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  • Bank regulators respond to bankers’ motion to enjoin CRA final rule

    Courts

    On March 8, the Fed, OCC, and FDIC (the federal banking agencies, or “FBAs”) submitted a brief opposing the plaintiffs’ motion for a preliminary injunction to stop the CRA final rule from going into effect. As previously covered by InfoBytes, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the bank regulators’ enforcement of the final rule to implement the CRA before it goes into effect on April 1. The FBAs assert that, in opposing the final rule, the plaintiffs are asking the court to “graft” two exclusions from the CRA’s purpose that are not actually in the statute: first, to exclude geographic areas where a bank conducts retail lending from the scope of the bank’s “entire community”; and second, to exclude a bank’s deposit activities from the assessment on whether a bank is meeting its entire community’s “credit needs.” The banking regulators also argued that the plaintiffs’ motion for preliminary relief should fail because the plaintiffs cannot show irreparable harm, in that they have failed to demonstrate that costs to comply with the CRA final rule, which would not apply until 2026 and 2027, were significant when considered in the context of the bank’s overall finances. Finally, the FBAs argued that the public interest and balance of equities favor allowing the final rule to proceed, as, among other factors, “the rule provides significant regulatory relief and lower compliance costs for smaller institutions by increasing the asset size thresholds that determine which performance tests apply to an institution.” 

    Courts Bank Regulatory CRA OCC FDIC Federal Reserve Agency Rule-Making & Guidance Litigation

  • Banking associations petition District Court for summary judgment against CFPB’s Final Rule on small business lending

    Courts

    On March 1, several banking associations (plaintiffs) petitioned a district court under a motion for summary judgment in an ongoing case against CFPB’s Final Rule in §1071, claiming that the Final Rule goes beyond the scope of the CFPB’s rulemaking authority. (For rule, see 88 Fed. Reg. 35150 from May 31, 2023). As previously covered by InfoBytes, the Court last ordered granting motions for a preliminary injunction against the CFPB and its small business loan rule. The rule expanded the number of data points to 81 so certain lenders––including women-owned, minority-owned, and small businesses––would be required to disclose to covered financial institutions. The plaintiffs argued that the Final Rule would be a “fruitless attempt to capture the complexity of small business lending” given the number of extraneous data fields and would not fulfill the underlying purpose of the rule set forth by ECOA. That purpose would be to “facilitate enforcement of fair lending laws and enable communities, government entities, and creditors to identify business and community development needs and opportunities for credit for women-owned, minority-owned, and small businesses.”

    In their argument, the banking associations alleged that the CFPB had exceeded its statutory authority by requiring the extra data disclosures, that the data would not provide any tangible benefit, and that implementation of the rule is arbitrary and capricious as it ignores the significant costs that will be incurred by requiring lenders to provide such a large amount of extra information. The plaintiffs emphasized that while Congress granted the CFPB the power to add data points to information a lender might be expected to disclose, the CFPB exceeded its authority in adopting the Final Rule and that its only consequence “will be the imposition of a staggering compliance burden on lenders” and ultimately reduce opportunities for small businesses.

    Courts CFPB Small Business Section 1071 ECOA Congress

  • HUD sued for allegedly failing to refund mortgage insurance premiums for early-terminated FHA-insured mortgages

    Courts

    On March 12, a putative class action complaint was filed against the Department of Housing and Urban Development (HUD) for allegedly denying homeowners their Mortgage Insurance Premium (MIP) refunds upon the early termination of their FHA-insured mortgages. According to the complaint, HUD must refund unearned MIPs, but has refused to refund homeowners by creating “unnecessary bureaucratic hurdles.” The plaintiffs alleged that the OIG had confirmed “the validity of complaints regarding HUD’s handling of MIP refunds.”

    Citing HUD regulations, the plaintiffs alleged that when an FHA mortgage is terminated early, within seven years of the purchase of the refinancing of the property, there is an overpayment of the MIP which should be refunded by HUD. According to the plaintiffs it is a “widespread practice” for HUD not to automatically refund MIPs, but instead require a burdensome, lengthy process which hindered the prompt refund of fees in multiple ways. The 2022 OIG report cited by plaintiffs allegedly found, among other things, that HUD did not have adequate controls in place to ensure that refunds were appropriately tracked, monitored, and issued. The plaintiffs alleged that Floridians are owed over $21.7 million in refunds.

    The plaintiffs are seeking injunctive and declaratory relief and a return of all unfairly retained refunds “together with damages in the amount of the total earned interest and other investment monies accrued by Defendant with Plaintiff’s and Class Members’ monies.” 

    Courts Federal Issues HUD Class Action OIG FHA

  • District Court sides with bank in class-action suit against foreign currency swap overcharges

    Courts

    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.

    Courts Virginia Standing Consumer Protection Data Breach

  • Alabama judge finds the Corporate Transparency Act unconstitutional, DOJ quickly appeals

    Courts

    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.

    Courts Alabama Corporate Transparency Act Constitution Congress FinCEN Department of Treasury

  • State Supreme Court vacates and remands TILA dispute

    Courts

    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.”

     

    Courts TILA Maine Consumer Finance Real Estate Lending

  • Business groups sue the CFPB over credit card late fee rule

    Courts

    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.

    Courts Federal Issues CFPB Litigation Credit Cards Agency Rule-Making & Guidance Fees Consumer Finance Consumer Protection

  • Department of Energy discontinues crypto mining survey following a settlement agreement

    Fintech

    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. 

    Fintech Department of Energy Cryptocurrency Digital Assets Settlement Courts Bitcoin

  • 7th Circuit says plaintiffs should have produced evidence to prove concrete injury

    Courts

    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. 

    Courts Appellate Debt Collection FDCPA

  • Pennsylvania Attorney General settles with data collection company for failing to disclose data use

    Courts

    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[.]”

    Courts Pennsylvania State Attorney General Data Collection / Aggregation Telemarketing

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