On May 19, the CFPB announced a stipulated final judgment against a California-based worldwide payment system company. According to the CFPB’s complaint, filed the same day, the defendant (i) failed to honor advertised promotional benefits; (ii) charged consumers deferred-interest fees; (iii) enrolled consumers in a credit product without their knowledge or consent; (iv) failed to remove late fees and interest charges that consumers accrued because of website failures; and (v) mishandled consumers’ billing disputes. Under the terms of the final judgment, the company will improve its disclosures regarding enrollment options and payment allocation, pay $15 million to reimburse consumers who were the victims of its practices, and pay $10 million to the CFPB’s Civil Penalty Fund.
DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets
On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.
On May 20, the CFPB launched its Financial Coaching Initiative, an educational program designed to help “recently-transitioned veterans and economically vulnerable consumers.” The program places 60 certified financial coaches – all of whom will be accredited by the Association for Financial Counseling and Planning Education – at diverse, non-profit partner organizations around the country. With over 49 million people living below the poverty line, and at least 68 million financially underserved, the goal of the CFPB’s new educational service is to “help these consumers make good financial decisions and reach their financial goals.” The program is being paid for by the CFPB’s Civil Penalty Fund.
According to its May 19 securities filing, a Brazilian manufacturer of commercial jets has entered into discussions with the DOJ to resolve an FCPA probe launched by the Department in 2010. The government’s investigation stems from allegations that the manufacturer’s sales executives bribed various Dominican individuals who, in exchange, influenced legislators in the Dominican Republic to approve a $92 million contract and financing agreement for aircraft. In its filing, the company stated that a resolution of the investigation would result in fines and other sanctions by the DOJ. The Brazilian government’s criminal case against the manufacturer’s eight sales executives is ongoing.
On May 20, the SEC announced that it had instituted and settled administrative proceedings against a global resources company to resolve alleged FCPA violations during the 2008 Summer Olympics. According to the SEC’s administrative order, the company invited over 175 government officials and employees of state-owned enterprises, many from countries in Africa and Asia with a “well-known history of corruption,” to attend the Games at its expense. Those who accepted were provided with “hospitality packages” that included event tickets, luxury hotel accommodations, meals and, in many cases, business class airfare. Even though the company was aware that providing high-end hospitality packages to government officials created a heightened risk of violating anti-corruption laws, its internal controls were “insufficient” because there was no independent legal or compliance review of the invited guests or enhanced training of employees regarding the corruption risks. Read more…
On May 20, the FHFA announced that Fannie Mae and Freddie Mac released updates to their operational and financial eligibility requirements for single-family mortgage Seller/Servicers. Because of changes in the servicing industry, the FHFA directed Fannie and Freddie to update their Seller/Servicer standards to “help ensure the safe and sound operation of the Enterprises and provide greater transparency, clarity and consistency to industry participants and other stakeholders and reflect feedback received over the past several months.” Fannie Mae’s revised operational standards will take effect by September 1, 2015, and Servicers must implement the financial eligibility changes by December 31, 2015. Operational standards for Freddie Mac Servicers will take effect August 18, 2015; financial eligibility revisions must be in place by December 31, 2015.
On May 20, the FCC released an enforcement advisory regarding the enforcement of Section 222 of the Communications Act as it relates to providers of broadband Internet access service (BIAS). The advisory bulletin indicates that, until the FCC implements new BIAS-specific privacy regulations, the Enforcement Bureau will “focus on whether broadband providers are taking reasonable, good-faith steps to comply with Section 222, rather than focusing on technical details.” Thus, “the Enforcement Bureau intends that broadband providers should employ effective privacy protections in line with their privacy policies and core tenets of basic privacy protections.”
On May 21, FinCEN announced Jamal El-Hindi as its new Deputy Director. Since January 2015, El-Hindi has been serving as the agency’s acting Deputy Director, and previously served as Associate Deputy Director for the Policy Division. Prior to joining FinCEN in June 2006, El-Hindi oversaw OFAC’s Compliance Outreach Division, Licensing and Policy Division as the Associate Director for Program Policy and Implementation, and was an Attorney-Advisor in the Office of Chief Counsel (Foreign Assets Control) within Treasury’s Office of General Counsel, serving on economic sanctions programs as a legal advisor. In his role as FinCEN’s Deputy Director, El-Hindi will work alongside law enforcement, intelligence, financial, and regulatory communities “to ensure the effective coordination of anti-money laundering and anti-terrorist financing initiatives.”
On May 15, a San Diego-based storage company entered into a consent order with the DOJ to settle claims that the company’s practice of auctioning off active duty servicemembers’ stored belongings violated the Servicemembers Civil Relief Act (SCRA). As part of the settlement, the storage company will: (i) pay $170,000 in damages to those servicemembers whose stored belongings it sold without obtaining a court order; (ii) implement new SCRA policies and procedures, which are to be approved by the government; and (iii) ensure that those employees who are involved with the enforcement of storage liens receive government approved SCRA training annually.
On May 19, NYDFS Superintendent Lawsky delivered remarks at the Mortgage Bankers Association’s National Secondary Market Conference & Expo regarding New York’s “broken judicial foreclosure process.” Noting that the state’s average of over 900 days from the date of filing to sale is more than a year longer than the national average, Lawsky stated that the “current system hurts virtually everyone involved in the foreclosure process,” including municipalities, lenders and mortgage investors, the courts and, most importantly, homeowners and their families. In a report issued the same day, NYDFS details the causes of the problems. In response, Lawsky proposed a number of legislative reforms intended to facilitate the “twin goals of protecting homeowners from foreclosure abuses and encouraging the efficient return of foreclosed properties to the market.” Lawsky emphasized that, “contrary to popular belief, these goals are not mutually exclusive. The key to achieving both is having a sound and timely judicial foreclosure process that is fair to both homeowners and the mortgage industry.” The specific reforms include proposals to modify the mandatory settlement conferences that cause much delay early in the litigation process, to improve disclosures to homeowners regarding their rights and obligations, and to expedite the foreclosure process for vacant and abandoned “zombie homes.”
On May 20, the NYDFS released a statement announcing that Superintendent Benjamin Lawsky will depart in late June. Lawsky, who became the newly created agency’s first superintendent in May 2011, stated: “I am deeply proud of the work our team has done building this new agency and helping strengthen oversight of the financial markets. We have assembled a great team at NYDFS and I have full confidence that the critical work of this agency will continue seamlessly moving forward.”
On May 15, the California Department of Business Oversight (DBO) announced that it filed a complaint against a debt payment company for allegedly operating in California without having the proper license and for charging fees in excess of statutory limits. According to the complaint, the company contracts with borrowers to make their mortgage, credit card, or other loan payments for them, and then debits their account every two weeks in an amount equal to one-half of the required monthly payment on the loan. This payment schedule results in 26 debits per year, equating to an extra month’s worth of payments. The company claims that the extra debits are used to pay down the principal on the loan. The lawsuit alleges, however, that the California Financial Code requires companies providing debt payment services to be licensed as “proraters” by the DBO, and the company has never had such a license. The complaint also alleges that the company’s “set up fee” of one-half of the monthly loan payment amount often far exceeded the $50 limit on origination fees imposed by state law, and that the company’s advertising misrepresented how much its customers would pay for services and how much they would save on interest. Since 2009, the company has collected more than $300 million from its 10,000-25,000 customers for distribution to creditors and earned more than $10 million in fees.
On May 12, the Ninth Circuit held that a debt collection letter did not violate the FDCPA or California’s Rosenthal Act where the amount of the debt was certain, even though the debt collector had not yet obtained a judgment. Diaz v. Kubler Corp., 2015 WL 2214634 (9th Cir. May 12, 2015). The debt collector sent a collection letter demanding that the debtor pay an amount reflecting the principal owed plus interest at an annual rate of 10%, which was the rate set forth in California law for contracts that do not stipulate a legal rate of interest. The district court granted summary judgment, holding that the debt collector could not seek to collect prejudgment interest at the statutory rate without first obtaining a judgment for breach of contract. Therefore, the court held, the debt collector had violated the FDCPA and the Rosenthal Act by attempting to collect an amount not authorized by the contract creating the debt or permitted by law. The Ninth Circuit reversed, holding that California Civil Code §3287(a) allows recovery of prejudgment interest from the time that the creditor’s right to recover is “vested,” which occurs at the time “the amount of damages become certain or capable of being made certain, not the time liability to pay those amounts is determined.” Damages “become certain or capable of being made certain” when “there is essentially no dispute between the parties concerning the basis of computation of damages if any are recoverable but where their dispute centers on the issue of liability giving rise to damage.” At that time, prejudgment interest becomes available as a matter of right. Accordingly, the debt collector’s demand for prejudgment interest did not violate the FDCPA or the Rosenthal Act.
On May 18, the Supreme Court granted certiorari to resolve a circuit split as to whether an offer of complete relief to a plaintiff seeking to represent a putative class moots the case. Campbell-Ewald Co. v. Gomez, 2015 WL 246885 (U.S. May 18, 2015). According to the cert. petition, the plaintiff received an unsolicited text message in 2006 from the petitioner, a firm hired by the U.S. Navy to assist with its recruitment efforts. The plaintiff claimed that the text message violated the Telephone Consumer Protection Act, and sought to represent a class of all non-consenting recipients of the recruitment text. Before the plaintiff had moved for class certification, the petitioner tendered an offer of judgment pursuant to Fed. R. Civ. P. 68 and a separate informal settlement offer, both of which would have fully satisfied the plaintiff’s individual claim by offering more than the maximum statutory damages plus reasonable costs and injunctive relief. The plaintiff rejected the offers and moved for class certification. The district court rejected the petitioner’s claim that the claim was moot, but eventually granted the petitioner summary judgment on the merits on the ground that the petitioner was entitled to “derivative sovereign immunity.” The Ninth Circuit reversed, holding that the case was not moot and that the district court had improperly applied the derivative sovereign immunity doctrine. The Supreme Court granted cert. to consider both questions. As to the mootness issue, the Court will also consider whether the resolution depends on whether or not the class has been certified at the time of the offer.
The Department of Education is set to propose new regulations which could change how financial institutions provide services on college campuses, according to a NPRM to be published in the Federal Register on May 18. The new rules, part of a nearly 300-page “Program Integrity and Improvement” package, are intended to among other things (i) ensure that students have convenient access on their Title IV funds, (ii) do not incur unreasonable and uncommon financial account fees, and (iii) are not led to believe they must open a particular account from a financial institution to receive Federal student aid. The proposed regulations also update other provisions in the cash management regulations, clarify how previously passed coursework is treated with respect to Title IV funds eligibility, and streamline the requirements for converting clock hours to credit hours. Public comments on the proposed rulemaking will be due 45 days after date of publication in the Federal Register.