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August 10 Deadline Set for New York Virtual Currency Firms to Apply for BitLicense
On June 24, the New York State Register published the Department of Financial Services’ BitLicense framework, requiring companies and individuals who provide virtual currency services involving New York or a New York Resident to apply for a BitLicense by August 10, 2015. Virtual currency firms must submit the 31-page application providing information including, among other things, (i) written policies and procedures including, but not limited to BSA/AML, cybersecurity, privacy and information security, (ii) company information, (iii) biographical information on company directors and stockholders, and (iv) an explanation of the methodology used to calculate the value of virtual currency in fiat currency. In addition, the NYDFS released a set of FAQs to help clarify the BitLicense requirements.
Special Alert: Supreme Court Upholds Disparate Impact Under Fair Housing Act, But Emphasizes Limits on Such Claims
Today, the Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. held that disparate-impact claims are cognizable under the Fair Housing Act (FHA). In a 5-4 decision, the Court concluded that the use of the phrase “otherwise make available” in Section 804 of the Fair Housing Act supports disparate-impact claims. The Court also held that Section 805 of the Fair Housing Act (which applies to lending) permits disparate impact, reasoning that the Court “has construed statutory language similar to § 805(a) to include disparate-impact liability.” The Court also wrote that the 1988 amendments to the Fair Housing Act support its conclusion because (1) all the federal Courts of Appeals to have considered the issue at that time had held that the FHA permits disparate-impact claims; and (2) the substance of the amendments, which the Court characterized as exceptions from disparate impact, “is convincing support for the conclusion that Congress accepted and ratified the unanimous holdings of the Courts of Appeals finding disparate-impact liability.”
The Court emphasized, however, that “disparate-impact liability has always been properly limited in key respects . . . .” Specifically, the Court explained disparate-impact liability must be limited so companies “are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system.” “Entrepreneurs must be given latitude to consider market factors,” the Court explained. The Court clarified further that a variety of factors, including both “objective” and “subjective” factors, are “legitimate concerns.”
To prevent what the Court characterized as “abusive disparate-impact claims,” the Court emphasized that the three-step burden-shifting framework used to analyze disparate-impact claims must be applied rigorously by courts and government agencies. At the first step in the framework, the Court noted that a “robust causality requirement” must be satisfied to show that a specific policy caused a statistical disparity to “protect[] defendants from being held liable for racial disparities they did not create.” “[A] disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.” The Court emphasized that “prompt resolution of these cases [by courts] is important.”
With respect to the second step of the framework, the Court, citing the seminal Title VII case of Griggs v. Duke Power, further explained that “[g]overnmental or private policies are not contrary to the disparate-impact requirement unless they are ‘artificial, arbitrary, and unnecessary barriers.’” The Court stated that this is critical to ensure that defendants “must not be prevented from achieving legitimate objectives.”
Finally, under the third step of the framework, the Court emphasized that before rejecting a “business justification,” a court “must determine that a plaintiff has shown that there is an available alternative practice that has less disparate impact and serves the entity’s legitimate needs.” (internal quotations and alterations omitted). Significantly, the Court clarified that the plaintiff bears the burden of showing a less discriminatory alternative in the third step of the burden-shifting framework.
Without a rigorous application of this burden shifting framework, the Court cautioned that disparate-impact liability could be used to replace nondiscriminatory private choice: “Were standards for proceeding with disparate-impact suits not to incorporate at least the safeguards discussed here, then disparate-impact liability might displace valid governmental and private priorities, rather than solely removing artificial, arbitrary, and unnecessary barriers. And that, in turn, would set our Nation back in its quest to reduce the salience of race in our social and economic system.” (internal citations and alterations omitted).
Although the Court did not expressly address whether its decision invalidates HUD’s disparate impact rule with its expansive burden shifting framework, the decision also does not rely on or defer to the discussion of the burden shifting framework contained in HUD’s disparate impact rule, notwithstanding the HUD rule’s extensive treatment of the burden shifting framework for disparate-impact claims under the FHA. The dissenting justices, however, concluded that given what they called “this unusual pattern” regarding the promulgation of the HUD rule, “there is an argument that deference may be unwarranted.”
CFPB Consumer Complaints Database Goes Live with Option to Publish Narratives
Today, the CFPB expanded its consumer complaint database, publishing for the first time over 7,700 consumer narratives which provide descriptive details of issues consumers face with respect to mortgages, bank accounts, credit cards, and debt collection, among other topics. As previously covered in InfoBytes, the Bureau finalized its Policy earlier this year requiring consumers who file complaints to “opt-in” to have the actual narrative of the complaint disclosed in the CFPB consumer complaint database. In addition, the Bureau issued a Request For Information seeking feedback on how complaint information contained within the database can be more easily identified and “normalized.” The Bureau also announced that it had received more than 627,000 complaints as of June 1, with mortgages and debt collection among the most frequent sources of complaints.
Alleged Ringleader of Global Cybercrimes Extradited to United States to Face Charges
Today, the DOJ unsealed an eighteen-count indictment in Brooklyn, New York charging a Turkish citizen (Defendant) with organizing worldwide cyberattacks against at least three U.S. payment processors’ computer networks. The Defendant’s organization allegedly used “sophisticated intrusion techniques” to hack the computer systems, stealing prepaid debit card data and subsequently using the stolen data to make ATM withdrawals in which standard withdrawal limits were manipulated to allow for greater withdrawals. According to the indictment, the Defendant managed a group of co-conspirators responsible for distributing the stolen card information to “cashing crews” around the world, who then used the information to conduct tens of thousands of fraudulent ATM withdrawals and fraudulent purchases. Within two days – February 27 and 28, 2011 – the DOJ alleges that the “cashing crews withdrew approximately $10 million through approximately 15,000 fraudulent ATM withdrawals in at least 18 countries.” The remaining two operations, occurring in late 2012 and early 2013, resulted in ATM withdrawals of roughly $5 million and $40 million, respectively. The Defendant, along with other high-ranking members of the conspiracy, received the funds from the fraudulent operations via wire transfer, electronic currency, and personal delivery of U.S. and foreign currency. The Defendant was arrested in Germany on December 18, 2013, and was extradited to the United States on June 23, 2015. The charges against the Defendant follow previous charges against members of the conspiracy, including the arrest of a member of the New York cashing crew.
Federal Reserve Orders Community Bank to Improve its BSA/AML Program
On June 23, the Board of Governors announced the execution of an enforcement action against a California-based community bank over BSA/AML deficiencies. According to the Cease and Desist Order, the deficiencies were identified by the Federal Reserve Bank of San Francisco and the California Department of Business Oversight, and directs the Bank to submit written plans outlining their efforts to strengthen their BSA/AML risk management program, including customer due-diligence and suspicious activity monitoring and reporting policies and procedures. In addition, the Bank must retain an independent third party to conduct a review of account and transaction activity affiliated with any high-risk customer and foreign branch accounts conducted at, by, or through the Bank from July 2014 through December 2014. No civil money penalty was imposed on the Bank.
Special Alert: CFPB Issues Proposal to Delay TRID Rule Until October 3
The CFPB issued a proposed rule today to delay the effective date of the TILA-RESPA Integrated Disclosure (“TRID”) rule, including all amendments, from August 1 to October 3, 2015. The proposed delayed effective date is two days later than the date announced last week so that the effective date falls on a Saturday. The CFPB chose Saturday because it “may allow for smoother implementation by affording industry time over the weekend to launch new systems configurations and to test systems. A Saturday launch is also consistent with existing industry plans tied to the Saturday August 1 effective date.”
The proposed rule explains that, due to “an administrative error on the Bureau’s part in complying with the [Congressional Review Act]…, the [TRID] Rule cannot take effect until at the earliest August 15, 2015.” Because “some delay in the effective date is now required, the Bureau believes that a brief additional delay may benefit both consumers and industry more than would allowing the new rules to take effect on [August 15].” The Bureau stated that the additional delay is being proposed to avoid challenges associated with a mid-month effective date and to allow more time to implement the rule in light of recent information the CFPB received that “delays in the delivery of system updates have left creditors and others with limited time to fully test all of their systems and system components to ensure that each system works with the others in an effective manner.”
The proposed rule does not include any substantive changes to the TRID rule, other than changes to reflect the new proposed effective date. Despite requests by many in industry, the Bureau did not propose to allow lenders to begin complying with the rule before the effective date.
Comments must be received on or before July 7, 2015.
For additional information and resources on the TRID rule, please visit our TRID Resource Center.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Melissa Klimkiewicz, (202) 349-8098
CFPB Publishes Eighth Edition of Supervisory Highlights
On June 23, the CFPB published its eighth edition of Supervisory Highlights, covering supervisory activities from January 2015 through April 2015. The latest edition identifies issues with dual-tracking at mortgage servicers and the need for improved quality control measures at consumer reporting agencies. The report also provided supervisory observations related to debt collection, student loan servicing, mortgage origination and servicing, and fair lending. Notably, the report reveals that non-public supervisory actions and self-reported violations at banks and nonbanks in the areas of mortgage origination, fair lending, mortgage servicing, deposits, payday lending, and debt collection resulted in $11.6 million in remediation to more than 80,000 consumers during the first four months of 2015.
OCC Fines National Bank for Alleged Unfair Billing Practices
On June 19, the OCC released recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with national banks and federal savings associations. Among the actions was the issuance of a consent order for a civil money penalty against a national bank for allegedly violating the Federal Trade Commission Act. During its investigation, the OCC discovered deficiencies relating to the bank’s billing and marketing practices, specifically with regard to identity protection and debt cancellation products. According to the consent order, since April 2004, the bank, along with an identity protection product vendor, marketed and sold various types of identity theft protection products to its customers. Before customers could access the credit monitoring service of the identity theft product, they “were required to provide sufficient personal verification information and consent before their credit bureau reports could be accessed.” However, the OCC found that the vendor (i) billed the bank’s customers the full fee for the products, even if they were not receiving all of the credit monitoring services; (ii) billed the customers prior to receiving the customers’ information and consent and establishment of credit monitoring; and (iii) failed to ensure that customers received electronic benefit notifications. The bank retained a portion of the fees that the customers paid. Additionally, the bank’s vendors incorrectly informed customers during telemarketing calls that only one of the products offered had the ability to access identity protection benefits electronically. As a result, some customers purchased the more expensive Enhanced Identity Theft Protection, as opposed to the less expensive Identity Theft Protection, under the mistaken belief that this was the only way they could access the product’s benefits online. Finally, the OCC also alleged that, from August 2005 through November 2013, the bank’s debt cancellation product vendor’s billing practices, which posted recurring payments on the same day of the month regardless of the payments’ due dates, resulted in some customers paying recurring late fees. The bank will pay $4,000,000 to resolve the OCC’s allegations.
CFPB Cracks Down on Medical Debt Collector Over Alleged FCRA and FDCPA Violations
On June 18, the CFPB announced an enforcement action against a third-party medical debt collection company for allegedly failing to issue debt validation notices to customers, mishandling consumer credit reporting disputes, and preventing customers from exercising certain debt collection rights. According to the Bureau, from 2011 through 2013, the company failed to properly investigate consumers’ complaints with respect to information furnished to credit reporting agencies, and lacked internal policies and procedures on how to handle and respond to the complaints, resulting in a violation of the Fair Credit Reporting Act (FCRA). In addition, the Bureau contends that the company did not properly inform consumers of the amount of medical debt owed before commencing efforts to obtain payment on the debt, subsequently violating the Fair Debt Collection Practices Act (FDCPA). The CFPB ordered the medical debt collector to, among other things, (i) provide over $5 million in restitution to affected consumers, (ii) correct errors in consumer credit reports, (iii) pay a $500,000 civil money penalty, and (iv) improve its business practices.
U.S. House Appropriations Committee Approves Amendment to Delay CFPB Arbitration Rule
On June 17, the U.S. House Appropriations Committee approved an amendment that would require the CFPB to conduct a peer-reviewed cost-benefit analysis of the use of arbitration agreements prior to issuing a final rule. The amendment is tied to a fiscal year 2016 financial services spending bill, which would bring the Bureau under the congressional appropriations process. U.S. House Representatives Steve Womack (R-AR) and Tom Graves (R-GA) brought forth the amendment, which was adopted by the Committee on a voice vote.