regardless of bank secrecy or data privacy laws in the foreign jurisdictions; (iv) create a framework to use and protect classified information in civil kleptocracy-related cases; and (v) extend the time period in which the United States can restrain property based on a request from a foreign country from 30 to 90 days. The proposals pertaining to substantive corruption offenses would amend 18 U.S.C. § 666 (theft or bribery concerning programs receiving federal funds) to (i) expressly criminalize the corrupt offer or acceptance of payments to “reward” official action; and (ii) lower the dollar threshold for liability from $5,000 to $1,000 to address cases where the dollar amount may be low but threat to the integrity of a government function is high.
CFPB Issues Proposed Rule Seeking to Prohibit Mandatory Arbitration Clauses
On May 5, the CFPB released a highly anticipated proposed rule that would ban covered providers of most financial consumer products and services from including mandatory pre-dispute arbitration clauses in future consumer agreements. In addition, the proposed rule would require a covered provider involved in arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB. Following its March 2015 Arbitration Study, the CFPB asserts that the proposed rule would (i) protect consumers’ right to seek justice and relief in court; (ii) deter companies from violating the law, claiming “attention on the practices of one company can affect or influence their business practices and the business practices of other companies more broadly”; and (iii) increase transparency by requiring companies that use arbitration clauses to submit to the CFPB any claims filed or awards issued in arbitration.
The CFPB officially announced its proposed rule during a May 5 field hearing in Albuquerque, New Mexico. In his opening remarks at the field hearing, CFPB Director Cordray opined that, “[i]f arbitration truly offers the benefits that its proponents claim, such as providing a less costly and more efficient means of dispute resolution, then it stands to reason that companies will continue to make it available.” Opponents of the proposal argue that, among other things, by requiring companies to insert language into arbitration clauses that explicitly states the clauses cannot be used to stop consumers from being part of a class action, the CFPB is, in fact, placing a de facto ban on arbitration. In a U.S. Chamber post, Executive Director of Center for Capital Markets Competitiveness Travis Norton, who was present at the CFPB’s field hearing, reasoned that companies can only bear the costs of arbitration because they do not simultaneously have to defend themselves in class actions, writing that “[n]o economically rational company (or individual) is going to spend additional money voluntarily [on arbitration] when it is forced to pay millions in litigation costs imposed by the broken class action system.”
CFPB Report Reviews 2015 Fair Lending Activities and Notes Continuing Priorities
On April 29, the CFPB released its fourth annual report to Congress on fair lending activities. The report recaps the CFPB’s 2015 supervisory and enforcement efforts around fair lending and identifies ongoing priorities in the areas of: (i) mortgage lending, noting a continuing focus on HMDA data integrity and fair lending risks related to redlining, underwriting, and pricing; (ii) indirect auto lending, noting targeted ECOA reviews in examinations; (iii) credit cards, focusing “on the quality of fair lending compliance management systems and on fair lending risks in underwriting, line assignment, and servicing”; and (iv) other product areas including small-business lending, focusing on risks in underwriting, pricing, and redlining, and offering that “current and future small business lending supervisory activity will help expand and enhance the Bureau’s knowledge in this area, including the credit process; existing data collection processes; and the nature, extent, and management of fair lending risk.” The report highlights that “supervisory work on mortgage servicing has included use of the ECOA Baseline Review Modules … to identify potential fair lending risk in mortgage servicing and inform [its] prioritization of mortgage servicers.” In addition to recaps of its 2015 rulemaking, published guidance and efforts at interagency cooperation (including its MOU and sharing of customer complaints with HUD), the report also indicates that the CFPB had a number of authorized enforcement actions in settlement negotiations or pending investigations at year end in areas including mortgage lending, indirect auto lending, and credit cards.
FFIEC Updates IT Examination Handbook
On April 29, the FFIEC updated its IT Examination Handbook, revising its Retail Payment Systems booklet to include an Appendix E, Mobile Financial Services. The Retail Payment Systems booklet consists of guidance intended to help examiners evaluate financial institutions’ and third-party providers’ management of risks associated with retail payment systems. Appendix E is designed to address risk management associated with mobile financial services (MFS): “Appendix E contains guidance pertaining to [MFS] risks that supplements existing booklet guidance on other retail payment topics, such as electronic payments related to credit cards and debit cards, remote deposit capture and changes in technology or retail payment systems.” Appendix E outlines risk management practices for the following MFS technologies: (i) short message service/text messaging; (ii) mobile-enabled web sites and browsers; (iii) mobile applications; and (iv) wireless payment technologies. In addition to MFS technologies, Appendix E also addresses management strategies related to (i) risk identification; (ii) risk measurement; (iii) risk mitigation; and (iv) monitoring and reporting.
DOJ Issues Supplemental Advance Notice of Proposed Rulemaking on Web Accessibility Requirements
On April 29, the DOJ issued a Supplemental Advance Notice of Proposed Rulemaking (SANPRM) titled Nondiscrimination on the Basis of Disability; Accessibility of Web Information and Services of State and Local Government Entities. According to the SANPRM, the DOJ “is considering revising the regulation implementing title II of the Americans with Disabilities Act (ADA or Act) in order to establish specific technical requirements to make accessible the services, programs, or activities State and local governments offer the public via the Web.” Due to advances in technology and website accessibility, the recently released SANPRM replaces a 2010 Advance Notice of Proposed Rulemaking and poses 123 questions related to, among other things, (i) the potential application of technical accessibility requirements to the websites of title II entities; (ii) the appropriateness of proposing alternate conformance levels, compliance date requirements, or other methods designed to minimize significant economic impact on small public entities; and (iii) additional costs imposed on public entities to ensure compliance with the 2008 version of Web Content Accessibility Guidelines. The SANPRM is scheduled to be published in the Federal Register on May 9, 2016; comments are due 90 days after publication.
FTC Settles with Texas Payment Solutions Company to Resolve "Phone Bill Cramming" Allegations
On May 4, the FTC announced a $5.2 million proposed settlement with a Texas-based payment solutions company to resolve allegations that the company, in violation of a 1999 settlement order with the FTC, permitted third parties to place unauthorized charges on consumers’ telephone bills in the course of providing its phone billing services. According to the proposed settlement order, the company failed to (i) vet third party charges before processing them; and (ii) investigate consumer complaints regarding unauthorized charges. In addition to the $5.2 million judgment, the proposed settlement prohibits the company from (i) placing charges on consumers’ phone bills for services “unrelated to the completion of a call,” including voicemail, web hosting directory listing, and email services; and (ii) placing charges for any products or services on any consumer bill unless expressly authorized by the consumer.
CFPB Amends Regulations J and L of Interstate Land Sales Full Disclosure Act to Allow Electronic Filings
On May 2, the CFPB announced that it is amending implementing Regulations J and L of the Interstate Land Sales Full Disclosure Act (ILSA) to permit electronic filings. Pursuant to ILSA, certain land developers must register their subdivisions and provide prospective lot purchasers with a disclosure statement known as a Property Report. In light of the amendments, the CFPB simultaneously released electronic filing and payment instructions for submitting the requisite registration and filing fees under ILSA.
Georgia Department of Banking and Finance Authorized to Enact Money Transmission Regulations
On April 26, Georgia Governor Nathan Deal signed into law HB 811, an Act to amend Title 7 of the Official Code of Georgia Annotated, which includes banking and finance provisions. Notably, the Act authorizes the Georgia Department of Banking and Finance to enact rules and regulations to apply to persons engaged in money transmission or the sale of payment instruments involving virtual currency, as it finds necessary to, among other things, ensure the continued solvency, safety, soundness, and prudent conduct of persons engaged in those businesses, protect customers, encourage high standards of honesty, transparency, fair business practices and public responsibility, and provide customers with timely and understandable information about virtual currency products and services. The Act is effective July 1, 2016.
AG Schneiderman Reports Increase in Data Breach Notifications; Unveils Electronic Submission Form
On May 4, New York AG Schneiderman announced that, from January 1, 2016 through May 2, 2016, his office received 459 data breach notices – more than a 40% increase compared to the 327 notices received during the same time last year. Due to the increased volume of data breach notices and in an effort to provide greater efficiency in the reporting process, AG Schneiderman announced an electronic breach reporting form. The new form allows companies to submit data breach notices via web submission: “[c]ompanies may now notify the Attorney General’s Office of a data breach via a web submission form in order to expedite and streamline the process. Previously, and consistent with most other state attorneys general offices, companies were required to mail, fax, or email a separate data breach form.” AG Schneiderman’s office expects to receive “well over” 1,000 data breach notices in 2016.
Fourth Circuit: Default Status of Debt Is Not Determining Factor of "Debt Collector" Under FDCPA
Recently, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s decision that a consumer finance company collecting debts on its own behalf, which it purchased from the original creditor, is still a creditor and is not subject to the FDCPA. Henson v. Santander, No. 15-1187 (4th Cir. Mar. 23, 2016). The plaintiffs in the case each signed a retail installment sales contract with a financial services provider, and when “the plaintiffs were unable to make the payments required by the contracts and thereby defaulted, [the financial services provider] repossessed and sold their vehicles and subsequently informed each plaintiff that he or she owed a deficiency balance.” In 2011, the defendant bought the defaulted loans from the financial services provider and, thereafter, sought to collect on the debts the plaintiffs owed. In their complaint, plaintiffs argued that because the terms “debt collectors” and “creditors” as used in the FDCPA are “mutually exclusive,” any person that “receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another” (which is excluded from the definition of creditor in 15 U.S.C. § 1692a(4)) must be a debt collector. However, the court emphasized that the material distinction between a debt collector and a creditor is “whether a person’s regular collection activity is only for itself (a creditor) or whether it regularly collects for others (a debt collector).” The court opined that the plaintiffs’ argument contained “interpretational and logical flaws,” reasoning that 15 U.S.C. § 1692a(6), which defines “debt collector,” states that to assess whether a person qualifies as a “debt collector,” one must “first determine whether the person satisfies one of the statutory definitions given in the main text of § 1692a(6) before considering whether that person falls into one of the exclusions contained in subsections § 1692a(6)(A)-(F).” The court ruled that the consumer finance company’s actions did not satisfy the first, second, or third definition of “debt collector” in § 1692a(6): “Because the complaint does not satisfy any definition of debt collector, the analysis ends, and the exclusions from the definition of debt collector, on which the plaintiffs rely, have no significance.”
The plaintiffs filed a motion for rehearing en banc on April 6, 2016, which the court denied on April 19.