Consumer Financial Protection Bureau
CFPB Continues Drive to Clean Up Auto Lending
- The Consumer Financial Protection Bureau (CFPB) settled with Westlake Services, LLC and wholly-owned subsidiary Wilshire Consumer Credit, LLC (“Westlake”), resolving allegations that the indirect auto lender and title loan company violated the Consumer Financial Protection Act, the Fair Debt Collection Practices Act, and the Truth in Lending Act.
- The CFPB alleged that Westlake deceived borrowers by using call spoofing technology to make borrowers think they were being called by repossession companies, investigation or enforcement divisions, flower delivery companies, and even the borrowers’ family and friends. The CFPB alleged that, in some cases, Westlake’s goal was to trick the borrower into making additional payments to avoid repossession and, in other cases, it was to discover the location of a vehicle so it could be repossessed. In addition, Westlake allegedly called borrowers’ employers, family, and friends and disclosed loan information.
- The CFPB also alleged that Westlake marketed its services deceptively, in part by using the monthly rate and failing to disclose the annual percentage rate as required by law. Westlake also allegedly changed the terms of the loans without the borrowers’ permission, causing greater amounts of interest to accrue.
- Under the Consent Order Westlake is required to provide $44.1 million to consumers in both cash relief and reductions in their balance. Westlake is also required to pay a civil penalty of $4.25 million to the CFPB, and to alter its advertising and loan servicing practices to comport with the law.
CFPB Takes First Step Toward Limiting the Use of Arbitration Clauses
- The CFPB announced that it is considering proposals to exercise authority under Dodd-Frank to regulate the use of arbitration clauses in consumer financial products. The CFPB indicated that such action is needed to prevent companies from “sidestep[ing] the courts and avoid[ing] accountability for wrongdoing.”
- Earlier this year, the CFPB completed a Congressionally-mandated study on the effect of arbitration clauses in financial products, concluding that the use of such clauses restricted consumers’ ability to obtain adequate relief when they have a dispute with financial service providers. Specifically, the CFPB concluded that most arbitration clauses found in contracts for consumer financial products like credit cards and bank accounts deny consumers the right to participate in class action lawsuits and arbitrations. The CFPB study also found that fewer than 25 percent of consumers surveyed knew they were subject to an arbitration clause in their contract, and fewer than 7 percent realized that the clauses restricted their ability to sue in court.
- The CFPB indicated that it would not seek to ban arbitration clauses outright, but rather will push for clauses that expressly state that they do not apply to class action lawsuits “unless and until the class certification is denied by the court or the class claims are dismissed in court.” However, the CFPB has indicated that it will continue to seek advice, input, and recommendations from small business leaders as it drafts the final rule.
West Virginia AG Sues Volkswagen for Consumer Deception, Other States May Follow
- West Virginia AG Patrick Morrisey filed a lawsuit against Volkswagen of America, Inc. arguing that the car maker violated the West Virginia Consumer Credit and Protection Act through advertising and marketing various models as utilizing “clean” diesel engines.
- Paralleling claims made by the Environmental Protection Agency, AG Morrisey’s complaint alleges that Volkswagen engineered certain diesel vehicles to utilize emissions controls while the vehicle is being tested in order to appear compliant with U.S. standards, but then to suppress emissions controls while driving to increase performance and fuel economy. The lawsuit seeks civil penalties of $5,000 per violation, as well as costs related to the investigation and litigation.
- Meanwhile, AGs from at least 30 other states have formed a multistate investigation into Volkswagen’s actions regarding its clean diesel claims, with AGs from New York and Illinois serving subpoenas on the carmaker.
European Court of Justice Attacks Safe Harbor
- The European Court of Justice (CJEU)—the highest court on issues of EU law—has ruled that a 2000 agreement between the European Commission and the U.S. Department of Commerce granting safe harbor for data transfers across the Atlantic failed to adequately protect the privacy rights of EU citizens. The CJEU decision was based in part on the fact that U.S. law allows the government “to have access on a generalized basis to the content of electronic communications,” which the CJEU felt “compromise[ed] the essence of the fundamental right to respect for private life.”
- The safe harbor agreement created a streamlined protocol under which firms could transfer personal data from Europeans to the U.S. while maintaining legality under EU privacy law. The safe harbor agreement allowed firms to self-certify that they were in compliance with the requirements of EU privacy law. The safe harbor also provided a standard from which the Federal Trade Commission, the main U.S. authority on data security, could judge a company’s compliance efforts.
- As some commentators have noted, the decision may have broad effects for companies looking to transfer data to the U.S., not only large tech companies like Facebook or Google, but any company that has international operations and the need to transfer employee or customer data. Without the safe harbor option, data exporters will need to execute standard contract clauses identified by the EU Data Protection Directive, or adopt binding company rules with specific reference to the data involved and the security precautions in place to ensure that it will be protected once transferred outside of the EU.
- From the European perspective, the outcome is significant: transatlantic companies may need to compartmentalize data in the EU country where it is collected, and deny access without approval through diplomatic channels. As we have previously reported, Microsoft is battling with the Department of Justice over whether it must provide direct access to data stored on servers in Ireland in response to a U.S. subpoena.
Gulf States Get Final Settlement From Deepwater Oil Spill—BP on Hook for Record Civil Penalty
- BP Exploration & Production Inc. reached an agreement to settle all remaining claims stemming from the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.
- As indicated in the Consent Decree containing the terms of the settlement, which is guaranteed by parent companies BP Corporation North America Inc. and BP P.L.C., BP will pay approximately $20.8 billion, including:
- $8.1 billion to federal and state trustees for damages to natural resources, with $700 million set aside to address any natural resource conditions that are currently unknown and to assist in adaptive management needs.
- $5.5 billion as a civil penalty for violating the U.S. Clean Water Act—the largest civil penalty in the history of environmental law.
- $4.9 billion to the Gulf states (Alabama, Florida, Louisiana, Mississippi, and Texas), and an additional amount, up to $1 billion, to numerous local governments, to settle claims for economic damages caused by the spill.
- The Consent Decree and the Damage Assessment and Restoration Plan are lodged at the U.S. District Court for the Eastern District of Louisiana, and will be available for public comment until December 4, 2015.
New York AG Probes Fantasy Sports for Insider Bets
- New York AG Eric Schneiderman has initiated an investigation into daily fantasy sports betting site operators FanDuel Inc. and DraftKings Inc. in the wake of allegations that employees may have used nonpublic information to make wagers.
- AG Schneiderman sent letters specifically seeking responses to questions, including how the websites store user-generated data, how that information is protected, and whether the companies have rules or policies regarding who can access or use that information. Among other things, the letters request information regarding an employee of DraftKings who allegedly won $350,000 by playing daily fantasy sports on rival FanDuel.
- There is also a growing concern over the legality of daily online fantasy sports. The 2006 Unlawful Internet Gambling Enforcement Act contained a carve out for “fantasy sports,” but commentators wonder if that would be applicable to the form offered by the two sites. Senator Bob Menendez and Representative Frank Pallone have asked the Federal Trade Commission to weigh in on the discussion, and Rep. Pallone had previously requested a Congressional hearing on the issue of fantasy sports and sports betting.
SEC Settles With Drug Maker Over FCPA Allegations in China
- The Securities and Exchange Commission (SEC) accepted Bristol-Myers Squibb’s (BMS) Offer of Settlement, resolving charges that the pharmaceutical maker violated the Foreign Corrupt Practices Act (FCPA) by offering cash payments and other benefits to health care providers at state-owned hospitals in China in exchange for increased sales of BMS’s prescription medications.
- The SEC alleged that BMS failed to detect and prevent personnel at BMS’s joint venture in China from offering bribes. The SEC alleged that BMS did not properly investigate “red flags” indicating that improper payments were occurring, including claims made by former employees. It also claimed that BMS did not properly implement a formal FCPA compliance program, including violations of the Recordkeeping and Internal Controls Provisions of the FCPA.
- BMS did not admit to the findings, but agreed to return $11.4 million in profits and to pay a civil penalty of $2.75 million to the SEC. In addition, BMS has implemented measures to enhance its ability to detect and prevent bribery, specifically in its expense claims that involve interaction with health care providers.