Posts belonging to Category Government & Regulation

The long, strange journey of former UBS-AG investment banker and qui tam relator Bradley Birkenfeld has reached a resolution, with Birkenfeld being awarded a $104-million payment for his role in providing the IRS with evidence of as many as 4,000 individuals’ tax evasion. The nine-figure award (or “bounty” in qui tam jargon) is believed to be the largest ever of its kind. While relator bounties of up to $100,000 are not uncommon, the $104 million to be paid to Birkenfeld is several orders of magnitude greater than the norm, a function of the substantial value of the information provided by Birkenfeld.

The evidence that Birkenfeld provided to the government resulted in UBS paying upwards of $780 million to settle criminal charges involving secret offshore accounts and being forced to turn over the account information of thousands of alleged tax evaders. Additionally, the publicity surrounding this case is thought to have been a factor in prompting more than 33,000 U.S. taxpayers to voluntarily come forward and admit to having offshore accounts. The IRS has been able to collect more than $5 billion in fees and penalties from these mass confessions.

Birkenfeld’s much-covered saga (most major news outlets have covered the story) is not without a darker controversial side, as he was released from federal prison only last month after serving a two-and-a-half year felony sentence for conspiracy in connection with the same tax evasion as to which he provided evidence.

The federal Consumer Financial Protection Bureau (CFPB) has announced that Capital One Bank will pay $210 million to resolve charges of deceptive marketing brought in the CFPB’s first enforcement action. The $150 million restitution component of the total payment will be in the form of refunds to customers who purchased “add-on” credit card services that were deceptively marketed. The remaining $60 million is to be paid in the form of penalties, $25 million to the CFPB and $35 million to the Office of the Comptroller of the Currency, which jointly brought the charges along with the CFPB. The CFPB press release announcing the resolution of the Capital One enforcement action is available here.

The action against Capital One alleged that the credit card giant contracted with vendors who deceptively marketed add-on services, including credit monitoring and payment protection plans, often to Capital One’s most vulnerable customers. The CFPB investigation determined that some consumers were made to believe that buying the optional services was essential to their credit cards being activated, while others were deceived into believing that the services were free, or would cause their credit scores to improve. Indeed, it appeared that the vendors targeted individuals with low credit scores. Particularly deceptive was the pitch for the “payment protection” service, which was purchased by unemployed individuals in the belief that their credit card minimum payments would be covered. However, such already unemployed individuals were ineligible for the payment protection service, which applied only to job loss or disability incurred after buying the service. Additionally, the CFPB found that consumers who attempted to cancel the add-on services were confronted by onerous procedures, and often gave up in frustration.

“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”  In addition to sending an advisory to Capital One customers as part of the resolution, the CFPB also drafted a generally applicable advisory, which is available here.  

Founded in 2011, the CFPB’s self-described mission is “to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.”

The federal Consumer Financial Protection Bureau (CFPB) has arrayed itself as a counterforce to recent judicial branch decisions that have had the effect of channeling more litigation into arbitration and making it more difficult to adjudicate broad violations as class actions. The CFPB has announced that it will be undertaking a “public inquiry” into whether mandatory arbitration clauses adversely affect consumers’ ability to seek remedies for violations of consumer protection laws and statutes.

The CFPB public inquiry will consist of soliciting consumer input as to the prevalence of mandatory arbitration clauses and how consumers are affected by them. In seeking broad public input, the CFPB follows a largely unprecedented model among federal agencies. Any proposed regulations concerning mandatory arbitration that grow out of the public inquiry will also be subject to public comment, as have other proposed CFPB regulations. See, e.g., http://www.consumerfinance.gov/regulations/. The relative authority of CFPB regulations with regard to U.S. Supreme Court decisions such as AT&T Mobility v. Concepcion (which endorsed adhesive arbitration clauses and class action waivers virtually without qualification) has yet to be tested.

Founded in 2011, the CFPB is the newest executive branch agency. See
http://www.consumerfinance.gov/the-bureau/ (describing CFPB mission as follows: “[T]o make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” First headed by former Harvard Law School Professor, now U.S. Senate candidate, Elizabeth Warren, the CFBP’s current Director is Richard Cordray, who remarked that “We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers’ issues. This inquiry will help the bureau assess whether rules are needed to protect consumers.” The Dodd-Frank Act authorized and created the CFPB, and invests it with the authority to both study arbitration clauses in consumer financial products and to issue regulations to protect consumers based on the findings derived from the study.

Embracing a narrow interpretation of the U.S. Supreme Court’s decision in Concepcion, the National Labor Relations Board (NLRB) recently held that a class action waiver was unenforceable under the National Labor Relations Act (NLRA).  D.R. Horton, 357 NLRB No. 184 (Jan. 3 2012) (available here).  At issue was D.R. Horton’s practice of requiring employees to sign an arbitration agreement and class action waiver as a condition of their continued employment.  Id. at 1.  The NLRB held that an agreement proscribing class and representative actions violates section 7 of the NLRA, which gives employees “the right ‘to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .’”  Id. at 2, quoting 29 U.S.C. §157.   

In what may be the decision’s most significant divergence from Concepcion, the NLRB held that there was no conflict between the NLRA and the Federal Arbitration Act (FAA).  See id. at 7-13.  The FAA protects the right of parties to arbitrate statutory claims, provided that “a party does not forego the substantive rights provided by the statute.”  Id. at 9.  Because the NLRA provides a right to engage in concerted activity, any waiver of joint, class, or collective actions may not be enforced.  Id. at 9. 

The decision also limited Concepcion to the facts at issue in that case.  The NLRB recognized that the Supreme Court’s holding was influenced by a desire to maximize the efficiencies of informal arbitration proceedings arising from consumer contracts covering thousands of potential claimants.  Id. at 11.  In contrast to the purported logistical difficulties of arbitrating consumer claims, the NLRB emphasized that arbitration of employment class actions would be less cumbersome and more efficient, because employment claims typically involve relatively smaller classes, which are often further divided into subclasses.  Id. at 11-12.  Other employment class actions are likely to benefit from similar reasoning when confronted with Concepcion.