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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.
2nd Circuit: SEC within authority to bring actions for SAR failings
On December 4, the U.S. Court of Appeals for the Second Circuit affirmed summary judgment in favor of the SEC in an action brought by the agency against a penny stock broker-dealer, concluding the agency has the authority to bring an action under Section 17(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 17a-8 promulgated thereunder for failure to comply with the Suspicious Activity Report (SAR) provisions of the Bank Secrecy Act (BSA). According to the opinion, the SEC filed an action against the broker-dealer for violating the Exchange Act and Rule 17a-8’s reporting, recordkeeping, and record-retention obligations by failing to file SARs as required by the BSA. Both parties moved for summary judgment, with the broker-dealer arguing that the SEC was improperly enforcing the BSA. The district court granted summary judgment in favor of the SEC in part (deferring “its resolution of categories of allegedly deficient SARs pending discovery and additional briefing”) and denied summary judgment for the broker-dealer, concluding that the SEC had authority to bring the action under the Exchange Act. After discovery and additional briefing, the SEC moved for summary judgment on the Rule 17a-8 violations and the district court granted summary judgment as to nearly 3,000 violations on the basis of the broker-dealer’s SARs-reporting and recordkeeping practices and imposed a $12 million civil penalty.
On appeal, the 2nd Circuit agreed with the district court, rejecting the broker-dealer’s argument that the SEC is attempting to enforce the BSA, which only the U.S. Treasury Department has the authority to do. The appellate court noted that the SEC is enforcing the requirements of Rule 17a-8, which requires broker-dealers to adhere to the BSA in order to comply with requirements of the Exchange Act, which does not constitute the agency’s enforcement of the BSA. Moreover, the appellate court concluded that the SEC did not overstep its authority when promulgating Rule 17a-8, as SARs “serve to further the aims of the Exchange Act by protecting investors and helping to guard against market manipulation,” and that the broker-dealer did not meet its “‘heavy burden’ to show that Congress ‘clearly expressed [its] intention’ to preclude the SEC from examining for SAR compliance in conjunction with FinCEN and pursuant to authority delegated under the Exchange Act.” In affirming the $12 million civil penalty, the appellate court stated that the district court acted “within its discretion to impose the [] penalty” considering the broker-dealer’s “systematic and widespread evasion of the law.”
District court denies dismissal and stay of CFPB action
On November 30, the U.S. District Court of the District of Maryland denied a motion to dismiss an action brought by the CFPB against a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”), rejecting the defendants’ argument that the Bureau lacked standing to bring the action. As previously covered by InfoBytes, in September 2019, the Bureau alleged the defendants violated the FCRA, FDCPA, and the CFPA by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnish information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The defendants moved to dismiss the action arguing, among other things, that (i) the Bureau lacks standing to bring the action; and (ii) Director Kraninger’s ratification of the litigation was invalid. In the alternative, the defendants moved to stay the lawsuit until the U.S. Supreme Court issued a ruling in Collins v. Mnuchin (covered by InfoBytes here).
The court denied the motion to stay, concluding that the issues pending before the Supreme Court in Mnuchin may not necessarily apply to the Bureau, as they are different agencies and further, there is no issue of ratification in Mnuchin. Thus, given the “uncertainty surrounding the effect a decision in Collins v. Mnuchin will have on the present case,” the court denied the motion to stay. The court also denied the motion to dismiss, concluding, among other things, that the Supreme Court’s finding in Seila Law LLC v. CFPB (covered by a Buckley Special Alert) that the Bureau had a constitutional defect in its leadership structure under Article II does not diminish the agency’s Article III standing. Moreover, the court concluded that the decision in Seila Law does not mean that the Bureau “lacked authority during the time in which it was led by an improperly removable Director,” and therefore the Bureau had the authority to initiate the September 2019 lawsuit against the defendants. Further, the court held that the July 2020 ratification of the enforcement action was proper.
9th Circuit vacates summary judgment in bankruptcy, FDCPA action
On November 25, the U.S. Court of Appeals vacated summary judgment in favor of defendants in an action alleging the defendants violated the FDCPA by attempting to collect a debt that was discharged in a bankruptcy proceeding and no longer owed. According to the opinion, after the plaintiff fell behind on dues that were owed to his homeownership association (HOA), a law firm acting as a debt collector on behalf of the HOA obtained a lien for the unpaid debt and initiated nonjudicial foreclosure proceedings. The plaintiff filed and received approval for Chapter 13 bankruptcy protection. A separate collection agency that received the plaintiff’s HOA arrearage payments eventually informed the bankruptcy trustee that the HOA debt was “paid in full,” with a notice issued to that effect. An order of discharge was entered in the case by the bankruptcy court after the completion of payment was verified. Following the bankruptcy discharge order, the law firm—whose records still showed an unpaid balance—undertook collection efforts again. The plaintiff informed the law firm that the debt had been paid, and—after further review—the law firm acknowledged a communication from the collection agency that stated the debt had been paid in full. The plaintiff filed suit, but the defendants argued that the claims were precluded under Walls v. Wells Fargo Bank, N.A. because the debt was discharged in bankruptcy. The district court granted the defendant’s motion for summary judgment, ruling that the plaintiff’s “FDCPA claims were precluded ‘because they are premised upon violations of the bankruptcy post-discharge injunction.’”
On appeal, the 9th Circuit concluded that the plaintiff’s claims were not precluded by the Bankruptcy Code. The appellate court observed that while its 2002 decision in Walls generally indicates that the Bankruptcy Code precludes FDCPA claims premised on a violation of a bankruptcy discharge order, it did not apply in this case. Among other things, the panel determined that the plaintiff’s FDCPA claims were not premised on an issuance or violation of the discharge order in the bankruptcy proceeding. Rather, the plaintiff’s FDCPA claims were based on a debt that was fully satisfied through arrearage payments as part of a Chapter 13 plan before a discharge order was entered. As such, the appellate court determined that “just because [the plaintiff] made his arrearage payments through operation of a bankruptcy plan” it “does not render his FDCPA claims inextricably intertwined with bankruptcy issues.”
District court advances CFPB action against bank for alleged TILA, CFPA violations
On December 1, the U.S. District Court for the District of Rhode Island denied a national bank’s motion to dismiss a CFPB lawsuit alleging violations of the Consumer Financial Protection Act (CFPA) and TILA, rejecting the bank’s arguments that, among other things, the CFPB’s claims were time-barred and that the case cannot proceed because the CFPB’s structure violates constitutional separation-of-powers identified in Seila Law LLC v. CFPB. As previously covered by InfoBytes, the CFPB filed suit in January against the bank alleging, among other things, that when servicing credit card accounts, the bank failed to properly (i) manage consumer billing disputes for unauthorized card use and billing errors; (ii) credit refunds to consumer accounts resulting from such disputes; or (iii) provide credit counseling disclosures to consumers. According to the CFPB, the alleged conduct “began in 2010 or earlier and ended, depending on the violation, sometime in 2015 or 2016.” The CFPB also noted that the parties signed agreements tolling all relevant statutes of limitations from February 23, 2017, until January 31, 2020. The bank argued that the CFPB’s claims are governed by section 1640 of TILA with its one-year statute of limitations, but the CFPB countered that its claims were brought pursuant to section 1607 of TILA, which provides a “three-year discovery period.”
In denying the bank’s motion to dismiss, the court concluded that the tolling agreements were valid and that the three-year limit under section 1607 applied because “plain language indicates that § 1640 only governs cases brought by individuals or state attorneys general,” whereas § 1607 “provides the cause of action for federal enforcement agencies such as the CFPB.” Furthermore, the court determined that because § 1607 “does not contain a statute of limitations,” and “instead stat[es] that cases brought by the CFPB ‘shall be enforced under. . . subtitle E of the [CFPA],’ the action is governed by subtitle E’s requirement that cases be brought within three years of discovery by the CFPB.” The court also dismissed the bank’s constitutional claims, ruling, among other things, that the argument is moot following the U.S. Supreme Court’s decision in Seila, which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the CFPB (covered by a Buckley Special Alert).
1st Circuit: Original creditor’s arbitration agreement applies to debt buyer
On November 25, the U.S. Court of Appeals for the First Circuit affirmed a grant of a motion to compel arbitration in a debt collection action, concluding that a debt buyer holds the same arbitration rights as the original creditor under a cardmember agreement entered into with the plaintiff. The debt buyer purchased a pool of defaulted credit card debts from the original creditor, including the plaintiff’s charged-off account. After a municipal judge ruled that the debt buyer could not prove it owned the unpaid debt, the plaintiff filed a class action lawsuit alleging, among other things, that the debt buyer and its law firm (collectively, “defendants”) violated the FDCPA by attempting to collect the debt after the statute of limitations had expired. The defendants filed a motion to compel arbitration, and the district court approved the magistrate judge’s recommendation that an enforcement clause in the cardholder agreement between the plaintiff and the original creditor be enforced. The plaintiff appealed, arguing that the defendants should not be able to compel arbitration because they were not the signatories of the original cardholder agreement.
On appeal, the 1st Circuit concluded that the plaintiff offered no support for deviating from the “long-standing given in contract law. . .that ‘an assignee stands in the shoes of the assignor,’” holding that the original creditor’s rights were assigned to the debt buyer and its agents, including the right to invoke the cardmember agreement’s arbitration provision.
SBA must release PPP and EIDL borrower information by December 1
On November 24, the U.S. District Court for the District of Columbia denied the U.S. Small Business Administration’s (SBA) request for stay and ordered the release of the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) by December 1. As previously covered by InfoBytes, the court ordered the SBA to supplement their July disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020,” concluding that the SBA’s claimed FOIA exemptions do not cover the requested information disclosures. The SBA moved to stay the order to “preserve [the] SBA’s right to appeal and to avoid irreparable harm to [the] SBA and to privacy and business confidentiality interests of the millions of individuals and businesses….” The court initially granted a temporary stay to review the motion (covered by InfoBytes here). Upon review, the court denied the stay, concluding that staying the disclosure through an appeal “would deprive the public of information critical to an ongoing national debate of considerable importance, as well as basic details surrounding an unprecedented federal relief effort financed by taxpayer dollars.” The SBA must release the supplemental information by December 1, however, the court noted that “nothing in this decision prevents SBA from seeking its desired relief in the Court of Appeals before that date.”
Updated PPP loan data available here.
Court stays PPP and EIDL borrower disclosure
On November 13, the U.S. District Court for the District of Columbia temporarily stayed the U.S. Small Business Administration's (SBA) mandatory release of the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) borrowers until the court rules on the motion to stay filed by the SBA. As previously covered by InfoBytes, the court ordered the SBA to supplement their July disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020,” concluding that the SBA’s claimed Freedom of Information Act (FOIA) exemptions do not cover the requested information disclosures. The SBA moved to stay the order to “preserve [the] SBA’s right to appeal and to avoid irreparable harm to [the] SBA and to privacy and business confidentiality interests of the millions of individuals and businesses….” The SBA requested the order be stayed until December 7 or pending appeal, if filed by that date. In response, the court issued a minute order, granting a temporary stay until it rules on the motion.