United States: State AGs In The News - March 12th, 2015

Consumer Financial Protection Bureau

CFPB Releases Report to Congress on Arbitration Clauses and Consumer Financial Products

  • The Consumer Financial Protection Bureau (CFPB) released a report explaining the findings and conclusions of its multiyear study on the effects of mandatory arbitration clauses in contracts for a range of consumer financial products and services, including credit cards, private student loans, automobile financing, and mobile wireless agreements.
  • The study and subsequent report submitted to Congress were mandated by the Dodd-Frank financial reform law as preconditions for the CFPB to exercise regulatory authority over the use of mandatory arbitration clauses in contracts for consumer financial products. The CFPB indicated that it will continue to review the results and accept public input before it begins to propose potential regulations for this issue.
  • The report details the CFPB's findings regarding consumers and arbitration, including: consumers generally lack knowledge and understanding of arbitration clauses, and are hesitant to bring individual claims in any forum; consumer financial disputes are generally over smaller amounts, and thus better served through participation in class action settlements or small claims courts; and the absence of evidence that arbitration clauses lead to consumer savings.

Consumer Protection

New York Attorney General Secures Reforms From Big Three Credit Reporting Agencies

  • New York AG Eric Schneiderman reached a settlement with Experian Information Solutions, Inc., Equifax Information Services, LLC, and TransUnion LLC (credit reporting agencies or CRAs) to make reforms that will change the way that medical debt is reported, and will improve the process for detecting and correcting errors in consumer credit reports.
  • Under the settlement agreement, the CRAs will now wait 180 days before unpaid medical bills are added to a credit report. The change will allow consumers adequate time to resolve insurance claims or catch up on payments before suffering credit downgrades.
  • In addition, over a three-year period, the CRAs will implement procedural and structural changes. The CRAs will provide consumers the right to challenge inaccurate information in their credit reports through an internal dispute resolution process, including the use of trained employees to respond to consumers' complaints. These trained intermediaries will have primary responsibility for resolving disputes, once reported, between the lender and the consumer. The CRAs will also coordinate with the AG's office to identify illegal lenders and suppress from the credit reporting databases any entries from an illegal lender.
  • The credit reporting agencies denied any wrongdoing associated with the initial AG investigation, cooperated with the AG's efforts, and undertook the reforms voluntarily.

Ten Attorneys General and the FTC Combine to Sue Robocalling Cruise Line Posing as a Political Survey

  • Ten State AGs and the FTC sued Caribbean Cruise Line, Inc. (CCL), Linked Service Solutions, LLC and Economic Strategy LLC, and a group of five telecom companies and their individual owners in federal court in the Southern District of Florida, alleging the companies illegally sold cruise and vacation packages using mass market robocalls masquerading as political surveys.
  • The AGs and FTC brought the claims under the U.S. Telemarketing Act and the FTC Telemarketing Sales Rule that established the National Do Not Call Registry, and various state consumer protection laws, which prohibit this type of calling for sales purposes but not for political surveys. The AGs and FTC alleged that CCL illegally conducted sales robocalls and deceived consumers by first asking a series of automated political survey questions before using an offer for "a free cruise to the Bahamas" to transfer the call to a live telemarketer working on behalf of CCL to market its cruise vacations, along with hotels and other travel packages.
  • The AGs and FTC entered into a consent order with CCL that prohibits future deceptive telemarketing practices, including calling consumers on the Do Not Call Registry, failing to transmit accurate caller ID information, and placing illegal robocalls. CCL is also required to monitor its lead generators on an ongoing basis. Finally, CCL must pay a civil penalty of $7.73 million, which will be partially suspended after CCL pays $500,000 due to CCL's inability to pay. Other defendants were ordered to pay lesser penalties, or have yet to reach a settlement.

Attorneys General Join the Investigation Into Herbal Supplements, Industry Groups Respond

  • This week Connecticut, Indiana, and Puerto Rico have announced that they are joining a coalition with New York AG Eric Schneiderman to investigate the business practices of the botanical dietary supplement industry relating to labeling and quality control.
  • Also this week, four trade associations representing the dietary supplement industry released a whitepaper refuting the results of AG Schneiderman's initial investigation of botanical dietary supplements. The whitepaper raises questions regarding the use and interpretation of DNA barcode testing on botanical dietary supplements and called the AG's use of DNA barcode testing "a misuse of the technologies" that "led to a misinterpretation of test results."

Missouri Attorney General Closes Down Payday Lenders

  • Missouri AG Chris Koster reached a settlement with a group of online payday lenders, organized by Martin "Butch" Webb, and operated from an Indian reservation in South Dakota. The enterprise issued loans under the following names: Payday Financial, Western Sky Financial, Lakota Cash, Great Sky Finance, Red Stone Financial, Big Sky Cash, Lakota Cash, and Financial Solutions.
  • AG Koster alleged that the lenders charged exorbitant fees for short-term loans—including origination fees that exceeded the statutory maximum of 10 percent—and required consumers to consent to having their future wages garnished without first securing a court order as required by Missouri law. Like online payday loan actions operated on other Indian reservations, Webb and the lenders attempted to assert tribal sovereign immunity to AG Koster and the state of Missouri.
  • The agreement prohibits Webb or any of the lenders he operated from making or collecting on loans in Missouri. It also requires Webb to pay $270,000 in restitution, cancels existing loan balances for Missouri borrowers, and requires Webb to instruct credit reporting agencies to remove all information previously supplied about specific consumers. Webb must pay also pay $30,000 in penalties to the state.

New York Attorney General and the FTC Settle With "As-Seen-on-TV" Marketer

  • New York AG Eric Schneiderman and the Federal Trade Commission (FTC) entered into a settlement with Allstar Marketing Group, LLC to resolve claims that it violated Section 5 of the FTC Act, the FTC Telemarketing Sales Rule, and New York law on deceptive practices.
  • According to the complaint, Allstar "lured" consumers into buying specialty goods (e.g., The Perfect Brownie Pan, or the Snuggie) through an allegedly deceptive and confusing ordering processes that resulted in consumers paying excessive fees, purchasing more products than intended, and being billed without their express consent. For example, the FTC alleged that Allstar offered a "buy one get one free" promotion, but failed to adequately disclose that consumers were required to pay two separate sets of processing and handling fees on the products, which in some cases, nearly doubled the cost of the offer.
  • The settlement requires Allstar to cease marketing products in the manner described in the complaint—including conspicuously disclosing the terms of an offer and the accompanying fees—and to pay $7.5 million in restitution, distributed through the Federal Trade Commission. It also requires Allstar to maintain certain records, report compliance to the FTC for ten years, and pay $500,000 to the New York AG's Office for penalties, costs, and fees.

Data Privacy

Washington Data Breach Notification Legislation Easily Passes House With Bipartisan Vote

  • The data breach notification law proposed and supported by Washington AG Bob Ferguson passed the state House of Representatives by a vote of 97 to 0.
  • The proposed law contains some noteworthy provisions that if enacted would require increased disclosures by entities suffering data breaches compared to what most states currently have enacted: it eliminates a general exemption for encrypted data; requires consumer notification as immediately as possible and no later than 45 days whenever personal information is likely compromised; requires the Attorney General to be notified within 45 days when a data breach occurs at a business, nonprofit or public agency; and requires businesses, nonprofits and agencies to provide consumers with sufficient information to secure or recover their identities.


Illinois Attorney General Seeks to Intervene in Lawsuit Involving Union Dues

  • Illinois AG Lisa Madigan filed an unopposed motion for leave to intervene (and a proposed motion to dismiss) in a lawsuit brought by Governor Bruce Rauner in federal court against various public sector unions. The lawsuit challenges the constitutionality of an Illinois law that requires mandatory union dues to be collected from non-union public sector employees to cover their share of expenses for negotiating and administering collective bargaining agreements.
  • Governor Rauner issued Executive Order 15-13 in February to suspend the deduction and remittance to unions of the mandatory dues and simultaneously filed this lawsuit. He also brought in an outside law firm to handle the case pro bono (so that no state funds were used). Governor Rauner's lawsuit argues that mandatory contributions amount to coerced political speech, and are thus prohibited by the First Amendment.
  • In response to EO 15-13, 26 labor unions filed a lawsuit in Illinois state court, alleging that the order violates state law, contradicts numerous collective bargaining agreements, and exceeds the scope of executive authority.
  • AG Madigan argues in her memorandum in support of her proposed motion to dismiss that the federal court lacks subject matter jurisdiction as the lawsuit is asking a federal court to rule on the scope of executive power under state law. AG Madigan also argues that the court should otherwise stay the federal lawsuit pending the outcome in the state lawsuit under the doctrine of abstention.

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