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Financial Services Law Insights and Observations


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  • Retailer and bank settle credit card servicing suit


    Recently, a large retailer (plaintiff) and a bank (defendant) agreed to settle a credit contract dispute. In April 2023, the retailer filed a complaint in the U.S. District Court of the Southern District of New York against the bank regarding the termination of a contract under which the bank would issue branded credit cards for the retailer. The retailer claimed that the bank did not meet important contract requirements, and invoked its right to terminate. The bank denied the retailer’s termination right, prompting the retailer to seek a judicial declaration of its right to terminate the contract. According to the complaint, the contract required the bank to provide “carefully defined levels of service to [the retailer] and its customers.” The retailer claimed, however, that the bank failed to meet certain requirements, such as including mailing a credit card replacement to customers within five business days.

    Earlier this year, the court granted partial summary judgement in favor of the retailer because the contract terms “clearly dictate that [the bank’s] repeated customer service failures entitled [the retailer] to invoke Termination Right and terminate the parties’ ongoing partnership.”

    In a letter sent to the court, the parties indicated they have agreed to a settlement that will resolve the matter and concurrently filed a stipulation of voluntary dismissal with prejudice as to all claims and counterclaims.

    Courts Credit Cards Settlement Consumer Finance

  • San Francisco Fed sues PPP lender and principals


    On July 11, the San Francisco Fed filed a complaint in the U.S. District Court for the District of Puerto Rico, against a Puerto Rico-based PPP lender and its two principals for allegedly defaulting on the terms of loans. According to the complaint, the lender allegedly failed to comply with the terms of the PPP for some portion of outstanding PPP Loans, totaling approximately $4.3 million. The Fed held a first-priority security interest in certain PPP loans and the collateral that defendant pledged to secure these advances. Following the default, the Fed claimed that defendant fraudulently transferred assets, including the collateral pledged to the Fed, to defendant principals. Such transfers had subsequently left defendant with insufficient capital to meet its obligations to the Fed. As a result, the Fed sought to recover its collateral or other assets to settle the outstanding debts. Specifically, the Fed sought damages for breach of contract, collection of money, conversion, and rescission of fraudulent transfers of various assets for almost $67 million and will request the court to rescind the fraudulent transfers and to grant other declaratory and equitable relief as outlined in the complaint.

    The Fed also filed a motion to intervene in a separate case in which another plaintiff sought to collect against the same PPP collateral.

    Courts Federal Reserve Banks PPP Consumer Finance Breach of Contract

  • District Court hears whether FINRA’s claims must be litigated in the courts


    On July 10, the U.S. District Court for the Eastern District of Pennsylvania received a complaint from a plaintiff suing FINRA for allegedly putting forth disciplinary hearings that took place “in an improper forum, before an arbitrator whose selection was made in blatant violation and disregard of [the individual’s] Seventh Amendment right to a trial before a jury in an Article III court.” The individual countersued after receiving a 2023 FINRA complaint for allegedly violating FINRA Rules 2010, 2111, and 4511, where FINRA initiated in-house proceedings. The plaintiff averred these allegations were assertions of common law fraud and should have been brought before an Article III court. The 2023 FINRA complaint alleged the plaintiff failed to file certain required documents, failed to ensure clients received benefits, and exercised improper discretion.

    In its complaint, plaintiff noted the recent U.S. Supreme Court decision, SEC v. Jarkesy, that the SEC may no longer pursue legal claims through in-house enforcement proceedings (covered by InfoBytes here). The complaint further noted that to receive Seventh Amendment protection pursuant to the Jarkesy holding, a two-part test from Granfinanciera v. Nordberg case must be applied. According to the plaintiff, this case met both the first and second parts of the Granfinanciera test, arguing that the plaintiff should receive the Seventh Amendment right to a jury trial, and as a second cause of action also request a permanent injunction.

    Courts FINRA Pennsylvania Dodd-Frank Securities Exchange Commission

  • SAVE Plan partially blocked by 2 federal judges


    Recently, two district court judges partially blocked President Biden’s student debt relief program, known as the Saving on a Valuable Education (SAVE) plan. The judges from Missouri and Kansas ruled that the program lacks clear authorization from Congress as required under the Higher Education Act. Judge John Ross of Missouri issued a preliminary injunction to prevent the Department of Education from forgiving loans under the program. Similarly, Judge Daniel Crabtree of Kansas prohibited the plan from fully launching on July 1. The judges’ decisions came after state attorneys general filed lawsuits, arguing that the SAVE Plan presents a “major question” of economic and political significance, which demands explicit congressional approval. Despite the government’s claim that the Higher Education Act authorizes the plan, both judges found the arguments insufficiently persuasive to demonstrate clear congressional authorization.

    Courts Federal Issues Biden SAVE Plan Congress Student Loans Higher Education Act

  • 7th Circuit reverses district court, holds ECOA prohibits discouragement of prospective applicants for credit


    On July 11, the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s decision to dismiss the CFPB’s claims that a Chicago-based nonbank mortgage company and its owner violated ECOA by engaging in discriminatory marketing. As previously covered by an Orrick Insight, the CFPB initiated a redlining enforcement action against the company in 2020, alleging defendants discouraged African Americans from applying for mortgage loans from the company and redlined African American neighborhoods in Chicago. Last year, the U.S. District Court for the Northern District of Illinois dismissed the CFPB’s action (covered by InfoBytes here). On appeal, the CFPB argued that its interpretation of ECOA is supported by the historical context of Regulation B and has not been contested by Congress (covered by InfoBytes here).

    The 7th Circuit noted that Congress intended to allow for penalties in cases where prospective applicants are discouraged. Therefore, the court stated that Regulation B's rule against deterring prospective applicants aligns with both the text and the intent of the ECOA. In determining whether Regulation B’s prohibition on the discouragement of prospective applicants is consistent with ECOA, the court reasoned that it “cannot constrain artificially the ECOA to a single provision” and rather, must review it as a whole. Applying this standard, the court held that ECOA prohibits “not only outright discrimination against applicants for credit, but also the discouragement of prospective applicants for credit.” In remanding the case, the 7th Circuit left it to the district court to determine whether the defendants’ alleged conduct was prohibited discouragement under ECOA, in addition to whether defendants’ argument that their allegedly unlawful conduct is protected by the First Amendment’s guarantee of free speech.

    Of note, while the parties’ briefing before the 7th Circuit addressed the then-effective Chevron doctrine, the 7th Circuit noted that its decision treated the ECOA issue as “a question of statutory interpretation subject to our de novo review” and took into account the recent Supreme Court ruling in Loper Bright Enterprises v. Raimondo, No. 22-451, 603 U.S. ___ (2024) overturning Chevron (covered by InfoBytes here).

    Courts Federal Issues CFPB Consumer Finance Redlining Chevron Seventh Circuit ECOA First Amendment Regulation B

  • U.S. Supreme Court overturns Chevron doctrine


    On June 28, the U.S. Supreme Court entered an opinion overturning the Chevron Deference Doctrine, a test used by federal regulators to interpret ambiguous language in existing law in rulemaking and enforcement actions.

    The 6-3 ruling is a result of a combined two cases, Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. U.S. Department of Commerce, that challenged a ruling that leveraged the Chevron Deference Doctrine. The court held that according to the Administrative Procedure Act (APA), courts must “exercise their independent judgment in deciding whether an agency has acted within its statutory authority,” stipulating that courts cannot reference an agency’s interpretation of law they claim is ambiguous. The court decided that “a statutory ambiguity does not necessarily reflect a congressional intent that an agency, as opposed to a court, resolve the resulting interpretive question” and that Chevron’s presumptions were “misguided.” Instead of binding a court, the court held, agencies’ interpretations should provide informative expertise. However, the court emphasized that prior decisions relying on Chevron were unaffected, stating “we do not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful … are still subject to statutory stare decisis despite our change in interpretive methodology

    For a more thorough treatment of this important case, please read our recent Orrick Insight here

    Courts Federal Issues U.S. Supreme Court Chevron Enforcement

  • U.S. Supreme Court delays 6-year deadline to challenge federal regulations


    On July 1, the U.S. Supreme Court entered an opinion delaying a 6-year statute of limitations to legally challenge federal regulations until a plaintiff is injured. In Corner Post Inc., vs. Board of Governors of the Federal Reserve System, 603 U. S. ____ (2024)., the Supreme Court held that the statute of limitations for an Administrative Procedures Act challenge accrues from the date of a plaintiff’s injury, not from the date of final agency action. In general, the APA authorizes parties injured by agency action to obtain judicial review. 5 U.S.C. § 702. In most cases, this review is limited to “final agency action.” 5 U.S.C. § 704. Both elements–injury and final agency action–are necessary, but not sufficient, for an APA claim. In Corner Post, the Court considered whether the absence of one of these elements–injury–prevents the limitations period from starting. The APA’s limitations period is “six years after the right of action first accrues,” the default limitations period for civil actions against the United States. 28 U.S.C. § 2401(a). The Court granted certiorari to resolve a Circuit split over the interpretation of “accrues.” The Eighth Circuit, and others, held that the limitations period accrues from the date of final agency action, regardless of the date of injury. The Sixth Circuit, however, held that the limitations period accrues from the date of injury.

    Corner Post is a North Dakota-based truck stop and convenience store, incorporated in 2017 and opened in 2018. In 2021, it brought an APA challenge under 5 U.S.C. §§ 706(2)(A), (C) to the Federal Reserve Board’s Debit Card Interchange Fees and Routing Rule, Regulation II. Corner Post alleged that Regulation II permitted interchange fees above Dodd-Frank’s threshold: “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” 15 U.S.C. §1693o–2(a)(3)(A). The District Court dismissed the suit as barred by § 2401(a). It held that the six-year limitations period accrued from the date of final agency action–when Regulation II was promulgated, in 2011–not the date Corner Post suffered an injury, in 2018. As such, the limitations period had expired. On appeal, the Eighth Circuit affirmed.

    To identify the original meaning of “accrues,” the Court reviewed the term’s meaning in 1948, when Congress passed § 2401(a). At that time, accrue had a “well-settled meaning”–rights accrue when they “come[ ] into existence.” Corner Post Inc., 603 U.S. at 7 (quoting United States v. Lindsay, 346 U.S. 568, 569 (1954)). Legal dictionaries contemporaneous with § 2401(a)’s passage support this definition. Precedent also supports this reading, referring to this interpretation as the “standard” or “traditional” rule. Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U.S. 409, 418 (2005); TRW Inc. v. Andrews, 534 U.S. 19, 37 (2001) (Scalia, J.). Nothing in § 2401(a)’s text indicates that Congress sought to depart from this traditional rule. As such, the limitations period begins accruing when the plaintiff has a complete and present cause of action, which requires injury. There is no distinction, moreover, between facial and as-applied challenges because § 2401(a)’s text lacks finality-focused language such as “promulgation” or “entry.” In addition, Congress’ passage of statutes with finality-based limitations periods contemporaneous with § 2401(a)’s passage does not defeat the text’s ordinary meaning.

    To complete the analysis, the Court examined the Board’s reliance on Reading Co. v. Koons, 271 U.S. 58 (1926) and Crown Coat Front Co. v. United States, 386 U.S. 503 (1967). Koons considered a Federal Employer’s Liability Act that used “accrued” to describe a limitations period for estate claims that run from the decedent’s death, even though those claims are only available to an estate administrator, who may not be appointed for some period after the decedent’s death. The Court distinguished Koons by noting beneficiaries’ capacity to sue immediately and amend that suit when appointed administrator. Crown Coat applied § 2401(a) to a Government contractor’s claim against the United States. There, the claim did not “mature” until the contractor exhausted all administrative remedies, meaning that § 2401(a)’s limitation period did not begin until the contractor exhausted those administrative remedies. Even if Crown Coat’s dicta supports a more flexible reading of “accrues,” it is not enough to overcome decades of precedent supporting the traditional reading of accrues. In closing, the Court rejected the Board’s policy arguments, finding that later opportunities to challenge agency action will often meet binding (or persuasive) precedent.

    Justice Kavanagh concurred, writing separately to emphasize the APA’s authorization of vacatur for unlawful agency action.  No other Justices joined the concurrence. Justice Jackson, joined by Justice Sotomayor and Justice Kagan, dissented. Justice Jackson worried about gamesmanship. Corner Post’s procedural history shows Corner Post’s addition to the suit only after the Government moved to dismiss under § 2401(a)’s limitations period. Plaintiffs may manufacture injury for a Regulation II challenge by, for example, purchasing a cash-only business and choosing to accept debit cards. In general, however, the dissent proposed a more flexible meaning for “accrues” based on the cause of action at issue. Plaintiff-specific claims would not accrue until injury, but facial administrative-law claims would accrue when a rule is finalized, regardless of injury.

    Courts Federal Issues U.S. Supreme Court Administrative Procedures Act Statute of Limitations

  • 5th Circuit keeps CFPB credit card late fee case in Texas


    Recently, the U.S. Court of Appeals for the Fifth Circuit issued an opinion directing the lower court to vacate a transfer order, and keeping a challenge to the CFPB’s credit card late fee rule in Texas. In its unanimous ruling, a three-judge panel noted the complex series of procedural events, including two changes of venue ordered by the district court. However, during the first venue transfer (covered by InfoBytes here), a different panel issued a writ of mandamus, reversing the transfer decision because the district court lacked jurisdiction over the case at that time. This was due to the fact that an appeal concerning the preliminary injunction motion was already pending before the 5th Circuit (covered by InfoBytes here). Because the 5th Circuit’s decision to issue the writ of mandamus was based on jurisdictional grounds, they did not have a reason to evaluate whether the district court's decision to transfer venue was appropriate under 28 U.S.C. § 1404(a). Now, the court said, they do. The panel found that the transfer order misapplied the controlling standard for transferring cases and “was a clear abuse of discretion.” Therefore, the 5th Circuit dissolved its administrative stay, granted plaintiffs’ petition for a writ of mandamus, and directed the district court to vacate its transfer order.

    Courts Federal Issues CFPB Credit Cards Fees Texas Fifth Circuit

  • Supreme Court holds that defendants are entitled to jury trial if the SEC seeks civil penalties


    On June 27, the U.S. Supreme Court decided SEC v. Jarkesy which held that, pursuant to the Seventh Amendment, when the SEC brings an enforcement action seeking civil penalties, it must do so in federal court, where a jury trial is available, rather than through its own in-house proceedings. When the SEC would adjudicate a matter in-house, however, there were no juries — the Commission (or a delegated member or Administrative Law Judge) presided over the action and acts as the factfinder.

    In the underlying case (covered by InfoBytes here), the SEC initiated an enforcement action and sought, among other remedies, civil penalties. The SEC, as was typical, adjudicated the matter in-house rather than proceed in federal court and imposed a $300,000 civil penalty. The defendant sought review, ultimately raising before the Supreme Court the question of whether the Seventh Amendment entitled a defendant to a jury trial when the SEC seeks civil penalties for securities fraud. The Supreme Court held that it did as the Seventh Amendment guaranteed that “the right of trial by jury shall be preserved” in “suits at common law”; “money damages are the prototypical common law remedy,” and civil penalties — a form of monetary relief — were “a type of remedy at common law that could only be enforced in courts of law.”

    For a deeper look at this important case, please read our recent Orrick Insight here.  

    Courts Federal Issues U.S. Supreme Court SEC ALJ Fifth Circuit Securities Act Securities Exchange Act Securities Exchange Commission Enforcement

  • FINRA issues guidance on broker-dealers using generative AI tools


    On June 27, FINRA issued Regulatory Notice 24-09 that discussed the implications to broker-dealers in their use of artificial intelligence (AI), including large language models (LLMs) and other generative AI tools. Although FINRA stated that while AI offered broker-dealers opportunities to improve their services and enhance their operational and compliance efficiencies, it also reminded firms that its rules and federal securities laws continue to apply. In discussing use cases, FINRA noted that AI tools can analyze financial data, summarize documents, and assist in investor education, but also raise concerns about accuracy, privacy, bias, and security.

    When using these tools, FINRA reminds firms that: (1) they must have appropriate supervisory systems and governance in place, whether those tools are developed in-house or provided by third parties; and (2) they should evaluate AI tools before use to ensure compliance with FINRA rules. FINRA also stated that in some instances, it could issue further guidance for specific use cases. FINRA encouraged firms to seek interpretive guidance where ambiguous rule applications may exist and have ongoing discussions with their Risk Monitoring Analyst.

    Courts Securities Supreme Court ALJ Seventh Amendment


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