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On February 13, the U.S. Court of Appeals for the 7th Circuit vacated a lower court’s decision to rescind class certification for a group of automotive dealerships (plaintiffs), concluding the lower court did not provide a sufficiently thorough explanation of its decision for the appeals court to reach a decision. According to the opinion, the plaintiffs were granted class certification of breach of contract and RICO claims, among others, brought against an inventory financing company for allegedly improperly charging interest and fees on credit lines before the money was actually extended by the company for the automobile purchases. The company had moved the district court to reconsider the class certification, arguing the plaintiffs admitted the financing agreements were ambiguous on their face, and therefore extrinsic evidence on an individual basis would be required to establish the parties’ intent. In response, the plaintiffs had argued that patent ambiguity in the contract does not require consideration of extrinsic evidence and individualized proof. The district court had agreed with the company, concluding that “ambiguity in the contracts requires consideration of extrinsic evidence, necessitates individualized proof, and undermines the elements of commonality and predominance for class certification.”
On appeal, the 7th Circuit concluded the denial of class certification lacks “sufficient reasoning” to ascertain the basis of the decision, noting that while the original decision to grant certification was a “model of clarity and thoroughness,” the decision to withdraw certification provides only a conclusion. Moreover, the appellate court concluded that the mere need for extrinsic evidence does not in itself render class certification improper and therefore the court needed a more thorough explanation of its reasoning to decertify the class.
On January 25, New York City’s Department of Consumer Affairs (DCA) announced that the city’s largest used car dealership must pay more than $3 million in civil penalties after the city’s Office of Administrative Trials and Hearings concluded the dealership used deceptive and illegal practices to profit from low-income and minority consumers. According to the decision, DCA alleged that the dealership engaged in over 90,000 instances of deceptive trade practice in violation of various consumer protection laws, including, among other things, (i) falsifying consumers’ income and/or monthly rent obligations on credit applications; (ii) falsely advertising the financial terms of deals in print and online; (iii) failing to provide documents in Spanish to certain Spanish-speaking consumers; and (iv) misleading consumers about the history and condition of the used cars they purchased. The administrative law judge declined to revoke the dealership’s license, as originally sought by DCA.
This fine is in addition to the settlement agreement between DCA and the used car dealership that required the dealership to pay nearly $142,000 in restitution to 40 consumers and pay $68,000 to cover outstanding loans originated as a result of the allegedly deceptive actions.
On January 24, the CFPB’s Office of Servicemember Affairs (OSA) released an annual report, which highlights issues facing military consumers based on complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). The OSA report covers the period between April 1, 2017 and August 31, 2018, during which the Bureau received approximately 48,800 military complaints. Some key takeaways from the OSA report are as follows:
- The largest category of servicemember complaints focused on credit reporting, with 37 percent of total servicemember complaints in this area. The report notes that the Department of Defense’s new security clearance process increases the likelihood that a servicemember’s poor credit score could result in losing a security clearance, and by extension being separated from the military.
- After credit reporting, debt collection was the next most complained about issue. Most servicemembers’ debt collection complaints alleged that the servicemember did not owe the debt or that the debt collector failed to respond to written requests for information. In particular, the report states that some debt collectors have inappropriately contacted servicemembers’ chains of command in an attempt to obtain payment.
- For mortgage debt, the largest category of complaints arose from challenges in the payment process—in particular issues related to loan modifications, collections, communicating with the servicemember’s “single point of contact,” escrow, and servicing transfers. These process-focused complaints were closely followed by overall difficulties in being able to afford mortgage payments.
- For credit cards, the greatest concentration of complaints were around problems with purchases on statements (i.e. fraudulent/unauthorized charges, billing frustrations, and difficulties in challenging charges directly with the credit card issuer). Notably, while the report acknowledges the October 2017 Military Lending Act compliance date for credit card issuers, it does not specifically break out MLA-related complaints; rather, the report notes that the Bureau has received “some complaints from servicemembers demonstrating confusion with respect to how and when creditors are applying the MLA’s protections to credit card accounts.”
- For auto lending, the leading category of complaints arose from managing the loan or lease, including application of payments and late fees. Unique to servicemembers, the report highlights that products like GAP can become void if a servicemember takes a car overseas (for example, to use while on deployment).
- For student lending, two-thirds of complaints arose from challenges in making payments and enrolling in payment plans, in particular issues with enrolling and recertifying eligibility for income-driven repayment.
- Finally, in the payday loan space, since 2016 servicemember complaints have decreased drastically and are now equal with non-servicemember complaints (as a percentage of total complaint volume); previously, servicemembers were almost twice as likely to complain about payday loan products.
On December 18, the Appellate Division of the Superior Court of New Jersey reversed a lower court’s order compelling arbitration, concluding the arbitration provision of the plaintiff’s auto lease agreement did not clearly and unambiguously inform the reader that arbitration was the exclusive dispute remedy. According to the opinion, the plaintiff filed a complaint against an auto dealer after allegedly being charged a $75 dollar fee associated with the loan payoff of his trade-in vehicle for which the plaintiff never received an explanation of its purpose, in violation of the New Jersey Consumer Fraud Act and Truth in Consumer Contract, Warranty and Notice Act. The auto dealer moved to compel arbitration under the lease contract’s arbitration notice, which included the statement, “[e]ither you or Lessor/Finance Company/Holder […] may choose at any time, including after a lawsuit is filed, to have any Claim related to this contract decided by arbitration.” The lower court determined that the arbitration provision was not “ambiguous or vague in any way” and ordered arbitration. The plaintiff appealed, arguing the clause is vague because it states the parties “may” arbitrate. On appeal, the appellate court concluded that the arbitration provision was not clear and unambiguous due to the use of a passive “may” when referring to the ability to opt into arbitration. Moreover, the appellate court determined the arbitration provision to be unenforceable because it lacked language that would affirmatively inform the plaintiff that “he could not pursue his statutory rights in court.”
Auto lender pays $11.8 million to resolve investigation into add-on product and loan extension program
On November 20, the CFPB announced a settlement with a Texas-based auto lender to resolve allegations that the lender violated the Consumer Financial Protection Act by deceptively marketing an auto-loan guaranteed asset protection (GAP) add-on product and misrepresenting the impact on consumers of obtaining a loan extension. Regarding the GAP add-on product, which was intended to cover a “gap” between the consumer’s primary auto insurance payout and the consumer’s outstanding loan balance in the event of a total vehicle loss, the CFPB alleged that the lender failed to disclose to consumers that if their loan-to-value was greater than 125 percent, they would not receive the “true full coverage” advertised with the GAP add-on product. Regarding extensions of auto loans, the CFPB alleged, among other things, that the lender failed to “clearly and prominently” disclose that interest accrued during a loan extension would be paid before principal when the consumer resumed making payments on the extended loan. Under the order, the lender must, among other things, (i) pay $9.29 million in consumer restitution; (ii) clearly and prominently disclose the terms of the GAP add-on product and loan extension; and (iii) pay $2.5 million in a civil money penalty.
7th Circuit affirms summary judgment for repossession company, holds property-retrieval fee is not subject to FDCPA
On October 31, the U.S. Court of Appeals for the 7th Circuit affirmed summary judgment for a third-party repossession company and an auto lender, holding that a fee that the repossession company required to process personal items left in a repossessed car did not constitute an impermissible demand for repayment under the FDCPA. According to the opinion, after a consumer fell behind on her auto payments, the third-party company repossessed her vehicle on behalf of the auto lender. The repossession company, according to the consumer, demanded a $100 payment in order to retrieve personal property she had left in the car. The consumer sued the company and the lender arguing that the retrieval fee was an impermissible debt collection in violation of the FDCPA. In response, the repossession company and the lender moved for summary judgment, arguing that the fee was an administrative handling fee that the lender had agreed to pay to the repossession company—not a fee assessed to the consumer. The lower court agreed.
On appeal, the 7th Circuit determined that the documentary evidence showed that the $100 fee was an administrative fee that the lender agreed to pay to the repossession company, stating “[t]here is no way on this record to view the handling fee as some sort of masked demand for principal payment to [the lender].” The appellate court concluded the consumer did not establish a genuine issue of fact as to whether the repossession company demanded the $100 payment on behalf of the lender and, therefore, affirmed summary judgment in favor of the repossession company and the lender.
On November 2, the DOJ announced a $95,000 settlement with a credit union resolving allegations that the credit union violated the Servicemembers Civil Relief Act (SCRA) by repossessing vehicles owned by servicemembers without first obtaining the required court orders. According to the complaint, which was filed on the same day the settlement was announced, the DOJ launched an investigation into the credit union’s repossession practices after learning of two private complaints filed against the credit union for alleged SCRA violations. Through the investigation, the DOJ discovered additional violations and that the credit union did not have policies and procedures that addressed non-judicial auto repossessions against servicemembers until August 2014. Under the terms of the settlement, the credit union is required to pay $65,000 to compensate affected servicemembers and a civil money penalty of $30,000. In addition, the company must submit its employee SCRA training materials for approval and complete reporting, record-keeping, and monitoring requirements.
On October 9, the Superior Court of New Jersey Appellate Division reversed a trial court’s decision to revive a proposed class action that challenged, among other things, interest rates of over 30 percent on car title loans. According to the appellate court, the trial court dismissed the case because Delaware, not New Jersey, had a more substantial relationship with the parties’ dispute. While the plaintiff’s contract with the Delaware-based title loan company stipulated that Delaware law applied even though she resided in New Jersey, the appellate court said that under the second exception of the test established by Instructional Systems Inc. v. Computer Curriculum Corp., New Jersey courts will uphold the contractual choice unless the “application of the law of the chosen state would be contrary to the fundamental policy of the state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of an effective choice of law by the parties.”
“In her certification, plaintiff asserted that she applied for the title loan from her home in New Jersey and that defendant advised her that the loan had been approved by calling and advising her that all she had to do to pick up the money was to come to Delaware and sign the contract.” The appellate court stated that these additional facts may be sufficient to satisfy the second exception’s prerequisites, and that from a procedural standpoint, the trial court should have either converted the title loan company’s motion to dismiss to a motion for summary judgment in order to consider the new information or granted the plaintiff’s motion to file a second amended complaint.
On October 2, the New York governor signed SB 2484, which prohibits auto lenders from remotely disabling a vehicle without first providing notice of the disabling to the debtor. The act amends the state’s uniform commercial code and the general business law, in significant part, by: (i) defining a “payment assurance device” (“any device installed in a vehicle that can be used to remotely disable the vehicle”); (ii) requiring written notice of the possible remote disabling of a vehicle “in the method and timetable” agreed in the initial contract between the parties; (iii) identifying permissible methods of notice transmittal; and, (iv) specifying the permitted period between the postmarking of the notice and the date on which the auto lender or its agent obtains the right to disable the vehicle. The act takes effect immediately.
On September 19, the California governor signed AB 3212 that provides several benefits and protections to servicemembers under the state’s Military and Veterans Code. The legislation’s protections apply to members of the National Guard, State Military Reserve, and the Naval Militia called to full-time active state service or full-time active federal service, as well as other individuals called to full-time active duty for a period in excess of seven days in any 14-day period. Highlights of the amendments include:
- Extension of Interest Rate Protection. The legislation extends the prohibition on charging an interest rate in excess of six percent on any obligations bearing interest to 120 days after military service. The legislation also extends the six percent interest rate protection for student loans to one year after military service, which previously only applied to mortgage obligations.
- Written response for Good Faith Requests for Relief. The legislation requires that any person who receives a good faith request from a servicemember for relief and believes the servicemember is not entitled to the relief to provide, within 30 days of the request, a written response acknowledging the request. The written response must include (i) the basis for asserting that the request was incomplete or that the servicemember is not entitled to the relief; (ii) information/materials that are missing, if the servicemember’s request was deemed incomplete; and (iii) contact information. If the written response is not provided, the person waives any objection to the request, and the servicemember shall be entitled to the relief requested.
- Extension of the Default Judgment Protection. At any stage in any action or proceeding in which a servicemember is involved, the court may stay an action or proceeding during the period of military service or 120 days thereafter (previously 60 days).
- Inclusion of Motor Vehicles in the Lease Termination Protection. Existing state law allows for the termination of leases of premises that are occupied for dwelling, professional, business, agricultural, or similar purposes by the servicemember, upon entry into military service. The legislation now mirrors the federal Servicemember Civil Relief Act protections for motor vehicle lease termination. Specifically, it provides that a servicemember may terminate a motor vehicle lease after the servicemember’s entry into military service for a period of not less than 180 days. Additionally, it provides for cancelation of leases executed while in a period of military service if the servicemember receives military orders for a change of permanent station from a location in the continental U.S. to a location outside the continental U.S., or from a location in a state outside the continental U.S. to any location outside that state, or to deploy for a period not less than 180 days.
- Kathryn L. Ryan to discuss "NMLS usage" at the NMLS Annual Conference & Training
- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program