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Financial Services Law Insights and Observations


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  • Under Calabria, FHFA says agency structure is constitutional


    On July 9, the FHFA sent a letter to the U.S. Court of Appeals for the 5th Circuit notifying the court that the agency has a new Director, Mark Calabria, and that the FHFA has reconsidered its position regarding the constitutionality of its structure, presently concluding the Housing Economic Recovery Act’s (HERA) for-cause removal provision is constitutional. As previously covered by InfoBytes, in July 2018, the 5th Circuit concluded that the FHFA’s single-director structure violates Article II of the Constitution because the director is too insulated from removal by the president. In August 2018, while the agency was still under the leadership of Mel Watt, it petitioned the court for an en banc rehearing, challenging the constitutionality holding. Subsequently, in January, then acting Director, Joseph Otting, filed a supplemental brief stating the agency will no longer defend the constitutionality of the FHFA’s structure. Now, under the leadership of Director Calabria, the agency asserts that it reconsidered the issue, and respectfully requests that the appellate court uphold the agency’s structure as constitutional.

    Courts Appellate Fifth Circuit FHFA HERA Single-Director Structure

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  • 3rd Circuit: Collection letter failed to properly identify creditor in violation of FDCPA


    On July 10, the U.S. Court of Appeals for the 3rd Circuit reversed the dismissal of a FDCPA action against a debt collector, holding that the collection letter failed to apprise the least sophisticated debtor of the creditor’s identity. The complaint alleges that the debt collector “failed to identify ‘the name of the creditor to whom the debt is owed’” as required by the FDCPA because the letter listed “at least four entities” that were connected in some way to the debt. The district court dismissed the complaint, concluding the debt collector sufficiently identified the creditor.

    On appeal, the 3rd Circuit concluded that the letter failed to notify the least sophisticated debtor of the creditor’s identity for three reasons: (i) the letter did not expressly state that the bank was  the creditor or the owner of the debt; (ii) the letter identified the bank as the “assignee of” three other financial entities and “assignee” is a legal term that does not assist a debtor in understanding the relationships between the parties; and (iii) the letter as a whole failed to sufficiently identify the bank as the creditor, as the reference to three other entities “‘overshadowed’ the creditor’s identity.” The appellate court concluded that the letter failed to properly disclose the creditor and therefore, violated the FDCPA, reversing the district court’s dismissal of the complaint.

    Courts Debt Collection Third Circuit Appellate FDCPA Least Sophisticated Consumer

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  • D.C. Circuit: Receipt containing complete credit card information constitutes concrete injury


    On July 2, the U.S. Court of Appeals for the D.C. Circuit reversed a district court’s ruling that a consumer lacked Article III standing to allege a violation of the Fair and Accurate Credit Transaction Act (FACTA) when a merchant included all 16 digits of her credit card account number, her full name, and the expiration date on a receipt, because the receipt was not thrown away. Under FACTA, merchants are prohibited from including on a receipt (i) more than the last five digits of a consumer’s credit card number; and (ii) a credit card’s expiration date. The consumer alleged that the merchant violated the restriction, but the district court ruled that the consumer lacked standing to sue because she failed to describe a concrete risk of “actual or imminent” injury to a protected interest as defined in the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins. According to the district court, because the consumer did not dispose of the receipt, and was the only person who ever saw the receipt, her risk of identity theft had not increased. Moreover, the district court stated that the burden of protecting the non-compliant receipt did not constitute a concrete injury.

    On appeal, the D.C. Circuit reversed, holding that printing a receipt containing all 16 digits of a consumer’s credit card number is an “egregious” enough violation of FACTA to confer standing. According to the panel, the harm inflicted on the consumer by the merchant’s mishandling of her receipt had a “close relationship” to the type of harm that gives rise to a “breach of confidence” claim. Moreover, the panel stated that it was irrelevant that the consumer had been able to protect herself by safeguarding the receipt because: (i) FACTA protects an interest in avoiding an increased risk of identity theft, which the panel considered to be sufficiently concrete; and (ii) under the facts presented, the violation of the truncation requirement created a “risk of real harm” to such concrete interest. The D.C. Circuit remanded the case for further proceedings consistent with its findings. Notwithstanding, the panel was clear that not every violation of FACTA’s truncation requirement creates a risk of identity theft.

    Notably, while the D.C. Circuit’s decision is in agreement with an 11th Circuit opinion issued in April (prior InfoBytes coverage here), it conflicts with other appellate decisions, including an opinion issued by the 3rd Circuit in March (covered by InfoBytes here), wherein the 3rd Circuit held that, without concrete evidence of harm, a consumer lacks standing under FACTA to sue a merchant for including too many digits of a credit card account number on a receipt. The D.C. Circuit noted, however, that the 3rd Circuit “recognized its analysis would be different if it were presented with the facts [the consumer] presents to us.”

    Courts D.C. Circuit Appellate Privacy/Cyber Risk & Data Security FACTA Spokeo

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  • 4th Circuit holds lenders sufficiently proved tribal immunity


    On July 3, the U.S. Court of Appeals for the 4th Circuit reversed the district court’s denial of two tribal lenders’ motion to dismiss a putative class action lawsuit brought by Virginia residents, concluding the lenders properly claimed tribal sovereign immunity. The complaint alleged that the tribal lenders violated Virginia’s usury laws by charging Virginia residents interest rates 50-times-higher than those permitted under Virginia law. The tribal lenders moved to dismiss the action in district court on the grounds that they are entitled to sovereign immunity as an arm of the tribe. The district court denied the motion, concluding the tribal lenders (i) bore the burden of proof of immunity; and (ii) failed to prove they were an “arm-of-the-tribe.”

    On appeal, the 4th Circuit agreed with the district court that the burden of proof in the arm-of-the-tribe analysis should be placed on the defendant, stating “[u]nlike the tribe itself, an entity should not be given a presumption of immunity until it has demonstrated that it is in fact an extension of the tribe.” However, the appellate court rejected the district court’s conclusion that the tribal lenders failed to meet their burden, noting that while the tribal lenders were funded and controlled by a non-tribal company, ten percent of the tribe’s general fund comes from one of the lenders, and a judgment against either lender “could in fact significantly impact the tribal treasury.” Ultimately, the appellate court concluded that the lenders had “promoted ‘the Tribe’s self-determination through revenue generation and the funding of diversified economic development” and a finding of no immunity, “would weaken the Tribe’s ability to govern itself according to its own laws, become self-sufficient, and develop economic opportunities for its members.”

    Courts Fourth Circuit Appellate Tribal Immunity Class Action Usury

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  • 7th Circuit: HEA does not preempt affirmative misrepresentation claims against student loan servicer


    On June 27, the U.S. Court of Appeals for the 7th Circuit vacated the dismissal of an action against a student loan servicer, concluding a borrower is not barred by the Higher Education Act from asserting state-law claims against a student loan servicer if the borrower reasonably and detrimentally relied on affirmative misrepresentations. The class action filed against a federal student loan servicer alleged that the servicer steered borrowers who were struggling to make payments into repayment plans that benefited the servicer to the detriment of borrowers, notwithstanding claims on the servicer’s website indicating that trained experts would assist each borrower choose among options beneficial to the borrower based on individual circumstances. In addition to violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, the complaint alleged that the servicer’s conduct constituted constructive fraud and negligent misrepresentation under Illinois law. The district court dismissed the claims, holding that they were expressly preempted by Section 1098g of the Higher Education Act (HEA), which states “‘[l]oans made, insured, or guaranteed pursuant to a program authorized by title IV of the [HEA] of 1965 (20 U.S.C. 1070 et seq.) shall not be subject to any disclosure requirements of any State Law.’”

    On appeal, the 7th Circuit disagreed, concluding the district court’s decision was “overly broad.” Specifically, the appellate court found that the statements made on the servicer’s website were “affirmative misrepresentations,” which would not be covered under the HEA. The appellate court distinguished the instant case from the 9th Circuit’s decision in Chae v. SLM Corp, noting the plaintiffs in Chae complained about alleged “failures to disclose key information in specific ways, such as loan terms and repayment requirements.” Here, however, the 7th Circuit panel determined that the preemption principles enunciated in the Chae opinion do not extend to claims about the servicer’s “affirmative misrepresentations in counseling, where [the servicer] could have avoided liability under state law by remaining silent (or telling the truth) on certain topics.”

    Courts Seventh Circuit Appellate Student Lending Student Loan Servicer Higher Education Act

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  • 9th Circuit denies rent-to-own company’s arbitration bid


    On June 28, the U.S. Court of Appeals for the 9th Circuit affirmed the denial of a rent-to-own company’s motion to compel arbitration in a putative class action alleging the company charged excessive prices. According to the opinion, three named plaintiffs filed suit against the company in 2017, alleging that the company structured its rent-to-own pricing in violation of California law, including the Karnette Rental-Purchase Act, the Unfair Competition Law, the Consumers Legal Remedies Act, and the state’s prohibitions against usurious loans. The plaintiffs sought public injunctive relief, as well as compensatory damages and restitution, among other things. The company moved to compel arbitration in accordance with the arbitration agreement executed in connection with the plaintiff’s rent-to-own air conditioner contract. The district court denied the motion to compel arbitration, concluding that the arbitration agreement violates the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here) because it constitutes a waiver of the plaintiff’s substantive right to seek public injunctive relief. Moreover, the court concluded that McGill was not preempted by the Federal Arbitration Act (FAA), and that the agreement’s severance clause allowed for the plaintiff’s Karnette Act, UCL, and CLRA claims to be severed from the arbitration.

    On appeal, the 9th Circuit agreed with the district court, rejecting the company’s arguments that McGill was preempted by the FAA. The appellate court found that McGill does not interfere with the bilateral nature of a typical arbitration, stating “[t]he McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims.” Moreover, the appellate court noted that the severance clause in the agreement, which precludes an arbitrator from awarding public injunctive relief, is triggered by the McGill rule, and disagreed with the company that the arbitrator would still adjudicate liability first, concluding that the clause provides “the entire claim be severed for judicial determination.”

    Courts Appellate Ninth Circuit Arbitration Federal Arbitration Act

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  • Split 9th Circuit reverses dismissal of class action alleging bank-assisted fraud


    On June 24, the U.S. Court of Appeals for the 9th Circuit reversed the dismissal of a non-customer class action against a California bank alleging the bank knowingly assisted a fraudulent scheme, in violation of California law. The class action asserts eight claims against the bank under California law, including aiding and abetting fraud and conspiracy to commit fraud, for allegedly “knowingly assist[ing] a $125 million fraudulent scheme” initiated by one of the bank’s clients. The district court dismissed the action, holding the consumers “had not pleaded sufficient facts giving rise to a plausible inference that [the bank] knew [its client] was misappropriating funds.”

    On appeal, the 9th Circuit disagreed, concluding the consumers plausibly alleged specific allegations concerning the bank’s actual knowledge of the client’s misappropriation and fraud. The appellate court noted that while generally banks owe no duty to non-customers under California law, an exception exists when a bank “‘knowingly makes itself a party to a fraud, [it] must make good the loss that results from the misappropriation.’” The appellate court concluded that several allegations made by the consumers were plausible based on the bank using “atypical banking procedures,” which included “repeatedly making advances at [the client]’s request without obtaining supporting documentation or verifying that [the client] used the advanced proceeds appropriately (despite indications to the contrary) and extending maturity dates on short-term loans year after year (even when [the client] was in default).”

    In dissent, a panel judge argued that the consumers made no specific allegations of the bank’s actual knowledge of the fraud, noting that the complaint is “vague and lengthy” and just “a series of common banking practices dressed up in ominous language.” Additionally, the judge noted that California courts traditionally only find actual knowledge in “‘extreme circumstances,’” and have previously “refused to hold banks liable in far more egregious cases than this.”

    Courts Appellate Ninth Circuit Fraud State Issues

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  • 3rd Circuit: Each premium payment could violate RESPA’s prohibition on kickbacks


    On June 19, the U.S. Court of Appeals for the 3rd Circuit affirmed the dismissal of a RESPA class action against a national bank, concluding the suit was not timely filed. According to the opinion, two consumers took out mortgages with the bank in 2005 and 2006. In 2011, the consumers were part of the putative class in a separate class action, alleging the bank violated RESPA by referring homeowners to mortgage insurers that then obtained reinsurance from a subsidiary of the bank, which the consumers claimed amounted to a kickback. After the class action was dismissed as untimely in 2013 and while it was pending appeal, the consumers filed a new class action as the named plaintiffs, which alleged the same violation of RESPA. The consumers argued that, while RESPA has a one-year statute of limitations, (i) RESPA makes each kickback a separately accruing wrong and that the insurers paid a kickback for each insurance premium payment, therefore, the suit is timely up to one year after the last premium payment and kickback; and  (ii) the filing of the first class action tolled the limitation period for their claims and because the class action continued until November 2013, tolling extended their limitations period until then.

    The appeals court upheld the district court’s dismissal of the action, agreeing with the consumers’ separate-accrual theory, but noting that the consumers paid no premiums in the year before they filed their complaint, so the limitations period had expired before the consumers filed the new action. Specifically, the appellate court rejected the bank’s argument that RESPA’s statute of limitations runs only from the mortgage closing, not from each later premium payment, holding that under RESPA the limitations period accrues separately for each kickback, stating “[s]o a party violates the Act anew each time it takes the discrete act of giving or receiving a kickback under an agreement to make referrals.”

    As for whether the 2011 class action tolled the consumers’ claims, the appellate court cited the Supreme Court’s 2018 opinion in China Agritech, Inc. v. Resh, noting that the Court in that case held that such tolling is only available for individual claims, not class claims. The appellate court rejected the consumers’ arguments that China Agritech does not apply to new class claims filed before the first action has officially ended, stating, “[t]olling new class actions filed while the first one was pending would encourage more plaintiffs to seek second bites at the apple.” Because the consumers’ action was not timely filed, the appellate court affirmed the district court’s dismissal.


    Courts RESPA Appellate Third Circuit Statute of Limitations Kickback Class Action

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  • 9th Circuit: FTC does not need to show irreparable harm to get injunctive relief


    On June 17, the U.S. Court of Appeals for the 9th Circuit held that no showing of irreparable harm is required for the FTC to obtain injunctive relief when the relief is sought in conjunction with a statutory enforcement action where the applicable statute authorizes such relief. According to the opinion, the FTC brought an action against an entity and related individuals (collectively, “defendants”) operating a mortgage loan modification scheme for allegedly violating the FTC Act and Regulation O by making false promises to consumers for services designed to prevent foreclosures or reduce interest rates or monthly mortgage payments. (Previously covered by InfoBytes here.) The FTC brought the action under the second proviso of Section 13(b) of the FTC Act, which allows the agency to pursue injunctive relief without initiating administrative action. The district court granted the motion for preliminary injunction without requiring the FTC to make a showing of irreparable harm.

    On appeal, the 9th Circuit rejected the defendants’ argument that the FTC was still required to demonstrate the likelihood of irreparable harm in a Section 13(b) action. The appellate court noted that the FTC’s position is supported by the court’s precedent, quoting “‘[w]here an injunction is authorized by statute, and the statutory conditions are satisfied . . ., the agency to whom the enforcement of the right has been entrusted is not required to show irreparable injury.’” The appellate court concluded that its precedent is not irreconcilable with the 2008 Supreme Court decision in Winter v. Natural Resource Defense Council, Inc, noting that Winter did not address injunctive relief in the context of statutory enforcement. Therefore, the appellate court concluded that although irreparable harm is required to obtain injunctive relief in an ordinary case, the district court did not error in granting injunctive relief, without the showing of irreparable harm, in conjunction with a statutory enforcement action.  


    Courts Appellate FTC FTC Act Preliminary Injunction Ninth Circuit

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  • 9th Circuit reverses dismissal of TCPA class action against social media company


    On June 13, the U.S. Court of Appeals for the 9th Circuit overturned the dismissal of a TCPA putative class action against a social media company, concluding the plaintiff adequately alleged the company sent text messages using an automated telephone dialing system (autodialer) in violation of the TCPA and holding that the “debt-collection exception” excluding calls “made solely to collect a debt owed to or guaranteed by the United States” from TCPA coverage is an unconstitutional restriction on speech. The consumer alleged that he that he had received a text message indicating that his account was accessed from an unrecognized device, although he allegedly was not a user of the social media site and never consented to the alerts.

    On appeal, the company challenged the adequacy of the TCPA allegations and, alternatively, argued that the TCPA violates the First Amendment. The 9th Circuit concluded the plaintiff plausibly alleged the company’s text message system fell within the definition of autodialer under the TCPA— using the definition from its September 2018 decision in Marks v. Crunch San Diego, LLC. The appellate court rejected the company’s argument that an “expansive reading” of Marks would encapsulate any smartphone within the definition of autodailer and that the definition should not apply to “purely ‘responsive messages’” such as the text messages in question. The appellate court also agreed with the company— citing to the 4th Circuit’s recent decision in AAPC v. FCC, covered by InfoBytes here— that an exclusion under the TCPA that allows debt collectors to use an autodialer to contact individuals on their cell phones when collecting debts owed to or guaranteed by the federal government violates the First Amendment’s Free Speech Clause. However, the appellate court held that the debt collection exception is severable from the TCPA, and, therefore, declined to strike down the law it its entirety as the company requested.


    Courts Appellate Ninth Circuit ACA International TCPA

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