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Financial Services Law Insights and Observations


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  • CFPB, FTC argue ECOA “applicant” includes those with existing credit


    On October 7, the CFPB and the FTC (collectively, “agencies”) filed an amici curiae brief with the U.S. Court of Appeals for the Second Circuit in an action addressing “whether a person ceases to be an ‘applicant’ under ECOA and its implementing regulation after receiving (or being denied) an extension of credit.” According to the brief, a consumer filed suit against a national bank for allegedly violating ECOA and Regulation B’s adverse-action notice requirement when it closed his line of credit and sent an email acknowledging the closure without including (i) “‘the address of the creditor,’” and (ii) “either a ‘statement of specific reasons for the action taken’ or a disclosure of his ‘right to a statement of specific reasons.’” The district court dismissed the action after adopting the magistrate judge’s Report and Recommendation recommending that the bank’s motion be granted without prejudice to plaintiff, who had leave to brief the court on whether an amended complaint should be permitted.

    The agencies disagreed with the district court and filed the amici brief on behalf of the applicant. Specifically, the agencies argue that ECOA’s protections apply to any aspect of a credit transaction, including those who have an existing arrangement with a creditor, noting there is “‘no temporal qualifier in the statute.’” According to the agencies, ECOA has provisions that cover the revocation of credit or the change in credit terms, and therefore, those provisions “would make little sense if ‘applicants’ instead included only those with pending requests for credit.” Moreover, the agencies argue that the district court’s interpretation of “applicant” would “curtail the reach of the statute,” and introduce a large loophole. Lastly, the agencies assert that the legislative history of ECOA supports their interpretation, such as the addition of amendments covering the revocation of credit, and most notably, Regulation B’s definition of “applicant,” which includes those who have received an extension of credit.

    Courts Amicus Brief Second Circuit Appellate ECOA Regulation B

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  • 7th Circuit: No FDCPA liability when collection letter leaves future ambiguity


    On October 8, the U.S. Court of Appeals for the Seventh Circuit affirmed dismissal of an FDCPA action, concluding that itemized breakdowns in collection letters that include zero balances for interest and other charges would not confuse or mislead the reasonable “unsophisticated consumer” to believe that future interest or other charges would be incurred if the debt is not settled. A creditor charged-off a consumer’s credit card debt and informed the consumer that it would no longer charge interest or fees on the account. The debt was reassigned to a collection agency.  Consistent with the original creditor’s communication with the consumer, the collection agency sent a collection letter to the consumer that included an itemized breakdown reflecting a zero balance for “interest” and “other charges.” The “balance due at charge-off” and “current balance” were both listed as $425.86. The letter offered to resolve the debt and stated that no interest would be added to the account balance through the course of collection efforts. The consumer filed a putative class action alleging that the collection letter implied that the original creditor would begin to add interest and fees to the charged-off debt if the collection agency stopped its collection efforts in the future and, therefore, the debt collector violated the FDCPA by using false, deceptive and misleading representations to collect a debt, and failed to disclose the amount of the debt in a clear and unambiguous fashion. The district court dismissed the action, concluding that the collection letter accurately disclosed the amount of the debt.

    On appeal, the 7th Circuit agreed with the district court. Specifically, according to the opinion, the appellate court concluded that the breakdown of charges in the letter “cannot be construed as forward looking,” rejecting the consumer’s argument that including zero balances implies that future interest or charges could be incurred if he did not accept the collector’s offer. Moreover, the appellate court noted that when a collection letter “only makes explicit representations about the present that are true, a plaintiff may not establish liability on the basis that it leaves ambiguity about the future.” The statement in the letter that no interest would accrue while the collector pursued the debt is not misleading because it “makes no suggestion regarding the possibility that interest will or will not be assessed in the future if [the debt collector] ends its collection efforts.” 

    Courts Debt Collection Appellate Seventh Circuit FDCPA

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  • New York district court grants interlocutory appeal request in escrow interest action


    On September 29, the U.S. District Court for the Eastern District of New York granted a national bank’s request for interlocutory appeal of the court’s September 2019 decision denying the dismissal of a pair of actions, which alleged that the bank violated New York law by not paying interest on escrow amounts for residential mortgages. As previously covered by InfoBytes, last September, the district court concluded that the National Bank Act (NBA) does not preempt a New York law requiring interest on mortgage escrow accounts, because 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.” The bank moved to amend the prior order and certify the preemption question for interlocutory appeal to the U.S. Court of Appeals for the Second Circuit. The court granted the motion stating that the case “presents one of the rare instances in which there would be system-wide benefits to granting an interlocutory appeal.” The court noted that certifying the question for appeal would foster an “effective and efficient judiciary” by saving the defendants and jurists “considerable time and effort” by not having to re-litigate the issue. Moreover, certifying for appeal would “materially advance the ultimate disposition of [the] litigation.”

    Courts State Issues New York Preemption Appellate Second Circuit Mortgages Dodd-Frank National Bank Act

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  • 4th Circuit reverses dismissal of RESPA property tax suit


    On October 2, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of a putative class action, concluding that the current mortgage servicer has the obligation under RESPA to pay tax payments as they become due. According to the opinion, after a consumer refinanced their mortgage loan, the mortgage was sold to a new mortgage company (defendant), which took over the servicing rights and responsibilities from the previous servicer, effective October 2017. The consumer continued making payments on the mortgage loan, which included payments to an escrow account for property taxes. The defendant allegedly did not pay the consumer’s property taxes due in November 2017 until sometime in 2018. The city assessed late penalties (which the defendant ultimately paid) and the late payment adversely affected the consumer’s income tax bill in the amount of $895. The consumer filed a putative class action alleging, among other things, that the defendant violated RESPA by failing to make the tax payment on time. The district court dismissed the action, concluding that the previous servicer was “responsible as ‘the servicer’ under RESPA” to make the payments.

    On appeal, the 4th Circuit disagreed, concluding that the consumer plausibly alleged that the defendant was responsible for servicing his mortgage at the time, and therefore, responsible for making his tax payment when due. The appellate court rejected the defendant’s argument that RESPA requires the entity that “received funds for escrow” to make the tax payment when due. RESPA, according to the appellate court, “connects the servicer’s obligation to a payment’s due date, not the date of payment into escrow by the borrower.” Thus, the defendant would be “the servicer” responsible for paying the mortgage tax from the borrower’s escrow account on its due date.

    Courts Appellate Fourth Circuit Escrow RESPA Mortgages

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  • 9th Circuit splits with 4th Circuit, concludes arbitration agreement does not apply to acquired company


    On September 30, the U.S. Court of Appeals for the Ninth Circuit issued a split opinion affirming a district court’s decision against arbitration in a proposed class action, which accused a satellite TV provider (defendant) of violating the TCPA by allegedly placing unauthorized prerecorded messages to customers’ cell phones without prior express written consent. According to the opinion, the plaintiff signed a contract containing an arbitration agreement with a telecommunications company in 2011 that eventually acquired the defendant in 2015. After the plaintiff filed his complaint, the defendant moved to compel arbitration, arguing that as an affiliate of the telecommunications company, it was entitled to arbitration. The district court disagreed and ruled that the contract signed between the plaintiff and the telecommunications company “did not reflect an intent to arbitrate the claim that [the plaintiff] asserts against [the defendant].”

    On appeal, the majority concluded that “under California contract law, looking to the reasonable expectations of the parties at the time of the contract, a valid agreement to arbitrate did not exist between plaintiff and [the defendant] because [the defendant] was not an affiliate of the [telecommunications company] when the contract was signed.” The majority acknowledged that its decision is contrary to a recent 4th Circuit opinion (covered by InfoBytes here), in which that majority concluded that that an arbitration agreement signed by the plaintiff with the telecommunications company in 2012 when she opened a new line of service was extended to potential TCPA allegations against the defendant when the telecommunications company acquired the defendant in 2015. However, the 9th Circuit majority held that under the defendant’s interpretation of the agreement, the plaintiff “would be forced to arbitrate any dispute with any corporate entity that happens to be acquired by [the telecommunications company], even if neither the entity nor the dispute has anything to do with providing wireless services to [the plaintiff]—and even if the entity becomes an affiliate years or even decades in the future.” Moreover, the majority concluded that to enforce an agreement the plaintiff signed with the telecommunications company before it acquired the satellite TV provider would lead to “absurd results.”

    In dissent, the minority wrote that because the agreement with the telecommunications company covered its affiliates and there is nothing in the agreement’s wording stating that it would only “refer to present affiliates” on the day of signing, the defendant should be able to compel arbitration.

    Courts Appellate Ninth Circuit Fourth Circuit TCPA Class Action Arbitration

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  • 3rd Circuit: Section 13(b) of the FTC Act does not give the agency restitution power


    On September 30, the U.S. Court of Appeals for the Third Circuit reversed a district court’s order of $448 million in disgorgement, concluding that disgorgement is not a remedy available under Section 13(b) of the FTC Act. According to the opinion, the FTC brought an action against the owners of a testosterone treatment patent (defendants) for allegedly “trying to monopolize and restrain trade over [the treatment],” in violation of Section 13(b) of the FTC Act. The district court dismissed the FTC’s claims related to the reverse-payment agreement the defendants entered into with another pharmaceutical company but held the defendants liable for the FTC’s sham-litigation allegations and ordered the defendants to pay $448 in disgorgement of ill-gotten gains. The district court denied the FTC’s request for an injunction.

    On appeal, the 3rd Circuit concluded, among other holdings, that the court erred by ordering disgorgement, as it lacked the authority to do so under Section 13(b) of the FTC Act. Specifically, the appellate court noted that Section 13(b) “authorizes a court to ‘enjoin’ antitrust violations,” but is silent on disgorgement. The appellate court rejected the FTC’s contention that Section 13(b) “impliedly empowers district courts” to order disgorgement as well as injunctive relief, concluding that “the context of Section 13(b) and the FTC Act’s broader statutory scheme both support ‘a necessary and inescapable inference’ that a district court’s jurisdiction in equity under Section 13(b) is limited to ordering injunctive relief.” Thus the appellate court reversed the order of $448 million in disgorgement.

    In reaching this conclusion, the appellate court noted its determination was consistent with the 7th Circuit’s decision FTC v. Credit Bureau Center (covered by InfoBytes here), which also held that the FTC does not have the power to order restitution under Section 13(b). As previously covered by InfoBytes, the U.S. Supreme Court granted consolidated review in Credit Bureau Center and in the 9th Circuit’s decision in FTC v. AMG Capital Management (covered by InfoBytes here). The Court will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.

    Courts FTC Restitution FTC Act Injunction Third Circuit Appellate Seventh Circuit Ninth Circuit U.S. Supreme Court

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  • 9th Circuit: HOLA preempts California interest on escrow law


    On September 22, the U.S. Court of Appeals for the Ninth Circuit, in a split decision, reversed the denial of a national bank’s motion to dismiss, holding that state law claims involving interest on escrow accounts were preempted by the Home Owners Loan Act (HOLA). As previously covered by InfoBytes, three plaintiffs filed suit against the bank, arguing that it must comply with a California law that requires mortgage lenders to pay interest on funds held in a consumer’s escrow account, following the U.S. Court of Appeals for the 9th Circuit’s decision in Lusnak v. Bank of America (covered by InfoBytes here). The bank moved to dismiss the action, arguing, among other things, that the claims were preempted by HOLA. The court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan was transferred to a bank whose own lending is not covered by HOLA. The district court granted the bank’s motion for interlocutory appeal.

    On appeal, the 9th Circuit disagreed with the district court. Specifically, the appellate court applied the plain meaning of the Office of Thrift Supervision’s preemption regulation, concluding that it “extend[ed] to all state laws affecting a federal savings association, without reference to whether the conduct giving rise to a state law claim is that of a federal savings association or of a national bank.” The appellate court distinguished the case from Lusnak, noting that HOLA preemption is “triggered at a much lower threshold” than National Bank Act. Finally, the appellate court rejected the premise that applying preemption would “run afoul” of HOLA’s purpose of consumer protection, concluding that “HOLA field preemption is so broad that the traditional presumption against preemption does not apply.”

    In dissent, a judge argued that the statutory and regulatory text does not support the majority’s conclusion and therefore, HOLA’s application does not excuse the national bank from California’s law requiring interest on escrow accounts.

    Courts Mortgages Escrow Preemption HOLA Appellate State Issues Ninth Circuit

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  • 2nd Circuit denies arbitration for sandwich chain in TCPA action


    On September 15, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s denial of arbitration, concluding that a national sandwich chain’s website did not provide sufficient notice of the terms and conditions. According to the opinion, a consumer filed a TCPA action against the sandwich chain relating to unsolicited text messages he received after he entered his phone number on a promotional page of the company’s website in order to receive a free sandwich at his next visit. After entering his number, the consumer clicked a button stating “I’M IN,” which the sandwich chain argued “constituted assent to the terms and conditions contained on a separate webpage that was accessible via a hyperlink on the promotional page.” The terms and conditions included an agreement to arbitrate. The sandwich chain moved to compel arbitration of the consumer’s TCPA action and the district court denied the motion, finding that no arbitration agreement existed because “the terms and conditions were not reasonably clear and conspicuous on the promotional page itself.”

    On appeal, the 2nd Circuit agreed with the district court, noting that the webpage “was relatively cluttered.” Specifically, the appellate court noted that the webpage lacked language “informing the user that by clicking ‘I’M IN’ the user was agreeing to anything other than the receipt of a coupon.” Moreover, the appellate court held that the link to the terms and conditions was not conspicuous to a reasonable user as it was in small font at the bottom of the page and was “introduced by no language other than the shorthand ‘T & Cs.’” Because the company did not provide sufficient evidence demonstrating the consumer’s knowledge of the terms and conditions, the appellate court affirmed the denial of arbitration.

    Courts Appellate Second Circuit TCPA Arbitration

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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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  • 5th Circuit: Omitting a favorable credit item does not render a credit report misleading


    On September 9, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s dismissal of a plaintiff’s FCRA claims against two consumer reporting agencies (CRAs), holding that omitting a favorable credit item does not render a credit report misleading. The plaintiff filed a lawsuit after the CRAs stopped reporting a favorable item—a timely paid credit card account—and refused to restore it, alleging that the refusal to include the item on his consumer report violated section 1681e(b), which requires CRAs to follow “reasonable procedures to assure maximum possible accuracy” of consumer information. As a result, the plaintiff claimed his creditworthiness was harmed, which caused him to be denied a credit card and rejected for a mortgage. The district court dismissed the suit.

    In affirming the dismissal, the 5th Circuit found that the omission of a single credit item does not render a report ”inaccurate” or “misleading.” According to the appellate court, a “credit report does not become inaccurate whenever there is an omission, but only when an omission renders the report misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” As such, “[b]usinesses relying on credit reports have no reason to believe that a credit report reflects all relevant information on a consumer.” The 5th Circuit further held, among other things, that the plaintiff failed to state a claim for violations of section 1681i(a), which requires agencies to conduct an investigation if consumers dispute “the completeness or accuracy of any item of information contained in a consumer’s file.” The court held that because the plaintiff “disputed the completeness of his credit report, not of an item in that report,” the statute did not require an investigation.

    Courts Credit Reporting Agency Appellate Fifth Circuit Credit Report Consumer Finance FCRA

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