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On April 12, the U.S. Bankruptcy Court for the District of Massachusetts entered judgment in favor of a national bank, determining that the plaintiff failed to, among other things, “carry his burden to prove that he incurred injury” concerning economic or emotional distress damages as a result of the original lender’s violations. During the plaintiff’s chapter 13 bankruptcy proceeding, he initiated an adversary proceeding against the bank and a loan servicer for violations of Massachusetts law related to the origination, underwriting, and closing of his mortgage loan. According to the memorandum, the plaintiff contended he was approved for a loan modification after he struggled to stay current on his loan. While the loan modification did not forgive any of the plaintiff’s outstanding debt, the plaintiff agreed to the terms, entered into a modification agreement with the bank (who was the successor by assignment of the original lender), and eventually filed a chapter 13 petition. The bankruptcy court was ultimately called to review the plaintiff’s objection to the bank’s proof of claim filed in his chapter 13 case, in which the plaintiff invoked the doctrine of recoupment, bringing a claim against the bank for damages under Chapter 93A of Massachusetts’ consumer protection law.
Upon review, the court determined, among other things, that the plaintiff’s loan was “presumptively unfair and also unfair in the specific circumstances in which it was made” and that “[n]o reasonably diligent lender would have approved the loan to [the plaintiff] without taking steps to independently verify critical financial information.” Moreover, the court determined that the original lender’s conduct was “unfair and deceptive” under Chapter 93A. The court further noted that Massachusetts law states that while “an assignee ordinarily cannot be held liable for damages based upon the acts of its assignor,” under “the common law principle that an assignee stands in the assignor’s shoes, ‘assignees may be liable under [Chapter] 93A for equitable remedies such as cancellation of a debt or rescission of a contract’”—a context under which the plaintiff sought to have the bank’s claim “reduced by recoupment in the amount of his damages caused by [the original lender’s] unfair and deceptive acts.” However, the court noted that because the borrower failed to “carry his burden to prove that he incurred injury as a result of [the original lender’s] violation,” he “failed to prove an amount for recoupment in reduction” of the proof of claim the bank asserted against him.
On April 15, the U.S. District Court for the Northern District of California dismissed class claims alleging a software-services provider for a clothing retailer wiretapped consumers’ communication with the retailer in violation of California’s Invasion of Privacy Act and the California Constitution. The software at issue was sold to the service provider’s clients to capture and analyze data so companies can see how website visitors use their sites. The plaintiff alleged that during a visit to one of the retailer’s websites, the defendant’s software captured information including when she visited, the length of her visit, her IP address and location, browser type, and the operating system on her device. The plaintiff further claimed that, in addition to the aforementioned information, the software also captured personally identifiable information such as email, shipping addresses, and payment-card information. The defendant moved to dismiss, which was granted by the court. In dismissing the action, the court referenced its dismissal of virtually identical claims against another software-services provider and ruled that the defendant’s recording of activities such as keystrokes, mouse clicks, and page scrolling does not amount to wiretapping. “[The defendant] is not a third-party eavesdropper,” the court wrote, “[i]t is a vendor that provides a software service that allows its clients to monitor their website traffic.” Moreover, the court determined that information—“such as IP addresses, locations, browser types, and operating systems”—is not “content” under the plaintiff’s Section 631(a) claim.
On April 15, the U.S. District Court for the Middle District of Florida certified a nationwide class and a California-only class of restaurant customers who claim the restaurant chain’s negligence led to a 2018 data breach that compromised their credit card information. The two classes of consumers include those who made credit or debit card purchases at affected restaurants in March and April 2018, when their data was accessed by cybercriminals, and who incurred reasonable expenses or time spent mitigating the consequences of the breach. The judge certified the classes only on the plaintiffs’ negligence and state Unfair Competition Law (California) claims, and deferred ruling on the class certification related to claims that the restaurants’ parent company breached an implied contract with customers by failing to have adequate cybersecurity protocols. Certifying that claim, the judge stated, could require applying 50 different state laws on the breach of implied contracts.
On April 13, the Minnesota attorney general announced a settlement with a California-based student loan debt relief company that allegedly: (i) collected illegal fees from customers; (ii) misrepresented its services to cease operations in Minnesota by not providing full refunds to its Minnesota consumers; and (iii) violated Minnesota’s Debt Services Settlement Act, Prevention of Consumer Fraud Act, and Uniform Deceptive Trade Practices Act. The AG alleged that the company “falsely promised consumers student-loan forgiveness, when only the federal government can forgive federal student loans.” Under the terms of the settlement, the company is required to pay the AG $18,190.50, which will be used to provide full restitution to consumers. The settlement also requires the company to cease operations in Minnesota until it becomes registered as a debt-settlement service provider.
On April 15, the Conference of State Bank Supervisors (CSBS) announced a request for public comments on proposed requirements for developing a new system to modernize and streamline the NMLS licensing application process and “[p]romote efficient operations and networked supervision among regulators.” Key components of the proposal include:
- A three-part licensing framework that divides licensing requirements into three categories: core, business-specific, and license-specific, with the goal of providing a standard set of requirements for companies, individuals, and locations “regardless of the industry they are operating in or license types they hold.”
- A listing and description of core requirements as applicable to companies and individual licensees.
- An overview of the identity verification process all users will complete when creating a new user account in the modernized NMLS.
CSBS emphasized that one of its Networked Supervision priorities is to establish a standardized licensing approach based on uniform requirements across all state nonbank financial regulatory agencies, and noted that the money services business industry will be the first industry to transition to the new system at some point in 2022. Comments on the proposal will be accepted through May 31.
On April 14, NYDFS announced a settlement with an insurance broker to resolve allegations that the broker violated the state’s cybersecurity regulation (23 NYCRR Part 500) by failing to report it was the subject of two cyber breaches between 2018 and 2020. Under Part 500.17, regulated entities are required to provide timely notice to NYDFS when a cybersecurity event involves harm to customers (see FAQs here). A September 2019 examination revealed that the cyber breaches involved unauthorized access to an employee’s email account, which could have provided access to personal data, including social security and bank account numbers. NYDFS also alleged that the broker failed to implement a multi-factor authentication as required by 23 NYCRR Part 500. Under the terms of the consent order, the broker will pay a $3 million civil monetary penalty and will make further improvements to strengthen its existing cybersecurity program to ensure compliance with 23 NYCRR Part 500. NYDFS acknowledged the broker’s “commendable” cooperation throughout the examination and investigation and stated that the broker had demonstrated its commitment to remediation.
On April 12, the U.S. District Court for the Northern District of California denied defendants’ motion to compel arbitration in a matter alleging a lender denied plaintiffs’ applications based on their immigration status. The plaintiffs filed a putative class action against the defendants, alleging the lender denied their loan applications based on one of the plaintiff’s Deferred Action for Childhood Arrivals (DACA) status and the other plaintiff’s status as a conditional permanent resident. The plaintiffs claimed that these practices constituted unlawful discrimination and “alienage discrimination” in violation of federal law and California state law. The plaintiffs also alleged that the lender violated the FCRA by accessing one of their credit reports without a permissible purpose. The defendants moved to compel arbitration and dismiss the claims.
With respect to the defendants’ motion to compel arbitration, the lender claimed that the DACA plaintiff “expressly consented to arbitration” when he was required to check a box labeled “I agree” in order to proceed with his online student loan refinancing application back in 2016. However, the DACA plaintiff argued the arbitration agreement “lacked adequate consideration” because he was ineligible for a loan as a DACA applicant, and that even if it were a valid agreement, it only applied to his 2016 application and not to his subsequent attempts to refinance his student loans. In denying the lender’s motion to compel arbitration, the court concluded that the DACA plaintiff did not claim that he was seeking to reopen or have the lender reconsider his 2016 application, but rather he asserted that these were “standalone attempted transactions,” and as such, did not fall within the scope of the 2016 arbitration agreement.
In reviewing whether the lender’s policies constitute alienage discrimination, the court determined, among other things, that while the lender “asserts that it does not discriminate against non-citizens because some non-citizens—namely [lawful permanent residents] and some visa-holders—are still eligible to contract for credit with [the lender],” the distinction “is not supported by the language of the statute,” noting that under 42 U.S.C. § 1981, protections “extend to ‘all persons within the jurisdiction of the United States.’” Additionally, the court ruled that the second class of conditional permanent residents whose credit reports were pulled by the lender and allegedly experienced a decrease in their credit scores—despite plaintiffs claiming the lender’s policy states that permanent residents are ineligible for loans if their green cards are valid for two years or less—may proceed with their FCRA claims.
On April 9, the Pennsylvania attorney general announced settlements with the former CEO of a since-dissolved lender and a debt collector to resolve claims that the collector charged borrowers interest rates as high as 448 percent on loans and lines of credit. The AG alleged that the former CEO “participated in, directed and controlled” business activities related to the allegedly illegal online payday lending scheme, while the debt collector collected more than $4 million related to Pennsylvania consumers’ loan accounts. The terms of the settlement require the individual defendant to comply with relevant consumer protection laws and limits the individual defendant’s ability to work in the consumer lending industry in Pennsylvania for the next nine years. Additionally, the individual defendant is required to pay the Commonwealth $3 million.
The AG’s office noted that the U.S. District Court for the Eastern District of Pennsylvania also approved a settlement with the debt collector, which requires the company to comply with relevant consumer protection laws and, among other things, undertake the following actions: (i) ensure that all acquired debts, for which it attempts to collect, comply with applicable laws and regulations; (ii) cancel all balances on applicable accounts, take no further action to collect debts allegedly owed by Pennsylvania consumers on these accounts, and notify consumers of the cancellations; (iii) “refrain from engaging in [c]ollections on any [d]ebts involving loans made over the internet by [n]on-bank lenders that violate Pennsylvania laws,” including its usury laws; and (iv) will not sell, re-sell, or assign debt related to applicable accounts, including accounts subject to a previously-negotiated nationwide class action settlement agreement and Chapter 11 bankruptcy plan. Previous InfoBytes coverage related to the payday lending scheme can be found here, here, and here.
On April 13, NYDFS announced the new Statewide Office of Financial Inclusion and Empowerment, which is intended to meet the financial services needs of low- and middle-income New Yorkers and provide a “single-stop state resource” for consumers to access financial help. Superintended Linda A. Lacewell stated that the intention of the office is to “advance the Department’s strategic financial inclusion initiatives” and “pilot and develop policy initiatives designed to help further financial inclusion and empowerment.” Among other things, the new office will (i) maintain a centralized list of financial services counseling providers from across the state in the areas of housing, student loan, debt, and general financial literacy; (ii) coordinate state and local services intended to expand access to credit and opportunities for wealth building; (iii) “[i]ncubate new programs to expand access to safe and affordable banking services, credit and financial education,” and “coordinate public-private partnerships”; and (iv) foster the provision of high-quality, low-cost financial products across New York. Lacewell also announced that the Honorable Tremaine Wright will serve as the office’s first director. Wright, who will develop and implement the office’s policies and programs, was previously elected to the New York State Assembly where she was chair of New York State Black, Puerto Rican, Hispanic & Asian Legislative Caucus.
Recently, the California legislature introduced AB 1177—the California Public Banking Option Act—which would, if enacted, establish the Public Banking Opinion Board and task the Board with designing, implementing, and overseeing a program for consumers in the state who lack access to traditional banking services. Specifically, the bill would create the BankCal Program, which would protect unbanked and underbanked consumers from predatory, discriminatory, and costly alternatives by providing “access to voluntary, zero-fee, zero-penalty, federally insured transaction account and debit card services at no cost to account holders.”
Among other things, the bill would (i) impose a mandate requiring employers and hiring entities to maintain payroll direct deposit arrangements to allow workers to participate in the program; (ii) require landlords to allow tenants to pay rents and security deposits by electronic funds transfers from a BankCal account; (iii) require the Board to contract with and coordinate financial services vendors for the program and build an expansive financial services network of participating ATMs, banks and credit union branches, and other in-network partners to allow account holders to load or withdraw funds from their BankCal accounts without paying fees; (iv) require the Board to establish a no-fee process to allow all account holders to arrange for payments to a registered payee using a preauthorized electronic fund transfer from a BankCal account; and (v) require the Board to “determine the criteria for certification of lenders of consumer credit” to maximize consumer protection and protect account holders from unfair and deceptive practices, including those that “steer consumers into unnecessary, more costly, or higher risk products that do not match their financial needs.” Furthermore, the Board would be tasked with studying whether additional services may be beneficial to account holders to maximize the purposes of the program.
- Garylene D. Javier to discuss “How to ensure customer and workforce equality in consumer financial services” at the American Bar Association Business Law Section Spring Meeting
- Jeffrey P. Naimon to discuss “The bureau in transition” at the American Bar Association Business Law Section Spring Meeting
- Kari K. Hall to discuss “Fair lending and artificial intelligence” at the American Bar Association Business Law Section Spring Meeting
- Jonice Gray Tucker to discuss "Reading the tea leaves of President Biden’s initial financial appointees" at LendIt Fintech
- APPROVED Webcast: Staying in the know with Buckley regtech solutions
- Moorari K. Shah to discuss “CA, NY, federal licensing and disclosure” at the Equipment Leasing & Finance Association Legal Forum
- Jonice Gray Tucker to discuss "Compliance under Biden" at the WSJ Risk & Compliance Forum
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable