By Max Jaeger (September 14, 2021, 1:39 PM EDT) — A government attorney involved in the “Varsity Blues” case has stopped prosecuting the “side door” for college admissions and stepped through the revolving door to a partner gig at Manatt Phelps & Phillips, the firm announced Tuesday.Karin M. Bell joined Manatt’s investigations, compliance and white-collar defense division in Boston after spending years building the government’s case against Varsity Blues mastermind William “Rick” Singer, several college administrators and the parents who allegedly paid Singer to get their kids into elite universities via bribery couched as a “side door.

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Case Law, Consumer Protection
Tuesday, September 14, 2021

After more than three years since originally filed, the case against the Consumer Financial Protection Bureau regarding its 2017 payday lending rule has ended in the U.S. District Court for the Western District of Texas.
U.S. District Judge Lee Yeakel issued an order finding in favor of the bureau, but not without giving some leeway to the plaintiff associations.
Read on for more details.

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Banking, Consumer Protection, Legislation
Tuesday, September 14, 2021

Consumer Financial Protection Bureau acting Director Dave Uejio discussed small businesses and the bureau’s proposed rule on gathering data on those seeking loans.
“We are taking the next step toward gathering critical data that is necessary to shine a spotlight on small-business lending,” Uejio said. “This data will be used to support business and community development and foster fair lending.”
For more details, read on.

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It’s going to get much tougher for financial institutions to avoid being declared as liable in the case of electronic fund transfer (EFT) social engineering scams.
Specifically, the Consumer Financial Protection Bureau (CFPB) recently released a Frequently Asked Questions “compliance aid” to provide guidance about its positions on the Electronic Fund Transfer Act (EFTA) and Regulation E. The bureau indicated that, if a third party fraudulently induces a consumer into sharing account access information which is used to initiate an EFT, then the transfer meets Regulation E’s definition of an unauthorized EFT.
In a section of considerable interest, the CFPB states that these institutions cannot take into account a consumer’s negligence when determining liability for unauthorized EFTs under Regulation E. “For example, consumer behavior that may constitute negligence under state law,” according to the section, “such as situations where the consumer wrote the PIN on a debit card or on a piece of paper kept with the card, does not affect the consumer’s liability for unauthorized transfers under Regulation E.”
The FAQs also state that – if customers sign agreements with their financial institutions to modify or waive certain protections granted by Regulation E – the institution cannot use the agreement to determine whether the ETF was unauthorized and whether liability protections apply.
The development substantially raises the stakes for the financial industry, according to an interpretation of the guidance from Trace Fooshee, a Senior Analyst with the Aite-Novarica Group, which is an advisory firm for banks, investment firms, insurers and payment providers. “Historically, most (financial institutions) only reimbursed victims of scams under circumstances in which the FI’s controls failed and when there were no indications that the customer benefited financially or otherwise from the fraud,” Fooshee writes. “The guidance that the bureau released … does much to call these practices into question.”
What’s more, these crimes are only increasing in volume: Three-fourths of financial professionals say their organization was the target of payment scams in 2020, and 90 percent reveal that these incidents have either grown in frequency or have remained consistent with the number of schemes in 2019. (Meaning just 10 percent say they are on the decline.)
Clearly, banks must take immediate steps to significantly reduce – or outright eliminate – the potential for EFT fraud. At BehavioSec, we’ve worked closely with financial industry customers to deploy behavioral biometrics solutions to ensure accurate and frictionless user authentication, resulting in positive and secure user experiences:
— If a criminal has taken over an account by fraudulently obtaining a victim’s credentials our solutions enable security teams to detect the activity and block it. Our behavioral biometrics technology creates profiles based upon how users interact with their devices – such as how they use a touch screen, move a mouse, type on a keyboard, etc. Even if criminals take control of accounts protected with OTP codes, often through a SIM swap attack or vishing call, they won’t be able to impersonate the user’s behavior. Thus, their account takeover will be exposed before they’re able to do any harm.
— Con artists will pose as virtually anyone to separate targeted marks from their money. They often pretend to be the IRS and demand thousands of dollars in “back taxes owed.” In a “romance scam,” they’ll present themselves as a potential love interest and then ask for money.
If a fraudster has gained enough trust (even temporarily) to coax a victim into unwittingly making a large EFT payment to the fraudster, our “social engineering” feature will intervene. BehavioSec technology picks up on various traits that victims exhibit when in this situation. They may, for example, demonstrate behaviors of hesitation because they have misgivings about what they’re doing. Or they could pick their smartphone up and down while going back and forth with a criminal, who is directing the victim to set up an EFT. Our behavioral biometrics will recognize these deviations from normal interactions with devices and send alerts to security teams.

Simply stated, if financial institutions are on the hot seat with increased liability burdens for EFT scams, then they must take proactive steps to dramatically reduce the likelihood that these social engineering scams occur. This is where our technology steps in.
Again, for the user, behavioral biometrics is passive and non-intrusive. Customers do not have to do anything beyond conducting an EFT or otherwise accessing their banking accounts, our analysis of their behavior does the rest. If this level of assured and “invisible” (to the user) security sounds like something you’d like to know more about, then please contact us.

The post Increased Exposure: What Financial Institutions Need to Do – Now – to Avoid Fraud Liability stemming from Social Engineering Scams appeared first on BehavioSec.
*** This is a Security Bloggers Network syndicated blog from BehavioSec authored by Chris Ralis. Read the original post at: https://www.behaviosec.

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TAMPA, Fla. — Online banking has attracted millions of customers since the pandemic started. Consumers love the perks of being able to do everything online along with free accounts.
For some customers, online banks allow them to access their paychecks a day or two in advance making online services even more appealing. Single working mom Shayla King chose Chime for convenience. King said she uses her Chime account to pay bills and save money.
She’s never run into a problem — until now.
On July 16th, King discovered someone wiped out her account overnight. King logged into her account and the balance was $2.64. A company in India had made over 60 withdrawals totaling $747 while she slept.
King said Chime texted her repeatedly during the night asking if she authorized the transactions. But when she didn’t answer, the transactions were allowed to go through. She filed a fraud report and a dispute, but days later Chime notified her that they found no error on their part.
Bankrate.com’s Greg McBride said complaints like Shayla’s are common with online-only accounts and pay apps. He advises consumers to try direct messaging their bank on Twitter or Facebook if they can’t get through to customer service.
King said in her case, reaching someone by phone didn’t resolve her issue. She told ABC Action News her mother is the one who suggested she make a call for action to Taking Action Reporter Jackie Callaway. Jackie looked at all of the documentation including those 60 transactions then messaged the company and asked why they allowed the withdrawals?
The next day, King said, Chime refunded the entire amount. The bank would not comment on why it allowed the transactions to go through in this case but did issue this statement: “Please be assured Chime takes matters like this very seriously and our member services team has worked quickly to investigate and fully resolve this member’s issue. A debit has been issued by Chime and the member has full access to their funds.”
Anyone dealing with a similar issue with their bank or credit card can file a complaint with the Consumer Financial Protection Bureau: https://www.consumerfinance.

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The Biden administration has revoked a Trump-era rule that consumer advocates argued allowed the Education Department to subvert state law enforcement probes of student loan servicers — one of a series of recent overhauls that could pave the way for more robust investigations.
In a new letter obtained by NBC News, a group of Democratic senators are expressing support for Education Secretary Miguel Cardona for the latest reversal that tightens oversight of the student loan servicing industry, but they also believe the department must go further to ensure states have the full backing of the federal government to hold loan companies accountable.

The Trump administration’s policy, posted in the Federal Register in March 2018, “interfered with state regulators exercising their authority to protect consumers in their states,” the eight lawmakers, led by Sen. Elizabeth Warren, D-Mass., and Sen. Sherrod Brown, D-Ohio, wrote to Cardona.
The revised interpretation, which went into effect last month, “is not only legally sound, but will also have substantial benefits for borrowers,” the senators added. “State attorneys general have been at the forefront of oversight of student loan servicers in recent years, uncovering widespread patterns of misleading and abusive conduct and winning significant settlements for borrowers in their states.”

Related

A Consumer Financial Protection Bureau report in June reaffirmed that servicers have “engaged in unfair acts or practices related to providing inaccurate monthly payment amounts to consumers after a loan transfer” and “regularly provided inaccurate information about eligibility for [Public Service Loan Forgiveness] or Direct Consolidation Loans, resulting in deceptive acts or practices.”
Roughly 43 million borrowers hold a ballooning $1.5 trillion in student loan debt, federal statistics show, with students of color more likely to take on such debt and disproportionately struggling to pay it back. Since President Joe Biden took office this year, he has wiped out nearly $10 billion worth of student loan debt, most recently for students enrolled in a for-profit college that was accused of malfeasance and closed.

However, advocates for student debt cancellation, including many Democratic senators, have called on Biden to use his federal authority to do more.

Related

The recent policy change spearheaded by Cardona is a sharp reversal of the agenda undertaken by former Education Secretary Betsy DeVos, who was accused of putting the for-profit college industry and student loan servicers ahead of helping student borrowers.
Under DeVos, the Education Department had argued that the federal government’s oversight pre-empted state regulations when it came to policing the student loan industry, which Democratic lawmakers had said allowed the administration to essentially shield student loan servicing companies.

The Student Loan Servicing Alliance, a trade group, which had defended the Trump administration’s interpretation — saying it was “not just good law, it is good policy” — did not immediately respond to a request for comment Tuesday.

A group of Democratic attorneys general — representing California, Colorado, Connecticut, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Virginia, and Washington, D.C. — sent a joint letter to Cardona this week in support of the latest policy change, but asked for clarification that “state laws regulating servicers are not preempted” except in certain narrow circumstances.

Cardona said last month that “effective collaboration among the states and federal government is the best way to ensure that student loan borrowers get the best possible service.”
In their letter, the Democratic senators have asked him to ensure that the messaging is clear that student borrowers will be protected.
“When servicers or other contractors take positions that obstruct Federal or state oversight, they should face consequences under their current contracts and in future allocations and renewals,” they wrote. “We strongly urge you to incorporate accountability for abusive and illegal consumer practices and for failure to cooperate with Federal and state regulators into the ongoing management of the student loan program.”

Erik Ortiz is a staff writer for NBC News focusing on racial injustice and social inequality.

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Like most industries today, Consumer Finance Services businesses are being significantly impacted by the novel coronavirus (COVID-19). Troutman Pepper has developed a dedicated COVID-19 Resource Center to guide clients through this unprecedented global health challenge. We regularly update this site with COVID-19 news and developments, recommendations from leading health organizations, and tools that businesses can use free of charge.
Our bank and loan servicing clients also face novel challenges affecting their industry due to COVID-19, particularly the ever-changing rules and regulations concerning evictions and foreclosures. We closely track these updates and have assembled an interactive tracker containing state orders and guidance documents regarding residential foreclosure and eviction moratoriums. You may access this interactive tool at https://covid19.troutman.com/.
To help you keep abreast of relevant activities, below find a breakdown of some of the biggest COVID-19 driven events at the federal and state levels to impact the Consumer Finance Services industry this past week:
Federal Activities
State Activities
Privacy and Cybersecurity Activities
Federal Activities:

On September 9, the Federal Reserve Board published a paper, describing the landscape of partnerships between community banks and fintech companies. The paper captures insights gathered from extensive outreach with community banks, fintechs, and other stakeholders. The outreach involved discussions focused on the strategic and tactical decisions that support effective partnerships. For more information, click here.

On September 9, the Consumer Financial Protection Bureau (CFPB) released a report on the agreements signed between credit card issuers and colleges, or organizations affiliated with colleges, finding that the market for college credit cards continued its general trend of decline in 2020. The report also finds that agreements with alumni associations continued to make up the largest part of this market, as defined by the number of agreements, the number of accounts, and the amounts of payments made by issuers to their counterparties. For more information, click here.

On September 8, the Office of the Comptroller of the Currency (OCC) proposed rescinding certain updated fair lending rules as the agency begins work on drafting a new regulation. Under the proposal, the OCC would go back to the previous 1995 regulations for the Community Reinvestment Act (CRA), a 1977 fair lending law. For more information, click here.

On September 8, the Federal Trade Commission (FTC) approved final revisions that would bring several rules that implement parts of the Fair Credit Reporting Act in line with the Dodd-Frank Wall Street Reform and Consumer Protection Act. For more information, click here.

On September 8, the CFPB released new model validation notice (MVN) formats required under Regulation F online. The newly available alternate MVN formats should make it easier to incorporate the MVN into existing systems and to make formatting and other permissible changes by the November 30 effective date for Reg. F. For more information, click here.

On September 7, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency announced that they will extend the comment period to October 18 on proposed guidance designed to help banking organizations manage risks associated with third-party relationships, including relationships with financial technology-focused entities. The proposed guidance seeks to assist banking organizations in identifying and addressing the risks associated with third-party relationships and responds to industry feedback requesting alignment among the agencies with respect to third-party risk management guidance. For more information, click here.

On September 7, the CFPB took action against an income share agreement (ISA) provider for mispresenting its product and failing to comply with federal consumer financial law that governs private student loans. The ISA provider provides students with money to finance their higher education, in the form of ISAs, under which students agree to pay a percentage of their income for a set period of time or until they reach a payment cap. Allegedly, the ISA provider falsely represented that the ISAs are not loans, failed to provide disclosures required by federal law, and violated a prepayment penalty prohibition for private education loans. Under the CFPB’s order, the ISA provider must provide disclosures that comply with federal consumer financial law, eliminate the prepayment penalties, and stop misleading borrowers. For more information, click here.

On September 7, CFPB Acting Director Dave Uejio issued a statement after the U.S. District Court for the Western District of Texas upheld the Payment Provisions in the CFPB’s 2017 rule on payday, vehicle title, and certain high-cost installment loans. For more information, click here.

On September 3, the CFPB issued guidance on student loan servicing contracts to borrowers responsible for federal student loan payments in forbearance for more than a year and when some servicers’ contracts end. For more information, click here.

State Activities:

On September 9, the Virginia State Corporation Commission adopted regulations, implementing laws that protect borrowers by regulating student loan servicers in Virginia. According to a Virginia attorney general press release, the legislature passed “Chapter 26 in Title 6.2 of the Virginia Code and that tasked the SCC with issuing regulations implementing Chapter 26. Chapter 26 protects student borrowers from servicers who would, among other things, engage in unfair or deceptive conduct, misapply loan payments, or misreport information to credit bureaus.” The act also authorizes the Virginia attorney general to bring enforcement actions. For more information, click here.

On September 10, Texas Attorney General Ken Paxton announced the filing of six lawsuits against school districts alleged as “defying Governor Abbott’s Executive Order GA-38 regarding mask mandates.” According to the AG, Order GA-38 places the governor in charge of the statewide response to the COVID-19 pandemic. For more information, click here.

On September 10, Washington, D.C. Attorney General Karl Racine announced his office “is partnering with local nonprofit organizations to sponsor three additional in-person STAY DC clinics to help residents navigate the application process so they can get support to pay their rent and utility bills, as many have struggled financially during the COVID-19 pandemic.” Per the press release, “STAY DC is a financial assistance program for District renters and housing providers who are looking for support to cover housing and utility expenses and offset the loss of income. The program is meant to help families settle debts, pay landlords what they are owed and, ultimately, avoid a crisis when the District’s moratorium on eviction proceedings expires later this year.” For more information, click here.

Privacy and Cybersecurity Activities:

On September 10, the FTC released an advisory reminding individuals that there is still COVID-19 aid available through the federal government and likely through state and local government. While some individuals may receive benefits automatically, others may need to apply. For those applying for COVID-19 benefits, the FTC reminds individuals that the government will not “ask you to pay anything to get COVID-related financial help[;]” anyone who asks for payment and financial or personal information is likely running a scam. For those interested in reading the full alert, click here.

Earlier in September, a court-appointed special master, handling discovery disputes related to a suit where grocery shoppers claim they can’t wear face coverings due to a medical condition, recommended that the defendants, if they wish, should “conduct a more thorough search of any or all Plaintiffs’ text messages, Facebook accounts and private emails” to a acquire a more in-depth digital record. Access to the plaintiffs’ Facebook accounts includes access to their personal messages — implicating the plaintiffs’ privacy. Grocery store customers argued that the grocery stores’ policy prohibiting shoppers to enter the store without a mask violated their rights under the American’s with Disabilities Act. To read the full opinion, click here.

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… that the enforcement action issued by the Consumer Financial Protection Bureau (CFPB) in 2016 relating to its retail sales practices expired.

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As the Biden Administration ramps up its efforts to regulate data collection and surveillance practices, fintechs are racing to develop software products that anticipate ethical considerations in mortgage underwriting and servicing processes.
The government has long signaled its interest in acting as a watchdog over consumer information and automated decisioning. In both 2018 and 2020, the Consumer Financial Protection Bureau put out requests for input around data gathering and ownership. Furthermore, as part of his July executive order on competitive practices, President Biden asked regulators to look at data collection and surveillance practices.
MeasureOneConsumer-permissioned data aggregator MeasureOne recently expanded its offerings into the mortgage business. As a technology provider, “we obviously don’t play any role in the ownership of the data, and we certainly will always fall on the side of the consumer because we believe not only is that the right thing but ultimately that’s where it’s going to end up,” said CEO Elan Amir

In its setup, MeasureOne is the “trusted party.” The consumer gives their consent and provides the credentials so it can access the information, serving as a barrier between the data and the outside world. The business that will ultimately use the information does not get those credentials.

“We enable the consumer to share that data and to not have the institution be able to restrict that data, by not providing an electronic interface publicly,” said Amir. “We allow the consumer to essentially say ‘look this is my data, I’ll just share it with the requesting business,’ and in that way everybody wins.”
MeasureOne has access to more income and employment data than is used by sources the mortgage business has worked with for years to verify the information, Amir said. “We can share a much more accurate picture and much more up-to-date picture than you would have from a database that is reliant on being updated from payroll processors or other types of data sources.”
In the current system, the institution will provide access to the data and can then sell it off, Amir said.
“And so what we’ve done and what motivates us, is to use the consumer’s access to the data that they already have to [their own] benefit,” he said. “Ultimately, moving away from the aggregator monetization resale model that has dominated frankly the last 30-40 years.”
Touchless Lending by TavantSoftware developer Tavant also recently launched a product aimed at reducing the number of hands in the pot during the origination process. Touchless Lending is designed to provide an end-to-end loan manufacturing experience.
“It would be nirvana if we can take a loan from application submission all the way to clear to close without any human intervention,” said Mohammad Rashid, the head of Tavant’s fintech practice. “I doubt that can be done today.”
Touchless Lending’s first iteration is mortgage specific. “It will take an application that is submitted to a loan origination system and basically take it forward in an automated manner through the hoops, right through the workflow that allows it to be a decision,” said Rashid.
Tavant broke the underwriter’s workflow down into five steps. The software checks for consistency, assessing whether the borrower’s assets match up with the income or the property being bought, the loan program involved and so forth, he said.
“Do all these component areas fit as a jigsaw puzzle? When it doesn’t fit, that’s where you want to highlight the fissures, the fault lines,” Rashid said. The underwriter is then informed of what things specifically they would need to further examine.
The underwriter’s experience and expertise “is something that we need to be able to convert into a software process, an algorithmic processing capability,” Rashid said. “And what best to do that then is machine learning techniques that we bring in so our injection of AI is very, very judicious.”
Tavant is capturing information so there’s a “data lake behind the scenes,” he said. The software records what users did with files, records of human-to-human contact regarding the loan, and what kinds of determinations were made.
“And as we get more and more loans through, we basically can generate insights through deep learning capabilities, and then inject those insights back into our operational pipeline,” Rashid said. “These loans with these characteristics and these borrowers fall into this bucket and usually what happens with this bucket is that they go through this set of processes or a set of reviews, and maybe that insight gives [an originator] a better way of judging the pipeline.”
InRule integrates simMachinesIn June, InRule, an automated decisioning platform, acquired simMachines, which offers technology that explains decisions made by AI and machine language systems.
Even before a transaction, the software informs users about the system rules that came into play when a decision was made, said Chris Berg, InRule’s director of corporate development.
By contrast, with machine learning models, “that decision could never say what factors were affecting the outcome, which were the critical criteria present that made that decision,” he said.
“With simMachines we can explain, not just in aggregate the impact on a population, but we can say, ‘here’s the specific weights on data that affected that outcome, and not even the data that was present, but also the data that was missing.’”
That allows users to test for fairness and ensure that for a protected class there is little or no difference between the outcomes of these decisions. If a lender’s going to use AI safely, it needs to be able to do that, Berg said.
To control against unintended consequences, the lenders who use the software need to continually monitor its results.
“You could have drift in your models too, so it’s a changing landscape, lending is always changing,” Berg said. “So, you need practice there as well to pick up on the drift and changes that are occurring in the population.”
The aim is to lend to more consumers. Even with the changes to the qualified mortgage rule, the debt-to-income ratio ceilings are “a blunt instrument” when trying to expand the market, he said.
Someone who doesn’t make much money but is careful with how they spend might actually be a better risk than that person who fits in the traditional ratios but spends their money freely. simMachines can assist in making those distinctions, Berg said.
“I think we need a more refined set of tools to find the folks that lift up our points of view about what risk really is, and [thus] how we can help more people,” Berg said.

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