State AGs: Enforcement Beyond the CFPB

Transcription

1 State AGs: Enfrcement Beynd the CFPB Lucy Mrris, Jim Chareq, Allen Densn, and Anastasia Catn Gvernment Investigatin, Examinatin, and Enfrcement Practice Grup Hudsn Ck, LLP

2 Panelists Tday s webinar is presented by Hudsn Ck s Practice Grup fr Gvernment Investigatins, Examinatins, and Enfrcement. Practice grup helps clients prepare fr and respnd t all frms f gvernment scrutiny, frm bth federal and state agencies. Tday s Panel: Lucy Mrris Jim Chareq Allen Densn Anastasia Catn

3 Intrductin State AG enfrcement f cnsumer financial prtectin laws and regulatins: States have always been active in this space, but seem t be ramping up effrts in the past year Pennsylvania AG s mini-cfpb unit Maryland Financial Cnsumer Prtectin Cmmissin State AGs have brad authrity. Different than dealing with private litigants, federal regulatrs.

4 Overview State AG enfrcement authrity generally Tls f state AG enfrcement State AG enfrcement and investigatin activity in 2017 Aut finance Student lending Mrtgage Servicing, cllectin, and repssessin Small dllar Privacy and data security Handling multi-state and parallel investigatins and enfrcement actins

5 State AG Authrity Generally Enfrcement f state UDAP statutes ( Baby FTC Acts ) Every state has a statute that prhibits deceptive practices. Ddd-Frank Act authrity t enfrce federal cnsumer financial laws and regulatins, 12 U.S.C. 5552: Prvides fr CFPB participatin in state AG enfrcement. Allws state AGs t fill gaps in state and federal enfrcement. Certain individual federal cnsumer financial laws als authrize state AG enfrcement (TILA, FCRA, and RESPA).

6 Tls f State AG Enfrcement 1. Civil investigative demands and subpenas. 2. Access t exam materials frm state and federal regulatrs. 3. Remedies under a Baby FTC Act typically includes: a. Restitutin b. Viding f illegal lans c. Injunctive relief t prevent future vilatins d. Attachments r asset freezes e. Penalties

7 State AG Activity in 2017: Aut Finance

8 Aut Finance: Mtr Vehicle Cnditin Massachusetts AG has brught actins against dealers ver the cnditin f vehicles sld and financed: Lawsuit against BHPH dealer (large franchise) fr allegedly using predatry practices in its sale f defective vehicles with high cst installment cntracts. Cnsent rder with used car dealer fr deceptive advertising practices, including telling cnsumers they culd get affrdable lans, when the majrity were subprime with 21% interest rates. Many vehicles had serius mechanical prblems/defects that made them unreliable r unusable. Pennsylvania, New Yrk, and New Hampshire AGs have brught actins against dealers fr selling vehicles that are unradwrthy, unsafe, r withut disclsing that the vehicles were under recall fr unrepaired safety issues.

9 Aut Finance: Subprime Aut Finance Delaware and Massachusetts: Part f the Massachusetts AG s nging review f the financing and securitizatin practices in the subprime aut finance market. Actin against aut finance cmpany fr its unfair practices in facilitating high-rate, high-risk vehicle financing Mississippi: Inadequate internal cntrls and versight f dealer cnduct; and Extensin f credit t buyers wh are unable t repay. AG using utside law firm (under state law) t investigate and sue sales finance cmpany fr making risky subprime lans t vulnerable custmers withut taking int accunt buyers ability t repay.

10 Aut Finance: Attacks n the BHPH Mdel Massachusetts: Lawsuit against Buy Here/Pay Here dealer, attacking varius aspects f the BHPH mdel. AG tk issue with: Cash prices f vehicles mre than duble the vehicles value Cntracts with an APR nt tied t the buyer s creditwrthiness Service cntracts requiring the use f the dealer s service center Expense-t-incme mdel that qualifies buyers fr financing they cannt affrd Repssessin rate f apprximately 50%

11 Aut Finance: Ancillary Prducts New Yrk: Cnsent rder with dealer fr the practice f jamming New Jersey: Deceptively charging cnsumers fr unwanted after-market antitheft prduct, ften added t cst f vehicle withut cnsumer s knwledge r cnsent. Cnsent rder required refund f almst $300K t cnsumers wh were charged an add-n fee fr the prduct, plus $22K+ in penalties t the state. Cnsent rder with dealer fr charging cnsumers fr aftermarket prducts that were listed as n charge n certain leasing/sales agreements.

12 Student Lending Illinis, Washingtn, Pennsylvania AGs & CFPB take actin against large student lan servicer: Illinis: Alleged that servicer failed t perfrm cre lan servicing duties prperly n federal and private student lans. Washingtn: Alleged that servicer engaged unfair/deceptive practices, including imprperly steering financially distressed students tward shrt-term frbearances, engaging in aggressive and misleading cllectin tactics. Pennsylvania: Alleged that servicer Made predatry lans t students attending schls with lw graduatin rates; Used unprfitable subprime lans t becme a preferred lender at schls and increase vlume f actual prfitable lans; and Steered students int shrt-term, high-interest frbearances instead f helping them apply fr incme-driven repayment plans.

13 Student Lending 13 state AGs and CFPB crdinated in $192M natinwide settlement against student lan investr, alleging the fllwing: The investr funded student lans fr students f fr-prfit cllege in sham student lending scheme Primary purpse f lan prgram was t give the fr-prfit cllege access t federal student aid funding; Lans were lss leaders, and mst students defaulted; and Investr bre little risk because fr-prfit cllege had t buy back the lans frm investr upn default. Califrnia tk the lead in the state actin.

14 Mrtgage Massachusetts and Flrida AGs, 20+ state banking regulatrs, and CFPB tk actin against ne f natin s largest mrtgage servicers: Wide variety f claims ver servicing practices Charging excessive delinquency fees; Imprper handling f escrw accunts; Mishandling f insurance payments, leading t lapse in cverage, and resulting in charges fr frce-placed insurance; Failing t respnd t brrwer accunt disputes r crrect accunt errrs; Sending inaccurate mnthly statements; and Filing illegal freclsure actins. Nrth Carlina s banking regulatr tk the lead in the state regulatr actin.

15 Servicing, Cllectin, and Repssessin Operating withut required state licenses Clrad Nrth Carlina Payment assurance technlgy Flrida: Cnsent rder with BHPH dealer fr, amng ther things, installing and using GPS devices withut buyers cnsent. Dealer agreed t $5.1M in debt frgiveness. Allegatins f general unfair, deceptive, r abusive cllectin practices Texas: AG sued law firm and cllectin agency fr vilatins f Texas state law gverning cllectin lawsuits. Jury awarded $25M. Mississippi: AG filed lawsuit using utside law firm claiming that large, natinal sales finance cmpany used aggressive cllectin tactics.

16 Small Dllar Numerus state AGs brught separate actins against nline tribal lender, with primary claim that lender made lans with interest rates exceeding state usury limits: Flrida: $27M in relief, including restitutin and civil penalties. Gergia: $40M in relief, including restitutin, lan frgiveness, and civil penalties. Virginia: $15M+ in restitutin, debt relief, and civil penalties.

17 Small Dllar Virginia has been very active in this space recently: Lawsuit against title lender and prvider f pen-end credit based n unlicensed lending. Seeking $2,500 per vilatin in penalties. Settlement with pen-end creditr fr charging unlawful fees, misrepresenting whether it wuld perfrm credit checks, and seeking judgments in unauthrized frums. $450K+ in frgiven principal, interest, and refunds. $56K settlement with pawnbrker in crdinatin with CFPB. Alleged that pawnbrker charged unlawful fees, deceived cnsumers abut csts f lans.

18 Privacy and Data Security Data security Data security laws enfrced by AGs. Data breach ntificatin laws enfrced by AGs. Large cnsumer reprting agency breach in the news Massachusetts AG taking the lead. Cncerns with data security practices and the respnse t the data breach.

19 Handling Multi-state and Parallel Investigatins and Enfrcement Actins Treat it like a natinwide actin by a federal regulatr Nt unlike handling a CFPB r FTC investigatin/enfrcement actin. Multi-state AG actins are ften led by certain states r state cmmittees. Cperatin is key Often the bjective is t change behavir, nt just punish the cmpany. Better results (e.g., ptentially less likely t g t lawsuit). Brad remedies available: Cnsent rder; Restitutin; Injunctive relief; Civil penalties; Onging mnitring; and If there is a lawsuit, AGs will sue individually in their state curts.

20 Key Takeaways State AGs have the tls and have demnstrated a willingness t aggressively enfrce state and even federal cnsumer prtectin laws. Infrmatin is shared amng federal and state enfrcement authrities. AG fcus is n unfair and deceptive practices, smetimes characterized as predatry lending practices: Credit terms and the cnsumer s ability t pay; The quality f the prducts being financed; Ancillary prduct sales and financing (the cst and utility f the prducts is at issue); and Aggressive cllectins practices. Other cncerns: Unlicensed lending; and Usurius interest rates.

21 CONTACT INFORMATION Lucy Mrris Hudsn Ck, LLP 1909 K Street, NW Washingtn, DC (202) lmrris@hudc.cm Jim Chareq Hudsn Ck, LLP 1909 K Street, NW Washingtn, DC (202) jchareq@hudc.cm Allen Densn Hudsn Ck, LLP 1909 K Street, NW Washingtn, DC (202) adensn@hudc.cm Anastasia Catn Hudsn Ck, LLP 1909 K Street, NW Washingtn, DC (202) acatn@hudc.cm