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NY AG sues jeweler for practices targeting servicemembers
On October 29, the New York Attorney General announced the filing of a complaint against a national jewelry store, headquartered in New York, for allegedly engaging in fraudulent and deceptive conduct, deceptive credit repair services, and illegal lending in the financing of jewelry sales to active duty servicemembers. Specifically, the complaint alleges the company targets active duty servicemembers through a purported charitable program in which military-themed teddy bears are sold with a promise of a charitable donation by the company. The company also sells patriotic and military-themed jewelry and offers financing through a program exclusively available to servicemembers. The financing program is marketed as a credit repair or credit-establishing opportunity through a different entity, but according to the complaint, the separate entity is merely an “alter-ego” of the jewelry company, a relationship which is not disclosed to servicemembers. The company markets the financing program to active duty servicemembers as a way to build credit scores to purchase other consumer goods, such as a motor vehicle; however, once a servicemember agrees to the program, the Attorney General alleges the company’s employees are instructed to “’sell’ enough product to maximize the amount of credit [the company] is willing to advance.” The amount of credit is allegedly based on the amount of time the servicemember has left in active service, not on traditional underwriting standards such as credit history. Additionally, the complaint alleges the company marks up poor-quality jewelry between 600 and 1,000 percent over the wholesale price and advertises a “per payday” price on the merchandise, which bears “little resemblance to the total amount paid by a consumer at the end of the financing contract.” Of special interest to all creditors doing business in New York, the complaint appears to include in its civil and criminal usury claims the concept that the effective interest rate was higher because the good being purchased had “inflated retail prices.” The complaint seeks civil money penalties, restitution, and injunctive relief.
Colorado appeals court holds second collection letter violated state debt collection law
On October 18, the Colorado Court of Appeals held that a debt collector’s second collection letter violated the Colorado Fair Debt Collection Practices Act (CFDCPA) requirement for proper notification of the consumer’s right to dispute and request validation of the debt, reversing the lower court’s ruling. According to the opinion, a consumer filed a complaint against the debt collector alleging the two letters she received violated the CFDCPA, and the lower court disagreed, granting summary judgment in favor of the debt collector. Upon review, the appeals court determined that the first letter contained all the disclosures required under the CFDCPA but that the debt collector’s second letter, which prominently used the bold and capitalized phrase "we cannot help you unless you call," overshadowed or contradicted the statutorily required disclosures made by the company in the first letter. Specifically, the court concluded that the second letter, which arrived within the thirty-day statutory period initiated by the first letter, was “capable of being reasonably interpreted by the least sophisticated consumer as changing the manner in which the consumer was required by law to dispute the debt” and is therefore deceptive or misleading in violation of the CFDCPA.
FDIC proposes to eliminate annual disclosure requirement for state nonmember banks
On October 25, the FDIC published a proposed rule in the Federal Register to rescind the annual disclosure requirement applicable to all state nonmember banks and insured state-licensed branches of foreign banks (collectively, “banks”). Specifically, the FDIC is proposing to eliminate 12 CFR Part 350, which, in general, required banks to prepare annual disclosure statements consisting of (i) required financial data comparable to specified schedules in the Call Reports filed for the previous two years; (ii) information that the FDIC may request, such as enforcement actions; and (iii) other information the bank chooses to disclose. According to the proposal, the FDIC has determined that the regulation is “outdated and no longer necessary,” because, with widespread access to the internet, information about the financial condition and performance of individual banks is now “reliably and directly offered to the public through the FDIC’s and the Federal Financial Institutions Examination Council’s (FFIEC) websites” in the form of Call Reports and Uniform Bank Performance Reports. This eliminates the need for the annual disclosure statement requirements. Similar disclosure requirements have already been rescinded in recent years by the Federal Reserve Board and OCC. Comments on the proposed rule must be received by November 26.
CFPB releases Remittance Rule assessment report
On October 26, the CFPB released an assessment report of its Remittance Rule, in accordance with the Dodd-Frank Act’s requirements that the Bureau conduct an assessment of each significant rule within five years of the rule’s effective date. The Bureau’s 2013 Remittance Rule (Rule), including its subsequent amendments, requires providers to (i) give consumers disclosures showing costs, fees and other information before they pay for a remittance transfer; (ii) provide cancellation and refund rights; and (iii) investigate disputes and remedy certain errors. The assessment was conducted using the Bureau’s own research and external sources. Key findings of the assessment include:
- Money services businesses (MSBs) conduct 95.6 percent of all remittance transfers and the volume of transfers from these businesses was increasing before the effective date of the Rule and continued to increase afterwards at the same or higher rate.
- The average price of remittances was declining before the Rule took effect and has continued to do so.
- Initial compliance costs for the Rule were between $86 million, based on analysis at the time of the rulemaking, and $92 million, based on estimates from a survey of industry conducted by the Bureau.
- Ongoing compliance costs are estimated between $19 million per year and $102 million per year.
- Consumers cancel between 0.3 percent and 4.5 percent of remittance transfers, according to available data sources, and there is evidence of some banks initiating a delay in the transfer to make it easier to provide a refund if a consumer cancels within the 30-minute cancellation window permitted under the Rule.
- Approximately 80 percent of banks and 75 percent of credit unions that offer remittance transfers are below the 100-transfer threshold in a given year and are therefore, not subject to the Rule’s requirements.
Federal Reserve enters into written compliance agreement with Oklahoma state bank
On October 22, the Federal Reserve Board (Board) entered into a written agreement with an Oklahoma state chartered bank, which outlines a compliance proposal to “maintain the financial soundness” of the bank. The agreement requires the bank to submit, within 60 days, written plans to improve various aspects of the bank’s functions including, but not limited to, (i) internal controls; (ii) credit risk management; (iii) liquidity and funds management; (iv) interest rate risk management; (v) information technology/cybersecurity; and (vi) BSA/AML compliance. The agreement also prevents the bank from extending, renewing, or restructuring any credit for any borrower whose loans or other extensions of credit were part of the Board’s examination critiques, without prior approval from the board of directors, who are required to document the reasons for the credit extension and certify its compliance with the terms of the agreement.
Bank settles with New York for $65 million over incentive compensation sales program
On October 22, the New York Attorney General announced a $65 million settlement with a national bank to resolve allegations regarding its retail sales business model in violation of the Martin Act and New York common law. The Attorney General had alleged the bank failed to disclose to investors that the success of the bank’s incentive compensation program may encourage certain misconduct.
As previously covered by InfoBytes, in May, the bank announced it reached an agreement in principle to pay $480 million to investors to resolve a consolidated action related to the same issues.
CFPB imposes $200,000 fine on small dollar lender for deceptive debt collection practices
On October 24, the CFPB announced a settlement with a Tennessee-based small dollar lender, resolving allegations that the lender violated the Consumer Financial Protection Act (CFPA). Specifically, as stated in the consent order, the CFPB alleges that the lender (i) deceptively threatened to sue consumers on time-barred debts; (ii) misled consumers that the lender would report late payments to credit reporting agencies when the lender did not; and (iii) abusively set-off previous loans by telling its employees not to tell check-cashing consumers that it would deduct previous amounts owed from the check proceeds. Consequently, the Bureau alleged that the lender took “unreasonable advantage of the consumers’ lack of understanding” that the lender would take a portion of the check they intended to cash and physically kept the check away from consumers until the transaction was complete, which “nullified” any written set-off disclosures when the consumer signed his or her agreement. In addition to the $200,000 civil money penalty, the consent order requires the lender to (i) pay approximately $32,000 in restitution to consumers, and (ii) establish a compliance plan with detailed steps and timelines for complying with applicable laws.
Illinois Attorney General announces $1.2 million settlement to resolve mortgage fraud allegations
On October 24, the Illinois Attorney General, along with the Illinois Department of Financial and Professional Regulation, announced a settlement with a residential mortgage company for allegations of mortgage fraud by one of the branch managers. According to the press release, the branch manager allegedly (i) placed borrowers who believed they were obtaining a traditional mortgage into a “contract for deed,” which can carry greater financial risks; (ii) failed to provide some borrowers signed copies of their agreements; and (iii) participated in fraudulent loan origination activities. The company agreed to pay $1.2 million in restitution to the Attorney General’s office, which will distribute the proceeds to defrauded consumers.
Pennsylvania Attorney General requests redlining victims file complaints to further investigation
On October 22, the Pennsylvania Attorney General announced a request for mortgage borrowers and home-loan applicants who believe they may be victims of redlining to file complaints with that office. The announcement states that the Attorney General is investigating evidence of redlining by financial institutions in Philadelphia neighborhoods where lenders either refused to make loans due to the applicant’s race or dissuaded minorities from applying for mortgage loans. The investigation is in response to an investigative article identifying a pattern of racial discrimination in mortgage lending in the Philadelphia area.
CSBS files lawsuit over OCC’s fintech charter decision, arguing agency exceeds it authority under the National Bank Act
On October 25, the Conference of State Bank Supervisors (CSBS) filed a lawsuit against the OCC arguing that the agency exceeded its authority under the National Bank Act (NBA) and other federal banking laws when it allowed non-bank institutions, including fintech companies, to apply for a Special Purpose National Bank Charter (SPNB). As previously covered by InfoBytes, the U.S. District Court for the District of Columbia dismissed CSBS’s challenge last April on ripeness grounds because the OCC had not yet issued a fintech charter to any firm. But CSBS renewed its challenge in light of the OCC’s July announcement welcoming non-depository fintech companies engaging in one or more core-banking functions to apply for a SPNB (previously covered by Buckley Special Alert here), and statements indicating the OCC is currently vetting several companies and expects to make charter decisions mid-2019.
Among other things, the complaint argues that the SPNB program (i) exceeds the OCC’s statutory authority because the OCC may not “redefine the business of banking” to include non-depository institutions; (ii) is “arbitrary, capricious, and an abuse of discretion” because it inadequately addresses, without explanation, “the myriad policy implications and concerns raised by the public” and the “cost-benefit” tradeoffs; (iii) did not include the proper notice and comment period for preemption interpretations under the NBA; and (iv) is an improper invasion of “state sovereign interests.”