Wildfires in Los Angeles: Key Considerations for Employers Navigating Disaster Response and Compliance
Wildfires continue to rage across the Los Angeles area, causing death, massive destruction of property, and forcing tens of thousands to flee their homes. President Biden has approved a “Major Disaster Declaration” for California because of the wildfires. This disaster also impacts employers’ obligations under California law, including California’s workplace safety and health statute, California wage and hour law, Cal-WARN, and the Los Angeles Fair Work Week ordinance.
Quick Hits
Wildfires sweeping through the Los Angeles area have prompted evacuation orders affecting tens of thousands of residents and creating dangerous conditions for travel.
Employers affected by the disaster may need to consider their emergency preparedness plans, immediate workplace safety risks, and employment and staffing concerns while maintaining critical business functions.
Wildfires, pushed by high winds and drought conditions, have swept through areas around Los Angeles, destroying homes and businesses. As firefighters work to control the blazes, tens of thousands of residents are under evacuation orders and schools are closed. Thousands across Southern California have lost power, and many more are at risk of experiencing preemptive power outages taken as a precaution to prevent additional fires.
The wildfires—as with similar natural disasters, such as hurricanes, earthquakes, and floods—have created further challenges for employers, forcing them to adapt their operations and put their emergency preparedness plans to the test. For others, the disaster is a devastating reminder of the importance of preparedness—and its limits—as natural disasters can arise quickly and without warning.
Here are some key considerations for employers impacted by these latest wildfires.
Emergency Preparedness
Emergency plans and communication protocols. Employers with employees or workplaces impacted by the wildfires may want to consider their emergency response plans and communication protocols and consult emergency contact lists. Communication with employees is critical to maintaining employee safety, keeping track of employees amid evacuations, and informing employees of potential hazards affecting the workplace or impacting transportation.
Business disruptions. Affected employers may want to determine which business functions are critical and implement plans to maintain these operations during the wildfires.
Flexible work arrangements. With evacuation orders and travel advisories, many employers may have to close physical workplaces and/or employees will need to find other work arrangements. Employers may want to consider temporary remote work arrangements, adjust schedules to accommodate for transportation or safety issues, or temporarily suspend operations if necessary to ensure safety.
Workplace Safety and Health
Workplace safety obligations. During a natural disaster, employers’ workplace safety obligations in some ways become even more complicated and challenging. The California Division of Occupational Safety and Health (Cal/OSHA) requires employers to ensure employees are not exposed to unaddressed hazards, even if employers are displaced from their normal operating environment during a natural disaster.
Wildfire smoke. Smoke from wildfires creates health risks that can impact employers. Cal/OSHA has a specific wildfire smoke standard that applies to most outdoor workplaces in which the Air Quality Index (AQI) for airborne particulate matter 2.5 micrometers or smaller (PM2.5) is 151 or greater or where “employer[s] should reasonably anticipate that employees may be exposed to wildfire smoke.” Cal/OSHA has published more information on the wildfire smoke standards on its website.
California Wage and Hour Requirements
Nonexempt employees. Even during workplace disruptions caused by wildfires, California law and the Fair Labor Standards Act (FLSA) require that employers pay nonexempt employees for all work performed, and all hours worked must be recorded and tracked. Such disruptions also may result in overtime hours for other employees who are able to work.
Exempt employees. Exempt employees must still be paid for an entire week if they work any portion of a workweek, even if their physical work location is closed or they are forced to stay home and/or evacuate.
Reporting time pay requirements. California requires employers to pay “reporting time” each day an employee reports for a scheduled day’s work but is provided less than half of the employee’s usual or scheduled day’s work. However, reporting time obligations do not apply when “the interruption of work is caused by an Act of God or other cause not within the employer’s control.” (IWC Orders 1-16, Section 5(C)).
Los Angeles’s Fair Work Week Ordinance
The City of Los Angeles has confirmed that store closures caused by wildfires will be considered an exception to Los Angeles’s Fair Work Week Ordinance. The ordinance typically requires covered employers to provide employees with notice of their work schedules at least fourteen days in advance of the start of the work period and allows employees to decline hours if an employer makes changes to a shift or a work location after the notice deadline. The ordinance includes exceptions when employers’ operations are compromised due to force majeure, including fires, floods, earthquakes, epidemics, quarantine restrictions and other natural disasters or civil disturbances.
Leaves of Absence
Employers may be required to provide leave under the California Family Rights Act (CFRA) and/or Family and Medical Leave Act (FMLA) to employees with a serious health condition caused or exacerbated by a natural disaster, including smoke from wildfires. Employees also may need CFRA/FMLA leave to provide care for a covered family member suffering a serious health condition or medical emergency caused by a natural disaster.
Cal-WARN
The Los Angeles wildfires may force employers to reduce staff and/or temporarily shut down operations. The California Worker Adjustment and Retraining Notification Act (Cal-WARN) generally requires sixty days’ notice of a mass layoff, plant closure or relocation of at least one hundred miles. However, Cal-WARN exempts employers from providing this notice in situations involving “physical calamity.”
7 Practical Tips for Preparing for the 2025 Annual Report and Proxy Season
As the 2025 proxy season approaches, public companies must gear up for an environment shaped by evolving regulations, investor expectations, and governance trends. To ensure your company is well-prepared, here are some practical tips to keep in mind:
1) Dust Off the Proxy Season Calendar and Confirm Filer Status
Start your preparations by revisiting your proxy season timeline. Ensure you know your key deadlines for Securities and Exchange Commission (SEC) filings, including the Form 10-K/20-F, proxy statement, and annual meeting. Check your filer status (e.g., large accelerated, accelerated, non-accelerated) to confirm applicable deadlines and determine whether any recent status changes affect your compliance requirements.
2) Be Aware of New SEC Disclosure Obligations
The SEC has introduced several new disclosure obligations for 2025. Among others, there are two key changes to note:
Insider Trading Policies and Procedures.
Narrative Disclosure – Item 408(b) of Regulation S-K requires a company to disclose whether it has adopted policies or procedures governing purchases, sales, or other dispositions of its securities by directors, officers, and employees or by the issuer itself and, if not, why it has not done so.
Exhibit Filing – Any insider trading policy must be filed as Exhibit 19 to the 2024 Form 10-K. If the company’s code of ethics includes such a policy, a separate exhibit filing is not required. (A similar disclosure requirement applies under Item 16J of Form 20-F.)
Option Award Granting Policies and Procedures (402(x) of Regulation S-K):
Narrative Disclosure – Under new Item 402(x), a company must provide narrative disclosure discussing its policies and practices regarding the timing of awards of stock options, stock appreciation rights (SARs) and similar option-like instruments in relation to the disclosure of material nonpublic information (MNPI), including how the board determines when to grant these awards. In addition, a company must disclose whether the board or compensation committee takes MNPI into account when determining the timing and terms of applicable awards, and, if so, how and whether the company has timed the disclosure of MNPI for the purpose of affecting the value of executive compensation.
Potential New Tabular Disclosure – New Item 402(x) also requires detailed tabular disclosure if, during the last completed fiscal year, stock options, SARs or similar option-like instruments were awarded to a named executive officer (NEO) within a period starting four business days before and ending one business day after the filing of a Form 10-K or 10-Q, or the filing or furnishing of a Current Report on Form 8-K that discloses MNPI (including earnings information).
3) Revisit Cybersecurity Disclosure in Light of SEC Comment Letters and Trends
On July 26, 2023, the SEC adopted final rules requiring (i) the disclosure of material cybersecurity incidents in Form 8-K, and (ii) new cybersecurity risk management, strategy, and governance disclosures in Form 10-K and 20-F. All public companies were required to comply with these disclosure requirements for the first time beginning with their annual reports on Form 10-K or 20-F for the fiscal year ending on or after Dec. 15, 2023. As a result, calendar fiscal year companies included these disclosures for the first time in their respective annual report filings last annual reporting cycle.
With the passage of time, we are beginning to see SEC comment letters issued on filings related to the new cybersecurity disclosure rules. We believe it is prudent to be familiar with these comment letter trends to assess whether any improvements might apply to a company’s first-year disclosures.
Here is an SEC comment exchange related to a company’s Item 1C cybersecurity disclosures (with the SEC comment in bold and the response following):
“We note your senior leadership team consisting of your CEO and his direct reports (SLT) is responsible for setting the tone for strategic growth, effective operations and risk mitigation at the management level, as well as, the overall managerial responsibility for confirming that the information security program functions in a manner that meets the needs of Equifax. We also note that you described the relevant expertise of your CISO but not of the other members of the SLT. Please revise future filings to discuss the relevant expertise of such members of senior management as required by Item 106(c)(2)(i) of Regulation S-K.
We respectfully acknowledge the Staff’s comment above. While our senior leadership team (“SLT”) has responsibility for risk management at the managerial level and overall managerial responsibility for the various programs of the Company, including information security, our Chief Information Security Officer (“CISO”) is the management position responsible for assessing and managing material risks from cybersecurity threats under Item 106(c)(2)(i) of Regulation S-K. In future filings, we will clarify that the CISO is the management position responsible for assessing and managing material risks from cybersecurity threats.”
It appears the SEC staff accepted the reporting person’s explanation in the above-referenced exchange, as there were no follow-up letters made public. A link to the actual letter is here.
4) Be Aware of Proxy Advisory and Institutional Shareholder Policy Updates
Both Glass Lewis and ISS have updated their guidelines for 2025, which take effect for meetings held after Jan. 1, 2025 for Glass Lewis and on or after Feb. 1, 2025 for ISS. Below are a few key takeaways from their updates:
Board Oversight of AI
Given the rise in the use of artificial intelligence (AI), Glass Lewis has noted the importance of boards’ awareness of and policies surrounding the use of such technologies and the potential associated risks. If the company has not suffered any material incidents related to its use or management of AI, Glass Lewis will generally not make voting recommendations on the basis of its oversight of AI-related issues, but if there has been a material incident, Glass Lewis will review the company’s AI-related policies to ensure sufficient oversight and adequate response to such incidents and may recommend against certain directors in light thereof.
Defensive Profile and Reincorporation.
Glass Lewis revised its stance on reincorporating the company in different states to clarify that it will take these on a case-by-case basis, depending on the shareholder rights, financial benefits, and other corporate governance provisions of the laws of the state or country of reincorporation.
ISS votes case by case when it comes to poison pills with a term of one year or less, but this year it added several factors to its list of items it takes into consideration, including the context in which the pill was adopted and the company’s overall track record regarding corporate governance. This allows for a more holistic approach in ISS’s evaluation.
Executive Compensation.
In the aftermath of the first full year of pay versus performance disclosures, Glass Lewis has clarified it will continue to evaluate executive compensation programs holistically and not in accordance with a predetermined scorecard. While there are some factors that may lead to a recommendation against or for a say-on-pay vote, Glass Lewis said it will evaluate each program in the context of its whole, rather than its parts.
Board Responsiveness to Shareholders.
Both advisors included discussion about the board’s willingness and ability to respond to shareholders in its updates for this year. Glass Lewis has added to its discussion on board responsiveness a recommendation that shareholder proposals that received significant support but did not pass (generally more than 30 percent but less than a majority) should illicit board engagement with shareholders to address the issue and then provide disclosure of those efforts. Additionally, in its evaluation of whether to recommend a vote for or against a short-term poison pill, ISS states it will include the board’s responsiveness to shareholders in its review of the company’s corporate governance practices.
Expansion of Environmental Focus.
ISS revised its guidance on what used to be its section on general environmental and community impact proposals to include all natural capital-related matters. This includes topics like biodiversity, deforestation and related ecosystem loss, and other areas that group under the theme “natural capital.”
SPACs
ISS revised its stance on proposals for special purpose acquisition companies (SPAC) extensions from a case-by-case model with a variety of factors at play, including length of the request, prior requests for extension, and acquisition transactions pending in the pipeline, to a general support of extensions of up to one year from the original termination date.
In addition to ISS and Glass Lewis, in December 2024 BlackRock released its updated U.S. proxy voting guidelines for benchmark policies.
5) Consider Hypothetical Risk Factors
On Nov. 6, 2024, the U.S. Supreme Court heard oral arguments for Facebook, Inc. v. Amalgamated Bank, a securities law case involving the 2016 Facebook (now Meta)/Cambridge Analytica’s user data scandal. Facebook investors alleged that the company, among other things, had included in its risk factor disclosures references to risks of unauthorized user data disclosures, but such risks were presented as hypothetical when in fact they had already materialized.
In its Oct. 18, 2023 opinion, the U.S. Court of Appeals for the Ninth Circuit ruled, “Because Facebook presented the prospect of a breach as purely hypothetical when it had already occurred, such a statement could be misleading even if the magnitude of the ensuing harm was still unknown.” Facebook subsequently filed a petition to the Supreme Court for a writ of certiorari. On Nov. 22, 2024, the Supreme Court dismissed the case on the grounds that the writ of certiorari was improvidently granted, affirming the Ninth Circuit’s ruling.
In light of this case and the continued hindsight focus on “hypothetical risk factors” by shareholder litigants, companies should consider reviewing their risk factors and assess whether any of them that may be deemed “hypothetical” have actually occurred, and therefore require further disclosures.
6) Familiarize Yourself With SEC Changes to EDGAR System
On Sept.27, 2024, the SEC adopted a series of rule and form amendments concerning access to and management of accounts on their Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). These amendments – designed to enhance the security of EDGAR, improve the ability of filers to manage their EDGAR accounts, and modernize connections to EDGAR – are collectively referred to as EDGAR Next.
At the heart of the amendments is a shift in how filers (and appropriately permissioned third parties) access EDGAR. Presently, the SEC assigns EDGAR filers access codes; any individual in possession of a filer’s access codes may access the filer’s account, view and make changes to the information maintained therein, and transmit submissions on the filer’s behalf. EDGAR Next will retire the majority of these codes and require that EDGAR filers authorize specific individuals to perform the above-mentioned functions. Each authorized individual will verify their identity using login.gov credentials.
Enrollment in EDGAR Next opens on March 24, 2025, and all existing filers must enroll by Dec. 19, 2025.
To get a jump on preparing for enrollment, filers should take the earliest opportunity to (i) ensure that all of their existing EDGAR access codes are current and (ii) identify the individuals (e.g., employees, legal advisors, third-party filing agents) who will need access to their EDGAR accounts. Individuals who anticipate interfacing with the EDGAR Next system should obtain login.gov credentials.
7) Changes to Nasdaq Diversity Disclosure Requirement
In December 2024, the U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s approval of Nasdaq’s board diversity rules. Nasdaq has stated that it will not appeal the decision. As a result, Nasdaq-listed companies will no longer need to include the previously required board diversity matrix in their proxy statement or on their website, or provide other narrative disclosure explaining why they did not have at least the minimum number of directors in specified diversity categories. There was no comparable disclosure requirement for New York Stock Exchange (NYSE) listed companies.
Notwithstanding this change, board diversity remains a continued focus for many public company boards and other considerations are still in place. For example, ISS, Glass Lewis and certain large institutional investors have their own diversity standards that may influence a company’s disclosure, and Item 407(c) of Regulation S-K may elicit diversity-related disclosures regarding a nominating committee’s consideration of director candidates. As a result, many companies are continuing to solicit such information in their directors and officers (D&O) questionnaires for the 2025 proxy season. Ultimately, each public company will need to consider relevant factors in determining whether, or to what extent, diversity factors into their SEC disclosures.
CFPB Announces Plans to Regulate Nonbank Personal Loan Providers
On January 8, the CFPB announced its intent to pursue rulemaking that would allow the agency to oversee nonbank personal loan lender. The announcement came in response to a petition filed in September 2022 by the Consumer Bankers Association and the Center for Responsible Lending, which called on the CFPB to engage in rulemaking under section 1024(a)(2) of the Consumer Financial Protection Act to subject certain “larger participants” in the nonbank personal loan market to the CFPB’s supervisory authority.
The petitioners argued that, although the CFPB’s supervisory authority already extends to large banks and nonbanks in most segments of consumer lending, the CFPB’s authority over the personal loan market currently does not extend beyond short-term payday lenders. The petitioners further argued that this gap in the CFPB’s supervisory authority creates both an unlevel playing filed and a significant risk that consumer protections issues affecting vulnerable consumers will go undetected.
In a response letter to the petitioners, the CFPB’s general counsel acknowledged the gap in the agency’s authority over the nonbank segment of the personal loan market, which consists of 85 million accounts and over $125 billion in outstanding balances. In addition, the letter expresses agreement with the petitioners’ concerns with respect to the unlevel playing filed that this gap creates. Finally, the letter states that, while the CFPB is already supervising certain nonbank personal loan providers pursuant to other authorities, the Bureau further intends to develop a proposed rule in line with the petitioners’ suggestion.
Putting it into Practice: Although the CFPB has expressed its intent to pursue so-called “large participant” rulemaking, it is unclear whether there will be any follow through. Anticipated shifts in policy priorities under the incoming administration may mean that the Bureau will not ultimately pursue the rulemaking. Despite this uncertainty, the petitioners have expressed that they are eager to continue working with the Bureau to level the playing field in the nonbank personal loan market.
Listen to this post
DOE Issues Unprecedented $25 Million Penalty for Violations of Federal Appliance Efficiency Standards
Capping a four-year effort to revitalize enforcement under its Appliance and Equipment Standards Program, earlier this week, the U.S. Department of Energy (DOE) announced that it had assessed and collected a civil penalty of $25,312,725 from Galanz Americas Limited Company and Zhongshan Galanz Consumer Electric Appliances Co., Ltd. (“Galanz”). This penalty, the largest in the history of this program, resulted from DOE testing showing that a single compact refrigerator-freezer model manufactured by Galanz for distribution in the United States failed to meet applicable energy efficiency standards. While DOE has not published sales figures, the high penalty likely means that Galanz sold a considerable volume of the model.
Violations of DOE’s energy efficiency standards can result in civil penalties of up to $575 per violation, with each unit sold of a non-compliant product considered a separate violation. DOE, therefore, has the statutory authority to assess penalties in the millions or even tens of millions of dollar range, but the Department typically exercises its discretion to settle violations for significantly below the maximum, applying factors set out in its Penalty Policy. The large majority of assessed civil penalties range between $20,000 and $1,000,000, but the Department has occasionally issued seven-figure penalties. During the Biden Administration, DOE has taken an increasingly aggressive enforcement posture and settled a number of enforcement actions with seven-figure civil penalties. Note also that because DOE is authorized to enjoin further distribution of non-compliant models, civil penalties constitute only a portion of the financial impact on manufacturers, importers, private labelers, and retailers found to be in violation of federal requirements.
DOE has settled over a dozen enforcement cases in the past few months, likely in an effort to resolve as many outstanding violations as possible before a presidential transition that will bring a major change in enforcement priorities.
FTC Blog Outlines Factors for Companies to Consider About AI — AI: The Washington Report
The FTC staff recently published a blog post outlining four factors for companies to consider when developing or deploying AI products to avoid running afoul of the nation’s consumer protection laws.
The blog post does not represent formal guidance but it likely articulates the FTC’s thinking and enforcement approach, particularly regarding deceptive claims about AI tools and due diligence when using AI-powered systems.
Although the blog post comes just days before current Republican Commissioner Andrew Ferguson becomes FTC Chair on January 20, the FTC is likely to continue the same focus on AI as it relates to consumer protection issues as it has under Chair Khan. Ferguson has voted in support of nearly all of the FTC’s AI consumer protection actions, but his one dissent underscores how he might dial back some of the current FTC’s aggressive AI consumer protection agenda.
The FTC staff in the Office of Technology and the Division of Advertising Practices in the FTC Bureau of Consumer Protection released a blog outlining four factors that companies should consider when developing or deploying an AI-based product. These factors are not binding, but they underscore the FTC’s continued focus on enforcing the nation’s consumer protection laws as they relate to AI.
The blog comes just under two weeks before current Republican Commissioner Andrew Ferguson will become the FTC Chair. However, under Ferguson, as we discuss below, the FTC will likely continue its same focus on AI consumer protection issues, though it may take a more modest approach.
The Four Factors for Companies to Consider about AI
The blog post outlines four factors for companies to consider when developing or deploying AI:
Doing due diligence to prevent harm before and while developing or deploying an AI service or product
In 2024, the FTC filed a complaint against a leading retail pharmacy alleging that it “failed to take reasonable measures to prevent harm to consumers in its use of facial recognition technology (FRT) that falsely tagged consumers in its stores, particularly women and people of color, as shoplifters.” The FTC has “highlighted that companies offering AI models need to assess and mitigate potential downstream harm before and during deployment of their tools, which includes addressing the use and impact of the technologies that are used to make decisions about consumers.”
Taking preventative steps to detect and remove AI-generated deepfakes and fake images, including child sexual abuse material and non-consensual intimate imagery
In April 2024, the FTC finalized its impersonation rule, and the FTC also launched a Voice Cloning Challenge to create ways to protect consumers from voice cloning software. The FTC has previously discussed deepfakes and their harms to Congress in its Combatting Online Harms Report.
Avoiding deceptive claims about AI systems or services that result in people losing money or harm users
The FTC’s Operation AI Comply, which we covered, as well as other enforcement actions have taken aim at companies that have made false or deceptive claims about the capabilities of their AI products or services. Many of the FTC’s enforcement actions have targeted companies that have falsely claimed that their AI products or services would help people make money or start a business.
Protecting privacy and safety
AI models, especially generative AI ones, run on large amounts of data, some of which may be highly sensitive. “The Commission has a long record of providing guidance to businesses about ensuring data security and protecting privacy,” as well as taking action against companies that have failed to do so.
While the four factors highlight consumer protection issues that the FTC has focused on, FTC staff cautions that the four factors are “not a comprehensive overview of what companies should be considering when they design, build, test, and deploy their own products.”
New FTC Chair: New or Same Focus on AI Consumer Protection Issues?
The blog post comes under two weeks before President-elect Trump’s pick to lead the FTC, current FTC Commissioner Andrew Ferguson, becomes the FTC Chair. Under Chair Ferguson, the FTC’s focus on the consumer protection side of AI is unlikely to undergo significant changes; Ferguson has voted in support of nearly all of the FTC’s consumer protection AI enforcement actions.
However, Ferguson’s one dissent in a consumer protection case brought against an AI company illuminates how the FTC under his leadership could take a more modest approach to consumer protection issues related to AI. In his dissent, Commissioner Ferguson wrote:
The Commission’s theory is that Section 5 prohibits products and services that could be used to facilitate deception or unfairness because such products and services are the means and instrumentalities of deception and unfairness. Treating as categorically illegal a generative AI tool merely because of the possibility that someone might use it for fraud is inconsistent with our precedents … and risks strangling a potentially revolutionary technology in its cradle.
Commissioner Ferguson’s point seems well taken.Less clear is where he would draw the line.Moreover, as a practical matter, his ability to move the needle would likely need to wait until President Trump’s other nominee, Mark Meador, is confirmed, as expected, later this year.
Matthew Tikhonovsky also contributed to this article.
CFPB Updates No-Action Letter and Compliance Assistance Sandbox Policies to Spur Innovation
On January 3, 2025, the CFPB announced a reboot of its no-action letter and compliance assistance sandbox policy, aimed at promoting consumer-beneficial innovation in financial services. The new policies are designed to foster competition and transparency while addressing unmet consumer needs.
The CFPB originally rescinded the policies in 2022, citing a failure to meet transparency standards and promote consumer-beneficial innovation. The updated framework aims to address these shortcomings with several key changes, including:
Unmet Consumer Needs. Applicants must clearly identify a specific consumer problem their product or service addresses, providing data and detailed explanations to justify the innovation’s necessity and benefits.
Market Competition. To avoid granting regulatory advantages to an individual company, the CFPB will solicit applications from competitors offering similar products or services, ensuring a level playing field within the market. The Bureau does not want any company to have a first-mover advantage; but with its policy, the CFPB is essentially signaling to your competitors what you intend to do.
Eligibility Criteria. The CFPB will not consider applications that have been the subject of an enforcement action involving violations of federal consumer financial law in the past five years, or who are the subject of a pending state or federal enforcement action. This restriction applies even if the enforcement action was in a product vertical wholly unrelated to the one being considered for the no-action letter.
Former CFPB Employees Face Bureau “Non-Compete.” The Bureau has stated it will not consider applications from companies that are represented by former CFPB attorneys as outside counsel, even if those lawyers worked at the Bureau more than ten years ago, to avoid any perceived “ethical conflict.”
Finally, recipients of sandbox approvals or no-action letters are prohibited from using these designations in promotional materials to avoid misleading consumers into believing the CFPB endorses their offerings.
Putting It Into Practice: With less than a week to go before a change in administration, the Bureau has decided to reboot its regulatory sandbox policy. However, given the overbearing requirements and restrictions on applying for a no-action letter under the Bureau’s new innovation policies, it will be interesting to see how many companies decide to apply, or if the policies will soon be rescinded.
Listen to this post
CFPB Alleges Credit Reporting Agency Conducted Sham Investigations of Errors
On January 7, 2025, the CFPB filed a lawsuit against a nationwide consumer reporting agency for violations of the Fair Credit Reporting Act. The lawsuit claims the company’s investigation of consumer disputes was inadequate, specifically criticizing their intake, processing, investigation, and customer notification processes. The lawsuit also alleges the company reinserted inaccurate information on credit reports, which the agency alleges harmed consumers’ access to credit, employment, and housing. In addition to FCRA, the Bureau alleges that the company’s faulty intake procedures and unlawful processes regarding consumer reports violated the Consumer Financial Protection Act’s (CFPA) prohibition on unfair acts or practices.
Specifically, the Bureau alleges the company:
Conducted sham investigations. The CFPB claims the company uses faulty intake procedures when handling consumer disputes, including not accurately conveying all relevant information about the disputes to the original furnisher. The company also allegedly routinely accepted furnisher responses to the disputes without an appropriate review such as when furnisher responses seemed improbable, illogical, or when the company has information that the furnisher was unreliable. The Bureau also alleged the company failed to provide consumers with investigation results and provided them ambiguous, incorrect, or internally inconsistent information.
Improperly reinserted inaccurate information on consumer reports. The CFPB alleged the company failed to use adequate matching tools, leading to reinsertion of previously deleted inaccurate information on consumer reports. Consumers who disputed the accuracy of an account and thought their consumer report had been corrected instead saw the same inaccurate information reappear on their consumer report without explanation under the name of a new furnisher.
Putting It Into Practice: This lawsuit reflects a broader trend of the CFPB’s increased regulatory scrutiny of FCRA compliance. (previously discussed here, here, and here). The CFPB has demonstrated a focus on ensuring the accuracy and integrity of consumer credit information. Consumer reporting agencies should proactively review their policies and procedures related to dispute investigation, data handling, and furnisher interaction to ensure they are in compliance with all aspects of the FCRA.
Listen to this post
CFPB Sues Mortgage Lender for Predatory Lending Practices in Manufacture Homes Loans
On January 6, 2025, the CFPB filed a lawsuit against a non-bank manufactured home financing company for violations of the Truth in Lending Act and Regulation Z. The lawsuit alleges that the mortgage lender engaged in predatory lending practices by providing manufactured home loans to borrowers it knew could not afford them.
According to the CFPB, the mortgage lender allegedly ignored “clear and obvious red flags” indicating the borrowers’ inability to afford the loans. This resulted in many families struggling to make payments, afford basic necessities, and facing fees, penalties, and even foreclosure. The Bureau alleges the lender failed to make reasonable, good-faith determinations of borrower’s ability to repay, as required by the Truth in Lending Act (TILA) and Regulation Z.
The CFPB’s lawsuit specifically claims that the lender:
Manipulated lending standards. The mortgage lender disregarded clear and obvious evidence that borrowers lacked sufficient income or assets to meet their mortgage obligations and basic living expenses. On some occasions, borrowers who were already struggling financially were approved for loans, worsening their financial situation.
Fabricated unrealistic estimates of living expenses. The company justified its determination that borrowers could afford loans by using artificially low estimates of living expenses. The estimated living expenses were about half of the average of self-reported living expenses for other, similar loan applicants.
Made loans to borrowers projected to be unable to pay. The lender approved loans despite the company’s own internal estimates indicating the borrower’s inability to pay.
Putting It Into Practice: As Chopra’s term wraps out, the Bureau is on a frantic mission to file as many lawsuits as it can for its ongoing enforcement matters. How that will impact the incoming administration remains to be seen. But it seems likely that a new CFPB Director will take a hard look at much of the active litigation and re-evaluate the Bureau’s position.
Listen to this post
DOJ Announces Third Settlement with a Non-Depository Lender to Resolve Alleged Redlining Claims
On January 7, 2025, the United States Department of Justice (the “DOJ”) announced that a non-depository mortgage lender has agreed to pay $1.75 million in connection with allegations that it engaged in a pattern or practice of lending discrimination by redlining predominantly Black and Hispanic neighborhoods.
The DOJ filed its underlying complaint in the Southern District of Florida alleging that the lender violated the Fair Housing Act and Equal Credit Opportunity Act by failing to equitably provide access to mortgage lending services to majority-Black and Hispanic neighborhoods and high-Black and Hispanic neighborhoods in the Miami-Fort Lauderdale-West Palm Beach, Florida, Metropolitan Statistical Area (“Miami MSA”). According to the DOJ, the lender set up offices in predominantly white neighborhoods and made insufficient efforts to market their services or develop their network in Black or Hispanic neighborhoods, which resulted in the company generating mortgage loan applications within such neighborhoods at rates far below peer institutions.
The DOJ’s proposed consent order, if entered by the court, will require the lender to take certain measures to rectify its practices, including:
Community Credit Needs Assessment. Conducting an assessment to identify the credit needs of residents in predominantly Black and Hispanic neighborhoods, using the results to develop future loan programs and marketing campaigns.
Loan Subsidy Program. Providing $1.75 million for a loan subsidy program offering affordable home purchase, refinance, and home improvement loans in predominantly Black and Hispanic neighborhoods in the Miami MSA.
Fair Lending Program Assessment. Conducting a detailed assessment of its fair lending program, focusing on fair lending obligations to predominantly Black and Hispanic neighborhoods in the Miami MSA.
Enhanced Training and Staffing. Enhancing fair lending training and staffing, including maintaining a Director of Community Lending.
Outreach and Advertising Expansion. Maintaining an office location in a majority-Black and Hispanic neighborhood in Miami-Dade County, translating its website into Spanish, and requiring loan officers to engage in marketing to these neighborhoods.
Community Engagement. Providing four outreach events and six financial education seminars per year, partnering with community organizations to increase credit access in predominantly Black and Hispanic neighborhoods in the Miami MSA.
Putting it into Practice: This settlement follows a series of other recent redlining settlements by the CFPB and DOJ (previously discussed here, here, and here). It is also the third involving a non-depository institution. With the upcoming change in administration this month, regulators may remain eager to pursue settlements of pending fair lending investigations.
Listen to this post
TSCA Fee Payments for Manufacturers of Five High-Priority Substances
Companies that manufacture any of five chemicals are facing substantial fee payments under the Toxic Substances Control Act. The U.S. Environmental Protection Agency (EPA) has published preliminary lists of manufacturers that it plans to hold financially responsible for risk evaluations of five high-priority substances under TSCA section 6(b). The Agency published a notice announcing the availability of the preliminary lists of proposed manufacturers on December 31, 2024 at 89 Fed. Reg. 107099. The five high-priority substances for which risk evaluation fees will be assessed are acetaldehyde, acrylonitrile, benzenamine, vinyl chloride, and 4,4′-methylene bis(2-chloroaniline) (MBOCA). The preliminary lists themselves appear in the docket. Manufacturers of those chemicals whose names do not appear on the relevant preliminary list must notify EPA by March 3, 2025.
Background
EPA recently designated those five chemical substances as high priority, meaning that they are at the top of EPA’s priority list for section 6(b) risk evaluations. 89 Fed. Reg. 102900 (Dec. 18, 2024). Under TSCA section 26(b), EPA has the authority to offset costs associated with conducting risk evaluations under section 6(b), as well as certain other provisions of TSCA. Section 6(b)directs EPA to initiate risk evaluations for chemical substances to determine whether they present an unreasonable risk to health or the environment under their conditions of use.
Pursuant to the TSCA Fees Rule, codified at 40 C.F.R. Part 700, Subpart C, EPA will collect payment from companies that manufactured (including import) a chemical substance that is the subject of a risk evaluation under TSCA section 6(b) during the previous five years.
The fee totals $4,287,000, which is to be shared among all identified manufacturers. The amount each entity pays will depend on the total number of entities identified, their production volumes, and the number of small businesses identified, which receive an 80% discount on their share of the fee. 40 CFR § 700.45(c).
Next Steps for Manufacturers
To compile the list of manufacturers subject to fees, EPA relies on information already at its disposal from the past five years, including submissions pursuant to TSCA sections 5(a) (Significant New Use Notice), 8(a) (Chemical Data Reporting), 8(b) (TSCA Inventory), and the Toxics Release Inventory, as well as relevant information submitted to other agencies.40 C.F.R. § 700.45(b)(2).
However, entities that have manufactured (including imported) the five chemical substances in the previous five years whose names do not appear on the preliminary lists have a duty to self-identify and “must submit notice to EPA, irrespective of whether they are included in the preliminary list.” 40 C.F.R. § 700.45(b)(5) (emphasis added). Notifications are due by March 3, 2025.
Within this window, entities must provide the following information electronically via the Central Data Exchange (CDX), EPA’s electronic reporting portal, using the Chemical Information Submission System (CISS) reporting tool, as applicable:
Contact information: Includes name and address of submitting company and other basic contact information.
Certification of cessation: This applies to entities (whether named in the Preliminary List or not) that have manufactured any of the chemical substances in the five year period preceding publication of the preliminary lists (but have ceased manufacture prior to the certification cutoff date).
Certification of no manufacture: This applies to entities named in a preliminary list that have not manufactured the chemical in the five year period preceding publication of the preliminary lists. It exempts those entities from fee obligations.
Certification of meeting exemption: This applies to entities named in a preliminary list that meets one or more of the exemptions discussed below. A certification statement attesting the applicability of the exemption must be submitted and will exempt those entities from fee obligations.
Production volume: Entities that are not exempt, and do not otherwise qualify for certifications of cessation or manufacture, must submit their production volume for the applicable chemical substance for the three calendar years prior to publication of the preliminary list – 2023, 2022, and 2021. Manufacturers should report volumes to two significant figures. Companies with multiple facilities producing the same chemical substance should include the total aggregated production volume from all facilities when calculating the average production volume.
Exemptions Available
Manufacturers are exempted from fee payment requirements if they meet one or more of the following criteria under 40 C.F.R. § 700.45(a)(3)(i) through (v) on or after the certification cutoff date, December 18, 2023, as follows:
Import articles containing that chemical substance;
Produce that chemical substance as a byproduct that is not later used for commercial purposes or distributed for commercial use;
Manufacture that chemical substance as an impurity;
Manufacture that chemical substance as a non-isolated intermediate; or
Manufacture small quantities of that chemical substance solely for research and development.
Manufacturers are also exempted if they meet the following criteria for the five years prior to and following publication of the preliminary lists:
Manufacture that chemical substance in quantities below a 2,500 lbs. annual production volume, unless all manufacturers of that chemical substance manufacture that chemical in quantities below a 2,500 lbs. annual production volume, in which case this exemption is not applicable.
The manufacturer must meet one or more of the listed exemptions in the successive five years and refrain from conducting manufacturing (including import) outside of those exemptions in the successive five years to qualify.
Next Steps
Companies should review the preliminary lists and, if not listed, evaluate whether self-identification, a certification, or an exemption is warranted well before the March 3, 2025 deadline and notify EPA accordingly.
After the close of the comment period, and once EPA has considered information received, EPA will publish final lists of manufacturers (including importers) subject to the TSCA Fees Rule.
Trending in Telehealth: December 18, 2024 – January 6, 2025
Trending in Telehealth highlights state legislative and regulatory developments that impact the healthcare providers, telehealth and digital health companies, pharmacists, and technology companies that deliver and facilitate the delivery of virtual care.
Trending in the past weeks:
Reimbursement parity
Provider telehealth education
A CLOSER LOOK
Proposed Legislation & Rulemaking:
In Ohio, Senate Bill 95 passed both the House and Senate chambers. This bill will allow for remote pharmacy dispensing, as current state law prohibits the dispensing of a dangerous drug by a pharmacist through telehealth or virtual means.
In Oregon, the Oregon Health Authority, Health Systems Division: Medical Assistance Programs proposed rule amendments to clarify the telehealth rule definitions, including adding cross-references to established definitions in OAR 410-120-0000.
In New York, the Department of Public Health (DPH) proposed two new amendments to the Medicaid State Plan for non-institutional services:
To comply with the 2024-2025 enacted budget, DPH proposed a clarification to the March 27, 2024, notice provision regarding provider rates for early intervention services. This clarification includes a decrease to provider rates for early intervention services delivered via telehealth, with rate decreases as high as 20% in some regions.
DPH also proposed to reimburse Federally Qualified Health Centers and Rural Health Clinics a separate payment in lieu of the prospective payment system rate for non-visit services, such as eConsults and remote patient monitoring.
Finalized Legislation & Rulemaking Activity:
In Illinois, an amendment to the Illinois Public Aid Code went into effect on January 1, 2025. Passed in June of 2024, Senate Bill 3268 provides that the Department of Human Services will pay negotiated, agreed-upon administrative fees associated with implementing telehealth services for persons with intellectual and developmental disabilities receiving Community Integrated Living Arrangement residential services.
Also in Illinois, an amendment to the Illinois Physical Therapy Act went into effect January 1, 2025. Passed in August of 2024, House Bill 5087 significantly limits the ability of physical therapists to provide telehealth services to patients in the state. For more information on the effects of this bill, please read our article discussing its implications.
In Kentucky, Senate Bill 111 went into effect January 1, 2025. This bill requires health benefit plans, limited health service benefit plans, Medicaid and state health plans to provide coverage for speech therapy provided via telehealth.
Missouri’s emergency rule amendments for virtual visit coverage under the Missouri Consolidated Health Care Plan took effect as of January 1, 2025. For more information on this bill, please see our related article from last month.
In New Jersey, Assembly Bill 3853 was signed into law by the governor. The legislation extends certain pay parity regarding telemedicine and telehealth until July 1, 2026, meaning that New Jersey health plans shall reimburse telehealth and telemedicine services at the same rate as in-person services.
In New York, Assembly Bill 6799, was signed into law by the governor. The legislation establishes a drug-induced movement disorder screening education program and specifically includes services provided via telehealth.
In Vermont, House Bill 861 went into effect January 1, 2025. This bill requires health insurers to reimburse telemedicine and audio-only telephone services the same as in-person visits. However, there is an exception for value-based contracts for services delivered by audio-only telephone.
Why it matters:
States are taking action to ensure reimbursement parity for telehealth services. While there is still debate surrounding reimbursement parity for telehealth services (e., mandating reimbursement at the same rate as equivalent in-person services), several states are making strides toward ensuring equal reimbursement rates for both in-person and telehealth services. Bills requiring reimbursement parity in Illinois, Kentucky, and Vermont have taken effect in 2025. Additionally, New Jersey’s decision to extend the reimbursement parity mandate for telemedicine and telehealth services until mid-2026 illustrates the push towards reimbursing healthcare services at the same rate, regardless of the delivery medium.
States are taking measures to not only recognize telehealth, but also to educate providers on telehealth as an effective care delivery method. New York’s decision to include healthcare provider educational materials for providing telehealth services for drug-induced movement disorders underscores the growing trend and importance of educating providers on the appropriate manner for providing such treatment services.
CFPB Finalizes Rule Removing Medical Bills from Credit Reports
On January 7, 2025, the CFPB announced the finalization of a rule amending Regulation V, which implements the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., to prohibit the inclusion of medical bills on credit reports used by lenders and prevent lenders from using medical information in lending decisions. According to the Bureau, the final rule (previously discussed here) will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans.
The Bureau noted that medical debts are not effective predictors of whether a borrower will repay a debt. Consumers frequently report that they receive inaccurate bills or are asked to pay bills that should have been covered by insurance. The CFPB estimates that this rule will result in the approval of approximately 22,000 additional mortgages each year and increase credit scores for those with medical debt by an average of 20 points.
This rule follows changes by three nationwide credit reporting companies and two major credit scoring companies to reduce the impact of medical debt on credit reports and scores. Specifically, the final rule will:
Prohibit lenders from considering medical information. The rule will amend Regulation V and prohibit creditors from using certain medical information and data when making lending decisions, including information about medical devices that could be used as collateral for a loan.
Ban medical bills on credit reports. The rule prohibits consumer reporting agencies from including medical debt information on credit reports and credit scores sent to lenders. The Bureau seeks to prevent debt collectors from using the credit reporting system to pressure consumers to pay medical bills, regardless of their accuracy.
The rule is effective 60 days after publication in the Federal Register.
Putting It Into Practice: The final rule is another example of the CFPB’s increased focus on regulating the credit reporting industry. (previously discussed here). However, immediately after the Bureau finalized the rule, it was hit with two separate lawsuits by trade associations challenging the rule.
Listen to this post