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Financial Services Law Insights and Observations

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  • New York AG sues student loan servicer for alleged PSLF and IDR failures

    State Issues

    On October 3, the New York attorney general announced an action filed against a national student loan servicer for allegedly failing to properly administer the Public Service Loan Forgiveness (PSLF) program and mishandling income driven repayment (IDR) plans. In the complaint, the attorney general asserts that, in violation of the Consumer Financial Protection Act (CFPA) and New York law, the servicer, among other things, (i) failed to accurately count borrower’s PSLF-qualifying payments; (ii) failed to provide timely explanations to borrowers for PSLF payment count determinations; (iii) failed to process IDR repayment plan paperwork accurately and timely; and (iv) lacked clear policies and procedures for addressing errors, resulting in inconsistent treatment of borrowers. As a result of the servicer’s alleged actions, the attorney general argues that borrowers’ loan balances increased, time was extended on repayment plans, and improper denials of PSLF were issued. The attorney general is seeking injunctive relief, restitution, and civil money penalties.

    State Issues State Attorney General Student Lending CFPA

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  • District Court denies TCPA class certification involving collection calls placed to wrong number

    Courts

    On September 27, the U.S. District Court for the Middle District of Florida denied class certification in an action alleging violations of the TCPA, the Florida Consumer Collection Practices Act, and the FDCPA brought against two companies. The action alleged that defendants used an automated telephone dialing system (autodialer) to call the plaintiff’s cell phone using a “prerecorded voice” while trying to contact a different individual to collect an unpaid debt. The defendants allegedly called the plaintiff’s cell phone number—which was listed as the other individual’s home phone number but had been reassigned to the plaintiff—multiple times even after the plaintiff informed the defendants that they had the wrong phone number. The plaintiff alleged violations of the TCPA, claiming the defendants placed the calls without first obtaining prior express consent.

    Among other arguments, the defendants challenged the proposed class definition, which included more than 9,000 non-customers who allegedly received calls from the defendants and were identified by a code that the plaintiff contended is assigned to calls made to “bad phone” numbers. According to the defendants, the plaintiff’s expert developed a process for “identify[ing] calls where [autodialed] calls and prerecorded messages were made to cell phones after a record documenting an event consistent with a wrong number and/or a request to stop calling.” However, the defendants argued, among other things, that there are many different reasons why a “bad phone” code could be assigned to an account, and that the plaintiff’s assertions do not “satisfy the clearly ascertainable standard,” which must be met for class certification.

    “Indeed, when presented with similar evidence regarding ‘wrong number’ call log designations, this [c]ourt recognized that ‘in the debt collection industry ‘wrong number’ oftentimes does not mean non-consent because many customers tell agents they have reached the wrong number, though the correct number was called, as a way to avoid further debt collection,’” the court stated. “The difficulty in ascertaining this information is compounded by the fact that the phone numbers at issue were initially provided to [the defendants] by consenting customers.”

    Courts Debt Collection TCPA Autodialer Class Action

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  • District Court: New York’s interest on escrow law not preempted by National Bank Act

    Courts

    On September 30, the U.S. District Court for the Eastern District of New York held that the National Bank Act (NBA) does not preempt a New York law requiring interest on mortgage escrow accounts. According to the opinion, plaintiffs brought a pair of putative class actions against a national bank seeking interest on funds deposited into their mortgage escrow accounts, as required by New York General Obligation Law § 5-601. The bank moved to dismiss both complaints, arguing that the NBA preempts the state law. The district court disagreed, concluding that the plaintiffs’ claims for breach of contract can proceed, while dismissing the others. The court concluded there is “clear evidence that Congress intended mortgage escrow accounts, even those administered by national banks, to be subject to some measure of consumer protection regulation.” As for the OCC’s 2004 preemption regulation, the court determined that there is no evidence that “at this time, the agency gave any thought whatsoever to the specific question raised in this case, which is whether the NBA preempts escrow interest laws,” citing to and agreeing with the U.S. Court of Appeals for the Ninth Circuit’s decision in Lusnak v. Bank of America (which held that a national bank must comply with a California law that requires mortgage lenders to pay interest on mortgage escrow accounts, previously covered by InfoBytes here). Lastly, the court applied the preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson, and found that the law does not “significantly interfere” with the banks’ power to administer mortgage escrow accounts, noting that it only “requires the Bank to pay interest on the comparatively small sums” deposited into the accounts and does not “bar the creation of mortgage escrow accounts, or subject them to state visitorial control, or otherwise limit the terms of their use.”

    Courts State Issues National Bank Act Escrow Preemption Ninth Circuit Appellate U.S. Supreme Court Mortgages

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  • Washington Supreme Court: No reliance required under state securities act for RMBS claims

    Courts

    On October 3, the Washington Supreme Court reversed the dismissal of an action against two international banks, concluding that the Securities Act of Washington (the Act) does not require a plaintiff to prove reliance on misleading statements during the purchase of residential mortgage-backed securities (RMBS). According to the opinion, a Seattle Federal Home Loan Bank (FHL Bank) purchased over $900 million in RMBS from two international banks in 2005 and 2007, and in 2009, brought separate actions against the banks for allegedly making untrue or misleading statements in connection with the RMBS in violation of the Act. Specifically, the FHL Bank argued that the banks (i) made false statements concerning the loan-to-value ratios of the mortgage loans pooled in the RMBS; (ii) misrepresented the quality of their underwriting standards; and (iii) made false statements about the occupancy status of the mortgaged properties in the pool. The trial court granted summary judgment in favor of both banks, and the Court of Appeals affirmed, concluding that reasonable reliance on the misleading statements was required under the Act and that the FHL Bank did not rely on the statements from one bank and unreasonably relied on statements of the other. The FHL Bank appealed both decisions.

    The Supreme Court consolidated the actions and disagreed with the appeals court conclusions in both. Specifically, the Court determined that the plain language under the Act is clear and “unambiguously does not require reliance.” The Court emphasized that the refusal to “read reliance into the statue” furthers the Act’s foal of protecting investors, ensuring “that those harmed when a seller misrepresents material facts can recover.”

    In dissent, one state Justice argued that the Court’s opinion undermines nearly “50 years of case law and legislative acquiescence,” noting that federal courts “frequently resolve state securities fraud claims, and they too have consistently treated reliance as an element of our state-law claim.”

    Courts State Issues RMBS Securities

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  • New York launches online whistleblower submission system

    State Issues

    On October 2, New York’s Office of the Attorney General launched an online, open-source whistleblower submission system designed to enable witnesses to report information without compromising their identity. The N.Y.A.G. Whistleblower Portal allows whistleblowers to securely and anonymously submit information, while protecting individuals’ identity, location, and information provided. Whistleblowers will also be able to engage in two-way anonymous communications with the attorney general’s office through the portal. According to the press release, the attorney general’s office “is the first governmental agency in the United States to offer whistleblowers the capability to directly transmit documents and send and receive communications electronically without their identity being traceable.”

    State Issues State Attorney General Whistleblower

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  • California DBO issues cannabis banking guidance

    State Issues

    On October 3, the California Department of Business Oversight (DBO) issued guidance for state-chartered financial institutions that serve cannabis-related businesses. The guidance, which is intended to help financial institutions manage risks appropriately, addresses cannabis program governance and compliance with the Bank Secrecy Act (BSA), as well as cannabis banking guidance issued in 2014 by the Financial Crimes Enforcement Network (FinCEN). As previously covered by InfoBytes, FinCEN’s guidance—which includes federal law enforcement priorities still in effect that were taken from a now-rescinded DOJ memo—details the necessary elements of a customer due diligence program, ongoing monitoring and suspicious activity report filing requirements, and priorities and potential red flags. Notably, the DBO states that while it will not bring regulatory actions against state-chartered financial institutions “solely for establishing a banking relationship with licensed cannabis businesses,” it expects all financial institutions to comply with FinCEN’s BSA expectations and guidance to make appropriate risk assessments. The DBO also referred bank examiners to its September Cannabis Job Aid, which is intended to assist with the examination of financial institutions that may be banking cannabis-related businesses.

    State Issues Cannabis Banking CDBO FinCEN Bank Secrecy Act Examination

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  • FTC temporarily halts real estate workshops due to deceptive marketing

    Courts

    On October 4, the FTC announced that the U.S. District Court for the District of Utah granted a temporary restraining order against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. According to the complaint, filed by the FTC and the Utah Division of Consumer Protection, the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law, by marketing real estate events with false claims, using celebrity endorsements. The defendants allegedly told consumers they will (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “‘a minimum of three times’” the price of the workshop within six months. The complaint argues that these statements are false or unsubstantiated, and that consumers seeking refunds from the defendants often only received a partial refund on the condition they would not speak to the FTC or other state regulators about the defendants’ products. Among other things, the temporary court order prohibits the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.

    Courts FTC Enforcement FTC Act UDAP Deceptive Marketing

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  • California cities allowed to form public banks

    State Issues

    On October 2, the California governor signed AB 857 to authorize the creation of “public banks” in the state to support local economies, community development, and address infrastructure and housing needs for localities. Under AB 857, public banks are defined as “a corporation, organized as either a nonprofit mutual benefit corporation or a nonprofit public benefit corporation for the purpose of engaging in the commercial banking business or industrial banking business, that is wholly owned by a local agency, as specified, local agencies, or a joint powers authority.”

    Among other things, cities who submit applications to the California Department of Business Oversight (DBO) to obtain a certificate of authorization will be required to provide a viability study, as well comply with “[a]ll provisions of law applicable to nonprofit corporations” and obtain deposit insurance through the FDIC. AB 857 also requires “a local agency that is not a charter city to obtain voter approval of a motion to submit an application to the [DBO].” The number of new public bank licenses the DBO is authorized to approve is limited to two per calendar year, with no more than 10 public banks operating at any time. In addition, public banks may only offer products to retail customers through partnerships with existing financial institutions, and are barred from competing with local financial institutions. AB 857 expires seven years after regulations under this law are promulgated.

    State Issues State Legislation CDBO

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  • EU Court of Justice: Orders to remove defamatory content issued by member state courts can be applied worldwide

    Courts

    On October 3, the European Court of Justice held that a social media company can be ordered to remove, worldwide, defamatory content previously declared to be unlawful “irrespective of who required the storage of that information.” The decision results from a 2016 challenge brought by a former Austrian politician against the social media company’s Ireland-based operation—responsible for users located outside of the U.S. and Canada—to remove defamatory posts and comments made about her on a user’s personal page that was accessible to any user. The social media company disabled access to the content after an Austrian court issued an interim order, which found the posts to be “harmful to her reputation,” and ordered the social media company to cease and desist “publishing and/or disseminating photographs” showing the former politician “if the accompanying text contained the assertions, verbatim and/or [used] words having an equivalent meaning as that of the comment” originally at issue. On appeal, the higher regional court upheld the order but determined that “the dissemination of allegations of equivalent content had to cease only as regards [to] those brought to the knowledge of the [social media company] by the [former politician] in the main proceedings, by third parties or otherwise.”

    The Austrian Supreme Court of Justice requested that the EU Court of Justice adjudicate whether the cease and desist order may also be “extended to statements with identical wording and/or having equivalent content of which it is not aware” under Article 15(1) of Directive 2000/31 (commonly known as the “directive on electronic commerce”). Specifically, the EU Court of Justice considered (i) whether Directive 2000/31 generally precludes a host provider that has not “expeditiously removed illegal information”—including identically worded items of information—from removing content wordwide; (ii) if Directive 2000/31 does not preclude the host provider from its obligations, “does this also apply in each case for information with an equivalent meaning”; and (iii) does Directive 2000/31 also apply to “information with an equivalent meaning as soon as the operator has become aware of this circumstance.”

    According to the judgment, Directive 2000/31 “does not preclude those injunction measures from producing effects worldwide,” holding that a national court within the member states may order host providers to remove posts it finds defamatory or illegal. However, the judges concluded that such an order must function “within the framework of the relevant international law.”

    Courts European Union Privacy/Cyber Risk & Data Security

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  • California addresses robocall spoofing

    State Issues

    On October 2, the California governor signed SB 208, the “Consumer Call Protection Act of 2019,” which requires telecommunications service providers (TSPs) to implement specified technological protocols to verify and authenticate caller identification for calls carried over an internet protocol network. Specifically, the bill requires TSPs to implement “Secure Telephone Identity Revisited (STIR) and Secure Handling of Asserted information using toKENs (SHAKEN) protocols or alternative technology that provides comparable or superior capability by January 1, 2021. The bill also authorizes the California Public Utilities Commission and the Attorney General to enforce certain parts of 47 U.S.C. 227, making it unlawful for any person within the U.S. to cause any caller identification service to knowingly transmit misleading or inaccurate caller identification information with the intent to defraud, cause harm, or wrongfully obtain anything of value.

    As previously covered by InfoBytes, in June 2019, the FCC adopted a Notice of Proposed Rulemaking (NPRM) requiring voice providers to implement the “SHAKEN/STIR” caller ID authentication framework. The FCC argued that once “SHAKEN/STIR” is implemented, it would “reduce the effectiveness of illegal spoofing and allow bad actors to be identified more easily.” 

    State Issues State Legislation State Attorney General FCC Robocalls Federal Issues Privacy/Cyber Risk & Data Security

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