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CFPB appeals ruling vacating mandatory disclosures and 30-day credit linking restriction in Prepaid Accounts Rule
On March 1, the CFPB filed a notice to appeal a December 2020 ruling, in which the U.S. District Court for the District of D.C. vacated two provisions of the Bureau’s Prepaid Account Rule: (i) the short-form disclosure requirement “to the extent it provides mandatory disclosure clauses”; and (ii) the 30-day credit linking restriction. As previously covered by InfoBytes, the court concluded that the Bureau acted outside of its statutory authority by promulgating a short-form disclosure requirement (to the extent it provided for mandatory disclosure clauses). The court noted that it could not “presume—as the Bureau does—that Congress delegated power to the Bureau to issue mandatory disclosure clauses just because Congress did not specifically prohibit them from doing so.” The court further determined that the Bureau also read too much into its general rulemaking authority when it promulgated a mandatory 30-day credit linking restriction under 12 CFR section 1026.61(c)(1)(iii) that limited consumers’ ability to link certain credit cards to their prepaid accounts. The court first determined that neither TILA nor Dodd-Frank vest the Bureau with the authority to promulgate substantive regulations on when consumers can access and use credit linked to prepaid accounts. Second, the court deemed the regulatory provision to be a “substantive regulation banning a consumer’s access to and use of credit” under the disguise of a disclosure, and thus invalid.
On February 26, the U.S. District Court for the Middle District of Pennsylvania granted a student loan servicer’s request for interlocutory appeal as to whether questions concerning the CFPB’s constitutionality stopped the clock on claims that it allegedly misled borrowers. The court’s order pauses a 2017 lawsuit in which the Bureau claimed the servicer violated the CFPA, FCRA, and FDCPA by allegedly creating obstacles for borrower repayment options (covered by InfoBytes here), and grants the servicer’s request to certify a January 13 ruling. As previously covered by InfoBytes, the servicer argued that the Supreme Court’s finding in Seila Law LLC v. CFPB (covered by a Buckley Special Alert—which held that that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the CFPB)—meant that the Bureau “never had constitutional authority to bring this action and that the filing of [the] lawsuit was unauthorized and unlawful.” The servicer also claimed that the statute of limitations governing the CFPB’s claims prior to the decision in Seila had expired, arguing that Director Kathy Kraninger’s July 2020 ratification came too late. The court disagreed, ruling, among other things, that “[n]othing in Seila indicates that the Supreme Court intended that its holding should result in a finding that this lawsuit is void ab initio.”
The court’s order sends the ruling to the 3rd Circuit to review “[w]hether an act of ratification, performed after the statute of limitations has expired, is subject to equitable tolling, so as to permit the valid ratification of the original action which was filed within the statute of limitations but which was filed at a time when the structure of the federal agency was unconstitutional and where the legal determination of the presence of the structural defect came after the expiration of the statute of limitations.” Specifically, the court explained that this particular “question does not appear to have been addressed by any court in the United States. . . .Not only is there a lack of conflicting precedent, there is no supporting precedent; indeed, no party has identified any comparable precedent.” Further, “[i]f this court erred in applying the doctrine of equitable tolling, it would almost certainly lead to a reversal on appeal and dismissal of this action,” the court noted.
5th Circuit: Conveying information about a debt collector is different from conveying information about a debt
On February 26, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s dismissal of a consumer’s FDCPA claims against a collection agency, concluding that “conveying information about a debt collector is not the same as conveying information about a debt.” According to the opinion, the collection agency (defendant) attempted to contact the plaintiff via telephone concerning an unpaid debt. When the plaintiff failed to answer the call, the defendant contacted the plaintiff’s sister and asked to speak to the plaintiff. During the call, a representative working for the defendant provided her own name and that of the collection agency, and provided her number so the plaintiff could return the call. The plaintiff filed suit, alleging the defendant violated FDCPA § 1692c(b) when the representative left a message with the plaintiff’s sister and asked her to have the plaintiff contact the defendant. Under § 1692c(b), a debt collector “‘may not communicate, in connection with the collection of any debt, with any person other than the consumer’ or certain other prescribed parties to the debt ‘without the prior consent of the consumer.’” An exception is provided under § 1692b for a debt collector who communicates with a third party to acquire location information about the consumer. The district court granted the defendant’s motion to dismiss, which the plaintiff appealed, arguing that the defendant’s conduct “went beyond the scope of a permissible call for the purposes of obtaining location information.”
On appeal, the 5th Circuit first reviewed whether the call violated Section 1692c(b). The appellate court noted that it was first called to address the “threshold issue” as to “whether the alleged conversation qualifies as a ‘communication’” as defined by the FDCPA. Under § 1692a(2), a “communication” refers to “the conveying of information regarding a debt directly or indirectly to any person through any medium.” In this instance, the appellate court wrote, there was nothing in the call between the defendant and the plaintiff’s sister that conveyed information regarding the existence of a debt. “[T]o indirectly convey information regarding a debt, a conversation or message would need to, at the very least, imply that a debt existed. Knowing the name of a debt collector does not imply the existence of a debt.” The 5th Circuit further concluded, among other things, that “[e]ven if the average consumer recognized the company’s name and identified it as a debt collector, receiving a phone call from a debt collector does not suggest any information about an underlying debt.” As such, the 5th Circuit determined the plaintiff failed to adequately plead facts suggesting a plausible violation of the FDCPA.
On February 25, the U.S. District Court for the Northern District of New York approved a roughly $9.7 million class action settlement resolving claims that a New York credit union improperly assessed banking fees, including overdraft fees, when members had sufficient funds in their checking accounts to pay for the transactions presented for payment. The plaintiffs also alleged, among other things, that the credit union (i) improperly charged fees on a variety of transactions for members who did not opt-in to the credit union’s protection programs; (ii) assessed fees in instances where there was no contractual basis to assess the fees; (iii) transferred money from members’ savings accounts into checking accounts to avoid negative balances and resulting fees, but still imposed the fee; and (iv) violated the terms of its contracts and various laws by imposing non-sufficient funds fees more than once on the same transaction. The settlement requires the credit union to pay approximately $5.85 million into a settlement fund, plus nearly $2.53 million in attorneys’ fees, $168,030 in costs, and $15,000 service awards to each of the three named plaintiffs. The settlement amount also includes the value of the policy changes to be made by the credit union.
On February 25, the U.S. District Court for the District of Maryland granted a motion for entry of monetary remedy filed by the CFPB and the Consumer Protection Division of the Maryland Attorney General’s Office (collectively, “Regulators”) in an action concerning the disgorgement calculation for a banker found in contempt of a 2015 consent order. As previously covered by InfoBytes, in 2020, the U.S. Court of Appeals for the Fourth Circuit found that while the district court properly determined that the banker violated the terms of the consent order (which previously settled RESPA and state law mortgage-kickback allegations), the court relied on an overbroad interpretation of the consent order and lacked the causal connection between the banker’s profits and a violation when it ordered the banker to pay over $526,000 in disgorged income. The 4th Circuit vacated the disgorgement order and remanded the case to the court to reassess the disgorgement calculation based on the banker’s more limited conduct that did not comply with the order.
On remand, the court reduced the sanctions amount to approximately $270,000, which represents the banker’s earned income (after taxes) “during the period in which he defied the three express provisions of the Consent Order.” Noting that the 4th Circuit rejected the banker’s argument that the Regulators were required to prove a specific monetary harm arising from his violations, the court wrote that in instances “[w]here harm is difficult to calculate, ‘a court is wholly justified in requiring the party in contempt to disgorge any profits it may have received that resulted in whole or in part from the contemptuous conduct,’” particularly where the party engaged in a “pattern or practice” of such conduct.
On February 25, the U.S. District Court for the District of Kansas granted in part and denied in part a plaintiff’s motion for summary judgment in an action concerning whether a state statute that bans credit card surcharges violates the First Amendment. Kansas law prohibits merchants from imposing a surcharge on customers who pay with credit cards instead of cash, and allows merchants to offer discounts to consumers who pay with cash. The plaintiff, a payment processing technology company, provides “software that allows merchants to display prices, including cost surcharges on purchases made by credit card,” which “allows consumers to comparison shop among payment types.” The plaintiff challenged the constitutionality of the law, claiming it is an unconstitutional restriction on commercial speech since it “effectively limits” what the plaintiff and merchants “can treat as the ‘regular price’ of an item and the corresponding information about prices and credit card fees that can be conveyed to consumers.” The Kansas attorney general—who has the authority to enforce the state’s no-surcharge statute—countered, among other things, that the statute furthers substantial state interests by (i) encouraging merchants to charge lower prices to customers who pay with cash; (ii) lowering the amount of consumer credit card debt through the use of cash discounts; and (iii) providing benefits to merchants by encouraging cash purchases, thereby allowing them to receive immediate payments, avoid credit card fees, and incur lower costs.
The court disagreed, ruling that none of the AG’s arguments advanced a substantial state interest—a requirement in order to not be considered a violation of the First Amendment. “Plaintiff's desire to display a single price while informing customers that credit card purchasers will be charged an additional fee would logically tend to support whatever interest the state may have in encouraging lower prices for cash customers,” the court wrote. “The statute nevertheless effectively prohibits this type of disclosure. Clearly, this restriction on speech is more extensive than necessary to further the asserted state interest.” Moreover, the court noted that “‘surcharges and discounts are nothing more than two sides of the same coin; a surcharge is simply a ‘negative’ discount, and a discount is a ‘negative’ surcharge.”
On February 25, the U.S. District Court for the Northern District of West Virginia ruled that a satellite TV company cannot avoid class claims that it made unwanted calls to stored numbers using an automatic telephone dialing system (autodialer). The company filed a motion to dismiss plaintiff’s claims that it violated Section 227 of the TCPA when it made illegal automated and prerecorded telemarketing calls to her cellphone using an autodialer. The company argued, among other things, that the “statutory definition of an [autodialer] covers only equipment that can generate numbers randomly or sequentially,” and that “nothing in the complaint plausibly alleges that any of the calls were sent using that type of equipment.” According to the company, list-based dialing cannot be subject to liability under the TCPA. The court disagreed, stating that the TCPA makes it clear that it covers autodialers using stored lists. The court referenced a 6th Circuit decision in Allan v. Pennsylvania Higher Education Assistance Agency, which determined that “the plain text of [§ 227], read in its entirety, makes clear that devices that dial from a stored list of numbers are subject to the autodialer ban.” (Covered by InfoBytes here.) The court also referenced decisions issued by the 2nd, 6th, and 9th Circuits, which all said that the TCPA’s definition of an autodialer includes “autodialers which dial from a stored list of numbers.” However, these appellate decisions conflict with holdings issued by the 3rd, 7th, and 11th Circuits, which have concluded that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of autodialer in ACA International v. FCC (covered by a Buckley Special Alert). Currently, the specific definition of an autodialer is a question pending before the U.S. Supreme Court in Duguid v. Facebook, Inc. (covered by InfoBytes here). The court further ruled that three out-of-state consumers should be removed from the case as they failed to meet the threshold for personal jurisdiction, and also reiterated that the case could not be arbitrated as the company’s arbitration clause was “unconscionable.”
On February 26, the U.S. District Court for the Northern District of California granted final approval of a $650 million biometric privacy settlement between a global social media company and a class of Illinois users. The settlement resolves consolidated class action claims that the social media company violated the Illinois Biometric Information Privacy Act (BIPA) by allegedly developing a face template that used facial-recognition technology without users’ consent. A lesser $550 million settlement deal filed in May (covered by InfoBytes here), was rejected by the court in August due to “concerns about an unduly steep discount on statutory damages under the BIPA, a conduct remedy that did not appear to require any meaningful changes by [the social media company], over-broad releases by the class, and the sufficiency of notice to class members.” (See InfoBytes coverage here.) The final settlement requires the social media company to pay $650 million in a settlement fund, plus $97.5 million for attorneys’ fees and expenses and $5,000 service awards to each of the three named plaintiffs. The social media company is also required to provide nonmonetary injunctive relief by setting all default face recognition user settings to “off” and by deleting all existing and stored face templates for class members unless class members provide their express consent after receiving a separate disclosure on how the face template will be used. Face templates for class members who have not had any activity on the social media platform will also be deleted. The court called the settlement a “landmark result,” noting it is one of the largest settlements ever for a privacy violation, and will provide each claimant at least $345.
On February 25, the U.S. District Court for the Eastern District of Texas granted plaintiffs’ motion for summary judgment, ruling that decisions to enact eviction moratoriums rest with the states and that the federal government’s Article I power under the U.S. Constitution to regulate interstate commerce and enact necessary and proper laws to that end “does not include the power” to order all evictions be stopped during the Covid-19 pandemic. The Centers for Disease Control and Prevention (CDC) issued an eviction moratorium order last September (set to expire March 31), which “generally makes it a crime for a landlord or property owner to evict a ‘covered person’ from a residence” provided certain criteria are met. The CDC’s order grants the DOJ authority to initiate criminal proceedings and allows the imposition of fines up to $500,000. The plaintiffs—owners/managers of residential properties located in Texas—argued that the federal government does not have the authority under Article I to order property owners to not evict specified tenants, and that the decision as to whether an eviction moratorium should be enacted resides with the given state. The CDC countered that Article I afforded it the power to enact a nationwide moratorium, and argued, among other things, that “evictions covered by the CDC order may be rationally viewed as substantially affecting interstate commerce because 15% of changes in residence each year are between States.”
However, the court disagreed stating that the CDC’s “statistic does not readily bear on the effects of the eviction moratorium” at issue, and that moreover, “[i]f statistics like that were enough, Congress could also justify national marriage and divorce laws, as similar incidental effects on interstate commerce exist in that field.” The court determined that the CDC’s eviction moratorium exceeds Congress’ powers under the Commerce Clause and the Necessary and Proper Clause. “The federal government cannot say that it has ever before invoked its power over interstate commerce to impose a residential eviction moratorium,” the court wrote. “It did not do so during the deadly Spanish Flu pandemic. . . .Nor did it invoke such a power during the exigencies of the Great Depression.  The federal government has not claimed such a power at any point during our Nation’s history until last year.”
The DOJ issued a statement on February 27 announcing its decision to appeal the court’s decision, citing that the court’s order “‘does not extend beyond the particular plaintiffs in that case, and it does not prohibit the application of the CDC’s eviction moratorium to other parties. For other landlords who rent to covered persons, the CDC’s eviction moratorium remains in effect.’”
On February 22, the U.S. District Court for the District of South Carolina granted the CFPB’s motion for default judgment and appointment of receiver in an action alleging defendants violated the CFPA and TILA by falsely representing that their lump-sum pension advances were not loans and that they carried no applicable interest rate. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2018 claiming that consumers were actually required to pay back advances with interest and were charged various fees for the product. The Bureau also alleged, among other things, that the defendants failed to provide customers with TILA closed-end-credit disclosures, and provided income streams from the advance payments as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates.
In its decision, the court upheld a magistrate judge’s report and recommendations, which concluded that the Bureau’s complaint sufficiently stated “a deception claim” under the CFPA, as well as violations of TILA and Regulation Z by the corporate defendants. The magistrate judge recommended that the court grant the Bureau “a permanent injunction to prevent future violations of the law,” redress and a civil money penalty awarded jointly and severally against the defendants, and appointment of a receiver. The court overruled various objections raised by the individual defendant’, including for failure to timely raise the objection before the magistrate judge, and because certain claims were without merit. Ultimately, the court granted the Bureau a default judgment against the defendants and adopted the report and recommendations of the magistrate judge for injunctive relief, consumer redress, a civil money penalty, and the appointment of a receiver.
- Daniel R. Alonso to discuss "How to become an AUSA" at the New York City Bar Association Minorities in the Courts Committee “How To” series
- Michelle L. Rogers and Kathryn L. Ryan to discuss “Fintech U.S. expansion” at the Tech Nation 3.0 cohort meeting
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Jonice Gray Tucker to discuss "Compliance under Biden" at the WSJ Risk & Compliance Forum