United States: State AGs In The News - April 2nd, 2015

Consumer Financial Protection Bureau

The CFPB Takes First Steps to Reform Payday and Title Loan Practices

  • The Consumer Financial Protection Bureau (CFPB) announced that it is considering proposed rules to regulate the market for short-term and long-term payday loans, as well as vehicle title, high-cost installment, and open-end credit loans, and deposit advance products. As the first step in the rulemaking process, the CFPB is convening a Small Business Review Panel to gather feedback from lenders.
  • The proposed rules seek to eliminate concerns associated with certain kinds of loans marketed to vulnerable consumers through both prevention and protection measures. Under the prevention measures, lenders would be required to determine at the outset whether the consumer will be able to repay the loan on time. Alternatively, lenders could choose to satisfy certain protection measures, which include limiting the number of consecutive loans to a single borrower over the course of a 12-month period.
  • In addition, the proposed rules seek to reduce the perceived harm caused by lenders who collect directly from consumers' checking accounts. The proposed rules would require lenders to provide three business days' notice before submitting a payment request to the consumer's account and would limit the number of unsuccessful attempts to collect from a consumer's account.

Consumer Protection

FTC Reveals New Actions Against Auto Industry in "Operation Ruse Control"

  • The Federal Trade Commission (FTC) announced "Operation Ruse Control," a series of actions and proposed consent orders resulting from a nationwide enforcement effort targeting alleged deceptive marketing practices in the auto sales and financing. The FTC worked with multiple federal and state law enforcement agencies in this effort and marks the first significant foray into this area under the enhanced authority to regulate auto dealers provided by the Dodd-Frank Act. The FTC states that these six new cases include more than $2.6 million in monetary judgments.
  • One area specifically addressed by the enforcement actions was "add-ons," which is the practice of a dealer adding charges for other products or services to the vehicle sales, lease, or finance agreement. Add-ons can take the form of extended warranties, special payment programs, guaranteed automobile protection (commonly called GAP or GAP insurance), credit life insurance, road service, theft protection, and undercoating. Auto lenders and car dealerships were also targeted for alleged deceptive advertising, loan application fraud, odometer fraud, and deceptive marketing of car title loans.

New York Attorney General Settles With Herbal Supplement Retailer

  • New York AG Eric Schneiderman reached a settlement agreement with GNC Holdings, Inc., arising out of his investigation of herbal supplements. Under the terms of the settlement agreement, GNC will implement source material traceability standards that utilize DNA barcoding to confirm the authenticity of ingredients prior to any extraction processes, and will display signage at its retail locations regarding whole herbs and extracts.
  • The Assurance of Discontinuance provides that the AG's office found no evidence that GNC deviated from the FDA Current Good Manufacturing Processes rules or standard industry practice in the production of the supplements at issue.
  • The Council for Responsible Nutrition (CRN), a trade association representing dietary supplement and functional food manufacturers, issued a statement on the GNC settlement, calling it "a real disservice to consumers because it wrongly perpetuates the misdirected notion that DNA barcode testing is appropriate for herbal supplements, when it is not." CRN further explained that "federal law already requires dietary supplement manufacturers to adhere to good manufacturing practices... and to perform 'at least one appropriate test' for the identification of raw materials. FDA, the federal agency charged with enforcing these requirements, does not require DNA barcode testing for plant identification of dietary supplements, nor does it use DNA sequencing by itself for identification of herbal extracts."

Five States File Lawsuits to Stop Allegedly Fraudulent Magazine Subscription Seller

  • AGs from Minnesota, Missouri, New York, Oregon, and Texas collaborated to bring separate state lawsuits against Liberty Publishers Services, Inc., Orbital Publishing Group, and a "labyrinth of corporate entities" that were allegedly created to disguise a nationwide scheme to deceive consumers into renewing magazine subscriptions at exorbitant rates.
  • The AGs allege that the various defendants represented that they were offering magazine and newspaper subscription renewals designed to look like they came directly from various well-known publishers, and offering "one of the lowest available rates," while in fact they were operating without the publishers' permission and charging, in some cases, more than double the publication price and pocketing the difference.
  • The AGs' lawsuits allege violations of state deceptive business practices and false advertising laws, and seek injunctive relief, restitution, and civil penalties as authorized by state law. In addition, the Oregon complaint also alleges that a group of defendants operated as a criminal enterprise, and thus seeks civil penalties for racketeering, as well as forfeiture of any real and personal property used in the course of the alleged activity.

Data Privacy

Attorneys General Succeed in Blocking the Sale of Consumer Data in Bankruptcy

  • Texas AG Ken Paxton, leading a group of 30 AGs, filed an objection in RadioShack's bankruptcy proceedings to the potential sale of personally identifiable information of 117 million consumers collected by RadioShack.
  • The AGs indicated in the objection that RadioShack maintains a privacy policy that states that it will not "sell or rent your personally identifiable information to anyone at any time." State AGs viewed a potential sale of such information, even under bankruptcy liquidation proceedings, as a potential deceptive trade practice or a violation of state privacy laws.
  • Although RadioShack has agreed to move forward without a data sale in order to hasten the sale of assets to a buyer that will keep the electronics retailer's business intact, the electronics retailer did not completely rule out such sale in the future. AG Paxton is still wary and is urging RadioShack to vow to keep the customer data private.

Marijuana

Attorneys General File Amici Brief in Support of Colorado and Federalism

  • Washington AG Bob Ferguson and Oregon AG Ellen Rosenblum filed an amici brief in the U.S. Supreme Court in support of Colorado in an action commenced by Nebraska and Oklahoma. Nebraska and Oklahoma are seeking leave to file a complaint challenging the legality of Colorado's marijuana legalization and regulatory regime under federal law.
  • The AGs argue in their brief that the Supreme Court should not accept this dispute under its original jurisdiction because it does not involve competing state sovereign interests—i.e., a state's power to adopt its own laws—but rather addresses whether federal controlled substance laws preempt the state law at issue. The AGs also argue that the Court should be sensitive to federalism, which "invites the States to explore new legal policies and address changes in society," including experimenting with different marijuana policies.
  • The AGs also argue that Nebraska and Oklahoma lack standing, in that the remedy sought (a declaration that Colorado's marijuana laws are preempted) would not redress the alleged harm (increased quantities of marijuana crossing state lines). Under the anti-commandeering doctrine, the AGs contend, a federal court cannot require state law enforcement to enforce federal law.

Mortgages and Foreclosures

Massachusetts Attorney General Secures $1.9 Million Judgment Against Pinnacle for Mortgage Modification Scam

  • Massachusetts AG Maura Healey prevailed in her office's lawsuit against Pinnacle Financial Consulting, LLC, and owner Robert Burton, establishing that the defendants harmed struggling homeowners by engaging in unfair or deceptive practices and the unauthorized practice of law in connection with providing foreclosure-related services.
  • AG Healey alleged that the defendants deceived consumers by stating they could provide loan modification and bankruptcy petition preparation services while also exaggerating the benefits thereunder. AG Healey also alleged that the defendants violated state law by charging advance fees for foreclosure assistance, practicing law without a license, and failing to provide the promised services after receiving payment and refusing to give refunds.
  • The judgment orders the defendants to pay restitution to affected consumers totaling $1.2 million and civil penalties of $665,000. It also orders the defendants to pay approximately $55,000 in attorneys' fees and costs to the Commonwealth. The AG's office had previously secured an order of contempt when defendants violated a preliminary injunction, resulting in the court ordering approximately $170,000 in penalties, $30,400 in restitution, and $39,800 in fees and costs.

States v. Federal Government

North Dakota Joins Wyoming Lawsuit to Challenge New Federal Fracking Rules

  • North Dakota AG Wayne Stenehjem announced that his state will join a lawsuit filed by Wyoming on March 26, 2015, to challenge a Bureau of Land Management (BLM) final rule that regulates underground injections used in the fracking industry.
  • The BLM Final Rule applies to drilling on federal land and, among other things, requires the operator of a well "to submit detailed information about the proposed operation, including wellbore geology, the location of faults and fractures, the depths of all usable water, estimated volume of fluid to be used, and estimated direction and length of fractures" prior to drilling. It also requires the operator to disclose the chemicals used in the fracking process to the BLM and the public.
  • Wyoming and North Dakota argue that the BLM does not have statutory jurisdiction to regulate underground injections, for which the U.S. Safe Drinking Water Act gives exclusive authority to the Environmental Protection Agency. The lawsuit is Wyoming v. U.S. Dept. of Interior Secretary, No. 15-cv-00043, and is pending in federal court in the District of Wyoming.

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