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Financial Services Law Insights and Observations


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  • District Court addresses plain meaning of “pattern or practice of noncompliance” under RESPA.


    On February 7, the U.S. District Court for the District of Maryland granted in part and denied in part a defendant mortgage company’s motion to dismiss a class action lawsuit alleging RESPA violations related to escrow account management for borrowers. Class action plaintiffs claim that the defendant’s failure to pay their property taxes in a timely manner, resulting in their homes being potentially subject to local tax sale procedures for unpaid taxes, created a “pattern or practice of noncompliance” within the meaning of RESPA.

    In moving to dismiss, defendant argued that alleged violations of servicing obligations that fall under separate subsections of RESPA cannot create a “pattern or practice of noncompliance” for obligations of the section setting for the escrow-handling obligations.  While noting that “case law interpreting RESPA statutory damages claims is still developing,” the court found that the statute does not require identical violations from the same subsection of RESPA to state a “pattern or practice” claim.  The court reasoned that the absence of the word “subsection” from the statute is noteworthy, and it indicates that Congress did not intend to confine “pattern or practice” to a single subsection, and held that the plain meaning of the provision only requires plaintiffs to allege repeated violations of the “[s]ervicing of mortgage loans and administration of escrow accounts” section of RESPA (i.e., all of the obligations set forth in 12 U.S.C. § 2605). The court also rejected defendant’s argument that plaintiffs failed to state a claim because they “cannot rely upon their own allegations or the existence of public complaints and lawsuits which have not resulted in a judgment against it for violations of RESPA,” finding that allegations of servicing violations from multiple named plaintiffs in separate jurisdictions was sufficient to survive a motion to dismiss.

    Separately, the court dismissed allegations that defendant violated RESPA by failing to respond to plaintiffs’ qualified written requests, finding that plaintiffs’ claims of “emotional distress, without more, do[] not establish the causal link necessary to show actual damages,” and that  plaintiffs did not support claims that voluntary postage costs for sending correspondence to defendants could be recognized as economic damages.

    Courts Mortgages RESPA Maryland

  • Plaintiffs seek preliminary approval of $9 million class action settlement involving unsolicited texts


    On February 8, the U.S. District Court for the Western District of Washington received an unopposed motion for preliminary approval of a class action settlement against a broker-dealer alleging that the defendant violated the Washington Commercial Electronic Mail Act (CEMA) and the Washington Consumer Protection Act (CPA) by having consumers send “unsolicited advertising text messages” to other Washingtonians through a referral program. The proposed settlement would establish a $9 million settlement fund that would compensate an estimated one million affected class members, consisting of consumers who received a referral program text message during the relevant period, were Washington residents, and did not “clearly and affirmatively” consent to receive referral program text messages.

    Courts Class Action Settlement Broker-Dealer Washington

  • Supreme Court agrees with Third Circuit that consumers may sue “any” government entity under FCRA


    On February 8, the Supreme Court of the United States unanimously decided that a consumer can sue any government agency—in this case the U.S. Department of Agriculture (USDA)—for damages for violating the Fair Credit Reporting Act of 1970, as amended by the Consumer Credit Reporting Reform Act of 1996 (the Act). The court found that government agencies are expressly included in the definition of any “person” who violates the statute.  On appeal from the 3rd Circuit, the case involved an individual who sued the USDA for monetary damages under FCRA, alleging that the USDA furnished incorrect information to a credit reporting company stating that his account was past due, damaging his credit score and impairing his ability to access affordable credit. 

    In affirming the 3rd Circuit’s reversal of the lower court’s dismissal of the case, the Supreme Court noted that, while the U.S. is “generally immune” from monetary judgment suits as a sovereign body, Congress can waive this immunity. Applying a “clear statement” rule, the Supreme Court interpreted the Act’s statutory language that authorizes consumer suits for money damages against “[a]ny person” who willfully or negligently fails to comply with [the law]” to constitute a clear waiver of federal government sovereign immunity. As the Court explained, “the Act defines the term ‘person’ to include “any . . . governmental . . . agency,” therefore “FCRA clearly waives sovereign immunity in cases like this one.” 

    Courts U.S. Supreme Court FCRA CCRA USDA Sovereign Immunity

  • Third Circuit finds Pennsylvania lending law does not regulate collection of charged-off debt


    On February 7, the U.S. Court of Appeals for the Third Circuit affirmed a lower court’s decision to grant a debt collector’s (the defendant) motion for judgment. The defendant argued that its efforts to collect plaintiff’s charged-off debt via a proof of claim in a bankruptcy proceeding was not limited by, or in violation of, the Pennsylvania Consumer Discount Company Act (CDCA).   The plaintiff, who obtained a loan from a third-party small-dollar lender licensed under the CDCA, defaulted on the loan and the licensed lender subsequently charged off and sold plaintiff’s debt to a company that was not licensed under the CDCA. 

    After filing for bankruptcy, the plaintiff sued the defendant and alleged a FDCPA violation when the defendant filed a proof of claim during the bankruptcy proceeding to collect the outstanding balance on the charged-off loan. The plaintiff’s argument was premised on claims that the defendant could not lawfully collect the debt because the CDCA dictates that a licensee may not sell CDCA-authorized contracts to an unlicensed person or entity. As such, the plaintiff argued the proof of claim violated the FDCPA’s prohibition against “false, deceptive, or misleading” representations in connection with the collection of a debt. The 3rd Circuit disagreed.   

    Relying in part on a letter from the Pennsylvania Department of Banking and Securities confirming that the CDCA does not apply to an unlicensed entity that purchases or attempts to collect on charged-off consumer loan accounts of debtors in bankruptcy, the appellate court held that “[t]he CDCA is a loan statute, not a debt collection statute,” and that “entities in the business of purchasing and collecting charged-off consumer debt are not subject to the CDCA’s regulatory scheme.” The 3rd Circuit held that selling charged-off obligations is not the same as selling the defaulted loan contract. Rather, it is selling unsecured debt, which falls outside of the CDCA’s scope. The court concluded that the CDCA’s prohibitions were inapplicable and could not be the basis for the FDCPA violation.

    Courts Third Circuit Appellate Pennsylvania FDCPA

  • District Court finds “negative emotions” alone do not establish standing under the FDCPA


    Recently, the U.S. District Court for the Eastern District of Missouri granted a debt collector’s motion to dismiss, finding that the plaintiff’s allegations of injury after receiving one letter that violated the FDCPA did not establish standing. The plaintiff sued the debt collector under Sections 1692e and 1692g of the FDCPA, alleging that the defendant (i) made false and misleading representations, and (ii) continued to collect the debt without proper validation by sending the plaintiff a collection letter with the wrong account number and purporting the plaintiff is personally liable for her deceased husband’s medical debt. The plaintiff asserted her injuries because of receiving the letter included expending time and money to mitigate the risk of future financial harm and fear, anxiety, and stress, which “manifested physically in the form of increased heartrate.”

    The court found that the plaintiff did not allege sufficient facts to establish, or for the court to infer, a tangible injury because the plaintiff only stated she lost money without providing additional detail on what that entailed. Additionally, the court relied on the holdings of Courts of Appeals and found that the plaintiff’s alleged emotions of fear, anxiety, and stress alone do not state a cognizable or “particularized, concrete” injury. 

    Courts Debt Collection Standing FDCPA

  • District Court receives proposed settlement agreement of $6.3 million for alleged breach of contract


    On February 6, the U.S. District Court for the Eastern District of Tennessee received the plaintiffs’ unopposed motion for preliminary approval of a class action settlement agreement as part of their lawsuit against a large bank for alleged breach of contract. According to the motion, the class action started when the plaintiffs allegedly sustained damages after the bank’s predecessor breached its contract. The contract in dispute provided consumers a high-interest market investment account that had an interest rate that was “guaranteed [to] never fall below 6.5%”; however, in 2018, the predecessor bank dropped the interest rate on all accounts below the “guaranteed” floor of 6.5 percent, down to 1.05 percent, and then to nearly zero. While the plaintiffs alleged this to be a breach of contract, the bank’s representative allegedly testified they did not have to honor the guaranteed interest rates “because the signature cards (signed by some account holders) allowed FNB to ‘adjust’ the interest rate.”

    One hundred and twenty-one plaintiffs are seeking court approval of their class action settlement. As part of the proposed settlement, plaintiffs want the defendant to pay $6.3 million to settle the class action. Additionally, the named plaintiffs want to receive $10,000 per plaintiff. The court neither granted nor denied the plaintiffs’ motion, but the defendant bank did not oppose the plaintiffs’ motion. A final hearing to consider entry of a final order is outstanding.

    Courts Settlement Agreement Class Action Breach of Contract

  • District Court dismisses FDCPA class action lawsuit for lack of standing on alleged concrete injuries suffered


    On January 31, the U.S. District Court for the Eastern District of New York dismissed an FDCPA class action lawsuit for lack of standing. According to the order, plaintiff alleged numerous violations of the FDCPA related to two debt collection letters sent to the plaintiff and his girlfriend. In September 2023, a debt collector (defendant) reportedly sent two letters to the plaintiff which allegedly did not contain the requisite information mandated by the FDCPA for communication with consumers, including validation and itemization details. One of the letters purportedly demanded payment by September 29, falling within the 30-day validation period. Additionally, plaintiff asserted that one of the letters was addressed to his girlfriend who bore no responsibility for the debt. Plaintiff claimed two concrete injuries: (i) the letters allegedly strained his relationship with his girlfriend, causing emotional distress; and (ii) due to the omission of critical information in the letters, plaintiff felt confused and uncertain about how to effectively respond.  

    In considering the plaintiff’s claims, the court discussed the elements required to state a claim for publicity given to private life and examines a specific case where such a claim was rejected by the court. It highlights that for such a claim to succeed, the matter publicized must be highly offensive to a reasonable person and not of legitimate public concern. Additionally, mere communication of private information to a single person typically does not constitute publicity, unless it has the potential to become public knowledge. Although Congress explicitly prohibits debt collectors from sharing consumer financial information with third parties, the court noted that it “does not automatically transform every arguable invasion of privacy into an actionable, concrete injury.” Therefore, the plaintiff's injury, as pleaded, was deemed insufficiently concrete for standing purposes. Regarding the second alleged injury, the court argued that confusion alone does not suffice as a concrete injury for standing purposes, and courts have determined that mere confusion or frustration does not qualify as an injury. Additionally, the court compared the case to other cases where plaintiffs had alleged confusion yet had also demonstrated further injuries.

    Courts FDCPA Class Action Consumer Finance Litigation Standing Debt Collection

  • Trade associations sue OCC, FDIC, and Federal Reserve on their Proposed Rules for the CRA


    On February 5, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the OCC, Federal Reserve, and FDIC (the Agencies) for their enforcement of the new rulemaking (the Rule) implementing the Community Reinvestment Act of 1977 (CRA). The plaintiffs argued that the Rule creates a “wholesale and unlawful change” to a successful fifty-year-old statute. After listing several problems, the plaintiffs requested the Court to “enjoin, hold unlawful, vacate, and set aside” the Rule; additionally, plaintiffs requested the Court declare that the Rule violates the CRA and the Administrative Procedures Act. 

    As previously covered by InfoBytes, the Rule was approved by the Agencies on October 24, 2023, published in the Federal Register on February 1, 2024, and would take effect on April 1, 2024. The plaintiffs state that the new regulatory rules are “extraordinarily and unnecessarily complex” since they require a “staggering” 649 pages. (An FDIC Vice Chairman was quoted as labeling the rules as “by far the longest rulemaking the FDIC has ever issued.”) In detail, the plaintiffs support their claims by pointing out the Rule creates different performance tests that differ “radically” from the previous regulatory framework, e.g., the Retail Lending Test is a two-part test, and that each of these tests includes “multiple sub-parts and sub-parts of sub-parts” that create complexity in the Rule. Banks will be given two years (until January 1, 2026) to comply with the Rule. Plaintiffs argue that banks must act immediately, citing the OCC’s own words that the estimated compliance costs are over $90 million during the first year. 

    The plaintiffs argue the Rule violates the APA by exceeding the Agencies’ statutory authority by “assessing banks on their responsiveness to credit needs outside of their geographic deposit-taking footprint” (Count I), and by issuing a rule that is arbitrary and capricious by failing to give reasonable notice of the areas and products that will be assessed and the market benchmarks against which performance will be evaluated; failing to conduct an adequate cost benefit analysis; and failing to consider the implications of the Rule (Count II). 

    Courts OCC FDIC Federal Reserve CRA Administrative Procedure Act

  • District Court grants defendant MSJ over cross-motions on a dispute on different debt owed amounts


    On February 2, the U.S. District Court for the Western District of Pennsylvania held that a plaintiff had standing to bring two FDCPA claims, but remanded the plaintiff’s third claim for lack of standing. The Court also granted the defendant’s motion for summary judgement as part of a cross-motion. The plaintiff is an individual suing a debt collection company for allegedly attempting to collect a debt improperly and misrepresenting the amount the plaintiff owed under the FDCPA, 15 U.S.C. § 1692. The District Court was presented with cross-motions for summary judgment filed by both parties, and supplemental briefing on Article III standing. 

    The court first determined that the plaintiff, an individual, had Article III standing in two of three of her FDCPA claims, but that the defendant was entitled to summary judgment on those claims. The Court agreed the plaintiff had Article III standing for the 1692(e) claim that the defendant misrepresented the amount of debt owed when the defendant listed the debt of $22.95 but then attached account statements showing a balance of $271.34. However, the court found that the least sophisticated debtor would understand the collection letter to unambiguously represent that the total amount of debt owed is $22.95. The plaintiff also had standing for her informational injury claim that the defendant violated § 1692g by restarting its collection activity despite having failed to provide information that validated the debt owed of $22.95. However, the court found that the defendant sufficiently validated the debt despite attachments showing a larger balance because “it was not required to show detailed files of the debt, bills, or other evidence.”  Regarding the third claim, on that the defendant violated § 1692f when it sent the debt verification to an email the plaintiff owns (but claims is a secondary email), the Court found the plaintiff did not have standing since the plaintiff had not suffered concrete injury. 

    Courts Debt Collection FDCPA Standing

  • District Court grants MSJ for defendant for not acting as a debt collector


    On January 22, the U.S. District Court for the Northern District of Illinois granted a defendant’s motion for summary judgment in an FDCPA case. According to the order, a hospital that treated plaintiff referred his medical bills to defendant, who services hospitals throughout revenue cycles and acts as an extension of the hospital to service patient accounts. In a letter sent by defendant to plaintiff, defendant stated that the amount was not currently in default but emphasized the importance of hearing from plaintiff. After receiving this first statement from defendant, plaintiff’s attorney contacted defendant explaining plaintiff’s situation, and advised defendant to cease communications. Despite the request, defendant sent a follow-up statement, similar to the first, which plaintiff assumed meant that the debt was in default and required urgent attention. Subsequently, plaintiff paid the outstanding medical debt.

    Plaintiff then filed a lawsuit against defendant, alleging that the statements sent by defendant did not comply with disclosures mandated by the FDCPA. Defendant filed a motion for summary judgment, contending that it is not a debt collector covered by the Act. The defendant further argued that since the FDCPA’s definition of “debt collector” expressly excludes “any person collecting or attempting to collect any debt owed… which was not in default at the time that it was obtained by such person,” defendant was not a debt collector because they never treated the medical debt as in default. Although the FDCPA does not define when a debt is “in default,” the court found that the hospital and defendant never treated the debt as defaulted at the time of assignment, and since it did not acquire a defaulted debt to collect, defendant is therefore not considered a covered debt collector under the FDCPA. The court also found issues with plaintiff’s assertations, concluding that they were not applicable to defendant, as it is not a “debt collector” nor a “collection agency,” and that there was no genuine issue of material fact on the question of whether plaintiff’s debt was “in default” at the time it was assigned. As such, the court granted defendant’s motion for summary judgment as a matter of law, indicating that, based on the reasons provided, defendant is not considered a debt collector under the FDCPA.

    Courts Debt Collection Illinois


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