United States: State AGs In The News - November 5th, 2015

2015 Elections

Kentucky and Mississippi Select AGs and Governors, Louisiana Waits for Runoff

Consumer Financial Protection Bureau

CFPB Finds Background Checking Companies Lacking

  • The Consumer Financial Protection Bureau (CFPB) reached an agreement with General Information Services and its affiliate, e-Background-checks.com, (together, "Defendants") to resolve an investigation into whether the background screening service providers violated the Fair Credit Reporting Act through generating inaccurate pre-employment reports.
  • The CFPB alleged that Defendants failed to take reasonable measures to assure accuracy between the information reported and the consumer for which it was requested. Such alleged missteps included attaching criminal records to the wrong consumers, reporting dismissed and expunged records, and reporting misdemeanors as felony convictions. The CFPB also claimed that Defendants reported information on civil suits and judgments older than seven years.
  • The consent order requires Defendants to pay $10.5 million in relief to harmed consumers and $2.5 million in civil penalties. It also requires that Defendants significantly revise their procedures to assure accuracy by: retaining an independent consultant to assess the company's procedures, conducting frequent audits, and implementing algorithmic safeguards that cross reference other consumer data when the requested report involves a person with a common name.

Consumer Protection

FTC and State AGs Unite to Avenge Unfair Debt Collection

  • The Federal Trade Commission (FTC) announced that it will partner with other federal, state, and local law enforcement agencies, including 48 State AGs, to target abusive debt collection practices in a nationwide enforcement effort dubbed "Operation Collection Protection."
  • As indicated by Delaware AG Matt Denn, one of the major benefits to participating in this operation is that it will allow AGs and the FTC "to share information about investigation targets with other members, as well as share best practices for investigating and bringing actions against illegal debt collectors."
  • In announcing the initiative, the FTC highlighted cases in which it has already worked successfully with State AGs—touting 115 of them. It also indicated the types of actions that it will pursue through this alliance, including: knowingly collecting on phony or "phantom" debts (i.e., debts that no longer exist, are beyond statute of limitations, or have already been settled), failure to provide legally required disclosures and notices, and failure to follow state and local licensing requirements.

NHTSA Issues Largest Ever Civil Penalty

  • The National Highway Traffic Safety Administration (NHTSA) ordered TK Holdings Inc. (better known as "Takata") to pay civil penalties connected to the airbag maker's alleged violations of the Motor Vehicle Safety Act.
  • NHTSA's claims against Takata center on whether the airbag maker provided, in a timely manner, complete information as to the potential defect—first after it initially discovered the potential for consumer safety issues, and second in response to NHTSA's special orders issued as it sought to investigate the problem.
  • Under the terms of the consent order, Takata must pay $200 million in civil penalties—the most ever ordered by the agency—but with $130 million being deferred and held in abeyance pending Takata's adherence to the settlement terms and avoidance of any further violations of federal law. Notably, the consent order indicates that the NHTSA investigation will remain open, and payment of civil penalties does not preclude the potential for further claims based on safety issues with similar parts. The consent order also requires Takata to change internal quality control and risk assessment processes, and to retain an independent monitor to ensure compliance.

AGs Form Multistate Investigation Into Volkswagen

  • U.S. and European regulators have expanded their respective investigations into Volkswagen's alleged use of "defeat device" software in its diesel engines to get around emissions laws; the new list of vehicles under investigation now includes Porsches and an increased number of Audi models.
  • State AGs are also investigating. According to reports, AGs from at least 45 states and the District of Columbia have joined in a multistate investigation, and have already begun forming an executive committee. Three State AGs, from California, Texas, and West Virginia, have filed lawsuits alleging violations of state consumer protection laws and state clean air standards.
  • Unlike the federal investigation, which will focus on the environmental and competition issues involved and have possible criminal implications, State AGs will likely focus on the claims made by the carmaker in its advertisements, including print and digital media, describing clean diesel cars as being good for the environment. State deceptive practices laws typically cover misleading advertisements and can carry fines of $5000 for each violation.

Massachusetts AG Pulls the Plug on Internet Lenders

  • Massachusetts AG Maura Healey, along with the state bank regulator, reached a settlement agreement with Western Sky Financial, LLC; WS Funding, LLC; CashCall, Inc.; Delbert Services Corporation; Martin Webb; and J. Paul Reddam (together, "Lenders") resolving a number of issues arising out of the Lenders' efforts to provide consumer loans over the internet.
  • The complaint alleged that the Lenders solicited consumer loans over the internet with annualized interest rates (APRs) ranging from 89 to 355 percent. In Massachusetts, the legal amount of interest on a consumer loan of less than $6000 is 12 percent. In addition, as addressed by the Division of Banks (DOB) in three separate Cease Orders in 2013, the Lenders were operating from outside the state and did not have the proper licenses or registrations to conduct business in Massachusetts. The Lenders sought judicial review of the DOB Orders, and those actions were consolidated with the AG's consumer protection action filed on October 6, 2015.
  • The final judgment by consent requires the Lenders to provide refunds to the extent that a consumer's total payments exceeded the principal plus the statutory maximum 12 percent rate of interest, and debt forgiveness for any remaining debt. The DOB estimates the consumer refunds and debt relief could approach $17 million. The Lenders must also pay $388,231 in civil penalties, half of which will be suspended after full compliance with the consent judgment. The companies also agreed to pay attorneys' fees of $65,000.

False Claims

States and Feds Move Forward With Settlement Over Reverse False Claim

  • A group of AGs from 49 States and the District of Columbia finalized a settlement with AstraZeneca LP and Cephalon, Inc. ending a joint state-federal investigation into charges that the drug makers violated state and federal false claims acts.
  • The complaint alleged that AstraZeneca and Cephalon had submitted "reverse" false claims by underpaying the rebates due to the states under the Medicaid Drug Rebate Program. The amount of the rebate that the drug makers owe depends in large part on the average price that drug wholesalers pay them for the drugs: the lower the average price, the lower the rebate that must be paid. In this case, the drug makers allegedly utilized an accounting practice through which they classified service fees paid to wholesalers as "discounts" in the price of the drug. The result being that the drug makers could report an artificially deflated average price and thus pay less to the states as rebates.
  • The U.S. Department of Justice (DOJ) intervened in July, after reaching a settlement in principle under which AstraZeneca will pay $46.5 million and Cephalon $7.5 million. Although the states did not participate, they will receive shares based on a variety of factors, including state false claims acts, sales, etc. The lawsuit was initiated by a whistleblower in the Eastern District of Pennsylvania and is ongoing with numerous other drug makers remaining as defendants.

Financial Industry

Settlement Requires Bank to Kill Off "Zombie" Debt and Pay $100 Million

  • California AG Kamala Harris has entered into a stipulated judgment with JPMorgan Chase & Co.; Chase Bank USA, N.A.; and Chase BankCard Services, Inc. ("Chase") putting to rest the state's claims that Chase violated California Business and Professions laws through consumer debt sales and enforcement actions.
  • The complaint, which was filed in 2013, alleged that Chase engaged in a variety of illegal consumer debt collection practices, including: selling "zombie" or "phantom" debts (debts that were inaccurate, settled, discharged in bankruptcy, not owed, or otherwise not collectable) to third-party debt collectors; filing more than 125,000 collection lawsuits based on "robo-signed" documents; making illegal threats of litigation; and obtaining default judgments against military servicemembers on active duty.
  • As part of the stipulated judgment, Chase agreed to pay $50 million to consumers nationwide ($10 million estimated for California consumers), $45 million to the California AG's consumer protection enforcement efforts, and $5 million as a civil penalty. Chase also agreed to make significant changes to its practices, including internal controls for providing proper documentation to consumers both before and after debt sales, as well as restrictions on third-party debt buyers post purchase recovery actions.

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