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FTC, CFPB weigh in on servicemembers’ right to sue under the MLA
On November 22, the FTC and CFPB (agencies) announced the filing of a joint amicus brief with the U.S. Court of Appeals for the Eleventh Circuit seeking the reversal of a district court’s decision that denied servicemembers the right to sue to invalidate a contract that allegedly violated the Military Lending Act (MLA). (See corresponding CFPB blog post here.) The agencies countered that the plain text of the MLA allows servicemembers to enforce their rights in court. Specifically, the agencies argued that Congress made it clear that when a lender extends a loan to a servicemember that fails to comply with the MLA, the loan is rendered void in its entirety. Moreover, Congress amended the MLA to unambiguously provide servicemembers certain legal rights, including an express private right of action and “the right to rescind and seek restitution on a contract void under the criteria of the statute.”
The case involves an active-duty servicemember and his spouse who financed the purchase of a timeshare from the defendants. Plaintiffs entered into an agreement with the defendants, made a down payment, and agreed to pay the remaining balance in monthly installments carrying an interest rate of 16.99 percent, in addition to annual assessments and club dues. None of the loan documents provided to the plaintiffs discussed the military annual percentage rate, nor did the defendants make any supplemental oral disclosures. Additionally, the agreement contained a mandatory arbitration clause (the MLA prohibits creditors from requiring servicemembers to submit to arbitration) and purportedly waived plaintiffs’ right to pursue a class action and their right to a jury trial. Plaintiffs filed a putative class action lawsuit alleging the agreement violated the MLA on several grounds, and sought an order declaring the agreement void. Plaintiffs also sought recission of the agreement, restitution, statutory, actual, and punitive damages, and an injunction requiring defendants to comply with the MLA going forward.
Defendants moved to dismiss, countering “that the plaintiffs lacked standing because they had not suffered any concrete injury and, even if they had, whatever injury they suffered was not traceable to the alleged MLA violations.” Defendants also argued that the loan was exempt under the MLA’s exemption for residential mortgages, and claimed that the MLA does not authorize statutory damages, nor did the plaintiffs state a claim for declaratory or injunctive relief. Further, defendants stated the court lacked jurisdiction to hear the case. The district court dismissed the lawsuit for lack of standing, agreeing with the magistrate judge that, among other things, plaintiffs “failed to allege ‘that the inclusion of the arbitration provision impacted [their] decision to accept the contract,’ and that they could not ‘seek[] relief based on a mere technicality that has not impacted them in any way.’”
Disagreeing with the district court’s ruling, the agencies argued that plaintiffs have a legal right to challenge the contract in court because (i) they made a down payment on an illegal and void loan; (ii) the injuries are traceable to the challenged conduct since “their monetary losses are the product of the illegal and void loan"; and (iii) their injuries “are redressable by an order of the court awarding restitution for the amounts that plaintiffs have already paid on the loan, and by a declaration confirming that the loan is void and that the plaintiffs have no obligation to make additional payments going forward.” The agencies asserted that courts have recognized that economic injury is exactly the sort of injury that courts have the power to redress.
Moreover, the agencies pointed out that the district court’s ruling “risks substantially curtailing private enforcement of the MLA and limiting servicemembers’ ability to vindicate their rights under the statute. It does so by reading the MLA’s voiding provision out of the statute and reading into the statute an atextual materiality requirement. But it may be very difficult, if not impossible, for servicemembers to demonstrate that certain MLA violations had a direct effect on their decision to procure a financial product or caused them to pay money they would not otherwise have paid.”
FCC says consent is required for ringless voicemails
On November 21, the FCC issued a declaratory ruling that entities using ringless voicemail products must first obtain a consumer's consent prior to using the product to leave voicemails. According to the FCC, it receives “dozens of consumer complaints annually related to ringless voicemail.” The unanimous ruling establishes that ringless voicemails are “calls” that require consumers’ prior express consent, and further clarifies that a ringless voicemail is a form of a robocall, and therefore subject to the TCPA robocall prohibition, which prohibits making any non-emergency call with an automatic telephone dialing system or an artificial or prerecorded voice to a wireless telephone number without the prior express consent of the called party.
The FCC’s declaratory ruling denied a 2017 petition filed by a company that distributes technology that permits voicemail messages to be delivered directly to consumers’ voicemail services. The petitioner argued that ringless messages, and the process by which the ringless voicemail is deposited on a carrier’s platform, is neither a call made to a mobile telephone number nor a call for which a consumer is charged and, therefore, is a service that is not regulated. The FCC rejected the petitioner’s argument that ringless voicemail is not a TCPA call because it does not pass through a consumer’s phone line and that the TCPA protects only calls made directly to a wireless handset, and does not result in a charge to the consumer for the delivery of the voicemail message. The ruling noted that “consumers cannot block these messages and consumers experience an intrusion on their time and their privacy by being forced to spend time reviewing unwanted messages in order to delete them.” The ruling also noted that a “consumer’s phone may signal that there is a voicemail message and may ring once before the message is delivered, which is another means of intrusion. Consumers must also contend with their voicemail box filling with unwanted messages, which may prevent other callers from leaving important wanted messages.” According to a statement by FCC Chairwoman Jessica Rosenworcel, the rule makes it “crystal clear" that ringless voicemails are subject to the TCPA and that the Commission's rules "prohibit[] callers from sending this kind of junk without consumers first giving their permission to be contacted this way.”
DOJ, DOE announce process for discharging federal student loans in bankruptcy
On November 17, the DOJ, in coordination with the Department of Education (DOE), announced a new process for handling cases involving individuals seeking to discharge their federal student loans in bankruptcy. According to the DOJ, the process will leverage DOE data and a new borrower-completed attestation form to assist the government in assessing a borrower’s discharge request. The DOJ also noted that the process “will help ensure consistent treatment of the discharge of federal student loans, reduce the burden on borrowers of pursuing such proceedings and make it easier to identify cases where discharge is appropriate,” and “help borrowers who did not think they could get relief through bankruptcy more easily identify whether they meet the criteria to seek a discharge.” The DOJ and the DOE will review the information provided, apply the factors that courts consider relevant to the undue-hardship inquiry, and determine whether to recommend that the bankruptcy judge discharge the borrower’s student loan debt. The DOJ also distributed guidance outlining the new process to all U.S. Attorneys.
Treasury seeks to mitigate digital asset financial risks
On November 18, Assistant Secretary for Terrorist Financing and Financial Crimes at the U.S. Department of Treasury Elizabeth Rosenberg spoke before the Crypto Council for Innovation. In her prepared remarks, Rosenberg discussed an Action Plan to Mitigate the Illicit Finance Risks of Digital Assets (the “Action Plan”), which, according to Rosenberg, is a roadmap for how the U.S. government, led by Treasury, will bring greater transparency to the digital asset sector. The Action Plan is issued pursuant to President Biden’s Executive Order 14067 “Ensuring Responsible Development of Digital Assets” (covered by InfoBytes here). Rosenburg noted that the Action Plan identifies seven priority actions, including improving global anti-money laundering/countering the financing of terrorism (AML/CFT) regulation and enforcement, strengthening U.S. supervision of the virtual asset service providers sector, and engaging with the private sector. She emphasized that it is “critical” to work with the private sector, and between private sector entities, to detect and counter illicit finance. Rosenberg noted that to deepen Treasury’s insight, the agency released a Request for Comment (RFC) in September, seeking feedback on the Action Plan, the assessment of illicit financing risks, and opportunities to strengthen public-private collaboration.
As previously covered by InfoBytes, the RFC also sought public feedback on AML/CFT regulation and supervision, global implementation of AML/CFT standards, and central bank digital currencies. Rosenberg discussed two issues addressed in the comment letters: (i) a need for regulatory clarity; and (ii) more public-private engagement. Specifically, she noted that “[m]any of the comments acknowledged that in the United States, virtual asset service providers are subject to a regulatory framework for AML/CFT and have sanctions obligations.” She further noted that “industry commenters identified specific areas, such as questions around decentralized finance (DeFi), where they could benefit from additional regulatory clarity or guidance.” Rosenberg also emphasized that Treasury wants to “ensure that safeguards are in place to promote the responsible development of virtual assets to maintain privacy and shield against arbitrary or unlawful surveillance.” She further noted that the goal and intention of Treasury “is not to deter the development of technologies that provide privacy for virtual asset transfers,” and that Treasury “welcome[s] opportunities to further engage with industry on how these technologies can both promote privacy while also mitigating illicit finance risks and complying with regulatory and sanctions obligations.”
CFPB aims to protect consumers at the local level
On November 18, the CFPB released a blog describing how CFPB complaint data can help cities and counties protect the public. According to the Bureau, one of the major ways it regulates consumer financial products and services and protects consumers from unfair, deceptive, or abusive acts or practices is through collecting, monitoring, and responding to consumer complaints. The complaints the Bureau receives help inform its policy and regulatory priorities and enforcement activities, according to the blog. The Bureau further noted that consumer complaints “can shine a light on trends and practices that could cause another financial calamity and once again inflict long-term havoc on consumers’ financial wellbeing.” The Bureau said it intends to increase the impact of its complaint data by sharing it with cities and counties to protect consumers at the local level, which will be "a win-win for consumers and the CFPB” because it “helps protect as many consumers as possible from predatory lending, barriers to credit, and other consumer harms.” For its initial engagement, the Bureau chose cities and counties that were best positioned to benefit from the CFPB’s complaint data, including “[l]ocal governments with civil or criminal prosecutorial authority to monitor and enforce their own consumer protection laws as well as force-multiply enforcement of federal consumer financial protection laws such as those available under the Consumer Financial Protection Act”; and “[l]ocal governments with, or that are working to create, financial empowerment offices and developing financial empowerment strategies to improve financial stability for low- and moderate-income households.”
The Bureau explained that after completing the review process, it onboarded the local governments to the CFPB’s Government Portal, which provides local, state, and federal government agencies access to more granular information about consumers’ complaints and companies’ responses through a secure interface. Onboarding to the Government Portal, which required the cities and counties to sign a confidentiality and data access agreement with strict personal data protection requirements, enables the cities and counties to, among other things: (i) view in real-time what consumers are experiencing in the financial marketplace and how companies are responding; (ii) download complaints to examine and enforce rules protecting consumers; and (iii) compare problems constituents are facing to other localities and nationwide. Through the Government Portal, local governments can directly submit constituents’ complaints and get responses from the companies. The Bureau noted that the complaint data can also help local government officials identify what gaps exist, and what fixes are needed, which therefore helps in its mission to foster increased consumer awareness and eventual empowerment.
OFAC issues guidance on the Russian price cap policy for crude oil; issues Russia-related general licenses
On November 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Determination Pursuant to Executive Order (E.O.) 14071 concerning the implementation of a price cap policy for crude oil of Russian Federation origin. The determination states that the prohibitions of E.O. 14071 apply to U.S. persons providing covered services (including (i) trading/commodities brokering; (ii) financing; (iii) shipping; (iv) insurance, including reinsurance and protection and indemnity; (v) flagging; and (vi) customs brokering) as they relate to the maritime transport of Russian Federation crude oil, provided, however, that such covered services are authorized if the Russian oil is purchased at or below the price cap. Additionally, OFAC published guidance on the implementation of a policy for crude oil of Russian Federation origin to provide an overview of the determination and the price cap. OFAC also issued Russia-related General License (GL) 55, GL 56, and GL 57. GL 55 authorizes certain services related to Sakhalin-2; GL 56 authorizes certain services with respect to the European Union; and GL 57 authorizes certain services related to vessel emergencies.
Supreme Court to fast-track review of student debt relief program
On December 1, the U.S. Supreme Court agreed to hear the Biden administration’s appeal of an injunction entered by the U.S. Court of Appeals for the Eighth Circuit that temporarily prohibits the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan (announced in August and covered by InfoBytes here). In a brief unsigned order, the Supreme Court deferred the Biden administration’s application to vacate, pending oral argument. The Supreme Court said it will treat the Biden administration’s application as a “petition for a writ of certiorari before judgment,” and announced a briefing schedule will be established to allow the case to be argued in the February 2023 argument session to resolve the legality of the program.
The Biden administration filed its application last month asking the Supreme Court to vacate, or at minimum narrow, the 8th Circuit’s injunction. Among other things, the Biden administration claimed that the 8th Circuit failed to “analyze the merits of the respondents’ claims, much less determine they are likely to succeed” when it granted an emergency motion for injunction pending appeal filed by state attorney generals from Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina. As previously covered by InfoBytes, the 8th Circuit determined that “the equities strongly favor an injunction considering the irreversible impact the Secretary’s debt forgiveness action would have as compared to the lack of harm an injunction would presently impose,” and pointed to the fact that the collection of student loan payments and the accrual of interest have both been suspended.
The appellate court’s “erroneous injunction leaves millions of economically vulnerable borrowers in limbo, uncertain about the size of their debt and unable to make financial decisions with an accurate understanding of their future repayment obligations,” the Biden administration said, adding that if the Supreme Court “declines to vacate the injunction, it may wish to construe this application as a petition for a writ of certiorari before judgment, grant the petition, and set the case for expedited briefing and argument this Term to avoid prolonging this uncertainty for the millions of affected borrowers.”
In its application, the Biden administration argued that the universal injunction was overbroad. The application further argued that the states lack standing because the debt relief plan “does not require respondents to do anything, forbid them from doing anything, or harm them in any other way.” Moreover, the Secretary of Education was acting within the bounds of the HEROES Act when he put together the debt relief plan, the application contended. “The COVID-19 pandemic is a ‘national emergency declared by the President of the United States,’” the application said. “Both the Trump and Biden Administrations previously invoked the HEROES Act to categorically suspend payments and interest accrual on all Department-held loans in light of the pandemic.” The application further argued that the states “have not disputed that those actions were lawful,” and that the Secretary of Education “reasonably ‘deem[ed]’ relief ‘necessary to ensure’ that a subset of these affected individuals—namely, those with lower incomes—‘are not placed in a worse position’ in relation to their student-loan obligations ‘because of their status as affected individuals.’”
Meanwhile, on December 1, the 5th Circuit denied the Department of Education’s (DOE) opposed motion for stay pending appeal, following a ruling issued by the U.S. District Court for the Northern District of Texas related to whether the agency’s student debt relief plan violated the Administrative Procedure Act’s (APA) notice-and-comment rulemaking procedures. As previously covered by InfoBytes, the district court determined that while the HEROES Act expressly exempts the APA’s notice-and-comment obligations, the court stressed that the HEROES Act “does not provide the executive branch clear congressional authorization to create a $400 billion student loan forgiveness program,” and, moreover, does not mention loan forgiveness.
Earlier, on November 22, the Department of Education (DOE) extended the pause on student loan repayments, interest, and collections in an effort to alleviate uncertainty for borrowers. Saying “it would be deeply unfair to ask borrowers to pay a debt that they wouldn’t have to pay,” the DOE stated that payments will resume 60 days after it is allowed to implement the debt relief plan or the litigation is resolved, explaining that this will give the Supreme Court time to resolve the case during its current term. However, if the debt relief plan has not been implemented and litigation has not been resolved by June 30, 2023, borrowers’ payments will resume 60 days after that, the DOE explained.
District Court sends overdraft fee suit to arbitration
On November 16, the U.S. District Court for the District of Massachusetts granted a defendant’s motion to compel arbitration regarding claims that consumers are charged significant overdraft or non-sufficient funds fees on bank accounts linked to discount cards issued by the gas-discount company. According to the plaintiff’s putative class action suit, the defendant advertises fuel discounts through a mobile app and payment card system while claiming that its service acts “like a debit card” by “‘effortlessly deduct[ing]’ funds from linked checking accounts at the time of purchase[.].” While these payments and discounts are represented as being “automatically applied,” the plaintiff alleged that paying with the discount card results in significant processing delays. These delays, the plaintiff contended, cause users to run the risk of having insufficient fees in their checking accounts before the payment is processed, thus resulting in overdraft fees. Additionally, the plaintiff claimed that the defendant does not verify whether a consumer has sufficient funds in the checking account before payments are withdrawn. The defendant moved to compel arbitration, or in the alternative, moved to dismiss the complaint, claiming that during the sign-up process, the plaintiff was presented with terms and conditions that explicitly require users to arbitrate any disputes, claims, or controversies. Moreover, the defendant argued that users cannot sign up for the program unless they first check a button that says “I agree” with the terms of use. While the parties agreed that the plaintiff was presented at a minimum a hyperlink to the terms and conditions, they disputed whether the sign-up process required the plaintiff to affirmatively assent to them. According to the plaintiff, there was no such checkbox button when he signed up for the program.
The court disagreed, ruling that the plaintiff had notice of and agreed to terms and conditions that included an arbitration clause and class action waiver. According to the court, the defendant adequately showed that the checkbox button was part of the process when the plaintiff signed up and that the defendant obtained his affirmative asset to the agreement. Further, the plaintiff failed to support his claim with any specific evidence that the checkbox button may not have been there during the sign-up process, the court maintained.
FHA to accept private flood insurance for FHA-insured mortgages
On November 21, FHA published a final rule in the Federal Register to allow homeowners with FHA-insured mortgages to obtain flood insurance policies that meet FHA requirements from private insurance providers. Specifically, the Acceptance of Private Flood Insurance for FHA-Insured Mortgages final rule updates agency regulations to give borrowers the option to purchase a comparable private insurance policy that conforms to FHA requirements in lieu of a National Flood Insurance Program (NFIP) policy for FHA-insured mortgages secured by properties located in FEMA-designated special flood hazard areas (SFHAs). Previously, only flood insurance obtained through the NFIP was accepted. The final rule applies to all FHA-insured single family Title II mortgages, including home equity conversion mortgages, and loans insured under FHA Title I programs. Lenders should refer to Mortgagee Letter 2022-18 for guidance on implementing the final rule’s requirements, which are effective December 21.
Concurrently, HUD issued a press release stating that beginning December 21, “FHA will require lenders to provide detailed flood insurance coverage information when electronically submitting mortgages for FHA insurance on properties in SFHAs.” According to HUD, “[t]his data collection is an objective included in HUD’s Climate Action Plan and will allow FHA to capture and analyze flood insurance information on mortgages in its portfolio at a more granular level than has been possible previously.”
FINRA requests information on crypto asset retail communications
Recently, FINRA announced that it is conducting a targeted exam of firm practices regarding retail communications on crypto asset products and services for the time period of July 1, 2022 through September 30, 2022. In the targeted exam letters, FINRA requested, among other things, that firms or their affiliates provide: (i) all retail communications on the firm’s behalf that refer to, relate to, or concern a crypto asset or service involving the transaction or holding of a crypto asset; (ii) written supervisory procedures concerning the review, approval, record keeping, and dissemination of communications; and (iii) any compliance policies, manuals, training materials, compliance bulletins, and any other written guidance.