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FTC announces settlement with California company over EU-U.S. Privacy Shield false certification claims
On July 2, the FTC announced it had reached a settlement with a California-based company over allegations that it falsely claimed participation in the European Union-U.S. Privacy Shield framework, EU-U.S. Privacy Shield. According to the FTC, the company’s false claim that it was in the process of certification is a violation of the FTC Act’s prohibition against deceptive acts or practices. The settlement prohibits the company from misrepresenting its participation in “any privacy or security program sponsored by a government or any self-regulatory or standard-setting organization” and requires the submission of timely compliance notices. This action marks the fourth FTC EU-U.S. Privacy Shield enforcement action following the EU’s finalization and adoption in July 2016 (see previous InfoBytes coverage here) of the EU-U.S. Privacy Shield, which established a mechanism for companies to transfer consumer data between the EU and the U.S. in compliance with specified obligations.
CFPB, OCC, and FDIC release statement on HMDA exemption in regulatory relief act
On July 5, the CFPB issued a statement regarding the implementation of the partial HMDA exemptions in the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/ P.L. 115-174, which was signed into law by President Trump on May 24. As previously covered by InfoBytes, the Act provides an exemption from HMDA’s expanded data reporting requirements for banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether). Although the statement emphasizes that the Act will not affect the format of the Loan/Application Register (LAR) for HMDA data collected in 2018—which should still be formatted in accordance with the Filing Instructions Guide issued in February (covered by InfoBytes here)—the Bureau stated that it intends to provide guidance later this summer on the Act, including an exemption code for institutions that are not reporting a particular field due to the Act’s partial exemptions.
Additionally, the statement reiterated the Bureau’s December 2017 announcement that it will not require resubmissions for 2018 HMDA data, unless there are material errors; and penalties will not be assessed with respect to errors in the 2018 data. The CFPB notes that institutions should focus the 2018 data collection on identifying areas for improvement in their HMDA compliance management systems for future years. The Bureau further advised that it expects that supervisory examinations of 2018 HMDA data will be “diagnostic” to help “identify compliance weaknesses, and will credit good-faith compliance efforts.”
The OCC issued a similar announcement with OCC Bulletin 2018-19. The FDIC issued a similar announcement with FIL-36-2018.
Court dismisses “convenience fee” action against bank for lack of damages
On June 25, the U.S. District Court for the District of Maryland dismissed a proposed class action alleging a national bank violated the Maryland Credit Grantor Closed End Credit (CLEC) law by charging “convenience fees” in connection with secured vehicle financing. According to the opinion, after the consumer defaulted on vehicle payments, the bank repossessed the consumer’s vehicle and demanded the consumer pay the deficiency balance. In August 2017, the consumer, on behalf of herself and others similarly situated, filed a class action against the bank for allegedly charging convenience fees in connection with over 500 retail installment sales contracts for vehicles governed under the CLEC. Upon removal to federal court, the consumer sought to amend her complaint to replace the CLEC claim with a breach of contract claim based on the same violation in her original complaint and the bank sought dismissal of the claim. The court granted the bank’s motion to dismiss, concluding that even if the bank did charge a convenience fee in violation of the CLEC, the bank (i) did not collect payments in excess of the original principle amount of the loan; and (ii) did not seek a deficiency judgment against the consumer. Additionally, the consumer did not seek injunctive or declaratory relief. Therefore, the court held that the consumer is not entitled to damages under CLEC and her corollary breach of contract claim is “futile and must be dismissed.”
District Court agrees with FTC, enters $5 million judgment against credit monitoring scheme
On June 26, the U.S. District Court for the Northern District of Illinois granted the FTC’s motion for summary judgment, concluding 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 did not involve 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 entered a judgment ordering the defendants to pay over $5 million in equitable monetary relief to the FTC and prohibiting defendants from, among other things, charging consumers for any credit monitoring services and disclosing or using any collected consumer information. The defendants must also submit to compliance reporting and monitoring by the FTC.
SEC requests comments on proposed amendments to whistleblower program
On June 28, the SEC voted to propose for public comment several rule amendments that seek to clarify certain existing rules and make technical amendments to its whistleblower program under Section 21F of the Securities Exchange Act. Among other things, the proposed changes would (i) allow awards based on money collected under deferred prosecution agreements and non-prosecution agreements entered into by the DOJ or a state attorney general in a criminal case, or settlement agreements entered into by the SEC outside of a judicial or administrative proceeding that address securities law violations; (ii) eliminate the potential double recovery under the definition of “related action”; (iii) authorize the SEC to adjust an award’s percentage as appropriate to advance the goals of rewarding and incentivizing whistleblowers; (iv) establish a uniform definition of “whistleblower” in response to the Supreme Court's decision in Digital Realty Trust, Inc. v. Somers (as previously covered in a Buckley Sandler Special Alert); and (v) clarify anti-retaliation protection requirements. The SEC also has included interpretative guidance on the terms “unreasonable delay” and “independent analysis.” Comments will be accepted for 60 days following publication in the Federal Register.
Federal Reserve, FDIC extend resolution plan filing deadline for 14 domestic firms
On July 2, the Federal Reserve Board and the FDIC announced that the deadline to file resolution plans, also known as living wills, for 14 domestic firms has been extended to December 31, 2019. This one-year extension provides more time for the agencies to provide feedback on the firms’ last round of resolution plan submissions, as well as for the firms to produce their next resolution plans as required by the Dodd-Frank Act. The agencies also issued a reminder that due to the recent passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, banks with less than $100 billion in total consolidated assets are no longer bound by resolution plan requirements.
Federal Reserve issues enforcement actions against former bank employees
On June 26, the Federal Reserve released enforcement actions taken against two former bank employees for improper actions, including one employee who allegedly embezzled money from a bank’s customer on several occasions, and another who misappropriated funds through false representations and accounting entries to pay off personal and family members’ loans owed to the bank. The Federal Reserve issued consent prohibitions for both former employees, which prohibits them from, among other things, participating in any manner in the conduct of the affairs of any insured depository institution, or holding company or subsidiary of an insured depository institution.
OFAC publishes Global Magnitsky Sanctions Regulations
On June 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the issuance of regulations to implement the Global Magnitsky Human Rights Accountability Act, as well as Executive Order 13818, which calls for the blocking of property of certain persons involved in serious human rights abuses or corruption. Among other things, the Global Magnitsky Sanctions Regulations outline certain prohibitions related to: (i) transactions involving blocked property, in addition to expenses pertaining to the maintenance or liquidation of blocked property; (ii) the holding of funds in blocked interest-bearing accounts; and (iii) exempt transactions. OFAC further noted it plans to “supplement these regulations with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance, general licenses, and statements of licensing policy.” The regulations took effect June 29.
Federal Reserve releases Comprehensive Capital Analysis and Review results
On June 28, the Federal Reserve released the results of the Comprehensive Capital Analysis and Review (CCAR) conducted for 35 firms. This is the eighth year the Fed has conducted the CCAR exercise for the largest U.S.-based bank holding companies. The Fed considers quantitative and qualitative factors in its evaluation, including projected capital ratios under hypothetical severe economic conditions and strength of the firm’s risk management, internal controls, and governance practices that support the capital planning process. This year, 18 firms were subject to both quantitative and qualitative assessments, and 17 firms were only subject to the quantitative assessment. The Fed objected to one firm’s capital plan based on qualitative concerns and issued conditional non-objections to two firms based on changes to the tax law that negatively affected capital levels. However, the one-time reductions are not considered a reflection of the firms’ performances under stress. Overall, U.S. firms have substantially increased their capital since 2009 when the first round of stress tests were conducted.
CFPB announces settlement with national bank to resolve alleged TILA violations
On June 29, the CFPB announced a $335 million settlement with a national bank who allegedly violated the Truth in Lending Act by failing to properly implement annual percentage rate (APR) reevaluation requirements, which would reduce APRs for certain consumer credit card accounts, consistent with Regulation Z. According to the consent order, the Bureau also claimed the bank failed to put in place reasonable written policies and procedures to conduct the APR reevaluations. Under the terms of the consent order, the bank is required to pay $335 million in restitution to affected consumers and implement corrected policies and procedures to ensure proper APR reevaluation processes. The Bureau further noted that it did not assess civil monetary penalties due to efforts undertaken by the bank to self-identify and self-report violations to the Bureau. The bank also voluntarily corrected the deficiencies, took steps to initiate remediation to affected consumers, and implemented compliance management system enhancements.