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On June 8, Net 1 UEPS Technologies, Inc., a South Africa-based mobile payments company incorporated in Florida, announced that the SEC had closed a FCPA investigation arising out of a contract with the South African Social Security Agency. The SEC and the DOJ opened parallel investigations in November 2012, and the DOJ investigation remains ongoing. Net 1 has asserted that the investigation was instigated by one of the losing bidders on the contract.
On March 26, the U.S. District Court for the Northern District of Illinois required arbitration of a dispute regarding alleged overcharging by an Internet service provider (ISP) because the consumer had agreed to an arbitration provision included in the ISP’s clickwrap terms of service. Sherman v. AT&T Inc., No. 11-C-5857, 2012 WL 1021823 (N.D.Ill. Mar. 26, 2012). The court held that the plaintiff’s assent to the terms during the online activation process constituted acceptance of those terms, regardless of when he believed the contract was formed. To activate his Internet service, the plaintiff was required to confirm through an online process that he had read and agreed to the ISP’s terms of service. The activation and confirmation page included a link to the terms of service, which included an agreement to arbitrate all disputes. The plaintiff argued (i) that his contract with the ISP was formed during a phone call with an ISP customer service agent pursuant to which he ordered the service, prior to the online activation process, and therefore the terms of service do not apply, and (ii) the terms were not expressly incorporated into the broader conditions of his contract and were procedurally unconscionable. The district court granted the ISP’s motion to compel arbitration of the plaintiff’s allegation (made on behalf of a putative class) that the ISP systematically overcharged consumers for residential Internet service by advertising promotional plans while actually charging standard rates.. The court reasoned that vendors may enclose the full legal terms with their products rather than reciting them prior to purchase, for practical purposes, even if the full terms are not delivered until after the consumer’s order and payment. The court also held that the terms were not procedurally unconscionable, as they were not difficult to find, read or understand, and the plaintiff had a full and fair opportunity to review the terms prior to activation.
On April 4, the FTC released complaints filed recently against two operations allegedly engaged in deceptive auto loan modification schemes. According to the FTC, the two companies and several related individuals instructed consumers to stop paying their auto loans and promised to lower their monthly payments in exchange for up-front payment of fees, but then did not provide promised refunds when they failed to obtain car loan modifications. The FTC complaints detail the companies’ Internet and other marketing efforts and alleged false promises of lower monthly payments and money-back guarantees. These are the first auto loan modification cases filed by the FTC, which has been actively pursuing allegations of similar mortgage loan modification schemes. Concurrent with these announced cases, the FTC released an alert for consumers seeking assistance in managing their auto loans. The FTC also recently closed out a year of seeking public input on consumer protection issues that arise in auto sales, financing, and leasing.
On April 2, the FTC announced that it filed a complaint in the United States District Court for the District of Nevada against a payday lending operation that allegedly charged undisclosed and inflated fees, and collected on loans illegally by threatening borrowers with arrest and lawsuits. The FTC alleges that the operation, consisting of numerous defendants including three Internet-based lending companies, seven related companies and numerous individuals (i) violated the FTC Act by making misrepresentations and false threats, (ii) violated TILA by failing to accurately disclose APR and other loan terms, and (iii) violated the Electronic Fund Transfer Act by requiring consumers to preauthorize electronic fund transfers from their accounts. According to the FTC, the defendants have claimed in state court that they are immune from legal action because of their affiliation with Native American tribes. The FTC argues that notwithstanding any such affiliation, the defendants are still subject to federal law. This is the second time in seven months that the FTC has brought suit against a payday lender that has used a tribal affiliation defense against actions by state authorities.
Last month, the Ohio Attorney General’s office finalized amendments to that state’s “ability to repay” rules adopted under the Ohio Consumer Sales Practices Act. Under that Act, it is unconscionable for a lender to, among other things, (i) engage in a pattern or practice of providing consumer transactions to consumers based predominantly on the supplier’s realization of the foreclosure or liquidation value of the consumer’s collateral without regard to the consumer’s ability to repay the loan in accordance with its terms, and (ii) enter into a consumer mortgage transaction knowing there was no reasonable probability of payment of the obligation by the consumer. Effective March 30, 2012, the Act’s two new rules (available here and here) provide a safe harbor for certain loans. A consumer will be considered to have an ability to repay and to have a reasonable probability of payment under the provisions identified above if the lender is offering a fully-amortizing fixed-rate refinance loan that (i) has the same or lesser interest rate as the rate of the consumer's current loan, (ii) has the same or lesser principal amount as the consumer's current loan, and (iii) does not extend the payoff date of the consumer's current loan.
On March 20, New York’s District Court of Nassau County refused to enforce a forum selection clause because the defendant did not make an affirmative effort to reasonably communicate that key term to the other party or otherwise do enough to ensure the clause became a part of the parties’ contract. Jerez v. JD Closeouts, LLC, No. CV-024727-11, 2012 WL 934390 (N.Y. Dist. Ct. Mar. 20, 2012). The plaintiff filed suit alleging that products ordered over the Internet following an e-mail solicitation from the defendant were defective. The defendant moved to dismiss, arguing that a forum selection clause in the parties’ contract required that the dispute be heard in a Florida state court. The court found that the forum selection clause was not reasonably communicated through any of a printed contract, a confirming letter agreement incorporating provisions from the website by reference, or a click-through acceptance. Rather, the court found, the clause was included in terms and conditions “buried” and “submerged” on the defendant’s website, on a page “that could only be found by clicking on an inconspicuous link to the company’s ‘About Us’ page.” The court denied the defendant’s motion to dismiss.
On April 3, the Financial Stability Oversight Council (FSOC) voted to approve a final rule and interpretive guidance regarding the process it intends to use in designating nonbank financial companies as systemically important and subject to supervision by the Federal Reserve Board (FRB). The final rule and guidance follow an advanced notice of proposed rulemaking, two proposed rules, and proposed guidance. The final designation process is substantially similar to that outlined in the second proposed rule, issued in October 2011, with some clarifications. For example, the final rule provides a longer time period (no less than 30 days) for companies to respond to a notice that it is being considered for a systemically important determination and makes clear that hearings conducted as part of the determination process are nonpublic. The FSOC also clarified in response to comments that it intends to interpret the term "company" broadly to include any corporation, limited liability corporation, partnership, business trust, association, or similar organization, but not unincorporated associations. The rule does not provide any industry-based exemptions and the FSOC indicated that it does not intend to provide any, but will consider related comments as part of the determination process. Regarding coordination, the FSOC declined to delay finalizing this rule until related regulatory activities are completed, for example, the FRB's rule for determining if a company is "predominantly engaged in financial activities," choosing to view those considerations as non-essential to its consideration of whether a nonbank financial company could pose a threat to U.S. financial stability.
On April 2, the FRB released an amended proposed rule to establish requirements for determining whether a company is “predominantly engaged in financial activities.” The original proposal also defined the terms “significant nonbank financial company” and “significant bank holding company.” Comments received in response to the February 2011 proposed rule raised questions as to whether conditions imposed on the conduct of financial activities by the Bank Holding Company Act and the FRB’s implementing regulations should be considered in defining financial activities. In response, the FRB amended the proposal to clarify that any activity referenced in section 4(k) of the Bank Holding Act will be considered to be a financial activity without regard to conditions that were imposed on bank holding companies that do not define the activity itself. The revised proposal also adds an appendix that lists all activities that would be considered to be financial activities as of April 2, 2012. While the FSOC can designate nonbanks as systemically important, it can only do so with regard to nonbank financial companies that are predominantly engaged in financial activities which, under Section 102 of the Dodd-Frank Act, means that 85 percent or more of the company’s revenues or assets are related to financial activities, as defined in section 4(k) of the Bank Holding Act. The FRB is tasked with establishing the detailed criteria for determining whether a company meets this definition.
West Virginia Removes Mortgage Licensing Exemption, Creates Procedure for Abandoned Personal Property Following Foreclosure
According to its May 19 securities filing, Embraer S.A., a Brazilian manufacturer of commercial jets, has entered into discussions with DOJ to resolve a FCPA probe launched by the Department in 2010. The government’s investigation stems from allegations, previously covered here, that Embraer sales executives bribed various Dominican individuals who, in exchange, influenced legislators in the Dominican Republic to approve a $92 million contract and financing agreement for aircraft. In its filing, the company stated that a resolution of the investigation would result in fines and other sanctions by the DOJ. The Brazilian government’s criminal case against the eight Embraer S.A. sales executives is still ongoing.
On May 20, BHP Billiton, an Australian-based metal resources company, paid $25 million to settle claims brought by the SEC alleging that the company violated the FCPA’s internal controls and books and records provisions by sponsoring the attendance of foreign government officials at the 2008 Beijing Olympics. According to the SEC’s cease-and-desist order, in which the company neither admitted nor denied the SEC’s findings, BHP Billiton invited 176 government officials to attend the Olympics at BHP Billiton’s expense, 98 of whom were representatives of state-owned enterprises that were BHP Billiton customers. The flight and hospitality packages the officials received were worth between $12,000 and $16,000 per package.
Of note, the SEC did not allege any specific quid pro quo in exchange for the trips (and did not allege that BHP Billiton violated the anti-bribery provisions of the FCPA), but noted that the foreign officials came from African and Asian countries with well-known histories of corruption and were in a position to influence pending contract negotiations, efforts to obtain access right, and other regulatory and business dealings affecting BHP Billiton. The SEC settlement order found that BHP Billiton’s Olympic hospitality applications did not accurately reflect pending negotiations or business dealings between BHP Billiton and government officials invited to the Olympics, and also found that the company failed “to design and maintain sufficient internal controls over the Olympic global hospitality program.”
Continuing recent efforts to highlight the nature of certain companies’ cooperation efforts, the SEC called out BHP Billiton’s “significant cooperation” with the government’s investigation by, among other things, “voluntarily producing large volumes of business, financial, and accounting documents from around the world in response to the staff’s requests, and by voluntarily producing translations of key documents.” The SEC also noted the remedial efforts undertaken by the company to improve its compliance programs, including the creation of a compliance group within its legal department that reports directly to BHP Billiton’s general counsel and audit committee. According to the order, BHP Billiton also enhanced its financial and auditing controls, including its policies for conducting business in high-risk markets, and conducted extensive employee training on anti-corruption issues. The settlement requires the company to report to the SEC on the operation of its FCPA and anti-corruption compliance program for a one-year period, although no independent monitor was required.
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Benjamin W. Hutten to discuss "BSA program reporting, management and board of directors responsibilities" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference