To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:
- On December 16, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) filed an amicus brief in the Eleventh Circuit in support of a plaintiff-appellant who filed a Section 1681s-2(b) claim against a furnisher for failing to conduct a reasonable investigation under the Fair Credit Reporting Act. The case presents a question about the scope of a furnisher’s duty to investigate “legal” inaccuracies or disputes concerning the legal validity of a debt obligation as opposed to factual inaccuracies involving tradelines in a consumer report. For more information, click here.
- On December 15, the FTC announced that because of a lawsuit it filed in May 2022 against the operators of the credit repair scheme “The Credit Game,” those operators now face a lifetime ban from the credit repair industry. In its original complaint against the scheme operators, the FTC alleged that the operators provided false information to credit reporting agencies; pitched customers a supposed business opportunity to create their own fake credit repair scheme; and encouraged users to pay for misleading services using COVID-19 tax relief funds. For more information, click here.
- On December 15, the Office of the Comptroller of the Currency, along with the Federal Financial Institutions Examination Council, released revised procedures for how its examiners will investigate financial institutions for Fair Debt Collection Practices Act compliance, incorporating Regulation F changes into their review. For more information, click here.
- On December 15, Senator Patrick Toomey introduced a Senate bill to amend the Consumer Financial Protection Act to place the CFPB’s budget and funding under the congressional appropriations process, while also changing the CFPB’s leadership structure to a five-member commission. For more information, click here.
- On December 15, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking that will implement provisions of the Corporate Transparency Act that authorize a federal agency engaged in national security, intelligence, or law enforcement to receive disclosures of identifying information associated with reporting companies, their beneficial owners, and their company applicants. For more information, click here.
- At a December 14 Open Commission Meeting, FTC Chair Lina Khan discussed the FTC’s recent consent orders and how these orders require companies to implement comprehensive security programs founded on three principles: (1) efficacy, which requires that orders address actual problems and may entail implementation of multifactor authentication and zero-trust architecture; (2) accountability, which requires that orders change business conduct; and (3) administrability, which may require companies to publish and abide by data retention schedules to provide the FTC a clear roadmap to litigation if a company fails to comply with an order. For more information, click here.
- On December 13, the CFPB and the Federal Housing Finance Agency published updated loan-level data for public use through the National Survey of Mortgage Originations. Due to the COVID-19 pandemic, 2020 mortgage borrowers reported that “a paperless online” mortgage process was important. Furthermore, many mortgage borrowers responded to low interest rates offered during 2020, and 75% of borrowers in 2020 reported being “very satisfied” that they obtained the lowest possible interest rate for which they could qualify. For more information, click here.
- On December 13, the CFPB distributed over $95 million in redress to over 87,000 consumers harmed by Consumer Advocacy Center, Inc., d/b/a Premier Student Loan Center, a student-loan debt-relief company. The redress payment stems from a 2019 lawsuit filed against Premier by the CFPB, the Minnesota attorney general’s office, the North Carolina Department of Justice, and the Los Angeles city attorney. In the lawsuit, the CFPB alleged Premier violated the Consumer Financial Protection Act and the Telemarketing Sales Rule by charging and collecting improper advance fees before consumers received any adjustment of their student loans or made any payments toward any modified loans. For more information, click here.
- On December 13, the Securities and Exchange Commission (SEC) filed a civil enforcement action against FTX ex-CEO Sam Bankman-Fried. The SEC alleged that Bankman-Fried violated the Securities Act and the Exchange Act by making numerous fraudulent representations or nondisclosures, which led 90 U.S.-based investors to invest approximately $1.1 billion in the cryptocurrency exchange FTX that resulted in a $2 billion consumer loss. Specifically, the SEC alleged that Bankman-Fried:
- Failed to disclose the diversion of FTX customer deposits to Alameda Research, a quantitative crypto trading firm that Bankman-Fried co-founded in 2017;
- Failed to disclose that Alameda could use FTX customer deposits for its own trading purposes or whatever other purposes Bankman-Fried desired;
- Failed to disclose that Alameda had a virtually unlimited line of credit at FTX;
- Failed to disclose Alameda’s collateral on FTX, which largely consisted of FTX-affiliated FTT tokens that were highly illiquid;
- Told consumers that their digital assets were secure and segregated from assets FTX held on its own balance sheet.
For more information, click here.
- On December 13, the U.S. Department of Justice (DOJ) unsealed its indictment against Sam Bankman-Fried. The eight-count indictment revealed, among other things, that the DOJ charged Bankman-Fried with wire fraud, commodities fraud, securities fraud, money laundering, and campaign finance law violations for his various multimillion-dollar bipartisan contributions to political candidates and action groups in anticipation of the 2022 midterm elections. For more information, click here.
- On December 13, the Commodity Futures Exchange Commission (CFTC) filed a complaint against Sam Bankman-Fried, FTX, and Alameda Research for violations of the Commodity Exchange Act and CFTC Regulation 180.1(a), which makes it unlawful for any person to intentionally or recklessly sell a commodity in commerce through fraud, deceit, or material misrepresentations. Many of the CFTC’s allegations against Sam Bankman-Fried and his organizations are rooted in the FTX’s misappropriation of $8 billion worth of customer deposits diverted to bank accounts owned and controlled by Alameda. Notably, in the complaint, the CFTC expressly asserted that “[c]ertain digital assets are ‘commodities,’ including bitcoin (BTC), ether (ETH), tether (USDT) and others, as defined under the [Commodity Exchange Act].” For more information, click here.
- On December 13, the CFPB issued a technical rule, updating the Code of Federal Regulations to reflect the closed-end mortgage loan reporting threshold under the Home Mortgage Disclosure Act (HMDA) of 25 mortgage loans in each of the two preceding calendar years as established by the 2015 HMDA Rule. For more information, click here.
- On December 13, the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking to its regulations, governing the use of the official FDIC sign and insured depository institutions’ (IDIs) advertising statements, while also clarifying the FDIC’s regulations on misrepresentations of deposit insurance coverage. The proposed rule will amend the definition of “non-deposit product” and “uninsured financial product” to include “crypto-assets,” thereby requiring IDI’s to clearly, continuously, and conspicuously display disclosures indicating that crypto-assets are not insured by the FDIC. For more information, click here.
- On December 12, the CFPB issued a proposed rule, requiring certain nonbank financial firms to register with the CFPB when those entities become subject to certain local, state, or federal consumer protection agency or court orders. Under the proposed rule, the CFPB intends to develop an online, public repository that will maintain the agency and court orders brought against nonbank financial firms to track and mitigate the consumer risks associated with repeat offenders of unfair, deceptive, or abusive acts or practices. For more information, click here.
- On December 12, the U.S. Supreme Court granted a petition for certiorari to consider whether the Administrative Procedure Act authorizes President Joe Biden’s student debt relief plan. For more information, click here.
- On December 9, FinCEN issued a notice, extending the filing date for the “Report of Foreign Bank and Financial Accounts” to April 15, 2023 for certain U.S. individuals who have only signature authority, but no financial interest, in one or more foreign financial accounts. For more information, click here.
- On December 8, the SEC issued guidance on the investor disclosure obligations of entities directly or indirectly exposed to the material impacts of crypto-asset market developments, which may include (1) a company’s exposure to counterparties and other market participants; (2) risks related to a company’s liquidity and ability to obtain financing; and (3) risks related to legal proceedings, investigations, or regulatory impacts in the crypto-asset markets. For more information, click here.
- On December 15, the New York Department of Financial Services (NYDFS) issued guidance, reminding all New York banking organizations, as well as all branches and agencies of foreign banking organizations that received NYDFS-issued licenses, that they are expected to seek approval from the NYDFS before engaging in new or significantly different virtual currency-related activity. New York-state chartered banks are exempted from New York’s BitLicense requirement, but these organizations must obtain approval from the NYDFS superintendent to engage in virtual currency business activity. For more information, click here.
- On December 12, New York Attorney General Letitia James announced the resolution of a lawsuit against an energy service company for allegedly misleading consumers into overpaying millions for gas and electrical utility services. As part of the resolution, the energy service company will stop the allegedly problematic business practices and will provide restitution to impacted New York consumers. For more information, click here.
- On December 12, California Attorney General Rob Bonta sent a letter, joining a bipartisan coalition of attorneys general in support of the Federal Communications Commission’s (FCC) proposal to require mobile wireless providers to block illegal text messages from phone numbers that are invalid, unallocated, unused, or found on a “do-not-originate” list. The corresponding press release stated: “During 2021, according to the FTC, consumers reported a total loss of $131 million due to fraud by text-message.” Further, Attorney General Bonta stated that the FCC’s proposal marks an “important first step toward addressing this growing threat and an extension of current call-blocking requirements.” For more information, click here.
- On December 5, an Arizona Superior Court for Maricopa County issued an order to show cause to the state of Arizona and scheduled an expedited evidentiary hearing in a suit, challenging the newly passed Arizona Protection from Predatory Debt Collection Act, also known as Proposition 209. Proposition 209 has been touted as a way to protect Arizonans with medical debt from bankruptcy, has set new exemption limits on property subject to debt collection, and has decreased the portion of a judgment debtor’s income subject to garnishment. The plaintiffs, led by the Arizona Creditors Bar Association, Inc., contend Proposition 209 should be declared void due to the vagueness of the savings clause. The evidentiary hearing occurred on December 16, 2022. For more information, click here.