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Appellate Court reverses and remands FACTA action
On January 22, the Illinois Appellate Court, Second District, reversed the dismissal for lack of standing of a FACTA class action brought on behalf of the class by two individuals (consumers) who claimed that an entertainment company (defendant) violated the act when it printed more than the last five digits of the consumers’ payment card number on their receipts. According to the opinion, the complaint alleged that the consumers made a number of purchases from the defendant, each time receiving sales receipts with the first six digits and the last four digits of the consumers’ debit card printed on each receipt. The consumers then filed a class action suit accusing the defendant of willful violation of FACTA, and further, of knowingly or recklessly failing to adhere to the acts’ prohibition against ‘“print[ing] more than the last 5 digits of the card or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.”’ The defendants first removed the action to federal district court, which granted the consumers’ motion to remand back to state court. The defendants then argued that: (i) the consumers lacked standing because they failed to allege an injury; and (ii) the consumers failed to allege facts showing a willful violation of FACTA. The lower court granted the defendant’s motion to dismiss as to standing on the first allegation, but did not consider the second allegation of willfulness, after which the consumers appealed.
Upon appeal, the court reversed the lower court’s dismissal for lack of standing noting that unlike federal courts, Illinois circuit courts are vested with “jurisdiction to adjudicate all controversies,” and determined that the consumers did have standing to sue even without pleading actual injury, as an allegation of the violation was sufficient. The court stated that “when a person willfully fails to comply with FACTA’s truncation requirements, the statute provides a private cause of action for statutory damages and does not require a consumer to suffer actual damages before seeking recourse.” Additionally, the court decided that the consumers had alleged “sufficient facts” to show that defendant willfully violated FACTA. The panel remanded the case to the lower court to further consider the issues.
CFPB updates HMDA Small Entity Compliance Guide
On January 24, the CFPB published the HMDA Small Entity Compliance Guide with updates to integrate the HMDA final rule issued in October. According to the guide, HMDA rule changes include (i) the types of institutions and transactions that are subject to Regulation C; (ii) the information that institutions must collect and report; and (iii) the process for reporting the information. As previously covered in InfoBytes, some institutions are exempt from the information collection and reporting requirements. Additionally, the guide notes that effective January 1, 2022, the rule “reduces the loan-volume threshold for covered open-end lines of credit to 100 covered open-end lines of credit in each of the two preceding calendar years” from the temporary threshold of 500 lines, previously covered here. It also clarifies and expands the categories of excluded transactions.
OFAC sanctions network for purchasing Iranian petroleum products
On January 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it took action against four petroleum products companies (network) designated pursuant to Executive Order (E.O.) 13846 for making payments to “an entity instrumental in Iran’s petroleum and petrochemical industries, which helps to finance Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and its terrorist proxies.” The Iranian entity is on the List of Specially Designated Nationals and Blocked Persons and its property is blocked in conformance with E.O. 13599. According to OFAC, the network transferred payments to the Iranian entity for petroleum exports and “worked to conceal the Iranian origin of these products.” Among other things, these sanctions prohibit foreign financial institutions from “knowingly facilitat[ing] transactions for, or persons that provide material or certain other support to,” the designated petroleum products broker. See the new Iran-related designations here.
Parties file amicus briefs in CFPB constitutionality challenge
On January 22, a coalition of attorneys general from 23 states and the District of Columbia filed an amicus brief in Seila Law LLC v. CFPB arguing that the U.S. Supreme Court should preserve the CFPB and other consumer protections provide under Title X of Dodd-Frank. Last October the Court granted cert in Seila to answer the question of whether an independent agency led by a single director violates the Constitution’s separation of powers under Article II. The Court also directed the parties to brief and argue whether 12 U.S.C. §5491(c)(3), which sets up the CFPB’s single director structure and imposes removal for cause, is severable from the rest of the Dodd-Frank Act, should it be found to be unconstitutional. (Previous InfoBytes coverage of the parties’ submissions available here.) In their amicus brief, the AGs argue that the Bureau’s structure is constitutional, and that—even if the for-cause removal provision is deemed invalid—the Bureau and the rest of Title X should survive. The brief highlights joint enforcement actions and information sharing between the states and the Bureau, and emphasizes the importance of Title X provisions that are unrelated to the Bureau but provide states “powerful new tools” for combating fraud and abuse. “These provisions are entirely independent of the provisions governing the CFPB, and they serve distinct policy goals that Congress would not have wanted to abandon even if the CFPB itself were no longer operative,” the AGs write. While the AGs support the U.S. Court of Appeals for the Ninth Circuit’s decision that the Bureau’s single-director structure is constitutional (previously covered by InfoBytes here), they stress that should the leadership structure be declared unconstitutional, the specific clause should be severed from the rest of Dodd-Frank. According to the AGs, “[s]everability is supported not only by [Dodd-Frank’s] express severability clause, but also by Congress’s strongly expressed intent to create a more robust consumer-protection regime to avert another financial crisis.” Moreover, the AGs assert that the states would suffer concrete harm if the Court decides to eliminate the Bureau or rule that the entirety of Title X should be invalidated.
The same day the U.S. House of Representatives filed an amicus brief arguing that the Court should resolve Seila without deciding the constitutionality of the Bureau director’s removal protection because the removal protection has no bearing on the issue in the case, which is an action addressing whether the Bureau’s civil investigative demand should be enforced. However, should the Court take up the constitutionality question, the brief asserts it should uphold the removal protection. “In establishing the CFPB, Congress built upon its long history of creating, and this Court’s long history of upholding, independent agencies.” The brief states that the “CFPB performs the same functions independent regulators have long performed, and it does so under the same for-cause standard this Court first blessed 85 years ago. The CFPB’s single-director structure does not transform that traditional standard into an infringement on the President’s authority.”
Earlier on January 21, Seila Law filed an unopposed motion for divided argument and enlargement of time for oral argument, which states that all parties “agree that divided argument is warranted among petitioner, the government, and the court-appointed amicus.” The brief suggests a total of 70 minutes, with 20 minutes for the petitioner, 20 minutes for the government, and 30 minutes for the court-appointed amicus, and notes that any time allotted to the House of Representative should come from the court-appointed amicus’ time. (The House filed a separate brief asking to be allotted oral argument time.)
A full list of amicus briefs is available here. Oral arguments are set for March 3.
CFPB formalizes “Compliance Aids” policy
On January 27, the CFPB published a policy statement announcing a new designation for certain guidance material. The non-binding “Compliance Aids” are intended to assist financial institutions when complying with laws and regulations, but are not rules, and are therefore exempt from the Administrative Procedures Act’s notice and comment rulemaking requirements. According to the Bureau, while the Compliance Aids may include practical suggestions for entities, the Bureau notes that “[w]here there are multiple methods of compliance that are permitted by the applicable rules and statutes, an entity can make its own business decision regarding which method to use, and this may include a method that is not specifically addressed in a Compliance Aid. In sum, regulated entities are not required to comply with the Compliance Aids themselves. Regulated entities are only required to comply with the underlying rules and statutes.” The policy statement is effective February 1.
FDIC encourages relief for Puerto Rico borrowers
On January 24, the FDIC issued Financial Institution Letter FIL-4-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Puerto Rico affected by a recent series of earthquakes. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the earthquakes. Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider regulatory relief from certain filing and publishing requirements.
Find continuing InfoBytes coverage on disaster relief guidance here.
CFPB issues statement intended to clarify “abusive” practices
On January 24, the CFPB issued a policy statement applicable immediately to provide a “common-sense framework” for how the Bureau plans to apply the “abusiveness” standard in supervision and enforcement matters as authorized under Dodd-Frank. Under the new policy statement, the Bureau will only cite or challenge conduct as abusive if the agency “concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” The Bureau will also generally avoid challenging conduct as abusive if it relies on all, or nearly all, of the same facts alleged to be unfair or deceptive. Should the Bureau include abusiveness allegations, the policy statement says it will “plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim.” With respect to supervision, the Bureau intends to clarify the specific factual basis for determining a violation of the abusiveness standard. In addition, “the Bureau generally does not intend to seek certain types of monetary relief for abusiveness violations” in instances where the Bureau determines that the person made “a good-faith effort to comply with the abusiveness standard.” However, the Bureau cautions that it will still pursue restitution for consumers in such instances, regardless of whether a person acted in good faith. The Bureau further emphasized that the issuance of the policy statement does not prevent the possibility of future rulemaking to further define the abusiveness standard.
As previously covered by InfoBytes, last June the Bureau held a symposium to examine how the “abusive” standard has been used in practice in the field. Academics and practitioners discussed whether consumer harm was required for a practice to be considered abusive or whether there was even a need to clarify the abusive standard, as it is already statutorily defined. Most panelists agreed that a guidance document or policy statement would be an important first step for the Bureau in providing clarity to the industry, noting that the industry has struggled with examples of how abusiveness is different from unfairness or deception and that the Bureau has been “inconsistent at times” in the application of the abusive standard. The Bureau notes that the symposium, along with stakeholder feedback, played an important part of the process leading to the issuance of the policy statement.
OCC announces charges, settlements with former executives on account openings
On January 23, the OCC issued a notice of charges against five former senior executives for allegedly failing to adequately ensure a national bank’s incentive compensation plans regarding sales practices operated in accordance with bank policy. (See previous InfoBytes coverage here.) The relief sought by the OCC against these individuals could include a lifetime prohibition from participating in the banking industry, a personal cease and desist order, and/or civil money penalties. Under federal law, the individuals may request a hearing to challenge the allegations and relief sought by the OCC. The same day, the OCC also announced settlements with the bank’s former chairman/CEO, its former chief administrative officer and director of corporate human resources, and its former chief risk officer for their alleged roles in the bank’s sales practices misconduct. According to the OCC, the actions serve to, among other things, reinforce the agency’s expectations that management and employees of regulated entities comply with applicable laws and regulations.
Point-of-sale finance company enters into consent order with California DBO
On January 16, the California Department of Business Oversight (DBO) and a point-of-sale finance company entered into a consent order to resolve the DBO’s allegations that the company had made loans without a license to California consumers. According to the order, the company applied for a license under the California Financing Law (CFL) in September 2019. The DBO initially denied the company’s license application on December 30, 2019 (previously covered by InfoBytes here) and issued a statement of issues explaining its reasoning. The DBO found that the company’s transactions were disguised loans subject to the CFL. The company had argued that its transactions were credit sales not subject to the CFL. Ultimately, the company agreed to resolve the matter and pay $282,000 in refunds to consumers and a $28,200 fine for unlicensed lending. Additionally, the company agreed to “cease providing loans or extensions of credit to California residents by means of purchasing credit sales contracts from merchants” and “only provide loans or extensions of credit to California residents under the authority of a license issued by the Commissioner under the CFL.” Simultaneous with the announcement of the consent order, the DBO issued the company a license.
Two whistleblowers earn SEC awards totaling $322,000
On January 22, the SEC announced that it had awarded a total of $322,000 to two whistleblowers in two separate enforcement actions. According to the SEC’s press release, the whistleblowers “played a crucial role in helping the Commission protect Main Street investors,” and “assisted the SEC in returning money to harmed investors.” One whistleblower provided information that reportedly helped the agency “shut down an ongoing fraudulent scheme that was preying on retail investors,” and was awarded $277,000 (see award order here). The other whistleblower, a harmed investor, assisted the agency to “shut down a fraudulent scheme targeting retail investors.” The whistleblower was awarded $45,000 (see award order here). Since 2012, the SEC whistleblower program has awarded roughly $387 million to 72 whistleblowers.