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Financial Services Law Insights and Observations

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  • PA AG settles with collector over payday loan scheme

    State Issues

    On April 9, the Pennsylvania attorney general announced settlements with the former CEO of a since-dissolved lender and a debt collector to resolve claims that the collector charged borrowers interest rates as high as 448 percent on loans and lines of credit. The AG alleged that the former CEO “participated in, directed and controlled” business activities related to the allegedly illegal online payday lending scheme, while the debt collector collected more than $4 million related to Pennsylvania consumers’ loan accounts. The terms of the settlement require the individual defendant to comply with relevant consumer protection laws and limits the individual defendant’s ability to work in the consumer lending industry in Pennsylvania for the next nine years. Additionally, the individual defendant is required to pay the Commonwealth $3 million.

    The AG’s office noted that the U.S. District Court for the Eastern District of Pennsylvania also approved a settlement with the debt collector, which requires the company to comply with relevant consumer protection laws and, among other things, undertake the following actions: (i) ensure that all acquired debts, for which it attempts to collect, comply with applicable laws and regulations; (ii) cancel all balances on applicable accounts, take no further action to collect debts allegedly owed by Pennsylvania consumers on these accounts, and notify consumers of the cancellations; (iii) “refrain from engaging in [c]ollections on any [d]ebts involving loans made over the internet by [n]on-bank lenders that violate Pennsylvania laws,” including its usury laws; and (iv) will not sell, re-sell, or assign debt related to applicable accounts, including accounts subject to a previously-negotiated nationwide class action settlement agreement and Chapter 11 bankruptcy plan. Previous InfoBytes coverage related to the payday lending scheme can be found here, here, and here.

    State Issues Courts State Attorney General Interest Rate Usury Consumer Finance Settlement Enforcement Debt Collection Payday Lending

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  • NYDFS announces Statewide Office of Financial Inclusion and Empowerment

    State Issues

    On April 13, NYDFS announced the new Statewide Office of Financial Inclusion and Empowerment, which is intended to meet the financial services needs of low- and middle-income New Yorkers and provide a “single-stop state resource” for consumers to access financial help. Superintended Linda A. Lacewell stated that the intention of the office is to “advance the Department’s strategic financial inclusion initiatives” and “pilot and develop policy initiatives designed to help further financial inclusion and empowerment.” Among other things, the new office will (i) maintain a centralized list of financial services counseling providers from across the state in the areas of housing, student loan, debt, and general financial literacy; (ii) coordinate state and local services intended to expand access to credit and opportunities for wealth building; (iii) “[i]ncubate new programs to expand access to safe and affordable banking services, credit and financial education,” and “coordinate public-private partnerships”; and (iv) foster the provision of high-quality, low-cost financial products across New York. Lacewell also announced that the Honorable Tremaine Wright will serve as the office’s first director. Wright, who will develop and implement the office’s policies and programs, was previously elected to the New York State Assembly where she was chair of New York State Black, Puerto Rican, Hispanic & Asian Legislative Caucus.

    State Issues State Regulators NYDFS Diversity Consumer Finance

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  • California bill would create public banking for the unbanked

    State Issues

    Recently, the California legislature introduced AB 1177—the California Public Banking Option Act—which would, if enacted, establish the Public Banking Opinion Board and task the Board with designing, implementing, and overseeing a program for consumers in the state who lack access to traditional banking services. Specifically, the bill would create the BankCal Program, which would protect unbanked and underbanked consumers from predatory, discriminatory, and costly alternatives by providing “access to voluntary, zero-fee, zero-penalty, federally insured transaction account and debit card services at no cost to account holders.”

    Among other things, the bill would (i) impose a mandate requiring employers and hiring entities to maintain payroll direct deposit arrangements to allow workers to participate in the program; (ii) require landlords to allow tenants to pay rents and security deposits by electronic funds transfers from a BankCal account; (iii) require the Board to contract with and coordinate financial services vendors for the program and build an expansive financial services network of participating ATMs, banks and credit union branches, and other in-network partners to allow account holders to load or withdraw funds from their BankCal accounts without paying fees; (iv) require the Board to establish a no-fee process to allow all account holders to arrange for payments to a registered payee using a preauthorized electronic fund transfer from a BankCal account; and (v) require the Board to “determine the criteria for certification of lenders of consumer credit” to maximize consumer protection and protect account holders from unfair and deceptive practices, including those that “steer consumers into unnecessary, more costly, or higher risk products that do not match their financial needs.” Furthermore, the Board would be tasked with studying whether additional services may be beneficial to account holders to maximize the purposes of the program.

    State Issues State Legislation Consumer Finance

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  • 3rd Circuit says collector itemizing zero-balance interest and fees did not mislead

    Courts

    On April 12,  the U.S. Court of Appeals for the Third Circuit affirmed dismissal of an FDCPA action, concluding that itemized breakdowns in collection letters that include zero balances for interest and other fees would not confuse or mislead the reasonable “unsophisticated consumer” to believe that future interest or other charges would be incurred if the debt is not settled. The defendant management company sent a letter to the plaintiff claiming he owed amount $1,088.34 and offered to “resolve this debt in full” with a payment of $761.84. The plaintiff filed a putative class action against the defendant alleging that by itemizing interest and collection fees for his “static debt,” and by assigning “$0.00” interest, the letter falsely implied—in violation of § 1692e and § 1692f of the FDCPA—that “interest and fees could accrue and thereby increase the amount of his debt over time.” The defendants moved to dismiss for failure to state a claim. The district court dismissed the complaint with prejudice, declining “to require assurances by debt collectors that itemized amounts ‘will not change in the future,’ reasoning that doing so would lead to ‘complex and verbose debt collection letters’ that would confuse consumers.”

    On appeal, the 3rd Circuit agreed with the district court. Specifically, the appellate court concluded that the “complaint fails to state a claim, whether our court’s ‘least sophisticated debtor’ standard is functionally the same as the ‘unsophisticated debtor’ standard applied by other Circuits or is instead an independent and less demanding framework.” Moreover, the appellate court noted even the least sophisticated debtor understands that “collection letters—as reflected by their fonts, formatting, content, and fields—often derive from templates and may contain information not relevant to his or her particular situation.” According to the 3rd Circuit, “FDCPA case law does not support attributing to the least sophisticated debtor simultaneous naïveté and heightened discernment. Were we for some reason constrained to consider only the law of Circuits that employ the word “least” in their FDCPA standards, we would still affirm.”

    Courts FDCPA Appellate Third Circuit Debt Collection Consumer Finance

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  • 2nd Circuit: Credit report showing “satisfied” judgment was not misleading

    Courts

    On April 9, the U.S. Court of Appeals for the Second Circuit held that a credit reporting agency’s (CRA) report that a judgment was “satisfied” was accurate and not misleading under the FCRA. According to the opinion, a debt collection action was brought and default judgment entered against the plaintiff. The parties ultimately filed a joint stipulation to resolve the action and discontinue all claims with prejudice. Afterwards, the CRA’s report showed the default judgment, but was later amended to read “judgment satisfied”—a statement that the plaintiff allegedly repeatedly disputed. The plaintiff ultimately filed a lawsuit against the CRA, alleging the agency “willfully and/or negligently violated various FCRA provisions by persisting in publishing [the] report and failing to follow certain of the FCRA’s procedural notice requirements.” Among other things, the plaintiff claimed that the CRA also violated the FCRA’s source-disclosure and reinvestigation provisions and should have disclosed that the information about the judgment came from a contractor-intermediary working for the CRA. The district court dismissed one of the FCRA claims and granted summary judgment to the CRA on the remaining FCRA claims.

    On appeal, the 2nd Circuit agreed with the district court, concluding first that there was no FCRA reporting violation because the description of the judgment as “satisfied” was accurate. Moreover, the appellate court wrote, even if the CRA should have disclosed that the contractor was the source, the plaintiff “failed to present any evidentiary basis for concluding that he suffered actual damages” resulting from the CRA’s failure to not disclose or treat the contractor as a source or furnisher of the information about the judgment. The 2nd Circuit further rejected the plaintiff’s claims against the CRA for willful violations of sections 1681g and 1681i, concluding that the sections “can be reasonably interpreted not to require such a disclosure and no more need be shown.”

    Courts FCRA Second Circuit Appellate Credit Reporting Agency Debt Collection

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  • Massachusetts Appeals Court: Plaintiffs’ counterclaim under PHLPA filed after foreclosure sale is untimely

    Courts

    On April 7, the Massachusetts Appeals Court held that plaintiffs could not assert a violation of the Massachusetts Predatory Home Loan Practices Act (PHLPA) in connection with a foreclosure proceeding. In 2005, the plaintiffs obtained a loan to purchase a home but later defaulted on their mortgage. In 2016, the defendant loan servicer began foreclosure proceedings, and sent plaintiffs a right to cure letter followed by an acceleration notice more than 90 days later. Approximately a year later, the servicer sent the plaintiffs a notice of the foreclosure sale, purchased the property, and ultimately filed a summary process eviction action and motion for summary judgment, which the state housing court granted. The plaintiffs then filed a counterclaim alleging the servicer violated PHLPA § 15(b)(2). The servicer maintained, however, that it is “entitled to judgment as a matter of law because more than five years had passed between the time the [plaintiffs] closed on the loan and the time they brought their counterclaim for violation of the PHLPA,” and that, as such, “the five-year statute of limitations in § 15(b)(1) bars their counterclaim.”

    On appeal, the Appeals Court majority determined that while the five-year statute of limitations under § 15(b)(1) did not apply to the borrowers’ counterclaim, § 15(b)(2)—under which the plaintiffs brought their counterclaim—“provides that a borrower may employ a defense, claim, or counterclaim ‘during the term of a high-cost home mortgage loan.’” However, because a foreclosure sale following acceleration of a note and mortgage “concludes the term of a mortgage loan,” the Appeals Court deemed the plaintiffs’ counterclaim was untimely.

    Courts State Issues Appellate Mortgages Statute of Limitations Foreclosure

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  • FCC pushes on robocall blocking

    Agency Rule-Making & Guidance

    On April 13, the FCC took several actions associated with blocking illegal and unsolicited robocalls, including sending cease and desist letters (see here and here) to two carriers that “appear to be transmitting multiple unlawful robocall campaigns” and seeking updated information from all carriers and developers of call-blocking tools to learn more about the tools available to consumers and their effectiveness. Key questions include:

    • Whether the companies are offering call blocking tools to consumers at no charge.
    • How the companies measure the effectiveness of blocking tools.
    • What protections the companies have put in place to ensure that call blocking does not interfere with emergency services.

    In addition to seeking input from the industry, the FCC sent cease and desist letters to two carriers regarding the transmission of illegal robocalls through their networks. The letters warn the carriers that downstream carriers will be authorized to block all of their traffic if they do not take steps within 48 hours to “effectively mitigate illegal traffic.”

     

    Agency Rule-Making & Guidance FCC Robocalls Privacy/Cyber Risk & Data Security

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  • CFPB action against debt settlement firm targets abusive acts

    Federal Issues

    On April 13, the CFPB entered into a preliminary settlement with an online debt-settlement company for allegedly violating the CFPA’s prohibition on abusive acts or practices and failing to clearly and conspicuously disclose total cost under the Telemarketing Sales Rule. The complaint alleges that the company took “unreasonable advantage of consumers’ reasonable reliance that [it] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The CFPB alleges that the company regularly prioritized creditors with which it had undisclosed relationships in settlements of consumers’ debts. Under the terms of the proposed stipulated final judgment and order, the CFPB is seeking restitution, damages, disgorgement, and civil money penalties.

    In the Bureau’s announcement, acting Director David Uejio states that “[t]he CFPB will not tolerate companies that purport to represent consumers, but instead abuse their trust in a self-dealing scheme. This case provides a clear example of what Congress intended to prohibit when it created the CFPB and gave it authority to prevent abusive practices.”

    Federal Issues CFPB Abusive UDAAP Consumer Finance Settlement Enforcement Debt Collection Debt Settlement TSR CFPA

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  • SEC awards approximately $2.5 million to whistleblower

    Securities

    On April 9, the SEC announced an approximately $2.5 million whistleblower award in connection with a successful enforcement action. According to the redacted order, the whistleblower supplied information that led to charges related to a breach of fiduciary duties owed to investors, provided significant ongoing assistance to enforcement staff, and reported the information internally to the company.

    The SEC has now paid approximately $762 million to 148 individuals since the inception of the whistleblower program in 2012.

    Securities Securities Exchange Act Whistleblower Enforcement

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  • OFAC sanctions Burmese gem enterprise

    Financial Crimes

    On April 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14014 against a Burmese state-owned entity responsible for all gemstone activities in Burma. According to OFAC, gemstones are a “key economic resource for the Burmese military regime that is violently repressing pro-democracy protests” and is accountable for the continuing deadly attacks against the people of Burma. As a result of the sanctions, all property and interests in property of the entity in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific license.

    Financial Crimes OFAC Department of Treasury Sanctions Burma Of Interest to Non-US Persons OFAC Designations SDN List

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