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2nd Circuit says challenge to OCC’s fintech charter is unripe
On June 3, the U.S. Court of Appeals for the Second Circuit reversed a 2019 district court ruling, holding that NYDFS lacked Article III standing to pursue claims that the OCC’s policy to issue Special Purpose National Bank charters (SPNB charters) to non-depository fintech companies exceeded its statutory authority. As previously covered by InfoBytes, the district court entered final judgment in favor of NYDFS after concluding that the OCC’s SPNB policy should be set aside “with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State. Among other things, the district court, in denying the OCC’s motion to dismiss, determined that the OCC exceeded its authority under the National Bank Act because the Act “unambiguously requires receiving deposits as an aspect of the business,” and that “absent a statutory provision to the contrary, only depository institutions are eligible to receive [a SPNB] from [the] OCC.” The OCC appealed, and both parties filed briefs addressing issues related to ripeness and standing (covered by InfoBytes here).
On appeal, the 2nd Circuit concluded that NYDFS lacked Article III standing to pursue its claims because it failed to show that it had suffered an actual or imminent injury from the OCC’s decision to issue SPNB charters. The appellate court also found NYDFS’s claims to be “constitutionally unripe,” holding that NYDFS’s challenge is too speculative since no non-depository fintech companies have applied for or have been granted an SPNB charter. “It is unclear at this juncture whether New York law will ever be preempted in the ways [NYDFS] fears,” the appellate court wrote. However, the 2nd Circuit determined it lacked jurisdiction to decide the remaining issues on appeal and did not address the district court’s finding that “the ‘business of banking’ under the NBA unambiguously requires the receipt of deposits.” The appellate court remanded the case to the district court with instructions to enter a judgment of dismissal without prejudice.
NYDFS Superintendent Linda Lacewell issued a statement following the 2nd Circuit’s decision, in which she reiterated the importance of “guarding against any encroachment on the state regulatory system” and urged the OCC to reconsider its policy.
9th Circuit stays Seila CID pending Supreme Court appeal
On June 1, the U.S. Court of Appeals for the Ninth Circuit granted Seila Law’s request to stay a mandate ordering compliance with a civil investigative demand (CID) issued by the CFPB. The order stays the appellate court’s mandate (covered by InfoBytes here) for 150 days, or until final disposition by the U.S. Supreme Court should the law firm file its expected petition of certiorari. Last month, Seila Law announced its intention to ask the Court “whether the ratification of the CFPB’s civil investigative demand is an appropriate remedy for the separation-of-powers violation identified by the Supreme Court.” In its motion, Seila Law claimed that the Bureau’s “alleged ratification” was not legally sufficient to cure the constitutional defect and that “an action taken by an agency without authority cannot be ratified if the principal lacked authority to take the action when the action was taken.” Seila Law further argued that the only appropriate remedy is dismissal of the petition to enforce the CID. The Bureau countered that former Director Kraninger’s ratification was valid, emphasizing that the majority of the 9th Circuit denied en banc rehearing last month (covered by InfoBytes here). The Bureau further contended that Seila Law did not demonstrate good cause for the stay or suggest that it would suffer irreparable harm should the motion be denied, pointing out that “equities now weigh overwhelmingly in favor” of requiring Seila Law’s compliance with the CID.
District Court allows county’s FHA claims to proceed
On June 1, the U.S. District Court for the Northern District of Illinois denied a national bank’s motion to dismiss claims that its allegedly discriminatory mortgage lending practices violated the Fair Housing Act. According to a complaint filed by the County of Cook in Illinois (County), the increase in foreclosures during the relevant time period were proximately caused by the bank’s mortgage practices, and caused the County to incur financial injury, including foreclosure-related and judicial proceeding costs and municipal expenses due to an increase in vacant properties. The bank filed a motion to dismiss, arguing that that the County did not have standing to sue because “the judicial proceedings and other activities associated with the additional foreclosures” actually “yielded a net benefit to the County.” The court disagreed, ruling that all the County had to do was show a reasonable argument that the bank’s lending practices resulted in foreclosures. The bank “does not dispute that the County has properly alleged in its complaint a financial injury sufficient, at least at the pleading stage, to support standing,” the court wrote.
6th Circuit: “Anxiety and confusion” not an injury under FDCPA
On May 28, the U.S. Court of Appeals for the Sixth Circuit held that a consumer’s alleged “confusion and anxiety” does not constitute a concrete and particularized injury under the FDCPA. The plaintiff alleged that the defendant’s debt collector, an attorney’s office, violated the FDCPA when it communicated with him, on behalf of a bank, by sending a letter stating the plaintiff’s mortgage loan was sent to foreclosure. The letter also informed the plaintiff that the bank “might have already sent a letter about possible alternatives,” further explaining how the plaintiff could contact the bank “to attempt to be reviewed for possible alternatives to foreclosure.” The plaintiff also alleged that the attorney’s office “sent a form of this letter to tens of thousands of homeowners and that it did so without having any attorney provide a meaningful review of the homeowners’ foreclosure files, so the communications deceptively implied they were from an attorney.” The plaintiff alleged the letter confused him because he was unsure if it was from an attorney, and that, moreover, the letter “raised [his] anxiety” by suggesting “that an attorney may have conducted an independent investigation and substantive legal review of the circumstances of his account, such that his prospects for avoiding foreclosure were diminished.”
The 6th Circuit found the plaintiff’s allegations to “come up short” in regard to proving that the statutory violations caused him individualized concrete harm. In addition, the appellate court said that “confusion doesn’t have a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit.”
District Court: No private right of action under PA’s Motor Vehicle Sales Finance Act
On May 20, the U.S. District Court for the Eastern District of Pennsylvania partially granted defendants’ motion for summary judgment in an action concerning alleged violations of the Pennsylvania Motor Vehicle Sales Finance Act (MVSFA) and the FCRA. The plaintiff filed an action against the defendants (an auto finance company and the three major consumer reporting agencies (CRAs) alleging he was unable to obtain credit and suffered loss of work, car rental expenses, and emotional distress following the repossession and sale of his vehicle after he allegedly breached his retail installment sale contract by exposing his vehicle to a lien for accumulated storage charges at a repair facility while waiting for a replacement part to arrive. After the vehicle was repossessed, the plaintiff sent letters to the CRAs disputing the reported information and asked that notations, including “voluntary surrender,” be removed from his credit file. According to the plaintiff, the disputed information was removed from his file well outside the 30-day timeframe required under the FCRA to reinvestigate and delete inaccurate information. The plaintiff also alleged that the auto finance company violated the MVSFA’s provisions governing notice of repossession. Upon review, the court granted defendants’ request for summary judgment on the MVSFA claim, agreeing with the auto finance company that the statute’s repossession notice provisions do not confer a private right of action. However, the court denied summary judgment on the FCRA claim, writing that “the record reflects genuine disputes of material fact as to whether [the auto finance company] reported inaccurate information and whether it reasonably investigated [p]laintiff’s disputes.”
6th Circuit: SBA can’t prioritize race or sex for Covid relief
On May 27, the majority of the U.S. Court of Appeals for the Sixth Circuit held that the Small Business Administration (SBA) cannot allocate limited Covid-19 relief funds based on the race and sex of the applicants. The plaintiff filed a lawsuit claiming the SBA’s practice of giving priority to certain Restaurant Revitalization Fund applicants (i.e. restaurants owned and controlled at least 51 percent by women, veterans, or the “socially and economically disadvantaged”) during the first 21 days violates the U.S. Constitution’s equal protection clause by impermissibly granting priority based on race and gender classifications. The plaintiff applied for funding on the first day the application period opened, but because the restaurant he co-owned 50/50 with his Hispanic wife was not owned 51 percent by a woman or a veteran, he faced an added evidentiary burden to show he qualified as “socially and economically disadvantaged” to get priority status. The plaintiff requested a temporary restraining order and a preliminary injunction to prohibit the SBA from granting funds unless it did so in a manner that ignored race and sex. The district court denied the request, as well as subsequent requests made by the plaintiff, ruling that he was unlikely to succeed on the merits of his claims.
On appeal, the majority of the Sixth Circuit disagreed, concluding that the district court should have issued an injunction pending appeal since the SBA “failed to justify its discriminatory policy.” According to the majority, the SBA “injected explicit racial and ethnic preferences into the priority process” by “presume[ing] certain applicants are socially disadvantaged based solely on their race or ethnicity.” Additionally, the majority stated that the “added evidentiary burden faced by white men and other non-presumptively disadvantaged groups stands in marked contrast with lenient evidentiary standards set by the American Rescue Plan Act,” and pointed out that “broad statistical disparities cited by the government are not nearly enough” to suggest intentional discrimination. Because “an effort to alleviate the effects of societal discrimination is not a compelling interest,” the majority stated, “the government’s policy is not permissible.” The majority also rejected the SBA’s argument that the issue was moot because the priority period for the program has ended, commenting that race and sex preferences continue to factor in whether an applicant receives funds before the program’s money runs out.
The dissenting judge argued, however, that the “Constitution permits the government to use race-based classifications to remediate past discrimination,” and added that the plaintiff has not demonstrated that he will be irreparably harmed by the way the program’s funds are distributed.
D.C Circuit keeps CDC eviction moratorium in place
On June 2, the U.S. Court of Appeals for the District of Columbia denied a group of realtors’ motion to lift an administrative stay placed by a district court on its own order, in which it had previously ruled that the CDC’s nationwide eviction moratorium issued in response to the Covid-19 pandemic exceeded the agency’s statutory authority with the temporary ban. As previously covered by InfoBytes, the district court vacated the CDC’s eviction moratorium and rejected the federal government’s request that the decision be narrowed, ruling that “when ‘regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioner is proscribed.’” However, shortly after the federal government filed a notice of appeal, the district court stayed its own summary judgment order pending appeal.
In denying the plaintiffs’ motion to vacate the stay pending appeal, the appellate court held that the district court did not abuse its discretion in staying its own ruling, and noted that the federal government has a good chance of winning its appeal. “[W]hile of course not resolving the ultimate merits of the legal question, we conclude that [the federal government] has made a strong showing that it is likely to succeed on the merits,” the appellate court wrote, adding, among other things, that “Congress has expressly recognized that the agency had the authority to issue its narrowly crafted moratorium.” Moreover, the D.C. Circuit determined that the plaintiffs failed to show the likelihood of irreparable injury should the stay remain in place.
Bank enjoined from administering prepaid debit cards for EDD benefits
On June 1, the U.S. District Court for the Northern District of California issued a preliminary injunction enjoining a national bank from certain actions in administering prepaid debit cards to class member recipients of Employment Development Department unemployment or disability benefits. Under the terms of the preliminary injunction, the bank is prohibited from “considering the results of [its] initial automated fraud claims filter” when investigating or resolving any alleged unauthorized transaction error claims, or from closing claims or denying credit before conducting an investigation, pursuant to EFTA and Regulation E. Class members are also entitled to a written explanation of investigative findings before the bank can deny or close a claim. Additionally, the bank is, among other things, (i) prohibited from considering the results of its claim fraud filter as justification for freezing the card account of any class member; (ii) required to reopen any claims that were closed or denied “based solely” on results of its claim fraud filter if those claims have not already been paid or previously reopened and investigated; (iii) required to provide written notice to class members with blocked accounts explaining that their accounts will be unblocked if they authenticate their identity; and (iv) establish a process for handing class member claims.
5th Circuit: A single unsolicited text constitutes TCPA standing
On May 26, the U.S. Court of Appeals for the Fifth Circuit held that receiving a single unsolicited text message is enough to establish standing under the TCPA. The plaintiff alleged he received an unsolicited text message on his cell phone from the defendant after he had previously revoked consent and reached a settlement with the defendant to resolve a dispute over two other unsolicited text messages. The plaintiff filed a putative class action alleging that the defendant negligently, willfully, and/or knowingly sent text messages using an automatic telephone dialing system without first receiving consent, and that the unsolicited message was “a nuisance and invasion of privacy.” The district court dismissed the suit for lack of standing, ruling that a “single unwelcome text message will not always involve an intrusion into the privacy of the home in the same way that a voice call to a residential line necessarily does.”
On appeal, the 5th Circuit disagreed, concluding that the nuisance arising from the single text message was a sufficiently concrete injury and enough to establish standing. “In enacting the TCPA, Congress found that ‘unrestricted telemarketing can be an intrusive invasion of privacy’ and a ‘nuisance,’” the appellate court wrote, commenting that the TCPA “cannot be read to regulate unsolicited telemarketing only when it affects the home.” In addition, the appellate court found that the plaintiff separately alleged personal injuries that separated him from the public at large by arguing that the “aggravating and annoying” robodialed text message “interfered with [his] rights and interests in his cellular telephone.” In reversing the district court’s ruling, the 5th Circuit disregarded precedent set by the 11th Circuit in Salcedo v. Hanna (covered by InfoBytes here). Calling the other appellate court’s decision “mistaken,” the 5th Circuit contended the other appellate court took too narrow a view of the theory of harm by concluding that there must be some actual damage before an action can be maintained. Moreover, the 5th Circuit stated the 11th Circuit misunderstood the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, writing “Salcedo’s focus on the substantiality of an alleged harm threatens to make this already difficult area of law even more unmanageable. We therefore reject it.”
District Court finds that lender did not waive arbitration clause by filing collection lawsuit
On May 19, the U.S. District Court for the Southern District of Texas granted a lender’s motion to compel arbitration in a putative class action debt collection case, ruling that the lender’s collection lawsuit against an individual did not waive the arbitration clause in the underlying promissory note. After the plaintiff borrower defaulted on a personal loan, she received a collection letter from a law firm hired by the creditor, which contained a warning that if payment was not made within 30 days, a recommendation would be made to the creditor to file a lawsuit to collect on the debt. Six days after sending the letter, the creditor filed suit in small claims court to recover the unpaid debt. The plaintiff then filed a separate lawsuit against the creditor and the law firm, alleging violations of the FDCPA and the Texas Debt Collection Act (TDCA). The plaintiff claimed, among other things, that the letter made “false, deceptive, or misleading representations” because the creditor demanded payment within 30 days even though the FDCPA provides borrowers 30 days to dispute a debt after receiving a collection letter. The plaintiff further sought to hold the creditor “vicariously liable [under the TDCA]” for the law firm’s allegedly unlawful collection activities. The defendants moved to compel arbitration, but the plaintiff argued that the arbitration clause in the underlying promissory note was waived when the defendants sued to collect on the unpaid debt. The plaintiff also argued that the law firm hired by the creditor could not compel arbitration because it was not a party to the promissory note. The court disagreed, finding that the creditor’s decision to file a lawsuit for breach of contract in small claims court “should not prevent it from later enforcing its right to arbitrate a completely separate claim.” The court further concluded that the allegations brought against the law firm are “inextricably enmeshed and have a significant relationship to the terms” of the promissory note, and that, as such, the law firm may compel arbitration even though it is a nonsignatory to the agreement.