State Attorneys General Bringing Actions Under Dodd-Frank

by Baker Donelson
Contact

As the CFPB celebrates its three-year anniversary, the current trend appears to be lawsuits brought by state attorneys general or state regulators pursuant to their authority under Dodd-Frank Section 1042. Under Section 1042, a state regulator or attorney general is authorized to bring a civil action for a violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP). Recently lawsuits have been filed by state attorneys general in three different states: Illinois, New York and Mississippi.

Illinois

In March 2014, the Illinois attorney general filed a state lawsuit against a small lender, CMK Investments, Inc., alleging that the lender is evading the state's 36% interest rate cap by offering a short term loan product that acts like a revolving line of credit but offers none of the protections of a credit card. According to the Complaint, the company thwarts the state interest rate cap by tacking on bogus "required account protection fees." When the extra fees are factored into the total cost of the short-term loan, the interest rates soar to 375 percent, and sometimes up to more than 500 percent. It also alleges that the lender instructed borrowers to make a monthly minimum payment, but did not apply any of the minimum payment toward principal. In April 2014, the case was removed to the Illinois federal court and in May 2014, a motion to dismiss was filed, which is now pending before the court.

In January 2012, the Illinois Attorney General filed a lawsuit against for-profit college Westwood College, alleging that Westwood used deceptive marketing that left students with thousands of dollars of debt and limited job opportunities. The lawsuit alleges that, through marketing its criminal justice program, Westwood falsely convinced students they could pursue a law enforcement career with such agencies as the Illinois State Police and suburban police departments, even though those employers do not recognize a Westwood degree due to its lack of regional accreditation. Additionally, because Westwood is not recognized by regionally accredited colleges, students found they could not transfer their coursework to alternative programs to complete a degree. Lacking a regionally accredited degree and unable to transfer their coursework, Westwood students were left with anywhere from $50,000 to $70,000 in student loan debt.

The state recently filed a motion in a state court seeking leave to further amend its complaint to add new counts alleging that the defendants’ practices were unfair and abusive under Section 1042 of Dodd Frank. The second amended complaint added an allegation that the defendants knew but failed to inform prospective students that a majority of students enrolled in the academic program default on the in-house financing. The motion to amend was granted in May 2014. At the hearing on the state's motion to amend the complaint, the defendants indicated that they planned to file a motion to dismiss the complaint. The court has set a briefing schedule for the motion, with oral argument scheduled for July 2.

On July 14, 2014, the Illinois attorney general filed two lawsuits, one against First American Tax Defense, LLC and another against Broadsword Student Advantage LLC. The complaints allege that the unlicensed companies engaged in deceptive marketing practices and illegally charged consumers up-front fees to reduce or eliminate their student loan debt burden using methods available directly to the borrowers. The services that defendants offered for a fee are available free of charge from governments services. The lawsuits allege the companies are in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organizations Act, and the Debt Settlement Consumer Protection Act.

New York

On April 23, 2014, Benjamin Lawsky, Superintendent of the New York State Department of Financial Services, filed a complaint in the U.S. District Court of New York against Condor Capital Corporation, a subprime indirect auto lender, and Stephen Baron, Condor's Chief Executive Officer and sole owner. The complaint alleges that Condor stole funds from its auto loan customers and compromised the personal information of its customers, engaging in unfair, deceptive, and abusive acts and practices. The state won its motion for a temporary restraining order, freezing Condor's accounts and operations. On June 20, 2014, an intervenor complaint was filed by Condor's secured lender seeking a declaratory judgment as to its lien status and its right to exercise various rights and remedies under its loan agreement with Condor.

Mississippi

The most recent lawsuit was filed in Mississippi in May 2014. The lawsuit accuses Experian of knowingly including erroneous data in the credit files of millions of Americans, threatening their ability to obtain loans and sensitive government security clearances, and tainting employment-related background checks. It further alleges that Experian has even wrongly reported that consumers are on a federal terrorism watch list. The complaint also states that when consumers dispute alleged inaccuracies in their credit reports, Experian and the other agencies failed to conduct reasonable investigations concerning consumers’ disputes; indeed, in many cases, failing to conduct any investigation of consumer disputes regarding their credit history or accounts. It is alleged that when consumers file a dispute, Experian reflexively finds in favor of the bank or debt collector that reported the debt and that Experian employees attempt to sell consumers credit-monitoring products of questionable value. In June 2014, Experian removed the case to a federal district court. Earlier this month, the attorney general filed an amended complaint that includes new allegations regarding deceptive marketing practices by Experian.

These lawsuits are significant because their outcomes will likely indicate the types of lawsuits that could be possibly brought by the CFPB in the future.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson
Contact
more
less

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!