Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • 9th Circuit allows FCRA action to move forward against national bank

    Courts

    On October 31, the U.S. Court of Appeals for the Ninth Circuit, in a split panel decision, reversed the district court’s dismissal of a consumer’s FCRA action against a national bank alleging the bank obtained her credit report for an impermissible purpose. According to the opinion, the consumer filed the complaint against the bank after reviewing her credit report and noticing the bank had submitted “numerous credit report inquiries” in violation of the FCRA because she “did not have a credit relationship with [the bank]” as specified in the FCRA and, therefore, the inquiries were not for a permissible purpose. The bank moved to dismiss the action, arguing that the consumer did not suffer any injury from the credit inquiries. The district court agreed, and dismissed her claim with prejudice for lack of standing and failure to state a claim.

    On appeal, the majority disagreed with the district court, concluding that (i) a consumer suffers a concrete injury in fact when a credit report is obtained for an impermissible purpose; and (ii) a consumer only needs to allege that her credit report was obtained for an impermissible purpose to survive a motion to dismiss. The appellate majority emphasized that the consumer does not have the burden of pleading the actual purpose behind the bank’s use of her credit report; the burden is on the defendant to prove the credit report was obtained for an authorized purpose. Moreover, the majority noted that the consumer alleges she only learned about the bank’s inquiry after reviewing her credit report and, therefore, it is implied “that she never received a firm offer of credit from [the bank],” and taken together with the fact that the bank actually obtained her credit report, she stated a plausible claim for relief.

    One panel judge concurred in part and dissented in part, arguing that the consumer had standing but failed to state a plausible claim. Specifically, the judge argued that “the majority characterize[d] [the] plaintiff’s claim in terms of ‘possibility,’” but “mere possibility of liability does not plead a plausible claim.” Moreover, the judge disagreed with the majority’s conclusion that the defendant bears the burden of proof in these instances, stating “the Supreme Court has expressly placed the burden of pleading a plausible claim squarely on the plaintiff rather than on the defendant.”

    Courts FCRA Standing Appellate Ninth Circuit Credit Report

    Share page with AddThis
  • House tells Supreme Court CFPB structure is constitutional

    Courts

    On October 4, the U.S. House of Representatives filed an amicus brief with the U.S. Supreme Court arguing that the CFPB’s structure is constitutional. The brief was filed in response to a petition for writ of certiorari by a law firm, contesting a May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that, among other things, the Bureau’s single-director structure is constitutional (previously covered by InfoBytes here). The House filed its brief after the amicus deadline, but requested its motion to file be granted because it only received notice that the Bureau changed its position on the constitutionality of the CFPB’s structure the day before the filing deadline. As previously covered by InfoBytes, on September 17, the DOJ and the CFPB filed a brief with the Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers; and on the same day, Director Kraninger sent letters (see here and here) to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.) supporting the same argument.

    The brief, which was submitted by the Office of General Counsel for the House, argues that the case “presents an issue of significant important to the House” and, because the Solicitor General “has decided not to defend” Congress’ enactment of the for-cause removal protection through the Dodd-Frank Act, the “House should be allowed to do so.” The brief asserts that the 9th Circuit correctly held that the Bureau’s structure is constitutional based on the D.C. Circuit’s majority in the 2018 en banc decision in PHH v. CFPB (covered by a Buckley Special Alert). Moreover, the brief argues that when an agency is “headed by a single individual, the lines of Executive accountability—and Presidential control—are even more direct than in a multi-member agency,” as the President has the authority to remove the individual should they be failing in their duty. Such a removal will “‘transform the entire CFPB and the execution of the consumer protection laws it enforces.’”

    Courts CFPB Single-Director Structure Dodd-Frank U.S. House U.S. Supreme Court Ninth Circuit Appellate D.C. Circuit Amicus Brief

    Share page with AddThis
  • District Court: New York’s interest on escrow law not preempted by National Bank Act

    Courts

    On September 30, the U.S. District Court for the Eastern District of New York held that the National Bank Act (NBA) does not preempt a New York law requiring interest on mortgage escrow accounts. According to the opinion, plaintiffs brought a pair of putative class actions against a national bank seeking interest on funds deposited into their mortgage escrow accounts, as required by New York General Obligation Law § 5-601. The bank moved to dismiss both complaints, arguing that the NBA preempts the state law. The district court disagreed, concluding that the plaintiffs’ claims for breach of contract can proceed, while dismissing the others. The court concluded there is “clear evidence that Congress intended mortgage escrow accounts, even those administered by national banks, to be subject to some measure of consumer protection regulation.” As for the OCC’s 2004 preemption regulation, the court determined that there is no evidence that “at this time, the agency gave any thought whatsoever to the specific question raised in this case, which is whether the NBA preempts escrow interest laws,” citing to and agreeing with the U.S. Court of Appeals for the Ninth Circuit’s decision in Lusnak v. Bank of America (which held that a national bank must comply with a California law that requires mortgage lenders to pay interest on mortgage escrow accounts, previously covered by InfoBytes here). Lastly, the court applied the preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson, and found that the law does not “significantly interfere” with the banks’ power to administer mortgage escrow accounts, noting that it only “requires the Bank to pay interest on the comparatively small sums” deposited into the accounts and does not “bar the creation of mortgage escrow accounts, or subject them to state visitorial control, or otherwise limit the terms of their use.”

    Courts State Issues National Bank Act Escrow Preemption Ninth Circuit Appellate U.S. Supreme Court Mortgages

    Share page with AddThis
  • Class certification granted in FCRA suit against credit reporting agency

    Courts

    On October 1, the U.S. District Court for the Central District of California granted a plaintiff’s motion for class certification in an action against a national credit reporting agency for allegedly failing to follow reasonable procedures to assure maximum possible accuracy in the plaintiffs’ credit reports, in violation of the FCRA. As previously covered by InfoBytes, the credit reporting agency allegedly failed to delete all of the accounts associated with a defunct loan servicer, despite statements claiming to have done so in January 2015. As of October 2015, 125,000 accounts from the defunct loan servicer were still being reported, and the accounts were not deleted until April 2016. The class action alleges that the credit reporting agency violated the FCRA by continuing to report the past-due accounts, even after deleting portions of the positive payment history on the accounts. After the district court initially granted summary judgment in favor of the credit reporting agency, the U.S. Court of Appeals for the Ninth Circuit revived the lawsuit, holding that a “reasonable jury could conclude that [the credit reporting agency’s] continued reporting of [the account], either on its own, or coupled with the deletion of portions of [the consumer’s] positive payment history on the same loan, was materially misleading.” 

    In certifying a class of all persons whose credit report contained an account originated after January 21, 2015, from the defunct loan servicer, the district court concluded that the “Defendant’s failure to use maximum reasonable procedures to prevent the continued reporting of delinquent [loan servicer] accounts—presents a clear risk of material harm to Plaintiff’s concrete interest in accurate credit reporting.” The court rejected the credit reporting agency’s argument that the named plaintiff must prove standing on behalf of the entire class, determining that “for all the same reasons Plaintiff has standing, it’s at least possible that the unnamed class members also have standing.” Moreover, the court rejected the argument that damages should be an individual question because many class members “likely suffered no injury at all.” The court concluded that the fact that each class member may “collect slightly different amounts of statutory damages is insufficient, without more, to defeat a showing of predominance in this case.”

    Courts Class Action Ninth Circuit Appellate FCRA Credit Reporting Agency

    Share page with AddThis
  • CFPB informs two courts its director structure is unconstitutional

    Courts

    On September 18, the CFPB issued letters in pending litigation to inform the courts that it was changing its position regarding the constitutionality of the for-cause removal provision of the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the DOJ and the CFPB filed a brief with the U.S. Supreme Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers. The brief was filed in response to a petition for a writ of certiorari by a law firm contesting the May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that, among other things, the Bureau’s single-director structure is constitutional. The brief noted that, since the appellate opinion was issued, “the Director has reconsidered that position and now agrees that the removal restriction is unconstitutional.” The Bureau has now issued letters (available here and here) to the 9th Circuit in two cases noting that the Bureau will no longer defend the constitutionality of the for-cause removal restriction. The Bureau also submitted a similar letter with the U.S. District Court for the District of Utah. In each letter, the Bureau argues that, while it now believes the for-cause removal provision is unconstitutional, this does not change its position with regard to the judgments made in any of the cases, noting that the provision should be severed from the rest of the CFPA.

    Courts CFPB Single-Director Structure Dodd-Frank CFPA Ninth Circuit Appellate U.S. Supreme Court DOJ

    Share page with AddThis
  • Kraninger tells Supreme Court CFPB structure is unconstitutional

    Courts

    On September 17, the DOJ and the CFPB filed a brief with the U.S. Supreme Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers. The brief was filed in response to a petition for a writ of certiorari by a law firm, contesting the May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that (i) the Bureau’s single-director structure is constitutional, and that (ii) the district court did not err when it granted the Bureau’s petition to enforce a law firm’s compliance with a 2017 civil investigative demand (CID) (previously covered by InfoBytes here). The brief cites to a DOJ filing in opposition to a 2018 cert petition, which also concluded that the Bureau’s structure is unconstitutional by infringing on the president’s responsibility to ensure that federal laws are faithfully executed, but urged the Court to deny that writ as the case was a “poor vehicle” for the constitutionality consideration (previously covered by InfoBytes here).

    In contrast to the December brief, the DOJ now asserts that the present case is a “suitable vehicle for resolving the important question,” noting that only the constitutional question was presented to the Court and the 9th Circuit has stayed its CID mandate until final disposition of the case with the Court. Moreover, the government argues that until the Court resolves the constitutionality question of the Bureau’s structure, “those subject to the agency’s regulation or enforcement can (and often will) raise the issue as a defense to the Bureau’s efforts to implement and enforce federal consumer financial law.” While the Bureau previously defended the single-director structure to the 9th Circuit, the brief notes that since the May decision was issued, “the Director has reconsidered that position and now agrees that the removal restriction is unconstitutional.”

    On the same day, Director Kraninger sent letters (here and here) to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.) supporting the argument that the for-cause restriction on the president’s authority to remove the Bureau’s single Director, violates the Constitution’s separation of powers. Kraninger notes that while she is urging the Court to grant the pending petition for certiorari to resolve the constitutionality question, her position on the matter “does not affect [her] commitment to fulfilling the Bureau’s statutory responsibilities” and that should the Court find the structure unconstitutional, “the [Consumer Financial Protection Act] should remain ‘fully operative,’ and the Bureau would ‘continue to function as before,’ just with a Director who “may be removed at will by the [President.]’”

    Courts DOJ CFPB Single-Director Structure Appellate Ninth Circuit CIDs U.S. Supreme Court Seila Law

    Share page with AddThis
  • 9th Circuit: TILA right of rescission does not apply for mortgages used to reacquire property

    Courts

    On August 14, the U.S. Court of Appeals for the 9th Circuit held that TILA’s right of rescission does not apply when a borrower obtains a mortgage to reacquire residential property after having no ownership rights. According to the opinion, in 2003, a borrower quitclaimed his interest in residential property to his then wife; in 2007, he obtained a mortgage loan and took title to the property in accordance with a divorce judgment. The borrower sought rescission of the mortgage loan and the district court dismissed the action as untimely. On appeal, the 9th Circuit vacated the district court’s judgment, holding the borrower gave proper notice within the three year limit under TILA. On remand, the district court granted summary judgment in favor of the mortgage company, concluding the transaction was a residential mortgage transaction, in which no statutory right of rescission exists under TILA.

    On appeal, the 9th Circuit affirmed summary judgment in favor of the mortgage company. The appellate court rejected the borrower’s arguments that (i) the mortgage documents showed he already owned an interest in the property before he took out the mortgage loan; and (ii) the mortgage was taken in accordance with a divorce judgment, not to finance the acquisition of the property. The appellate court concluded that under TILA, the mortgage loan was a “residential mortgage transaction,” the definition of which “includes both an initial acquisition and a reacquisition of a property.” The fact the mortgage company characterized the transaction as a refinance is not determinative, according to the panel, because the borrower did not acquire title to the property until the day after he signed the loan. Moreover, while the divorce judgment ordered the borrower to make a payment to his ex-wife in order to obtain title to the property, he obtained a residential mortgage loan “in order to carry out those conditions.”

    Courts Appellate Ninth Circuit TILA Mortgages

    Share page with AddThis
  • District court concludes loan servicer violated TCPA

    Courts

    On August 19, the U.S. District Court for the Western District of Michigan held that a Pennsylvania-based student loan servicing agency violated the TCPA by calling the plaintiffs’ cell phones over 350 times using an automatic telephone dialing system (autodailer) after consent was revoked. According to the opinion, after revoking consent to receive calls via an autodialer, two plaintiffs asserted that the servicer called their cell phones collectively over 350 times in violation of the TCPA and moved for summary judgment seeking treble damages for each violation. In response, the loan servicer argued that the system used to make the calls does not meet the statutory definition of an autodialer under the TCPA and disputed the appropriateness of treble damages.

    The court, in disagreeing with the loan servicer, concluded that the system used by the loan servicer to make the calls qualified as an autodialer. The court applied the logic of the U.S. Court of Appeals for the 9th Circuit in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), stating that it was not bound by the FCC’s interpretations of an autodialer, based on the D.C. Circuit’s ruling in ACA International v. FCC, and therefore, “‘only the statutory definition of [autodialer] as set forth by Congress in 1991 remains.’” The court noted that there was “no question” that the system used by the loan servicer “stores telephone numbers to be called and automatically dials those numbers,” which qualifies the system as an autodialer. However, the court determined that the loan servicer did not violate the statute “willfully or knowingly,” noting that at the time of the calls it was not clear from the FCC whether the system being used was an autodialer.  As a result, the court awarded statutory damages, but not the treble damages sought by the plaintiffs.

    Courts Ninth Circuit Appellate ACA International TCPA Privacy/Cyber Risk & Data Security Student Lending

    Share page with AddThis
  • District Court rejects stop-payment fee class action against bank

    Courts

    On August 13, the U.S. District Court for the Northern District of California dismissed the majority of an EFTA class action against a national bank, allowing only one claim by the lead plaintiff to proceed. In this case, two customers filed a class action against the bank alleging that it violated the EFTA and California’s Unfair Competition Law (UCL) by charging a $30 stop-payment fee. The bank moved to dismiss the plaintiffs’ third amended complaint arguing, among other things, that the plaintiffs lacked standing, the EFTA does not prohibit stop payment fees, and the California UCL claims are preempted by the National Banking Act. While the district court found that the lead plaintiff had standing to assert the claims against the bank, the court also held that the EFTA, its legislative history, and the U.S. Court of Appeals for the 9th Circuit precedent “unambiguously does not prohibit stop payment fees.” Moreover, the court noted that the EFTA and its legislative history say nothing about “how the reasonableness of any such fees should be determined.” The court dismissed the plaintiffs’ class action claims with prejudice.

    Courts EFTA Class Action Ninth Circuit Fees Appellate

    Share page with AddThis
  • 9th Circuit: Plaintiffs’ face-scanning claims can proceed

    Courts

    On August 8, the U.S. Court of Appeals for the 9th Circuit affirmed a district court order certifying a class action suit that alleged a social media company’s face-scanning practices violated the Illinois Biometric Information Privacy Act (BIPA). The court found that the plaintiffs alleged a sufficiently concrete injury necessary to establish Article III standing as defined in the U.S. Supreme court’s decision in Spokeo, Inc. v. Robins. The plaintiffs contended that the defendant’s use of the facial-recognition technology did not comply with Illinois law designed to regulate “the collection, use, safeguarding and storage of biometrics”—which, under BIPA, includes the scanning of face geometry. The district court denied the defendant’s motion to dismiss for lack of standing and certified the class. The defendant appealed, arguing, among other things, that even if the plaintiffs have standing to sue, (i) BIPA is not intended to be applied extraterritorially; (ii) the collection of biometric data occurred on servers located outside of Illinois; and (iii) it is unclear that the alleged privacy violations “occurred ‘primarily and substantially within’” within the state. Additionally, the defendant argued that the district court abused its discretion by certifying the class because the state’s “extraterritoriality doctrine precludes the district court from finding predominance,” and that a class action was not superior to individual actions due to the potential for a large statutory damages award.

    On appeal, the 9th Circuit held that the plaintiffs’ claims met the standing requirement of Spokeo because the defendant’s alleged development of a face template that uses facial-recognition technology without users’ consent constituted an invasion of an individual’s private affairs and concrete interests. “Because we conclude that BIPA protects the plaintiffs’ concrete privacy interests and violations of the procedures in BIPA actually harm or pose a material risk of harm to those privacy interests, the plaintiffs have alleged a concrete and particularized harm, sufficient to confer Article III standing,” the appellate court stated. The 9th Circuit also dismissed the defendant’s extraterritoriality argument, stating that predominance is not defeated because the threshold questions of exactly which consumers BIPA applies to can be decided on a classwide basis.

    Courts Ninth Circuit Appellate Privacy/Cyber Risk & Data Security Class Action Spokeo

    Share page with AddThis

Pages