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  • District Court: Plaintiff has standing but still dismisses FCRA case

    Courts

    On January 19, the U.S. District Court for the District of New Jersey granted a bank’s motion to dismiss an FCRA case. According to the opinion, after plaintiff’s credit report revealed monthly payments towards previously closed accounts with defendant, plaintiff alleged that because the accounts were closed, the entire balance was due and that she had neither the right nor the obligation to pay defendant in monthly installments. Plaintiff then disputed the debt with a credit reporting agency, which forwarded the dispute to defendant, but ultimately plaintiff’s credit report was never updated to $0 monthly payments as she requested. Three days later, plaintiff filed suit alleging defendant violated the FCRA by failing to investigate the dispute and failing to direct the credit reporting agency to report the tradelines with $0 monthly payments. Although plaintiff does not assert in her complaint that her credit reports have been distributed to any potential lender, plaintiff alleged that the tradelines listed in her credit report are inaccurate and “create a misleading impression of her consumer credit file.”

    In determining Article III standing, the court held that plaintiff sufficiently alleged injury in fact because defendant’s “false and misleading reporting to a credit bureau about Plaintiff’s obligation on a debt has a close relationship to reputational harms such as defamation and common law fraud.” The court acknowledged, however, that “[l]ower courts have split on the issue of whether dissemination of a defamatory statement to a credit reporting agency, as opposed to the potential creditors at issue.” On one hand, the U.S. Supreme Court found that class members whose misleading credit reports were not disseminated to a third party did not suffer concrete harm. In another case, the Seventh Circuit concluded that plaintiffs adequately proved third-party dissemination by presenting evidence that debt collectors reported false information about them to a credit reporting agency, dismissing any interpretation precedent that would demand the plaintiffs to additionally demonstrate that the third party shared the false information. The court agreed with the latter decision, citing that “dissemination to a credit reporting agency suffices to establish defamatory publication for standing purposes.”

    Although plaintiff established Article III standing, the court found that plaintiff failed to state a claim under the FCRA because she failed to allege that the tradelines issued by defendant contain inaccurate information. Furthermore, the court found that a report, as plaintiff requested, showing $0 monthly payments on the account would be more misleading, because it would purport that plaintiff does not owe a balance to defendant. 

    Courts FCRA New Jersey Litigation Debt Collection Credit Report

  • District Court denies motion to dismiss State Attorneys’ General case against “subprime lender”

    Courts

    On January 12, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion to dismiss a case brought by five State Attorneys General (State AGs) from Pennsylvania, New Jersey, Oregon, Washington, and D.C. seeking to enforce the CFPA. The State AGs allege the defendant engaged in “predatory lending practices” that violate state and federal law. As covered by InfoBytes, in Spring 2022, the CFPB issued an interpretive rule clarifying that states have the authority to enforce federal financial consumer protection laws, such as the CFPA. This interpretive rule led to partisan attacks claiming the CFPB was “colluding” with state regulators, as covered by InfoBytes here.

    The defendant is a state-licensed and regulated “subprime installment lender” operating in 28 states. As noted in the opinion, the defendant offers loans between $1,000 and $25,000, with terms between 12 and 60 months and charges interest at rates ranging from 18.99% to 35.99% with an average APR of 28%, and average loan size of around $3,650.

    In addition to the complaint regarding subprime loans, the State AGs assert that the defendant “deceptively ‘adds-on’” various insurance options to consumers’ loans and targets a financially vulnerable population: those with a credit score of 629 or less who “often already have significant… debt[.]”. The State AGs seek injunctive and other relief. 

    Courts Pennsylvania CFPB CFPA State Attorney General New Jersey Washington Oregon District of Columbia

  • District Court dismisses FDCPA suit; clarifies debt collector communication on identity theft

    Courts

    On December 5, the U.S. District Court of New Jersey dismissed an FDCPA suit brought against a debt collector. According to the opinion, plaintiff originally filed suit because they received a letter from defendant regarding an outstanding cell phone bill. The letter provided instructions on what to do if the recipient suspected identity theft. Additionally, the letter contained a summary of plaintiff’s account and a QR code that linked to defendant’s website for online payment. Plaintiff contended that the dual approach of offering assistance while simultaneously pursuing collection of a debt was false and misleading. A District Court judge, however, disagreed and dismissed the case, at which point the plaintiff filed an amended complaint.

    The amended complaint alleges that the debt collector breached the FDCPA by using false, deceptive or misleading representations regarding the rights of the plaintiff and the obligations of the debt collector with respect to communications concerning identity theft. Specifically, plaintiff argued defendant was in violation of § 1681m(g) of the FDCPA, which obligates a debt collector to take certain steps upon being notified of identity theft, but the court disagreed, finding that the collector’s specific steps taken were in accordance with the Act.

    The court emphasized that plaintiff did not introduce any new factual claims in the amended complaint, and merely clarified how the facts already outlined in the initial complaint breached the FDCPA. The judge ruled that the letter not only allows plaintiff to inform defendant about potential identity theft, but also may serve to bring potential identity theft to plaintiff’s attention. The ruling stated that there is no obligation to extensively explain recommended procedures in the case of an identity theft occurrence, and only an “idiosyncratic reading” of the letter would lead to the conclusion that the letter misrepresents defendant’s obligations.

    Courts Debt Collection FDCPA New Jersey Identity Theft Disclosures

  • Credit reporting agency, collector granted MTD in FCRA and FDCPA case

    Courts

    On October 26, the U.S. District Court for the District of New Jersey dismissed without prejudice a FCRA and FDCPA lawsuit filed against a law firm and credit reporting agency. The plaintiff alleged that the defendants published inaccurate and incomplete information regarding a trade line for debt allegedly owed to a healthcare facility. The plaintiff claimed that the credit reporting agency refused to validate the debt. The judge held that the FDCPA did not apply to the credit reporting agency because it was not a debt collector, and that plaintiff did not provide any facts that the tradeline was inaccurate. The judge also found that plaintiff failed to state a claim under the FDCPA against the law firm because “merely furnish[ing] a trade line to a credit reporting agency does not violate any provision of the FDCPA.” The plaintiff is allowed to move for leave to file an amended complaint within thirty (30) days if a stronger factual basis for the claims is provided.

    Courts Consumer Finance Debt Collection New Jersey Credit Reporting Agency

  • New Jersey says realty company misled consumers about homeowner program

    State Issues

    On June 6, the New Jersey attorney general and the New Jersey Division of Consumer Affairs filed an action against a realty company and its principals (collectively, “defendants”) for allegedly violating the state’s Consumer Fraud Act by making deceptive misrepresentations about its “Homeowner Benefit Program” (HBP). Concurrently, the New Jersey Real Estate Commission in the Department of Banking and Insurance filed an order to show cause alleging similar misconduct and taking action against the real estate licenses belonging to the company and certain related individuals.

    According to the complaint, the defendants’ HBP was marketed to consumers as a low-risk opportunity to obtain quick, upfront cash between $300 and $5000 in exchange for giving defendants the right to act as their real estate agents if they sold their homes in the future. The HBP was not marketed as a loan and consumers were told they were not obligated to repay the defendants or to ever sell their home in the future. However, the press release alleged that the HBP functions as a high-interest mortgage loan giving the defendants the right to list the property for 40 years, and that the loan survives the homeowner’s death and levies a high early termination fee against the homeowners. The complaint further charged the defendants with failing to disclose the true nature of the HBP and failing to present the terms upfront. Moreover, in order to sell the HBP, the defendants allegedly placed unsolicited telephone calls to consumers despite not being licensed as a telemarketer in New Jersey. The complaint seeks an order requiring defendants to discharge all liens against homeowners, pay restitution and disgorgement, and pay civil penalties and attorneys’ fees and costs.

    The order to show cause alleges violations of the state’s Real Estate License Act and requires defendants to show why their real estate licenses should not be suspended or revoked, as well as why fines or other sanctions, such as restitution, should not be imposed. Defendants have agreed to cease any attempt to engage New Jersey consumers in an HBP agreement pending resolution of the order to show cause.

    State Issues Licensing Enforcement New Jersey Consumer Finance Predatory Lending State Attorney General State Regulators

  • 3rd Circuit: Now-invalid default judgment still in effect when debt collection attempts were made

    Courts

    On January 11, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s decision to grant summary judgment in favor of defendants accused of violating the FDCPA when attempting to collect on a judgment that was later vacated. According to the opinion, the plaintiff was sued in state court for an unpaid debt. Contradictory orders were entered by the Superior Court, one which dismissed the action due to one of the defendant’s failure to attend trial, and another that entered default judgment against the plaintiff (which was confirmed two years later by the state court).

    A few years later, an attempt was made to collect on the debt. The plaintiff disputed the debt and later sued, claiming the defendants “knew or should have known” that the debt was unenforceable. The plaintiff later filed a motion in state court to vacate the default judgment and declare it “void ab initio,” which was eventually granted by the state court after it determined that the judgment was erroneously entered by the clerk after the court had already dismissed the case due to the debt collector’s failure to appear for trial. The plaintiff filed a cross-motion for summary judgment in the district court.

    The district court, however, found that the defendants’ alleged efforts to collect the debt were not false or misleading because the now-invalid default judgment at issue was technically still valid and existed when the collection attempts were made. The plaintiff appealed, arguing that the summary judgment violated the Rooker-Feldman doctrine because the district court “‘could not have reached the decision that it did without necessarily supplanting’ the Superior Court’s order vacating the judgment against her.” The plaintiff also argued that the district court erred when it found the Superior Court judgment against the plaintiff to be “in effect . . . until such time as it was vacated, . . . rather than ‘per se not valid’” when the defendants engaged in their efforts to collect the debt.

    On appeal, the 3rd Circuit disagreed with the plaintiff’s assertions. According to the appellate court, the plaintiff satisfied none of the four requirements to trigger the Rooker-Feldman doctrine, adding that regardless of whether the state court declared the judgment “void ab initio,” it was in effect when the defendant attempted to collect on the debt. Moreover, the appellate court noted that the plaintiff “failed to present a triable issue that any communication from Defendants to [the plaintiff] regarding the collection of the default judgment was made unlawful retroactively upon the Superior Court vacating its default judgment order.”

    Courts State Issues Appellate FDCPA Debt Collection Consumer Finance New Jersey

  • New Jersey reaches $27.3 million settlement with merchant cash advance operation

    State Issues

    On January 3, the New Jersey attorney general announced a $27.4 million settlement with a private equity firm, its parent company, and six other associated companies (collectively, “respondents”) to resolve allegations related to violations of the New Jersey Consumer Fraud Act (CFA). According to the press release, the respondents targeted small businesses to enter into lending arrangements disguised as merchant cash advances (MCA) on future receivables. The AG claimed these loans effectively charged interest rates far exceeding the state’s usury caps. According to the attorney general’s press release, the respondents also allegedly engaged in deceptive servicing and collection practices against small businesses.

    Under the terms of the consent order, the respondents are permanently enjoined from engaging in any acts or practices that violate the CFA and any applicable Advertising Regulations. The respondents have also agreed to forgive all outstanding balances for customers who entered MCAs (approximately $21.75 million) and pay $5.625 million to cover restitution, attorneys’ fees, costs of investigation and litigation and costs of administering restitution, and penalties not to exceed $250,000. The press release stated that the respondents will also (i) dismiss any pending debt collection actions against customers who had their balances forgiven as a result of the settlement; (ii) provide current customers with the ability to request modifications to their payment terms based on actual receivables; (iii) “[i]mprove internal business practices, be transparent in any terms of future MCA agreements regarding fees and reconciliation rights, and give notice to customers before taking legal action to collect on purported unpaid balances”; and (iv) ensure that all respondents, principals, and any future business entities that may result from a change in structure comply with the terms of the consent order.

    State Issues Enforcement Usury Consumer Finance State Attorney General Merchant Cash Advance Small Business Lending Interest Rate New Jersey

  • New Jersey settles with car dealerships over consumer protection violations

    State Issues

    On December 15, the New Jersey attorney general announced that the Division of Consumer Affairs has now reached settlements with six car dealerships totaling over $260,000 to resolve alleged consumer protection violations. Among other things, the dealerships allegedly failed to honor the advertised price of used vehicles, charged excessive vehicle preparation fees that were not properly itemized or disclosed, failed to disclose the vehicle’s full sale price, and engaged in deceptive advertising. Under the terms of the most recent settlement (joining five other settlements announced earlier in the year), the dealership is required to pay $180,000, and must stop engaging in any unfair or deceptive acts practices. The dealership must also (i) comply with all applicable state and federal laws, including the Consumer Fraud Act, the Motor Vehicle Advertising Regulations, and the Automotive Sales Practices Regulations; (ii) honor all advertised sale or lease prices; (iii) accurately disclose a vehicle’s sale price; (iv) disclose previous damage and substantial repairs done to used cars when advertising; (v) clearly and conspicuously disclose all disclaimers, qualifiers, or offer limitations in advertisements; and (vi) enter binding arbitration to resolve any pending consumer complaints, as well as any additional complaints received by the Division for a one-year period.

    State Issues Enforcement State Attorney General Consumer Finance Fees Auto Finance New Jersey Deceptive UDAP

  • New Jersey reaches $495 million RMBS settlement with Swiss bank

    Securities

    On October 17, the New Jersey attorney general’s office announced it had reached a $495 million agreement in principle with a Swiss bank to resolve allegations related to its residential mortgage-backed securities (RMBS) practices leading up to the 2008 financial crisis. The AG stated that if finalized, the settlement will be one of the state’s largest civil monetary recoveries in history. According to the AG, the bank violated New Jersey’s securities laws by making material misrepresentations about the risks of the RMBS in offering documents, including by purportedly failing to disclose to investors material defects about the underlying mortgages. The announcement further stated that the bank allegedly sold the RMBS through registration statements, prospectuses, and other offering materials that contained fraudulent representations about the quality of the underlying loans, and allegedly “failed to disclose to investors the wholesale abandonment of underwriting guidelines designed to ensure that the mortgage loans underlying its securities trusts were made in accordance with appropriate lending guidelines; that numerous loan originators had poor track records of defaults and delinquencies; and that some loan originators had even been suspended from doing business with [the bank].” While neither admitting nor denying the allegations, the bank agreed to pay a $100 million civil monetary penalty and will provide approximately $300 million in restitution for affected investors. The bank is also permanently enjoined from future violations of state securities laws.

    Securities State Issues Enforcement New Jersey State Attorney General Settlement RMBS Mortgages Of Interest to Non-US Persons

  • State AGs announce settlement to resolve alleged data security breach

    Privacy, Cyber Risk & Data Security

    On July 26, a coalition of state attorneys general, co-led by the New Jersey AG and Pennsylvania AG, announced a settlement with a Pennsylvania-based convenience store chain related to an alleged data breach that compromised payment cards of consumers. According to the Assurance of Voluntary Compliance, the company experienced a breach of security between April 2019 and December 2019 that exposed consumer payment card data, including customers’ card numbers, expiration dates and cardholder names in New Jersey, Pennsylvania, Florida, Delaware, Maryland, and Virginia, as well as Washington, D.C. The AGs alleged that the company “failed to employ reasonable data security measures,” in violation of the states’ Consumer Protection Acts and Personal Information Protection Acts. Under the terms of the settlement, the company—without admitting to the allegations—has agreed to pay an $8 million fine, of which New Jersey is to receive approximately $2.5 million. The settlement also requires the company to strengthen its network protections and take measures to better protect consumer payment data.

    Privacy, Cyber Risk & Data Security State Attorney General State Issues New Jersey Pennsylvania Data Breach Settlement

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