Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • 7th Circuit vacates class decertification decision in auto finance lawsuit

    Courts

    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.

    Courts Seventh Circuit Appellate Class Action Auto Finance

    Share page with AddThis
  • District Court: New Jersey licensing requirements apply to debt collector

    Courts

    On February 11, the U.S. District Court for the District of New Jersey denied a motion to dismiss a putative class action against a debt collector and its legal counsel, holding that the plaintiff debtor made a plausible claim under the FDCPA that the debt collector was required by New Jersey’s Consumer Financing Licensing Act (NJCFLA) to be licensed as a consumer lender. According to the opinion, the plaintiff had defaulted on his credit card debt and, nine years later, received a letter from the defendant’s legal counsel seeking payment of the balance due. The plaintiff filed a proposed class action arguing that the letter violated the FDCPA because the debt collector had not been licensed with the New Jersey Department of Banking and Insurance prior to purchasing the debt, and therefore lacked the authority to collect on the debt. The defendant debt collector moved to dismiss the complaint, claiming, among other things, that it was exempt from the licensing requirements because it did not qualify as a “consumer loan business” under the NJCFLA. The debt collector argued that it never exceeded the state’s interest rate cap and therefore was exempt from the licensing requirements. However, the plaintiff argued that the defendant’s licensing violation arose from a second part of the “consumer loan business” definition, under which the licensing requirements apply because the defendant “directly or indirectly engag[es] . . . in the business of buying. . . notes.” The district court agreed with the plaintiff, stating that “[t]his statutory language does not narrow the category of lenders falling under that definition according to the interest rates that they charge.”

    Courts Debt Collection FDCPA Licensing State Issues Consumer Lending

    Share page with AddThis
  • District Court denies debt collector’s arbitration request

    Courts

    On February 11, the U.S. District Court for the District of New Jersey denied a motion by a debt collector and its managers to compel arbitration, concluding that discovery was needed in order to determine whether an arbitration clause applied to the plaintiffs’ claims regarding FDCPA violations. According to the opinion, the plaintiffs filed a proposed class action alleging that the debt collection company’s collection letters violated the FDCPA because they did not “properly identify the name of the current creditor to whom the debt is owed.” The debt collectors moved to compel arbitration, arguing that the debts described in the plaintiffs’ amended complaint arose pursuant to credit card agreements that include an arbitration clause, and submitted a declaration from an employee of the servicing entity for the credit card issuer, with credit card account terms and conditions, including arbitration clauses, as an attachment. The court denied the motion, noting that the Fed. R. Civ. P. 12(b)(6) standard requires that the amended complaint “establish with clarity that the parties have agreed to arbitrate,” and in this instance, no arbitration clause was cited. The court denied the motion to compel pending further development of the factual record by plaintiffs conducting discovery on the issue.

    Courts Arbitration Civil Procedure FDCPA Debt Collection

    Share page with AddThis
  • District Court approves final $2.5 million TCPA class action settlement

    Courts

    On February 8, the U.S. District Court for the Eastern District of Virginia granted final approval to a $2.5 million putative class action settlement resolving allegations that a student loan servicer violated the TCPA by using an autodialer to contact student borrowers’ credit references without first obtaining their prior express consent. The settlement terms also require the servicer to pay more than $850,000 in attorneys’ fees and expenses. According to the plaintiff’s memorandum in support of its motion for preliminary approval of the class action settlement (as referenced in the final approval order), the servicer allegedly used an autodialer to contact the plaintiff’s cellphone without her prior express consent, which the servicer subsequently denied. The servicer had moved for summary judgment on multiple grounds, arguing, among other things, that the plaintiff could not establish that the servicer used an autodialer to place calls to her and other credit references listed on the delinquent student loans. Citing to the D.C. Circuit’s decision in ACA International v. FCC, which set aside the FCC’s 2015 interpretation of an autodialer as “unreasonably expansive,” (covered by a Buckley Special Alert), the servicer had argued that the decision “governs analysis of the issue” and that the plaintiff could not succeed in demonstrating that the telephone system used falls within the statutory definition of an autodialer. However, prior to the court issuing a ruling on the servicer’s summary judgment motion, the parties reached the approved settlement through mediation.

    Courts Student Lending Autodialer Settlement Attorney Fees

    Share page with AddThis
  • 4th Circuit holds TILA and EFTA taxpayer payment agreement claims can proceed

    Courts

    On February 6, a three-judge panel for the U.S. Court of Appeals for the 4th Circuit affirmed a district court’s denial of a motion to dismiss a proposed class action suit against two tax payment financing companies, finding that (i) the plaintiff had standing under EFTA because he alleged that he suffered an injury in fact; and (ii) a taxpayer payment agreement (agreement) between the plaintiff and the financing companies qualifies as a consumer credit transaction subject to both TILA and EFTA. According to the decision, the plaintiff entered into an agreement to finance the payment of residential property taxes as allowed under state law. The plaintiff subsequently challenged the agreement on several grounds, including that it violated TILA, EFTA, and the Virginia Consumer Protection Act because many of the agreement’s terms had incorrect amounts, there was no itemized list of closing costs, and the agreement did not include “certain allegedly required financial disclosures.” Following the plaintiff’s initiation of a proposed class action, the defendants moved to dismiss for failure to state a claim, arguing, among other things, that the agreement is not a consumer credit transaction and therefore not subject to TILA or EFTA.

    The district court, however, determined that the plaintiff had standing under the EFTA because he claimed he suffered an injury in fact—that the agreement was contingent on his agreeing to preauthorized electronic funds transfer payments—and that the agreement was subject to both TILA and EFTA. On appeal, the 4th Circuit agreed that the plaintiff satisfied the injury requirement “because he alleged that he was required to agree to [electronic funds transfer payment] authorization as a condition of the agreement and that the agreement contained terms requiring him to waive EFTA’s substantive rights regarding [electronic funds transfer payment] withdrawal.” Even if the court accepted the defendant’s assertion that there was no injury, it held that the plaintiff would still have standing to challenge the agreement because “there is a ‘realistic danger’ that [the plaintiff] will ‘sustain[] a direct injury’ as a result of the terms of the [agreement].” The court also found the agreement to be a credit transaction under the meaning of TILA and EFTA because under TILA, a consumer transaction is “one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family or household purposes.”

    One judge concurred in part—regarding standing under EFTA—but dissented also, writing that the agreement does not qualify as a “credit transaction” under TILA because the Virginia code, and not a creditor, grants the taxpayer the right to defer payment of a local tax assessment by entering into an agreement with a third party like the defendant. “A[n] [agreement] is not a ‘credit transaction,’ within the meaning of TILA, because the preexisting obligation of the taxpayer is not severed by the third-party payor’s payment, and the third-party payor does not grant any right to the taxpayer that is not conferred already by statute,” the dissenting judge concluded. The judge further opined that protections for taxpayers who enter into an agreement should be resolved by the state, as the entity creating this form of tax payment.

    Courts Fourth Circuit Appellate TILA EFTA

    Share page with AddThis
  • District Court temporarily stops debt collection operation at FTC’s request

    Courts

    On February 8, the FTC announced that the U.S. District Court for the Western District of North Carolina had issued a temporary restraining order and asset freeze regarding a debt collection operation allegedly collecting phantom debts. According to the FTC, the debt collection operation deceptively claimed to be attorneys, or to be affiliated with attorneys, to pressure consumers into paying debts which they did not owe, including threatening legal action if they did not pay, in violation of the FTC Act and the FDCPA. The order names 10 companies and six individuals as defendants and temporarily prohibits the defendants from, among other things, (i) misrepresenting information as it relates to collection efforts; (ii) threatening to take unlawful action; (iii) communicating with third parties without having obtained prior consent, other than to determine a consumer’s location; and (iv) failing to provide consumers with written debt information five days after initial contact.

    Courts FTC FDCPA Debt Collection FTC Act

    Share page with AddThis
  • 7th Circuit holds arithmetic does not affect a debt’s character under the FDCPA

    Courts

    On February 7, the U.S. Court of Appeals for the 7th Circuit held that arithmetic does not affect a debt’s “character” under the FDCPA, reversing the district court’s judgment against a debt collector. A debt collector reported to a credit bureau that the debtor had nine unpaid bills of $60, rather than one aggregate debt of $540. The debtor filed suit, arguing that the debt collector violated the FDCPA’s prohibition on making a “false representation” about “the character, amount, or legal status of any debt.” The district court agreed with the debtor, determining that the debt collector should have reported the amount in the aggregate and imposing a $1,000 penalty for the violation.

    On appeal, the 7th Circuit noted a lack of authoritative or persuasive guidance discussing whether aggregation of all amounts owed to a creditor “concerns the ‘character’ of a debt” under the FDCPA. The appeals court concluded that the number of specific transactions between a debtor and a creditor “does not affect the genesis, nature, or priority of the debt” and, therefore, does not concern its character. Moreover, the court noted that “‘amount’ rather than the word ‘character’ is what governs reporting the debt’s size”; otherwise, there would be no distinction in the FDCPA’s prohibition on false representations about the “character, amount, or legal status” of a debt. Because it was undisputed that the debtor incurred nine debts of $60 each to a single creditor, the debt collector did not misstate the “character” of the debt under the FDCPA.

    Courts Seventh Circuit Appellate FDCPA Debt Collection Credit Report

    Share page with AddThis
  • District Court holds debt collector’s actions not harassment or abuse under FDCPA

    Courts

    On January 30, the U.S. District Court for the Eastern District of Arkansas granted a debt collector’s motion for summary judgment, finding that no reasonable jury could conclude the debt collector’s conduct gave “rise to an intent to annoy, harass, or oppress” under the FDCPA. According to the opinion, the debt collector mistakenly had assigned the plaintiff’s phone number to a debtor in its system. The collector contacted the plaintiff five times between July 2016 and May 2017, after which the plaintiff informed the collector several times that she was not the intended recipient of the calls; despite placing the plaintiff on its Do Not Call list, the collector proceeded to contact the plaintiff again. The plaintiff filed suit against the debt collector alleging violations of various state laws and the FDCPA’s prohibition on engaging in conduct to “harass, oppress, or abuse any person in connection with the collection of a debt” and from using any “unfair or unconscionable means to collect or attempt to collect any debt.”

    The debt collector moved for summary judgment, and the court determined that no reasonable jury could conclude the conduct gave rise to a violation, noting that the actions of the collector were a “far cry from the type of conduct Congress held up as harassment or abuse” in the FDCPA. Specifically, the court concluded that calling twice after being verbally asked to stop does not give rise to an intent to annoy, abuse, or harass as Congress chose to make it a per se violation to communicate after written requests to stop, but not any cease request. The court similarly rejected plaintiff’s claim that the collector’s conduct was unfair or unconscionable under the FDCPA.

    Courts Debt Collection FDCPA

    Share page with AddThis
  • District Court: Bank originating mortgage loans is not a debt collector under FDCPA

    Courts

    On January 23, the U.S. District Court for the Middle District of Florida dismissed a putative class action suit, ruling that a national bank did not qualify as a debt collector under the FDCPA. According to the order, the three plaintiffs defaulted on loans that were originated (or acquired via merger) by the bank. The loans were ultimately satisfied by the proceeds of related short sales of the plaintiffs’ homes. Following the satisfaction of the loans, the bank sent the plaintiffs letters that stated it would not report any negative information regarding the plaintiffs’ loans to the credit bureaus or charge any late fees for a period of 90 days due to the plaintiffs’ residences being located in a FEMA-declared disaster area. The plaintiffs alleged that these letters violated the FDCPA and the Florida Consumer Collection Practices Act (FCCPA) because the bank “systematically misrepresent[ed] the status” of the plaintiffs’ satisfied loans as well as the plaintiffs’ “obligations under the loans.” The bank moved to dismiss arguing, among other things, that the FDCPA claims should be dismissed because the bank—as originator and owner of the loans—is not a debt collector under the FDCPA, and the complaint failed to contain any allegations supporting the assertion that the bank’s principal purpose as a business is the collection of debts. Moreover, the bank argued that the letters were sent purely for informational purposes, and as such, did not constitute an attempt to collect a debt under the FDCPA or FCCPA.

    The court agreed with the bank, finding that the bank was “exempt from the definition of a debt collector” due to its status as the originator of the loans, and dismissed the FDCPA claims with prejudice. The court also dismissed plaintiffs’ FCCPA claims, finding that it lacked original jurisdiction over these claims because the plaintiffs failed to file a motion for class certification within 90 days of filing the complaint, as required under local rules.

    Courts Mortgage Origination Debt Collection FDCPA State Issues

    Share page with AddThis
  • NYDFS issues title insurance guidance following Appellate Division ruling on Regulation 208

    State Issues

    On January 31, NYDFS issued Supplement No. 2 to Insurance Circular Letter No. 1 (2003), which provides guidance to the title insurance industry following a January 15 unanimous decision by the Appellate Division of the New York State Supreme Court to uphold Insurance Regulation 208. The Appellate Division’s decision vacated the majority of a trial court order annulling Regulation 208, which limits title insurers’ ability to offer inducements to obtain business. (See previous InfoBytes coverage here.)

    The NYDFS supplement highlighted three critical holdings from the Appellate Division’s decision. First, the court upheld Regulation 208’s ban on inducements for future title insurance business, recognizing that NYDFS had found that lavish gifts were routinely offered to intermediaries such as lawyers in anticipation of receiving business. Second, the appellate court held that Insurance Law § 6409(d), which prohibits a commission, rebate, fee, or “other consideration or valuable thing,” is not limited to a prohibition on quid pro quo exchanges for specific business. Third, the court annulled Regulation 208’s ban on certain closer fees and fees for ancillary searches.

    State Issues Courts Appellate NYDFS Title Insurance

    Share page with AddThis

Pages

Upcoming Events