Consumer Financial Protection Bureau

CFPB Proposes Rule Banning Mandatory Arbitration Clauses That Prevent Class Action Lawsuits

  • The Consumer Financial Protection Bureau (“CFPB”) issued proposed regulations that would prohibit the use of mandatory arbitration clauses in certain financial product and service contracts that would prevent class action lawsuits.
  • Under the proposed regulations, providers of certain consumer financial products and services would be prohibited from including arbitration provisions in consumer contracts that bar consumers from filing or participating in class action lawsuits concerning the products or services. Companies overseen by the CFPB that employ arbitration clauses would be required to submit records to the CFPB regarding arbitral proceedings, which the CFPB would monitor and publish in some form.
  • The proposed regulations, if finalized, will apply to providers of a wide range of financial products and services, including those involved in consumer credit, debt relief and foreclosure assistance, consumer debt collection, credit reporting, checking and deposit accounts, prepaid cards, money transfer services, certain auto and auto-title loans, payday and installment loans, and student loans.

Federal District Court Judge Rules That CFPB Lacks Authority to Force For-Profit Accreditor to Comply with a Civil Investigative Demand

  • U.S. District Judge Richard J. Leon ruled that the CFPB cannot force the Accrediting Council for Independent Colleges and Schools (“ACICS”), a for-profit college accreditor, to comply with a civil investigative demand (“CID”) issued by the CFPB seeking information on ACICS’s method for accrediting schools.
  • The CFPB, which was granted authority to regulate the financial services industry by the Dodd-Frank Wall Street Reform and Consumer Protection Act, issued the CID to ACICS in August 2015, stating that the purpose for the CID was to determine if any unlawful acts were being committed by ACICS in connection with its accreditation of for-profit colleges. When ACICS did not comply with the CID, the CFPB filed a petition to enforce the demand in the U.S. District Court for the District of Columbia.
  • Judge Richard J. Leon denied CFPB’s CID request, explaining that the accreditation process had no connection to a school’s private student lending practices and that ACICS is not involved in the financial aid decisions of the schools it accredits. Judge Leon concluded that the CFPB’s investigative authority is limited to inquiries to determine whether there has been a violation of any consumer financial laws and does not extend to the accrediting process of for-profit colleges.

Consumer Protection

Arizona Attorney General Settles with Used Car Dealer for Alleged Wrecked Car Scam

  • Arizona AG Mark Brnovich reached a settlement with used car dealer Discount Auto Sales LLC (“Discount Auto”) and its owner Eivan Shahara to resolve allegations that they violated Arizona’s Consumer Fraud Act.
  • According to the AG’s office, Discount Auto allegedly purchased vehicles at out-of-state auctions that had been previously wrecked or declared “totaled” but were not labeled as such because of loopholes in the vehicle branding laws of the other states. After making substantial repairs on the vehicles, Discount Auto allegedly sold the vehicles to customers without disclosing the vehicles’ accident, ownership, and repair histories.
  • Under the terms of the court-approved consent judgement, Discount Auto and Shahara will pay $125,000 in restitution and attorney’s fees. They are also prohibited, among other things, from making false statements or material omissions about the condition, repair, or accident history of the vehicles they sell and must provide accurate copies of vehicle titles to vehicle purchasers.

Michigan Attorney General Files Cease and Desist Order Against Fundraiser Over Alleged Deceptive Solicitation Tactics

  • Michigan AG Bill Schuette filed a Cease and Desist Order and Notice of Intended Action against the fundraiser Corporations for Character for allegedly engaging in deceptive solicitation tactics to extract charitable contributions from Michigan residents in violation of the state’s Public Safety Solicitation Act.
  • According to the AG’s office, an investigation of Corporations for Character revealed 23 violations of Michigan’s Public Safety Solicitation Act, which prohibits misleading and deceptive acts and taking advantage of the vulnerable and requires licensed fundraisers to record their calls. The alleged violations include sending pledge collection forms to individuals who had declined to contribute and taking advantage of vulnerable call recipients.
  • The Notice of Intended Action orders Corporations for Character to cease and desist any further actions that violate the Public Safety Solicitation Act and gives the company 21 days to resolve the matter or face civil action in court.

Nebraska Attorney General Latest to Settle with Payday Lender Over Allegedly Unlawful Loans

  • Nebraska AG Doug Peterson and the Nebraska Department of Banking and Finance reached a settlement with Western Sky Financial, LLC, CashCall, Inc., its subsidiary WS Funding, LLC, and affiliate Delbert Services Corporation, and their owners, for allegedly making and servicing unlicensed loans with illegally high interest rates in violation of state consumer protection and lending laws.
  • Under the terms of the settlement, the companies are prohibited from lending in the state until they comply with Nebraska law, must forgive all current loans made to Nebraska consumers, and must pay $950,000 in restitution to consumers and $150,000 to the State.
  • AG Peterson’s settlement is the latest in a string of actions taken against Western Sky and CashCall by other AGs and the CFPB, after failed attempts by Western Sky to assert that its loans were immune from state laws under tribal sovereign immunity because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe.

Data Privacy

FTC Seeks Information From Mobile Device Manufacturers on Security Software Update Practices

  • The Federal Trade Commission (“FTC”) issued orders to eight mobile device manufacturers requiring them to provide information on how they issue security updates to address vulnerabilities in smartphones, tablets, and other mobile devices.
  • According to the FTC’s orders, the FTC is studying the policies, procedures, and practices for providing security updates to mobile devices offered by unnamed persons, partnerships, corporations, or others in the United States. The orders ask the manufacturers a number of questions about the specific mobile devices they offer to consumers, including how they decide to patch vulnerabilities, what vulnerabilities have affected particular devices, and whether and when they were repaired.
  • The FTC’s latest study comes after the agency sent orders to nine auditing companies in March requiring them to provide information on how they conduct audits of major payment card issuing companies as part of an FTC investigation into the role data security compliance auditing has on protecting consumers’ information and privacy.

E-Cigarettes/Vaping

FDA Will Regulate All Tobacco Products, Including E-Cigarettes

  • The U.S. Food and Drug Administration (“FDA”) finalized a rule that extends the agency’s authority to all tobacco products, including e-cigarettes, under the Family Smoking Prevention and Tobacco Control Act of 2009.
  • Under the final rule, among other things, retailers will be prohibited from selling e-cigarettes, hookah tobacco or cigars to people under the age of 18 and manufacturers will be subject to FDA scrutiny over their product claims and ingredients.
  • A number of AGs have long supported and urged the FDA to expand its authority to include e-cigarettes. In October 2013, the National Association of Attorneys General (“NAAG”) sent a letter, with 42 AG signatories, to the FDA urging the agency to propose rules to regulate the products. Last year, two signatories of the 2013 NAAG letter, Indiana AG Greg Zoeller and Maine AG Janet Mills, who previously served as chair and vice-chair, respectively, of the NAAG Tobacco Committee, sent a joint letter urging the FDA to finalize the proposed rule without further delay.

State AGs in the News

NAAG Presidential Initiative Summit Held in South Dakota

  • South Dakota AG Marty Jackley, the President of NAAG, hosted the NAAG’s Presidential Initiative Summit on May 2nd and 3rd in Deadwood, South Dakota.
  • The Summit, titled “To Protect and Serve with 21st Century Policing,” focused on the latest approaches and solutions to improving criminal justice in the areas of internet gambling, mental health and substance abuse, police body-worn cameras, protection of electronic data, campus sexual assaults, and use of state-of-the-art technology for crime prevention.