The New Jersey Attorney General, Gurbir Grewal, has sent a letter to Department of Education Secretary Betsy Devos in which the NJ AG invites the ED to work with his office “to ensure that any investigations of fraudulent activities by educational institutions are completed properly, rather than ended prematurely or allowed to grow dormant.”

The NJ AG indicates that his invitation is intended to put to rest recent reports that the ED has discontinued investigations into potentially fraudulent activity at several large for-profit colleges and restricted communications between the ED’s staff and state AGs about such investigations.  He asserts that “[a]bandoning the Department’s cooperative relationships with State Attorneys General could only harm the public interest we should be working together to serve.”

The NJ AG asks the ED to let his office partner with the ED if it continues to pursue the investigations it “reportedly has (or had) in progress” or, if the ED will not pursue such investigations, to let his office “pick up where you leave off” and give it access to the ED’s files (claiming that his office can arrange to protect the confidentiality of any shared investigative files.)

 

On May 15, Maryland Governor Larry Hogan signed into law a bill that, among other things, establishes the role of Student Loan Ombudsman within the Office of the Commissioner of Financial Regulation and sets forth various duties related to that position.

Maryland SB 1068, titled the Financial Consumer Protection Act of 2018, represents a scaled down version of an attempt by state lawmakers to regulate student loan servicers. An earlier version of the bill contained language that would have created a licensing regime for servicers, similar to what the District of Columbia, California, Connecticut, Illinois, and Washington have enacted over the past couple of years. Instead, SB 1068 enacts the other key prong of such recent legislation: the creation of an ombudsman role to monitor student lending and servicing activity within the state.

Under the new law, the Student Loan Ombudsman is required to:

  • Receive and review complaints from student loan borrowers;
  • Attempt to resolve complaints by collaborating with higher education institutions, student loan servicers, and others, as specified;
  • Compile and analyze complaint data (and, as specified, disclose that data);
  • Help student loan borrowers understand their rights and responsibilities;
  • Provide information to the public and others;
  • Disseminate information about the availability of the ombudsman to address student loan concerns;
  • Analyze and monitor the development and implementation of federal, State, and local laws, regulations, and policies on student loan borrowers;
  • By October 1, 2019, establish a student loan borrower education course that includes educational presentations and material about student education loans;
  • Make recommendations regarding statutory and regulatory methods to resolve borrower problems and concerns; and
  • Make recommendations on necessary changes to Maryland law to ensure the student loan servicing industry is fair, transparent, and equitable, including whether licensing or registration of student loan servicers should be required in Maryland.

The last item on this list suggests that a licensing or registration requirement could be forthcoming. However, under the law as enacted, new obligations for student loan servicers are presently limited to requiring each student loan servicer operating in Maryland to (1) designate an individual to represent the servicer in communications with the ombudsman and (2) provide appropriate contact information for that designee to the ombudsman.

In addition to establishing the Student Loan Ombudsman role, SB 1068 contains a number of noteworthy changes to Maryland’s consumer finance statutes, including (1) expanding the definition of “unfair and deceptive trade practices” under the Maryland Consumer Protection Act (MCPA) to include “abusive” practices; (2) providing that unfair, abusive, or deceptive trade practices include violations of the federal Military Lending Act or the federal Servicemembers Civil Relief Act; (3) adding various provisions related to consumer lending, including raising the Maryland Consumer Loan Law’s licensing trigger from $6,000 to $25,000 (thus expanding the scope of the statute’s licensing requirement); (4) increasing the maximum civil penalties for violations of MCPA and several other financial licensing and regulatory laws; (5) allocating additional resources for enforcement of Maryland’s consumer protection laws; and (6) prohibiting consumer reporting agencies from charging for a placement, temporary lift, or removal of a security freeze.

According to media reports, CFPB Acting Director Mick Mulvaney has sent an email to Bureau staff indicating that he plans to fold the Office of Students and Young Consumers into the Office of Financial Education.  Both Offices are part of the Bureau’s Consumer Education and Engagement Division.  The Student Loan Ombudsman, a position created by the Dodd-Frank Act, will also be part of the Office of Financial Education.  The current staff of the Office of Students and Young Consumers is expected to be reassigned to other Offices.

While the reorganization means that the Office of Students and Young Consumers will no longer be involved in investigations that could result either in supervisory actions or in enforcement actions, it does not mean that the CFPB will no longer bring such actions against student loan lenders and servicers.

As might be expected, the reorganization has quickly attracted criticism from consumer advocates and others. New York State Department of Financial Services Superintendent Maria Vullo released a statement expressing her Department’s concern “with the CFPB’s troubling decision to minimize the role of the Office of Students and Young Consumers.” She indicated that “DFS’s Student Protection Unit will continue its nation leading efforts in safeguarding students from fraud and misrepresentation in the market, monitoring student-related financial practices in New York and educating student consumers and their families regarding available financial products and services to empower them to make informed choices.  And violators of the law will be met with swift DFS response.”

In February 2018, Mr. Mulvaney announced that he planned to transfer the CFPB’s Office of Fair Lending from the Supervision, Enforcement, and Fair Lending Division to the Director’s Office, where it will become part of the Office of Equal Opportunity and Fairness.

Mr. Mulvaney is also reported to have indicated in his email to Bureau staff that he plans to hire more political appointees and create an office of cost-benefit analysis staffed by economists that report directly to him.  Another reported change is Mr. Mulvaney’s creation of an Office of Innovation, known previously as Project Catalyst, an initiative launched by the CFPB in 2012 for facilitating innovation in consumer financial products and services.

We are pleased to announce that Ballard Spahr’s Consumer Financial Services Group has once again been ranked in the highest tier nationally in the category of Financial Services Regulation: Consumer Finance (Compliance and Litigation) by Chambers USA: America’s Leading Lawyers for Business.

Our CFS Group is one of only three groups in the country to be ranked this high.  It has been ranked in Band One every year since Chambers USA introduced a national category for consumer finance.  The rankings are largely based on client feedback and peer review.

Released today, the Chambers USA report praised the Group’s skill in supporting clients at both the state and federal regulatory levels.  According to the report, the Group is well-known for its work with credit cards, mortgage, auto and student finance, and CFPB regulation and enforcement.  Chambers USA also singled the Group out for excellence in the areas of fintech, e-commerce, alternative lending, and product development.

The 2018 edition quotes our clients who have said that the Group is “at the top of their game,” adding that “they can anticipate laws and regulations in a way that is second to none.”  Our clients have also praised us for providing “high-quality legal support and good practical guidance” and for being “deeply loyal and very client-focused.”

Six individual lawyers from our CFS Group were recognized for excellence by Chambers USA: Alan Kaplinsky, Chris Willis, Rich Andreano, John Culhane, Mark Furletti, and Jeremy Rosenblum.  Group Leader Alan Kaplinsky, who was individually ranked in Band One, was called “one of the top five practitioners in the field.”  Chris Willis, leader of the Group’s litigation team and also individually ranked in Band One, was described as having “more raw intelligence than any other lawyer in our field.”

We are proud of the work we do, and also grateful to our clients for entrusting us to help them develop new products, defend them in litigation and against enforcement actions, and assist them in navigating the increasingly complex array of federal and state regulations.

A group of 16 Democratic state attorneys general have sent a letter to the CFPB in response to its Request for Information Regarding Bureau Civil Investigative Demands and Associated Processes.

The AGs express their opposition to any curtailment of the Bureau’s investigatory authority because “it would significantly hinder the Bureau’s ability to fulfill its mandate of promoting fairness, transparency, and competitiveness in the markets for financial products and services.”  According to the AGs, judicial supervision of the Bureau’s investigatory authority “ensure[s] that the Bureau does not overstep its bounds in exercising its civil investigative demand authority.”  They also assert that the CFPB has used its investigative authority “responsibly and effectively.”

Perhaps the most notable aspect of the AGs’ letter is its discussion of the investigative powers available to state AGs, with the authority of various of the AGs who signed the letter used as examples.  The AGs who signed the letter, which include the New York and Pennsylvania AGs, can be expected to use their extensive investigative powers and pursue an aggressive enforcement agenda in support of efforts to fill any void created by a less aggressive CFPB under the Trump Administration.

State AGs and regulators have direct enforcement authority under various federal consumer protection statutes and, pursuant to Section 1042 of the Consumer Financial Protection Act, can bring civil actions to enforce the provisions of the CFPA, most notably its prohibition of unfair, deceptive or abusive acts or practices.

Ballard Spahr attorneys submitted comments to the CFPB in response to its RFI on the CID process in which we urge the CFPB to make significant changes to the current process to address the lack of basic procedural safeguards and help alleviate the unreasonable burdens that the current process imposes on CID recipients.

 

Arizona Governor Doug Ducey signed HB 2154 into law on April 11, 2018, amending and strengthening the state’s data breach notification law. Notably, the amended law significantly expands the definition of “personal information” to include a number of new data elements, including online account credentials, certain health information, and biometric data used to authenticate an individual when the individual accesses an online account.  The amended law also requires that notice be provided within 45 days after a determination that a “security system breach” has occurred and adds an obligation to notify the Arizona Attorney General and nationwide consumer reporting agencies if the security system breach involves more than 1,000 individuals.

On April 25, 2018, from 1 p.m. to 2 p.m. MT, Ballard Spahr attorneys will hold a webinar—Arizona Strengthens and Expands Data Breach Notification Law.  The webinar registration form is available here.

Click here for the full alert.

On April 4, Georgia Attorney General Chris Carr (“AG Carr”) announced an $8.5 million settlement with a national debt collection company, resolving alleged Fair Debt Collection Practices Act (FDCPA) and the Georgia Fair Business Practices Act violations.

Specifically, AG Carr alleged that the company harassed and deceived consumers by falsely representing to consumers that they were attorneys or otherwise affiliated with government entities, that the consumers had committed a crime and could be imprisoned because of nonpayment, failed to disclose they were debt collectors, attempted to collect illegal payday loans, and divulged information to third-parties without authorization.  The settlement required the company to stop collecting on nearly 12,000 accounts, totaling over $8.5 million in consumer debt, pay a $20,000 civil penalty, and agree to comply with the FDCPA and Georgia Fair Business Practices Act.  Any subsequent failure to do so will cause the company to owe an additional $240,000 civil penalty.

While it may not surprise the collections industry to see a state Attorney General take issue with the alleged actions above, seeing this sort of settlement come out of a Republican attorney general in a solidly Republican state is slightly more interesting.  It is yet another example of significant state-level enforcement but this time, out of a state that is generally not thought of as being particularly active within the collections arena.  Coming after confirmation from the CFPB that it plans to move forward with a third-party collections rulemaking, this recent settlement demonstrates that regardless of party, federal and state regulators continue to be interested in collections and addressing perceived violations arising under both federal and state law.

Creditors currently using the London Inter-Bank Offered Rate (LIBOR) as the index for variable-rate consumer loans should note that the Federal Reserve Bank of New York is now publishing a new index named the Secured Overnight Financing Rate (SOFR).

SOFR is intended to take the place of LIBOR when LIBOR is discontinued (as the United Kingdom’s Financial Conduct Authority has indicated will occur at the end of 2021). Creditors currently using LIBOR are advised to consult with counsel as to how best to proceed.

Alabama officially joined the data breach notification party last month when the state’s governor signed a data breach notification law that will take effect on June 1, 2018.  Although Alabama was the last state in the country to enact such a law, its new law will immediately take its place among the most stringent in the nation.

For a summary of the law’s provisions, see our legal alert.

 

The New Jersey Attorney General recently announced that the state’s governor will nominate Paul R. Rodriguez to serve as the Director of the New Jersey Division of Consumer Affairs, the state’s lead agency charged with protecting consumers’ rights, regulating the securities industry, and overseeing 47 professional boards.

According to the AG’s press release, Mr. Rodriguez’s selection is intended “to fill the void left by the Trump Administration’s pullback of the [CFPB]” and fulfills the promise of the state’s governor “to create a ‘state-level CFPB’  in New Jersey.”  Mr. Rodriguez will begin serving as Acting Director of the Division of Consumer Affairs on June 1, pending his approval as Director by the New Jersey Senate.

The New Jersey announcement is consistent with announcements by other state AGs that they intend to fill any vacuum created by a less aggressive CFPB under the Trump Administration.

Mr. Rodriguez currently serves as Acting Counsel to New York City Mayor Bill de Blasio.  Before joining the de Blasio administration, Mr. Rodriguez was an associate with a major New York City-based law firm where he worked in a variety of areas.