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Securities class action against bank pared down
On January 12, the U.S. District Court for the Northern District of California dismissed one of plaintiffs’ causes of action and concluded that only two of the 67 public statements the plaintiffs identified in support of their securities fraud causes of action against a large bank and its former CEO (defendants) related to the defendants “collateral protection insurance (CPI) … practices for auto loan customers” were actionable. The plaintiffs alleged that while, in July 2016, the defendants learned of irregularities with respect to the CPI and, by September 2016, discontinued the program, the defendants did not disclose information on the CPI program’s issues until July 2017, after which time, the defendants’ stock price dropped. The plaintiffs then filed suit based on 67 public statements made by the defendants prior to that time, which the plaintiffs alleged the defendants knew were “false or misleading” and resulted in the bank’s stockholders losing money.
Upon review, the court found that 65 of the 67 public statements, on which the plaintiffs’ causes of action were based were not actionable. The two statements that the court found may support the plaintiffs’ causes of action were those made by the defendants when they were specifically asked whether they knew about “potential misconduct outside of the already disclosed improper retail banking sales practices” and, each time, “failed to disclose the CPI issue….” With respect to the two statements, the court found that the plaintiffs had “met [their] burden under the PSLRA (private securities litigation reform act)” to show a “strong inference that the defendant acted with the required state of mind,” and that the plaintiffs “adequately pleaded loss causation.” According to the opinion, the defendants did not challenge the plaintiffs’ contentions about the two alleged misstatements’ connection to the purchase or sale of the defendants’ securities, or that the plaintiffs relied on the misstatements or omissions and experienced economic losses as a result.
Supreme Court to review TCPA debt collection exemption
On January 10, the U.S. Supreme Court announced it had granted a petition for a writ of certiorari filed by the U.S. government in Barr v. American Association of Political Consultants Inc.—a Telephone Consumer Protection Act (TCPA) case concerning an exemption that allows debt collectors to use an autodialer to contact individuals on their cell phones without obtaining prior consent to do so when collecting debts guaranteed by the federal government. As previously covered by InfoBytes, the 4th Circuit agreed with the plaintiffs (a group of several political consultants) that the government-debt exemption contravenes the First Amendment’s Free Speech Clause, and found that the challenged exemption was a content-based restriction on free speech that did not hold up to strict scrutiny review. “Under the debt-collection exemption, the relationship between the federal government and the debtor is only relevant to the subject matter of the call. In other words, the debt-collection exemption applies to a phone call made to the debtor because the call is about the debt, not because of any relationship between the federal government and the debtor,” the appellate court opined. However, the panel sided with the FCC to sever the debt collection exemption from the automated call ban instead of rendering the entire ban unconstitutional, as requested by the plaintiffs. “First and foremost, the explicit directives of the Supreme Court and Congress strongly support a severance of the debt-collection exemption from the automated call ban,” the panel stated. “Furthermore, the ban can operate effectively in the absence of the debt-collection exemption, which is clearly an outlier among the statutory exemptions.” The petitioners—Attorney General William Barr and the FCC—now ask the Court to review whether the government-debt exception to the TCPA’s automated-call restriction is a violation of the First Amendment. Oral arguments are set for April 22.
6th Circuit affirms dismissal of FDCPA action for lack of standing
On January 3, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal for lack of standing of an FDCPA suit brought by a consumer who claimed that because collection letters sent to him by a law firm caused him anxiety, the firm had violated the FDCPA. According to the opinion, the consumer had two delinquent accounts with a bank, which the law firm attempted to recover by sending collection letters to the consumer. The consumer asserted that the letters the law firm sent caused him “an undue sense of anxiety” that he would be sued by the firm, and he subsequently filed a lawsuit against the firm for violating the FDCPA. The court held that the consumer did not have standing to sue under Article III of the U.S. Constitution, for three main reasons: (i) the debtor’s anxiety about a potential lawsuit amounted to a fear of future harm that was not “certainly impending” because the consumer had not alleged that the law firm had threatened to sue him or that he refused to pay, and, therefore, his anxiety did not satisfy the injury-in-fact element for Article III standing; (ii) the consumer was “anxious about the consequences of his decision to not pay the debts that he does not dispute he owes,” and such a “self-inflicted injury” is not a basis for standing because it was not “fairly traceable” to the law firm’s conduct, but instead reflected the consumer’s own behavior; and (iii) “even assuming [the law firm” violated the statute by misrepresenting that an attorney had reviewed [the consumer’s] debts,” that violation did not cause any injury to the consumer because the consumer gave the court “no reason to believe he did not owe the debts,” and, therefore, he could not show that the law firm’s alleged procedural violation of the FDCPA, by itself, was an “injury in fact.” Because the court held that the consumer did not have standing, it affirmed the lower court’s dismissal of the action.
7th Circuit: Debt collector accurately disclosed creditor to be paid
On December 30, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s decision that a collection agency was not required to explain the difference between “original creditor” and “current creditor.” After the consumer fell behind on payments owed to a bank, the debt was sold to a company that hired the agency to collect the debt. The agency sent a letter to the consumer identifying the bank as the “original creditor” and the debt buyer as the “current creditor,” listing the principal and interest balances of the debt along with the last four digits of the account number. The consumer alleged that identifying both the bank and the debt buyer without clearly explaining the difference between the companies violated the FDCPA’s requirement that a debt collector state in a written notice “the name of the creditor to whom the debt is owed.” The district court disagreed and held that the letter clearly and accurately disclosed the name of the creditor to whom the consumer owed the debt.
The 7th Circuit affirmed on appeal, calling the consumer’s claim “meritless” and holding that including the names of both companies without a detailed explanation would not be confusing even to an unsophisticated consumer, who would understand that the debt had been purchased by the current creditor. The appellate court concluded that the FDCPA required no further explanation.
9th Circuit affirms FDCPA decision in favor of debt collector
On December 18, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision of the trial court in favor of a debt collector in an FDCPA action brought by a consumer claiming that the debt collector used false, deceptive, or misleading means in attempting to collect a debt. The consumer, in 2006, opened a credit card account with a bank, but stopped sending payments in December of 2008, without paying off the balance. The bank later sold the consumer’s unpaid account to a debt collector in 2009, after which the debt collector sent a letter to the consumer in 2017 in an effort to collect the past due balance. The consumer filed a complaint against the debt collector, claiming that the debt was “time-barred” as the six-year statute of limitations had run and that the debt collector violated the FDCPA by not disclosing this in the letter to him. The district court granted the debt collector’s summary judgment motion.
On appeal, the consumer again claimed that the debt collector’s language is “deceptive or misleading,” specifically in the debt collector’s disclosure in the letter that read, “[t]he law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau.” The court disagreed. According to the opinion, even though the six-year statute to sue in order to collect had expired, “nothing in the letter falsely implies that [the debt collector] could bring a legal action against [the consumer] to collect the debt.” Further, the court determined that the “least sophisticated debtor would [not] likely be misled” by the debt collector’s disclosure, because the “natural conclusion” that could be drawn from the collector’s language was that the debt was time-barred. Additionally, the court rejected the consumer’s contention that the debt collector’s letter was “deceptive or misleading” because it failed to warn the consumer that in some states, the statute of limitations to sue on a debt may be revived if the debtor promises to pay or makes a partial payment on the debt. The court stated that the FDCPA does not require a debt collector to “provide legal advice” about specific issues such as a revival provision in a state statute of limitations. The panel also pointed out that although the statute may have run for the debt collector to take legal action in order to recover the outstanding debt, as long as it complies with the law and does not use misleading, false, or deceptive means, the FDCPA allows it to continue its efforts to collect on a lawful debt.
9th Circuit affirms no jurisdiction without exhaustion of administrative remedies
On December 27, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a TILA case brought by a consumer against his mortgage lender, citing lack of subject matter jurisdiction under the provisions of FIRREA that require claims involving a bank that is in receivership to be presented to the FDIC before the borrower files suit. In 2009 the consumer filed an adversary proceeding in bankruptcy court against his lender for rescission of his mortgage loan under TILA. The consumer claimed that the lender’s notice of right to cancel was defective when the loan was signed, resulting in an extended rescission period under TILA, but his suit was dismissed for lack of jurisdiction. Once again, in 2012, the district court dismissed the consumer’s TILA suit after finding that the consumer had not exhausted his administrative remedies with the FDIC before filing suit.
On appeal, the three-judge panel rejected the consumer’s claim that his lender was not placed into receivership until after his loan was sold, and therefore he did not have to exhaust his administrative remedies before filing suit. The panel subscribed to the Fourth Circuit’s interpretation of the exhaustion requirement, stating that “even where an asset never passes through the FDIC’s receivership estate, the FDIC should assess the claim first.” According to the opinion, the FIRREA requirement that the consumer exhaust his remedies with the FDIC applied to this action because the panel determined that (i) the consumer’s claim was “susceptible of resolution under the FIRREA claims process”; (ii) the consumer’s claim was related to an act or omission of the lender; and (iii) the FDIC, which “was not required to have possessed the loan before determining a claim” had been appointed as receiver for that lender, stripping the appellate court of subject matter jurisdiction until after the FDIC determined his claim.
District Court stays proceedings in structured settlement case pending outcome of Seila Law
On December 23, the U.S. District Court for the District of Maryland granted a motion to stay in an action between the CFPB and parties of a structured-settlement company, pending the U.S. Supreme Court’s decision in CFPB v. Seila Law. According to the court, a decision in Seila Law that the CFPB’s structure violates the Constitution’s separation of powers under Article II may render the CFPB unable prosecute the case. A determination by the Court is expected later this year (previous InfoBytes coverage here).
As previously covered by InfoBytes, the court allowed to move forward the Bureau’s UDAAP claim, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The defendants asked the court to stay the proceedings pending the outcome of two cases: Seila Law and a case pending in the Maryland Court of Appeals involving a different structured settlement company (covered by InfoBytes here). The court determined that a stay is not appropriate based on the Maryland case since it is not known when the case may be decided. The court also disagreed with the defendants’ argument that if the Maryland Court of Appeals upholds the settlement, the Bureau would be precluded from obtaining relief from the defendants. According to the court, “the extent to which the settlement is preclusive is unclear” and the provision that would preclude action by the Bureau is being disputed on appeal. However, the court concluded that a stay pending the outcome in Seila Law is warranted because “one of the Supreme Court’s paths in Seila Law may render the CFPB unable to prosecute this action; the stay would not be lengthy; and the interests of judicial efficiency and potential harm to the movants justify the stay.”
District Court settles payday lending suit against investment firm in rent-a-tribe scheme
On December 31, the U.S. District Court for the Eastern District of Pennsylvania entered an order signing off on a settlement agreement between the state attorney general and an investment firm and its affiliates (the defendants) connected to a lender accused of using Native American tribes to circumvent the state’s usury laws. (See previous InfoBytes coverage here and here.) According to the court’s opinion, the defendants allegedly became involved in the “rent-a-bank” and “rent-a-tribe” schemes when they made “‘an initial commitment of at least $90 million to be used in funding [the] loans’ in exchange for a fixed 20 percent return on investment” guaranteed by the lender.
In the settlement agreement, the defendants agreed not to provide capital to any third-parties offering Pennsylvania consumers loans that carry an interest rate in excess of the state’s six percent limit on unsecured consumer loans under $50,000. The defendants also agreed to perform regulatory reviews and due diligence “at least once per full calendar year during the term of [a] transaction” involving consumer credit products or services offered to Pennsylvania consumers. While the defendants expressly deny any liability or wrongdoing, the parties agreed to enter into the agreement to “avoid the cost, expense and effort associated with continuing the dispute.” The AG states that the settlement agreement does not constitute an approval by the AG’s office of any of the defendants’ “products, marketing, business practices or website content, acts and/or practices.”$24 million settlement proposed in FCRA class action against credit reporting agency
On December 31, a credit reporting agency (agency) and a class of consumers whose payday loan servicer collapsed jointly filed a proposed $24 million settlement agreement for approval by the U.S. District Court for the Central District of California (also, see the memorandum in support here). The proposed agreement would resolve a class action suit alleging that the agency provided incorrect and potentially harmful information on the class members’ credit reports in violation of the FCRA.
In 2016, the class representative (the consumer) sued the agency claiming it was reporting disputed debts from a payday loan servicer that had previously requested that the agency stop reporting the servicer’s pool of payday loan accounts. Because the servicer had also discontinued its servicing operations, the debts could no longer be verified. The consumer alleged that although the agency claimed to have deleted the payday loan servicer’s accounts in January of 2015, it continued to report as delinquent more than 100,000 loans until the accounts were actually deleted more than a year later. After the district court granted a motion for summary judgment filed by the agency, the consumer appealed to the U.S. Court of Appeals for the Ninth Circuit.
As previously covered in InfoBytes, upon appeal in 2019, the appellate court vacated the lower court’s grant of summary judgment on the ground that the consumer’s allegations regarding the inaccuracy of the agency’s information and the willfulness of its actions “raised genuine issues of material fact.” On remand, the district court granted class certification in October. The proposed settlement agreement, if approved, would automatically award each class member approximately $270, and provide up to $15,000 to the consumer who originally filed the lawsuit as the class representative. A hearing date is set for January 27.District Court shuts down mortgage relief operation; issues $18.4 million judgment
On December 30, the FTC announced that the U.S. District Court for the District of Nevada had, on December 5, granted its motion for summary judgment in an action against a mortgage loan modification operation (operation) for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule (MARS Rule). The January 2018 complaint alleged that the operation had engaged in unfair or deceptive acts or practices when it “preyed on financially distressed homeowners” by making false representations in advertising that its mortgage relief services could prevent foreclosures and “substantially lower” mortgage interest rates, as previously covered here. Additionally, the complaint charged that the operation used “doctored logos” in correspondence with consumers to give the impression that it was “affiliated with, endorsed or approved by, or otherwise associated with the federal government’s Making Home Affordable loan modification program,” and similarly claimed affiliation or “special arrangements” with the holder or servicer of the consumer’s loan. The court agreed with the FTC’s allegations, finding that the operation violated the FTC Act and the MARS Rule. The court entered a monetary judgment against the operation of over $18.4 million as equitable relief, which the FTC may use to compensate consumers harmed by the operation’s business practices. To the extent that an FTC representative determines that direct consumer redress is impracticable or money remains after redress is completed, the FTC may apply any remaining funds to other equitable relief (including consumer information remedies) that it determines is reasonably related to the practices alleged in the complaint. The court also permanently enjoined the operation from marketing or providing any secured or unsecured debt relief product or service, as well as from making deceptive statements to consumers regarding any other financial product or service.