United States: State AGs In The News - December 31st, 2014

Consumer Financial Protection Bureau

State Attorneys General Join With the CFPB to Enforce Dodd-Frank Act

  • AGs from Virginia and North Carolina joined the Consumer Financial Protection Bureau (CFPB) in an enforcement action against Freedom Stores, Inc.; Freedom Acceptance Corporation; Military Credit Services LLC; as well as owners and chief executives John F. Melley and Leonard B. Melley, Jr., (collectively, defendants) for alleged violations of the 2010 Consumer Financial Protection Act (CFPA) and related state laws.
  • The complaint alleges that the defendants violated both state and federal law through the use of deceptive and abusive debt collection practices and the misuse of state courts to obtain default judgments against consumers who did not live or conduct business in the forum. Under Section 1042 of the Dodd-Frank Act, states have jurisdiction to enforce provisions of the CFPA.
  • The parties entered into a consent order that requires that the defendants will provide more than $2.5 million in monetary compensation in the form of debt forgiveness and refunds. The order also requires defendants to pay a civil penalty of $100,000.
  • The consent order enjoins defendants from utilizing certain debt collection methods, including filing legal actions outside of a consumer's county of residence or the county where the debt was incurred, charging credit or debit cards without consumer consent, garnishing wages, contacting third parties regarding the debt, and selling or transferring any portion of debt related to this enforcement action.

Consumer Protection

State Attorneys General and Federal Regulators Settle Cramming Allegations With T-Mobile

  • The Federal Trade Commission, the Federal Communications Commission (FCC), and AGs from all 50 states and the District of Columbia reached a settlement with T-Mobile USA, Inc., to resolve allegations that T-Mobile engaged in unfair and deceptive practices by engaging in mobile cramming.
  • The consent order requires T-Mobile to pay "no less than $90 million," including at least $67.5 million dedicated to reimbursing consumers. It also requires T-Mobile to pay $18 million to the states and $4.5 million to the FCC.
  • In addition, T-Mobile agreed to develop and implement a system to ensure that consumers provide express consent before being charged for any third-party services and that they are given a full refund or credit if they are charged for unauthorized services. T-Mobile will also provide information to consumers on how to block third-party charges and will display such charges in a dedicated section of the bill.

Members of Congress Seek Action by State Attorneys General on E-Cigarettes

  • Members of the U.S. Congress have sent letters to various State AGs urging them to consider regulation of e-cigarettes as regular cigarettes under the Master Settlement Agreement (MSA).
  • The MSA prohibits subjected tobacco companies from targeting youth when advertising, promoting, or marketing applicable tobacco products, or taking "any action the primary purpose of which is to initiate, maintain or increase the incidence of [y]outh smoking."
  • These letters dovetail with recent efforts to establish a more concrete and uniform regulatory framework for e-cigarettes, including a petition organized through the National Association of Attorneys General and signed by 40 State AGs urging the Food and Drug Administration to classify e-cigarettes as tobacco products under the Tobacco Control Act.

Twenty-Two State Attorneys General Urge Department of Defense to Reform Military Lending Regulations

  • In a recent letter to the Department of Defense, a bipartisan group of 22 AGs issued recommendations for proposed amendments to regulations implementing the Military Lending Act (MLA).
  • The AGs, while acknowledging previous efforts to protect U.S. servicemembers from predatory lending practices, identified additional practices that should be addressed by the amended regulations. The AGs target two areas for greater improvement: closing loopholes that allow loans to be structured that effectively exceed the maximum interest rate allowed on loans to servicemembers (currently 36 percent); and adapting the MLA to address loans nominally secured by the property purchased—such as auto loans or household electronics—but functionally lacking a valid or enforceable security interest.

Financial Industry

Massachusetts Attorney General's Investigation Into Auto Lender Mirrors Department of Justice's

  • Massachusetts AG Martha Coakley is reportedly investigating Banco Santander SA for predatory lending and securitization practices targeting subprime auto borrowers. AG Coakley is specifically looking into Santander's use of borrowers' credit histories in connection to the loan terms offered and the disclosures made to potential investors in the final securitized product.
  • In regulatory filings earlier this year, Santander Consumer USA Holdings, Inc.—a U.S. subsidiary of Banco Santander, formerly known as Drive Financial Services LP, that specializes in auto loans—acknowledged that it had received a subpoena from the U.S. Department of Justice (DOJ). The DOJ subpoena sought documents and communications related to the underwriting and securitization of nonprime auto loans.
  • In response, Santander has indicated that it is cooperating with investigators and reiterated that it will "comply with all lending and loan servicing laws, as well as the rules and guidance of our supervisors and regulators."


State Attorneys General Claim Colorado Marijuana Laws Are Preempted

  • AGs from Nebraska and Oklahoma sought leave to file a lawsuit with the U.S. Supreme Court challenging Colorado's legalization of recreational marijuana use and establishment of a commercial marketplace.
  • For more on this story, please see our recent blog post.

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