Breaking News

Court Rules CFPB Structure is Unconstitutional

  • The U.S. Court of Appeals for the D.C. Circuit ruled that the structure of the Consumer Financial Protection Bureau (“CFPB”) is unconstitutional as part of an appeal brought by mortgage lender PHH Corporation seeking to vacate a penalty levied on the lender by the Bureau.
  • According to the court’s opinion, PHH’s penalty is vacated because the CFPB’s “gross departure from settled historical practice” of multi-member commissions and its use of a director with wide-ranging power and limited oversight is an unconstitutional delegation of executive authority by Congress.
  • Under the terms of the ruling, the CFPB may continue its operations, and regulations promulgated by the Bureau will remain in effect. The CFPB now will be closely tied to the Administration and no longer an independent agency, and the President of the United States will have the power to remove the CFPB’s director at any time.

Georgia’s Governor Appoints New Attorney General

  • Georgia Governor Nathan Deal appointed Chris Carr to serve as Attorney General, effective November 1. Carr will replace AG Sam Olens, who will step down on November 1 after six years in office to serve as president of Kennesaw State University. Carr plans to run for another term as Georgia’s Attorney General in the 2018 election.
  • Carr currently serves as Commissioner of the Georgia Department of Economic Development, a position to which he was appointed in 2013 by Governor Deal. Prior to that role, he served as chief of staff to Senator Johnny Isakson, before which he was vice president and general counsel for the conservative Georgia Public Policy Foundation. Carr began his law career at Georgia-Pacific, then worked as an associate with Alston & Bird LLP.

2016 AG Elections

AG General Election Road Map

  • With only 25 days left until Election Day, please check on our updated AG election page for an overview of the 10 AG races in 2016.

Consumer Financial Protection Bureau

CFPB Issues Final Prepaid Account Rule

  • The CFPB issued a final rule adopting new federal consumer protections for users of prepaid accounts, including payroll card accounts, government benefits accounts, and prepaid accounts for goods and services.
  • The final rule requires, among other things, that: (a) financial institutions make certain account information available without charge by telephone, online, and in writing; (b) consumers can only be held responsible for up to $50 for unauthorized charges on prepaid cards; and (c) financial institutions provide standardized forms and easy-to-understand disclosures of fees associated with the prepaid cards.
  • Most provisions in the final rule will become effective on October 1, 2017. A requirement to submit all card agreements to the CFPB will not be effective until 2018.

CFPB Settles with Credit Union for Allegedly Improper Debt Collection

  • The CFPB reached a settlement with the Navy Federal Credit Union (“Navy Federal”) over allegations that it violated the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) by engaging in improper debt collection practices.
  • According to the CFPB, Navy Federal allegedly deceived consumers between 2013 and 2015 by falsely threatening legal action and wage garnishment against members and threatening to contact commanding officers to pressure members to make payments. Navy Federal also allegedly misrepresented their influence on consumers’ credit ratings and ability to obtain credit and illegally disabled electronic services for members in delinquency.
  • Under the terms of the consent order, Navy Federal must pay $23 million in restitution to members and $5.5 million to the CFPB’s Civil Penalty Fund, address communication with members regarding overdue debts, and ensure consumers have access to online accounts.

False Claims Act

Vermont Attorney General Settles with Toxicology Laboratory Over Allegations of Medicaid Fraud

  • Vermont AG Bill Sorrell reached a settlement with Burlington Labs, LLC, and Burlington Laboratories (collectively “Burlington Labs”) to resolve allegations that the toxicology lab violated the Vermont False Claims Act.
  • According to the AG’s office, Burlington Labs allegedly charged Medicaid higher rates than private-pay customers and improperly varied amounts charged to the state based on the number of drugs tested.
  • Under the terms of the settlement, Burlington Labs will pay $6.75 million to the Vermont Medicaid program. The company also entered into a Corporate Integrity Agreement with the state to ensure compliance in the future.

Financial Industry

Illinois Attorney General Reaches Settlement with Lender Over Allegedly Disguised Interest Rates

  • Illinois AG Lisa Madigan reached a settlement with CMK Investments, Inc., d/b/a All Credit Lenders, over allegations that the company violated the state’s Consumer Fraud and Deceptive Business Practices Act and the Dodd-Frank Act by charging borrowers undisclosed and exorbitant interest rates.
  • According to the AG’s office, All Credit Lenders allegedly disguised interest rates as “required account protection fees” and charged fees equal to 350 percent to 500 percent of the original amount of the loan, despite the thirty-six percent interest rate cap under Illinois law.
  • Under the terms of the final judgment and consent decree, All Credit Lenders must pay $3.5 million in restitution, stop accepting payments for loans offered with hidden fees, and among other things, immediately stop collections on loans that were offered with these hidden fees. According to the AG’s office, AG Madigan also settled with five other lenders over these allegations.

State AGs in the News

Court Dismisses Civil Securities Case Against Texas Attorney General

  • The U.S. District Court for the Eastern District of Texas dismissed a civil case brought against Texas AG Ken Paxton by the U.S. Securities and Exchange Commission (“SEC”) alleging that AG Paxton assisted in defrauding investors of a friend’s technology start-up by failing to disclose that he received payments from the company while soliciting investors.
  • The court ruled that AG Paxton was not legally required to disclose that he received money from the company to recruit additional investors. The SEC has two weeks to refile charges with additional facts against AG Paxton before the court orders a final dismissal.
  • AG Paxton was indicted for related criminal charges by a state grand jury last year, and is likely to stand trial in state court sometime next year following the decision of the Texas Court of Criminal Appeals not to hear AG Paxton’s appeal.

State v. Federal

Eight Attorneys General Support CFPB Proposed Rule on Payday Loans

  • Eight AGs, led by New York AG Schneiderman, submitted comments to the CFPB expressing their support of the agency’s proposed rule for payday, vehicle title, and certain high-cost installment loans.
  • The CFPB’s proposed rule will require, among other things, that lenders establish a borrowers’ ability to make timely loan payments and prevent borrowers from making repeated debit attempts that can result in large fees. The AGs assert these changes will decrease the occurrence of unfair and deceptive payday lending practices and protect consumers in states that lack usury laws.
  • The AGs also expressed support for the proposed rule as a minimum standard for all states, emphasizing the importance of not preempting more stringent state laws.
  • Illinois AG Lisa Madigan separately filed comments with the CFPB in support of its proposed rule, offering that among other things, the rule will create regulations and minimum standards for states with weak consumer protection laws.

Six Attorneys General Sue EPA to Compel Decision on Smog Pollution Control

  • Six AGs filed a lawsuit against the U.S. Environmental Protection Agency (“EPA”) over the EPA’s failure to rule on a petition filed by nine Northeastern states in the Ozone Transport Region (“Region”), an area required to control pollution pursuant to the Clean Air Act. The petition seeks to compel Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia, and West Virginia (collectively, the “upwind states”) to control their air pollution by adding them to the Region.
  • According to the AGs’ petition, the Region is unable to meet federal health-based air quality standards for smog, despite enacting stringent regulations to lower pollution. The AGs cite the continuous flow of polluted air from upwind states not currently part of the Region to downwind Region states as a factor inhibiting the ability to meet air quality standards, asserting that adding upwind states to the Region will enable downwind Region states to meet pollution reduction goals.
  • According to New York AG Eric Schneiderman, the EPA has failed to issue a decision regarding the petition, despite its filing in December 2013 and regulations requiring the Agency to issue decisions on such petitions within eighteen months of filing. The lawsuit seeks to compel the EPA to issue its overdue decision on the petition’s request.