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OFAC revokes JCPOA-related General Licenses
On June 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued an announcement revoking Iran-related General Licenses H and I (GL-H and GL-I) following President Trump’s May 8 withdrawal from the Joint Comprehensive Plan of Action. In conjunction with these changes, OFAC amended the Iranian Transactions and Sanctions Regulations to authorize certain wind-down activities through August 6 (GL-I) and November 4 (GL-H) related to, among other things, letters of credit and brokering services. In addition OFAC released updated FAQs related to the May 8 re-imposition of nuclear-related sanctions.
See here for continuing InfoBytes coverage of actions related to Iran.
New Hampshire enacts amendments to banking and consumer credit laws
On June 8, the governor of New Hampshire signed HB 1687, to clarify the applicability of various state banking and consumer credit laws. Among other changes, the law (i) clarifies information required to be provided in a note, agreement, or promise to pay that is entered into by a small, title, or payday lender; (ii) prohibits small, title, or payday lenders from taking “any note, agreement, or promise to pay in which blanks are left to be filled in after the loan is made”; and (iii) makes certain other clarifying technical updates. The law is effective August 7.
21 Attorneys General oppose “Madden fix” legislation
On June 27, the Colorado and New York Attorneys General led a coalition of 21 state Attorneys General in a letter to congressional leaders opposing HR 3299 (“Protecting Consumers’ Access to Credit Act of 2017”) and HR 4439 (“Modernizing Credit Opportunities Act”), which would effectively overturn the 2015 decision in Madden v. Midland Funding, LLC. Specifically, H.R. 3299 and H.R. 4439 would codify the “valid-when-made” doctrine and ensure that a bank loan that was valid as to its maximum rate of interest in accordance with federal law at the time the loan was made shall remain valid with respect to that rate, regardless of whether the bank subsequently sells or assigns the loan to a third party.
The letter argues that the legislation “would legitimize the efforts of some non-bank lenders to circumvent state usury law” and it was not Congress’ intention to authorize these arrangements with the creation of the National Bank Act. In support of their position, the Attorneys General cite to a 2002 press release by the OCC and the more recent OCC Bulletin 2018-14 on small dollar lending, which stated the agency “views unfavorably an entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).” (Previously covered by InfoBytes here.) The letter also refers to an 1833 Supreme Court case, Nichols v. Fearson, which held that a “valid loan is not invalidated by a later usurious transaction involving that loan” but was not relevant to the decision in Madden because the borrower’s argument related to preemption. Ultimately, the Attorneys General conclude the legislation would erode an “important sphere of state regulation” as state usury laws have “long served an important consumer protection function in America.”
9th Circuit holds that judicial foreclosure proceedings to collect unpaid HOA fees is debt collection under FDCPA
On June 25, the U.S. Court of Appeals for the 9th Circuit held that judicial foreclosure proceedings to collect delinquent assessments and other charges that were owed to a homeowners association (HOA) represented by a law firm that was also a defendant in the case constitute “debt collection” under the Fair Debt Collection Practices Act (FDCPA). The decision results from unpaid assessments owed to the HOA that had previously been settled in two prior suits. However, the homeowner (plaintiff-appellant) defaulted on both settlement agreements, and foreclosure proceedings commenced due to an acknowledgment contained within the second agreement, which recognized the HOA’s right to collect the debt by foreclosing on and selling her property. According to the order, the 9th Circuit first drew a distinction between judicial foreclosures and nonjudicial foreclosures. Nonjudicial foreclosures, the 9th Circuit opined, are not debt collections under the FDCPA because, under California law, they present no possibility of a deficiency judgment against the homeowner and recover nothing from the homeowner. However, the Court held that in this case, the judicial foreclosure created the possibility for a deficiency judgment against the homeowner and subsequent collection of money. Furthermore, since the law firm regularly collected debts owed to others, it was a debt collector, and the lower court’s contrary decision “cannot be reconciled with the language of the FDCPA.” The 9th Circuit reversed the lower court’s ruling that the defendants were not engaged in “debt collection” as defined by the FDCPA.
However, because the lower court granted summary judgment to the defendants, it did not assess whether the plaintiff-appellant had suffered any damages from her claim that the defendants “misrepresented the amount of her debt and sought attorneys’ fees to which they were not entitled” during judicial proceedings. The 9th Circuit held that the law firm’s application for a writ of special execution included “accruing attorney fees,” implying that the fees had been approved by a court, as required by state law, when they had not. The 9th Circuit noted that the state trial court’s subsequent approval of the fee request did not mean the representation was accurate when it was made. The 9th Circuit remanded to allow the lower court to determine what damages, if any, were due the homeowner due to this violation.
In a separate memorandum disposition, the 9th Circuit, however, affirmed in part the lower court’s order granting the defendants’ motion for summary judgment concerning the plaintiff-appellant’s time-barred claims, holding that “even the ‘least sophisticated debtor’ would not likely be misled by the communication—and lack of communication—at issue here, as Plaintiff cannot have reasonably believed that she had paid off the debt in question.”
3rd Circuit affirms summary judgment for internet company in TCPA action
On June 26, the U.S. Court of Appeals for the 3rd Circuit affirmed summary judgment for a global internet media company holding that the plaintiff failed to show the equipment the company used fell within the definition of “automatic telephone dialing system” (autodialer) based the recent holding by the D.C. Circuit in ACA International v. FCC. (Covered by a Buckley Sandler Special Alert.) The decision results from a lawsuit filed by a consumer alleging the company’s email SMS service, which sent a text message every time a user received an email, was an “autodialer” and violated the TCPA. The consumer had not signed up for the service, but had purchased a cellphone with a reassigned number and the previous owner had elected to use the SMS service. Ultimately, the consumer received almost 28,000 text messages over 17 months. In 2014, the district court granted summary judgment for the company concluding that the email service did not qualify as an autodialer. In light of the FCC’s 2015 Declaratory Ruling—which concluded that an autodialer is not limited to its current functions but also its potential functions—the 3rd Circuit vacated the lower court’s judgment. On remand, the lower court again granted summary judgment in favor of the company.
In reaching the latest decision, the 3rd Circuit interpreted the definition of an autodialer as it would prior to the 2015 Declaratory Ruling in light of the D.C. Circuit’s recent holding, which struck down the part of the FCC’s 2015 Ruling expanding the definition to potential capacity. The appellate court held that the consumer failed to show that the email SMS service had the present capacity to function as an autodialer.
Supreme Court upholds credit card company’s anti-steering provisions
On June 25, the U.S. Supreme Court in a 5-4 vote held that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by preventing merchants from steering customers to other credit cards. As previously covered by InfoBytes, in September 2016, the U.S. Court of Appeals for the 2nd Circuit considered the non-steering protections included in the credit card company’s agreements with merchants and concluded that such provisions protect the card company’s rewards program and prestige and preserve the company’s market share based on cardholder satisfaction. Accordingly, the 2nd Circuit concluded that “there is no reason to intervene and disturb the present functioning of the payment‐card industry.” In June 2017, a coalition of states, led by Ohio, petitioned the Supreme Court to review the 2nd Circuit decision, arguing the credit card industry’s services to merchants and cardholders are not interchangeable and therefore, the credit card market should be viewed as a two-sided market, not a single market. The Supreme Court disagreed with the petitioners’ arguments, finding that the credit card industry is best viewed as one market. The court reasoned that while there are two sides to the credit card transaction, credit card platforms “cannot make a sale unless both sides of the platform simultaneously agree to use their services,” resulting in “more pronounced indirect network effects and interconnected pricing and demand.” Accordingly, the two-sided transaction should be viewed as a whole for purposes of assessing competition. The court further concluded that the higher merchant fees the credit card company charges result in a “robust rewards program” for cardholders, causing the company’s anti-steering provisions to not be inherently anticompetitive, but in fact to have “spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions.”
FTC and New York Attorney General announce action against phantom debt operation
On June 27, the FTC and the New York Attorney General’s Office announced charges against two New York-based phantom debt operations and their principals. The complaint alleges they ran a deceptive and abusive debt collection scheme involving the marketing and selling of fictitious loan debt portfolios and collecting on debts consumers did not owe. The charges brought against the operations allege violations of the FTC Act, the Fair Debt Collection Practices Act, and New York state law. According to the complaint, the debt broker knowingly purchased fabricated debt from a phantom debt collection operation previously charged by the FTC and the Illinois Attorney General in a separate action for selling fabricated debt. (As previously covered by InfoBytes, the Illinois-based operation was banned from the debt collection business and prohibited from selling debt portfolios.) The debt broker then engaged a debt collection agency and its owner to collect on the fabricated debt using illegal collection tactics, while continuing to purchase debts and place them for collection despite having knowledge that consumers disputed the debts. The complaint seeks, among other things, injunctive relief, restitution, and disgorgement.
Native American tribes to forfeit $3 million in profits made from payday lending scheme
On June 26, the Department of Justice (DOJ) filed two forfeiture complaints, which cover agreements with two Native American tribes to forfeit a combined $3 million in profits made from their involvement in an allegedly fraudulent payday lending scheme (see here and here). As previously covered by InfoBytes, in October 2016, the FTC required a Kansas-based operation and its owner to pay more than $1.3 billion for allegedly violating Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. The business owner and his attorney were subsequently found guilty in October 2017 of operating a criminal payday loan empire. As part of the agreements, the two tribes admit that representatives filed affidavits containing false statements in the legal actions against the payday loan scheme. If the tribes comply with agreement requirements, the DOJ will not pursue criminal action for the specified violations.
In February, multiple federal agencies entered into a $613 million deferred prosecution agreement over Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program deficiencies with a national bank, which included allegations that the bank was on notice of the owner’s use of the bank to launder proceeds from his fraudulent payday lending scheme. (Previously covered by InfoBytes here.)
House Financial Services Committee examines implications of “de-risking”
On June 26, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing titled, “Examining the International and Domestic Implications of De-Risking,” which examined financial institutions terminating “high risk” relationships to minimize compliance exposure. The press release notes that high-risk entities can also include legitimate businesses such as firearms sellers and payday lenders. Subcommittee Chairman, Blaine Luetkemeyer (R-MO), stated that the termination of these relationships has “resulted in the elimination of consumer and small business access to financial products and services, a decrease in the availability of money remittances, and reduced flow of humanitarian aid globally.” Agreeing with the Chairman, many witnesses emphasized the impact de-risking has on the international financial system, including access to banking in the U.S. southwest border region and in the Caribbean and Central America. While recognizing the importance of anti-money laundering regulations and financial sanctions policies, the witnesses encouraged Congress to consider opportunities to ensure equal access to the financial system for legitimate businesses.
Aruban telecom official sentenced for money laundering conspiracy involving FCPA violations
On June 27, Judge Frederico Moreno of the United States District Court of the Southern District of Florida sentenced an Aruban telecom official to 36 months in prison following his guilty plea for money laundering charges in connection with a scheme to arrange and receive corrupt payments to influence the awarding of contracts in Aruba. According to the DOJ’s press release, the official, between 2005 and 2016, used his position as the company’s product manager to influence the awarding of lucrative mobile phone and accessory contracts with the Aruban state-owned telecommunications company. He also admitted to providing favored vendors with confidential company information in exchange for more than $1.3 million in corrupt payments. The official was ordered to pay over $1.3 million in restitution and to serve three years of supervised release following his prison term.
Previous Scorecard coverage of this matter can be found here.