United States: The State AG Report Weekly Update July 11, 2019

Last Updated: July 15 2019
Article by Lori Kalani and Bernard Nash

Cannabis / Marijuana

Iowa Attorney General Issues Statement on Legality of Hemp and Cannabidiol Products

  • Iowa AG Tom Miller issued a statement regarding the legality of hemp and cannabidiol ("CBD") products under state law after Congress passed the Agriculture Improvement Act of 2018 legalizing CBD derived from industrial hemp with a tetrahydrocannabinol ("THC") concentration of not more than .3%, and the Iowa legislature enacted the Iowa Hemp Act, which will allow for the production of hemp in the state after the state's plan receives U.S. Department of Agriculture ("USDA") approval.
  • In the statement, AG Miller concluded that, under state law, products containing any amount of CBD or THC are illegal, with the exception of medical CBD ("mCBD")—any pharmaceutical grade cannabinoid found in a cannabis plant with a THC level of no more than .3%— and no one may grow, manufacture, or process hemp in the state under current state law, with the exception of two mCBD manufacturers.
  • AG Miller noted that the Iowa Hemp Act, SF 599, which was enacted in May 2019 and legalizes the use of hemp for certain purposes, does not allow the production of hemp in the state until the USDA approves the state hemp production plan submitted by the state Department of Agriculture and Land Stewardship. The USDA will not begin approving state plans until it promulgates regulations, which it intends to do this fall, and has committed to completing its review of state plans within 60 days of when the regulations become effective.
  • As previously reported, other AGs have taken similar action, including South Dakota AG Jason Ravnsborg's March 2019 clarifying statement concluding that, under South Dakota state law, industrial hemp and all forms of CBD oil are illegal, with the exception of the prescription drug Epidiolex, and Alabama AG Steve Marshall's December 2018 Public Notice concluding that possession, use, sale, and distribution of CBD derived from marijuana or hemp with under a .3% THC concentration is legal in Alabama, in accordance with the federal standard, but CBD products above a .3% THC concentration remain illegal under Alabama law.

Consumer Financial Protection Bureau

25 Democratic Attorneys General Warn CFPB that Weakening Debit Card Overdraft Fee Rule Will Harm Consumers

  • 25 Democratic AGs, led by New York AG Letitia James, submitted a comment to the Consumer Financial Protection Bureau ("CFPB") in response to the CFPB's Notice of Section 610 Review and Request for Comments on its Overdraft Rule, which currently limits the ability of financial institutions to assess overdraft fees for ATM and one-time debit card transactions that overdraw consumers' accounts.
  • In the comment, the AGs argue that the Rule has saved consumers billions of dollars in ATM and debit card transaction fees, provided consumers with peace of mind that they will not be unexpectedly charged substantial fees, and allowed consumers to make meaningful choices about whether they want overdraft services, and that the Rule does not place any economic burdens on smaller financial institutions.
  • The AGs urge the CFPB not to rescind any of the Rule's requirements and advocate for expanding the Rule to cover other transactions such as checks and automated clearinghouse ("ACH") transactions and to require that all overdraft fees be proportional to the amount paid by a bank to cover overdrawn transactions.

CFPB Settles With Debt-Settlement Services Provider for Allegedly Charging Consumers Without Settling Debts, Misrepresenting Ability to Negotiate With Creditors

  • The Consumer Financial Protection Bureau ("CFPB") reached a settlement with debt-settlement services provider Freedom Debt Relief, LLC and its officer (collectively, "Freedom") to resolve allegations that it charged consumers without settling their debts and misrepresented its ability to negotiate with creditors in violation of the Telemarketing and Consumer Fraud and Abuse Prevention Act, Telemarketing Sales Rule, and Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010.
  • According to the amended complaint, Freedom allegedly charged advance fees, failed to inform consumers of their rights to deposited funds, charged consumers without settling their debts and after consumers negotiated their own settlements with creditors, misrepresented that it could negotiate directly with all creditors when it knew that certain creditors would not negotiate with it, and instructed consumers to deceive creditors when asked about their enrollment in a debt-settlement program.
  • According to the stipulated final judgment and order, Freedom must pay $20 million in restitution to consumers and $5 million in civil penalties to the CFPB, with $493,500 remitted in light of the penalty it must pay the Federal Deposit Insurance Corporation; revise its business practices; submit a redress and compliance plan to the CFPB; and monitor compliance with the terms of the order.

Consumer Protection

New York Attorney General, FTC Settle with Debt Broker and Collection Agency for Allegedly Brokering and Collecting on Fake Debts

  • New York AG Letitia James and the Federal Trade Commission ("FTC") reached settlements with debt broker Hylan Asset Management, LLC, its owners, and related entities (collectively, "Hylan"), and collection agency Worldwide Processing Group, LLC and its owner (collectively, "Worldwide") to resolve allegations that they brokered and collected on fake debts in violation of the FTC Act, Fair Debt Collection Practices Act ("FDCPA"), and state laws against deceptive business practices and illegal debt collection practices.
  • According to the complaint, Hylan purchased and distributed for collection "phantom debts"—debts that do not exist or are not owed—that Worldwide later obtained from Hylan and collected on by making threats to harass consumers, and failed to provide consumers with statutorily required notices of how to dispute the debts.
  • Under the terms of Hylan's stipulated order, Hylan must pay $6.75 million, which is suspended upon payment of $676,575, and permanently cease buying, placing for collection and selling debt, among other things. Under the terms of Worldwide's stipulated order, Worldwide must pay $4.94 million, which is suspended upon payment of $118,000, and permanently cease engaging in deceptive debt collection practices.
  • As previously reported, 47 AGs, the FTC, and the CFPB launched an initiative in November 2015 to stop abusive debt collectors who, among other things, knowingly attempt to collect phantom debts.

Data Privacy & Security

Illinois Legislature Passes, Texas Enacts Data Breach Notification Laws

  • Illinois has passed legislation and Texas has enacted a bill that expand their respective data breach notification laws.
  • The Illinois legislature passed SB 1624, which amends the state's Personal Information Protection Act to require businesses to notify the AG's office of data breaches affecting at least 500 residents and allows the AG's office to publish information regarding data breaches, including the name of the business, the types of personal information breached, and the dates during which the breach occurred. The bill is pending Governor J.B. Pritzker's signature and would become effective on January 1, 2020.
  • Texas enacted HB 4390, which amends the Texas Identity Theft Enforcement and Protection Act to require businesses to send breach notifications to affected individuals and to the AG's office if the breach affects at least 250 residents, no later than 60 days after a breach is identified, and creates the Texas Privacy Protection Advisory Council, which will study data privacy laws in the state, other states, and relevant foreign jurisdictions. The Texas bill was signed by Governor Greg Abbott on June 14, 2019, and the Advisory Council provision will go into effect on September 1, 2019, and the breach notification requirements will go into effect on January 1, 2020.
  • As previously reported, New York and Washington similarly expanded their respective data breach notification laws earlier this year.

Massachusetts Attorney General Settles With Healthcare Services and IT Provider Over Alleged Data Breach

  • Massachusetts AG Maura Healey reached a settlement with healthcare administrative services and IT provider CoPilot Provider Support Services Inc. ("CoPilot") to resolve allegations that it failed to give timely notice of a data breach that affected nearly 1,900 patients in the state in violation of the state's data breach notification law.
  • According to the AG's office, CoPilot allegedly failed to notify patients for more than a year after learning that its website—which is connected to a database with patients' personal information such as names and social security numbers and health information—had been breached, rather than notifying patients as soon as possible, as required under the state's data breach notification law.
  • According to the AG's office, under the terms of the assurance of discontinuance, CoPilot must pay $120,000 to the state, improve its data breach reporting procedures, and ensure that its employees undergo annual training on data breach reporting obligations.

New York Attorney General Settles With Dating Application Over Failure to Secure Private Photos

  • New York AG Letitia James reached a settlement with Online Buddies, Inc. to resolve allegations that it failed to protect private photos of users of its dating app Jack'd.
  • According to the AG's office, Online Buddies allegedly represented to Jack'd users that its security measures would safeguard users' information—such as location, device ID, and when a user last used the app—and that certain photos would be marked "private," but it failed to implement measures to keep photos private, left security vulnerabilities unfixed for a year after being alerted to these issues, and also failed to implement stopgap protections, establish logging to detect unauthorized access, warn users, or change representations about the privacy of users' photo and personal information.
  • According to the AG's office, under the terms of the settlement agreement, Online Buddies will pay $240,000 to the state, implement a comprehensive security program to protect user information, and ensure that any future vulnerabilities are addressed promptly.

False Claims Act

Five Attorneys General, City of Baltimore Settle With Data Company Over Allegedly Defrauding State Law Enforcement Agencies

  • 5 AGs and the City of Baltimore reached a settlement with data company LexisNexis Risk Solutions and its affiliates (collectively, "LexisNexis") to resolve allegations that it defrauded state law enforcement agencies out of over $2.8 million in violation of the states' False Claims Acts.
  • According to Tennessee AG Herbert Slatery's office, LexisNexis allegedly failed to pay state law enforcement agencies' agreed-upon fees for the resale of automobile crash reports, which law enforcement agencies generate and which LexisNexis resells to individuals and insurance companies for use in claim adjustment, and generated monthly reports for the agencies that falsely understated its total automobile crash report sales.
  • According to the AG's office, under the terms of the settlement agreement, LexisNexis must pay $5.8 million—$1.1 million of which will be paid to the whistleblower who related the case to the states—and discontinue its fraudulent resale practices.

Connecticut Attorney General, U.S. Attorney's Office, and U.S. Department of Health and Human Services Settle With Clinical Laboratory Over Alleged Overbilling for Drug Tests

  • Connecticut AG William Tong, the U.S. Attorney's Office for the District of Connecticut, and the U.S. Department of Health and Human Services reached a settlement with Clinical Science Laboratory, Inc. and its owners (collectively, "CSL") to resolve allegations that it overbilled for urine drug tests in violation of state and federal False Claims Acts and state Medicaid regulations.
  • According to the AG's office, CSL allegedly billed the state $38 per urine drug test for substance abuse patients enrolled in the state Medicaid program, while charging substance abuse treatment clinics only $2, in violation of the state Department of Social Services' requirement that independent clinical laboratories bill Medicaid at the lowest price charged for the same services by the provider.
  • According to the AG's office, under the terms of the settlement agreement, CSL must pay $904,863 to the state and $603,243 to the federal government.

Financial Industry

Massachusetts Attorney General, U.S. Securities and Exchange Commission Settle With Financial Services Provider for Allegedly Overcharging Clients

  • Massachusetts AG Maura Healey and the U.S. Securities and Exchange Commission ("SEC") reached a settlement with financial services provider State Street Bank and Trust Company ("State Street") to resolve allegations that it overcharged clients.
  • According to the AG's office and the SEC, State Street allegedly overcharged registered investment companies for the use of the Society of Worldwide Interbank Financial Telecommunication ("SWIFT") messaging service, which is used by financial institutions to transmit financial information and client instructions, by failing to lower the rate it charged clients over time as its own cost for the service decreased.
  • According to the AG's office and the SEC, under the terms of the assurance of discontinuance, State Street must pay over $48 million in restitution to customers, $5.5 million in penalties to the state, $40 million in penalties to the SEC, and change its business practices.


Attorneys General Settle With Brokerage Firm for Allegedly Selling Unregistered Securities

  • A multistate coalition coordinated by the North American Securities Administrators Association and led by Massachusetts and Alabama reached a settlement with brokerage firm LPL Financial LLC ("LPL") to resolve allegations that it sold unregistered securities in violation of the states' securities laws.
  • According to New York AG Letitia James' office, LPL allegedly sold unregistered securities, failed to maintain adequate systems to prevent the sale of the securities, failed to conduct due diligence on the retention, use, and cancellation of third-party services for compliance, and failed to supervise and maintain adequate books and records.
  • According to AG James' office, under the terms of the settlement agreement, LPL must pay up to $25.9 million in civil penalties; offer to repurchase the unregistered securities it sold to customers; conduct an internal review of operations and procedures to prevent future sales of unregistered securities; and review its vendor service protocols to ensure compliance with state securities laws.
  • As previously reported, Maryland AG Brian Frosh reached a settlement with LPL in January 2019 and New Jersey AG Gurbir Grewal reached a settlement with LPL in April 2019 to resolve similar allegations.

State AGs in the News

New Hampshire Executive Council Votes Against Nomination of Attorney General to State Supreme Court

  • The New Hampshire Executive Council voted 3-2 against Governor Chris Sununu's nomination of AG Gordon MacDonald to serve as Chief Justice of the New Hampshire Supreme Court.
  • As previously reported, AG MacDonald had designated Deputy Attorney General Jane Young as acting AG while his nomination was pending, and is expected to resume his duties as AG.

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