Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On October 15, the U.S. District Court for the District of Massachusetts granted final approval to a $14 million TCPA class action settlement, resolving allegations that a meal-kit delivery service (or its vendor) placed telemarketing calls to customers’ phone numbers. Class members consist of customers who (i) received one or more calls placed using a dialing platform; (ii) received at least two telemarketing calls during any 12-month time period where their phone numbers were on the National Do Not Call Registry for at least 31 days before the call was placed; and/or (iii) received one or more calls after registering their phone numbers with the company’s internal do-not-call list. As part of the $14 million settlement, class counsel will receive more than $3.4 million in attorneys’ fees and costs and the settlement administrator will receive $450,000. Two named plaintiffs will receive service payments of $10,000 each, while another seven named plaintiffs will each receive service payments ranging from $2,000 to $5,000.
On the appeal, the 8th Circuit explained that the district court’s task was to determine if the defendant and the plaintiffs had an arbitration agreement, and, if so, what it covered; however, the district court improperly addressed the question of mutual consent, which was in dispute and “generally a factual question.” According to the 8th Circuit, where there is a material dispute of fact regarding whether there was an agreement to arbitrate, the Federal Arbitration Act requires the district court to proceed to a trial on the issue.
On October 13, the U.S. District Court for the Southern District of New York denied a relator’s motion seeking indicative relief, ruling that post-ruling news reports were insufficient to reverse the dismissal of a qui tam suit accusing a UK-based bank and related entities (collectively, “defendants”) of violating U.S. sanctions against Iran. In 2020, the court dismissed the complaint after finding that the government “had articulated multiple valid purposes served by dismissal, and that relator had not carried its burden to show that a dismissal would be ‘fraudulent, arbitrary or capricious, or illegal.’” The relator’s appeal to the U.S. Court of Appeals for the Second Circuit is pending. At the district court, the relator moved for indicative relief based on the premise that if the court had jurisdiction, it would have vacated the dismissal based on disclosures in post-dismissal media reports.
According to the opinion, the defendants entered into a deferred prosecution agreement (DPA) with the DOJ in 2012 following a multi-year, multi-agency investigation concerning allegations that defendants deceptively facilitated U.S. dollar transactions by Iranian clients between 2001 and 2007 in violation of U.S. sanctions and various New York and federal banking regulations. The defendants admitted to the violations and paid hundreds of millions of dollars in fines and penalties. The relator subsequently filed a qui tam action alleging the defendants misled the government in negotiating the DPA. A government investigation found no support for the allegations. In 2019, the DOJ entered a new DPA with defendants. The relator amended its complaint alleging improper conduct related to the 2019 DPA, which the court dismissed.
The relator then filed the instant motion to reopen the case, arguing that news reports published in 2020 showed that the defendants engaged in transactions with sanctioned Iranian entities after 2007, which was contrary to the government’s representations when it moved to dismiss the case. The relator claimed that the government incorrectly asserted that it closely examined records before seeking dismissal and failed to honestly conclude that the allegations were meritless. In denying the relator’s motion, the court explained that the relator failed to show that the news reports would be admissible or were important enough to change the outcome of the earlier motion to dismiss. The court held that news reports are inadmissible and further concluded that none of the suspicious activity reports discussed in the news reports contradicted the government’s representations in its motion to dismiss.
On October 14, the U.S. Court of Appeals for the Fifth Circuit stayed the implementation of the payment provisions of the CFPB’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Rule) for 286 days after the resolution of the appeal. The appellate court’s order contrasts with an order issued last month by the U.S. District Court for the Western District of Texas, which denied a request by the two trade group appellants to stay the compliance date pending appeal (covered by InfoBytes here). The district court previously upheld the 2017 Rule’s payment provisions (covered by InfoBytes here), finding that the Bureau’s ratification “was valid and cured the constitutional injury caused by the 2017 Rule’s approval by an improperly appointed official,” and that the payment provisions were not arbitrary and capricious. The district court’s order regarding the stay granted the plaintiffs’ request to stay the compliance date, which had been set as August 19, 2019, until 286 days after final judgment. The 5th Circuit’s order, however, grants the trade groups’ motion to extend the stay of the compliance date until 286 days after resolution of the appeal.
On October 13, the U.S. District Court for the Northern District of Illinois granted final approval to a $2.6 million class action settlement between a sports entertainment chain (defendant) and a class of former employees, resolving allegations that the defendant was responsible for improperly collecting and storing employees’ data in violation of Illinois’ Biometric Information Privacy Act (BIPA). According to the final settlement (which was preliminarily approved in June by the court), plaintiffs alleged that the defendant violated BIPA by collecting and disclosing Illinois employees’ biometric data through a finger-scan timekeeping system without following BIPA’s written disclosure and consent requirements. The gross settlement fund is approximately $2.6 million, with $22,000 awarded to the settlement administrator, approximately $865,000 allocated for attorney fees, and nearly $35,000 designated for litigation costs.
CFPB, FTC, and North Carolina argue public records website does not qualify for Section 230 immunity
On October 14, the CFPB, FTC, and the North Carolina Department of Justice filed an amicus brief in support of the consumer plaintiffs in Henderson v. The Source for Public Data, L.P., arguing that a public records website, its founder, and two affiliated entities (collectively, “defendants”) cannot use Section 230 liability protections to shield themselves from credit reporting violations. The case is currently on appeal before the U.S. Court of Appeals for the Fourth Circuit after a district court determined that the immunity afforded by Section 230 of the Communication and Decency Act applied to the FCRA and that the defendants qualified for such immunity and could not be held liable for allegedly disseminating inaccurate information and failing to comply with the law’s disclosure requirements.
The plaintiffs alleged, among other things, that because the defendants’ website collects, sorts, summarizes, and assembles public record information into reports that are available for third parties to purchase, it qualifies as a consumer reporting agency under the FCRA. According to the amicus brief, the plaintiffs’ claims do not seek to hold the defendants liable on the basis of the inaccurate data but rather rest on the defendants’ alleged “failure to follow the process-oriented requirements that the FCRA imposes on consumer reporting agencies.” According to plaintiffs, the defendants, among other things, (i) failed to adopt procedures to assure maximum possible accuracy when preparing reports; (ii) refused to provide plaintiffs with copies of their reports upon request; (iii) failed to obtain required certifications from its customers; and (iv) failed to inform plaintiffs they were furnishing criminal information about them for background purposes. The defendants argued that they qualified for Section 230 immunity. The 4th Circuit is now reviewing whether a consumer lawsuit alleging FCRA violations seeking to hold a defendant liable as the publisher or speaker of information provided by a third party is preempted by Section 230.
In their amicus brief, the CFPB, FTC, and North Carolina urged the 4th Circuit to overturn the district court ruling, contending that the court misconstrued Section 230—which they assert is unrelated to the FCRA—by applying its immunity provision to “claims that do not seek to treat the defendant as the publisher or speaker of any third-party information.” According to the brief, liability turns on the defendants’ alleged failure to comply with FCRA obligations to use reasonable procedures when reports are prepared, to provide consumers with a copy of their files, and to obtain certifications and notify consumers when reports are furnished for employment purposes. “As the consumer reporting system evolves with the emergence of new technologies and business practices, FCRA enforcement remains a top priority for the commission, the Bureau, and the North Carolina Attorney General,” the brief stated. “The agencies’ efforts would be significantly hindered, however, if the district court’s decision  is allowed to stand.”
Newly sworn-in CFPB Director Rohit Chopra and FTC Chair Lina M. Khan issued a joint statement saying “[t]his case highlights a dangerous argument that could be used by market participants to sidestep laws expressly designed to cover them. Across the economy such a perspective would lead to a cascade of harmful consequences.” They further stressed that “[a]s tech companies expand into a range of markets, they will need to follow the same laws that apply to other market participants,” adding that the agencies “will be closely scrutinizing tech companies’ efforts to use Section 230 to sidestep applicable laws. . . .”
On October 14, the U.S. District Court for the Eastern District of Virginia granted class certification in an action alleging a payday lending operation violated RICO and Virginia’s usury law by partnering with federally-recognized tribes to issue loans with allegedly usurious interest rates. The plaintiffs alleged that the defendants (“founders, funders, [or] closely held owners of [a lender] that serviced the high-interest loans made by certain tribal lending entities”) participated in a lending scheme to circumvent state usury laws. The plaintiffs seek declaratory and injunctive relief, damages, and attorney’s fees and costs arising from claims alleging that the defendants, among other things: (i) used income derived from the collection of unlawful debt to further assist the operations of the enterprise; (ii) participated in an enterprise involving the unlawful collection of debt; (iii) collected unlawful debt; (iv) entered into unlawful agreements; (v) issued unlawful loans with interest rates exceeding 12 percent; and (vi) were thus unjustly enriched. The court granted class certification after finding that the existence of a class action waiver in loan agreements between plaintiffs and tribal lenders did not bar class certification. The court explained that “[b]ecause the class action waivers exist to ‘make unavailable to the borrowers the effective vindication of federal statutory protections and remedies,’ the prospective waiver doctrine applies.” The waivers were thus unenforceable.
On October 12, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s nearly $2.4 million disgorgement order in an SEC case involving alleged penny stock fraud, marking the first time an appellate court has been asked to decide the “awarded for victims” question that arose out of the U.S. Supreme Court’s decision in Liu v. SEC. As previously covered by InfoBytes, in 2020, the Court held that the SEC may continue to collect disgorgement in civil proceedings in federal court as long as the award does not exceed a wrongdoer’s net profits, and that such awards for victims of the wrongdoing are equitable relief permissible under the Exchange Act, 15 U.S.C. §78u(d)(5). The Court’s decision discussed three limits: (i) the “profits remedy” must return the defendant’s wrongful gains to those harmed by the defendant’s actions, as opposed to depositing them in the Treasury; (ii) disgorgement under the statute requires a factual determination of whether petitioners can, consistent with equitable principles, be found liable for profits as partners in wrongdoing or whether individual liability is required; and (iii) disgorgement must be limited to “net profits” and therefore “courts must deduct legitimate expenses before ordering disgorgement” under the statute.
In the current action, the SEC brought a case against three individuals accused of allegedly selling unregistered securities and misleading investors during their operation of a penny stock company. The district court found the individuals liable on several of the claims and granted summary judgment in favor of the SEC. The district court also ordered (and later amended) disgorgement of the proceeds that the individuals obtained in the alleged fraud. The individuals appealed, challenging both the summary judgment decision (on the premise that “‘numerous’ disputed fact issues exist”) and the amended disgorgement remedy. Upon review, the 5th Circuit determined that that the district court’s disgorgement order satisfied the requirements laid out by the Court in Liu. The appellate court stated that the individuals’ appeal failed “to identify any disputed issues; nor does it sufficiently challenge the court’s analysis finding them liable based on undisputed facts.” Moreover, the 5th Circuit explained that the district court did not impose joint-and several liability, but rather individually assessed disgorgement amounts for each defendant based on the gains they received from the securities fraud, adding that the SEC has identified the victims of the fraud and created a process for the return of the disgorged funds. According to the 5th Circuit, “[u]nder the district court’s supervision, any funds recovered will go to the SEC, acting as a de facto trustee. The SEC will then disburse those funds to victims but only after district court approval.” “The disgorgement thus is being ‘awarded for victims.’”
On October 12, the U.S. District Court for the Northern District of Illinois granted plaintiff’s motion to remand a debt collection class action lawsuit back to state court. The plaintiff claimed the defendants violated the Illinois Collection Agency Act and FDCPA Section 1692c(b) by using a third-party mailing vendor to print and mail collection letters to class members. According to the plaintiff’s complaint filed in state court, conveying the information to the vendor—an allegedly unauthorized party—served as a communication under the FDCPA. The defendants removed the case to federal court, but on review, the court determined the plaintiff did not have Article III standing to sue because Congress did not intend to prevent debt collectors from using mail vendors when the FDCPA was enacted. Specifically, the court disagreed with the U.S. Court of Appeals for the Eleventh Circuit’s decision in Hunstein v. Preferred Collection & Management Services, which held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” (Covered by InfoBytes here.) In this case, the court stated it “is difficult to imagine Congress intended for the FDCPA to extend so far as to prevent debt collectors from enlisting the assistance of mailing vendors to perform ministerial duties, such as printing and stuffing the debt collectors’ letters, in effectuating the task entrusted to them by the creditors—especially when so much of the process is presumably automated in this day and age.” According to the court, “such a scenario runs afoul of the FDCPA’s intended purpose to prevent debt collectors from utilizing truly offensive means to collect a debt.”
On October 7, the CFPB filed a petition for panel or en banc rehearing with the U.S. Court of Appeals for the Seventh Circuit, asking the appellate court to reconsider its recent determination “that practicing attorneys are categorically exempt from Regulation O,” as it strips the CFPB “of the authority given it by Congress to hold attorneys to account for violations not just of Regulation O, but of a host of other federal laws as well.” (Covered by InfoBytes here.) In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, alleging that they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). A ruling issued by the district court in 2019 (covered by InfoBytes here) ordered nearly $59 million in penalties and restitution against several of the defendants for violations of Regulation O, but was later vacated by the 7th Circuit based on the application of the U.S. Supreme Court’s ruling in Liu v. SEC, which held that a disgorgement award cannot exceed a firm’s net profits—a ruling that is “applicable to all categories of equitable relief, including restitution.” (Covered by InfoBytes here.)
In its appeal, the Bureau did not challenge the vacated restitution award, but rather argued that a rehearing is necessary to ensure that the agency can bring enforcement actions against attorneys who violate federal consumer laws, including Regulation O. “The panel’s conclusion. . .threatens to disrupt the existing federal regulatory scheme for multiple consumer laws and expose ordinary people across the country to an increased risk of harm from illegal practices,” the Bureau stated, adding that 12 U.S.C. § 5517(e) does not limit the Bureau’s ability to pursue a civil enforcement action against practicing attorneys who are subject to Regulation O. According to the Bureau, Paragraph 3 of § 5517(e) states that the limitation on the Bureau’s authority “‘shall not be construed’ to limit the Bureau’s authority with respect to an attorney ‘to the extent that such attorney is otherwise subject’ to an enumerated consumer law or transferred authority.” The Bureau asked the 7th Circuit to reconsider its decision on this issue or, in the alternative, withdraw that portion as unnecessary to the outcome.
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
- Daniel R. Alonso to discuss "What’s new in BSA/AML compliance?" at the Institute of International Bankers Regulatory Compliance Seminar
- Marshall T. Bell and John R. Coleman to speak at 2021 AFSA Annual Meeting
- Jon David D. Langlois to discuss "Regulatory update: What you need to know under the new boss; It won’t be the same as the old boss" at the IMN Residential Mortgage Service Rights Forum (East)
- Benjamin B. Klubes to discuss “Creating a Fantastic Workplace Culture”
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek