InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB urges District Court to dissolve preliminary injunction and lift stay on late fee rule
On August 22, the CFPB filed a reply brief in support of its motion urging the U.S. District Court for the Northern District of Texas to dissolve the preliminary injunction and lift the stay on the CFPB’s late fee rule. As previously covered by InfoBytes, the District Court granted the plaintiffs’ motion for a preliminary injunction and stayed the CFPB’s final rule in May. The rule, promulgated earlier this year, would lower the safe harbor amount for credit card late fees from $30 (and $41 for a subsequent late fee charged within six billing cycles) to $8. In the recent reply brief, the CFPB argued that the rule was consistent with the CARD Act and TILA and that the plaintiffs, a group of national and local business and bank associations, failed to show how the stay would serve the public interest or why a 90-day compliance period would be appropriate.
The CFPB made several points in its recent 13-page reply brief. First, it argued that the rule is “entirely consistent” with the statute, maintaining that the plaintiffs “overread” the CARD Act as permitting late fees to exceed the costs incurred for a late payment. The CFPB also contended that the plaintiffs were not entitled to a preliminary injunction because of TILA’s effective-date provision, which requires six months of lead time before certain TILA regulations can go into effect. Second, the CFPB urged the court to reconsider its finding that a preliminary injunction would serve the public interest, arguing that maintaining the current injunction would harm consumers. Lastly, the CFPB asserted that the plaintiffs’ arguments to impose a 90-day compliance period in the event the court lifts the stay were unpersuasive.
This case has also been the subject of a venue dispute. The CFPB originally filed a motion to transfer the venue from Texas to the U.S. District Court for the District of Columbia, which was granted, but the U.S. Court of Appeals for the Fifth Circuit intervened (covered by InfoBytes here) and transferred the case back to Texas, where it remains (also covered by InfoBytes here).
District Court finds job recruitment texts are not “solicitations” under the Telephone Consumer Protection Act
Recently, the U.S. District Court for the Central District of California recently dismissed a lawsuit alleging violations of the Telephone Consumer Protection Act (TCPA) against a mortgage company. The plaintiff, who registered his cell phone number on the National Do-Not-Call Registry, claimed the company contacted him four times within three days via three text messages and one voicemail.
The court dismissed all three allegations, ruling that the communications were not “solicitations” under the TCPA because they aimed to recruit the plaintiff for an independent contractor position, and were not selling him anything. The messages described benefits and compensation, which the court considered recruitment efforts. The court also dismissed the plaintiff’s claim that the company used an automatic telephone dialing system, noting the complaint lacked sufficient facts to support this allegation. Additionally, the court dismissed the claim that the voicemail was prerecorded, stating that the plaintiff’s allegations of pauses and delays in the voicemail did not prove it was prerecorded. The court dismissed the case with prejudice.
District Court dismisses FINRA challenge for lack of subject matter jurisdiction
On September 4, the U.S. District Court for the Eastern District of Pennsylvania dismissed a plaintiff’s attempt to enjoin FINRA from proceeding with a disciplinary hearing against the plaintiff. The plaintiff’s disciplinary issues stemmed from a complaint filed against him in December 2023, alleging violations of FINRA rules during his employment at a financial group. As previously covered by InfoBytes, the plaintiff had asked the court for a temporary restraining order and a preliminary injunction to enjoin FINRA from proceeding with the hearing. The plaintiff argued that FINRA’s proceedings violated his Seventh Amendment right to a jury trial, referencing the U.S. Supreme Court’s decision in SEC v. Jarkesy, which held that a respondent to an enforcement action requires a jury trial for civil penalties. However, the district court held that the plaintiff’s claims must appeal to FINRA’s Office of Hearing Officers (OHO) or to an appellate court.
FINRA argued that under the standard set forth in Thunder Basin Coal Co. v. Reich, a 1994 U.S. Supreme Court decision, the court lacked subject matter jurisdiction. The court agreed, holding that: (i) denial of the district court’s jurisdiction would not foreclose meaningful judicial review; (ii) the claim is not wholly collateral to the Securities Exchange Act’s review; and (iii) the claim is within the SEC’s expertise. The plaintiff’s case will now proceed through the administrative channels like the OHO, with the potential for further appeals.
Bank faces class action over its overdraft fee practices
Recently, a bank customer and his business filed a class action complaint in the Stamford-Norwalk Judicial District Superior Court against a Connecticut-based bank alleging that bank engaged in unlawful business practices to maximize its fees. According to the complaint, the bank allegedly assessed $37 overdraft fees on “Authorize Positive, Settle Negative Transactions” (APSN Transactions) and accounts that were not actually overdrawn and charged multiple NSF or overdraft fees on a single item. The complaint claims the bank’s practices breached the bank’s consumer and business contracts with the plaintiffs, including the covenant of good faith and fair dealing, and violated the Connecticut Unfair Trade Practices Act.
The complaint details specific instances where the plaintiffs were charged fees they allege were improper and argues that the bank’s practices were deceptive, unfair, and designed to maximize fee revenue at the expense of customers. The complaint references numerous federal agencies and their criticisms of the practices at issue in the complaint. The plaintiffs seek to represent three classes of affected customers: (i) the APSN class; (ii) the overdraft/NSF fee on positive balance class; and (iii) the multiple NSF fee class. The plaintiffs request actual and punitive damages, restitution, pre-judgment interest and attorneys’ fees.
CFPB faces new constitutionality challenge under funding mechanism
Recently, a Texas-based payday lender (the defendant) filed a motion to dismiss in the U.S. District Court for the Northern District of Dallas, challenging the legality of the CFPB’s funding structure. As previously covered by InfoBytes, in July 2022, the CFPB filed a complaint against the defendant for allegedly engaging in illegal debt collection practices; the Bureau alleged the respondent generated $240 million in reborrowing fees from borrowers who were eligible for free repayment plans in violation of the CFPA.
While this case was not the first challenge to the CFPB’s funding structure, the defendant’s argument hinges on the U.S. Supreme Court’s recent ruling (covered by InfoBytes here) that the CFPB’s funding structure was deemed constitutional since it came from the surplus funds of the Fed that would otherwise be deposited into the general fund of the Treasury. The motion emphasized that the Fed has been operating at a deficit since 2022, accumulating a deferred asset of $184.4 billion, which the defendant argued this deficit would prevent making any surplus available for the CFPB — yet the CFPB continues to receive hundreds of millions of dollars. Furthermore, the defendant argued the CFPB’s funding from sources other than the Fed’s combined earnings violates both the Dodd-Frank Act and the Appropriations Clause of the U.S. Constitution.
The defendant urged the court to dismiss the action on the basis that the CFPB’s method of funding violates the Appropriations Clause and the statutory limitations set by Congress, rendering the CFPB’s actions, including the prosecution of the current lawsuit, invalid.
Court approves final settlement in class action against credit union alleging discriminatory loan denial based on DACA status
On August 15, the U.S. District Court for the Northern District of California, issued a final order approving settlement of a loan discrimination class action against a credit union, entering final judgment and ordering dismissal pursuant to the settlement. In this case, the plaintiff claimed that she and other class members experienced discrimination on the basis of immigration status after attempting to finance the purchase of her vehicle with the defendant credit union. According to the complaint, the plaintiff’s auto loan application was denied after disclosing her status as a DACA recipient to a representative of the defendant. The plaintiff alleged that the representative communicated that the defendant does “not lend on DACA status.” In a previous motion to dismiss, the credit union had argued the ECOA and Regulation B allow creditors to consider immigration and residency status in creditworthiness and repayment analyses. The District Court, however, disagreed with the defendant, denying the motion to dismiss, and holding that “Regulation B does not allow a creditor to decline credit solely on the basis of residency or immigration status.”
The approved settlement established an $86,750 settlement fund to be distributed to the 95 members of two settlement classes (a California class and a national class). The settlement provided that each California class member will receive $2,500 from the settlement fund, while other national class members will receive $250 each. The approved settlement will also require the credit union to implement corrective action to ensure that it does not deny consumer credit applications based solely on immigration status.
Suit against FDIC argues the agency is “unconstitutional” and violates Jarkesy
Recently, the U.S. District Court for the District of Columbia received a complaint from an individual plaintiff suing the FDIC, its heads, board members and an administrative law judge (ALJ) for allegedly subjecting the plaintiff to an “endless and unlawful administrative process.” The lawsuit comes in the backdrop of a prior FDIC enforcement action in which plaintiff was named as a respondent and listed as an institution-affiliated party, despite the plaintiff claiming he was not a “director, shareholder, member, or employee” of the bank. Under this action, the FDIC required the plaintiff to pay $74,000 as part of a larger assessment of civil money penalties.
As covered previously by InfoBytes, the U.S. Supreme Court held in SEC v. Jarkesy that if an executive agency issues an enforcement action in-house (and not through a court) and involves civil money penalties, then the defendants would be entitled to a jury trial, and the case’s venue must be in a federal Article III court.
The plaintiff argued in this case that the FDIC’s enforcement action was unconstitutional because of the following: (i) the FDIC’s board is unconstitutional since the President cannot remove a majority of its board members except for good cause, violating the ruling in Seila Law LLC v. CFPB (covered by an Orrick Insight here); (ii) the FDIC’s ALJs are unconstitutionally shielded from removal due to their “double for-cause” removal protections; and (iii) the enforcement proceeding violated the Seventh Amendment by depriving the plaintiff of his right to a jury trial and his due process rights. Among other relief, the plaintiff prayed the court enjoin the FDIC from continuing proceedings against him.
CFPB granted default judgment against auto loan servicer
On August 28, the U.S. District Court for the Northern District of Georgia entered an order and opinion granting the CFPB a default judgment in a case against an auto loan servicer (the defendant).
The CFPB alleged the defendant engaged in several unfair and deceptive practices in violation of the CFPA, including wrongful activation of starter-interruption devices (SIDs), mishandling Guaranteed Asset Protection (GAP) premiums, double billing for collateral-protection insurance, misapplying consumer payments, and wrongful repossessions. The defendant filed for Chapter 7 bankruptcy not long after the CFPB filed its complaint, and the courts merged this case with other affiliated debtors. Although the defendant requested a stay pending its bankruptcy filing, the court found that the CFPB’s enforcement action fell under the “police power” exception from the automatic stay, allowing the case to proceed. The court also granted the CFPB’s motion for default judgment regarding liability, finding that the defendant’s practices “caused substantial injury to consumers, which was not reasonably avoidable.” The court agreed to issue injunctive relief to prevent future violations of the CFPA, which was requested by the CFPB.
The CFPB sought restitution for unearned GAP premiums, damages for wrongful SID activations and repossessions, and a civil monetary penalty. The court, however, found the CFPB’s damage estimates flawed and directed the CFPB to supplement its calculations with more expert evidence. On timing, the court directed the Bureau to provide additional evidence within 35 days to support its damages claims. The court granted the motion regarding liability and injunctive relief, and it will require additional information concerning damages.
Bank associations sue Illinois to prevent interchange fee act from effecting
On August 15, several banking and credit union associations sued the Illinois Attorney General to prevent the state from implementing the Illinois Interchange Fee Prohibition Act (the “Act”). As covered by InfoBytes, the Governor of Illinois signed the Act into law on June 7 and it will take effect on July 1, 2025. The Act will ban credit card issuers and networks from charging or receiving “interchange fees” on the tax or gratuity of a transaction.
Under current payment card systems, a merchant’s bank (the acquiring bank or acquirer) pays the consumer’s bank (the issuing bank or issuer) an interchange fee on the full amount of the transaction (including taxes and gratuity). Because the Act will prohibit interchange fees applied to taxes and gratuity, merchants would be required to either disaggregate taxes and gratuity from the total charge or submit a report of these totals to the acquirer.
Plaintiffs contended these changes to the payment card infrastructure would be too burdensome and that implementing them by the effective date “would likely be impossible” and that it would hinder routine bank processes such as fraud detection and anti-money laundering compliance. They claim the Act violates multiple federal statutes, including the National Bank Act and the Federal Credit Union Act, and cannot be enforced against national or state-chartered banks, savings institutions or credit unions. In their prayer for relief, the plaintiffs asked the court to declare the Act preempted, unconstitutional and invalid, and are seeking a preliminary injunction to halt the law’s implementation while the court reviews the case, emphasizing the potential chaos and confusion it could cause for consumers and businesses.
CFPB files reply to transfer its credit card late fee litigation from Texas to D.C.
On August 19, the CFPB filed a reply brief in support of its efforts to transfer litigation involving credit card late fees from the U.S. District Court for the Northern District of Texas (located in Fort Worth) to the U.S. District Court for the District of Columbia (D.D.C.). The case involves challenges brought by plaintiff banking associations and business groups regarding the CFPB’s final rule on credit card late fees finalized in March. This is the latest motion by the CFPB seeking to transfer this case. While the district court judge previously granted the Bureau’s prior motions to transfer, the Fifth Circuit reversed those rulings.
As previously covered by InfoBytes, the CFPB has argued that the only plaintiff located in Texas, a Fort Worth based business group, should be dismissed for lack of standing since the plaintiffs failed to establish that the Fort Worth organization’s interests were “germane to the organization’s purpose” of promoting the business climate in Fort Worth. Based on this lack of standing, the CFPB argued the court should dismiss the plaintiff entirely and transfer the case to the D.D.C.
The plaintiffs argued the CFPB’s arguments (relating to associational standing) were unsupported. The plaintiffs also asserted the litigation is germane to its organizational purpose germaneness requirement because the rule in question affects the Fort Worth economy and the credit card market, which are central to the plaintiff associations’ mission.
In its reply brief, the CFPB argued four points. First, that the Fort Worth member still has not established that its interests are germane to its Fort Worth specific organizational mission. Second, that the plaintiffs assert unfounded “hyperbolic objections” that granting the CFPB’s motion would upend settled law around associational standing. Third, the plaintiff’s theory of transactional venue would undermine statutory venue limits which require suits against the federal government to be brought in a venue where a substantial part of events giving rise to the claim occurred. And fourth, that the court should reject the plaintiffs’ invitation to dismiss the case altogether if it finds that the Fort Worth entity lacks standing and instead simply transfer the case to the D.D.C to “avoid chaos.”