United States: State AGs In The News - October 29th, 2015

Consumer Financial Protection Bureau

CFPB Settles With Debt Collector Allegedly "Abusing" Servicemembers

  • The Consumer Financial Protection Bureau (CFPB) entered into a consent order with Security National Automotive Acceptance Company (SNAAC), LLC, resolving the CFPB's allegations that the auto lender violated the Consumer Financial Protection Act (CFPA) through its actions to collect on debt held by U.S. servicemembers.
  • In addition to arguing that SNAAC's false and misleading threats regarding legal action were "deceptive acts" under the CFPA, the CFPB also alleged that SNAAC committed "abusive acts" under Section 1031 when it threated to contact commanding officers and inform them that a servicemember was delinquent on payments. Although failing to pay certain debts might violate certain military regulations and subject the consumer to disciplinary action, the CFPB argued that SNAAC took "unreasonable advantage of consumers' inability to protect their interests" by leveraging the debtors' military status and making exaggerated claims regarding the potential impacts of a delinquency on their military careers.
  • The administrative consent order requires SNAAC to create a consumer redress plan and provide redress in the form of credits and refunds totaling $2.28 million, and to pay $1 million as a civil penalty to the CFPB. SNAAC must also keep relevant records and submit to compliance monitoring for a period of five years. A separate stipulated final judgment and order entered in federal court prevents SNAAC from including provisions in future debt contracts that purport to allow it to contact commanding officers or other employers in connection with debt collection efforts. SNAAC did not admit or deny the CFPB's allegations.

Consumer Protection

Oregon AG Sues Nutrition Retailer Over Unapproved and Unlisted Ingredients

  • Oregon Attorney General Ellen Rosenblum filed a lawsuit claiming that General Nutrition Corporation (GNC) violated the state Unlawful Trade Practices Act (UTPA) when it allegedly sold a variety of third-party nutritional and dietary supplements containing drugs unapproved for sale in the U.S. In some cases the packages failed to list the drugs on the labels.
  • In the complaint, AG Rosenblum indicated that her investigation centered around two main substances: Picamilon, a drug used to treat neurological conditions in some countries that is not approved for sale in the U.S.; and BMPEA, a synthetic amphetamine-like stimulant, allegedly present in certain products sold by GNC, either listed outright on the label as BMPEA or coming from the ingredient Acacia rigidula (and not listed on the label).
  • AG Rosenblum argues that GNC violated the UTPA by representing that the products containing the substances were lawful dietary supplements; by indicating that the products were of a particular standard or quality; and by creating the implication that the Picamilon and BMPEA had been approved for use in the U.S., when the substances have not been approved as dietary ingredients. The lawsuit asks for $25,000 in civil penalties for each sale of BMPEA or Picamilon, as well as disgorgement, restitution, attorney fees, investigation costs, and permanent injunction.

Vermont AG Turns up Heat on Propane Supplier

  • Vermont AG William Sorrell reached an agreement with Suburban Propane, LP to resolve allegations that it violated state propane and consumer protection laws.
  • AG Sorrell claimed that Suburban's actions violated various provisions of the state's propane laws, including a failure to timely remove propane storage tanks from homeowners' properties and issue refund checks to consumers once they had terminated service (the law requires both to be completed within 20 days), improperly billing and collecting for a fuel tax, charging an illegal regulatory fee, and terminating service for certain customers without providing 14-day notice, as required by law.
  • Under the Assurance of Discontinuance, Suburban will pay $283,000 to consumers to account for actual or potential delays in service, and refund $28,398 improperly charged in regulatory fees. It will also pay $200,000 to Vermont's Low Income Home Energy Assistance Program and $200,000 in civil penalties to the State.

Data Privacy

Senate Passes Cybersecurity Bill, Various Groups Question Purpose and Efficacy

  • By a 74 to 21 vote, the U.S. Senate passed the Cybersecurity Information Sharing Act (CISA), a bill that will encourage U.S. businesses to share information relating to cyber threats with the federal government and with other potentially affected entities.
  • The main provisions of CISA, formerly Senate Bill 754, create a legal framework within which private entities can not only monitor and defend against cybersecurity threats on their own information systems, but can also coordinate defenses with other private and government entities. Under certain conditions, CISA would allow private companies to share consumers' personal data otherwise protected by state privacy laws without legal liability. It also requires the creation of procedures through which the federal government can share classified cyber threat information with cleared representatives from relevant private entities.
  • Privacy rights groups, however, are not satisfied with the final bill. The Electronic Frontier Foundation, for example, has called the bill fundamentally flawed, contending it creates broad access and immunity for the government without sufficient privacy protections. Other groups have indicated that the bill does not properly address the core problem of hacking and cybercrime. From here, the bill must go to conference committee, where it will be reconciled with bills previously passed in the House of Representatives.

Finanical Industry

Bank Agrees to Pay $50 Million for "Revolving Door" Hire

  • The New York Department of Financial Services (DFS) settled an enforcement action with Goldman, Sachs & Co. resolving allegations that Goldman violated New York Banking Law by hiring a departing bank examiner from the U.S. Federal Reserve Bank of New York (NY Fed), and whether Goldman profited from the use of confidential information gleaned from the former examiner's contacts.
  • The DFS determined that former NY Fed examiner Rohit Bansal was recruited, in large part, due to his oversight of a particular regulated entity while he was working for the NY Fed. According to reports, Goldman insisted that Bansal get clearance from his former employer, and as a "revolving door" employee, the NY Fed provided Bansal with a Notice of Post-Employment Restriction that prohibited him from working directly on matters regarding the entities he oversaw for one year after his termination at the Fed.
  • Bansal, as outlined in the consent order, offered his own interpretation of the Restriction, asserting that he was only prohibited from personally interacting with the entity. Bansal proceeded to work directly on matters involving the particular entity, and obtained confidential information and documents regarding the entity from his former colleagues at the NY Fed and shared them with his management at Goldman.
  • In addition to firing Bansal and his manager upon learning of his actions, Goldman agreed to pay a civil monetary penalty of $50 million to the DFS, and agreed to a three-year period during which it would not accept any new business that would require the DFS to authorize the disclosure of confidential supervisory information.


SEC Looks to Finalize Crowdfunding Rules, Investors Rejoice for Now

  • The Securities and Exchange Commission (SEC) will vote to approve final rules for Title III retail crowdfunding on Friday, presumably easing the requirements for investors to participate in equity crowdfunding projects. This exception to federal securities laws that generally apply to all publicly sold equity shares stems from the 2012 Jumpstart Our Business Startups Act (JOBS Act).
  • Under the proposed rule, a company would be able to raise a maximum of $1 million in a 12-month period by selling equity shares directly to qualified retail investors. The SEC currently allows crowdfunding of this nature, but only if each investor has annual income of $200,000, or at least $1 million in assets excluding their house. If adopted, the final rules would allow anyone to participate, subject to a limit according to their income and net worth: 5 percent of the investor's annual income or net worth (whichever is higher) if both numbers are less than $100,000; or 10 percent if income or net worth is greater than $100,000. The final rules would allow the income and net worth of spouses to be combined when calculating the cap.
  • Industry analysts believe the rule will provide an easier, less regulated path for a critical source of funding for companies. However, the rule still requires a company to make certain disclosures and undertake certain procedures in order to participate in retail crowdfunding. The final rule will also create requirements for broker-dealers or funding portals to operate as an SEC-registered crowdfunding platforms. Among other things, these platforms would be prohibited from:

    • Offering investment advice or making recommendations.
    • Soliciting purchases, sales, or offers to buy securities displayed on its website.
    • Imposing certain restrictions on compensating people for solicitations.
    • Holding, possessing, or handling investor funds or securities.

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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