Consumer Financial Protection Bureau

CFPB Continues to Scrutinize Student Loan Servicers

  • The Consumer Financial Protection Bureau (CFPB) is allegedly investigating Wells Fargo & Co. over its student loan servicing practices. The exact issue with Wells Fargo remains undisclosed, and the bank transferred the servicing of its federal student loan portfolio to third parties in 2011. It does, however, remain the second largest servicer of private student loans by volume.
  • The CFPB is showing increased interest in student loan servicing. In July, the CFPB brought its first enforcement action against a servicer, alleging that Discover Bank violated the Consumer Financial Protection Act and the Fair Debt Collection Practices Act when it overstated the minimum amount to be paid and failed to inform borrowers of their rights. In addition, the CFPB continues to investigate Navient Solutions, Inc., the largest student loan servicer.
  • The CFPB has recently issued a thorough report explaining the problems facing the industry, and entered into a Joint Statement of Principles with the Departments of Treasury and Education. Some of the issues highlighted there include loan servicers' actions that contribute to borrower delays and defaults through mismanaged payments and paperwork, as well as loan modifications that put distressed borrowers into improper repayment programs.

Data Privacy

Federal Appeals Court Rules Video Privacy Protection Act Does Not Apply to Free Mobile Apps

  • In Ellis v. The Cartoon Network, Inc., the U.S. Court of Appeals for the Eleventh Circuit has ruled that the privacy requirements of the Video Privacy Protection Act (VPPA) do not apply to mobile apps that offer downloaded or streaming video free of charge.
  • The VPPA was originally designed to protect consumers from having their video tape rental history made public, yet in recent years, it has also been applied to streaming video websites and apps. Because the VPPA generally prohibits a company providing videos from knowingly disclosing to a third party "personally identifiable information concerning any consumer," Ellis sued the Cartoon Network when it provided his smart phone identification number and his video viewing records to a third-party data analytics company.
  • The court based its ruling on the determination of who is a "subscriber" under the VPPA. Although it did not entirely rule out the possibility of a free subscription, it indicated that in order to come under the VPPA, there must be some form of "commitment, relationship, or association" between the app and the user beyond simply downloading the app. The court hinted that a consumer who creates a login account, and thereby provides some form of personally identifiable information, might fall under the term "subscriber."

Environment

Flooring Maker Pleads Guilty to Violation of Conservation Law

  • Lumber Liquidators has agreed to plead guilty to U.S. Department of Justice (DOJ) charges that the hardwood flooring manufacturer violated the Lacey Act. The DOJ accused the company of failing to properly investigate whether its foreign suppliers harvested timber in excess of what their permits allowed from protected areas in foreign jurisdictions, and importing products made from this timber under false designations of origin.
  • The company has issued a statement that it fully cooperated with federal authorities and is continuing to make significant enhancements to its sourcing and compliance practices. It also indicated that it will continue to cooperate with other agencies, including the Consumer Product Safety Commission, California Air Resource Board, U.S. Securities and Exchange Commission, and U.S. Attorney's Office for the Eastern District of Virginia, regarding the ongoing legal proceedings stemming from allegations that its products contained toxic levels of formaldehyde.
  • In addition to a $7.8 million fine, and a forfeiture payment of $969,175 paid to the federal government, Lumber Liquidators agreed to make contributions to the National Fish and Wildlife Foundation ($880,825) and the Rhinoceros and Tiger Conservation fund ($350,000). It will also implement an Environmental Compliance Plan and pay $3.2 million in lieu of a civil forfeiture for yet unsold product implicated by the violations.

False Claims

Waste Disposer Comes Clean in False Claims Settlement

  • Stericycle, Inc. reached a settlement to resolve a 2008 qui tam lawsuit filed in the Northern District of Illinois by a whistleblower who was a former employee of the company. The lawsuit alleged that the medical waste disposal company charged unjustified fuel and energy surcharges to its government customers. There were no government intervenors in the action.
  • The case centered on whether Stericycle violated state and federal false claims acts when it allegedly added "fuel and energy" surcharges to each bill (increasing 18 percent every nine months) without disclosing that such charges bore no relationship toward Stericycle's actual costs vis-à-vis each government customer. In addition, on some occasions, Stericycle allegedly billed government customers in advance of providing its services. Stericycle denied all allegations raised by the former employee and has indicated that it is settling "to avoid the delay, uncertainty, and expense of continued litigation."
  • The settlement agreement requires Stericycle to pay $26.75 million divided among the state and federal governments, plus $1.75 million in attorneys' fees. A separate Relator Share Agreement indicates how the settlement amount is to be distributed among the states, federal government, and relator.

Hospital Settles False Claims Litigation, Patients Keep Their Heads

  • West Chester Hospital and parent company, UC Health, reached an agreement with the DOJ to settle charges that the hospital committed violations of the False Claims Act by billing Medicare and Medicaid for hospital charges related to medically unnecessary spine surgeries.
  • The claims against the hospital are connected to a previous criminal case against Dr. Abubakar Atiq Durrani, a surgeon with admitting privileges at West Chester. Dr. Durrani was arrested in 2013 for allegedly performing medically unnecessary spine surgeries, in some cases after falsely telling the patient that she or he was at risk of grave injuries without surgery (e.g., the patient's head would fall off if the patient was in a car accident because there was almost nothing attaching it). Dr. Durrani fled the U.S. after arraignment and remains a fugitive.
  • The hospital agreed to pay $4.1 million to settle all claims. The settlement resolves a lawsuit filed by former patients of Durrani who as whistleblowers under the federal law will receive approximately $800,000 as a group.

Financial Industry

NY DFS Issues Guidance for Banks Using Encrypted Messaging Services

  • The New York Department of Financial Services (DFS) recently concluded agreements with five major banks under its regulation regarding the use of a specific end-to-end encrypted communication platform, and has now issued guidance to any DFS-regulated entity that is considering the use of such encrypted technology.
  • The agreements and guidance specifically address Symphony Communication Services, LLC ("Symphony"), which began in September to offer a chat and messaging platform for financial services companies that guarantees unbreakable encryption and data deletion. The guidance would presumably apply to other similar platforms.
  • The guidance indicates that banks and other regulated entities cannot use encryption to avoid regulatory compliance. DFS indicates that regulated entities should conform their use of such platforms to require the service provider to maintain copies of all communications sent through the platform for at least seven years. In addition, the regulated entity must store a copy of the relevant decryption keys with an independent custodian (i.e., not controlled by the entity) and must inform DFS of the location of the stored decryption keys.

Securities

SEC Goes After Issuer of Structured Notes

  • The Securities and Exchange Commission (SEC) accepted an Offer of Settlement from UBS AG, resolving allegations that the Swiss bank made false or misleading statements and omissions in its offering materials used in the marketing and sale of structured notes to retail investors.
  • UBS represented the notes as being a transparent way to invest in an underlying currency trading strategy calculated using market prices. However, as outlined in the Order, the SEC found that UBS erred in three ways regarding its disclosures to retail investors: first, UBS did not disclose that it added markups for facilitating hedging transactions; second, it also added undisclosed internal spreads to hedge transactions; finally it traded its investors' positions shortly before its own, potentially market-moving, internal hedging transactions. The SEC indicated that these undisclosed actions caused investors' returns to be less than the expected return based on the strategy described by UBS.
  • The settlement, touted by the SEC as its first involving "misstatements and omissions by a structured notes issuer," requires UBS to pay $11.5 million in disgorgement and prejudgment interest ($5.5 million to investors, $6 million to the SEC) and $8 million in civil penalties to the SEC.

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