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On February 7, the Ohio Court of Appeals reversed a state trial court’s decision in favor of a national bank, holding that the bank failed to prove it had the right to charge interest exceeding the statutory limit on a credit card account. At trial, the bank sought payment of the consumer’s store credit card debt it acquired in a merger. The consumer argued that the bank had no standing to sue because it failed to prove ownership of the store credit card account. The trial court denied the consumer’s motion to dismiss and granted the bank’s motion for a directed verdict after trial.
The appeals court agreed that, even though the bank was unable to establish that it acquired the consumer’s account, it had standing to bring its collection action by virtue of its own credit card agreement with the consumer and the consumer’s continued use of the card. But because the bank could only produce periodic statements that included the claimed interest rate, it failed to establish that the consumer “assented to any explicitly set forth interest rate over the statutory limit.” Thus, the trial court “erred in granting [the bank’s] motion for a directed verdict as to the precise amount of damages awarded,” and the appeals court remanded with instructions to determine whether Ohio law, as argued by the consumer, or South Dakota law, as argued by the bank, should be applied to verify the applicable statutory interest rates.
On February 8, the U.S. Court of Appeals for the 1st Circuit reversed the district court’s dismissal of a Massachusetts homeowners’ action alleging that the mortgage holder failed to comply with the notice requirement in their mortgage before foreclosing on their property. The district court dismissed the action after concluding that the mortgage holder’s notice satisfied the notice requirements by including the default amount, a cure date, and the fact that failure to cure could result in acceleration. The homeowners appealed, arguing that the mortgage holder failed to strictly comply with the provision’s requirements because the notice provided did not include the conditions and time limitations associated with reinstatement after acceleration that were required by a separate provision in the mortgage.
On appeal, the 1st Circuit reviewed the notice under Massachusetts law, which requires mortgage holders to strictly comply with two types of mortgage terms: (i) ones “directly concerned with the foreclosure sale. . .” and (ii) ones “prescribing actions the mortgagee must take in connection with the foreclosure sale—whether before or after the sale takes place.” In overturning the District Court’s dismissal, the 1st Circuit noted that, because the notice did not contain the additional conditions and time limitations associated with reinstatement from the separate provision, dismissal was inappropriate.
On February 13, the U.S. District Court for the District of Nevada rejected a cloud communication company’s motion to dismiss a TCPA class action. According to the opinion, the plaintiffs’ alleged the company “collaborated as to the development, implementation, and maintenance of [a] telemarketing text message program,” which was used by a theater production company to send text messages without prior consent in violation of the TCPA and the Nevada Deceptive Trade Practices Act (NDTPA). The company moved to dismiss the claims, arguing, among other things, that it was not liable under the TCPA because it was a “transmitter” and not an “initiator” of communications. Citing the FCC’s previous determination that, under certain circumstances transmitters may be held liable under the TCPA, the court rejected this argument, concluding that the company took steps necessary to send the automated messages and that its “alleged involvement was to an extent that [it] could be considered to have initiated the contact.” Moreover, the court determined the plaintiff sufficiently alleged injury under the TCPA, concluding that violations of privacy and injury to the “quiet use and enjoyment of [a] cellular telephone” are consistent with the purpose of the TCPA. The court did dismiss the plaintiff’s NDTPA claims, however, holding that the transaction did not involve the sale or lease of goods or services as the law requires.
On February 8, the U.S. District Court for the Western District of North Carolina dismissed a consumer’s state law claims under the North Carolina Unfair and Deceptive Trade Practices Act and civil conspiracy claims because they were preempted by the FCRA. According to the opinion, which affirmed and adopted a Magistrate Judge’s recommendation, and also allowed the consumer’s FDCPA claims to proceed, the consumer alleged the furnisher improperly filed delinquencies on his credit report, wrongfully refused to remove the delinquencies, and improperly handled the investigation of his claims. The consumer had objected to the Magistrate’s conclusions with regard to the state law claims, arguing that the FCRA preemption was not applicable because the unfair and deceptive conduct occurred after the furnisher allegedly reported inaccurate information to the credit bureaus. The district court rejected this argument, concluding that the state law claims “run  into the teeth of the FCRA preemption provision” and are “squarely preempted” by the federal statute.
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 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.”
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.
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.
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.
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.
- 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
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- 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 to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" 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 "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- 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