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Ohio Court of Appeals: Ohio Consumer Sales Practices Act does not cover HELOC fraud
On April 8, the Ohio Court of Appeals affirmed summary judgment for a bank, its employees, and the plaintiff’s former husband (collectively, “defendants”), concluding, among other things, that under the Ohio Consumer Sales Practices Act (OCSPA) the defendants could not be considered “suppliers,” transactions with national banks are not covered, and bank employees were not considered “loan officers.” According to the opinion, a homeowner filed a lawsuit alleging the defendants fraudulently opened a home equity line of credit by allowing the plaintiff’s former husband to sign the homeowner’s name with the bank employees’ assistance in notarizing the signature. The homeowner alleged various claims, including that the defendants violated the OCSPA’s provision prohibiting a “supplier” from committing “an unfair or deceptive act or practice in connection with a consumer transaction.” The lower court granted summary judgment in favor of the defendants. The homeowner appealed, arguing that the bank employees were acting as “loan officers” and therefore, they qualified as “suppliers” under the OCSPA. The appellate court noted that while the term “supplier” does include “loan officer,” the statute explicitly states that “loan officer” does not include “an employee of a bank…organized under the laws of this state, another state, or the United States.” Moreover, the OCSPA provides that consumer transactions do not include transactions with financial institutions, except in certain circumstances, which are not applicable to the action. Therefore, the lower court did not err in its summary judgment ruling.
10th Circuit: Bank not obligated to post real-time balances
On April 8, the U.S. Court of Appeals for the 10th Circuit affirmed a lower court’s dismissal of a consumer’s suit arising out of overdraft fees charged by an Arkansas-based bank. The consumer alleged, among other things, that the bank breached its Electronic Fund Transfer Agreement (EFT Agreement) by failing to provide accurate, real-time account balance information online, which caused her to “incur unexpected overdraft fees.” According to the opinion, the consumer claimed that she frequently relied on her online account balance when making purchases, and that the bank’s alleged debiting practices—such as “batching by transaction type,” processing transactions out of chronological order, and “failing to show real-time balance information online [or] intra-bank transfers instantaneously”—sometimes caused her to pay insufficient funds and overdraft fees. The consumer filed suit asserting claims for “actual fraud; constructive fraud; false representation/deceit; breach of fiduciary duty; breach of contract (namely, the EFT Agreement) . . . breach of the implied covenant of good faith and fair dealing; and unjust enrichment.” The consumer appealed following a dismissal of all claims by the district court. In 2017, the 10th Circuit reversed and remanded the dismissal of the breach of contract claim, and affirmed the dismissal of the other claims. The district court granted summary judgment to the bank, determining that the EFT Agreement promised accuracy only to posted amounts and not to pending or unprocessed transactions.
On appeal, the 10th Circuit agreed with the district court, holding that the plain language of the EFT Agreement only promised accuracy of posted amounts, and authorized the bank to collect overdraft fees on insufficient funds items even if an ATM card or check card transaction “was preauthorized based on sufficient funds in the account at the time of withdrawal, transfer or purchase.” Moreover, the court noted that the EFT Agreement specifically stated that there was a 7:00 p.m. cut-off for transfers to be posted. Therefore, it was clear that the bank was not “contractually obligated to make intra-bank transfers instantaneously.” Furthermore, the court pointed out that the consumer failed to provide evidence demonstrating that the bank provided inaccurate balances.
11th Circuit: Consumer’s repayment agreement not an escrow account
On April 9, the U.S. Court of Appeals for the 11th Circuit held that a consumer’s insurance repayment plan on her reverse mortgage did not qualify as an escrow account under RESPA’s Regulation X. According to the opinion, a consumer’s reverse mortgage required her to maintain hazard insurance on her property, which she elected to pay herself, and did not establish an escrow account with the mortgage servicer to pay her insurance and property taxes. After her insurance lapsed, the mortgage servicer advanced her over $5,000 in funds paid directly to her insurance carrier to ensure the property was covered, subject to a repayment agreement. After the consumer failed to make any payments under the agreement, the servicer initiated a foreclosure action against the consumer and obtained a forced-placed insurance policy when the insurance lapsed for a second time. Ultimately, a state-run forgivable loan program brought the consumer’s past due balance current and excess funds were placed in a trust to cover future insurance payments on the property. The consumer filed an action against the mortgage servicer alleging the servicer violated RESPA’s implementing Regulation X when it initiated forced-placed insurance, because the repayment agreement purportedly established an escrow account, which required the servicer to advance the funds for insurance. The district court entered judgment in favor of the servicer.
On appeal, the 11th Circuit agreed with the district court, concluding that no escrow account existed between the consumer and the servicer, emphasizing that nothing in the repayment agreement set aside funds for the servicer to pay insurance or taxes on the property in the future. The 11th Circuit rejected the consumer’s characterization of the repayment agreement as an arrangement under Regulation X “where the servicer adds a portion of the borrower’s payment to principal and subsequently deducts from principal the disbursements for escrow account items.” The 11th Circuit reasoned that not only did the consumer never make a principal payment to the servicer, the consumer’s characterization is “entirely inconsistent” with the reverse mortgage security instrument. Because the servicer never deducted anything from the principal when it disbursed funds to pay the insurance, the repayment agreement did not qualify as an escrow agreement under Regulation X.
District Court finds auto dealerships did not violate UTPA or financial elder abuse law
On March 30, the U.S. District Court for the District of Oregon granted a group of car dealerships’ (defendants) summary judgment motion in a putative class action involving claims that the dealership violated Oregon’s Unlawful Trade Practices Act (UTPA) as well as the state’s financial elder-abuse law. The plaintiffs, who all purchased vehicles along with other goods or services from one or more of the defendants, asserted that the defendants allegedly failed to “appropriately disclose [their] specific fees associated with arrangement of financing or the profit margins related to the sale of third-party products and services.” By failing to comply with these disclosure requirements, the plaintiffs alleged that the defendants “wrongfully appropriated money from elderly persons.” Concerning the alleged violations of UTPA, the defendants argued that its section titled “Undisclosed Fee Payments” only applies to referral fees greater than $100 paid to non-employee third-parties and not to other payments made by a dealership to a third party. The court agreed and stated that the defendants’ position was further supported by the state’s official commentary. With regard to the plaintiffs’ other claim concerning deficiencies in the disclosures, the court concluded that “strict recitation of the statute is not required to meet the clear and conspicuous standard,” and that the disclosures in question were clearly visible and easy to understand. Finally, the court granted summary dismissal on the plaintiffs’ claim of elder abuse because the claim was premised on the alleged violations of UTPA, which were dismissed.
California Court of Appeal upholds return of $331 million to NMS Deposit Fund despite legislative efforts
On April 2, the California Third District Court of Appeal upheld its July 2018 ruling that the state is required to return $331 million to the National Mortgage Settlement Deposit Fund (NMS Deposit Fund), reaching the same conclusion as it did previously notwithstanding newly enacted legislation. As previously covered by InfoBytes, three groups filed a lawsuit in 2014 against California Governor Jerry Brown and the state’s director of finance and controller alleging they unlawfully diverted money from the NMS Deposit Fund to make bond payments and offset general fund expenditures. The groups sought a writ of mandate compelling the state government to pay back approximately $350 million in diverted funds. After the Superior Court denied the writ, the Third District Court of Appeal reversed, concluding that the money still belongs in the NMS Deposit Fund, and not in the state’s General Fund. The state petitioned to the State Supreme Court for review and while the petition was pending, the governor signed SB 861, which states, “It is the intent of the Legislature…to confirm that allocations and uses of funds made by the director of finance from the National Mortgage Special Deposit Fund pursuant to [section 12531] in the 2011-12, 2012-13, and 2013-14 fiscal years were consistent with legislative direction and intent and to abrogate the holding of the Court of Appeal in [this case]. The Legislature further declares that the allocations made by the director of finance pursuant to [section 12531] were made for purposes consistent with the National Mortgage Settlement.” The Supreme Court directed the Court of Appeal to vacate the July 2018 opinion and reconsider in light of SB 861.
The Court of Appeal, having considered the views of the legislature in SB 861, confirmed its original conclusion from July 2018. Specifically, the court stated that the defendants’ reading of SB 861, “would effectively defeat the purpose of creating a special deposit fund to house the money” and would disregard the former Attorney General’s instructions for use of the settlement money, which was part of the National Mortgage Settlement. The Court of Appeal noted that in SB 861, the legislature declared that “the allocations…were made consistent with the National Mortgage Settlement,” but emphasized that “such a ‘belief is not binding on a court. . . .’” and the interpretation is “an exercise of the judicial power the Constitution assigns to the courts.” Therefore, upon second review, the Court of Appeal again held that the trial court erred when it did not issue a writ of mandate ordering the diverted funds to be returned to the NMS Deposit Fund.
11th Circuit: An implicit threat of litigation is enough to assert a FDCPA claim
On April 5, the U.S. Court of Appeals for the 11th Circuit reversed in part and affirmed in part a district court’s order dismissing a plaintiff’s action alleging a debt collector violated the FDCPA when attempting to collect on a time-barred debt. According to the opinion, the plaintiff brought a lawsuit asserting a debt collector (i) violated the FDCPA’s prohibition on “false, deceptive or misleading” practices under section 1692e; (ii) violated the FDCPA’s prohibition on “unfair or unconscionable” practices under section 1692f by attempting to collect on a time-barred debt; and (iii) violated Florida state collection laws. The district court dismissed the FDCPA claims, concluding that the law allows for collectors to seek “voluntary repayment of…time-barred debt so long as the debt collector does not initiate or threaten legal action,” and declined to exercise jurisdiction over the state law claims once it dismissed the FDCPA claims.
On appeal, the 11th Circuit affirmed the dismissal of the section 1692f claim, rejecting the argument that attempts to collect on time-barred debt are generally unconscionable or unfair under the law. As for the claim under section 1692e, the 11th Circuit concluded the collection letter could plausibly be misleading or deceptive to the “least sophisticated consumer.” Specifically, the 11th Circuit noted that, “as a general matter, a creditor can seek voluntary payment of a time-barred debt,” but the “right to seek repayment does not confer a right to mislead” and one must only “reasonably infer an implicit threat” of litigation to state a claim under section 1692e. The 11th Circuit concluded that the letter’s offer to “resolve” the debt at a discount—“combined with a deadline” to accept the offer—is a “warning” that the offer may not be renewed, and that a lack of disclosure that the debt is time barred could “plausibly deceive or mislead an unsophisticated consumer as to the legal status of the debt, even in the absence of an express threat of litigation.” In reversing the dismissal of the claim under section 1692e, the appellate court also reinstated the state law claim and remanded the case back to district court.
Colorado Court of Appeals reverses law firm penalty for affiliated vendor relationships
On April 4, the Colorado Court of Appeals reversed the trial court’s ruling assessing civil penalties against a foreclosure law firm for allegedly failing to disclose that its principals had an ownership interest in one of its vendors. The appeals court found that the civil penalty was not warranted because the failure to disclose “did not significantly impact members of the public as actual or potential consumers.” According to the opinion, the State of Colorado brought an enforcement action against a foreclosure law firm and its affiliated vendors, alleging, among other things, that the law firm and its vendors violated the Colorado Consumer Protection Act (the Consumer Act) by making “false or misleading statements of fact concerning the price” of their foreclosure services. The State argued that the relationship between the law firm and its vendors allowed the vendors to charge for services in excess of the market rate, pass on those costs to the law firm’s customers, and share a portion of the inflated costs with the law firm. While the trial court rejected two of the State’s claims against the defendants, it concluded that the law firm committed a deceptive practice under the Consumer Act that, “significantly impact[ed] the public as actual or potential consumers,” by failing to disclose its affiliated relationship with one of the vendors.
On appeal, the appellate court rejected the trial court’s conclusion that the alleged deception significantly impacted the public, noting that the deception was confined to two clients, Fannie Mae and Freddie Mac, in the context of their private agreements with the firm. Because the misrepresentation was in the context of a private relationship, and the tax-paying public were not “consumers of the law firm’s services for purposes of the Consumer Act,” the appellate court found the trial court erred when awarding the civil penalties under the Act. Moreover, the appellate court affirmed the trial court’s rejection of the State’s other claims against the law firm.
District Court rejects alarm company’s bid to escape vicarious liability under TCPA
On April 3, the U.S. District Court for the Northern District of West Virginia denied an alarm company’s motion for summary judgment in multi-district litigation consisting of approximately 30 cases alleging the company is vicariously liable for the telemarketing conduct of its authorized retailers in violation of the TCPA. The company moved for summary judgment arguing, among other things, that it is not a “seller” governed by the TCPA and no evidence exists of an agency relationship between the company and the authorized retailers.
The court rejected these arguments, finding a genuine dispute of material fact as to the agency relationship based on “substantial evidence of the [the company’s] control over its dealers’ sales tactics,” including “the right to control the manner and means by which its Authorized dealers sold [the company]’s services and exercis[ed] that control.” Moreover, the court determined that the company was aware of the allegedly unlawful telemarketing calls through “dozens of complaints involving hundreds of consumers” but failed to take measures to address the problem. As for whether the company was considered a “seller” under the TCPA, the court noted that the authorized dealers worked exclusively for the company, the company had the right of first refusal to purchase the contracts sold by the dealers, the company was “totally dependent” on the dealers’ success, and the telemarketing calls were made to increase the flow of consumers to both the dealers and the company, therefore making the company a “seller” under the TCPA.
5th Circuit: District courts lack jurisdiction over claims arising from FDIC enforcement proceedings
On March 28, the U.S. Court of Appeals for the 5th Circuit held that federal district courts lacked subject matter jurisdiction over claims arising out of certain FDIC enforcement proceedings. According to the opinion, the FDIC brought two enforcement actions against the bank and its directors (plaintiffs), alleging violations of various banking laws and regulations, which resulted in civil money penalties and cease-and-desist orders. The plaintiffs petitioned the 5th Circuit for review. While the first appeal was pending, the plaintiffs filed a lawsuit in federal district court alleging the FDIC committed constitutional violations during the enforcement actions. Specifically, the plaintiffs alleged that the FDIC (i) targeted the bank due to the bank president’s age and denied it equal protection; and (ii) violated due process by preventing the plaintiffs from offering certain evidence and preventing the president’s ability to talk with his counsel at certain times. These allegations were raised and rejected during the FDIC’s second enforcement proceeding. The FDIC moved to dismiss the action for a lack of subject matter jurisdiction, asserting that the statutory review process precludes district court jurisdiction over actions arising from enforcement proceedings. The district court agreed and dismissed the action without prejudice, indicating that the bank could assert its claims in the district court on direct review of the agency’s final order. The bank appealed.
On appeal, the 5th Circuit noted that the language in the statute “virtually compels” it to concede that Congress intended to preclude district court jurisdiction over claims against the FDIC arising from enforcement proceedings. The appellate court then addressed whether the claims raised by the plaintiffs were the type of claims Congress intended to be reviewed within the statutory scheme. The appellate court determined that the Federal Deposit Insurance Act allows for “meaningful judicial review,” by authorizing review of challenges to a final agency order by a federal circuit court. Moreover, the court rejected the plaintiffs’ argument that its claims are “wholly collateral” to the administrative order because they did not challenge the merits of the order but rather, the claims “arise directly from alleged irregularities in the agency enforcement proceedings.” Lastly, the court found that the plaintiffs’ constitutional claims do not fall outside of the agency’s expertise. Based on the foregoing, the court found that the district court correctly dismissed the action.
District Court finds text messages were not sent by autodialer
On March 29, the U.S. District Court for the Northern District of Illinois granted a telecommunication company’s summary judgment motion in a putative TCPA class action involving text messages. The plaintiff asserted that the company sent him text messages asking survey questions, even though he did not consent and was registered on the Do Not Call list. The company argued that it did not use an automated dialing system (autodialer) to send the text messages to the plaintiff. The court agreed. Citing to the D.C. Circuit’s decision in ACA International v. FCC and analyzing the definition of an autodialer under the TCPA, the court concluded that the system used by the company to send the text messages was not an autodialer because it could not “generate telephone numbers randomly or sequentially.” The court also rejected the consumer’s argument that the system had “the capacity” to generate numbers randomly by selecting numbers to dial from a compiled list of accounts, noting that the TCPA “does not support a reading where ‘using a random or sequential number generator’ refers to the order numbers from a list are dialed.”