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Financial Services Law Insights and Observations

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  • Court stays PPP and EIDL borrower disclosure

    Courts

    On November 13, the U.S. District Court for the District of Columbia temporarily stayed the U.S. Small Business Administration's (SBA) mandatory release of the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) borrowers until the court rules on the motion to stay filed by the SBA. As previously covered by InfoBytes, the court ordered the SBA to supplement their July disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020,” concluding that the SBA’s claimed Freedom of Information Act (FOIA) exemptions do not cover the requested information disclosures. The SBA moved to stay the order to “preserve [the] SBA’s right to appeal and to avoid irreparable harm to [the] SBA and to privacy and business confidentiality interests of the millions of individuals and businesses….” The SBA requested the order be stayed until December 7 or pending appeal, if filed by that date. In response, the court issued a minute order, granting a temporary stay until it rules on the motion.

    Courts Covid-19 FOIA SBA

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  • Another district court dismisses PPP agent fee class action

    Courts

    On November 16, the U.S. District Court for the Central District of California issued an order dismissing a putative class action against several large banks over whether agents providing consulting, legal, accounting, and tax preparation services are entitled to “agent fees” from lenders for helping businesses secure loans under the Paycheck Protection Program (PPP). The agents argued that the banks received lender fees from the government and funded PPP loans for borrowers but failed to and refused to pay any agent fees. The court found, however, that the agents failed to allege facts sufficient to establish standing or to “inform any Defendant of its particular role in the alleged general harm,” and instead relied “merely on generalized, conclusory allegations.” While the court gave the agents 21 days to amend their complaint, it noted that “[b]ecause the CARES Act does not provide a private cause of action to recover agent fees absent an agreement between agent and lender, it appears unlikely that Plaintiffs can overcome the [identified] deficiencies.” The court’s decision follows decisions issued by other federal courts, which have also dismissed similar agent fee class actions (see InfoBytes here and here).

    Courts SBA CARES Act Covid-19 Class Action

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  • 9th Circuit affirms dismissal of bank’s quiet-title action against HOA

    Courts

    On November 5, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court judgment, which had dismissed for failure to state a claim a national bank’s quiet-title action against the purchaser of real property at a foreclosure sale, a Nevada homeowners association (HOA), and the HOA’s agent (collectively, “defendants”). According to the opinion, borrowers financed the purchase of a home located within the HOA through the bank, but fell behind on their HOA dues. The HOA recorded a lien on the property for the delinquent assessments, foreclosed on the home to satisfy the lien, and ultimately sold the property at a public auction to a trust, which extinguished the bank’s deed of trust. The bank filed the quiet-title action against the defendants, alleging, among other things, that the foreclosure sale was invalid and that the bank’s “deed of trust continues as a valid encumbrance against the [p]roperty.” In addition, the bank claimed that applying Nevada Revised Statutes section 116.3116 “produces a harsh result” because it prioritizes an HOA lien over “all other liens, including the first deed of trust held by the mortgage lender,” and also violates the Takings Clause and the Due Process Clause of the U.S. Constitution. The bank further argued that the foreclosure sale was not valid because it did not receive adequate notice of the sale. The district court granted the defendants’ motion to dismiss, ruling, among other things, that the HOA had the right to foreclose on the property and that the bank had received adequate notice of the property’s sale.

    On appeal, the 9th Circuit concluded that the bank’s constitutional rights under the Takings Clause—which provides that private property cannot be taken for public use “without just compensation”—were not violated. “Because the enactment of section 116.3116 predated the creation of [the bank’s] lien on the property, [the bank cannot] establish that it suffered an uncompensated taking,” the appellate court wrote, additionally noting that “the foreclosure proceeding itself was not a ‘taking’ because the Takings Clause governs the conduct of the government, not private actors.” With respect to the alleged violation of the Due Process Clause, the appellate court agreed with the district court’s determination that the bank had received adequate, actual notice of the delinquent assessment and the foreclosure sale.

    Courts Appellate Ninth Circuit Foreclosure Mortgages

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  • District court holds no private right of action under E-SIGN Act

    Courts

    On October 26, the U.S. District Court for the District of Colorado denied, in relevant part, an individual’s motion for summary judgement, holding that no private right of action exists under the Electronic Signatures in Global and National Commerce (E-SIGN) Act. The plaintiff had asserted a violation of E-SIGN by an auto-dealership, who allegedly failed to advise the plaintiff of: (i) the right to receive paper copies (rather than electronic copies) of certain records; and (ii) the right to withdraw previously provided consent to receiving records in electronic form.

    In ruling against the plaintiff’s motion, the court noted that where Congress creates specific means for enforcing a statute, a court will assume that Congress did not intend to allow any additional rights of action beyond those specified. When applied to the E-SIGN Act, the court found that no standalone remedy is necessary, as any violation of the E-SIGN Act would be “self-effectuating.” Any failure to “[d]emonstrate the proper consent for electronic service would only expose the party required to deliver the information in writing to whatever sanctions the law requiring written disclosure provides.” Therefore, the court found that “Congress appears to have provided no separate remedial scheme for violation of the E-SIGN Act's consent provisions, as no standalone remedy is necessary.”

    Courts E-SIGN Act E-Signature Private Right of Action

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  • 2nd Circuit: Payment demand in debt collection letter overshadows validation notice

    Courts

    On November 5, the U.S. Court of Appeals for the Second Circuit reversed a district court’s dismissal of an FDCPA action, concluding that warnings in a defendant’s debt collection letter “could have created the misimpression that immediate payment is the consumer’s only means of avoiding a parade of collateral consequences, thereby overshadowing the consumer’s validation rights.” The defendant sent a debt collection letter to the consumer warning that it was instructed to commence litigation in order to collect a debt. The plaintiff was told he could avoid consequences such as paying attorneys’ fees if he made a payment or made suitable payment arrangements. The letter also contained a validation notice, which apprised the plaintiff of his right to dispute the debt within 30 days. The plaintiff filed a complaint alleging the letter violated the FDCPA because it included language that overshadowed the required disclosure of his right to demand that the debt be validated. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to adequately allege an FDCPA violation based on either (i) “the interaction between the letter’s payment demands and its validation notice,” or (ii) the letter’s statement that the plaintiff may be liable for attorneys’ fees in the event of litigation.

    On appeal, the 2nd Circuit disagreed with the district court’s conclusions, holding that the complaint stated an FDCPA violation because, among other things, the letter’s payment demand overshadowed its validation notice. The appellate court found that the complaint also adequately stated an FDCPA violation based on the letter’s statements that the plaintiff “may be liable for attorneys’ fees where no such fees could be recovered.” Furthermore, the appellate court determined that the defendant’s introduction of an unsigned form contract supporting its claim to attorneys’ fees “at most raises a factual dispute about whether [the plaintiff] ever signed a contract providing for attorneys’ fees,” and concluded that this factual dispute should not have been resolved at the motion to dismiss stage.

    Courts Appellate Second Circuit FDCPA Debt Collection

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  • Maryland appeals court reverses dismissal of property inspection fee case

    Courts

    On October 1, the Court of Special Appeals for Maryland reversed in part and affirmed in part a dismissal of an action alleging that a mortgage servicer and Fannie Mae (collectively, “defendants”) violated Maryland state law by charging improper property inspection fees. According to the opinion, after defaulting on her mortgage, a consumer was charged $180 for twelve property inspections ordered by her mortgage servicer. After accepting a loan modification, the property inspection fees were rolled into the balance of the consumer’s loan. The consumer subsequently filed a complaint against the defendants alleging violations of, among other things, (i) Section 12-121 of the Maryland Commercial Law Article, “which prohibits a ‘lender’ from imposing a property inspection fee ‘in connection with a loan secured by residential property’”; (ii) the Maryland Consumer Debt Collection Practices Act (MCDCA), with a derivative claim under the Maryland Consumer Protection Act (MCPA); and (iii) the Maryland Mortgage Fraud Protection Act (MMFPA). The defendants moved to dismiss the action, alleging that they were not “lenders” as defined in Section 12-121. The district court dismissed the action.

    On appeal, the appellate court disagreed with the defendants’ narrow interpretation of “lender” under Section 12-121, finding that such interpretation is “inconsistent with the structure and purpose of the legislation enacting it.” Specifically, the appellate court held that the lower court erred in finding the defendants not liable as a lender under Section 12-121, as it would be “inconsistent with the purpose of Subtitle 12 to allow an assignee of a note or its agents to charge fees that the originating lender cannot.” The appellate court further held that the lower court erred in determining the property inspection fees were waived through the course of the modification and therefore erred in dismissing the MMFPA claim. However the appellate court upheld dismissal of the MDCPA claim and its derivative MCPA claim, rejecting, among other arguments, the consumer’s argument that the filing of a deed of trust qualified as a communication that “purports to be ‘authorized, issued, or approved by a government, governmental agency, or lawyer’” under state law. Lastly, the appellate court affirmed dismissal of the MMFPA claim, concluding the consumer failed to connect elements of the theory, such as intent to defraud, with any alleged facts in the complaint.

    Courts State Issues Consumer Finance Mortgages Loan Modification Appellate

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  • North Carolina Appeals Court: Original creditors’ intent required for assignment of arbitration rights

    Courts

    On November 3, the Court of Appeals of North Carolina issued a pair of orders (see here and here) affirming lower courts’ decisions denying a debt collector’s (defendant) motion to compel arbitration. According to the orders, the defendant purchased charged-off accounts belonging to the plaintiffs and filed individual lawsuits in several state courts seeking to collect on the debt. Default judgments were obtained against the plaintiffs in each of the actions. The plaintiffs filed suit, alleging the defendant violated certain sections of North Carolina’s Consumer Economic Protection Act by “not comply[ing] with certain statutorily enumerated prerequisites to obtain default judgments.” The defendant eventually moved to compel arbitration pursuant to an underlying agreement between the plaintiffs and the original creditor. The lower court denied the motion, ruling that the defendant—“as a nonsignatory to the credit card agreements”—had not shown it was assigned the right to arbitrate claims when it purchased the charged-off accounts. The defendant appealed the decision.

    The Appeals Court considered whether there was a valid arbitration agreement between the plaintiffs and the defendant and agreed with the trial court, holding that “without any showing of the additional intent by the original creditors to assign to [the defendant], at the very least, ‘all of the rights and obligations’ of the original agreements, the right to arbitrate was not assigned in the sale and assignment of the Plaintiffs’ Accounts and Receivables as set forth in the Bills of Sale.” Moreover, the Appeals Court determined that the “trial court correctly concluded [the defendant] has not met its burden of showing a valid arbitration agreement between each Plaintiff and [the defendant] and did not err” by denying the defendant’s motion to compel arbitration.

    Courts State Issues Debt Collection Arbitration Appellate

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  • CFPB and South Carolina settle with loan broker for veteran pension loans

    Courts

    On October 30, the CFPB and the South Carolina Department of Consumer Affairs filed a proposed final judgment in the U.S. District Court for the District of South Carolina to settle an action alleging that two companies and their owner (collectively, “defendants”) violated the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. As previously covered by InfoBytes, in October 2019, the regulators filed an action alleging, among other things, that the majority of credit offers that the defendants broker are for veterans with disability pensions or retirement pensions and that the defendants allegedly marketed the contracts as sale of payments and not credit offers. Moreover, the defendants allegedly failed to disclose the interest rate associated with the offers and failed to disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.

    If approved by the court, the proposed judgment would require the defendants to pay a $500 civil money penalty to the Bureau and a $500 civil money penalty to South Carolina. The proposed judgment would permanently restrain the defendants from, among other things, (i) extending credit, brokering, and servicing loans; (ii) engaging in deposit-taking activities; (iii) collecting consumer-related debt; and (iv) engaging in any other financial services business in the state of South Carolina. Additionally, the proposed judgment would permanently block the defendants from enforcing or collecting on any contracts related to the action and from misrepresenting any material fact or conditions of consumer financial products or services.

    Courts CFPB State Issues CFPA State Regulator Loan Broker Installment Loans Military Lending

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  • Court orders SBA to release more PPP and EIDL information

    Courts

    On November 5, the U.S. District Court for the District of Columbia ordered the U.S. Small Business Administration (SBA) to release the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) borrowers. According to the opinion, national-news organizations filed an action against the SBA seeking disclosure of the loan recipient information, after the rejection of their Freedom of Information Act (FOIA) requests. In July, the SBA released the business information of certain PPP loan recipients (covered by InfoBytes here). For any loan over $150,000, the SBA data release included business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, name of lender, jobs supported, and a loan amount range. For loans under $150,000, the SBA withheld the business names and addresses in the release. Additionally, the SBA did not release the names and addresses of sole proprietorships and independent contractors receiving EIDL loans. The parties filed cross-motions for summary judgment as to the propriety of SBA’s withholdings.

    The court agreed with the plaintiffs, concluding that the SBA’s claimed FOIA exemptions do not cover the requested information disclosures. Specifically, the court determined that SBA’s invocation of Exemption 4 of FOIA, which “shields from disclosure ‘commercial or financial information obtained from a person and privileged or confidential,’” was not applicable because the SBA did not give borrowers the assurance of privacy. In fact, according to the court, the government explicitly told the borrowers that the information would be disclosed in a form disclaimer. The court further rejected the SBA’s claim of Exemption 6 of FOIA, concluding that the “weighty public interest in disclosure easily overcomes the far narrower privacy interest of borrowers who collectively received billions of taxpayer dollars in loans.” Thus, the court ordered the SBA to supplement the earlier disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020.”

    Courts SBA Covid-19 FOIA

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  • Another district court dismisses TCPA action for lack of jurisdiction

    Courts

    On October 29, the U.S. District Court for the Northern District of Ohio dismissed a TCPA action against an energy service company and “ten John Doe corporations” (collectively, defendants), concluding that the court lacked jurisdiction over cases involving unconstitutional laws. According to the opinion, the plaintiff filed the putative class action against the defendants alleging the companies violated the TCPA by placing pre-recorded calls to the plaintiff’s cell phone without consent. While the action was pending, on July 6, the U.S. Supreme Court concluded in Barr v. American Association of Political Consultants Inc. (AAPC) that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is an unconstitutional content-based speech restriction (covered by InfoBytes here). The defendants moved to dismiss the action for lack of subject matter jurisdiction and the court agreed. Specifically, the court agreed with the defendants that the severance of Section 227(b)(1)(A)(iii) must be applied prospectively, thus, the statute can only be applied to robocalls made after July 6 and prior to 2015 (when the now unconstitutional government-debt exception in Section 227(b)(1)(A)(iii) was enacted). Because “the statute at issue was unconstitutional at the time of the alleged violations,” the court concluded it lacked subject-matter jurisdiction over the matter and dismissed the action.

    As previously covered by InfoBytes, the U.S. District Court for the Eastern District of Louisiana was the first known court to dismiss a TCPA action based on lack of jurisdiction over calls occurring after the exception’s enactment but prior to the Supreme Court’s decision on July 6.

    Courts TCPA U.S. Supreme Court Robocalls Class Action Subject Matter Jurisdiction

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