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District Court sides with bank in class-action suit against foreign currency swap overcharges
On March 5, the U.S. District Court for the Eastern District of Virginia dismissed a purported class action complaint in which plaintiffs alleged the defendant banks used “fictional” foreign exchange rates that deviated from those incorporated into plaintiffs’ agreements with the defendants. Specifically, the plaintiffs asserted that defendants charged the plaintiffs “fictional” rates imposed by credit card companies, and in so doing, breached their relevant contracts with the plaintiffs and violated several state consumer protection laws.
In dismissing the complaint, the court concluded that although the plaintiffs had standing to sue, their breach of contract claim failed as a matter of law because the complaint failed to identify any specific promises regarding exchange rates in the relevant contracts, and a singular reference to credit card companies’ rules did not incorporate such rules into the relevant contracts. The court further rejected the plaintiffs’ argument that an agency relationship existed between the credit card companies and defendants, reasoning that the plaintiffs failed to plausibly demonstrate defendants had any ability to control the rates.
The court similarly dismissed all the plaintiffs’ consumer protection law claims, concluding that the relevant laws did not permit for a breach of contract to serve as the basis for an unfair or deceptive trade practice.
Alabama judge finds the Corporate Transparency Act unconstitutional, DOJ quickly appeals
On March 1, the federal district court in the Northern District of Alabama entered a final declaratory judgment concluding that the Corporate Transparency Act (CTA) is unconstitutional. The plaintiffs, including a non-profit small business association consisting of more than 60,000 small business members as well as an individual small business owner, sued the Treasury Department, Secretary Janet Yellen, and FinCEN Acting Director Himamauli Das in their official capacities, alleging that the CTA’s mandatory disclosure requirements violate the First, Fourth, Fifth, Ninth, and Tenth Amendments and exceed Congress’s authority under Article I of the Constitution.
Corporations, LLCs, or other similar entities that are either “(i) created by the filing of a document with a secretary of state… or (ii) formed under the law of a foreign country and registered to do business in the United States” are required to provide certain beneficial ownership information, as well as disclose any related changes to FinCEN under the CTA, excluding exempt entities. The CTA was passed in 2021 as part of the National Defense Authorization Act and required most entities incorporated under state law to disclose beneficial ownership information to FinCEN to prevent financial crimes often committed through shell corporations. In September 2022, FinCEN issued a final rule implementing the CTA, which went into effect on January 1 of this year, and required currently existing entities and five million new entities formed each year from 2025 to 2034 to disclose the identity and information of any “beneficial owner” to FinCEN (see Orrick Insight here).
According to the court, the CTA exceeds the Constitution’s limits on Congress’s power and does not have a strong enough connection to any of Congress’s listed powers to be considered a necessary or appropriate way to reach Congress’s policy objectives. The court rejected the government’s claims that the CTA is covered by various constitutional provisions, including the Commerce Clause, Taxing Clause, Necessary and Proper Clause, and Congress’s powers related to foreign affairs and national security.
The judgment permanently enjoined the Department of the Treasury and FinCEN from enforcing the CTA against the plaintiffs and as a result they are not required to report beneficial ownership information to FinCEN at this time. The order does not ban enforcement of the CTA and its beneficial ownership disclosure requirements to FinCEN generally.
On March 11, the U.S. Department of Justice filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit after U.S. District Judge Liles C. Burke’s March 1 ruling.
State Supreme Court vacates and remands TILA dispute
Recently, the Maine Supreme Judicial Court vacated a judgment in favor of a bank and remanded the decision to re-examine the nature of a loan and consider all relevant evidence to determine if the loan was for commercial purposes. The plaintiffs defaulted on a loan from the defendant, a bank, by securing the loan with a hunting cabin they owned, and a lease for the land on which they had built the cabin. The defendant successfully sued for recovery of the cabin. On appeal, the plaintiffs argued the bank failed to make the requisite disclosures under TILA and thus it was in error to decide in favor of the bank. The bank conceded that it did not make the required disclosures but countered that the credit transaction was not subject to TILA because the loan was for commercial purposes, and if the loan was secured by real property, it was not expected to be used as the principal dwelling of the consumer(s).
First, the court found that it was an error not to consider extrinsic evidence when determining the purpose of the loan because the Official Staff Interpretations of Regulation Z outline factors to be considered in such a determination, which should be given great deference. Moreover, it found that most federal courts applied a holistic approach in determining the purpose of the loan. Because the Business and Consumer Docket court in Maine did not consider any extrinsic evidence, it decided to remand. Second, the court held that the TILA exemption for “credit transactions, other than those in which a security interest is or will be acquired in real property, or in personal property used or expected to be used as the principal dwelling of the consumer . . . in which the total amount financed exceeds $50,000” was inapplicable. Although the loan was for $378,698, the loan was secured by a leasehold. According to the court, the leasehold was an interest in real property, and the language in the exemption referencing “principal dwelling” only modified “personal property” and not “real property.”
Business groups sue the CFPB over credit card late fee rule
On March 7, several business groups (plaintiffs) sued the CFPB rule in the U.S. District Court for the Northern District of Texas over its announced credit card late fee rule. As previously covered by InfoBytes, the Bureau’s new final rule limited most credit card late fees to $8, among other actions, and was met immediately with criticism from banks and legislators.
The plaintiffs’ complaint claimed the CFPB completed the rule hastily to implement a pledge made by President Biden around his State of the Union Address to reduce credit card late fees by 75 percent. The complaint further asserted the CFPB skipped necessary steps, made economic miscalculations, and otherwise breached the Administrative Procedure Act. As alleged, the Bureau likely understated “the volatility of card issuers’ cost-to-fee ratios pertaining to late fees” and improperly relied on data which does not allow for the recovery of a “reasonable and proportional” penalty fee. On the Bureau’s use of the Y-14M data, the complaint alleged the new rule ignored peer-reviewed studies and instead opted to base the rule on an internal study using confidential data that was not available for examination during the period allocated for public comment. The plaintiffs argued the final rule would incur “substantial compliance costs” by amending printed disclosures, using the cost-analysis provisions, and notifying consumers of changes in interest rates to recoup costs, among other problems. The complaint also cited TILA’s effective-date provisions and the Bureau’s embattled funding structure to support the argument that the final rule would cause irreparable harm.
Department of Energy discontinues crypto mining survey following a settlement agreement
On March 1, a cryptocurrency company (plaintiff) and the U.S. Department of Energy submitted a settlement agreement to the U.S. District Court for the Western District of Texas to discontinue an emergency crypto mining survey once approved by the Office of Management and Budget.
According to the settlement agreement, the Department of Energy initiated an emergency three-year collection of a Cryptocurrency Mining Facilities Survey in January, which the plaintiff claimed did not comply with various statutory and regulatory requirements for the emergency collection of information. Following the court’s approval of the plaintiff’s temporary restraining order, which protected plaintiffs from completing the survey issued by the Department of Energy and protected any information they may have already submitted, the Department of Energy discontinued its emergency collection, and said it will proceed through notice-and-comment procedures for approval of any collection of information covering such data. As a result of the discontinuation of the emergency collection request, no entity or person is required to respond to the survey.
As part of the settlement agreement, the Department of Energy will destroy any information it had already received from survey responses. In addition to a $2,199.45 payment for the plaintiffs’ litigation expenses, the Department of Energy also agreed to publish a new Federal Register notice of a proposed collection of information and withdraw its original notice.
7th Circuit says plaintiffs should have produced evidence to prove concrete injury
On February 29, the U.S. Court of Appeals for the Seventh Circuit decided that while an interruption of self-employment can cause a concrete loss for a plaintiff to sue, that loss must be established by evidence at summary judgment. The loss in question involved a consumer debt in arrears sold by a bank to a debt collection agency. Two individual plaintiffs owing the underlying debt sued the debt collection agency under 15 U.S.C. §1692e of the FDCPA when the debt collection agency attempted to collect on the debt owed without relaying that the bank had not verified the balance of the debt. The judge opined that rather than claiming they had incurred any concrete loss (e.g., a loss of income, payment of funds, etc.), plaintiffs instead filed an affidavit to state that the debt had “interrupted my self-employment” because they were focused on thinking about the debt and spent time working through records to confirm the debt owed. The judge agreed with the plaintiffs’ claim that debt collection efforts can very well cause a delay in receiving self-employment income, which is a “form of loss”; however, the judge also held that plaintiffs must show evidence of injury at the summary judgment stage, as this is the “put up or shut up” stage in litigation. Ultimately, the plaintiffs failed to show any evidence that debt collection efforts caused them concrete harm, other than interrupting a productive day of work.
Pennsylvania Attorney General settles with data collection company for failing to disclose data use
On February 22, the Attorney General for the State of Pennsylvania, Michelle A. Henry, announced a settlement with a company for selling consumers’ data information without clearly notifying those consumers pursuant to the Unfair Trade Practices and Consumer Protection Law and the Telemarketer Registration Act (TRA) and required the defendant pay $25,000 in monetary relief. The defendant operated various websites that collected consumers’ personal information with offers of free samples or payments for online surveys. The Pennsylvania AG alleged the defendant failed to properly disclose to consumers that the purpose of collecting their data was for lead generation, made misrepresentations regarding free samples and brand affiliations, and failed to obtain necessary consumer requests and agreements.
As part of the settlement, the Pennsylvania AG required the defendant to provide certain disclosures, including the collection of consumer data is for lead generation, consumer information may be sold to third parties, and defendant functions as an aggregator of promotional offerings. The settlement further enjoined the defendant from making certain misrepresentations to consumers. There were also orders related to telemarketing practices and consumer usage data, including a requirement that defendant not “use, sell, transfer or share any [c]onsumer [d]ata obtained from Pennsylvania consumers[.]”
Minnesota Attorney General settles with tribal company over high interest rates
On February 21, the Minnesota Attorney General announced a settlement with a tribal economic development entity to resolve a 2023 federal lawsuit that alleged the entity’s lending subsidiaries were engaged in predatory lending and illegal interest rates, in violation of Minnesota and federal consumer lending laws. As previously covered by InfoBytes, the complaint claimed that the entity’s lending subsidiaries charged interest rates of up to 800 percent in violation of state statutory caps of eight percent, and led state residents to believe that the entity was exempt from state laws that protect against predatory lending.
Under the terms of the settlement, the entity and its subsidiaries can no longer lend to Minnesota residents nor advertise or market those loans. The settlement also required any loan issued to consumers in Minnesota before the settlement is canceled, except to recover the original principal balance with all past payments to be attributed towards paying down the principal balance.
District Court decides in favor of bank despite alleged FDCPA and RESPA violations
On February 15, the U.S. District Court for the Central District of California granted a bank defendant’s motion to dismiss certain claims presented in the plaintiff’s complaint alleging violations of the Fair Debt Collection Practices Act (FDCPA) and Real Estate Settlement Practices Act (RESPA).
With respect to the FDCPA claim, the court found that the defendant did not qualify as a “debt collector” within the meaning of the statute because the defendant acquired the loan through its merger with the original creditor of the plaintiff’s mortgage. The court noted that several other district courts have held that an entity that acquires a debt through its merger with another creditor is not a “debt collector” under the FDCPA even if the merger occurred following the borrower’s default on the debt.
With respect to the plaintiff’s RESPA claim, the court found that the plaintiff failed to allege a violation of the statute because the plaintiff’s letter to the defendant, which requested a copy of the original promissory note underlying the deed of trust as well as a loan payoff amount, did not constitute a “qualified written request” triggering the defendant’s obligations under RESPA to respond.
District Court addresses plain meaning of “pattern or practice of noncompliance” under RESPA.
On February 7, the U.S. District Court for the District of Maryland granted in part and denied in part a defendant mortgage company’s motion to dismiss a class action lawsuit alleging RESPA violations related to escrow account management for borrowers. Class action plaintiffs claim that the defendant’s failure to pay their property taxes in a timely manner, resulting in their homes being potentially subject to local tax sale procedures for unpaid taxes, created a “pattern or practice of noncompliance” within the meaning of RESPA.
In moving to dismiss, defendant argued that alleged violations of servicing obligations that fall under separate subsections of RESPA cannot create a “pattern or practice of noncompliance” for obligations of the section setting for the escrow-handling obligations. While noting that “case law interpreting RESPA statutory damages claims is still developing,” the court found that the statute does not require identical violations from the same subsection of RESPA to state a “pattern or practice” claim. The court reasoned that the absence of the word “subsection” from the statute is noteworthy, and it indicates that Congress did not intend to confine “pattern or practice” to a single subsection, and held that the plain meaning of the provision only requires plaintiffs to allege repeated violations of the “[s]ervicing of mortgage loans and administration of escrow accounts” section of RESPA (i.e., all of the obligations set forth in 12 U.S.C. § 2605). The court also rejected defendant’s argument that plaintiffs failed to state a claim because they “cannot rely upon their own allegations or the existence of public complaints and lawsuits which have not resulted in a judgment against it for violations of RESPA,” finding that allegations of servicing violations from multiple named plaintiffs in separate jurisdictions was sufficient to survive a motion to dismiss.
Separately, the court dismissed allegations that defendant violated RESPA by failing to respond to plaintiffs’ qualified written requests, finding that plaintiffs’ claims of “emotional distress, without more, do[] not establish the causal link necessary to show actual damages,” and that plaintiffs did not support claims that voluntary postage costs for sending correspondence to defendants could be recognized as economic damages.