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Court approves final settlement in class action against credit union alleging discriminatory loan denial based on DACA status
On August 15, the U.S. District Court for the Northern District of California, issued a final order approving settlement of a loan discrimination class action against a credit union, entering final judgment and ordering dismissal pursuant to the settlement. In this case, the plaintiff claimed that she and other class members experienced discrimination on the basis of immigration status after attempting to finance the purchase of her vehicle with the defendant credit union. According to the complaint, the plaintiff’s auto loan application was denied after disclosing her status as a DACA recipient to a representative of the defendant. The plaintiff alleged that the representative communicated that the defendant does “not lend on DACA status.” In a previous motion to dismiss, the credit union had argued the ECOA and Regulation B allow creditors to consider immigration and residency status in creditworthiness and repayment analyses. The District Court, however, disagreed with the defendant, denying the motion to dismiss, and holding that “Regulation B does not allow a creditor to decline credit solely on the basis of residency or immigration status.”
The approved settlement established an $86,750 settlement fund to be distributed to the 95 members of two settlement classes (a California class and a national class). The settlement provided that each California class member will receive $2,500 from the settlement fund, while other national class members will receive $250 each. The approved settlement will also require the credit union to implement corrective action to ensure that it does not deny consumer credit applications based solely on immigration status.
Suit against FDIC argues the agency is “unconstitutional” and violates Jarkesy
Recently, the U.S. District Court for the District of Columbia received a complaint from an individual plaintiff suing the FDIC, its heads, board members and an administrative law judge (ALJ) for allegedly subjecting the plaintiff to an “endless and unlawful administrative process.” The lawsuit comes in the backdrop of a prior FDIC enforcement action in which plaintiff was named as a respondent and listed as an institution-affiliated party, despite the plaintiff claiming he was not a “director, shareholder, member, or employee” of the bank. Under this action, the FDIC required the plaintiff to pay $74,000 as part of a larger assessment of civil money penalties.
As covered previously by InfoBytes, the U.S. Supreme Court held in SEC v. Jarkesy that if an executive agency issues an enforcement action in-house (and not through a court) and involves civil money penalties, then the defendants would be entitled to a jury trial, and the case’s venue must be in a federal Article III court.
The plaintiff argued in this case that the FDIC’s enforcement action was unconstitutional because of the following: (i) the FDIC’s board is unconstitutional since the President cannot remove a majority of its board members except for good cause, violating the ruling in Seila Law LLC v. CFPB (covered by an Orrick Insight here); (ii) the FDIC’s ALJs are unconstitutionally shielded from removal due to their “double for-cause” removal protections; and (iii) the enforcement proceeding violated the Seventh Amendment by depriving the plaintiff of his right to a jury trial and his due process rights. Among other relief, the plaintiff prayed the court enjoin the FDIC from continuing proceedings against him.
CFPB granted default judgment against auto loan servicer
On August 28, the U.S. District Court for the Northern District of Georgia entered an order and opinion granting the CFPB a default judgment in a case against an auto loan servicer (the defendant).
The CFPB alleged the defendant engaged in several unfair and deceptive practices in violation of the CFPA, including wrongful activation of starter-interruption devices (SIDs), mishandling Guaranteed Asset Protection (GAP) premiums, double billing for collateral-protection insurance, misapplying consumer payments, and wrongful repossessions. The defendant filed for Chapter 7 bankruptcy not long after the CFPB filed its complaint, and the courts merged this case with other affiliated debtors. Although the defendant requested a stay pending its bankruptcy filing, the court found that the CFPB’s enforcement action fell under the “police power” exception from the automatic stay, allowing the case to proceed. The court also granted the CFPB’s motion for default judgment regarding liability, finding that the defendant’s practices “caused substantial injury to consumers, which was not reasonably avoidable.” The court agreed to issue injunctive relief to prevent future violations of the CFPA, which was requested by the CFPB.
The CFPB sought restitution for unearned GAP premiums, damages for wrongful SID activations and repossessions, and a civil monetary penalty. The court, however, found the CFPB’s damage estimates flawed and directed the CFPB to supplement its calculations with more expert evidence. On timing, the court directed the Bureau to provide additional evidence within 35 days to support its damages claims. The court granted the motion regarding liability and injunctive relief, and it will require additional information concerning damages.
Bank associations sue Illinois to prevent interchange fee act from effecting
On August 15, several banking and credit union associations sued the Illinois Attorney General to prevent the state from implementing the Illinois Interchange Fee Prohibition Act (the “Act”). As covered by InfoBytes, the Governor of Illinois signed the Act into law on June 7 and it will take effect on July 1, 2025. The Act will ban credit card issuers and networks from charging or receiving “interchange fees” on the tax or gratuity of a transaction.
Under current payment card systems, a merchant’s bank (the acquiring bank or acquirer) pays the consumer’s bank (the issuing bank or issuer) an interchange fee on the full amount of the transaction (including taxes and gratuity). Because the Act will prohibit interchange fees applied to taxes and gratuity, merchants would be required to either disaggregate taxes and gratuity from the total charge or submit a report of these totals to the acquirer.
Plaintiffs contended these changes to the payment card infrastructure would be too burdensome and that implementing them by the effective date “would likely be impossible” and that it would hinder routine bank processes such as fraud detection and anti-money laundering compliance. They claim the Act violates multiple federal statutes, including the National Bank Act and the Federal Credit Union Act, and cannot be enforced against national or state-chartered banks, savings institutions or credit unions. In their prayer for relief, the plaintiffs asked the court to declare the Act preempted, unconstitutional and invalid, and are seeking a preliminary injunction to halt the law’s implementation while the court reviews the case, emphasizing the potential chaos and confusion it could cause for consumers and businesses.
CFPB files reply to transfer its credit card late fee litigation from Texas to D.C.
On August 19, the CFPB filed a reply brief in support of its efforts to transfer litigation involving credit card late fees from the U.S. District Court for the Northern District of Texas (located in Fort Worth) to the U.S. District Court for the District of Columbia (D.D.C.). The case involves challenges brought by plaintiff banking associations and business groups regarding the CFPB’s final rule on credit card late fees finalized in March. This is the latest motion by the CFPB seeking to transfer this case. While the district court judge previously granted the Bureau’s prior motions to transfer, the Fifth Circuit reversed those rulings.
As previously covered by InfoBytes, the CFPB has argued that the only plaintiff located in Texas, a Fort Worth based business group, should be dismissed for lack of standing since the plaintiffs failed to establish that the Fort Worth organization’s interests were “germane to the organization’s purpose” of promoting the business climate in Fort Worth. Based on this lack of standing, the CFPB argued the court should dismiss the plaintiff entirely and transfer the case to the D.D.C.
The plaintiffs argued the CFPB’s arguments (relating to associational standing) were unsupported. The plaintiffs also asserted the litigation is germane to its organizational purpose germaneness requirement because the rule in question affects the Fort Worth economy and the credit card market, which are central to the plaintiff associations’ mission.
In its reply brief, the CFPB argued four points. First, that the Fort Worth member still has not established that its interests are germane to its Fort Worth specific organizational mission. Second, that the plaintiffs assert unfounded “hyperbolic objections” that granting the CFPB’s motion would upend settled law around associational standing. Third, the plaintiff’s theory of transactional venue would undermine statutory venue limits which require suits against the federal government to be brought in a venue where a substantial part of events giving rise to the claim occurred. And fourth, that the court should reject the plaintiffs’ invitation to dismiss the case altogether if it finds that the Fort Worth entity lacks standing and instead simply transfer the case to the D.D.C to “avoid chaos.”
Banking associations aver Fort Worth is the proper venue against CFPB
On August 12, several banking associations (plaintiffs) filed an opposition to the CFPB’s motion to dismiss in its ongoing litigation over the proper venue for the CFPB’s credit card late fee final rule (the Rule). The Bureau argued that the lone plaintiff located in Texas did not have associational standing, and therefore the matter should be heard in the U.S. District Court for D.C. while plaintiffs argued that the matter should remain in the U.S. District Court for the Northern District of Texas (Fort Worth Division).
As previously covered by InfoBytes, the CFPB argued that the only plaintiff located in the current Texas venue should be dismissed for lack of standing since the Bureau alleged the plaintiffs failed to establish that the Fort Worth organization’s interests were “germane to the organization’s purpose.”
In their opposition to the motion to dismiss, the plaintiffs asserted the CFPB’s additional requirements for associational standing were unsupported and urged the court to follow established case law, emphasizing the broad interpretation of the germaneness requirement. To establish associational standing, plaintiffs must show that (i) its members would have stood to sue individually, (ii) the interests it seeks to protect were relevant to the organization’s purpose, and (iii) neither the claim nor the relief requested requires individual members’ participation.
The plaintiffs argued they have associational standing because the Rule in question affected the Fort Worth economy and the credit card market, which were central to the plaintiff associations’ mission. Plaintiffs detailed the harms to its members and the Fort Worth area, (i) naming six large credit card issuers operating in Fort Worth that will be affected directly by the Rule, (ii) at least 15 smaller credit card issuers that are members will feel pressure to lower late fees, and (iii) multiple members offering co-branded cards will also be affected.
The CFPB filed a reply brief, and the court scheduled a hearing on August 27 to rule on the motion.
6th Circuit reverses decision on plaintiff’s FCRA claim
On August 19, the U.S. Court of Appeals for the Sixth Circuit reversed a District Court’s decision on the FCRA’s reasonable procedures and reasonable reinvestigation provisions. The 6th Circuit found that a consumer reporting agency’s (CRA) unilateral reliance on a state agency’s unpaid balance report, without reviewing a consumer’s submission of a court order abating that unpaid balance, did not meet the FCRA’s reasonable procedures or reasonable reinvestigation standards.
The plaintiff alleged that in mid-2021, following a divorce, a state agency recorded an unpaid spousal support balance in error. Plaintiff sought, and obtained, a court order abating that obligation. But, when the plaintiff attempted to refinance his student loan debt, a lender notified him that a CRA reported unpaid spousal support. Plaintiff obtained another court order, to the same effect, and filed three disputes with the CRA, including one attaching the court orders. The CRA, however, merely confirmed the unpaid spousal support obligation through an automated inquiry and did not remove the unpaid balance mark.
In response, plaintiff filed suit, alleging willful and negligent failure to (i) use reasonable procedures to assure consumer report accuracy, and (ii) reasonably reinvestigate the accuracy of the state agency reports. The District Court, on the CRA’s motion to dismiss, found as sufficient the CRA’s verification of the unpaid balance with the state agency. The FCRA requires CRAs to include in consumer reports “any” failure-to-pay information from state child support agencies.
However, the 6th Circuit found the CRA’s consumer report could be “materially misleading” based on the facts alleged, and therefore inaccurate. The CRA’s alleged failure to consider, and inquire into, the consumer-submitted court orders, and a reliance on automated verification processes, could fail the FCRA’s reasonableness standard. The 6th Circuit explained that the plaintiff raised a factual dispute — one the CRA was capable of resolving — and thus not a legal dispute — which the CRA would not be capable of resolving. In addition, the “unquestioned authenticity” of the court order warranted reliance. As such, the 6th Circuit reversed and remanded.
Group of passive securitization trusts filed petition for certiorari with U.S. Supreme Court on CFPB enforcement remedies
On August 16, a group of passive securitization trusts formed between 2001 and 2007 (the petitioners or trusts) petitioned the U.S. Supreme Court for a writ of certiorari to hear its case against the CFPB on the “unaccountable exercise of executive power to target individual companies.” In their cert petition, the petitioners posed two questions: one on whether enforcement actions should be dismissed based on unconstitutional agency structures; and the other on whether securitization vehicles are covered persons under the CFPA. Specifically, the two questions presented were:
- “When should an enforcement action that is insulated by an agency head unconstitutionally insulated from removal be dismissed to remedy that separation-of-powers violation?
- “Whether passive securitization vehicles used to acquire and pool consumer loans are ‘covered persons’ because they ‘engage in offering or providing a consumer financial product or service’ under the CFPA.”
As background, in September 2014, the CFPB issued a civil investigative demand (CID) to each petitioner seeking information on collections lawsuits brought against student loan borrowers. Three years later, the CFPB brought an enforcement action against the petitioner, ultimately moving for a proposed consent judgment following an agreed upon settlement. The district court, however, denied the proposed consent judgment. The case was initially dismissed following the Supreme Court’s decision in Seila Law LLC v. CFPB, which held that the CFPA’s restrictions on removing the CFPB director were unconstitutional (covered by Orrick Insights here). The CFPB then filed the operative complaint alleging both that the trusts were “covered persons” under the CFPA and that the trusts had violated the CFPA. The district court declined to dismiss the amended complaint, finding both that the trusts were “covered persons” under the CFPA and that an unconstitutional removal restriction does not invalidate agency action taken by a properly appointed agency head, relying on the Supreme Court’s decision in Collins v. Yellen. The appellate court affirmed both holdings, finding that the trusts were “covered persons” and that the trusts were not entitled to relief for actions taken by the CFPB while its director was unconstitutionally insulated from removal.
The petitioners argue that a grant of certiorari is appropriate because lower courts are divided on the interpretation of Collins v. Yellen as to the remedies available to targets of enforcement actions brought by an agency with constitutionally subject removal provisions. Additionally, the petitioners argue that the lower court’s interpretation of the CFPA is incorrect and threatens the stability of securitization markets, justifying a grant of certiorari.
3rd Circuit vacates order compelling arbitration in FDCPA suit
Recently, the U.S. Court of Appeals for the Third Circuit vacated District Court orders compelling arbitration of an FDCPA class action on the basis that the plaintiff’s allegations of harm were insufficient to establish standing. In this case, plaintiff sought to represent a class and obtain damages from defendant debt collector and its officers, alleging violations of the FDCPA. The plaintiff claimed that a collection letter she received was misleading because it failed to correctly identify the creditor “to whom the debt was owed” and, rather, identified the collection arm of the credit card company. The District Court granted defendant’s motion to stay and compel individual arbitration.
On appeal, the 3rd Circuit concluded that the plaintiff lacked Article III standing, as she did not sufficiently allege a concrete injury. Accordingly, the court vacated the lower court’s orders and remanded with instructions to dismiss the case. The 3rd Circuit, however, declined to address the validity and enforceability of the arbitration award itself, noting that “that question lies with a court of competent jurisdiction — presumably a New Jersey state court or an AAA tribunal.”
U.S. SDNY dismisses FDCPA case against student loan trusts for time-barred violations
On August 16, the U.S. SNDY dismissed as time-barred a student loan debt class-action brought against student loan trusts, servicing agents and a law firm. The suit, brought by a class of New York residents holding student loan debt, alleged defendants collected student loan debt without proper documentation. Plaintiffs brought three sets of claims: FDCPA claims against the servicing agents and law firm defendants, New York State General Business Law (GBL) § 349 claims against all defendants, and Judiciary Law (JL) § 487 claims against the law firm defendant.
However, the court found that all the plaintiffs’ claims were time-barred. The FDCPA claims have a one-year limitations period, GBL claims have a three-year limitations period, and JL claims have a six-year limitations period. Based on injury and violation dates, the plaintiffs’ FDCPA, GBL and JL claims expired in 2015, 2017 and 2020, respectively. In addition, although equitable tolling did apply to plaintiffs’ FDCPA and GBL claims, the extraordinary circumstances warranting such tolling ended shortly after September 18, 2017, when the CFPB released a report describing the defendants’ conduct. As such, even with equitable tolling, the plaintiffs’ claims were time-barred.
On the same day, in the CFPB’s case against several of the same defendants alleging similar conduct, defendants filed a petition for certiorari with U.S. Supreme Court (covered previously in InfoBytes here and here) requesting that the Court review the following questions: (i) when should an enforcement action that is initiated by an agency head unconstitutionally insulated from removal be dismissed to remedy that separation-of-powers violation?; and (ii) whether passive securitization vehicles used to acquire and pool consumer loans are “covered persons” because they “engage[] in offering or providing a consumer financial product or service” under the CFPA.