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7th Circuit says debt collectors cannot simply copy and paste safe harbor language
On January 17, the U.S. Court of Appeals for the 7th Circuit reversed a decision by the U.S. District Court for the Eastern District of Wisconsin dismissing the plaintiffs’ claims that the defendant debt collection agency violated the Fair Debt Collection Practices Act (FDCPA) by falsely stating balances owed might increase “due to interest, late charges and other charges” in its dunning letters to the plaintiffs. In 2016, the defendant sent collection letters for overdue medical bills; according to the plaintiffs, the collection letters falsely suggested that the debt would continue to increase every day due to “late charges and other charges” that the defendant could not legally impose. In granting the motion to dismiss, the District Court had agreed with the defendant that the language used in their dunning letters was nearly identical to the safe harbor language upheld by the 7th Circuit in 2000, and that the letters were not “false, deceptive, or misleading.” By reversing the District Court’s decision, the 7th Circuit determined that the defendant’s use of the safe harbor language in their letters was inaccurate, because the defendant could not lawfully impose “late charges and other charges.” In doing so, the 7th Circuit rejected the defendant’s attempt to copy and paste the safe harbor language, and instead concluded that debt collectors are required to tailor boilerplate language to avoid ambiguity and ensure their statements are accurate under the circumstances.
FTC announces charges against mortgage loan modification operation
On January 19, the FTC issued a press release announcing charges against a mortgage loan modification operation for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule by making false promises to consumers for services designed to prevent foreclosures or reduce interest rates or monthly mortgage payments. According to the charges, the defendants contacted consumers using doctored government logos on correspondence, which misrepresented an affiliation with the government’s Making Home Affordable loan modification program. Additionally, the defendants allegedly made unlawful claims that they had “special relationships with particular lenders” and instructed consumers to stop paying their mortgages without actually obtaining the promised loan modifications. As alleged by the FTC, this resulted in many consumers paying substantial interest charges, incurring penalties for paying the defendants rather than making mortgage payments, and in some instances, losing their homes to foreclosure. On January 10, a federal judge in the U.S. District Court for the District of Nevada temporarily restrained and enjoined the defendants’ alleged illegal practices and froze their assets at the request of the FTC.
Judge’s $10 million order against payday lender falls far short of CFPB request
On January 19, a federal judge for the U.S. District Court for the Central District of California ordered an online loan servicer and its affiliates to pay a $10 million penalty for offering high-interest loans in states with usury laws barring the transactions. The judge denied the CFPB’s requested penalty of over $50 million. The judge ordered the company to pay this penalty after determining in September 2016 that the online loan servicer was the “true lender” of the loans that were issued through entities located on tribal land, previously covered by a Buckley Sandler Special Alert. The judge found that a lower statutory penalty was more appropriate than the CFPB’s requested amount because the CFPB failed to show the company “knowingly violated the CFPA.” The judge also rejected the CFPB’s requested restitution of $235 million. In rejecting the CFPB’s requested restitution amount, the judge found that the CFPB had not put forth any evidence that the company “intended to defraud consumers or that consumers did not receive the benefit of their bargain from the [program]” for restitution to be an appropriate remedy. The judge also denied the CFPB’s request for a permanent injunction, finding that the CFPB did not present any evidence to support its assertion that the servicer would violate the CFPA in the future.
House passes HMDA relief for small banks
On January 18, by a vote of 243-184, the House passed H.R. 2954, to amend HMDA to exempt low-volume mortgage lenders from certain disclosure requirements. If enacted, the bill would exempt depository institutions from maintenance of records and disclosure requirements if, (i) for closed-end mortgage loans, “the depository institution originated less than 500 closed-end mortgage loans in each of the 2 preceding calendar years”; and (ii) for open-end lines of credit, “the depository institution originated less than 500 open-end lines of credit in each of the 2 preceding calendar years.” On January 19, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.
Criminal charges unsealed against former American hedge fund firm executive
The DOJ recently unsealed criminal charges against former hedge fund executive. This indictment follows a civil suit filed in January 2017 against him and others by the SEC regarding FCPA violations. In 2016, the DOJ and SEC also pursued a joint FCPA enforcement action against his former employer, alleging various bribes, self-dealing, and other malfeasance relating to the procurement of mineral, oil, and other natural resource contracts in African counties.
While the SEC’s initial January 2017 civil matter against him alleged FCPA violations, the recently announced criminal indictment does not directly charge him with violating the FCPA. He is alleged to have obstructed the DOJ and SEC’s investigations of his former company and made false statements, but also to have committed investment advisor fraud.
Judge denies bail to former Hong Kong official, who pleads not guilty to alleged African bribery
A former Hong Kong official, reportedly entered a not guilty plea and was denied bail in federal district court in New York related to a number of FCPA, conspiracy, and money laundering counts. He was charged in late 2017, along with his co-defendant, the former Foreign Minister of Senegal, with offering $2 million in bribes to the President of Chad. The former official is also alleged to have paid a half-million dollar bribe to the foreign affairs minister of Uganda. The DOJ alleges that he sought to direct bribe money through an NGO that he ran, which is funded by a Chinese-based oil and gas company.
The prosecution of the former official is noteworthy because the DOJ is seeking to prosecute a non-U.S. citizen for alleged bribery between Chinese and African interests.
DOJ unseals 11-count FCPA indictment against Maryland executive
In an indictment unsealed on January 5, the DOJ charged a former executive of a Maryland company with 11 criminal counts, including seven counts of violating the FCPA and one count of conspiracy to violate the FCPA. The allegations relate to an alleged scheme to bribe an official at a Maryland-based Russian energy company that is a subsidiary of a large Russian corporation, as well as the sole supplier and exporter of Russian Federation uranium and uranium enrichment services. The former executive alleged sought to improperly obtain awards of nuclear transportation contracts from the Maryland based company to his company. Several other key players in the case already have pleaded guilty, including his former business associate as well as the official. Although sentencing for a number of the parties is forthcoming, the official already has been ordered to forfeit $2.1 million following his guilty plea. The initial investigation began in 2007 as part of a joint DOE-OIG and FBI probe into the official for laundering the funds derived from the scheme into offshore accounts.
Federal Reserve fines Taiwanese bank $29 million for anti-money laundering compliance deficiencies
On January 17, the Federal Reserve Board (Fed) ordered a Taiwanese bank to pay a $29 million penalty in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s Order, examinations conducted in 2016 identified “significant deficiencies” in three of the bank’s U.S. branches’ BSA/AML compliance and risk management controls. In addition to assessing a penalty, the Order required the bank and its New York, Chicago, and San Jose branches to, among other things, (i) submit a written plan from the board of directors for improving senior management oversight, including building a sustainable governance framework for BSA/AML compliance; (ii) submit compliance plans for enhanced internal controls, independent testing, risk assessment, and employee training; (iii) submit a revised program designed to conduct customer due diligence; (iv) ensure timely, accurate, and complete suspicious activity monitoring and reporting; (v) engage an independent third-party to review the identification and reporting of suspicious activity “involving high risk customers or transactions”; (vi) comply with Office of Foreign Assets Control regulations; and (vii) submit periodic progress reports to the branches’ applicable Federal Reserve Banks detailing actions taken to comply with the provisions of the order.
Senate Banking Committee: The impact of cryptocurrency in AML/BSA enforcement
On January 17, the Senate Committee on Banking, Housing, and Urban Affairs held a second hearing with witnesses from the Treasury and Justice departments to further address the need to modernize and reform the Bank Secrecy Act and anti-money laundering (BSA/AML) regime. The hearing, entitled “Combating Money Laundering and Other Forms of Illicit Finance: Administration Perspectives on Reforming and Strengthening BSA Enforcement,” follows a January 9 hearing before the same Committee on related issues (see previous InfoBytes coverage here). Committee Chairman Mike Crapo, R-Idaho, opened the hearing by stating the need to understand the government’s position on “strengthening enforcement and protecting the integrity of the U.S. financial system in a new technological era,” while also recognizing the challenges technology creates for law enforcement. A primary topic of interest to the Committee was “the rise of cryptocurrencies and their potential to facilitate sanctions evasion and perhaps, other crimes.”
The first witness, Treasury’s undersecretary for terrorism and financial crimes, Sigal Mandelker (testimony), noted that money laundering related to cryptocurrencies is “an area of high focus” for Treasury, and highlighted actions taken by Treasury’s Financial Crimes Enforcement Network (FinCEN), such as the release of guidance announcing that “virtual currency exchangers and administrators” are subject to regulations under the BSA. Regulated entities, Mandelker stated, are required to file suspicious activity reports (SARs) and are subject to FinCEN and IRS examinations and enforcement actions. Mandelker further commented that Treasury is “aggressively tackling” illicit financing entering the U.S. system and elsewhere, and stressed that other countries face consequences if they fail to have an AML/Combating the Financing of Terrorism regime that meets Treasury standards.
The second witness, DOJ acting deputy assistant attorney general M. Kendall Day (testimony), informed the Committee of the recent hiring of a digital currency counsel who is responsible for ensuring prosecutors are up-to-date on the latest money-laundering threats in the digital currency field. Day also commented on recent DOJ prosecutions in this space, and emphasized the need for enhanced information sharing for law enforcement, including the benefit of deriving information from SARs.
State AGs file protective petition to stop rollback of net neutrality rules; Senate Democrats announce plans to reverse FCC rule
On January 16, a coalition of 22 state attorneys general filed a protective petition for review in the D.C. Circuit Court of Appeals against the Federal Communications Commission (FCC) and the United States to block the FCC’s Declaratory Ruling, Report and Order released last December to rollback the 2015 Open Internet Order rules (known as “Net Neutrality” rules). As previously covered in InfoBytes, the rollback removes the restrictions barring providers from slowing down or speeding up web traffic based on business relationships, and places the enforcement authority of the new regulatory framework with the Federal Trade Commission (FTC).
In the petition, the states allege violations of the Administrative Procedure Act’s notice-and-comment rulemaking requirements, and claim that the FCC's actions with respect to Net Neutrality were “arbitrary, capricious, and an abuse of discretion.” According to a press release issued by New York Attorney General Eric T. Schneiderman:
The FCC’s new rule fails to justify the Commission’s departure from its long-standing policy and practice of defending net neutrality, while misinterpreting and disregarding critical record evidence on industry practices and harm to consumers and businesses. . . Moreover, the rule wrongly reclassifies broadband internet as a Title I information service, rather than a Title II telecommunications service, based on an erroneous and unreasonable interpretation of the Telecommunications Act. Finally, the rule improperly and unlawfully includes sweeping preemption of state and local laws.
Separately that same day, Senate Democrats announced plans to formally introduce a resolution of disapproval under the Congressional Review Act to reverse the FCC’s vote and restore the Net Neutrality rules. Once the rule is submitted to both houses of Congress, the resolution will be formally introduced, published in the Federal Register, and voted upon within 60 legislative days.