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    CFPB's Prepaid Card Rule Evades Repeal, But Tweaks Coming, Law 360

    With a Thursday deadline looming, it appears the Consumer Financial Protection Bureau’s regulations for prepaid cards and digital wallets will survive a brush with a Republican-led repeal effort, but the rule may look at least somewhat different when it takes effect next April. ​​​​​​​Some Republicans had been hoping to add the CFPB’s regulations for prepaid cards to the list of Obama-era regulations to be repealed using the Congressional Review Act, an until-now rarely used law that allows Congress to eliminate regulations within 60 legislative days after they are finalized. But the effort has floundered as Senate Republican backers failed to gather enough support within their own caucus to repeal the rule, according to multiple sources.

    But that does not mean the rule that market participants have to contend with when it takes effect next year will look the same as the one that was finalized in October. The bureau last month gave industry participants an extra six months to comply, pushing the effective date to April 2018, and has said it will make some technical changes to ease compliance with the new protections for prepaid cards, digital wallets and other innovative financial products.

    Those changes are likely to be small and not threaten the spirit of the rule, marking a win for the bureau and consumer advocates. Read More

    UDAAP Authority as ‘Back Door’ to State-Law Enforcement for CFPB? New Lawsuit Again Raises the Question, The NLR

    The Consumer Financial Protection Bureau (CFPB) announced that it has filed suit against four online lenders owned by the federally recognized Habematolel Pomo of Upper Lake Indian Tribe based on alleged violations of state licensing and usury laws.

    The factual allegations in this lawsuit, filed in the US District Court for the Northern District of Illinois, are unremarkable. The CFPB charges that the online lenders at issue make small-dollar loans at very high interest rates and that the entities’ tribal ownership is both legally irrelevant and factually dubious. The CFPB also alleges relatively modest violations of Regulation Z’s requirement to disclose the annual percentage rate in an oral response to a consumer inquiry about the cost of credit. The CFPB, however, alleges that the defendants engaged in unfair, deceptive, and abusive acts and practices (UDAAP) in violation of federal law through their efforts to collect on loans that were usurious under state law, or for which other state-law violations vitiated or limited the borrowers’ obligation to repay.

    This action reflects another step in the CFPB’s continuing efforts to substantively enforce state laws under the guise of its federal UDAAP authority. As we have previously reported, this is not the first time that the CFPB has advanced an enforcement strategy of predicating federal UDAAP violations on alleged violations of state usury or lending licensing laws. In the prior case, a tribal entity originated the loans but was found to have no further interest once the loans were sold to its non-tribal payday lender partner. In the current lawsuit, the lenders are themselves tribal-owned entities. Read More

    A Wake-Up Call For Banks To Comply With Bankruptcy Rules, Law 360

    It is fair to say that not many, if any, banks have internal controls or policies and procedures to identify and mitigate deficiencies in their bankruptcy practices. Indeed, banks typically rely on their legal department or external counsel to make sure banks protect their interests when bank customers file bankruptcy. 

    While the compliance department and the risk management department track compliance and risks related to numerous laws, rules and regulations, the Bankruptcy Code and its rules are typically not among those laws and rules. Certainly, it would be unexpected to find a compliance department or risk management department that focuses on reviewing bankruptcy notices and filings by bank customers, and the responses by banks to those notices and filings to determine whether the banks filed, among other things, timely and accurate proofs of claim, payment change notices, claims of post-petition mortgage fees, expenses and charges, or accurate notices of final cures. It is not unreasonable to think that those areas are all issues for the bankruptcy court to address, and for bank counsel to make sure the interests of the banks are protected.

    Perhaps, compliance departments and risk management departments, along with audit departments, should rethink the importance of bank compliance with bankruptcy laws and rules both as a way to mitigate regulatory risk and as a way to make sure the risk profile of the bank is accurate. As an incentive to do so, banks should consider a recent civil money penalty (CMP) action by the Office of the Comptroller of the Currency against U.S. Bank National AssociationRead More

    District Court Takes on the Intersection of Bankruptcy and the FDCPA, Lexology

    A New York District Court recently tackled the intersection between bankruptcy and pre-petition FDCPA claims and the application of judicial estoppel to undisclosed claims. In December 2013, Jeziorowski filed a complaint alleging violations of the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act of 1991 (TCPA). 

    Jeziorowski v. Credit Prot. Assn., L.P., 2017 U.S. Dist. LEXIS 66084 (W.D.N.Y. 2017). Shortly after filing suit, Jeziorowski filed bankruptcy pursuant to Chapter 7. At his 341 meeting, Jeziorowski orally informed the trustee about his pending FDCPA and TCPA claims. The trustee instructed him to have his attorney report to the court if the pending claims had more value than $1,000. Shortly thereafter, Jeziorowski was granted his discharge. At the time of his discharge, the FDCPA/TCPA lawsuit remained pending and Jeziorowski had not amended his schedules to reflect the claims.

    Two years later, Jeziorowski requested the bankruptcy be reopened to allow him to amend his schedules to include the FDCPA and TCPA claims. Shortly after, Jeziorowski filed a motion in the pending FDCPA/TCPA litigation to substitute the trustee as plaintiff. In response, the defendant opposed the motion, arguing that both Jeziorowski and the trustee should be judicially estopped from pursuing the FDCPA and TCPA claims and requesting the complaint be dismissed with prejudice.

    The intersection of bankruptcy and pre-petition consumer protection claims is a tricky one. The proper functioning of the bankruptcy system requires a full disclosure of all claims. The failure to do so may prevent the unwary consumer from pursuing them. In a Chapter 7, disclosed claims may be abandoned by the trustee post discharge and returned to the debtor to pursue. However, undisclosed claims remain property of the estate and the debtor may be estopped from pursuing them. In short, the doctrine of judicial estoppel prevents consumers from gaming the system. Read More

    Bank Can't Force Arbitration Of Payday Loan Suit: 4th Circ., Law360

    With a Thursday deadline looming, it appears the Consumer Financial Protection Bureau’s regulations for prepaid cards and digital wallets will survive a brush with a Republican-led repeal effort, but the rule may look at least somewhat different when it takes effect next April. 

    In a published opinion, a three-judge panel upheld a lower court's finding that an arbitration agreement between Great Plains Lending LLC and a North Carolina man was unenforceable, saying the contract's terms take the "plainly forbidden step" of requiring tribal law jurisdiction, to the exclusion of federal and state law.

    "Great Plains purposefully drafted the choice of law provisions in the arbitration agreement to avoid the application of state and federal consumer protection laws," the panel wrote.

    North Carolina resident James Dillon took out a payday loan in 2012 from Great Plains, a lender owned by the Otoe-Missouria Tribe of Indians, according to court records. Although North Carolina law prohibits interest rates over 16 percent, Great Plains charged Dillon an interest rate of 440 percent because it had no physical presence in the state, the panel said. Read More. ​​​​​​​

    FTC Advises HR to Keep Required Screening Forms Simple, SHRM

    Required background check disclosure and authorization forms should be clearly worded and not weighed down with "complicated legal jargon" or "extra acknowledgements or waivers," the Federal Trade Commission (FTC) said in a new nonbinding guidance.

    Before obtaining a background screening report on a prospective employee, the federal Fair Credit Reporting Act (FCRA) requires that the employer disclose its intent to screen the person and that he or she provide written authorization allowing the screen to occur.

    "Companies often ask how to make the required initial disclosure before they obtain the background screening report and get the prospective employee's authorization," said David Lincicum, an attorney for the FTC based in Washington, D.C. Lincicum said that it's OK to combine the required disclosure and request for authorization in one document, but "just be sure to use clear wording that the prospective employee will understand." Some companies "trip themselves up" with overly complicated forms, he added. Read More


    Charlotte Man Sentenced To More Than 7.5 Years In Connection With Bank Fraud And Identity Theft Scheme, Justice. Gov

    Christopher Bryan Roach, 34, of Charlotte, was sentenced today to 95 months in prison for his involvement in a bank fraud and identity theft scheme, announced Jill Westmoreland Rose, U.S. Attorney for the Western District of North Carolina. Chief U.S. District Judge Robert J. Conrad, Jr. also sentenced Roach to two years of supervised release.

    According to today’s sentencing hearing and documents filed in the case, from December 2010 to January 2017, Roach and others used the stolen social security numbers and dates of birth of identity theft victims to take over the victims’ already existing credit card accounts and to open new accounts at stores such as Best Buy and Sam’s Club. Roach and others then used the accounts to purchase items, which resulted in losses in excess of $263,000. According to the indictment, Roach obtained some of the identity theft victims’ information by buying that information from an employee of a medical practice.

    Roach pleaded guilty in January 2017 to one count of aggravated identity theft and one count of conspiracy to commit bank fraud. According to statements made at today’s hearing, Roach continued to engage in fraudulent activity, including identity theft, after he entered his guilty plea by providing a co-conspirator with the stolen personal information of an identity theft victim in order to buy iPhones. Read More

    Peninsula Woman Facing $1 Million Fine, 30 Years In Prison For Fraud Scheme, Burlingame Patch 

    A Pacifica woman pleaded guilty to bank fraud in federal court on Wednesday, prosecutors said. Beginning in 2008, Krisinda Messer, 37, created 130 fraudulent checks totaling $436,396, all but two of which she made payable to her father's company, American Backflow Company, or ABC, according to the U.S. Attorney's Office. 

    Messer admitted that ABC was not a creditor of the delicatessens and there was no business relationship between them. She also admitted that she forged the signature of the delicatessens' owners on most of the checks, prosecutors said. In an effort to conceal the fraudulent checks from her employers, Messer created a fake company account on the accounting software QuickBooks and used the fake company to produce checks written to ABC so that they would appear in the books, prosecutors said.

    Messer also admitted that she did not report the income on her federal income tax returns from 2008 through 2011. Read More

    5 Ways Your Accountholders & Members Can Protect Their Accounts Today

    Encourage your customers to:

    • (1) Use two-factor identification when available.
    • (2) Change passwords at least twice a year. Use complicated, account-specific passwords that combine upper- and lowercase letters, numbers, and symbols. 
    • (3) Monitor accounts regularly, preferably checking each account twice a week.
    • (4) Use all of your Financial Institution's banking alerts.
    • (5) Don't take the bait! If customers receive an email allegedly from your Institution, but find it slightly suspicious, encourage them to contact you and refrain from clicking on any links before verifying its authenticity