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.

  • 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
  • 3rd Circuit: QR code on debt collection letter violates FDCPA

    Courts

    On August 12, the U.S. Court of Appeals for the 3rd Circuit affirmed a district court ruling that an envelope containing an unencrypted “quick response” (QR) code that revealed a consumer’s account number when scanned violated the FDCPA. The plaintiff in this case received an envelope containing a collection letter with a printed QR code that, when scanned, revealed the internal reference number associated with the plaintiff’s account. The plaintiff filed a class action lawsuit, and the district court granted summary judgment for the plaintiff, finding that printing the QR code was no different than printing the account number on the envelope, which is a violation of the FDCPA. The defendant appealed, arguing, among other things, that (i) the plaintiff had not suffered a concrete injury; (ii) the QR code would have to be unlawfully scanned in order to obtain the account information; and (iii) the defendant’s conduct was covered under the FDCPA’s bona fide error defense, because it “erred by using industry standards for processing return mail.”

    On appeal, the 3rd Circuit affirmed the district court’s ruling. Specifically, the appellate court found that, with respect to injury, the plaintiff was not required to demonstrate that anyone actually intercepted the letter or scanned the QR code to determine that the contents related to debt collection—disclosure of the account number is itself the harm. The appellate court also rejected the defendant’s argument that someone needed to unlawfully scan the barcode, finding that there is no material difference between printing a QR code or printing an account number directly on an envelope because protected information was made available to the public. The appellate court also rejected the defendant’s bona fide effort defense, stating that the defendant misunderstood its FDCPA obligations and the printing of the QR code had not been the result of a clerical mistake or accident.

    Courts Third Circuit Appellate FDCPA Debt Collection Class Action

    Share page with AddThis
  • 3rd Circuit: FCA claims not barred by state’s equitable “entire controversy” doctrine

    Courts

    On August 12, the U.S. Court of Appeals for the 3rd Circuit vacated the dismissal of a relator’s qui tam action, concluding that the federal action was not barred by New Jersey’s equitable entire controversy doctrine. In the case, an employer brought a defamation and disparagement suit against a former employee, and while the suit was pending, the employee brought a qui tam action under the False Claims Act (FCA) against the employer on behalf of the United States and the state of New Jersey. The qui tam action remained under seal for over seven years while the government investigated the action. During this time, the employer’s state court action against the employee was dismissed after the parties entered into a settlement agreement. After the government chose not to intervene in the FCA action, and the district court unsealed the complaint, the employee chose to proceed. The district court granted summary judgment in favor of the employer, finding that New Jersey’s “entire controversy” doctrine requires claims arising from related facts or transactions to be adjudicated in one action.

    On appeal, the 3rd Circuit concluded that New Jersey’s entire controversy doctrine did not apply to the employee’s qui tam action because, in FCA cases, the U.S. is the real party in interest. The appellate court noted that concluding otherwise would essentially allow the employee to “unilaterally negotiate, settle, and dismiss the qui tam claims during the Government’s investigatory period.” Moreover, the appellate court found that application of the doctrine “would incentivize potential [FCA] defendants to ‘smoke out’ qui tam actions by suing potential relators and then quickly settling those private claims,” in order to bar a potential qui tam action.

    Courts False Claims Act / FIRREA Appellate Third Circuit State Issues

    Share page with AddThis
  • McDonnell rule does not apply to the FCPA, says 2nd Circuit

    Courts

    On August 9, the U.S. Court of Appeals for the 2nd Circuit affirmed the conviction of a Chinese real estate developer arising from the alleged bribery of United Nations officials. In affirming the conviction, the court held that the U.S. Supreme Court’s holding in McDonnell v. U.S.—that, in cases brought under the domestic federal anti-bribery statute, the government must show that the bribe was paid in exchange for an “official act”—does not apply to prosecutions under the Foreign Corrupt Practices Act (FCPA) or 18 U.S.C. § 666, a federal anti-corruption law related to federal funds.

    In the most recent case, a federal jury convicted the developer of paying bribes and gratuities to United Nations officials in violation of the FCPA and 18 U.S.C. § 666. The developer appealed the conviction and argued, among other things, that the jury should have been instructed that the bribe must have be paid for an “official act,” in light of McDonnell. On appeal, the 2nd Circuit rejected the developer’s arguments, explaining that the FCPA and 18 U.S.C. § 666 target a broader set of bribery goals than the statute at issue in McDonnell. Specifically, the court noted that the FCPA and 18 U.S.C. § 666 prohibit giving anything of value in exchange for specific “quos” that do not include reference to an “official act.” Thus, based on the “textual differences among various bribery statutes,” the appellate court concluded that the “official act” standard does not apply to prosecutions under the FCPA or 18. U.S.C. § 666.

    Courts FCPA Appellate Second Circuit U.S. Supreme Court Bribery Of Interest to Non-US Persons

    Share page with AddThis
  • 7th Circuit: FDCPA claims fail due to insufficient evidence

    Courts

    On August 9, the U.S. Court of Appeals for the 7th Circuit affirmed a district court ruling that a consumer could not proceed on FDCPA or Wisconsin Consumer Act (WCA) claims because he failed to demonstrate that the incurred credit card debt in question was a “consumer debt” entitled to FDCPA and WCA protections. The consumer filed a lawsuit against a law firm acting on behalf of a debt collection agency claiming, among other things, that the firm had failed to provide written notice of his right to cure a defaulted debt before the firm commenced an action against him in Wisconsin state court. While the consumer maintained that the debt was not his, he argued that “to the extent” that he was liable for the debt, it was entered into for personal, family, or household purposes, and that by failing to provide written notice of his rights, the firm had violated the FDCPA and WCA. The district court granted summary judgment for the defendant, finding that the consumer failed to establish that the debt was a consumer debt.

    On appeal, the 7th Circuit affirmed the district court’s ruling. The appellate court found that the evidence put forward by the plaintiff, which included account statements and his own representations regarding the purpose of the account, was insufficient to show that the debt was incurred for personal, family, or household purposes. Specifically, the court found that the plaintiff’s representations that the debt was a consumer debt could not be reconciled with his contention that the debt was not his and that the charges on his account statement did not provide sufficient information for the court to conclusively determine that they were made for personal, and not business, purposes.  

    Courts Seventh Circuit Appellate FDCPA Consumer Finance Debt Collection State Issues

    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
  • 5th Circuit upholds $298 million fine in FCA/FIRREA mortgage fraud action

    Courts

    On August 8, the U.S. Court of Appeals for the 5th Circuit affirmed a district court ruling that ordered two mortgage companies and their owner to pay nearly $300 million in a suit brought under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). The suit accused the defendants of allegedly making false certifications, which reportedly led to mortgages ending in default. The jury agreed that the defendants defrauded the Federal Housing Agency’s mortgage insurance program when a state audit revealed unregistered company branches were used to originate loans in violation of agency guidelines, and the court determined that there was ample evidence to find that the false certifications were a proximate cause of losses from loan defaults. As a result, the government trebled the damages and civil penalties under the FCA from $93 million to roughly $298 million. The defendants appealed the decision, challenging, among other things, the sufficiency of evidence, methodologies presented by the government’s expert witnesses, and the judge’s decision to not order a new trial after dismissing a disruptive juror.

    On appeal, the 5th Circuit opined that there was sufficient evidence to support the jury’s findings, and rejected the defendants’ expert witness challenges, holding first that the defendants had waived any argument about the loan default sampling methodology used by one of the witnesses, because their argument that the witness “failed to control for obvious causes of default” never came up “during the extensive negotiations over the sampling methodology that would be used.” The appellate court also concluded that nothing in the record supported the defendants’ argument that the second witness “did not apply the HUD underwriting standards” in his re-underwriting methodology. The appellate court further noted that it has declined to adopt a rule used by other circuit courts that prohibits jurors from being dismissed “unless there is no possibility” that the juror’s failure to deliberate stems from their view of the evidence. Rather, the 5th Circuit held that the district court had grounds to dismiss the juror who “failed to follow instructions, exhibited a lack of candor during questioning, and had engaged in threatening behavior towards other jurors.” 

    Courts Fifth Circuit Appellate Mortgages Fraud False Claims Act / FIRREA HUD

    Share page with AddThis
  • 7th Circuit: Debt collector’s email not a “communication” under the FDCPA

    Courts

    On August 8, the U.S. Court of Appeals for the 7th Circuit affirmed a summary judgment ruling in favor of a consumer, concluding that a debt collector’s emails did not constitute a “communication” under the FDCPA. According to the opinion, the debt collector sent a consumer two emails about separate medical debts containing hyperlinks to the debt collector’s website, which then required the user to click through various screens to access and download a document containing the disclosures required under Section 1692g(a) of the FDCPA. The consumer did not open the emails. After finding out about the debt collection effort from the hospital, the consumer called the debt collector for more information; however, the required disclosures were not provided over the phone or sent in a written notice within the next five days. The consumer filed suit against the debt collector alleging it violated Section 1692g(a) by not providing the disclosures during her phone call or within five days after the call as required by law. The company argued that the emails were the FDCPA’s “initial communications” and contained the mandatory disclosures. The lower court granted the consumer’s motion for summary judgment.

    On appeal, the 7th Circuit rejected the debt collector’s arguments that the emails constituted a “communication” under the FDCPA, noting that other appellate courts have held the message “must at least imply the existence of a debt,” and the emails only contained the name and email address of the debt collector. Moreover, the appellate court took issue with the multistep process required to access the validation notice, concluding “[a]t best, the emails provided a digital pathway to access the required information. And we’ve already rejected the argument that a communication ‘contains’ the mandated disclosures when it merely provides a means to access them.”

    Notably, the CFPB filed an amicus brief in the action, seeking affirmation of the lower court’s ruling on the separate theory that the debt collector allegedly failed to satisfy the conditions of the E-Sign Act. However, because the court affirmed the decision on other grounds, it chose not to address the E-Sign Act.

    Courts Appellate Seventh Circuit Debt Collection FDCPA CFPB E-SIGN Act

    Share page with AddThis
  • D.C. Circuit: Chinese banks subject to subpoenas in case claiming sanctions evasion

    Courts

    On August 6, the U.S. Court of Appeals for the D.C. Circuit affirmed a district court ruling that ordered three Chinese banks to comply with subpoenas seeking customer records stemming from a DOJ investigation into a now-defunct Chinese company’s evasion of North Korean sanctions, or face contempt fines each of $50,000 per day. According to the DOJ, the banks allegedly facilitated transactions for the Chinese company that may have operated as a front for the North Korean government in violation of U.S. sanctions. In 2017, the DOJ obtained grand jury subpoenas seeking records related to U.S. correspondent banking transactions of the defunct company from two of the banks with U.S. branches, and served the third bank, which did not have U.S. branches, with a Patriot Act subpoena. After the banks refused to comply with the subpoenas, the district court granted the DOJ’s motion to compel.

    On appeal, the D.C. Circuit concluded that the district court had personal jurisdiction to enforce the subpoenas. The appellate court held that the two banks with U.S. branches consented to jurisdiction when they opened those branches because they had executed agreements with the Federal Reserve which required compliance with relevant provisions of federal law. For the bank without U.S. branches, the D.C. Circuit determined that “it had sufficient contact with the [U.S.] as a whole and the subpoena[] sufficiently related to that contact so as to support the court’s personal jurisdiction.” The court also held that the foreign records sought from the bank without U.S. branches were within the scope of the PATRIOT Act subpoena, noting that the PATRIOT Act authorized the DOJ to issue a “subpoena to any foreign bank that maintains a correspondent account in the [U.S.] and request records related to such correspondent account, including records maintained outside of the [U.S.] relating to the deposit of funds into the foreign bank.” The appellate court also affirmed the district court’s decision to hold the banks in contempt, dismissing the banks’ argument that this move was improper because they had done all they could to obtain approval from the Chinese government to produce the subpoenaed records.

    Courts D.C. Circuit Appellate Sanctions North Korea Of Interest to Non-US Persons Patriot Act Financial Crimes

    Share page with AddThis
  • 6th Circuit: Reversed conviction in alleged mortgage application fraud

    Courts

    On August 5, the U.S. Court of Appeals for the 6th Circuit reversed the conviction of two individuals for bank fraud, holding that the government had failed to prove that the defendants intended to obtain bank property or defraud the financial institutions that owned the mortgage companies targeted by the scheme. The complaint alleged the defendants—a homebuilder and a mortgage broker—recruited straw buyers to purchase the homebuilder’s homes, in which they obtained more than $5 million from mortgage companies through fraudulent mortgage applications that made several misrepresentations, including overstating the buyers’ incomes and falsely claiming that the buyers planned to live in the homes. During the trial, the government argued that the jury could reasonably infer that the federally insured parent banks controlled the funds, since the mortgage companies were wholly owned subsidiaries of the banks. The government further asserted that the mortgage companies’ funds belonged to the banks because “any losses incurred by the mortgage companies would ‘flow directly up’ to the banks.”

    On appeal, the 6th Circuit reversed the defendants’ bank fraud convictions, holding that the mortgage companies held no federally insured deposits, and that while each mortgage company is a wholly owned subsidiary of a bank, the mortgage companies and the banks are distinct entities. As such, the mortgage companies did not qualify as “financial institutions,” as defined under 18 U.S.C. § 20(1). The appellate court also rejected the government’s arguments because Congress had amended § 20 after the events at issue in the case by adding language covering mortgage lenders to its “enumeration of ‘financial institutions,’” thereby demonstrating that mortgage lenders were not covered by the prior version of § 20. In addition, the court also indicated that the government offered no evidence proving that the defendants sought to obtain bank property “by means of” a misrepresentation, pointing out that no evidence was presented to show that any of the misrepresentations on the loan applications ever reached anyone at the parent banks. As such, “the scheme’s effect on the value of the banks’ ownership interests in the mortgage companies was merely ‘incidental’ to the scheme’s goal of defrauding the mortgage companies.”  Accordingly, the court held that the government failed to prove that the defendants committed bank fraud.

    Courts Sixth Circuit Appellate Mortgages Fraud

    Share page with AddThis

Pages

Upcoming Events