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On December 23, the U.S. District Court for the District of Maryland granted a motion to stay in an action between the CFPB and parties of a structured-settlement company, pending the U.S. Supreme Court’s decision in CFPB v. Seila Law. According to the court, a decision in Seila Law that the CFPB’s structure violates the Constitution’s separation of powers under Article II may render the CFPB unable prosecute the case. A determination by the Court is expected later this year (previous InfoBytes coverage here).
As previously covered by InfoBytes, the court allowed to move forward the Bureau’s UDAAP claim, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The defendants asked the court to stay the proceedings pending the outcome of two cases: Seila Law and a case pending in the Maryland Court of Appeals involving a different structured settlement company (covered by InfoBytes here). The court determined that a stay is not appropriate based on the Maryland case since it is not known when the case may be decided. The court also disagreed with the defendants’ argument that if the Maryland Court of Appeals upholds the settlement, the Bureau would be precluded from obtaining relief from the defendants. According to the court, “the extent to which the settlement is preclusive is unclear” and the provision that would preclude action by the Bureau is being disputed on appeal. However, the court concluded that a stay pending the outcome in Seila Law is warranted because “one of the Supreme Court’s paths in Seila Law may render the CFPB unable to prosecute this action; the stay would not be lengthy; and the interests of judicial efficiency and potential harm to the movants justify the stay.”
On January 4, the New York governor unveiled a proposal to expand access to safe and affordable financial services as part of the 2020 State of the State agenda. Included is a proposal to create the “Excelsior Banking Network” (Network), which is intended to “expand financial inclusion and access to affordable bank accounts and credit products” by providing $25 million in seed funding for the state’s Community Development Financial Institutions (CDFI) Fund. The Network—formed through a collaborative initiative between CDFIs, NYDFS, and other state agencies—will, among other things, engage in outreach and financial literacy education to the unbanked and expand available microcredit. “CDFIs are local financial service providers with locations throughout New York State, and often are the sole provider of banking and other financial services in low-income communities that are not served by traditional banks and financial institutions,” the announcement stated. Funding will be leveraged by participating CDFIs through targeted investments in underserved communities.
The governor also proposed the creation of a statewide Office of Financial Inclusion and Empowerment (Office), which is intended to meet the financial services needs of low- and middle-income New York consumers. The Office will be based at NYDFS, and “will maintain a centralized list of financial services counseling providers—across housing, student loan, debt, and general financial literacy—throughout the [s]tate and coordinate state and local services aimed at expanding access to credit and enhancing financial empowerment.” According to the announcement, the Office will also “incubate new programs to expand access to safe and affordable banking services, credit and financial education; coordinate public-private partnerships; and foster provision of high-quality, low-cost financial products statewide.”
On December 31, the U.S. District Court for the Eastern District of Pennsylvania entered an order signing off on a settlement agreement between the state attorney general and an investment firm and its affiliates (the defendants) connected to a lender accused of using Native American tribes to circumvent the state’s usury laws. (See previous InfoBytes coverage here and here.) According to the court’s opinion, the defendants allegedly became involved in the “rent-a-bank” and “rent-a-tribe” schemes when they made “‘an initial commitment of at least $90 million to be used in funding [the] loans’ in exchange for a fixed 20 percent return on investment” guaranteed by the lender.
In the settlement agreement, the defendants agreed not to provide capital to any third-parties offering Pennsylvania consumers loans that carry an interest rate in excess of the state’s six percent limit on unsecured consumer loans under $50,000. The defendants also agreed to perform regulatory reviews and due diligence “at least once per full calendar year during the term of [a] transaction” involving consumer credit products or services offered to Pennsylvania consumers. While the defendants expressly deny any liability or wrongdoing, the parties agreed to enter into the agreement to “avoid the cost, expense and effort associated with continuing the dispute.” The AG states that the settlement agreement does not constitute an approval by the AG’s office of any of the defendants’ “products, marketing, business practices or website content, acts and/or practices.”
On December 31, a credit reporting agency (agency) and a class of consumers whose payday loan servicer collapsed jointly filed a proposed $24 million settlement agreement for approval by the U.S. District Court for the Central District of California (also, see the memorandum in support here). The proposed agreement would resolve a class action suit alleging that the agency provided incorrect and potentially harmful information on the class members’ credit reports in violation of the FCRA.
In 2016, the class representative (the consumer) sued the agency claiming it was reporting disputed debts from a payday loan servicer that had previously requested that the agency stop reporting the servicer’s pool of payday loan accounts. Because the servicer had also discontinued its servicing operations, the debts could no longer be verified. The consumer alleged that although the agency claimed to have deleted the payday loan servicer’s accounts in January of 2015, it continued to report as delinquent more than 100,000 loans until the accounts were actually deleted more than a year later. After the district court granted a motion for summary judgment filed by the agency, the consumer appealed to the U.S. Court of Appeals for the Ninth Circuit.
As previously covered in InfoBytes, upon appeal in 2019, the appellate court vacated the lower court’s grant of summary judgment on the ground that the consumer’s allegations regarding the inaccuracy of the agency’s information and the willfulness of its actions “raised genuine issues of material fact.” On remand, the district court granted class certification in October. The proposed settlement agreement, if approved, would automatically award each class member approximately $270, and provide up to $15,000 to the consumer who originally filed the lawsuit as the class representative. A hearing date is set for January 27.
On January 7, the Director of the FTC’s Bureau of Consumer Protection noted that the Commission has made “three major changes” in its data security orders to “improve data security practices and provide greater deterrence” by focusing on specificity, accountability, and responsibility. The first change increases the specificity of data security orders to “make the FTC’s expectations clearer” and “improve order enforceability.” The second change increases the accountability of the third-party assessors who review the comprehensive data security programs that the orders exact, by requiring assessors to include specific evidence for each determination and to accommodate requests from the FTC to review the assessments. The third change emphasizes executive responsibility. Yearly, companies will be required to present their data security programs to board and senior company executives who must certify the company’s compliance to the FTC. The announcement also pointed to a number of 2019 orders to demonstrate the “significant improvements” the agency has made with the three changes.
On December 31, the Federal Reserve Board, the OCC, and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks and small and intermediate small savings associations. A “small” bank or savings association is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.305 billion in assets. An “intermediate small” bank or savings association is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $326 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.305 billion in assets. This joint final rule became effective on January 1.
On December 31, the CFPB released its annual report to Congress on college credit card agreements. The report was prepared pursuant to the CARD Act, which requires card issuers to submit to the CFPB the terms and conditions of any agreements they make with colleges, as well as certain organizations affiliated with colleges. The CFPB cited data from 2018 showing that (i) the number of college card agreements in effect declined “both year-over-year as well as in comparison to 2009,” the first year data was collected; (ii) no new issuers submitted data to the Bureau for the first time since 2011, and two issuers left the market; and (iii) agreements with alumni associations continue to dominate the market based on most metrics. The complete set of credit card agreement data collected by the Bureau can be accessed here.
On January 4, NYDFS issued an Industry Letter warning regulated entities about the “heightened risk” of cyberattacks by hackers affiliated with the Iranian government following the killing of Iranian official Qasem Soleimani, and strongly encouraging entities to undertake preparations to ensure quick responses to any suspected cyber incidents. Specifically, NYDFS recommends that regulated entities (i) patch/remediate all vulnerabilities (especially publicly disclosed vulnerabilities); (ii) ensure employees are adequately able to handle phishing attacks; (iii) “fully implement multi-factor authentication”; (iv) “review and update disaster recovery plans”; (v) and quickly respond to further alerts from the government or other reliable sources, even outside regular business hours. The letter notes that NYDFS’ cyber regulation 23 NYCRR 500.17 (previously covered by InfoBytes here), requires regulated entities to notify NYDFS “‘as promptly as possible but in no event later than 72 hours’ after a material cybersecurity event.”
On December 30, the FTC announced that the U.S. District Court for the District of Nevada had, on December 5, granted its motion for summary judgment in an action against a mortgage loan modification operation (operation) for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule (MARS Rule). The January 2018 complaint alleged that the operation had engaged in unfair or deceptive acts or practices when it “preyed on financially distressed homeowners” by making false representations in advertising that its mortgage relief services could prevent foreclosures and “substantially lower” mortgage interest rates, as previously covered here. Additionally, the complaint charged that the operation used “doctored logos” in correspondence with consumers to give the impression that it was “affiliated with, endorsed or approved by, or otherwise associated with the federal government’s Making Home Affordable loan modification program,” and similarly claimed affiliation or “special arrangements” with the holder or servicer of the consumer’s loan. The court agreed with the FTC’s allegations, finding that the operation violated the FTC Act and the MARS Rule. The court entered a monetary judgment against the operation of over $18.4 million as equitable relief, which the FTC may use to compensate consumers harmed by the operation’s business practices. To the extent that an FTC representative determines that direct consumer redress is impracticable or money remains after redress is completed, the FTC may apply any remaining funds to other equitable relief (including consumer information remedies) that it determines is reasonably related to the practices alleged in the complaint. The court also permanently enjoined the operation from marketing or providing any secured or unsecured debt relief product or service, as well as from making deceptive statements to consumers regarding any other financial product or service.
On December 19, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued amended Iran General License (No. K-1), which permits transactions “ordinarily incident and necessary to the maintenance or wind down of transactions” involving certain shipping entities blocked by Executive Order 13846. In conjunction with the amendment, OFAC amended three Iran-related FAQs (FAQ 804, 806, and 807), which discuss whether sanctions on certain shipping tankers apply to their corporate parent and affiliates, the types of activities considered “maintenance” in General License K-1, and the processing of transactions by U.S. financial institutions involving a specific shipping tanker under General License K-1.
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- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference
- Kari K. Hall and Michelle L. Rogers to discuss "Overdrafts and regulatory trends" at the CLE Alabama Banking Law Update
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
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- Daniel P. Stipano to moderate "Washington update" at the 17th Puerto Rican Symposium of Anti Money Laundering 2020 conference
- APPROVED Checkpoint Webcast: CFL overview
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference