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District court allows Georgia counties’ disparate impact claims to proceed
On September 18, the U.S. District Court for the Northern District of Georgia denied a national bank’s motion to dismiss claims that the bank and its subsidiaries’ (collectively, “defendants”) mortgage originating and servicing practices and policies had a disparate impact on, and resulted in disparate treatment of, minority borrowers, in violation of the Fair Housing Act (FHA). The plaintiffs, three Georgia counties, filed a second amended complaint raising two disparate impact claims and one disparate treatment claim under the FHA, claiming the defendants’ lending and servicing practices—which included allegedly targeting minority borrowers for higher cost loan products, approving unqualified minority borrowers for loans they could not afford, and providing less favorable terms for loan modifications—were “designed to reduce the overall equity minority borrowers located within their counties had in their homes.” The practices, among other things, allegedly caused African-American and Latino borrowers to receive disproportionately higher cost mortgage loans than similarly situated white, non-Latino borrowers, creating an increase in defaults and foreclosures, and causing the plaintiffs to incur alleged damages, including out-of-pocket foreclosure-related costs and increased municipal expenses, and loss of property tax revenues due to decreased home values.
The defendants moved to dismiss, asserting, among other things, that the plaintiffs failed to properly allege their disparate impact claims under Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a previous Buckley Special Alert). The defendants also argued that the plaintiffs’ municipal “economic injuries were not proximately cause by the [d]efendants’ discriminatory policies under [City of Miami Garden v. Wells Fargo & Co.]” (covered by InfoBytes here), and that the plaintiffs failed to allege specific allegations within the FHA’s two-year statute of limitations.
The court granted the motion in part and denied it in part. With respect to the disparate impact claims, the court applied Inclusive Communities and held that the plaintiffs identified several specific policies that caused the alleged disparate impact. The court also rejected the statute of limitations arguments and held that the plaintiffs “‘can prove a set of facts’ showing a timely violation of the FHA.” The court dismissed certain of the counties’ injury claims—the plaintiffs’ attempts to recover franchise tax and municipal expenses (police, fire, and sanitation services related to vacant or foreclosed-upon properties)—ruling that plaintiffs failed to establish proximate cause and “explain how their municipal services injuries ‘are anything more than merely foreseeable consequences’ of [the d]efendants’ discriminatory acts.”
11th Circuit: Class action incentive fees are unlawful
On September 17, the U.S. Court of Appeals for the Eleventh Circuit reversed and vacated a district court judgment awarding an “incentive payment” to a TCPA class action representative, concluding it violates a U.S. Supreme Court decision prohibiting such awards. Additionally, the 11th Circuit remanded the case so that the district court could adequately explain its findings on the fees and costs issues. According to the opinion, a consumer initiated a TCPA class action against a collection agency for allegedly calling phone numbers that had originally belonged to consenting debtors but were subsequently reassigned to non-debtors. The action quickly moved to settlement and one class member objected, challenging “the district court’s decision to set the objection deadline before the deadline for class counsel to file their attorneys’-fee petition.” Additionally, among other things, the objector argued that the proposed $6,000 incentive award to the class action representative violates the 1880s Supreme Court decisions in Trustees v. Greenough and Central Railroad & Banking Co. v. Pettus. The district court overruled the class member’s objections.
On appeal, the 11th Circuit concluded that the district court “repeated several errors” that “have become commonplace in everyday class-action practice.” Specifically, the appellate court held that the district court “violated the plain terms of Federal Rule of Civil Procedure 23(h)” by setting the settlement objection date more than two weeks before the date class counsel had to file their attorneys’ fee petition. The appellate court also concluded that the district court violated the Supreme Court’s rule from Greenough and Pettus, which provides that “[a] plaintiff suing on behalf of a class can be reimbursed for attorneys’ fees and expenses incurred in carrying on the litigation, but he cannot be paid a salary or be reimbursed for his personal expenses.” The 11th Circuit noted that modern day incentive awards pose even more risks than the concerns from Greenough, promoting “litigation by providing a prize to be won.” Thus, according to the appellate court, although incentive awards may be “commonplace” in class action litigation, they are not lawful and therefore, the district court’s decision must be reversed.
2nd Circuit denies arbitration for sandwich chain in TCPA action
On September 15, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s denial of arbitration, concluding that a national sandwich chain’s website did not provide sufficient notice of the terms and conditions. According to the opinion, a consumer filed a TCPA action against the sandwich chain relating to unsolicited text messages he received after he entered his phone number on a promotional page of the company’s website in order to receive a free sandwich at his next visit. After entering his number, the consumer clicked a button stating “I’M IN,” which the sandwich chain argued “constituted assent to the terms and conditions contained on a separate webpage that was accessible via a hyperlink on the promotional page.” The terms and conditions included an agreement to arbitrate. The sandwich chain moved to compel arbitration of the consumer’s TCPA action and the district court denied the motion, finding that no arbitration agreement existed because “the terms and conditions were not reasonably clear and conspicuous on the promotional page itself.”
On appeal, the 2nd Circuit agreed with the district court, noting that the webpage “was relatively cluttered.” Specifically, the appellate court noted that the webpage lacked language “informing the user that by clicking ‘I’M IN’ the user was agreeing to anything other than the receipt of a coupon.” Moreover, the appellate court held that the link to the terms and conditions was not conspicuous to a reasonable user as it was in small font at the bottom of the page and was “introduced by no language other than the shorthand ‘T & Cs.’” Because the company did not provide sufficient evidence demonstrating the consumer’s knowledge of the terms and conditions, the appellate court affirmed the denial of arbitration.
Court orders investment training operation to pay $362 million in FTC action
On September 11, the U.S. District Court for the Central District of California ordered a California-based investment training operation to pay $362 million to resolve FTC allegations that the operation used deceptive claims to sell costly “training programs” targeting older consumers. As previously covered by InfoBytes, the FTC argued that the operation violated the FTC Act and the Consumer Review Fairness Act by using false or unfounded claims to market programs that purportedly teach consumers investment strategies designed to generate substantial income from trading in the financial markets “without the need to possess or deploy significant amounts of investable capital.” Additionally, the FTC alleged the operation required that dissatisfied customers requesting refunds sign agreements barring them from posting negative comments about the operation or its personnel, and prohibited customers from reporting potential violations to law enforcement agencies.
The district court agreed with the FTC, approving an order that requires the operation to pay a partially suspended judgment of $362 million, with three individual defendants required to pay $8.3 million, $158,000, and $736,300, respectively, and to surrender various assets. The remainder of the total judgment is suspended upon the completion of the individuals’ respective payments and surrender of assets, conditioned on the “truthfulness, accuracy, and completeness” of the sworn financial representations. Moreover, among other things, the order prohibits the operation from (i) making misleading claims of potential earnings or misrepresenting the time or effort required by consumers to “attain proficiency” in the operation’s trading strategy; and (ii) restricting customers from communicating with law enforcement or posting negative reviews. Additionally, the operation must notify all clients of their rights to post honest reviews and to file complaints.
9th Circuit upholds $50 million order in FTC action against publisher
On September 11, the U.S. Court of Appeals for the Ninth Circuit, in a split decision, upheld the district court order requiring a publisher and conference organizer and his three companies (defendants) to pay more than $50.1 million to resolve allegations that the defendants made deceptive claims about the nature of their scientific conferences and online journals and failed to adequately disclose publication fees in violation of the FTC Act. As previously covered by InfoBytes, in an action filed in the U.S. District Court for the District of Nevada, the FTC alleged the defendants misrepresented that their online academic journals underwent rigorous peer reviews; instead, according to the FTC, the defendants did not conduct or follow the scholarly journal industry’s standard review practices and often provided no edits to submitted materials. Additionally, the FTC alleged that the defendants failed to disclose material fees for publishing authors’ work when soliciting authors and that the defendants falsely advertised the attendance and participation of various prominent academics and researchers at conferences without their permission or actual affiliation. The district court agreed with the FTC and, among other things, ordered the defendants to pay more than $50.1 million in consumer redress.
On appeal, the split 9th Circuit agreed with the district court, concluding that the defendants violated the FTC Act, noting that the despite the “overwhelming evidence against them,” the defendants “made only general denials” and did not “create any genuine disputes of material fact as to their liability.” The appellate court emphasized that the misrepresentations made by the defendants were “material” and “did in fact, deceive ordinary customers.” Moreover, among other things, the appellate court held that the defendants failed to meet their burden to show that the FTC “overstated the amount of their unjust gains by including all conference-related revenue.” Specifically, the appellate court determined that conferences were “part of a single scheme of deceptive business practices,” even though the conferences were individual, discrete events. Because the marketing was “widely disseminated,” the court determined that the FTC was entitled to a rebuttable presumption that “all conference consumers were deceived.”
In partial dissent, a judge asserted the FTC “did not reasonably approximate unjust gains” by including all conference-related revenue, because “the FTC’s own evidence indicates that only approximately 60% of the conferences were deceptively marketed.” Thus, according to the dissent, the case should have been remanded to the district court to determine whether the FTC can meet its initial burden.
5th Circuit: Omitting a favorable credit item does not render a credit report misleading
On September 9, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s dismissal of a plaintiff’s FCRA claims against two consumer reporting agencies (CRAs), holding that omitting a favorable credit item does not render a credit report misleading. The plaintiff filed a lawsuit after the CRAs stopped reporting a favorable item—a timely paid credit card account—and refused to restore it, alleging that the refusal to include the item on his consumer report violated section 1681e(b), which requires CRAs to follow “reasonable procedures to assure maximum possible accuracy” of consumer information. As a result, the plaintiff claimed his creditworthiness was harmed, which caused him to be denied a credit card and rejected for a mortgage. The district court dismissed the suit.
In affirming the dismissal, the 5th Circuit found that the omission of a single credit item does not render a report ”inaccurate” or “misleading.” According to the appellate court, a “credit report does not become inaccurate whenever there is an omission, but only when an omission renders the report misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” As such, “[b]usinesses relying on credit reports have no reason to believe that a credit report reflects all relevant information on a consumer.” The 5th Circuit further held, among other things, that the plaintiff failed to state a claim for violations of section 1681i(a), which requires agencies to conduct an investigation if consumers dispute “the completeness or accuracy of any item of information contained in a consumer’s file.” The court held that because the plaintiff “disputed the completeness of his credit report, not of an item in that report,” the statute did not require an investigation.
11th Circuit sides with satellite cable provider in FCRA action
On September 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of a cable satellite company, concluding that the company had a “legitimate business purpose” under the FCRA to obtain a consumer’s credit report. According to the opinion, in 2016, following an identity theft, the consumer entered into a settlement agreement with the cable satellite company after the consumer’s personal information was used to fraudulently open two accounts for television services. As part of the agreement, the company put the consumer’s personal information into an internal mechanism designed to flag and prevent unauthorized accounts. In 2017, an unknown individual applied for an account online using some of the consumer’s information. The company’s automated systems sent the information to a consumer reporting agency (CRA), which matched the information to the consumer and resulted in the cable satellite company blocking the account from being opened. Upon request by the company, the CRA deleted the inquiry from the consumer’s credit file. The consumer filed an action alleging that the company breached the settlement agreement and “negligently and willfully obtained the January 2017 consumer report without a ‘permissible purpose’” in violation of the FCRA. While the action was pending, two more attempts were made to use the consumer’s information to open accounts and the satellite company blocked both. The district court granted summary judgment in favor of the satellite company.
On appeal, the 11th Circuit agreed with the district court, concluding that the satellite company had a “legitimate business purpose” to access the credit report. Specifically, the appellate court noted that the “FCRA does not explicitly require a user of consumer reports to confirm beyond doubt the identity of potential consumers before requesting a report.” Moreover, the satellite company was dependent on the credit report to access the consumer’s full social security number and “cross-check that information via its internal mechanisms.” Additionally, the appellate court rejected a claim for breach of the settlement agreement, noting that the company satisfied the terms of the agreement by flagging the social security number in its internal systems and using that system to block the fraudulent application for an account.
Court approves additional settlements in CFPB student debt relief action
On September 8, the U.S. District Court for the Central District of California entered a stipulated final judgment against two additional defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, 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. Four defendants settled in August, with a total suspended judgment of over $95 million due to the defendants’ inability to pay and total payments of $90,000 to Minnesota, North Carolina, and California, and $1 each to the CFPB, in civil money penalties.
The new final judgment holds the two relief defendants liable for nearly $7 million in redress; however, the judgment is suspended based on an inability to pay. The defendants are not subject to any civil money penalties, but are required to relinquish certain assets and submit to certain reporting requirements.
2nd Circuit: No bona fide error defense without written policies to avoid the error
On September 4, the U.S. Court of Appeals for the Second Circuit affirmed in part and vacated in part a summary judgment ruling in favor of a debt collector, concluding that the debt collector was not entitled to the FDCPA’s bona fide error defense as a matter of law when it erroneously sent communications to a consumer with the same name as the actual debtor. According to the opinion, a debt collector sent collection notices to a consumer with the same first name, middle initial, and last name as the actual debtor. The consumer informed the debt collector that he was not the debtor and provided the last two digits of his social security number, which were different than the debtor’s social security number on file with the debt collector. The debt collector continued to send communications, including a subpoena duces tecum, to the consumer and the consumer filed suit, alleging various violations of the FDCPA. The district court granted summary judgment in favor of the debt collector, concluding that the debt collector did not violate certain provisions of the FDCPA and noting that while it violated others, the FDCPA’s bona fide error defense applied making the debt collector not liable for the violations.
On appeal, the 2nd Circuit agreed with the district court that the debt collector did not violate Section 1692e(5) or Section 1692f of the FDCPA because it did not intend to send the communications to a non-debtor, nor did the debt collector’s actions constitute “unfair or unconscionable means” of collection because the consumer was not forced to respond to the information subpoena or attend a debtor’s examination. However, the appellate court determined that the district court erred in granting summary judgment on the bona fide error defense because a reasonable jury could conclude that the debt collector “did not maintain procedures reasonably adapted to avoid its error.” The appellate court also noted that the debt collector was “in possession of more than enough evidence” that the consumer was not the debtor, including different social security numbers and birth years, and a reasonable jury could conclude the mistake “was not made in good faith.” Additionally, the appellate court emphasized that the debt collector had “no written policies” to address situations in which employees are uncertain about whether a debtor may live at a particular address. Thus, the debt collector was not entitled to summary judgment on the outstanding FDCPA claims, and the appellate court remanded the case to the district court.
Court allows certain auto loan claims to proceed
On September 1, the U.S. District Court for the Central District of California determined that certain claims could proceed in a suit alleging a national bank failed to properly refund payments made pursuant to guaranteed asset protection (GAP) waiver agreements entered into in connection with auto loans. According to the plaintiffs’ suit, the bank knowingly collected unearned fees for GAP Waivers and “concealed its obligation to issue a refund on the GAP Waiver fees for the portion of the GAP Waiver’s initial coverage that was cut short by early payoff, and denied any obligation to return the unearned GAP fees.” The bank sought dismissal of the suit, arguing, among other things, that—with the exception of one consumer’s claims—all of the plaintiffs’ contracts include “a condition precedent under which the [p]laintiffs must first submit a written refund request for unearned GAP fees before being entitled to a refund,” which condition was not fulfilled.
The court dismissed breach of contract claims brought by eight of the 11 plaintiffs, noting that seven of these plaintiffs were not excused from complying with the condition precedent in their contracts with the bank, and had not pled sufficient facts to allege compliance; the court held that the eighth plaintiff’s claim was barred by the statute of limitations. The court allowed the breach of contract claims filed by two plaintiffs whose contracts did not contain condition precedent language to proceed, and allowed the final plaintiff’s breach of contract claim to proceed because the bank did not move to dismiss such. The court kept the declaratory judgment requests intact for the three plaintiffs whose contract claims were allowed to proceed, but determined such plaintiffs could not assert standing under laws of states where they do not reside and did not receive an injury. Further, the court granted the bank’s request to dismiss TILA claims—noting that the statute does not apply to indirect auto lenders like the bank—and tossed claims brought under California’s Unfair Competition Law.
The bank also asked the court to strike the six class action claims included in the plaintiffs’ first amended complaint. However, the court denied the bank’s request to strike the plaintiffs’ nationwide class allegations calling it premature. “Deciding whether the alleged classes can be maintained is properly done on a motion for class certification because at that point ‘the parties have had an opportunity to conduct class discovery and develop a record,’” the court noted.