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Waters previews committee priorities
On August 23, House Financial Services Committee Chairwoman Maxine Waters released an overview of the Committee’s fall 2019 priorities and highlighted efforts undertaken during the 116th Congress so far. Upcoming areas of focus will include (i) holding hearings to examine the state of minority depository institutions, review stock buybacks, and analyze innovations for loan instruments; (ii) conducting an ongoing review of a social media company’s proposed cryptocurrency and digital wallet; (iii) continuing oversight of federal financial agencies through testimony from Treasury Secretary Steven T. Mnuchin, CFPB Director Kathy Kraninger, FHFA Director Mark Calabria, and Federal Reserve Vice Chairman Randal K. Quarles; (iv) examining the Terrorism Risk Insurance Program; (v) analyzing workforce diversity improvements; and (vi) increasing homeownership access through Federal Housing Administration improvements and housing finance reform. The Committee will also continue its task forces on data privacy, the use of artificial intelligence in the financial services market, and the evolution of payments and cash.
District Court rejects law firm’s bona fide error defense in FDCPA action
On August 15, the U.S. District Court for the District of Connecticut held that a law firm violated the FDCPA, rejecting the law firm’s bona fide error defense, and awarded the consumer statutory damages. According to the opinion, the consumer alleged that the law firm violated the FDCPA in a 2016 debt collection letter sent to the consumer. Specifically, the consumer argued that the letter “‘ma[de] it impossible for a consumer to know how much is owed and if the debt will be considered paid if payment is made in full,’” because the letter contained two different balance amounts: (i) a “Charge-Off Balance” listed at $663.94 and (ii) a “Balance” or “Current Balance” listed as $565.46. The law firm acknowledged the existence of two different balance amounts, but asserted that the Current Balance was the correct amount and that the consumer “was not confused about what he owed.” The court rejected this argument, finding that under the “least sophisticated consumer standard,” a consumer would be confused by the two different balances, noting that the letter provided no explanation about the two different amounts. The law firm also argued that the inaccuracy was not material, and therefore it should not give rise to liability under the FDCPA. The court disagreed, finding that the difference between the two amounts was “more than trivial,” noting it almost exceeded one hundred dollars, and could induce a consumer to delay payment. Lastly, because the error in amounts was not a result of human judgment, but a failure in programming, the court rejected the law firm’s bona fide error defense. The court awarded the consumer statutory damages and authorized the consumer to seek reasonable costs and attorney’s fees.
District Court: No negligent misrepresentation claims in smart-TV privacy suit
On August 20, the U.S. District Court for the District of New Jersey dismissed without prejudice a proposed class action alleging consumer fraud claims. Specifically, in 2017, the plaintiffs filed a complaint alleging that smart televisions manufactured by the defendants surreptitiously collected consumer data such as programs viewed and when they were viewed, along with certain identifying information including IP addresses and zip codes. This information, the plaintiffs contended, was sold to third parties who used the data to advertise to the same consumers, in violation of the (i) New Jersey Consumer Fraud Act (NJCFA); (ii) Florida's Deceptive and Unfair Trade Practices Act (FDUTPA); (iii) the Video Privacy Protection Act; (iv) the Wiretap Act; and (v) common law negligent misrepresentation. In response to the defendants’ motion to dismiss, the court held that the claims were pled with sufficient particularity under the Federal Rules of Civil Procedure to withstand a motion to dismiss, but dismissed the state consumer fraud claims, reasoning that the plaintiffs failed to adequately allege their damages. The court ruled that the FDUTPA and NJCFA claims failed because the plaintiffs had not alleged actual damages, rejecting plaintiffs’ assertions that the invasion of their privacy counted as damages because there was no out-of-pocket loss. Additionally, the court dismissed the plaintiffs’ federal Video Privacy Protection Act, reasoning that the information allegedly collected did not constitute personally identifiable information under 3rd Circuit precedent. By contrast, the court allowed the Wiretap Act allegations to proceed after determining the plaintiffs “adequately alleged that their ‘content’ was intercepted.” Finally, with respect to the common law negligent misrepresentation claim, the court agreed with the defendants that the plaintiffs failed to allege that a special relationship existed between the plaintiffs and the defendants that could support a negligent misrepresentation claim.
State AGs and VSPs to collaborate on robocalls
On August 22, North Carolina Attorney General Josh Stein announced a bipartisan agreement between 51 state attorneys general and 12 voice service providers, adopting eight principles for fighting illegal robocalls and preventing consumer fraud. Under the principles, the voice providers will: (i) offer no-cost call-blocking technology, including easy-to-use call blocking and labeling tools; (ii) implement STIR/SHAKEN call authentication (as previously covered by InfoBytes, in June the FCC adopted a Notice of Proposed Rulemaking requiring voice providers to implement the caller ID authentication framework); (iii) analyze and monitor high-volume voice network traffic for robocall patterns; (iv) investigate suspicious calls and calling patterns and take appropriate action; (v) confirm identities of new commercial customers; (vi) require traceback cooperation in new and renegotiated contracts; (vii) provide for timely and comprehensive law enforcement efforts through cooperation in traceback investigations; and (viii) communicate with state attorneys general about recognized robocall scams and trends and potential solutions. AG Stein noted that the principles will also “make it easier for attorneys general to investigate and prosecute bad actors.”
District Court approves final call-taping settlement
On August 21, the U.S. District Court for the Central District of California issued an order granting final approval of a settlement reached between a class of California consumers and a mortgage company. The approval of the settlement resolves allegations that the company contacted delinquent borrowers and had conversations involving personal and confidential financial information without first informing the consumers that the conversations would be recorded. The plaintiffs filed a complaint in 2015 alleging that the company violated sections of the California Penal Code that prohibit the intentional recording of conversations without obtaining the knowledge or consent of the other party. According to the plaintiffs, the company used scripts that instructed its agents to carry on discussions with consumers prior to providing the call recording advisory. Among other provisions, the settlement terms award $1.6 million in attorneys’ fees, approximately $25,046 in reimbursement of litigation expenses, service awards of $10,000 to each class representative, and up to $200,000 to the settlement claims administrator for its work in distributing settlement money to class members (the company is required to establish a settlement fund in the amount of $6.5 million).
CSBS launches online tools to navigate state rules
On August 21, the Conference of State Bank Supervisors (CSBS) launched three online tools designed to assist financial institutions navigate the state regulatory landscape and protect against cyber risks. The tools are: (i) a portal of state agency guidance for nonbank financial services companies; (ii) an interactive map of agent-of-the-payee exemptions, which identifies the states that do not require a money transmitter license for receiving a payment on behalf of a third party; and (iii) a cybersecurity 101 resource center for banks and nonbanks that features a guide to help financial institutions develop comprehensive cybersecurity programs. The tools were created as part of the CSBS Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers.
District Court upholds $925 million TCPA jury verdict against direct sales company
On August 21, the U.S. District Court for the District of Oregon upheld a $925 million jury verdict against a direct sales company in a TCPA class action lawsuit, denying the company’s motion to decertify the class. According to the opinion, the named plaintiff brought the 2015 class action lawsuit alleging the company violated the TCPA by calling consumers using an artificial or prerecorded voice without their consent. In April 2019, a jury concluded that a total of 1,850,436 calls were made using an artificial or prerecorded voice to either cell phones or landlines. However, in June 2019, the FCC granted a request made by the company in September 2017 for a retroactive waiver of the agency’s 2012 new written consent requirements for telemarketing robocalls, but only as it applied to “calls for which the petitioner had obtained some form of written consent.” Based on the newly-obtained waiver from the FCC, the company moved to decertify the class arguing that, among other things, (i) the named plaintiff lacked standing, and (ii) consent is now an individualized issue that “predominates” over the class issues. The court rejected these arguments, concluding that the company waived the affirmative defense of consent by not raising the defense earlier in the litigation when it knew its FCC waiver was pending. Specifically, the court reasoned that the failure to raise the issue “given the likelihood that the FCC would grant its waiver petition was unreasonable.” The court also rejected the company’s predominance arguments, concluding that whether the calls were made to a landline or cellphone is irrelevant as TCPA liability “attaches to any call made [to] either” type. The court concluded that class certification was proper, upholding the jury’s verdict.
Fed updates private flood insurance interagency examination procedures
On August 22, the Federal Reserve Board (Fed) issued CA 19-10, which provides updates to the interagency examination procedures for the Flood Disaster Protection Act (FDPA). The updated guidance is applicable to all Fed-supervised institutions with total consolidated assets of $10 billion or less, and supersedes CA 16-1’s FDPA examination procedures. Specifically, the updated procedures address new sections from a final interagency rule issued in February concerning the acceptability of private flood insurance (previously covered by InfoBytes here). Additionally, the updated procedures provide guidelines for lending institutions when considering a mutual aid society flood protection plan. The Fed notes that “state member banks may not typically analyze mutual aid society plans in the course of their lending activities,” and reminds lenders that acceptance standards for mutual aid society plans will vary depending on the state.
German bank to pay $16.2 million for allegedly concealing corrupt hiring practices
On August 22, a German-based bank entered into an administrative order with the SEC agreeing to pay $16.2 million to settle the SEC’s claims that it allegedly concealed corrupt hiring practices. According to the SEC, the bank allegedly violated U.S. laws—including the internal controls and books and records provisions of the FCPA—by offering jobs to relatives of Chinese and Russian government officials in an attempt to secure business or other benefits. Employees then created false books and records that concealed the practices and circumvented internal controls in place to prevent the activities. The SEC stated that the bank’s failure to properly enforce its written global anti-corruption policy allowed the bank to provide jobs in China and Russia from at least 2006 to 2014 based on how much business the candidate’s connections could bring to the bank.
In entering into the administrative order, the SEC considered the company’s cooperation efforts and compliance efforts. Without admitting or denying wrongdoing, the bank agreed to pay a $3 million civil money penalty and more than $13.1 million in disgorgement and interest.
7th Circuit overturns precedent, rejects restitution under Section 13(b) of FTC Act
On August 21, the U.S. Court of Appeals for the 7th Circuit held that Section 13(b) of the FTC Act does not give the FTC power to order restitution, overruling that court’s 1989 decision in FTC v. Amy Travel Service, Inc. As previously covered by InfoBytes, in June 2018, the U.S. District Court for the Northern District of Illinois granted the FTC’s motion for summary judgment against a credit monitoring service and its sole owner in an action filed under Section 13(b) of the FTC Act. The court concluded that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge could occur without engaging in unfair or deceptive practices. The FTC argued that the defendants’ scheme, which used the promise of a free credit report to enroll the consumers into a monthly credit monitoring program, violated the FTC Act’s ban on deceptive practices. The court agreed, holding that the ad campaign was “rife with material misrepresentations that were likely to deceive a reasonable consumer.” Additionally the court agreed with the FTC that the defendants’ website was materially misrepresentative because it did not give “the net impression that consumers were enrolling in a monthly credit monitoring service” for $29.94 a month, as opposed to defendants’ claim that consumers were obtaining a free credit report. The court also found that the defendants’ websites failed to meet certain disclosure requirements imposed by the Restore Online Shopper Confidence Act. The court entered a permanent injunction and ordered the defendants to pay over $5 million in “equitable monetary relief” to the FTC.
On appeal, the 7th Circuit affirmed the district court’s liability determination, and affirmed the issuance of the permanent injunction. However, the appellate court took issue with the restitution award ordered pursuant to Section 13(b) of the FTC Act. The appellate court noted that the FTC has long viewed Section 13(b) as authorizing awards of restitution, and even acknowledged that the 7th Circuit agreed with the FTC’s position in its decision in Amy Travel. However, subsequent to the Amy Travel decision, the Supreme Court, in Meghrig v. KFC W., Inc., clarified that “courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme.” Applying Meghrig, the 7th Circuit noted that “nothing in the text or structure of the [FTC Act] supports an implied right to restitution in section 13(b), which by its terms authorizes only injunctions.” The panel emphasized that the FTC Act has two other provisions that expressly authorize restitution if the FTC follows certain procedures, but the current reading of Section 13(b), based on Amy Travel, allows the FTC “to circumvent these elaborate enforcement provisions and seek restitution directly through an implied remedy.” Therefore, based on the Supreme Court precedent in Meghrig, the panel concluded that Section 13(b)’s grant of authority to order injunctive relief does not implicitly authorize an award of restitution, overturning its previous decision in Amy Travel and vacating the district court’s award of restitution.