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District Court rejects borrower’s RESPA, TILA mortgage servicing claims
On March 15, the U.S. District Court for the Southern District of Ohio granted a defendant mortgage loan servicer’s motion for summary judgment in an action claiming violations of federal law based on alleged defects in the servicing of the plaintiff’s loan. According to the court, after settling similar claims against his two prior loan servicers, the plaintiff sued the companies that own and service his mortgage loan (collectively, defendants) disputing the precise amount of his delinquency and claiming the defendants failed to properly apply his mortgage payments or to respond to his notice of error (NOE). The plaintiff contended, among other things, that the defendants’ response to the NOE, misapplication of payments, and inaccurate periodic mortgage statements breached the terms of the mortgage agreement and violated RESPA, FDCPA, and TILA. In granting summary judgment, the court agreed with the defendants, finding that plaintiff’s breach of contract claim was foreclosed by a prior settlement agreement with his former servicer. The court also found that the servicer’s response to plaintiff’s NOE did not violate RESPA because it “fully addressed both ‘errors’ that the plaintiff presented,” and the perceived errors “amounted to confusion about basic arithmetic.” The court emphasized that “[n]othing in RESPA or Regulation X gives borrowers authority to dictate the parameters of a lender’s investigation,” and concluded that the servicer’s investigation and response was sufficient since the servicer provided the documents used to conclude that there was no misapplication of funds and “[e]ven a cursory investigation would have revealed that the specific errors alleged in the NOE did not occur.”
In granting the defendants’ request for summary judgment regarding claims that the plaintiff received five inaccurate mortgage statements in violation of the FDCPA and TILA, the court concluded that the periodic statements contained all the fields required under Regulation Z, and explained that allegations contesting the accuracy of the information contained in the statements did not violate TILA because “12 C.F.R. § 1026.42(d) does nothing to regulate the accuracy of information presented in a periodic statement.” As to the plaintiff’s FDCPA claim, which was premised on allegations that plaintiff’s prior servicer misapplied funds which caused defendants to collect amount that plaintiff did not owe, the court found that that the disputed periodic statement was truthful and accurate and that the plaintiff released the defendants of any liability under the FDCPA in his settlement agreement with the prior servicer.
9th Circuit upholds dismissal of wrongful garnishment claims
On March 30, the U.S. Court of Appeals for the Ninth Circuit affirmed a lower court’s dismissal of claims based on the FDCPA and the Washington Consumer Protection Act (WCPA). According to the memorandum, the complaint alleged that the defendants violated the FDCPA and WCPA when they sought to garnish plaintiff’s wages based a state court judgment that was not yet final. The district court dismissed the FDCPA claim, holding that “at worst, Defendants violated a state court procedural rule—not substantive law—when they applied for the writ of garnishment based on the valid, albeit, not final judgment.” In affirming that dismissal, however, the appellate court noted that “[t]he issue is not whether [the defendant] and [the defendant’s attorney] violated state law but whether they violated the FDCPA.” The 9th Circuit clarified that “[t]he [plaintiff] might have argued that [the defendant] and [the defendant’s attorney] falsely represented the legal status of their debt by implicitly claiming in the garnishment application that the debt was subject to a final judgment. But they [did] not make this argument, so it is waived.” With respect to the WCPA claim, while the district court’s dismissal was based on a determination that the garnishment did not “occur[] in trade or commerce” as required under that statute, the 9th Circuit pointed out that if the garnishment was “a violation of the Washington Collection Agency Act (WCAA), [it] would have established an unfair or deceptive act in trade or commerce for purposes of the WCPA,” but upheld dismissal because the plaintiff had waived that argument as well.
North Carolina appellate court affirms district court’s decision in debt collection case
On March 15, the Court of Appeals of North Carolina affirmed a district court’s grant of summary judgment in favor of a debt buyer plaintiff and rejected the debtor defendant’s argument that the plaintiff failed to comply with a provision of North Carolina’s Consumer Economic Protection Act (CEPA). According to the order, the defendant appealed the district court’s grant of summary judgment to the plaintiff in its 2019 suit to renew a default judgment that was entered in 2010 against the defendant. The defendant argued that the default judgment “is void because it was procured by fraud and the clerk lacked jurisdiction to enter the default judgment for various reasons,” and “that Plaintiff’s interest rates on Defendant’s debt violate North Carolina law.” The appellate court noted that the CEPA “did not apply” because the statute requires that, “[p]rior to entry of a default judgment or summary judgment against a debtor in a complaint initiated by a debt buyer, the plaintiff shall file evidence with the court to establish the amount and nature of the debt.” The appellate court noted that although the plaintiff filed its original complaint against the defendant in August 2009, this CEPA provision did not take effect until October 1, 2009, and therefore only applies to “foreclosures initiated, debt collection activities undertaken, and actions filed on or after that date.” The defendant argued that the plaintiff was still required to comply with the CEPA provision because the plaintiff filed its motion for a default judgment in February 2010—after the effective date of the CEPA provision. But the appellate court determined that the plaintiff’s motion for a default judgment “was part of prosecuting its ‘action filed’ and was not a ‘debt collection activity’ within the meaning of the Act.”
District Court denies majority of MSJ requests in FTC action against online discount club
On March 28, the U.S. District Court for the Northern District of Georgia denied the majority of motions for summary judgment filed by the FTC and defendants in a 2017 action that charged the operators of a group of marketing entities and payment processors (collectively, “defendants”) with numerous violations of law for allegedly debiting more than $40 million from consumers’ bank accounts for membership in online discount clubs without their authorization. As previously covered by InfoBytes, the FTC’s 2017 complaint alleged that the online discount clubs claimed to offer services to consumers in need of payday, cash advance, or installment loans, but instead enrolled consumers in a coupon service that charged an initial application fee as well as automatically recurring monthly fees.
In reviewing the parties’ respective motions for summary judgment, the court first reviewed the FTC’s claims against the defendants allegedly responsible for launching the discount program (lead generator defendants) “as a way to salvage leads on loan-seeking consumers that the [lead generator defendants] were not able to sell to lenders or others.” The lead generator defendants allegedly used loan-seeking consumers’ banking information to enroll them in discount club memberships with automatically recurring monthly charges debited from the consumers’ bank accounts. While the lead generator defendants contended that the enrollments were authorized by the consumers themselves, the FTC claimed, among other things, that “loan-seeking consumers were redirected to the discount club webpage during the loan application process.” The court determined that because there exists a genuine issue of material fact as to whether the lead generator defendants’ loan application process, discount club webpages, and telemarketing practices were deceptive or if their practices violated the Restore Online Shoppers’ Confidence Act and the Telemarketing and Consumer Fraud and Abuse Prevention Act, the FTC is not entitled to judgment as a matter of law on its claim for injunctive relief or equitable monetary relief.
The court also concluded that the FTC failed to present evidence showing that another defendant—a now-defunct entity whose assets and business operations were sold to some of the defendants—is violating or is about to violate the law because the FTC’s action was filed more than three years after the defunct entity ceased all operations. As such, the court found that the statute of limitations applies and the defunct entity is entitled to judgment as a matter of law on the FTC’s claims. However, the court determined that there is evidence suggesting the possibility that two individual defendants involved in monitoring and advising the defendants in the alleged discount club scheme, may continue the scrutinized conduct.
With respect to the FTC’s claims against certain other individual defendants allegedly responsible for owning and managing some of the corporate defendants and their wholly-owned subsidiaries, the court considered defendants’ arguments “that they had a general lack of knowledge of (or authority to control) the alleged violative conduct” and “that the FTC does not have the right to seek equitable monetary relief” as a result. In denying the FTC’s motions for summary judgment against these individual defendants, the court found “that there are disputed issues of material fact as to these matters which should be decided by the trier of fact,” and that the FTC’s claim for equitable monetary relief required further analysis following the U.S. Supreme Court’s ruling in AMG Capital Management, LLC v. FTC, which held that the FTC does not have statutory authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. (Covered by InfoBytes here.)
Finally, the court concluded that sufficient evidence showed that another individual (who served as an officer of a defendant identified as being responsible for processing the remotely created checks used to debit consumers’ accounts during the discount club scheme) “knowingly and actively participated in acts that were crucial to the success of the . . . alleged discount scheme.” However, because there exists a genuine issue of material fact as to whether the lead generator and named defendants’ loan application process, discount club webpages, and telemarketing practices were deceptive, the court ruled that the FTC is not entitled to judgment as a matter of law as to its claims against the individual’s estate. The court also found that the individual’s estate is not entitled to summary judgment on either of its arguments related to the FTC’s request for monetary relief.
District Court denies defendant's motion in FCCPA case
On March 25, the U.S. District Court for the Middle District of Florida denied a TV provider’s (defendant) motion for summary judgment while partially granting and partially denying a motion for partial summary judgment from the plaintiff in a Florida Consumer Collection Practices Act (FCCPA) suit. According to the order, the plaintiff allegedly signed up for the defendant’s service, but “pause[d]” the program, which permitted her to suspend her service for nine months for $5 per month. The plaintiff filed for bankruptcy protection, listed the defendant as an unsecured creditor, and obtained a discharge. The plaintiff’s lawyer sent two faxes to the defendant, which disclosed to the defendant that the plaintiff was represented by counsel. The defendant sent five billing notifications and made six calls to the plaintiff, attempting to collect on the $5 monthly payment. A district court granted the defendant summary judgment on claims that it violated the FCCPA and the TCPA. The plaintiff appealed the decision, which affirmed the ruling on the TCPA claim, but reversed the FCCPA ruling, finding that the defendant may have attempted to collect a debt that was discharged and that it contacted the plaintiff after being notified that she was represented by an attorney. According to the order, the court stated that the “[p]laintiff has proffered enough evidence in the record from which a jury could reasonably infer that [the defendant] knew the Pause debt was invalid and that it did not have the right to collect it,” but “[o]n the other hand, considering the evidence in a light most favorable to [the defendant], a jury could reach the opposite conclusion, as [the defendant] has provided record evidence from which a jury could infer [the defendant] did not know that the Pause debt was invalid.”
District Court: Consumer must notify furnisher directly to remove dispute notification from credit report
On March 21, the U.S. District Court for the Western District of Tennessee granted a Pennsylvania-based student loan servicer’s (defendant) motion for judgment on the pleadings, ruling that the servicer did not violate the FCRA when furnishing information to a credit reporting agency (CRA) that contained a notation of an “account in dispute” because the plaintiff submitted the removal request only to the CRA and not to the defendant itself. The plaintiff contended that his account was still being reported as in dispute even though he sent a letter to the CRAs indicating that he no longer disputed the tradelines and requesting that the dispute notification be removed. The CRAs forwarded the plaintiff’s dispute to the defendant. Several months later the plaintiff noticed the account was still being reported as in dispute on his credit report. The plaintiff sued, alleging the defendant violated Sections 1681s-2(b) and 1692s-2(b)(1) of the FCRA by, among other things, willfully failing to conduct a reasonable investigation after it received notice from the CRAs of the dispute. The court disagreed, pointing to caselaw which states that if a consumer wants to remove a dispute notification from his or her credit report, the consumer must alert the furnisher—not just the CRA. The court also referenced FTC guidance, which informs consumers that in order to correct mistakes on their credit reports they need to contact both the credit bureau and the furnisher that reported the inaccurate information. Additionally, the court wrote that “a defendant cannot, as a matter of law, fail to conduct a reasonable investigation under § 1681s-2(b) where the plaintiff never terminates the dispute directly with the furnisher, regardless of to whom the plaintiff initially disputed the account.”
District Court denies defendant’s MSJ in TCPA claim regarding plaintiff’s consent
On March 21, the U.S. District Court for the Northern District of Illinois denied a defendant’s motion for summary judgment regarding alleged TCPA violations and dismissed a plaintiff’s FDCPA claim against a debt collector. According to the memorandum, after the plaintiff was hospitalized, she was billed for the balance of her debt once insurance payments were credited to her account. The hospital called the plaintiff to collect the balance and later placed the account with the defendant, who then called the plaintiff eight times, leaving a pre-recorded message, and sent one text message. The plaintiff filed suit, claiming that the defendant violated the FDCPA by failing to send a validation notice and violated the TCPA because she revoked consent to be contacted when the hospital originally called her. As a “unique posture,” according to the district court, the plaintiff claimed to not have standing to pursue the FDCPA claim while the defendant insisted that she did. The plaintiff contended that while she felt “anxiety” when “having to relive the car accident,” “[t]hese are not damages that create injuries-in-fact for purposes of standing under the FDCPA.” The district court agreed and dismissed the FDCPA claim. As for the TCPA claim, the defendant argued both that the plaintiff could not revoke consent to be contacted because she signed a consent form at the hospital and that there was no evidence consent was revoked when she was contacted by the hospital. The plaintiff testified that she spoke with an agent of the hospital, disclosed to the agent that she was not responsible for the balance, and requested to be placed on the do-not-call list. Determining that a genuine issue of material fact existed regarding the plaintiff’s consent, the district court denied the defendant’s motion for summary judgment as to the TCPA claim
District Court approves $50 million class action settlement over recorded calls
On Auguts 4, the U.S. District Court for the Northern District of Illinois approved a class action settlement, resolving allegations that a call center hired by a national bank and its merchant processing servicer (collectively, “defendants”) violated the California Invasion of Privacy Act (CIPA) by recording calls without receiving customers’ permission. According to the plaintiff’s motion for preliminary approval, a lawsuit was filed in 2016 on behalf of a proposed class of small businesses in California who received calls from call center companies attempting to sell credit and debit card payment processing services, alleging, among other things, that the defendants were in a principal-agent relationship with the companies that violated the CIPA by recording telemarketing calls without any warning that the recording was occurring. As previously covered by InfoBytes, class members, comprising California businesses who did not sign a contract for merchant processing services with the servicer, filed suit against another national bank in 2016 claiming the call center placed sales appointment calls to the businesses without disclosing that the calls were being recorded. The preliminarily approved settlement in that case required the defendants to pay $28 million, of which up to $5,000 was paid for each eligible call that a class member received during the class period, which was estimated to be 192,836 individuals. The recent preliminarily approved settlement will require the defendants to pay $50 million, of which up to $5,000 will be paid for each eligible call that a class member received during the class period.
New York Court of Appeals narrows trust’s RMBS repurchase action
On March 17, the New York Court of Appeals majority narrowed the scope of a 2013 repurchase action brought by the trustee of a residential mortgage-backed securities trust (trustee) against the trust’s sponsor (sponsor). The trustee filed suit after flagging roughly 1,204 nonconforming loans that were allegedly “in breach of the representations and warranties based on, among other things, borrower misrepresentation of income and occupancy status, miscalculations of borrowers’ debt to income ratios, and the charging of high-cost interest on the loans.” The trustee demanded that the sponsor buy back the defective loans as contractually promised. A separate, smaller set of loans was eventually added to the suit after being identified as defective during the discovery phase. The trustee contended that the original repurchase demands were sufficient under the repurchase protocol to satisfy the notice requirement for all allegedly problematic loans in the trust, including loans flagged after litigation had begun.
The sponsor moved for partial summary judgment on the trustee’s claims, arguing that the trustee could not pursue recovery for loans “not specifically identified in the pre-suit letters to the extent that the trustee relied on a notice, rather than an independent discovery, theory.” The sponsor also sought summary judgment with respect to the method of calculation of the repurchase price. The New York Supreme Court denied the sponsor’s motion for partial summary judgment, concluding, among other things, that “‘because the repurchase letters identified some timely claims, the later identified claims relate back to the original filing.’” The appellate division affirmed, stating that the trustee’s December 2011 letter timely informed the sponsor “that a substantial number of identified loans were in breach, and that the pool of loans remained under scrutiny, with the possibility that additional nonconforming loans might be identified.” The appellate division also agreed “that ‘interest could be calculated on liquidated loans, at the applicable mortgage rate, up until the repurchase date.’”
In narrowing the scope of the loans subject to repurchase, the Court of Appeals majority held that it would be “inconsistent” with the contractual language of the repurchase protocol to conclude that loan-specific notice is not required, adding that the trustee could not rely on the relation back doctrine “to avoid the consequences of its failure to comply with the contractual condition precedent with respect to the loans in question prior to commencing this action.” “The parties agreed to a limited remedy for the inclusion of nonconforming loans in the trust and made that remedy available only if the trustee first complied with certain loan-specific notice requirements, providing the sponsor an opportunity to cure or repurchase the identified loans,” the majority wrote. “We cannot rewrite the contract by substituting a different, post-suit notice procedure in place of the one chosen by the parties.” The majority further concluded that under the parties’ agreement, interest recoverable on liquidated loans was limited to interest that accrued prior to liquidation.
The dissenting judge disagreed, stating that “[i]t could not have been the intent of the parties to provide a remedy for a few defective loans but allow for systemwide breaches affecting thousands of loans in the pool—allegedly 80% here—or to permit the sponsor to escape the contractual cure and repurchase obligations simply because [the sponsor] was informed there was a significant problem with its securitization but not given the corresponding number for every loan it allegedly failed to properly vet.”
District Court denies motion to dismiss for lack of jurisdiction
On March 21, the U.S. District Court for the Western District of Virginia denied defendants’ motion to dismiss for lack of subject matter jurisdiction in a suit alleging that they misrepresented the cost of immigration bond services and deceived migrants to keep them paying monthly fees, including by making false threats of deportation for failure to pay. The defendants argued that “the CFPB lacks authority to exercise any power to enforce the CFPA with respect to [the defendants] because these corporations are regulated by state insurance regulators (12 U.S.C. § 5517(f)) and are merchants, retailors, or sellers of nonfinancial goods or services.” However, the district court noted that “limitations on the CFPB’s regulatory authority do not equate to limitations on this court’s jurisdiction.” The defendants also argued “that the exclusions to CFPB jurisdiction enumerated in the CFPA are jurisdictional limits on the court.” The district court found the defendants were “mistaken” and that “Congress did not expressly state that any threshold limitation on the CFPA’s scope shall count as jurisdictional limitations on the court. For these reasons, the court finds that it has subject-matter jurisdiction in this case.”
As previously covered by InfoBytes, the U.S. District Court for the District of Columbia denied the defendants’ request to enforce a modified Civil Investigative Demand (CID) and prevent the CFPB from obtaining personal information about the defendants’ clients via CIDs to third parties. In August 2017, the CFPB issued a CID to the defendants requesting various documents and information. The CFPB filed the present lawsuit in February 2021.