United States: State AG In The News - October 22nd, 2015

Consumer Financial Protection Bureau

CFPB's Final Rule Looks to Expand and Improve Mortgage Lending Data

  • The Consumer Financial Protection Bureau (CFPB) finalized the Rule to update lenders' reporting requirements under the Home Mortgage Disclosure Act (HMDA). The goal of enhanced data gathering under the Rule is to give policymakers greater transparency into consumers' ability to access the residential mortgage market. The Rule adopts a "dwelling-secured" standard, applying only to loans secured by the house, including home equity loans and reverse mortgages, but excluding home improvement loans and other unsecured lines of credit.
  • The Rule expands the scope of data that mortgage lenders are required to make public, now including disclosure of the property value, term and type of the loan (e.g., adjustable rate, balloon payment, etc.), and the duration of any introductory interest rates. Financial institutions will also be required to give more information as to loan underwriting and pricing, including debt-to-income ratio of the borrower and any discount points charged for the loan.
  • The Rule also seeks to streamline reporting and to expand protections for smaller lenders. Small depository institutions located outside a metropolitan area are excluded from reporting requirements altogether. In addition, the Rule creates a reporting threshold under which depository institutions that have low residential mortgage loan volume will no longer be required to report HMDA data.

Consumer Protection

FTC Settles With Wireless Provider Over Alleged Violation of Risk-Based Pricing Rule

  • The Federal Trade Commission (FTC) reached an agreement with Sprint Corporation over allegations that the mobile communications provider violated the Fair Credit Reporting Act (FCRA) by failing to give proper notice when it charged extra fees to customers with lower credit scores.
  • The Risk-Based Pricing Rule, added to the FCRA in 2003, requires that any company that uses consumer credit reports in connection with providing credit on terms less favorable than those given to a substantial proportion of consumers, must provide notice prior to the consummation of the transaction. The Rule outlines how this notice must be drafted and the information it must provide. The FTC alleged that Sprint placed certain customers in an "Account Spending Limit" program, and charged an additional monthly fee of $7.99 without providing the required notice, or if they did, the notice came too late to allow the customer to cancel and choose a different provider.
  • The proposed settlement requires Sprint to pay a penalty of $2.95 million, and to alter company procedure to give affected customers notice within five days of signing up, or at a point where they can still avoid reoccurring fees and cancel without a penalty. The proposed order was filed in U.S. District Court on the FTC's behalf by the Department of Justice (DOJ) and awaits approval in the District of Kansas.

Data Privacy

California Amends Data Breach Laws to Clarify Standards

  • California Governor Jerry Brown recently signed into law a series of amendments to further enhance the state's data privacy and breach notification requirements. The new laws apply to all businesses conducting business in the state that store personal information in electronic format and will take effect on January 1, 2016.
  • Assembly Bill 964 further clarified requirements to use an existing safe harbor provision for encrypted data. Under the new law, for data to be deemed "encrypted," the company must store it in a manner that renders it "unusable, unreadable or indecipherable to an unauthorized person through a security technology or methodology generally accepted in the field of information security." As this language is not contingent on a specific technology, it may be adapted as technologies continue to improve.
  • Senate Bill 570 creates a standard format for companies to provide data breach notification to consumers. According to the law, the notification must be titled "Notice of Data Breach," and must include explanations under subheadings titled "What Happened?" "What Information Was Involved?" "What We Are Doing," and "What You Can Do." The new law allows for substitute notice through a conspicuous posting on the business's homepage remaining for at least 30 days.

False Claims Act

Medical Laboratory Agrees to $256 Million FCA Settlement

  • Millennium Health reached a settlement with the U.S. Department of Justice (DOJ) to resolve allegations that the medical laboratory violated the U.S. False Claims Act by billing Medicare and Medicaid for unnecessary urine-based drug and genetic tests.
  • The DOJ alleged that Millennium encouraged doctors—essentially creating a standard operating procedure—to order large numbers of urine drug and genetic tests without regard for individualized patient assessments. The DOJ also alleged that Millennium violated the Stark law and anti-kickback law by giving certain drug test materials to doctors free of charge on the condition that they use Millennium as their drug test service provider.
  • Millennium agreed to pay $256 million and to enter into a corporate integrity agreement with the Department of Health and Human Services. Whistleblowers who initially filed eight separate cases will split $31.8 million. In a statement, Millennium's CEO indicated that "it was time to bring closure to an investigation that began nearly four years ago." Millennium reported that it is currently in the process of restructuring its debt, either with lenders directly or through Chapter 11 filing.

New York Court of Appeals Rules Failure to Collect State Sales Taxes Can Be False Claim

  • New York's highest court has denied a motion to dismiss and ruled that AG Eric Schneiderman can move forward with his lawsuit against Sprint for allegedly violating the state False Claims Act by failing to charge state taxes on wireless phone services.
  • AG Schneiderman brought the lawsuit in 2012, alleging that Sprint knowingly failed to collect more than $100 million in New York sales taxes for sales of mobile telephone services. The lawsuit alleged that Sprint knowingly did not collect taxes as part of a strategy to make its overall prices more competitive when compared to other service providers that charged the state taxes. AG Schneiderman is seeking $300 million in damages and penalties.
  • Sprint argued that the New York False Claims Act should not apply to service fees based on interstate calls as these were governed by the federal Mobile Telecommunications Sourcing Act. Sprint also argued that the New York law, which was passed in 2010, could not be applied retroactively to taxes not collected prior. The Court of Appeals rejected both arguments.

State and Local Governments Reach Agreement With Package Delivery Company

  • Fourteen states, Chicago, New York City, and the District of Columbia all reached an agreement with United Parcel Service, Inc. (UPS) resolving allegations that the world's largest package deliverer violated various false claims acts by overcharging the governments for next-day and overnight deliveries.
  • The government intervenors alleged that UPS employees entered false delivery times for packages sent to government customers, indicating that the package had arrived on time to qualify as next-day when in fact it had arrived late; they also alleged UPS employees entered inappropriate exception codes (e.g., claiming adverse weather conditions despite sunny weather) to excuse late packages. UPS's actions prevented the government customers from claiming refunds for the late deliveries.
  • The Settlement Agreement requires UPS to pay $4 million to be distributed among the government intervenors accordingly. UPS must institute programs to improve training, monitoring, and reporting regarding delivery failures and policy violations.

Financial Industry

French Bank Settles With Cadre of Regulators Over Sanctioned Transactions

  • The DOJ has reached a forfeiture and deferred prosecution agreement with Crédit Agricole Corporate and Investment Bank (CACIB) to resolve allegations that the French bank violated U.S. sanctions laws, and New York banking transparency and record-keeping laws, by facilitating and then hiding financial transactions on behalf of entities in Cuba, Iran, and Sudan. CACIB also reached agreements with the U.S. Treasury Office of Foreign Assets Control, the Federal Reserve Board of Governors, the Manhattan District Attorney's Office, and the New York Department of Financial Services (NYDFS).
  • The federal and state regulators had alleged that CACIB, through its foreign subsidiaries and affiliates, omitted and changed information in various wire transactions to mask the fact that the bank was facilitating payments on behalf of sanctioned entities. The NYDFS specifically alleged that CACIB's Geneva branch created special processing methods (e.g., "Sudanese U-turn") to hide the sanctioned transactions as they passed through the New York branch.
  • The bank is required to pay combined penalties of $787 million: the NYDFS came down particularly hard with $385 million in civil penalties and the requirement that the bank fire certain employees involved; the Federal Reserve will take $90 million; the Manhattan District Attorney's Office will receive $156 million, and $156 million will go to the U.S. Attorney's Office for the District of Columbia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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