Top Marketing Compliance Enforcement Actions
1H 2023
In the first half of 2023, there have already been over 100 enforcement actions taken against financial services organizations from federal, state, and local regulators for a wide variety of violations.
Here are some of the most notable enforcement actions, settlements, and consent orders in 2023 so far and the takeaways from them.
Lender misrepresented cost of credit and trapped borrowers in high-cost loans
Compliance Issue: UDAAP, Dark Patterns
Regulatory Agency: Consumer Financial Protection Bureau (CFPB) and New York State Office of the Attorney General
Total Penalty Amount: TBD
What Happened: The CFPB and NY AGs Office took action against a lender for misrepresenting the cost of credit and for using deceptive tactics to trick customers into high-cost loans for used cars. The lender is alleged to have hidden costs in loan agreements, set up borrowers to fail, and violated New York usury limits and other consumer and investor protection laws.
Enforcement Action: The CFPB and the New York Attorney General filed a joint complaint against the auto lender, seeking injunctive relief, monetary relief for consumers, disgorgement of unjust gains, and a civil money penalty. The enforcement action aims to halt the lender's illegal practices and hold the company accountable for its actions.
Investment advice company made false and deceptive claims about its services
Compliance Issue: UDAAP
Regulatory Agency: Federal Trade Commission (FTC)
Total Penalty Amount: $1.7M
What Happened: The FTC took action against an investment advice company that used deceptive marketing tactics to sell investment advising services, making false claims that their recommendations were based on a specific "system" or "strategy" created by an expert. Consumers were charged significant amounts of money for access to these services, but many ended up losing substantial sums of money instead of making the promised profits.
Enforcement Action: The FTC ordered the company to refund over $1.2 million to consumers and pay a $500,000 civil penalty. The company is also prohibited from making earnings claims without providing evidence to back them up in writing. Additionally, they must inform consumers about the case, the court order, and provide important information for consumers to consider before purchasing investment-related services.
Mortgage servicer failed to provide timely and accurate information to consumers
Compliance Issue: Redlining, Fair Lending
Regulatory Agency: Department of Justice (DOJ)
Total Penalty Amount: $9M
What Happened: The DOJ took action against a national bank for redlining in the Columbus metropolitan area for failing to provide mortgage lending services in majority-Black and Hispanic neighborhoods, concentrating its branches and mortgage lenders solely in majority-white neighborhoods.
Enforcement Action: As part of the settlement, the bank is ordered to invest:
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- $7.75 million in a loan subsidy fund to increase access to credit in majority-Black and Hispanic neighborhoods
- $750,000 in outreach, advertising, and consumer education programs
- $500,000 in developing community partnerships
They must also open one new branch and one new mortgage loan production office in majority Black-and Hispanic neighborhoods with a minimum of four mortgage lenders, at least one of which must be Spanish-speaking.
Companies made false and misleading statements about FDIC deposit insurance
Compliance Issue: Misrepresentation of FDIC Deposit Insurance
Regulatory Agency: Federal Deposit Insurance Corporation (FDIC)
Total Penalty Amount: N/A
What Happened: Four companies were found to have made false and misleading statements regarding FDIC deposit insurance in their marketing materials. These misrepresentations included claiming FDIC insurance (when it was not the case), misusing the FDIC name or logo, misrepresenting the extent of deposit insurance, and failing to disclose the insured depository institutions for customer deposits.
Enforcement Action: The FDIC issued a demand letter to the companies, ordering them to immediately cease and desist from making false or misleading statements. The companies were required to take corrective action to address the inaccuracies.
Debt relief company made deceptive claims about repayment programs and loan forgiveness
Compliance Issue: UDAAP
Regulatory Agency: Federal Trade Commission (FTC)
Total Penalty Amount: N/A
What Happened: The FTC took action against a debt relief company for engaging in deceptive practices targeting borrowers struggling with student loan debt. They lured low-income borrowers with false promises of loan forgiveness and enrollment in legitimate repayment programs. The companies collected illegal upfront fees from consumers, misrepresenting that the payments would be applied to their loans. They also falsely claimed affiliation with the Department of Education and promised to take over loan servicing.
Enforcement Action: While the action is still ongoing, the FTC filed complaints to cease the deceptive practices. A federal court issued temporary restraining orders, freezing the assets of the debt relief company and the consulting company.
Bank engaged in lending discrimination and redlining
Compliance Issue: Fair Lending, Redlining
Regulatory Agency: Justice Department (DOJ)
Total Penalty Amount: $3.295M
What Happened: The DOJ took action against a community savings bank for redlining in violation of the Fair Housing Act and the Equal Credit Opportunity Act. The bank excluded a specific county from its Community Reinvestment Act (CRA) assessment area, despite having branches bordering the county. The bank allegedly failed to adequately staff and serve the majority-Black and Hispanic neighborhoods in the area, while intentionally targeting majority-white areas with its marketing strategy.
Enforcement Action: The DOJ required the bank to pay over $3 million in penalties and to invest $2.92 million in a loan subsidy fund to increase access to credit for home loans in majority-Black and Hispanic neighborhoods. Additionally, the bank will spend $125,000 on community partnerships, $250,000 on advertising and outreach, and hire two new mortgage loan officers for its branches. It’s also required to conduct a research-based market study to identify the needs for financial services in communities of color.
Mortgage company repeatedly engaged in deceptive advertising practices to servicemembers
Compliance Issue: UDAAP
Regulatory Agency: Consumer Financial Protection Bureau (CFPB)
Total Penalty Amount: $1M
What Happened: The CFPB took action against a company for repeatedly engaging in deceptive advertising practices, specifically targeting military families. Despite a previous enforcement order in 2015, the company continued to send millions of misleading mortgage advertisements, falsely implying an affiliation with the U.S. Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA). The advertisements misrepresented the government's involvement, loan requirements, interest rates, and savings from refinancing, deceiving potential homebuyers.
Enforcement Action: The CFPB permanently banned the mortgage company from all mortgage lending activities, including advertising, originating, and servicing mortgage loans. In addition to the ban, the company was fined $1 million, which will be deposited into the CFPB's victims relief fund.
Lender engaged in deceptive practices targeting subprime borrowers
Compliance Issue: UDAAP
Regulatory Agency: California Department of Financial Protection and Innovation (DFPI)
Total Penalty Amount: $5.9M
What Happened: A lender engaged in deceptive practices, specifically targeting subprime borrowers seeking car loans, by misrepresenting information related to the cost of financing, such as failing to disclose key terms and conditions accurately.
Enforcement Action: The lender was required to pay a penalty of $10 million for its unfair and deceptive acts. Additionally, the lender was required to implement comprehensive compliance measures, including enhanced disclosure requirements, improved training for staff, and regular monitoring and reporting to the CFPB.
E-commerce giant used “dark patterns” to trick consumers into enrolling in automatically-renewing subscriptions
Compliance Issue: Dark patterns
Regulatory Agency: Federal Trade Commission (FTC)
Total Penalty Amount: N/A
What Happened: The FTC has taken action against an e-commerce company for allegedly engaging in deceptive practices related to its subscription program. The company is accused of enrolling consumers into its subscription service without their consent while employing manipulative user-interface designs, known as "dark patterns," to deceive customers into signing up for automatically renewing subscriptions. The company was also found to have deliberately complicated the cancellation process for subscribers attempting to end their membership.
Enforcement Action: While the action is still ongoing, the FTC has filed a complaint against the e-commerce company, emphasizing that these tactics harmed consumers and other law-abiding businesses.
Takeaways
- Pay Attention to UDAAP: Carefully review and monitor marketing materials to ensure that they’re clear, transparent, and not deceptive. Anything that misleads consumers about the nature of the product or service is subject to UDAAP and/or dark pattern violations and enforcement by the regulators.
- Focus on Fair Lending: Regulators are cracking down on fair lending and discrimination. Efforts to address potential discriminatory concerns and redlining should be proactive, starting with marketing and advertising.
- Accurately Disclose Relationships: Whether it’s FDIC deposit insurance, a bank-fintech partnership, or any other type of affiliation, all relationships must be truthfully and accurately represented in marketing and advertising materials for consumers.
- Overcommunicate with Consumers: Consumers need accurate and up-to-date information on their financial products and services. Organizations must prioritize accuracy, transparency, and effective communication with their consumers, including disclosures, account statements, borrower information, and more.
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