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  • Senate Democrats question the CFPB on PSLF oversight

    Federal Issues

    On April 3, six Democratic Senators wrote to the CFPB seeking additional information on the Bureau’s oversight of student loan companies and servicers involved in the administration of the federal Public Service Loan Forgiveness Program (PSLF). In the letter, the Senators expressed concern that the Bureau’s leadership “has abandoned its supervision and enforcement activities related to federal student loan servicers.” The Senators noted that consumers owe more than $1.5 trillion in student loan debt in the U.S. and that loan servicing companies under contract with the U.S. Department of Education (the “Department”) are “covered persons” under Title X of the Dodd Frank Act, which allows the Bureau “broad oversight authority over their actions.” The Senators cited to a number of lawsuits brought by private citizens and state authorities challenging student loan servicing companies’ actions with regard to PSLF, and requested the Bureau respond to a series of questions regarding its activities overseeing student loan servicers’ handling of PSLF since December 2017. Among other things, the Senators requested information regarding (i) the Bureau’s examinations of student loan servicers’ PSLF administration; (ii) the effect of the Department’s December 2017 guidance to loan servicing contractors not to produce documents directly to other government agencies; (iii) the status of the CFPB’s alleged investigation into a specific student loan servicer’s actions; and (iv) the status of information sharing with the Department since August 2017.

    Federal Issues U.S. Senate Student Loan Servicer Consumer Finance PSLF Congressional Inquiry Department of Education CFPB

  • Colorado Court of Appeals reverses law firm penalty for affiliated vendor relationships

    Courts

    On April 4, the Colorado Court of Appeals reversed the trial court’s ruling assessing civil penalties against a foreclosure law firm for allegedly failing to disclose that its principals had an ownership interest in one of its vendors. The appeals court found that the civil penalty was not warranted because the failure to disclose “did not significantly impact members of the public as actual or potential consumers.” According to the opinion, the State of Colorado brought an enforcement action against a foreclosure law firm and its affiliated vendors, alleging, among other things, that the law firm and its vendors violated the Colorado Consumer Protection Act (the Consumer Act) by making “false or misleading statements of fact concerning the price” of their foreclosure services. The State argued that the relationship between the law firm and its vendors allowed the vendors to charge for services in excess of the market rate, pass on those costs to the law firm’s customers, and share a portion of the inflated costs with the law firm. While the trial court rejected two of the State’s claims against the defendants, it concluded that the law firm committed a deceptive practice under the Consumer Act that, “significantly impact[ed] the public as actual or potential consumers,” by failing to disclose its affiliated relationship with one of the vendors.

    On appeal, the appellate court rejected the trial court’s conclusion that the alleged deception significantly impacted the public, noting that the deception was confined to two clients, Fannie Mae and Freddie Mac, in the context of their private agreements with the firm. Because the misrepresentation was in the context of a private relationship, and the tax-paying public were not “consumers of the law firm’s services for purposes of the Consumer Act,” the appellate court found the trial court erred when awarding the civil penalties under the Act. Moreover, the appellate court affirmed the trial court’s rejection of the State’s other claims against the law firm.

    Courts State Issues Appellate Vendor Management Civil Money Penalties Affiliated Business Relationship Consumer Protection

  • District Court rejects alarm company’s bid to escape vicarious liability under TCPA

    Courts

    On April 3, the U.S. District Court for the Northern District of West Virginia denied an alarm company’s motion for summary judgment in multi-district litigation consisting of approximately 30 cases alleging the company is vicariously liable for the telemarketing conduct of its authorized retailers in violation of the TCPA. The company moved for summary judgment arguing, among other things, that it is not a “seller” governed by the TCPA and no evidence exists of an agency relationship between the company and the authorized retailers.

    The court rejected these arguments, finding a genuine dispute of material fact as to the agency relationship based on “substantial evidence of the [the company’s] control over its dealers’ sales tactics,” including “the right to control the manner and means by which its Authorized dealers sold [the company]’s services and exercis[ed] that control.” Moreover, the court determined that the company was aware of the allegedly unlawful telemarketing calls through “dozens of complaints involving hundreds of consumers” but failed to take measures to address the problem. As for whether the company was considered a “seller” under the TCPA, the court noted that the authorized dealers worked exclusively for the company, the company had the right of first refusal to purchase the contracts sold by the dealers, the company was “totally dependent” on the dealers’ success, and the telemarketing calls were made to increase the flow of consumers to both the dealers and the company, therefore making the company a “seller” under the TCPA.

    Courts TCPA

  • German medical equipment provider settles FCPA claims for $230 million

    Financial Crimes

    On March 29, DOJ publicly released a non-prosecution agreement it had entered into in late February with a Germany-based provider of medical equipment and services in which the company agreed to pay over $230 million to settle claims that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. The alleged misconduct, which included various schemes to pay bribes to public and/or government officials in exchange for business opportunities, occurred over the course of at least a decade and spanned 17 or more countries in Africa, Europe, and the Middle East. On the same day, the company also entered into an administrative order with the SEC. The SEC stated that the company had failed to timely address “numerous red flags of corruption in its operations” that were known to the company as far back as the early 2000s, and that it “failed to properly assess and manage its worldwide risks, and devoted insufficient resources to compliance.”

    While the company received credit for making a voluntary disclosure to DOJ in April 2012 and for remedial measures undertaken since that time, DOJ stated that the company failed to timely respond to certain of its requests and, at times, provided incomplete responses to those requests. Accordingly, the company did not receive full credit for cooperation and did not qualify for a declination under the FCPA Corporate Enforcement Policy. In its non-prosecution agreement, among other things, the company agreed to: (i) the appointment of an independent compliance monitor for a two-year term, followed by one year of self-reporting, (ii) continuation of its efforts to cooperate with the DOJ’s investigation, and (iii) disgorgement of approximately $147 million to the SEC and payment of approximately $85 million in fines to the U.S. Treasury. The fine amount was calculated with a 40% discount off of the bottom of the United States Sentencing Guidelines fine range based on $141 million in profits from the alleged misconduct.

    Notably, the alleged misconduct involved no U.S.-based conduct, individuals, subsidiaries, or third parties. Instead, the individuals alleged to have engaged in misconduct apparently used internet-based email accounts hosted by service providers in the U.S. (and therefore utilized means and instrumentalities of U.S. interstate commerce), and the company’s American Depository Shares trade on the NYSE so the company files periodic reports with the SEC.

     

    Financial Crimes Of Interest to Non-US Persons FCPA DOJ

  • Maryland Financial Consumer Protection Commission to disband June 30

    State Issues

    On April 2, 10 out of the 11 Maryland Senate Finance Committee members voted in favor of a motion to consider SB 786 as “unfavorable.” The bill would have extended the effectiveness of the Maryland Financial Consumer Protection Commission (MFCPC) through June 30, 2021; however, because the bill cannot be revisited this session, the MFCPC will end June 30, 2019. Other provisions of the bill would have, among other things, addressed (i) mobile home retailer requirements; (ii) certain notice requirements for consumer borrowers; (iii) personal information protections and security breach notifications; (iv) vehicle sales and lending requirements; and (v) currency exchange licensing and regulatory requirements.

    State Issues State Legislation Consumer Protection

  • FTC obtains $50.1 million judgment against publisher; settles deceptive marketing matter

    Federal Issues

    On April 3, the FTC announced that the U.S. District Court for the District of Nevada ordered a publisher and conference organizer and his three companies (defendants) to pay more than $50.1 million to resolve allegations that the defendants made deceptive claims about the nature of their scientific conferences and online journals, and failed to adequately disclose publication fees in violation of the FTC Act. Among other things, the FTC alleged, and the court agreed, that the defendants misrepresented that their online academic journals underwent rigorous peer reviews but defendants did not conduct or follow the scholarly journal industry’s standard review practices and often provided no edits to submitted materials. The court determined that the defendants also failed to disclose material fees for publishing authors work when soliciting authors and often did not disclose fees until the work had been accepted for publication. The court also found that the defendants falsely advertised the attendance and participation of various prominent academics and researchers at conferences without their permission or actual affiliation.

    In addition to the monetary judgment, the final order grants injunctive relief and (i) prohibits the defendants from making misrepresentations regarding their publications and conferences; (ii) requires that the defendants clearly and conspicuously disclose all costs associated with publication in their journals; and (iii) requires the defendants to obtain express written consent from any individual the defendants represent as affiliated with their products or services.

    On the same day, the FTC also announced a settlement with a subscription box snack service to resolve allegations that the company violated the FTC Act by misrepresenting customer reviews as independent and failing to adequately disclose key terms of its “free trial” programs. Specifically, the FTC alleged that the company provided customers with free products and other incentives in exchange for posting positive online reviews and misrepresented that independent customers made the reviews or posts. The company also allegedly offered “free trial” snack boxes without adequately disclosing key terms of the offer, including the stipulation that if the trial was not canceled on time, the customer would be automatically enrolled as a subscriber and charged the “total amount owed for six months of snack box shipments.” The proposed order, among other things, prohibits the specified behavior and requires the company to pay $100,000 in consumer redress.

    Federal Issues FTC UDAP Deceptive FTC Act Advertisement Courts Settlement Consumer Protection

  • North Carolina amends loan origination fees and late payment charges

    State Issues

    On April 1, the North Carolina governor signed SB 162, which amends the allowed loan origination fee and late payment charges for certain loans. Under these amendments, the maximum origination fee covered banks are permitted to charge for a loan or credit extension not secured by real property with a principal amount of $100,000 or greater is one quarter of one percent of the principal. For loans with principal amounts of less than $100,000, the maximum origination fee varies between $100 to $250, depending on the loan amount. SB 162 also caps the annual percentage rate at 36 percent for loans or extensions of credit with principal amounts of less than $5,000, where the borrower is a natural person and the debt is primarily incurred for personal, family, or household purposes. Among other provisions, SB 162 also limits allowable late payment charges that vary depending on loan type and loan amount and also states that a late payment charge may not exceed the “amount disclosed with particularity to the borrower pursuant to [TILA],” if applicable. The amendments took effect immediately and apply to contracts entered into, renewed, or modified on or after April 1.

    State Issues State Legislation Loan Origination Consumer Lending

  • SEC issues no-action letter, permitting offering and selling of “tokens” without registration

    Securities

    On April 3, the SEC issued a no-action letter to a Delaware-based airline chartering services company not recommending enforcement action for offering and selling “tokens” without registration under the SEC Act. According to the letter, the SEC relied upon the company’s counsel’s opinion, which assured that consumers are purchasing the tokens solely for prepaid “air charter services and not for investment purposes or with an expectation to earn a profit,” in determining that the “tokens” were not securities. Additionally, the SEC’s relief considered numerous other factors such as: (i) the platform for conducting the sale of the tokens will “be fully developed and operational” at the time any tokens are sold and funds derived from token sales will not be used to develop the platform; (ii) consumers will be able to immediately use the tokens for their intended functionality (i.e., to purchase air charter services) at the time of sale; (iii) the company will restrict the transfer of tokens to company wallets only and not to external wallets; (iv) the tokens will be sold for one dollar to be used solely on the platform to purchase air charter services, and will be treated as having a value of one dollar; (v) if the company offers to repurchase tokens, it will do so at a discount to the face value of the tokens that the holder seeks to resell to the company, unless a court orders the company to liquidate the tokens; and (vi) the tokens will not be marketed in such a way that there is a perceived potential for an increase in the token’s market value.

    Securities Digital Assets SEC No Action Letter Initial Coin Offerings Fintech

  • Waters says housing finance reform and diversity are top priorities

    Federal Issues

    On April 2, House Financial Services Committee Chairwoman Maxine Waters (D-CA) spoke before the American Bankers Association’s Washington Summit to discuss several priorities and emerging issues, including comprehensive housing reform, diversity in financial services, fintech regulation, cannabis banking, and Bank Secrecy Act/anti-money laundering (BSA/AML) reform.

    • Housing finance reform. Waters discussed resolving the long-term status of GSEs and several core principles underlying housing finance reform including, among other things, (i) maintaining access to the 30-year, fixed-rate mortgage; (ii) ensuring sufficient private capital is available to protect taxpayers; (iii) requiring transparency and standardization that ensures a level-playing field for all financial institutions especially community banks and credit unions; (iv) maintaining credit access for all qualified borrowers; and (v) ensuring access to affordable rental housing. “Many of the proposals for housing finance reform exclude small financial institutions from being able to access the secondary mortgage market. I believe that the inclusion of small financial institutions must be a critical part of any conversations about GSE reform,” Waters stated.
    • Diversity in financial services. Waters discussed the newly formed Diversity and Inclusion Subcommittee (previously covered by InfoBytes here) when noting that minority representation in financial services management positions remains underrepresented. The new subcommittee will examine diversity trends to promote inclusion. “Diverse representation in these institutions, and particularly at the management level, is essential to ensure that all consumers have fair access to credit, capital, and banking and financial services,” Waters stated.
    • Fintech regulation. Waters commented that fintech regulation is a committee priority. Waters stated that it is important “we encourage responsible innovation with the appropriate safeguards in place to protect consumers and without displacing community banks.”
    • Cannabis banking. Waters highlighted her committee's work last month in advancing HR 1595, which would create protections for financial institutions that provide services to state-sanctioned cannabis-related businesses. The bill would create a safe harbor for depository institutions that would bar federal banking regulators from terminating banks’ deposit insurance or otherwise penalize them if they provide services to a cannabis-related legitimate business or service provider.
    • BSA/AML reform. Waters discussed a hearing that was held to look at “common sense” improvements that could be made to the current BSA/AML framework. She further stated that the committee is considering beneficial ownership legislation, in addition to exploring ways to work with the Financial Crimes Enforcement Network regarding BSA/AML reporting.

    Federal Issues House Financial Services Committee Consumer Finance Housing Finance Reform Bank Secrecy Act Anti-Money Laundering Fintech Medical Marijuana Diversity and Inclusion Subcommittee FinCEN

  • Utah says blockchain tokens are not money transmissions

    State Issues

    On March 26, the Utah governor signed SB 213, which, among other things, defines and clarifies blockchain technology-related terms and exempts from the state’s Money Transmitter Act certain persons who facilitate the “creation, exchange, or sale of certain blockchain technology-related products.” Specifically, the amendments state that blockchain tokens are not money transmissions. The amendments take effect 60 days after adjournment of the legislature.

    State Issues Digital Assets State Legislation Blockchain Fintech

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