InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Court denies tech company's second request for COPPA claim dismissal
On February 2, the U.S. District Court for the District of New Mexico granted a technology company’s motion for reconsideration in part, but denied dismissal of the New Mexico attorney general’s action alleging the company designed and marketed mobile gaming applications (apps) targeted towards children that contain illegal tracking software in violation of the Children’s Online Privacy Protection Act (COPPA). As previously covered by InfoBytes, the attorney general filed a lawsuit against a group of technology companies, alleging that the companies’ data collection and sharing practices did not comply with COPPA’s specific notice and consent requirements, while the apps’ embedded software development kits (SDKs) allow the apps to communicate directly with the advertising companies that analyze, store, use, share, and sell the data to other third-parties to build “increasingly-detailed profiles of child users” in order to send highly-targeted advertising. In April 2020, the court denied in part a motion to dismiss by one of the companies, concluding the attorney general plausibly alleged that the company “had actual knowledge of the child-directed nature” of the apps, and under COPPA, “ad networks may be held liable for the collection of personal information from child app users only if they have ‘actual knowledge’ that the apps in which their (SDKs) are embedded are ‘directed to children.’” The company moved for reconsideration, arguing that the court improperly held whether “children were the ‘primary target audience’ of the app was not relevant to the ‘actual knowledge’ determination.”
Upon reconsideration, the court agreed with the company that its April 2020 opinion “misapprehended the significance of the mixed-audience exception to the actual knowledge determination,” but concluded that there is no basis to dismiss the COPPA claim because the attorney general still “adequately alleged actual knowledge on the part of [the company].”
State AGs oppose proposed settlement in FDCPA processing fees class action
On January 29, a coalition of state attorneys general from 32 states and the District of Columbia, led by the New York AG, filed an amicus brief in the U.S. District Court for the Southern District of Florida opposing a proposed settlement in a class-action FDCPA suit against a mortgage servicer that allegedly charged “processing fees” or “convenience fees” for mortgage payments made over the phone or online. The plaintiffs filed the lawsuit last March claiming the defendant did not charge processing fees if borrowers made payments by check or signed up for automatic monthly debits from their bank accounts. They further argued that the processing fees were “illegal and improper because neither the mortgages themselves nor applicable statutes authorize such fees.” The parties agreed to mediation in April, and a motion for preliminary approval of a settlement was filed in August.
In their brief, the AGs outlined concerns with the proposed settlement, including that (i) the relief provided to class members violates various state laws, and that the defendant seeks to ratify fees in an “unwritten, mass amendment” that violates state laws and regulations; (ii) the class members only receive an “inadequate” one-time payment, while the defendant may continue to charge excessive fees for the life of the loan; and (iii) low- and moderate-income borrowers are not treated equitably under the proposed settlement. Additionally, the AGs emphasized concerns “about the speed with which this case was settled,” arguing that entering into the proposed settlement quickly during the Covid-19 pandemic has deprived the court and the AGs “of the ability to determine the adequacy, fairness and reasonableness of the settlement.”
Court denies dismissal of OCC CRA rule challenge
On January 29, the U.S. District Court for the Northern District of California denied dismissal of an action brought against the OCC by two community coalitions, requesting the court block the agency’s final rule to revise the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by InfoBytes, in June 2020, the groups filed a complaint alleging that, among other things, the OCC failed to provide for meaningful public input on key revisions to the agency’s final rule, and that the May 20 rule (covered by a Buckley Special Alert) failed to consider the impact of the Covid-19 pandemic and is in violation of the Administrative Procedures Act. The OCC moved to dismiss the action, arguing that the community groups lack standing, or in the alternative, that they do not fall within the CRA’s “zone of interests.” The district court disagreed. Specifically, the court concluded that the community groups adequately alleged standing because the members of their organizations “compete for OCC-regulated banks’ CRA dollars,” and their members “will now have to compete with investment opportunities that could not previously receive CRA credit.” Moreover, among other things, the court concluded that the community groups satisfy the “the zone-of-interests test, because they receive grants and loans for which banks obtain CRA credit, making them direct beneficiaries of the statute.”
Courts say TCPA not invalidated by Supreme Court decision
On January 31, the U.S. District Court of the Central District of California denied dismissal of a putative class action alleging that a consumer lender violated the TCPA, concluding that the U.S. Supreme Court’s decision in Barr v. American Association of Political Consultants Inc. (AAPC) (covered by InfoBytes here) does not bar the claims. According to the order, a consumer filed the putative class action alleging that the lender violated the TCPA by placing telemarketing calls to residential numbers listed on the National Do Not Call Registry. The lender moved to dismiss the action, arguing that the Court’s decision in AAPC (holding that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is an unconstitutional content-based speech restriction, and severing the provision from the statute), invalidated the entire TCPA from the time the offending exception was added in 2015 to July 2020 when the Court severed the provision from the statute. The district court disagreed, concluding that the Court’s decision in AAPC was limited to the specific provision for robocalls to cell phones in Section 227(b) and did not extend to Section 227(c)’s do not call provisions. Additionally, the court concluded that the “Court in AAPC did not conclude that the entire TCPA was unconstitutional.” Thus, Section 227(c) “remained ‘fully operative as law’” from 2015 through July 2020.
Earlier on January 28, the U.S. District Court for the Southern District of California denied dismissal of a TCPA action for lack of subject matter jurisdiction, concluding that the Court’s decision in Barr, did not invalidate the TCPA in its entirety from 2015 until July 2020. According to the order, consumers filed a consolidated class action against a cruise line, alleging violations of, among other things, the TCPA for marketing calls made to class members’ cell phones using an automatic telephone dialing system between November 2016 and December 2017. The cruise line moved to dismiss the action, arguing that the Court’s decision in AAPC (holding that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is unconstitutional “because it favored debt-collection speech over political or other speech in violation of the First Amendment,” and severing the provision from the statute), invalidated the entire TCPA from when the offending exception was enacted in 2015, until the Court severed the amendment in July 2020. Disagreeing with other district courts (covered by InfoBytes here and here), the district court rejected the cruise line’s argument, concluding that the Court did not intend to have TCPA actions “cavalierly dismissed by a district court.” The district court relied on a statement made by Justice Kavanaugh in the Court’s plurality opinion, stating “our decision today does not negate the liability of parties who made robocalls covered by the robocall restriction.” The district court rejected the cruise line’s argument that Kavanaugh’s statement is dicta, because, among the fragmented decisions, seven justices “agree that the 2015 amendment should be severed and the liability of parties making robocalls who were not collecting a government debt is not negated.” Thus, because the cruise line was not attempting to collect a government debt, the district court denied the motion to dismiss.
Court dismisses PPP discrimination claims against national bank
On February 1, the U.S. District Court for the District of New Jersey issued an opinion letter granting defendants’ motion to dismiss for failure to state a claim in a matter concerning whether a national bank retaliated against minority- and women-owned businesses when they stopped honoring checks and electronic payments related to the businesses’ involvement with the Paycheck Protection Program (PPP). The plaintiffs (who operate companies that “provide ‘cash flow and investment opportunities to small and diverse businesses and individuals’”) obtained approval from the Small Business Administration to issue PPP loans to minority-owned businesses and deposited approximately $100 million into one of their business accounts at the defendant bank. The plaintiffs alleged discrimination and retaliation claims under 42 U.S.C. § 1981 and the New Jersey Law Against Discrimination and the New Jersey Civil Rights Act, claiming the bank began refusing to honor checks or electronic payments drawn from the account. In addition, the plaintiffs claimed the bank notified them that it was unable to support their efforts to participate in the PPP program but “‘never provided a legitimate, lawful or non-discriminatory reason’” for refusing to honor the plaintiffs’ checks and electronic payments. The plaintiffs claimed that they are members of a racial minority, and alleged, among other things, that the bank later froze and closed their business and personal accounts. The court disagreed, concluding the plaintiffs “fail[ed] to plead facts that show that Defendants intended to discriminate against them because of their race.” According to the court, the plaintiffs “do not plead that they were treated differently than any other individuals or businesses who are not members of a protected class. Rather, they conclude, without support, that [the bank’s] decision to decline Plaintiffs’ PPP Loan transactions was motivated solely by discriminatory intent. This is insufficient.” Because the federal claim was dismissed, the court declined to exercise jurisdiction over the plaintiffs’ state law claims of breach of contract.
Bank subsidiary to pay $604 million for RMBS defects
On January 25, the Supreme Court of the State of New York ordered an investment bank subsidiary (defendant) to pay nearly $604 million, plus pre-judgment contractual interest, to an insurance company (plaintiff) for allegedly breaching the representations and warranties contained in a pooling and servicing agreement (PSA) for mortgages contained in the residential mortgage-backed securities (RMBS) it sold in 2007. According to the November 2020 post-trial order, the plaintiff issued irrevocable insurance policies that “unconditionally guaranteed payment of principal and interest to certificate holders of the RMBS transactions.” After the 2008 financial crisis, 51 percent of the original loan balances of the related mortgages held in the insured trust defaulted, and in July 2009, the plaintiff began to send mortgage repurchase demand letters to the defendants. Following the defendant’s refusal to repurchase the loans, the plaintiff subsequently commenced the action, alleging that the defendant breached the representations and warranties contained in the PSA. At trial, the trial court concluded that the plaintiff “convincingly proved” that “more than half of the securitized loans were materially non-conforming” and should be awarded compensation for its losses, as the plaintiff “did not assume the risk of loss that [the non-confirming loans] posed.” However, the court further determined that the plaintiff could not recover damages that were not “directly attributable to the materially non-confirming loans.” After directing the parties to file letters addressing remaining issues before the entry of monetary judgment, the court determined that the repurchase date for determining damages should be 90 days after the repurchase trigger (the date of notice from plaintiff) and not the date of breach. Therefore, based on a repurchase date of October 28, 2009, the court ordered the defendant to pay nearly $604 million in damages to the plaintiff.
11th Circuit: Debt owner not vicariously liable for affiliate’s actions
On January 27, the U.S. Court of Appeals for the Eleventh Circuit held that a debt owner (defendant) cannot be held liable under the FDCPA or Florida Consumer Collection Practices Act (FCCPA) for the allegedly false representations made by another entity acting on its behalf. According to the opinion, after a consumer defaulted on three credit cards, the debts were sold to the defendant, and its affiliate began collection efforts in Florida state court against the consumer. The lawsuits were filed under the defendant’s name, “but [the affiliate] was ‘responsible for reviewing, processing, and entering all hearing results.’” The parties agreed to a settlement agreement and the consumer made his first payment. However, on each subsequent occasion the consumer visited the affiliates’ website, the website displayed a balance over three times as high as the settlement amount. The consumer filed suit against the defendant, alleging multiple violations of the FDCPA and FCCPA. The district court granted summary judgment in favor of the defendant, concluding that the defendant could not be liable under the FDCPA or the FCCPA, notwithstanding the fact that it qualifies as a debt collector.
On appeal, the 11th Circuit agreed with the district court, affirming summary judgment in favor of the defendant. Specifically, the appellate court rejected the consumer’s arguments that the defendant should be held indirectly liable for the affiliate’s representations made on their website. The appellate court noted that if the defendant qualified as a debt collector under the “principle purposes” clause of the FDCPA, “it cannot be held liable based on the use of ‘indirectly’ in the separate and inapplicable ‘regularly collects’ definition.” Moreover, the appellate court rejected the consumer’s argument that the definition of “communication” under the FDCPA supports indirect liability, concluding it is similarly “irrelevant to [the consumer]’s false representation claims under Section 1692e.” Lastly, because the district court properly granted summary judgment on the consumer’s FDCPA claim, “it correctly granted summary judgment on his FCCPA claim as well.”
CFPB obtains $15 million judgment against student financial aid operation
On January 21, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment in a 2015 case against a now defunct California-based student financial aid operation and its owner (defendants). As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. However, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.”
In issuing the order, the court determined, among other things, that the Bureau had established the owner defendant’s liability for deceptive practices under the CFPA, rejecting the owner defendant’s argument that booklets sent to consumers did not qualify as a “consumer financial product or service” within the scope of the Bureau’s enforcement authority. The court further ruled that the owner defendant had made material representations to consumers that were “likely to mislead” them into thinking, among other things, that they would receive individually tailored products, when in reality their individual information never mattered and no specific financial aid advice was ever provided. However, the court denied the CFPB’s motion for summary judgment with respect to solicitation packets sent by the defendants in 2016, ruling that an included FAQ creates “a genuine issue of disputed fact as to whether the 2016 solicitation packets misrepresented that [the company’s] program permitted consumers to apply for financial aid or to apply through [the company].”
The order requires the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. The court will also issue an injunction to prevent the defendants “from committing any future fraud” once the Bureau submits a proposed order. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P.
Court revives RESPA kickback suit
On January 26, the U.S. District Court for the District of Maryland granted plaintiffs’ motion for reconsideration and relief stemming from a 2020 dismissal order, which previously dismissed RESPA claims in a kickback suit. The case originally alleged a mortgage lender entered into an arrangement with a settlement service company to trade referrals for kickbacks, which resulted in the plaintiffs being overcharged for their settlement services. In 2020, the court granted the defendant’s motion to dismiss, finding that the alleged payments fell under RESPA’s safe harbor provision permitting compensation to be paid for services performed. In re-opening the case, the court acknowledged that the dismissal of the case was premised on two “clear” errors with respect to RESPA’s safe harbor provision. First, the court noted that it previously misconstrued that the settlement service company was the recipient of the alleged kickbacks, when in actuality, the lender received the kickbacks. Second, the court determined that the plaintiffs were correct in asserting that the court failed to consider allegations in their amended complaint that the lender did not render any services to the settlement service company to warrant the payments it received. The court concluded it had made an error by “concluding that the alleged kickback payments were protected under RESPA’s safe harbor provision.” The court also revived the plaintiffs’ Racketeer Influenced and Corrupt Organizations Act claims after determining they were plausibly pled.
Court approves grocery store data breach settlement
On January 25, the U.S. District Court for the Central District of Illinois preliminarily approved a class action settlement, resolving allegations that a grocery chain was responsible for a data breach that exposed the credit card information of consumers. The preliminary settlement would allow class members to receive reimbursement of up to $225 for out-of-pocket expenses related to the breach, including (i) unreimbursed bank, overdraft, and late fees; (ii) long distance and cell phone charges; and (iii) costs related to credit monitoring and identity theft protection. Additionally, class members may be awarded up to $5,000 for “extraordinary unreimbursed monetary losses” resulting from the compromise of personal information. Moreover, the grocery chain agreed to “establish and maintain security enhancements that are estimated to cost more than $20 million.” Class members who do not agree to the settlement may keep their right to independently sue if they opt out by May 24.