Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Fourth Circuit affirms dismissal of FDCPA suit

    Courts

    On October 16, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of an action against a debt collector for allegedly violating the FDCPA and related state statutes when attempting to collect on unpaid debt. The plaintiffs alleged that the defendant’s attempts to collect unpaid homeowners association debt was a violation of the FDCPA’s prohibition on false, deceptive, or misleading representations or unfair or unconscionable means to collect on a debt. According to the opinion, during the process of collecting one plaintiff’s debt, the defendant requested writs of garnishment that sought post-judgment enforcement costs. The plaintiff argued that collecting costs greater than the costs actually assessed in the case violated the FDCPA because it falsely represented the amount due. The district court disagreed, ruling that the defendant abided by Maryland court rules and procedures which allow a judgment creditor to list the original amount of judgment plus any additional court costs, including a writ of garnishment. The district court then considered whether the plaintiff’s claim “that ‘continuing lien clauses,’ which state that the lien covered additional costs that may come due after the lien is recorded, violate the FDCPA.” Here, the district court ruled that the homeowners association’s governing documents authorize continuing liens to cover additional costs that may come due after the lien is recorded, and that the plaintiff was aware that a lien’s amount may change because he signed the documents. Moreover, the district court determined that Maryland law “‘does not expressly permit or prohibit’ continuing lien clauses,” and dismissed the remaining state law claims without prejudice.

    On appeal, the 4th Circuit agreed with the district court that nothing the defendant did constituted a violation of the FDCPA, and concurred that a continuing lien clause does not constitute a violation of the FDCPA. Furthermore, the appellate court held that there is no requirement that the district court remand, as opposed to dismiss, the state law claims as argued in the plaintiffs’ appeal.

    Courts Appellate Fourth Circuit FDCPA

    Share page with AddThis
  • District Court allows NCUA to substitute plaintiff, denies dismissal of breach of contract claim in RMBS action

    Courts

    On October 15, the U.S. District Court for the Southern District of New York held that the NCUA may substitute a new plaintiff to represent the agency’s claims in a residential mortgage-backed securities (RMBS) action against an international bank serving as an RMBS trustee. In the same order, the court dismissed certain tort claims, but allowed claims for breach of contract to move forward against the trustee.

    According to the opinion, NCUA brought the action on behalf of 97 trusts for which the international bank served as the trustee, even though NCUA only had direct interest in eight of the trusts. NCUA argued it had derivative standing to pursue the claims on behalf of the other 89 trusts “on the theory that it had a latent interest in the [the 89 trusts] after they wound down and as ‘an express third-party beneficiary under the [89 trusts] Indenture Agreements.’” The trustee moved to dismiss the action and after hearing oral arguments on the motion, the court stayed the case pending the outcome of NCUA’s appeal regarding derivative standing in similar action before the U.S. Court of Appeals for the Second Circuit. In August 2018, the 2nd Circuit held that NCUA lacked standing to bring the derivative claims because the trusts had granted the right, title, and interest to their assets, including the RMBS trusts, to the Indenture Trustee. (Previously covered by InfoBytes here.) Based on the appellate court decision in the similar action, NCUA moved to file a second amended complaint and substitute a newly appointed trustee as plaintiff for the claims made on behalf of the 89 trusts for which it did not have direct standing.

    Despite the trustee’s objections, the district court granted NCUA’s request, concluding that NCUA’s claims were timely and allowing the NCUA’s “Extender Statute”—which gives the agency the ability to bring contract claims at “the longer of” “the 6-year period beginning on the date the claim accrues” or “the period applicable under State law”—to apply to the new substitute plaintiff. Additionally, the court denied the bank’s motion to dismiss NCUA’s breach of contract claim alleging the trustee had notice of the defects in the mortgage files held in the various trusts. The court concluded that NCUA sufficiently plead that the trustee “did indeed receive notice [of the defective mortgages] and should have thus acted,” under the Pooling and Servicing Agreements.

    Courts RMBS NCUA Appellate Second Circuit Standing Securities

    Share page with AddThis
  • District Court denies MSJ because of ambiguities in bank’s ATM fee contract language

    Courts

    On October 7, the U.S. District Court for the Southern District of California denied a national bank’s motion for partial summary judgment in a class action alleging the bank wrongfully charged ATM fees in violation of the bank’s standardized account agreement. According to the opinion, the plaintiffs filed the action asserting that the bank charges its customers two out-of-network (OON) fees when an account holder conducts a balance inquiry and then obtains a cash withdrawal at an OON ATM. The bank moved for summary judgment on the breach of contract claim, arguing that the terms and conditions of the contract provide for the charge of a fee “for each balance inquiry, cash withdrawal, or funds transfer undertaken at a non-[bank] branded ATM.” After conducting a limited discovery on the breach of contract issue, the district court denied the bank’s motion, concluding there are “ambiguities regarding the contract terms.” Specifically, the court noted that contract documents describe a “Foreign ATM Fee” as “initiated at an ATM other than a [bank] ATM” and that it uses the singular term of “fee” while providing “no further explanation as to what ‘initiated’ means.” According to the court, there is “ambiguity in the term ‘initiate’ that is ‘susceptible to at least two reasonable alternative interpretations.’” Moreover, the court also concluded that certain onscreen warnings about the right to cancel caused “uncertainty and ambiguity” regarding the assessment of fees, and because there are ambiguities regarding the fee terms, the court could not conclude that the plaintiffs failed to prove a breach of contract.

    Courts ATM Fees Class Action

    Share page with AddThis
  • Fifth Circuit affirms dismissal of reverse-false-claims action in benefits payment fraud matter

    Courts

    On October 7, the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of a whistleblower’s reverse-false-claims action because it was barred by the False Claims Act’s (FCA) public-disclosure provision and the alleged scheme was not plead with sufficient detail. The relator, a former fraud investigator for the Department of Veterans Affairs Office of the Inspector General, alleged that the 15 financial institution defendants “avoided their regulatory obligation to return government-benefit payments they received for beneficiaries they knew to be deceased.” According to the relator, the defendants must have known of the beneficiary deaths because the Social Security Administration sends death notification entries to all receiving depository financial institutions. However, the district court determined that defendants provided documents showing the information had already been publicly disclosed and the relator was not the original source of the information (which would have been required to maintain a claim with respect to information that has already been publicly disclosed) because he obtained the information through his employment as a fraud investigator. As such, the court permanently dismissed the complaint on the grounds that the relator relied on public disclosures, and that the complaint failed to plead the allegations with sufficient detail.

    On appeal, the 5th Circuit agreed that the complaint could not survive the FCA’s public disclosure bar, explaining that the public-disclosure bar is met if the following elements apply: (i) the disclosure is public; (ii) the disclosure contains “‘substantially the same allegations’” as in the complaint; and (ii) the relator is not the “‘original source’” of the information. In addition, the appellate court agreed that the complaint lacked sufficient factual matter to satisfy federal rules of civil procedure, and concluded that further amendments would be futile because there are no claims left to amend.

    Courts Whistleblower Appellate Fifth Circuit False Claims Act / FIRREA

    Share page with AddThis
  • District Court rules debt collection attorney can invoke arbitration provision

    Courts

    On October 8, the U.S. District Court for the Northern District of Illinois granted a defendant’s motion to compel arbitration in a putative class action suit alleging that he threatened to charge unauthorized late fees on defaulted consumer debt. The suit claimed that the defendant, who was an attorney hired to collect the debt, violated the FDCPA when he sent a letter attempting to collect on a delinquent account containing the language: “Because of interest, late charges, attorneys fees, if any, and other charges that my vary from day to day, the amount due on the day you pay may be greater.” According to the borrower, the statement was false and misleading because late fees could not accrue on her debt anymore since the debt had already been “fully accelerated” under the provisions of consumer loan agreement signed with the company that owned her consumer loan account. The attorney moved to compel arbitration based on an arbitration provision in the borrower’s loan agreement. While the borrower did not dispute that the arbitration provision was valid, she argued that the attorney does not fall within the provision’s scope. Among other things, the borrower asserted that (i) the attorney was not a party to the loan agreement and, thus, could not invoke its arbitration provision; and (ii) FDCPA claims can only be brought against a debt collector and not against the creditor, and that, because the company (not the attorney) was her creditor, the arbitration provision would not cover her FDCPA claims.

    The court disagreed. “The fact that an FDCPA claim against [the company] would be a clear loser does not mean that the arbitration provision does not cover FDCPA claims—which have been brought, and will continue to be brought, against creditors,” the court stated. “Arbitration provisions cover weak and strong claims alike, so long as the claim falls within the provision’s defined scope.” According to the court, the claims fell comfortably within the provision’s broad agreement to arbitrate “any dispute, claim or controversy” related to a borrower’s account, loan agreement or relationship with the company. Concerning the borrower’s argument that the attorney cannot invoke the arbitration provision because he is not a party to the loan agreement, the court agreed that, “as a general rule, ‘[o]nly signatories to an arbitration agreement can file a motion to compel arbitration.’” However, it ruled that Illinois law allows an exception to the general rule where the signatory’s agent seeks to compel arbitration. Moreover, the court further ruled that the attorney has not waived his right to arbitration by litigating the case for nine months before moving to compel arbitration.

    Courts Debt Collection FDCPA Arbitration

    Share page with AddThis
  • House tells Supreme Court CFPB structure is constitutional

    Courts

    On October 4, the U.S. House of Representatives filed an amicus brief with the U.S. Supreme Court arguing that the CFPB’s structure is constitutional. The brief was filed in response to a petition for writ of certiorari by a law firm, contesting a May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that, among other things, the Bureau’s single-director structure is constitutional (previously covered by InfoBytes here). The House filed its brief after the amicus deadline, but requested its motion to file be granted because it only received notice that the Bureau changed its position on the constitutionality of the CFPB’s structure the day before the filing deadline. As previously covered by InfoBytes, on September 17, the DOJ and the CFPB filed a brief with the Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers; and on the same day, Director Kraninger sent letters (see here and here) to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.) supporting the same argument.

    The brief, which was submitted by the Office of General Counsel for the House, argues that the case “presents an issue of significant important to the House” and, because the Solicitor General “has decided not to defend” Congress’ enactment of the for-cause removal protection through the Dodd-Frank Act, the “House should be allowed to do so.” The brief asserts that the 9th Circuit correctly held that the Bureau’s structure is constitutional based on the D.C. Circuit’s majority in the 2018 en banc decision in PHH v. CFPB (covered by a Buckley Special Alert). Moreover, the brief argues that when an agency is “headed by a single individual, the lines of Executive accountability—and Presidential control—are even more direct than in a multi-member agency,” as the President has the authority to remove the individual should they be failing in their duty. Such a removal will “‘transform the entire CFPB and the execution of the consumer protection laws it enforces.’”

    Courts CFPB Single-Director Structure Dodd-Frank U.S. House U.S. Supreme Court Ninth Circuit Appellate D.C. Circuit Amicus Brief

    Share page with AddThis
  • District Court denies TCPA class certification involving collection calls placed to wrong number

    Courts

    On September 27, the U.S. District Court for the Middle District of Florida denied class certification in an action alleging violations of the TCPA, the Florida Consumer Collection Practices Act, and the FDCPA brought against two companies. The action alleged that defendants used an automated telephone dialing system (autodialer) to call the plaintiff’s cell phone using a “prerecorded voice” while trying to contact a different individual to collect an unpaid debt. The defendants allegedly called the plaintiff’s cell phone number—which was listed as the other individual’s home phone number but had been reassigned to the plaintiff—multiple times even after the plaintiff informed the defendants that they had the wrong phone number. The plaintiff alleged violations of the TCPA, claiming the defendants placed the calls without first obtaining prior express consent.

    Among other arguments, the defendants challenged the proposed class definition, which included more than 9,000 non-customers who allegedly received calls from the defendants and were identified by a code that the plaintiff contended is assigned to calls made to “bad phone” numbers. According to the defendants, the plaintiff’s expert developed a process for “identify[ing] calls where [autodialed] calls and prerecorded messages were made to cell phones after a record documenting an event consistent with a wrong number and/or a request to stop calling.” However, the defendants argued, among other things, that there are many different reasons why a “bad phone” code could be assigned to an account, and that the plaintiff’s assertions do not “satisfy the clearly ascertainable standard,” which must be met for class certification.

    “Indeed, when presented with similar evidence regarding ‘wrong number’ call log designations, this [c]ourt recognized that ‘in the debt collection industry ‘wrong number’ oftentimes does not mean non-consent because many customers tell agents they have reached the wrong number, though the correct number was called, as a way to avoid further debt collection,’” the court stated. “The difficulty in ascertaining this information is compounded by the fact that the phone numbers at issue were initially provided to [the defendants] by consenting customers.”

    Courts Debt Collection TCPA Autodialer Class Action

    Share page with AddThis
  • District Court: New York’s interest on escrow law not preempted by National Bank Act

    Courts

    On September 30, the U.S. District Court for the Eastern District of New York held that the National Bank Act (NBA) does not preempt a New York law requiring interest on mortgage escrow accounts. According to the opinion, plaintiffs brought a pair of putative class actions against a national bank seeking interest on funds deposited into their mortgage escrow accounts, as required by New York General Obligation Law § 5-601. The bank moved to dismiss both complaints, arguing that the NBA preempts the state law. The district court disagreed, concluding that the plaintiffs’ claims for breach of contract can proceed, while dismissing the others. The court concluded there is “clear evidence that Congress intended mortgage escrow accounts, even those administered by national banks, to be subject to some measure of consumer protection regulation.” As for the OCC’s 2004 preemption regulation, the court determined that there is no evidence that “at this time, the agency gave any thought whatsoever to the specific question raised in this case, which is whether the NBA preempts escrow interest laws,” citing to and agreeing with the U.S. Court of Appeals for the Ninth Circuit’s decision in Lusnak v. Bank of America (which held that a national bank must comply with a California law that requires mortgage lenders to pay interest on mortgage escrow accounts, previously covered by InfoBytes here). Lastly, the court applied the preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson, and found that the law does not “significantly interfere” with the banks’ power to administer mortgage escrow accounts, noting that it only “requires the Bank to pay interest on the comparatively small sums” deposited into the accounts and does not “bar the creation of mortgage escrow accounts, or subject them to state visitorial control, or otherwise limit the terms of their use.”

    Courts State Issues National Bank Act Escrow Preemption Ninth Circuit Appellate U.S. Supreme Court Mortgages

    Share page with AddThis
  • Washington Supreme Court: No reliance required under state securities act for RMBS claims

    Courts

    On October 3, the Washington Supreme Court reversed the dismissal of an action against two international banks, concluding that the Securities Act of Washington (the Act) does not require a plaintiff to prove reliance on misleading statements during the purchase of residential mortgage-backed securities (RMBS). According to the opinion, a Seattle Federal Home Loan Bank (FHL Bank) purchased over $900 million in RMBS from two international banks in 2005 and 2007, and in 2009, brought separate actions against the banks for allegedly making untrue or misleading statements in connection with the RMBS in violation of the Act. Specifically, the FHL Bank argued that the banks (i) made false statements concerning the loan-to-value ratios of the mortgage loans pooled in the RMBS; (ii) misrepresented the quality of their underwriting standards; and (iii) made false statements about the occupancy status of the mortgaged properties in the pool. The trial court granted summary judgment in favor of both banks, and the Court of Appeals affirmed, concluding that reasonable reliance on the misleading statements was required under the Act and that the FHL Bank did not rely on the statements from one bank and unreasonably relied on statements of the other. The FHL Bank appealed both decisions.

    The Supreme Court consolidated the actions and disagreed with the appeals court conclusions in both. Specifically, the Court determined that the plain language under the Act is clear and “unambiguously does not require reliance.” The Court emphasized that the refusal to “read reliance into the statue” furthers the Act’s foal of protecting investors, ensuring “that those harmed when a seller misrepresents material facts can recover.”

    In dissent, one state Justice argued that the Court’s opinion undermines nearly “50 years of case law and legislative acquiescence,” noting that federal courts “frequently resolve state securities fraud claims, and they too have consistently treated reliance as an element of our state-law claim.”

    Courts State Issues RMBS Securities

    Share page with AddThis
  • FTC temporarily halts real estate workshops due to deceptive marketing

    Courts

    On October 4, the FTC announced that the U.S. District Court for the District of Utah granted a temporary restraining order against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. According to the complaint, filed by the FTC and the Utah Division of Consumer Protection, the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law, by marketing real estate events with false claims, using celebrity endorsements. The defendants allegedly told consumers they will (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “‘a minimum of three times’” the price of the workshop within six months. The complaint argues that these statements are false or unsubstantiated, and that consumers seeking refunds from the defendants often only received a partial refund on the condition they would not speak to the FTC or other state regulators about the defendants’ products. Among other things, the temporary court order prohibits the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.

    Courts FTC Enforcement FTC Act UDAP Deceptive Marketing

    Share page with AddThis

Pages

Upcoming Events