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Financial Services Law Insights and Observations


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  • 9th Circuit upholds $50 million order in FTC action against publisher


    On September 11, the U.S. Court of Appeals for the Ninth Circuit, in a split decision, upheld the district court order requiring a publisher and conference organizer and his three companies (defendants) to pay more than $50.1 million to resolve allegations that the defendants made deceptive claims about the nature of their scientific conferences and online journals and failed to adequately disclose publication fees in violation of the FTC Act. As previously covered by InfoBytes, in an action filed in the U.S. District Court for the District of Nevada, the FTC alleged the defendants misrepresented that their online academic journals underwent rigorous peer reviews; instead, according to the FTC, the defendants did not conduct or follow the scholarly journal industry’s standard review practices and often provided no edits to submitted materials. Additionally, the FTC alleged that the defendants failed to disclose material fees for publishing authors’ work when soliciting authors and that the defendants falsely advertised the attendance and participation of various prominent academics and researchers at conferences without their permission or actual affiliation. The district court agreed with the FTC and, among other things, ordered the defendants to pay more than $50.1 million in consumer redress.

    On appeal, the split 9th Circuit agreed with the district court, concluding that the defendants violated the FTC Act, noting that the despite the “overwhelming evidence against them,” the defendants “made only general denials” and did not “create any genuine disputes of material fact as to their liability.” The appellate court emphasized that the misrepresentations made by the defendants were “material” and “did in fact, deceive ordinary customers.” Moreover, among other things, the appellate court held that the defendants failed to meet their burden to show that the FTC “overstated the amount of their unjust gains by including all conference-related revenue.” Specifically, the appellate court determined that conferences were “part of a single scheme of deceptive business practices,” even though the conferences were individual, discrete events. Because the marketing was “widely disseminated,” the court determined that the FTC was entitled to a rebuttable presumption that “all conference consumers were deceived.”

    In partial dissent, a judge asserted the FTC “did not reasonably approximate unjust gains” by including all conference-related revenue, because “the FTC’s own evidence indicates that only approximately 60% of the conferences were deceptively marketed.” Thus, according to the dissent, the case should have been remanded to the district court to determine whether the FTC can meet its initial burden.

    Courts FTC FTC Act UDAP Deceptive Advertisement Settlement Appellate Ninth Circuit

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  • CFPB asks 9th Circuit to enforce Seila CID


    On August 31, the CFPB filed a supplemental brief in the U.S. Court of Appeals for the Ninth Circuit, arguing that the formal ratifications of then-Acting Director Mick Mulvaney and current Director Kathy Kraninger, paired with the U.S. Supreme Court’s ruling in Seila v. CFPB, are sufficient for the appellate court to enforce the CID previously issued against the law firm, and that “[s]etting aside the CID at this point would serve no valid purpose.” As previously covered by InfoBytes, in 2017, the CFPB ordered Seila Law to comply with a CID seeking information about the firm’s business practices to determine whether it violated the CFPA, the Telemarketing Sales Rule (TSR), or other federal consumer financial laws when providing debt-relief services or products, but the law firm refused to comply, arguing that the CID was invalid because the CFPB’s structure was unconstitutional. Last year, after the 9th Circuit upheld the CID (covered by InfoBytes here), Seila Law appealed the decision to the Supreme Court. Following the Supreme Court’s opinion in June—which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert)—the Bureau noted that Kraninger formally ratified the agency’s decisions regarding the CID in July.

    Among other things, the Bureau highlighted in its brief Seila Law’s argument “that the CID still should not be enforced because at the time this action commenced, the Supreme Court had not yet held invalid the removal provision.” The Bureau countered that any defect in the initiation of this action has been resolved because the CID, and the action to enforce it, “have now been formally and expressly ratified” by two Bureau officials removable at will by the President. The Bureau also asked the 9th Circuit to consider what may happen if the appellate court chooses to ignore the ratifications and rule in favor of Seila Law. According to the Bureau, such a result “could also, depending on the [c]ourt’s reasoning, be used to raise doubts about the validity of other actions the Bureau has taken over the past decade and that a fully accountable Director has now also ratified.” Should the 9th Circuit choose to set aside the CID, the appellate court would not only further delay a “legitimate law-enforcement investigation,” but also “undermine the very Article II authority that the Supreme Court so emphasized in deciding this case,” the Bureau argued.


    Courts Appellate Ninth Circuit CIDs Seila Law

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  • 9th Circuit: No bona fide error defense when relying on creditor to provide information


    On August 17, the U.S. Court of Appeals for the Ninth Circuit reversed a summary judgment ruling in favor of a debt collector (defendant) accused of violating the FDCPA, determining the district court erred in concluding that the defendant qualified for the bona fide error defense. According to the opinion, the plaintiff incurred a debt to a medical provider (creditor), who eventually placed the debt with the defendant for collection. The plaintiff alleged that the defendant violated the FDCPA when it miscalculated the interest on the unpaid debt. While the parties did not dispute the issue of whether the defendant unintentionally violated the FDCPA when it miscalculated interest on the debt, the issue remained as to whether the defendant had reasonable procedures in place to qualify for the bona fide error defense. The defendant argued that it has reasonable procedures in place because its agreement with the creditor contained a requirement that the creditor supply it with accurate information for collection. The defendant argued “that this procedure was reasonably adapted to avoid violations of the FDCPA,” and that it should be entitled to the bona fide error defense. The district court agreed with the defendant and granted its request for summary judgment.

    On appeal, the 9th Circuit determined that relying on creditor-clients to provide accurate information is insufficient to establish a bona fide error defense. Moreover, a “boilerplate agreement” between the creditor and the defendant “effectively outsourced the defendant’s statutory duty under the FDCPA,” the appellate court held, noting that defendants are not allowed to simply rely on the information they are being provided.

    Courts Appellate Ninth Circuit FDCPA Debt Collection

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  • 9th Circuit affirms $142 million settlement in bank sales practices action


    On July 20, the U.S. Court of Appeals for the Ninth Circuit affirmed (in a published and an unpublished opinion) a $142 million class action settlement between a nationwide class of consumers and a national bank, concluding the class was unified by a claim under federal law. The published opinion specifically affirmed the district court’s holding that the class satisfied the predominance requirement under Rule 23 of the Federal Rules of Civil Procedure. In the unpublished memorandum disposition, the 9th Circuit affirmed the district court’s certification of the settlement class, approval of the settlement, award of attorneys’ fees, and approval of notice. 

    As previously covered by InfoBytes, the settlement covers a 2015 class action lawsuit regarding retail sales practices that involved bank employees creating deposit and credit card accounts without obtaining consent to do so. In April 2017, the bank agreed to expand the original settlement class to include claims dating back to May 2002, resulting in a settlement amount of $142 million. The district court certified the class and approved the settlement. Objectors appealed, arguing that the class did not satisfy the predominance requirement, because the court did not do a choice-of-law analysis.

    On appeal, the 9th Circuit upheld the district court’s rulings on the settlement, concluding that the district court did not abuse its discretion in holding the class met the federal predominance requirements. Specifically, the appellate court held that the FCRA claim unified the class, allowing the class to “show that the FCRA’s elements were proven by a common course of conduct.” Moreover, the appellate court concluded that the “existence of potential state-law claims did not outweigh the FCRA claim’s importance.” In a separate unpublished memorandum opinion, the appellate court affirmed, among other things, the award of attorney’s fees, which were “well below the 25% benchmark.”

    Courts Incentive Compensation Appellate Class Action Ninth Circuit

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  • 9th Circuit: FCRA claim cannot prevail without first providing notice of disputed information


    On July 14, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a group of defendants, including a credit reporting agency (CRA) and furnisher, after determining that a consumer plaintiff failed to adequately notify the CRA of an error on her credit report. According to the opinion, the plaintiff questioned the accuracy of certain information on her credit report and requested that these inaccuracies be investigated. Defendants investigated and corrected the inaccuracies and informed the plaintiff that if she further disputed the accuracy of the reported information, she could submit additional documentation to support her claim. Plaintiff continued to believe her credit report contained inaccuracies; specifically, she contended that the CRA was misreporting the date on which her bankruptcy was discharged. But rather than notify the CRA, she instead filed suit in federal district court alleging violations under the FCRA. The defendants filed for summary judgment which the district court granted, concluding that while “the date of the bankruptcy may have continued to be misreported after the conclusion of the reinvestigation,’ there was no genuine dispute of material fact on whether [the plaintiff] notified [the CRA] of that specific reporting error.” The 9th Circuit agreed, starting that because the plaintiff failed “to provide adequate notice of this reporting error” the scope of the defendants’ duties were limited. Moreover, the 9th Circuit held that a consumer cannot prevail on a “FCRA claim without first putting the [CRA] on notice of the information that is disputed.”

    Courts Appellate FCRA Credit Reporting Agency Consumer Finance Ninth Circuit

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  • District court denies interlocutory appeal request in escrow interest action


    On July 9, the U.S. District Court for the District of Maryland denied a national bank’s request for interlocutory appeal of the court’s February decision denying the bank’s motion to dismiss an action, which alleged that the bank violated Maryland law by not paying interest on escrow sums for residential mortgages. As previously covered by InfoBytes, after the bank allegedly failed to pay interest on a consumer’s mortgage escrow account, the consumer filed suit against the bank alleging, among other things, a violation of Section 12-109 of the Maryland Consumer Protection Act (MCPA), which “requires lenders to pay interest on funds maintained in escrow on behalf of borrowers.” The court rejected the bank’s assertion that the state law is preempted by the National Bank Act (NBA) and by the OCC’s 2004 preemption regulations. The court concluded that under the Dodd-Frank Act, national banks are required to pay interest on escrow accounts when mandated by applicable state or federal law.

    The bank subsequently moved for an interlocutory appeal. In denying the bank’s request, the court explained that there was not a difference of opinion among courts as to whether the NBA preempts Maryland’s interest on escrow law. Specifically, the court noted that its “conclusion aligns with the only other two courts that have examined [the] particular question,” citing to the U.S. Court of Appeals for the Ninth Circuit’s decision in Lusnak v Bank of America and the Eastern District of New York’s decision in Hymes v. Bank of America (covered by InfoBytes here and here, respectively). After finding there is no “difference of opinion as to any ‘controlling legal issue,’” the court concluded the motion failed to satisfy the requisite elements for an interlocutory appeal.

    Courts State Issues Maryland National Bank Act Escrow Preemption Ninth Circuit Appellate New York Mortgages Dodd-Frank

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  • Supreme Court to review FHFA structure, FTC restitution, and TCPA autodialing


    On July 9, the U.S. Supreme Court agreed to review the following cases:

    • FHFA Constitutionality. The Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s en banc decision in Collins. v. Mnuchin (covered by InfoBytes here), which concluded that the FHFA’s structure—which provides the director with “for cause” removal protection—violates the Constitution’s separation of powers requirements. As previously covered by a Buckley Special Alert last month, the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. The Court further held that the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute.
    • FTC Restitution Authority. The Court granted review in two cases: (i) the 9th Circuit’s decision in FTC V. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
    • TCPA Autodialer Definition. The Court agreed to review the U.S. Court of Appeals for the Ninth Circuit’s decision in Duguid v. Facebook, Inc. (covered by InfoBytes here), which concluded the plaintiff plausibly alleged the social media company’s text message system fell within the definition of autodialer under the TCPA. The 9th Circuit applied the definition from their 2018 decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list. The 2nd Circuit has since agreed with the 9th Circuit’s holding in Marks. However, these two opinions conflict with holdings by the 3rd, 7th, and 11th Circuits, which have held that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of an autodialer in ACA International v. FCC (covered by a Buckley Special Alert).

    Courts FHFA Single-Director Structure TCPA Appellate FTC Restitution FTC Act Autodialer Ninth Circuit Seventh Circuit Fifth Circuit D.C. Circuit Third Circuit Eleventh Circuit

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  • 9th Circuit: Judicial foreclosure not debt collection under FDCPA


    On June 30, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of an FDCPA action, concluding that the FDCPA does not apply when a creditor is enforcing a security interest through a foreclosure, but is not seeking a deficiency judgment. According to the opinion, the plaintiff filed an action against Fannie Mae, Fannie Mae’s loan servicer, the law firm that represented Fannie Mae in the foreclosure proceeding, and the firm’s attorneys (collectively, “defendants”) for, among other things, violating the FDCPA when seeking to foreclose on his residential property. The district court dismissed the action, concluding that the FDCPA did not apply because the defendants had not engaged in any debt collection behavior by initiating the judicial foreclosure. In 2018, the 9th Circuit affirmed the dismissal, but subsequently ordered a supplemental briefing based on the U.S. Supreme Court’s intervening decision in Obduskey v. McCarthy & Holthus LLP (which held that law firms performing nonjudicial foreclosures are not “debt collectors” under the FDCPA, covered by InfoBytes here).

    After the supplemental briefing, the appellate court affirmed the district court’s dismissal of the action. The appellate court rejected the plaintiff’s argument that the letter sent by the defendants when initiating the judicial foreclosure, which included monetary amounts owed, amounted to debt collection activity under the FDCPA. The appellate court noted that the defendants were merely fulfilling a procedural requirement (that has since been amended) of Oregon foreclosure law, and “in no event would a money award have been enforceable against [the plaintiff],” because of Oregon’s anti-deficiency judgment law. Thus, the appellate court concluded that a judicial foreclosure is not considered a debt collection activity when it does not “include a request for a deficiency judgment or some other effort to recover the remaining debt,” and therefore, the district court properly dismissed the action.

    Courts Appellate Ninth Circuit FDCPA Foreclosure Debt Collection

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  • 9th Circuit: Payday arbitration remanded because of new California interest rate law


    On June 9, the U.S. Court of Appeals for the Ninth Circuit remanded a case against a payday lender back to district court because a newly issued California amendment took effect—which prohibits lenders from issuing loans between $2,500 and $10,000 with charges over 36 percent calculated as an annual simple interest rate (covered by InfoBytes here)—which may impact the court’s analysis. As also previously covered by InfoBytes, plaintiffs filed a putative class action suit against the payday lender alleging the lender sells loans with usurious interest rates, which are prohibited under California’s Unfair Competition Law and Consumer Legal Remedies Act. The lender moved to compel arbitration, but the district court concluded the arbitration provision was unenforceable. In addition to finding the arbitration provisions procedurally unconscionable, the court found that the provision contained a waiver of public injunctive relief, which was substantively unconscionable based on the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here).

    On appeal, the 9th Circuit remanded the case back to the district court to reconsider whether the consumer’s requested injunction enjoining the payday lender from issuing loans above $10,000 would actually prevent a threat of future harm in light of the new California law and considering the operative complaint does not allege the lender issued or continues to issue loans above $10,000. Additionally, the appellate court rejected the lender’s arguments that McGill was preempted under the Federal Arbitration Act (FAA) and agreed with the district court’s application of California law, because “Kansas law is contrary to California policy and [] California holds a materially greater interest in this litigation.”

    Courts Arbitration Ninth Circuit State Issues Preemption Federal Arbitration Act Appellate

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  • 9th Circuit upholds TCPA liability for reassigned number


    On June 2, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s judgment in a TCPA action against a bank, concluding that consent from the person intended to call does not exempt the bank from liability under the TCPA. According to the opinion, the bank’s vendors made over 180 automated calls to a child’s cell phone in attempt to collect past-due payments from a customer who used to have the same cell phone number, which had since been reassigned to the child’s mother. The customer of the bank had given consent to be called, but the mother and child had not. After a three-day jury trial, the jury returned a verdict in favor of the plaintiff on the TCPA claim, concluding that the bank could not escape liability under the TCPA because the customer it intended to call had given consent, and awarding $500 in statutory damages for each of the 189 unwanted calls, for a total of $94,500.

    On appeal, the 9th Circuit affirmed the district court’s judgment after the jury trial. The appellate court noted it was “agreeing with other circuits,” on liability when it concluded that the district court “properly instructed the jury that consent from the intended recipient of the call was not sufficient.” Moreover, the appellate court held that the district court properly instructed the jury on the definition of “automatic telephone dialing system,” based on the panel’s decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here). Lastly, the appellate court also issued an opinion affirming the district court’s award of attorneys’ fees to the plaintiff.

    Courts TCPA Appellate Ninth Circuit Attorney Fees Autodialer

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