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9th Circuit reaffirms order enforcing Seila CID
On December 29, the U.S. Court of Appeals for the Ninth Circuit reaffirmed a district court’s order granting the CFPB’s petition seeking to enforce a civil investigative demand (CID) sent to Seila Law. As previously covered by InfoBytes, the Bureau filed a supplemental brief arguing that the formal ratifications of then-Acting Director Mick Mulvaney and current Director Kathy Kraninger, paired with the U.S. Supreme Court’s ruling in Seila v. CFPB, are sufficient for the appellate court to enforce the CID previously issued against the law firm, and that “[s]etting aside the CID at this point would serve no valid purpose.” In reaffirming the order, the appellate court wrote that “Director Kraninger’s ratification remedied any constitutional injury that Seila Law may have suffered due to the manner in which the CFPB was originally structured. Seila Law’s only cognizable injury arose from the fact that the agency issued the CID and pursued its enforcement while headed by a Director who was improperly insulated from the President’s removal authority. Any concerns that Seila Law might have had about being subjected to investigation without adequate presidential oversight and control had now been resolved. A Director well aware that she may be removed by the President at will had ratified her predecessors’ earlier decisions to issue and enforce the CID.” The 9th Circuit also rejected Seila Law’s argument that the ratification occurred outside the limitations period for bringing an enforcement action against the law firm, determining that the “statutory limitations period pertains solely to the bringing of an enforcement action, which the CFPB had not yet commenced against Seila Law.”
9th Circuit affirms dismissal of data breach class action against online payment firm
On December 17, the U.S. Court of Appeals for the Ninth Circuit affirmed dismissal of a class action suit brought against an online payments firm and associated entities and individuals (collectively, “defendants”) for allegedly misleading investors (plaintiffs) about a 2017 data breach. As previously covered by InfoBytes, the district court concluded that, while the plaintiffs plausibly alleged the defendants’ November 2017 announcement about the data breach was misleading because it only disclosed a security vulnerability and did not disclose a breach that “potentially compromised” 1.6 million customers until a month later in December, plaintiffs failed to show that the defendants knew the breach had affected 1.6 million customers when they made the initial statement. Moreover, the court concluded the plaintiffs failed to allege that plaintiffs’ cybersecurity expert was familiar with, or had knowledge of, the defendants’ specific security setup or that he actually talked to the defendants’ employees about the breach.
On appeal, the 9th Circuit agreed with the district court, noting that the complaint lacked any allegation that the defendants had a motive to mislead investors in November, but not in December, such as the selling of stock during the relevant period. Thus, the appellate court could not conclude that the plaintiffs showed that the November announcement “was intentionally misleading or so obviously misleading that he must have been aware of its potential to mislead.” Therefore, the appellate court affirmed dismissal for failure to state a claim.
Another court dismisses PPP agent fees suit
On January 6, the U.S. District Court for the Central District of California issued an order dismissing a putative class action against two national banks alleging that the banks owe fees to agents that helped businesses file applications for the Paycheck Protection Program (PPP). The named plaintiff, a consulting company that aided borrowers in applying for federally guaranteed loans through the PPP, argued that its agents were entitled to fees from the banks that provided PPP loans. The court disagreed, finding that the CARES Act and its implementing regulations do not require lenders to pay agent fees absent an express agreement between an agent and the lender. The court further found that “nothing behind language in the CARES Act suggests that Congress intended to create an implied private right of action.”
The court’s decision follows rulings issued by other federal courts, which have also dismissed similar agent fee actions (covered by InfoBytes here, here, here, and here).
Court enters nearly $90 million default judgment against student debt-relief defendants
On December 15, the U.S. District Court for the Central District of California entered a default judgment and order against two companies (collectively, “default defendants”) for their role in a student loan debt-relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation (defendants) for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. The complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the complaint asserts that the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments. In September, the court entered final judgments against four of the defendants (covered by InfoBytes here), which included a suspended monetary judgment of over $95 million due to the defendants’ inability to pay.
The new default order enters a $55 million judgment against one of the defaulting defendants and requires the defaulting defendant to pay a $30 million civil money penalty with $50,000 of that sum going directly to each of the states. Additionally, the court entered a judgment of over $165,000 to the other defaulting defendant and total civil money penalties of $2.5 million, with $10,000 going to each of the states directly and an additional $1.25 million to California. The judgment also, among other things, permanently bans the defaulting defendants from telemarketing any consumer financial product or service and from selling any debt-relief service.
Court enters judgments against multiple defendants in CFPB debt-relief action
On December 15, the U.S. District Court for the Central District of California entered final judgment against two defendants (defendants) and a default judgment against another defendant (defaulting defendant) in an action brought by the CFPB alleging the defendants (and others not subject to these judgments) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defendants, one other company, its two owners, and four attorneys, alleging the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The businesses allegedly charged the fees before the customer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees. In August, the court approved stipulated final judgments with one of the owners of the other company and three of the attorneys. In December, the court entered a default judgment against the other company and another owner (previous InfoBytes coverage available here).
The final judgment permanently bans the defendants from engaging in any debt-relief service or telemarketing of any consumer financial product or service. Additionally, the court entered a suspended judgment of over $11 million in redress, which will be satisfied by a payment of $5,000 (due to an inability to pay) and each defendant is required to pay a civil money penalty of $1 to the Bureau. Liability for nearly $5 million was entered by default judgment against the defaulting defendant and a civil monetary penalty in the amount of $5 million.
8th Circuit vacates FDCPA judgment against debt buyer
On December 14, the U.S. Court of Appeals for the Eighth Circuit vacated a $4,000 judgment in favor of a consumer in an FDCPA action against a debt buyer (defendant), concluding that while the defendant qualifies as a debt collector, the actions of the subsequent debt collector cannot be imputed to the defendant. According to the opinion, the defendant brought a collection action against a consumer, which was dismissed by the district court after the consumer retained an attorney and the defendant failed to respond to the consumer’s dismissal motion. The defendant subsequently hired a collection agency to collect on the debt but failed to inform the collection agency that the consumer had previous retained an attorney. After the collection agency sent a settlement offer to the consumer, the consumer filed an action against the defendant alleging violations of the FDCPA and the Arkansas Fair Debt Collection Practices Act (AFDCPA) for contacting her directly when she was represented by an attorney. The district court granted partial summary judgment in favor of the consumer, concluding, among other things, that the defendant (i) qualified as a debt collector under federal and state law; (ii) the defendant was acting as an agent of the collection agency; and (ii) the defendant is liable for the violations arising out of the collection agency’s contact with the consumer. The consumer accepted a $4,000 offer of judgment, and the district court entered final judgment.
On appeal, the 8th Circuit agreed that the defendant qualified as a debt collector under the FDCPA and the AFDCPA, but determined that the consumer “did not present sufficient evidence to establish that [the collection agency]’s actions may be imputed to [the defendant] as a matter of law.” Specifically, the appellate court concluded that in order to establish the defendant’s liability under the FDCPA, the consumer needed to show that the defendant was responsible for the collection agency’s action. Because it was established that the collection agency did not know that the consumer was represented by an attorney, the appellate court noted that the consumer “cannot prevail against [the defendant] on a theory of vicarious liability,” and instead, must prove that an agency relationship existed for direct liability. Because the consumer failed to put into evidence an agreement between the defendant and the collection agency and the district court failed to address the agency relationship, the appellate court concluded the district court erred in granting partial summary judgment and vacated the $4,000 judgment and remanded the case.
Court: Lender does not owe PPP fees to law firm
On December 15, the U.S. District Court for the District of Arizona issued an order dismissing an action against a California bank over whether a law firm is entitled to a portion of the fees paid by the Small Business Administration (SBA) to lenders making loans under the Paycheck Protection Program (PPP). According to the order, the law firm argued that it assisted a borrower in applying for a PPP loan from the bank and was therefore entitled to collect an agent fee. The court was unpersuaded and dismissed the action, concluding that the CARES Act—which created the PPP—“undermines, rather than supports” the law firm’s position. While “the statute affirmatively obligates the SBA Administrator to pay processing fees to lenders that make PPP loans,” it “does not create an affirmative obligation on the part of the SBA Administrator, or anybody else, to pay a fee to agents who assist borrowers in applying for PPP loans,” the court ruled. Instead, the statute “‘merely establishes that there can be a ceiling on the amount of such fees if they are collected.’” The court’s decision follows rulings issued by other federal courts, which have also dismissed similar agent fee actions (covered by InfoBytes here, here, and here). The order states that to date, every court that has addressed this question has concluded that PPP lenders do not have a mandatory obligation to pay fees to agents assisting borrowers with their PPP loan applications.
Court denies arbitration bid in tribal loan usury action
On December 10, the U.S. District Court for the Middle District of Florida denied a motion to compel arbitration filed by a collection company and its chief operations officer (collectively, “defendants”), ruling that the arbitration agreements are “unconscionable” and therefore “unenforceable” because of the conditions under which borrowers agreed to arbitrate their claims. According to the order, the plaintiffs received lines of credit from an online lending company purportedly owned by a federally recognized Louisiana tribe. After defaulting on their payments, the defendants purchased the past-due accounts and commenced collection efforts. The plaintiffs sued, alleging the defendants’ collection efforts violated the FDCPA and Florida’s Consumer Collection Practices Act (FCCPA) because the defendants knew the loans they were trying to collect were usurious and unenforceable under Florida law. The defendants moved to compel arbitration based on the arbitration agreement in the tribal lender’s line-of-credit agreement, and filed—in the alternative—motions for judgment on the pleadings.
The court ruled, among other things, that while the plaintiffs agreed to arbitrate all disputes when they took out their online payday loans, the “proposed arbitration proceeding strips Plaintiffs of the ability to vindicate any of their substantive state-law claims or rights,” and that, moreover, “the setup is a scheme to hide behind tribal immunity and commit illegal usury in violation of Florida and Louisiana law.” The court also granted in part and denied in part the defendants’ motions for judgment on the pleadings. First, in denying in part, the court ruled that because the “tribal choice-of-law provision in the [tribal lender’s] account terms is invalid,” the plaintiffs’ accounts are subject to Florida law. Therefore, because Florida law is applicable to the plaintiffs’ accounts, they present valid causes of action under the FDCPA and FCCPA. The court, however, ruled that the plaintiffs seemed to “conflate Defendants’ communications to facilitate the collection of the outstanding debts with a communication demanding payment,” pointing out that FDCPA Section 1692c(b) only punishes that latter, which “does not include communications to a third-party collection agency.”
Eleventh Circuit affirms ruling in TCPA re-consent case
On December 4, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in a TCPA action in favor of a student loan servicer and an affiliate responsible for performing default aversion services (collectively, “defendants”), concluding that the plaintiff re-consented to being contacted on his cell phone after filling out a form on the servicer’s website. According to the opinion, following a class action settlement in 2010—in which members of the class (including the plaintiff) who did not “submit revocation request forms were ‘deemed to have provided prior express consent’” to be contacted by the defendants—the plaintiff later claimed to have revoked consent to being contacted through the use of an automated telephone dialing system (autodialer) during a call with the servicer. While on the call, the plaintiff filled out an online automatic debit agreement to make payments on his delinquent loan. The agreement included a demographic form with an option for the plaintiff to update his contact information, which included an optional cell phone number field and a disclosure that granted consent to being contacted on his cell phone using an autodialer. The defendants began contacting the plaintiff on his cell phone after he fell behind on his loan payments, and the plaintiff sued, alleging the defendants violated the TCPA by placing calls using an autodialer without obtaining his prior express consent. The district court granted the servicer’s motion for summary judgment, ruling that the plaintiff “expressly consented” to receiving the calls and could not “unilaterally revoke” consent “given as consideration in a valid bargained-for-contract,” and that the plaintiff nonetheless “reconsented when he submitted the demographic form.” The plaintiff appealed, arguing, among other things, that he did not re-consent to being contacted because the form was submitted directly after his oral revocation to the servicer.
On appeal, the 11th Circuit agreed with the district court, holding that while it was true that the plaintiff “filled out the demographic form just moments after he orally revoked his prior consent, [the plaintiff] cites no authority that this temporal proximity should require this Court to consider the separate interactions (of revoking consent and later reconsenting) as one lumped-together interaction.” As such, the appellate court disagreed with the plaintiff’s argument “that the revocation of consent standard should stretch to apply to [his] later reconsent to [the servicer].”
Court enters $41 million default judgment against student debt-relief operators
On December 3, the U.S. District Court of the Central District of California entered a default judgment against a student debt-relief company and one of its owners (collectively, “defaulting defendants”) in an action brought by the CFPB alleging the defaulting defendants (and others not subject to the judgment) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defaulting defendants, one other company, its owner, and four attorneys, alleging the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The businesses allegedly charged the fees before the customer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees. In August, the court approved stipulated final judgments with the other company owner (available here) and three of the attorneys (available here, here, and here).
The court entered into a default judgment against the defendants after they failed to file an answer or otherwise respond to the Bureau’s complaint. The judgment requires the defaulting defendants to pay over $11 million in consumer redress with separate $15 million civil money penalties entered against the company and the owner. Additionally, the defaulting defendants are permanently banned from providing debt-relief services or engaging in telemarketing of any consumer financial product or service.