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9th Circuit affirms dismissal of claims alleging survey provider violated TCPA
On March 29, the U.S. Court of Appeals for the 9th Circuit affirmed a district court’s decision to grant summary judgment in favor of a patient satisfaction survey provider (defendant), concluding that a plaintiff's signed enrollment form with her health insurance provider meant she granted “prior express consent” to receive calls from the defendant. According to the opinion, the plaintiff accused the defendant of allegedly violating the Telephone Consumer Protection Act (TCPA) when it used an automatic telephone dialing system to repeatedly call her to inquire about the quality of her experience with a network physician. She later challenged the dismissal of her suit, arguing that the calls fell outside the scope of consent. However, in agreeing with the district court’s decision, the three-judge panel held that by providing her phone number on an insurance enrollment form that permitted the insurer to share her information for “quality improvement” and other purposes, the plaintiff had provided the level of consent required by the TCPA to receive calls from the defendant. While the court acknowledged that the plaintiff “could not have known the identity of the specific entity that would ultimately call her,” by authorizing the insurance company “to disclose her phone number for certain purposes, she necessarily authorized someone other than [the insurance company] to make calls for those purposes. Specifically, she authorized calls from entities to which [the insurance company] disclosed her information.” According to the panel, the defendant fell within that category.” The panel also rejected the plaintiff’s argument that the calls violated the TCPA because the defendant failed to demonstrate that it called her on the insurance company’s behalf, finding that there is “no statutory or logical basis for imposing such a requirement.”
States pass bills amending security freeze laws
On March 29, the Colorado governor signed HB 1233, which authorizes a parent or legal guardian to request a credit reporting agency place a security freeze on a protected consumer’s credit file; the law defines protected person to include a minor under 16 years of age or an individual who is a ward of the legal guardian. According to HB 1233, if no credit file exists for the protected consumer, the credit reporting agency is required to create a record and then initiate the security freeze on such record without charge. Additionally, among other things, the law prohibits the charging of a fee for the “placement, temporary lift, partial lift, or removal of a security freeze” on a protected consumer’s credit file and allows for a protected consumer to remove the security freeze if they demonstrate the representative’s authority is no longer valid. HB 1233 becomes effective on January 1, 2019.
On March 30, the Kentucky governor signed HB 46, which updates Kentucky’s security freeze law to, among other things, allow a consumer to request a security freeze by methods established by the credit reporting agency in addition to written notification, and remove the requirement that a security freeze expire after seven years. The law continues to allow for a charge of up to ten dollars for the placement, temporary lift, or removal of a security freeze unless the consumer is a victim of identity theft and provides the credit reporting agency with a valid police report. The law is effective immediately, as the text notes that security breaches and the risk of identity theft are on the rise.
Bank and shareholders reach settlement over BSA/AML compliance allegations
On March 30, a regional bank reached a $13 million settlement with a group of its shareholders over allegations of misleading statements and omissions regarding the bank’s compliance with fair lending laws, and Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) regulations. The shareholders—purchasers of the bank’s stock between July 2013 and July 2014—allege that the bank’s misrepresentations regarding their compliance with BSA/AML laws, as well as other laws and regulations, artificially inflated the price of the bank’s stock. According to the settlement, both parties’ decisions to enter into the agreement were partially due to the length and expense of continued litigation, which began in 2014. The shareholders initiated the class action litigation in July 2014; however, the U.S. Court of Appeals for the 6th Circuit vacated the initial class certification in September 2016, remanding to the district court for further proceedings. The class was recertified by the district court in June 2017 with the 6th Circuit denying the bank’s petition for appeal of the recertification. The bank denies all allegations of wrongdoing and liability in the settlement.
Washington governor enacts bill to provide student loan debt relief
On March 22, the Washington governor signed HB 1169, which establishes the student opportunity, assistance, and relief act to address student loan debt. Among other things, HB 1169 (i) repeals certain statutes allowing the suspension of a professional license or certificate due to student loan default; (ii) changes the judgment interest rate for unpaid private student loan debt to two percentage points above the prime rate, unless the judgment interest rate is specified in the contract; (iii) defines “private student loan,” and outlines exclusions, such as “an extension of credit made under an open-end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling”; and (iv) outlines provisions and exemptions for bank account and wage garnishment. The act takes effect June 7.
As previously covered in InfoBytes, earlier in March the Washington governor established the “Washington student education loan bill of rights” to outline licensing requirements and responsibilities for student loan servicers.
Washington expands the state’s Service Member’s Civil Relief Act
On March 22, the Washington governor signed HB 1056, which amends the Washington Service Member’s Civil Relief Act (WSCRA) to update the definition of “service member” and allow for a service member to terminate or suspend certain private contracts without penalty. Specifically, HB 1056 defines “service member” as “an active member of the United States armed forces, a member of a military reserve component, or a member of the national guard who is either stationed in or a resident of Washington state.” The law allows for a service member, after receiving orders for a permanent change of station or deployment (for at least 30 days), to terminate or suspend certain contracts for the following: telecommunication services, internet services, health studio services, and subscription television services. After proper written notice is given to the service provider for termination, suspension or reinstatement, the service member may not be charged a “penalty, fee, loss of deposit, or any other additional cost” due to the notice. Additionally, HB 1056 allows the Washington Attorney General to recover costs and fees in an action brought to enforce the WSCRA. The law becomes effective on June 7.
District Court finds government is not immune from private claims under the FCRA
On March 22, the U.S. District Court for the Western District of Louisiana denied the Defense Finance and Accounting Service’s (DFAS), a federal government agency within the Department of Defense, motion to dismiss a private action under the Fair Credit Reporting Act (FCRA) based on a lack of subject matter jurisdiction as a result of sovereign immunity. The court found that FCRA’s definition of person includes “government or governmental subdivision or agency,” and therefore, waives the United States’ sovereign immunity under FCRA. The court did not agree with DFAS’ position that the terms “government or governmental subdivision or agency” are too broad to constitute a wavier of sovereign immunity. In support of its position, the court cited a decision by the U.S. Court of Appeals for the 7th Circuit providing that the FCRA “unequivocally waives the United States’ sovereign immunity from damages for violations under the FCRA.”
Federal banking agencies raise commercial real estate appraisal threshold to $500,000
On April 2, the Federal Reserve Board, the OCC, and the FDIC (agencies) issued a joint press release announcing the adoption of a final rule, which would increase the threshold for commercial real estate transactions requiring an appraisal from $250,000 to $500,000. After receiving more than 200 comments to their July 2017 joint notice of proposed rulemaking (see previous InfoBytes coverage here), the agencies increased the threshold to $500,000, rather than $400,000 as originally proposed. The rulemaking initiative responded to financial industry concerns that adjustments had not been made to the current threshold amounts, which were set 24 years ago. In accordance with the final rule, commercial real estate transactions exempted by the $500,000 threshold will no long require appraisals, but will instead be subject to an evaluation, which is not required to comply with the Uniform Standards of Professional Appraiser Practices in order to provide a market value estimate of the real estate pledged as collateral and is not required to be completed by a state licensed or certified appraiser. However, the final rule stipulates that real-estate related transactions secured by a single one-to-four family residential property are excluded. The final rule will take effect immediately upon publication in the Federal Register.
Treasury releases recommendations for modernizing the Community Reinvestment Act
On April 3, the U.S. Treasury Department released recommendations to the Federal Reserve Board, the FDIC, and the OCC (CRA regulators) on suggestions for modernizing the Community Reinvestment Act (CRA). As previously covered in a Buckley Sandler Special Alert, Treasury released a report last June indicating that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers and ensure that the benefits of the CRA investments are aligned with the needs of the communities being served. Last month the Government Accountability Office (GAO) released a report recommending Treasury consider GAO’s findings when conducting its review. (See previous InfoBytes coverage here.)
The April memorandum of recommendations addresses findings from Treasury’s comprehensive assessment of the CRA framework and focuses on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. Specifically, the recommendations include (i) updating the definitions of “geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors”; (ii) improving the flexibility of the CRA examination process to increase clarity in examiner guidance and improve evaluation criteria to increase CRA rating determination transparency and effectiveness; (iii) addressing the timing and issuance of performance evaluations to increase banks’ accountability when planning CRA activity; and (iv) identifying performance incentives to encourage banks to meet the credit and deposit needs of their entire communities, including low- and moderate-income areas. The memorandum solicited input from stakeholders such as consumer advocacy groups, financial industry members, and the CRA regulators.
Mulvaney requests more oversight and accountability for the Bureau in semi-annual report to Congress
On April 2, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from April 1, 2017 to September 30, 2017. The report details, among other things, problems faced by consumers with regard to consumer financial products or services; significant rules and orders adopted by the Bureau; and various supervisory and enforcement actions prior to Mick Mulvaney’s appointment as acting director. Most notably, the report includes an opening letter from Mulvaney, which requests Congress make changes to the law to “establish meaningful accountability” for the Bureau which is “far too powerful.” Specifically, Mulvaney requests four changes (i) subject the Bureau to Congressional appropriations; (ii) require Congressional approval for major rules; (iii) make the director accountable to the President’s exercise of executive authority; and (iv) create an independent Inspector General for the agency. Mulvaney writes that the cycle of Congressional frustration with the CFPB will repeat “ad infinitum unless Congress acts to make [the Bureau] accountable to the American people.”
Mulvaney is set to testify on April 11 before the full House Financial Services Committee regarding the Bureau’s semi-annual report. As he notes in his letter, he intends to discuss his recommendations regarding the Bureau’s oversight at the hearing.
Buckley Sandler Insights: FinCEN updates FAQs regarding customer due diligence requirements for financial institutions
On April 3, the Financial Crimes Enforcement Network released an update to its FAQs in advance of the upcoming Customer Due Diligence Requirements for Financial Institutions final rule (issued in 2016 and amended last September for various technical corrections) that goes into effect May 11. As previously covered in InfoBytes, the final rule imposes standardized customer due diligence (CDD) requirements under the Bank Secrecy Act for covered financial institutions and requires financial institutions to identify and verify beneficial owners of legal entity customers, subject to certain exclusions and exemptions. The supplemental FAQs (see InfoBytes coverage on an earlier set of FAQs issued in 2016) assist covered financial institutions in understanding the scope of their CDD requirements, as well as the CDD rule’s impact on broader anti-money laundering (AML) program obligations, and cover a broad range of interpretations including the following:
- Question 1 specifies covered financial institutions will satisfy the requirements to identify and verify beneficial owners of legal entity customers by collecting and verifying the identity of individuals who directly or indirectly own 25 percent or more of the equity interests in a legal entity customer, as well as “one individual who has managerial control of a legal entity customer.” However, they may choose to implement stricter written internal policies and procedures and expand their information collection to include more than one individual with managerial control or persons owning a lower percentage of equity interests.
- Question 3 clarifies that covered financial institutions may reasonably rely on a legal entity customer to provide the identities of individuals who satisfy the definition of beneficial ownership, whether indirectly or directly, and “need not independently investigate the legal entity customer’s ownership structure.”
- Question 7 states that for existing customers, a covered financial institution may rely on information in its possession subject to its Customer Identification Program (CIP) to fulfill the beneficial ownership identification and verification requirements, “provided the existing information is up-to-date, accurate, and the legal entity customer’s representative certifies or confirms (verbally or in writing) the accuracy of the pre-existing CIP information.”
- Question 10 states that if a legal entity customer opens multiple accounts, the covered financial institution may rely on information obtained from a previously issued certification form (or equivalent), provided the legal entity customer certifies or confirms—verbally or in writing—that such information is up-to-date and accurate at the time each subsequent account is opened. Records of such certification or confirmation must also be maintained.
- Question 12 confirms that covered financial institutions seeking to renew a loan or roll over a certificate of deposit must treat these as new accounts and require their legal entities customers to certify or confirm beneficial owners, “even if the legal entity is an existing customer.”
- Question 18 stipulates that covered financial institutions are not required to identify and verify the identity of beneficial owners that own 25 percent or more of the equity interests of a pooled investment vehicle, whether or not such vehicle is managed by a “financial institution,” due to the typical fluctuation of ownership. However, Question 18 notes that covered financial entities must collect beneficial ownership information for an individual who has significant control or management over the vehicle as required under the control prong to comply with the CDD rule.
- Question 19 concerns trusts overseen by multiple trustees and states that in circumstances where a trust owns 25 percent or more of the equity interests of a legal entity customer, covered financial institutions are required, at a minimum, to collect beneficial ownership information on a single trustee but may choose to identify additional co-trustees based on risk assessment or a risk profile.
- Question 21 specifies that a covered financial institution may rely on information provided by a legal entity customer to determine eligibility for exclusion from the definition of a legal entity customer, provided the financial institution has no knowledge of facts that would reasonably call into question the reliability of such information. Covered financial institutions should also ensure that their risk-based written policies and procedures address and specify the type of information to be used when reasonably determining exclusion eligibility.
- Question 28 stipulates which non-U.S. governmental entities qualify for exclusion from the definition of a legal entity customer. It specifies that state-owned enterprises that engage in profit-seeking activities, such as sovereign wealth funds, airlines, and oil companies, are not excluded from the definition of a legal entity.
- Questions 29-31 provide guidance on account level beneficial owner exceptions related to (i) point of sale products for certain low-risk retail credit accounts; and (ii) certain equipment finance and lease accounts with low money laundering risks. Question 31 also stipulates that an equipment lease and purchase exemption would apply in circumstances where a customer leases necessary equipment directly from a covered financial institution.
- Questions 32-33 provide guidance on circumstances where beneficial ownership information should be aggregated for purposes of complying with Currency Transaction Report (CTR) requirements, and state that “absent indications that the businesses are not operating independently . . . , financial institutions should not aggregate transactions involving those businesses with those of each other or with those of the common owner for CTR filing.” Furthermore, covered financial institutions are generally not required to list beneficial owners on a CTR.
- Question 35 specifies what information covered financial institutions should collect and consider as part of on-going CDD when developing customer risk profiles. Specifically, covered financial institutions should develop an understanding of the “nature and purpose of a customer relationship,” and review information obtained at the opening of an account such as type of customer, account, service, or product.