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CFPB Releases Supervisory Highlights Report
On November 3, the CFPB released its latest Supervisory Highlights report, which covers examination findings from May 2015 to August 2015. According to the report, which summarizes supervisory observations in the areas of consumer reporting, debt collection, mortgage origination, mortgage servicing, student loan servicing, and fair lending, recent non-public CFPB supervisory actions resulted in $107 million in restitution to more than 238,000 consumers. The report recognizes that certain efforts were made by institutions to improve compliance, including (i) mortgage servicers making improvements to their compliance audits and conducting information technology reviews; and (ii) student loan servicers alerting borrowers of unpaid balances remaining after borrowers attempt to pay off their loans but fall short. The report also discusses the CFPB’s revised exam appeals process, which includes changes to the supervisory appeals process originally outlined in Bulletin 2012-07. Among other things, the revised exam appeals process extends the expected time to issue a written decision on appeals from 45 to 60 days, and “[p]revents an institution from appealing adverse findings or an unsatisfactory rating related to a recommended or pending investigation or public enforcement action until the enforcement investigation or action has been resolved.”
Maryland Court of Special Appeals Holds MCSBA Applies to Loan Broker Working with Federally Insured Out-of-State Banks
On October 27, the Maryland Court of Special Appeals held that a loan broker who originates loans in Maryland for a federally insured out-of-state bank and then repurchases those loans days later qualifies as a “credit service business” under the Maryland Credit Services Business Act (MCSBA) and must be licensed accordingly. Md. Comm’r of Financial Reg. v. CashCall, No. 1477, 2015 WL 6472270 (Md. Ct. Spec. App. Oct. 27, 2015). The loan broker argued, citing Gomez v. Jackson Hewitt, Inc., 427 MD. 128 (2012), that it was not a “credit service business” within the meaning of the MCSBA because the MCSBA did not apply to the out-of-state federally insured bank that made the loans and because the loan broker did not receive a direct payment from the consumer. The Commissioner and the court disagreed. In affirming the Commissioner’s decision and in overturning the decision of the Circuit Court for Baltimore, the Court of Special Appeals reasoned that the MCSBA applied because (i) the loan broker was engaged in the very business the MCSBA was intended to apply to (i.e. it was exclusively engaged in assisting Maryland consumers to obtain small loans); and (ii) after repurchasing the loan, the loan broker had the right to receive direct payment from consumers. The Court of Special Appeals remanded the case to the Circuit Court for Baltimore.
Buckley Sandler Workshop Recap: FTC Holds Workshop on Online Lead Generation
On October 30, the FTC hosted a workshop on online lead generation titled “Follow the Lead.” The workshop focused on lead generation in the mortgage and education lending space and consisted of a number of discussion panels composed of industry representatives, consumer advocates, and FTC regulators.
The first panel was primarily an overview of how web-based advertising is executed and how leads are generated using a variety of methods. Also discussed were the data analytics used to validate and assign value to the data collected. It was also noted that large media companies, such as Google and Facebook, have enacted policies restricting advertisements by participants in certain industries.
The second and third panels focused on online lead generation policies and practices in consumer and education lending, respectively. Industry participants and consumer advocates discussed varying policy viewpoints with respect to the practice of buying and selling data of consumers viewing a particular type of website to participants in a different industry. For instance, lead generators gathering data from consumers searching for jobs and then selling that data to providers of educational services. The panelists generally agreed that this practice was not inherently abusive, but could be harmful when implemented with intent to mislead. All generally agreed that guidance from the FTC and other government agencies would be useful to the extent that standards of conduct and transparency could be more clearly proscribed.
The fourth panel focused on consumer protections and the legal landscape of the lead generation industry. Consumer advocates noted that the process is often opaque and that consumers are generally unaware that their data may be sold multiple times and is often dispersed much further than they intended by seeking information about or applying for a specific product or service. It was also noted that consumer data is an asset for the entity that collected it and the pressure to monetize these assets results in the data being sold to anyone willing to pay for it, including those with an intent to commit fraud. Finally, the issue was raised that collected data exists forever, with the only restriction on the longevity of the information generally being that fact that information loses value as it becomes less current.
The panelists generally agreed that more transparency about the policies of the information collecting entity would be beneficial, with one noting that consumers will not read long policy disclosures, and therefore short statements notifying consumers of the potential uses of their data be provided at the point that data is collected. The panelists also generally agreed that the sellers of data should more carefully vet the buyers of that data and, conversely, data buyers should also more carefully vet the sellers. All panelists repeated the general theme that more guidance from agencies such as the FTC with respect to lead generation and data collection policies and best practices would be welcomed.
German Data Protection Authorities Issue Position Paper In Light of Schrems EU Court Decision
Recently, German data protection authorities issued a position paper to address potential consequences of the Court of Justice of the European Union’s (CJEU) Schrems ruling on the handling of personal data. The first section of the paper summarizes the ruling, noting that the court found the Safe Harbor decision overly restrictive of the “supervisory powers of the European data protection supervisory authorities and does not follow the requirements of the provisions that empower the Commission to decide on the level of protection of a third country.” The remaining four sections of the paper consider the following: (i) the European Commission’s options to either adopt a new decision which declares U.S. law provides an adequate level of protection, or to push for an international treaty to include a data protection agreement with the U.S.; (ii) the legal basis for the transfer of personal data; (iii) private bodies’ use of standard contractual clauses, concluding that private bodies must “consider terminating the underlying standard contract with the data importer in the U.S. or suspending data transfers”; and (iv) enforcement concerning private bodies, noting that authorities will examine “whether orders against private bodies must be issued and on which basis data transfers to the United States must be suspended or banned.”
North Carolina Passes Legislation to Clarify Applicability of Motor Vehicle Service Agreement Protections
On October 22, North Carolina Governor Pat McCrory signed into law North Carolina SB 195 to clarify the types of service agreements that come under the existing framework governing how motor vehicle service agreements are sold. The bill revises the existing statute to specifically describe a set of products considered to be motor vehicle service agreements and delegates to the Commissioner of Insurance power to define additional products consistent with the law. The bill also amends the statute to expressly carve out from the regulatory framework maintenance agreements offered by certain entities. Finally, the new law amends the statute to clarify that ancillary anti-theft protection program and ancillary anti-theft protection program warranty products are not considered contracts of insurance. The amendments are effective as of October 1, 2015.
CFPB Files Suit Against Student Financial Aid Company
On October 29, the CFPB filed a complaint in the U.S. District Court for the Southern District of California against a California-based student financial aid operation and its owner (Defendants). According to the complaint, the Defendants represented that by paying a fee and sending in an application, consumers were applying for financial aid or the Defendants would apply for aid on behalf the students. The CFPB alleges, however, that consumers did not receive the promised services in exchange for their payment and that the Defendants collected more than $4 million from at least 76,000 consumers from January 2011 through the filing of the complaint. The CFPB alleges that the Defendants violated the CFPA by (i) deceiving students to pay for services that the Defendants did not actually provide; (ii) using letterhead that falsely indicated affiliation with the government and university financial aid offices; and (iii) pressuring students to enroll in the program and pay a fee by creating false deadlines and making deceptive statements about the consequences of missing the deadlines. The CFPB also alleges that the Defendants failed to provide privacy notices to consumers as required by Regulation P. The complaint seeks a civil money penalty, restitution to harmed consumers, and a prohibition against future violations.
Department of Education Finalizes Rules Affecting Federal Student Loan Borrowers
On October 27, the Department of Education announced final regulations regarding how students access Federal student aid and implementing a Revised Pay As You Earn (REPAYE) program. The new rules addressing access to Federal student aid (i) protect students against “excessive” fees to access aid; (ii) require institutions to give greater choice and information to students about how to receive aid; and (iii) prohibit institutions from requiring students to open certain accounts for the deposit of student aid refunds, among other things. The rules also limit the amount of information institutions can share with third party institutions providing campus debit and prepaid cards to students under partnerships with schools and require schools to disclose on their websites the terms of those partnerships. The second set of rules announced on October 27 establishes an expanded Pay As You Earn program, which caps payments at 10 percent of annual income. The REPAYE plan covers five million more Direct Loan borrowers, without regard to when the borrowers first obtained their loans.
FDIC Vice Chairman Elected as President of the International Association of Deposit Insurers
On October 30, the FDIC announced that Vice Chairman Thomas Hoenig will serve as the President of the International Association of Deposit Insurers (IADI) and as Chairman of its Executive Council for a two-year term. The IADI sets global deposit insurance standards and promotes financial stability by facilitating international cooperation and developing best practices among deposit insurers and other parties responsible for financial safety net arrangements. Hoenig will continue to serve as Vice Chairman of the FDIC.
Illinois District Court Enters Final Judgment Against For-Profit College to Resolve CFPB Litigation
On October 28, the U.S. District Court for the Northern District of Illinois filed a default judgment and order against a for-profit college company to resolve litigation with the CFPB. In a September 2014 lawsuit, the CFPB alleged that the company engaged in unfair and deceptive practices by making false and misleading representations to students to encourage them to take out private student loans. The CFPB also alleged that the company violated the FDCPA by taking aggressive and unfair action to collect on the loan payments when they became past due. The court order requires the company to pay approximately $531 million in redress to student borrowers, which the company is unable to pay because it has dissolved and its assets have been distributed in its bankruptcy case. The CFPB indicated that it will continue to seek additional relief for students affected by the company’s practices despite the company’s inability to pay the judgment.
State-Chartered Bank Settles with New York DFS for Alleged Violations of Banking Law
On October 28, the New York DFS resolved an enforcement action with a New York State-charted bank for alleged violations of state banking law. The DFS alleged that the bank hired a former New York Federal Reserve Bank examiner and permitted him to work on matters for an entity that the employee had examined while at the New York Fed, in violation of a notice of post-employment restrictions from the New York Fed. The DFS also alleged that the employee obtained confidential regulatory or supervisory information from a now former New York Fed employee and distributed the information to a Managing Director at the bank for the purpose of advising the entity. In addition to the bank’s alleged failure to screen the employee from working on matters related to the entity he had examined, the DFS’s order alleges that the bank failed to “provide training to personnel regarding what constituted confidential supervisory information and how it should be safeguarded.” Under the settlement terms, the bank will (i) pay a civil money penalty of $50 million to the DFS; (ii) reform its policies and procedures to ensure the proper handling of confidential supervisory information and the monitoring of assignments of former government employees; and (iii) not re-hire the bank employee and Managing Director, who had been terminated as result of the matter.