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District Court orders millions in restitution and civil penalties against two foreclosure relief companies
On November 4, the U.S. District Court for the Western District of Wisconsin ordered restitution and disgorgement, civil penalties, and permanent injunctive relief in an action brought by the CFPB against two former foreclosure relief companies and their principals (collectively, “defendants”) for violations of Regulation O. As previously covered by InfoBytes, in 2014, the CFPB, FTC, and 15 state authorities took action against foreclosure relief companies and associated individuals, including the defendants, alleging the use of deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. Specifically, the CFPB alleged that the companies and individuals (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers, in violation of Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule. Among other things, the court order holds company one and its principals jointly and severally liable for over $18 million in restitution, while company two and its same principals are jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
2nd Circuit: Failure to clarify static balance of debt is not an FDCPA violation
On November 4, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s decision that a debt collector does not violate the FDCPA by sending notices to consumers that do not clarify that a debt is static. The plaintiff in that case alleged that the defendant violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with the collection of a debt when it sent her a letter that contained a breakdown of interest and charges or fees accrued on the balance as separate line items, even though the amounts accrued explicitly reflect $0, along with the phrase “[a]s of the date of this letter, you owe $ [amount].” By implying that the amount owed might increase, the plaintiff argued that the least sophisticated consumer may erroneously think the debt is dynamic. The district court disagreed and granted the defendant’s motion for judgment on the pleadings.
In affirming this decision on appeal, the 2nd Circuit cited its own holding in Taylor v. Financial Recovery Services, Inc., in which it previously determined “that ‘a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of [the FDCPA].” The appellate court was not persuaded by the plaintiff’s attempt to distinguish her case from Taylor, finding that the language in the plaintiff’s letter is “stock language. . .present in a number of collection notices, including those considered not misleading in Taylor.” The 2nd Circuit further noted that “requiring debt collectors to draw attention to the static nature of a debt could incentivize collectors to make debts dynamic instead of static.”
OFAC sanctions additional Venezuelan government officials, amends and adds general licenses
On November 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against five current Venezuelan government officials. The sanctions—issued pursuant to Executive Order (E.O.) 13884, which prevents all property and property interests of the Government of Venezuela existing within the U.S. or in the possession of a U.S. person from being transferred, paid, exported, withdrawn, or otherwise dealt in (previous InfoBytes coverage here)—reflects Treasury’s continued efforts against persons who offer support to the Maduro regime.
In conjunction with the sanctions, OFAC also issued amended Venezuelan General License (GL) 34A, which supersedes and replaces GL 34, and authorizes transactions with certain Venezuelan government individuals blocked by E.O. 13884. OFAC also issued GL 35, titled “Authorizing Certain Administrative Transactions with the Government of Venezuela,” which permits certain transactions “necessary and ordinarily incident” to day-to-day operations. New and amended FAQs provide additional guidance.
Visit here for additional InfoBytes coverage of actions related to Venezuela.
SEC charges online auction portal with violating whistleblower protection laws
On November 4, the SEC announced the filing of an amended complaint in an action against an online auction portal and its CEO (collectively, “defendants”), along with the CEO’s wife as a relief defendant. The original complaint, filed in May, alleged that defendants operated a $23 million fraudulent securities offering and misappropriated investor proceeds. The amended complaint adds, among other things, a new count for “Impeding: Rule 21F-17 of the Exchange Act,” alleging that the defendants took actions to impede individuals from communicating with the SEC and other agencies regarding misconduct at the company by conditioning the return of investor money on signing agreements with confidentiality clauses purportedly prohibiting the reporting of potential securities law violations to law enforcement agencies. The SEC seeks preliminary and permanent injunctions, disgorgement plus prejudgment interest, and penalties.
OFAC extends two Ukraine-related general licenses
On November 1, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) announced it extended the expiration date to March 31, 2020 of two Ukraine-related general licenses (GLs) by issuing GL 13M, which supersedes GL 13L, and GL 15G, which supersedes GL 15F. OFAC also noted that GL 15G includes an expanded authorization for certain safety-related activity and a new authorization for certain activities to comply with environmental regulatory requirements.
Visit here for continuing InfoBytes coverage of actions related to Ukraine.
District Court certifies payday lending class action
On October 31, the U.S. District Court for the District of New Jersey certified two classes of consumers alleging a payday lender and its subsidiaries charged usurious, triple-digit interest rates on short-term loans originated by a nonparty entity run by a member of a federally recognized Indian tribe. The lawsuit—which alleges, among other things, usury and consumer fraud in violation of New Jersey law, common law restitution and unjust enrichment, and violations of the Racketeer Influenced and Corrupt Organizations Act—was filed in 2016 with the defendants arguing that the claims were subject to an arbitration provision accompanying the loan agreement. However, as previously covered by InfoBytes, the U.S. Court of Appeals for the Third Circuit upheld the district court’s decision that the tribal arbitration forum referenced in the loan agreement does not actually exist and, “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.
According to the plaintiffs, the defendants evaded state law usury limits by attempting to use the sovereignty of an Indian tribe, with most loans carrying an annual percentage interest rate of 139 percent. While the defendants challenged the notion that common questions about the loan agreements predominated over the individual concerns of each class member, the court determined that the loan agreements at issue have an identical structure of interest amortized over a fixed payment schedule. “Plaintiffs have therefore shown that they can use common evidence to prove their [Consumer Fraud Act] claims, and that common questions predominate,” the court stated. “Namely the nearly identical, allegedly usurious loan agreements, which caused an out of pocket loss in the form of usurious interest.” The court also dismissed the defendants’ argument that the plaintiffs’ suit was inferior to a 2018 CFPB action, which resulted in a $10.3 million civil money penalty but no restitution (previous InfoBytes coverage here), stating that “[i]ncredibly, [d]efendants argue that this CFPB action, which denied any recovery to the putative class members here, is a superior means for them to obtain relief.”
Terrorist Financing Targeting Center designates network supporting IRGC and Hizballah
On October 30, the U.S. Treasury Department announced that the seven member nations of the Terrorist Financing Targeting Center (TFTC) have jointly designated 25 targets for allegedly supporting Iran’s Islamic Revolutionary Guard Corps and Hizballah, as part of Treasury’s efforts to “bolster the fight against terrorist financing.” The targets include 21 entities that comprise a “vast network of businesses providing financial support to the Basij Resistance Force” through the use of shell companies and other measures within Iran’s automotive, mining, metals, and banking industries, along with four Hizballah-affiliated individuals allegedly involved in related financial activities in Iraq. The seven members—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and the U.S.—coordinate disruptive actions, share financial intelligence information, and enhance member state capacity in order to target activities posing national security threats to TFTC members, including the disruption of financial networks used to fund terrorism.
Visit here for additional InfoBytes coverage on actions involving Iran and Hizballah.
Michigan AG sues online tribal lender
On October 31, the Michigan attorney general announced it filed a lawsuit against an online lender alleging the lender violated the CFPA and Michigan law by allegedly offering usurious loans in an “unfair, deceptive, and abusive manner” with interest rates between 388 percent and 1,505 percent. The complaint alleges that the online lender is using its affiliation with a federally recognized Indian tribe located in California to circumvent Michigan’s interest rate cap, but, “is not an arm of the tribe and therefore is not entitled to assert tribal sovereign immunity from suit.” Moreover, the complaint argues that because the lender offers loans to Michigan residents, it is operating outside of tribal boundaries and, therefore, is subject to any and all applicable state and federal laws. In addition to usurious interest rates, the complaint alleges the lender misrepresented contract terms, including various rates and fees, and refused to let consumers pay off loans early. The attorney general is seeking declaratory and injunctive relief to prevent the lender from “providing usurious loans in Michigan in the future.” Notably, this is Michigan’s first-ever lawsuit alleging violations of the CFPA.
District Court certifies class suing Department of Education over borrower defense claims
On October 30, the U.S. District Court for the Northern District of California certified a class of borrowers who allegedly applied for student loan relief based on their higher education institution’s misconduct but have yet to receive a decision from the Department of Education. The borrowers allege that the Department has arbitrarily and capriciously stonewalled its own process for adjudicating the borrowers’ defense claims under the Higher Education Act, which “allows the Department to cancel a student federal loan repayment based on a school’s misconduct.” The borrowers claim the Department has failed to decide a borrower defense claim since June 2018. According to the borrowers—former students of for-profit schools with claims dating back to 2015—“the Department’s inaction continues to cause putative class members ongoing harm.” The Department argued, however, that the class should not be certified because the borrowers’ claims rely too much on individual circumstances and fail to prove a “systemic policy of inaction[.]” The court disagreed and certified the class, stating that the borrowers “have identified a single uniform policy—namely, the Department’s alleged ‘blanket refusal’ to adjudicate borrower defenses—which ‘bridges all their claims.’” Moreover, the court noted that “this alleged uniform policy is supported by the undisputed fact that the Department has failed to adjudicate a single borrower defense claim in over a year.” The class does not include borrowers who are part of a separate action filed against the Department (covered by InfoBytes here).
Agencies adjust threshold for Regulations Z and M
On October 31, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) to credit transactions, as required by the Dodd-Frank Act (published in the Federal Register here and here). Each year the thresholds must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2020, based on the annual percentage increase in the CPI-W, is now $58,300 or less, except for private student loans and loans secured by real property, which are subject to TILA regardless of the amount.