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  • 11th Circuit: Increased risk of identity theft is sufficient to bring FACTA claims

    Courts

    On April 22, the U.S. Court of Appeals for the 11th Circuit affirmed a district court’s ruling that including too many digits of a consumer’s credit card account number on a receipt was sufficient to constitute a concrete injury even if the consumer’s identity was not stolen. Under the Fair and Accurate Credit Transactions Act (FACTA), merchants are prohibited from including more than the final five digits of a consumer’s credit card number on a receipt. According to the opinion, the consumer filed a class action suit against a chocolate company, alleging that one of its stores printed the first six and last four digits of his account number on a receipt, which exposed the class members “to an elevated risk of identity theft.” When the parties sought approval of a proposed settlement, two unnamed class members contested the settlement on the grounds that, among other things, the consumer/class representative lacked standing to sue because he had not suffered a concrete injury as defined in the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins. The district court, however, approved the settlement.

    On appeal, the 11th Circuit held that an increased risk of identity theft is sufficient to bring claims under FACTA, and that the class representative’s “alleged injury is ‘particularized’ because the heightened risk of identity theft affected him ‘in a personal and individual way’—it was his credit card number that appeared on the receipt.” Moreover, the appellate court noted, “In our view, if Congress adopts procedures designed to minimize the risk of harm to a concrete interest, then a violation of that procedure that causes even a marginal increase in the risk of harm to the interest is sufficient to constitute a concrete injury.”

    Courts Appellate FACTA Privacy/Cyber Risk & Data Security Eleventh Circuit Class Action Settlement Spokeo

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  • 4th Circuit: TCPA debt collection exemption is unconstitutional

    Courts

    On April 24, the U.S. Court of Appeals for the 4th Circuit vacated a district court’s decision to grant summary judgment in favor of the FCC, concluding that an exemption under the TCPA that allows debt collectors to use an autodialer to contact individuals on their cell phones when collecting debts guaranteed by the federal government violates the First Amendment’s Free Speech Clause. According to the opinion, several political consultant groups (plaintiffs) argued that a statutory exemption enacted by Congress as a means of allowing automated calls to be placed to individuals’ cell phones “that relate to the collection of debts owed to or guaranteed by the federal government” is “facially unconstitutional under the Free Speech Clause” of the First Amendment. The plaintiffs argued that the debt-collection exemption to the automated call ban contravenes their free speech rights. Moreover, the plaintiffs claimed that “the free speech infirmity of the debt-collection exemption is not severable from the automated call ban and renders the entire ban unconstitutional.” The FCC, however, argued that the applicability of the exemption depended on the relationship between the government and the debtor and not on the content. The district court awarded summary judgment in favor of the FCC after applying a “strict scrutiny review,” ruling that the exemption does not violate the Free Speech Clause.

    On appeal the 4th Circuit agreed with the plaintiffs that the exemption contravenes the Free Speech Clause, and found that the challenged exemption was a content-based restriction on free speech that did not hold up to strict scrutiny review. “Under the debt-collection exemption, the relationship between the federal government and the debtor is only relevant to the subject matter of the call. In other words, the debt-collection exemption applies to a phone call made to the debtor because the call is about the debt, not because of any relationship between the federal government and the debtor.” And because the exemption is a content-based restriction on speech, it must satisfy strict scrutiny review to be constitutional, which it fails to do, the 4th Circuit opined. “The exemption thus cannot be said to advance the purpose of privacy protection, in that it actually authorizes a broad swath of intrusive calls. . . [and] therefore erodes the privacy protections that the automated call ban was intended to further.” However, the appellate court sided with the FCC to sever the debt collection exemption from the automated call ban. “First and foremost, the explicit directives of the Supreme Court and Congress strongly support a severance of the debt-collection exemption from the automated call ban,” the panel stated. “Furthermore, the ban can operate effectively in the absence of the debt-collection exemption, which is clearly an outlier among the statutory exemptions.”

    Courts Fourth Circuit Appellate TCPA Autodialer FCC

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  • 8th Circuit: Letter did not violate FDCPA's “unsophisticated consumer” standard

    Courts

    On April 22, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s dismissal of a consumer’s FDCPA action. The plaintiff alleged that the credit collections bureau violated the FDCPA’s prohibition against false, misleading, or deceptive representations when it sent a collection letter that included, among other things, the words “PROFESSIONAL DEBT COLLECTORS” along with an acronym for the company, which the plaintiff claimed violated the FDCPA’s provision which states that a debt collection may not use “any business, company, or organization name other than the true name. . . .” The plaintiff further alleged that the defendant violated the FDCPA and Minnesota law by (i) representing that she could submit payments on-line or correspond with the company through a designated website; (ii) stating it may seek pre-judgment interest; and (iii) including the signature of an individual who was not licensed to engage in debt collection activities in the state. The district court dismissed the claims, concluding that the use of the aforementioned language was not false or misleading under the “unsophisticated consumer” standard, and that neither the signature nor the pre-judgment interest statement violated the FDCPA.

    On appeal, the 8th Circuit affirmed the dismissal of the claims, holding that the collection letter did not violate the FDCPA, Minnesota law did not prohibit the defendant from seeking pre-judgment interest, and the Minnesota Supreme Court has yet to determine whether the law “allows for the recovery of pre-judgment interest in a case such as this.” Furthermore, the FDCPA “was not meant to convert every violation of a state debt collection law into a federal violation,” the appellate court wrote, and that even if one of the signatories was not licensed in the state to collect debt, the defendant was legally licensed and did not engage in unfair or unconscionable conduct under the statute.

    Courts Appellate Eighth Circuit FDCPA State Issues Debt Collection

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  • Texas Court of Appeals affirms summary judgment for loan servicer and bank

    Courts

    On April 15, the Texas Court of Appeals affirmed a grant of summary judgment in favor of appellees, a loan servicer and a national bank acting as a trustee, concluding, among other things, that the appellant homeowner failed to provide sufficient evidence to support her claims that the appellees violated the Texas Debt Collection Act (TDCA) and Texas Deceptive Trade Practices and Consumer Protection Act (DTPA). According to the opinion, the homeowner—who defaulted on a loan that was referred to foreclosure—filed a lawsuit to stop the foreclosure sale, alleging that the defendants made “fraudulent, deceptive, or misleading representations” under the TDCA by allegedly failing to (i) provide an accurate accounting of received payments and credits; (ii) apply received payments; (iii) clearly disclose “the name of the person to whom the debt had been assigned or was owed when making a demand for money”; (iv) provide requested documentation regarding the assignment of the promissory note; and (v) provide proper prior notice to the appellant concerning the foreclosure proceedings. Additionally, the appellant further alleged that the appellees violated the DTPA by using fraudulent, deceptive, or misleading representations in the collection of appellant’s debt. The trial court granted summary judgment in favor of the defendants, and the appellate court affirmed the trial court’s decision. With respect to the appellant’s TDCA claims, the appellate court held, among other things, that first, the homeowner failed to show that the appellees made affirmative misrepresentations concerning the loan’s character or amount; second, failure to apply payments is not specifically a “‘prohibited misleading practice’” under the TDCA; and third, the appellees provided evidence showing the homeowner was “appropriately notified” of her default, and that under the TDCA, “service is completed upon deposit in the mail, not actual receipt.” With respect to the appellant’s DTPA claim, the appellate court held that the DTPA only applies to the acquisition of goods and services by lease or purchase and that loan servicing, foreclosure, and loan modification activities are not goods or services under the DTPA.

    Courts Debt Collection Mortgage Servicing Foreclosure Appellate

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  • Ohio Court of Appeals: Ohio Consumer Sales Practices Act does not cover HELOC fraud

    Courts

    On April 8, the Ohio Court of Appeals affirmed summary judgment for a bank, its employees, and the plaintiff’s former husband (collectively, “defendants”), concluding, among other things, that under the Ohio Consumer Sales Practices Act (OCSPA) the defendants could not be considered “suppliers,” transactions with national banks are not covered, and bank employees were not considered “loan officers.” According to the opinion, a homeowner filed a lawsuit alleging the defendants fraudulently opened a home equity line of credit by allowing the plaintiff’s former husband to sign the homeowner’s name with the bank employees’ assistance in notarizing the signature. The homeowner alleged various claims, including that the defendants violated the OCSPA’s provision prohibiting a “supplier” from committing “an unfair or deceptive act or practice in connection with a consumer transaction.” The lower court granted summary judgment in favor of the defendants. The homeowner appealed, arguing that the bank employees were acting as “loan officers” and therefore, they qualified as “suppliers” under the OCSPA. The appellate court noted that while the term “supplier” does include “loan officer,” the statute explicitly states that “loan officer” does not include “an employee of a bank…organized under the laws of this state, another state, or the United States.” Moreover, the OCSPA provides that consumer transactions do not include transactions with financial institutions, except in certain circumstances, which are not applicable to the action. Therefore, the lower court did not err in its summary judgment ruling.

    Courts State Issues Fraud National Bank HELOC Appellate

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  • 10th Circuit: Bank not obligated to post real-time balances

    Courts

    On April 8, the U.S. Court of Appeals for the 10th Circuit affirmed a lower court’s dismissal of a consumer’s suit arising out of overdraft fees charged by an Arkansas-based bank. The consumer alleged, among other things, that the bank breached its Electronic Fund Transfer Agreement (EFT Agreement) by failing to provide accurate, real-time account balance information online, which caused her to “incur unexpected overdraft fees.” According to the opinion, the consumer claimed that she frequently relied on her online account balance when making purchases, and that the bank’s alleged debiting practices—such as “batching by transaction type,” processing transactions out of chronological order, and “failing to show real-time balance information online [or] intra-bank transfers instantaneously”—sometimes caused her to pay insufficient funds and overdraft fees. The consumer filed suit asserting claims for “actual fraud; constructive fraud; false representation/deceit; breach of fiduciary duty; breach of contract (namely, the EFT Agreement) . . . breach of the implied covenant of good faith and fair dealing; and unjust enrichment.” The consumer appealed following a dismissal of all claims by the district court. In 2017, the 10th Circuit reversed and remanded the dismissal of the breach of contract claim, and affirmed the dismissal of the other claims. The district court granted summary judgment to the bank, determining that the EFT Agreement promised accuracy only to posted amounts and not to pending or unprocessed transactions. 

    On appeal, the 10th Circuit agreed with the district court, holding that the plain language of the EFT Agreement only promised accuracy of posted amounts, and authorized the bank to collect overdraft fees on insufficient funds items even if an ATM card or check card transaction “was preauthorized based on sufficient funds in the account at the time of withdrawal, transfer or purchase.” Moreover, the court noted that the EFT Agreement specifically stated that there was a 7:00 p.m. cut-off for transfers to be posted. Therefore, it was clear that the bank was not “contractually obligated to make intra-bank transfers instantaneously.” Furthermore, the court pointed out that the consumer failed to provide evidence demonstrating that the bank provided inaccurate balances.

    Courts Appellate Tenth Circuit Overdraft Electronic Fund Transfer

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  • 11th Circuit: Consumer’s repayment agreement not an escrow account

    Courts

    On April 9, the U.S. Court of Appeals for the 11th Circuit held that a consumer’s insurance repayment plan on her reverse mortgage did not qualify as an escrow account under RESPA’s Regulation X. According to the opinion, a consumer’s reverse mortgage required her to maintain hazard insurance on her property, which she elected to pay herself, and did not establish an escrow account with the mortgage servicer to pay her insurance and property taxes. After her insurance lapsed, the mortgage servicer advanced her over $5,000 in funds paid directly to her insurance carrier to ensure the property was covered, subject to a repayment agreement. After the consumer failed to make any payments under the agreement, the servicer initiated a foreclosure action against the consumer and obtained a forced-placed insurance policy when the insurance lapsed for a second time. Ultimately, a state-run forgivable loan program brought the consumer’s past due balance current and excess funds were placed in a trust to cover future insurance payments on the property. The consumer filed an action against the mortgage servicer alleging the servicer violated RESPA’s implementing Regulation X when it initiated forced-placed insurance, because the repayment agreement purportedly established an escrow account, which required the servicer to advance the funds for insurance. The district court entered judgment in favor of the servicer.

    On appeal, the 11th Circuit agreed with the district court, concluding that no escrow account existed between the consumer and the servicer, emphasizing that nothing in the repayment agreement set aside funds for the servicer to pay insurance or taxes on the property in the future. The 11th Circuit rejected the consumer’s characterization of the repayment agreement as an arrangement under Regulation X “where the servicer adds a portion of the borrower’s payment to principal and subsequently deducts from principal the disbursements for escrow account items.” The 11th Circuit reasoned that not only did the consumer never make a principal payment to the servicer, the consumer’s characterization is “entirely inconsistent” with the reverse mortgage security instrument. Because the servicer never deducted anything from the principal when it disbursed funds to pay the insurance, the repayment agreement did not qualify as an escrow agreement under Regulation X.

    Courts RESPA Force-placed Insurance Appellate Eleventh Circuit Regulation X Escrow Mortgages

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  • California Court of Appeal upholds return of $331 million to NMS Deposit Fund despite legislative efforts

    Courts

    On April 2, the California Third District Court of Appeal upheld its July 2018 ruling that the state is required to return $331 million to the National Mortgage Settlement Deposit Fund (NMS Deposit Fund), reaching the same conclusion as it did previously notwithstanding newly enacted legislation. As previously covered by InfoBytes, three groups filed a lawsuit in 2014 against California Governor Jerry Brown and the state’s director of finance and controller alleging they unlawfully diverted money from the NMS Deposit Fund to make bond payments and offset general fund expenditures. The groups sought a writ of mandate compelling the state government to pay back approximately $350 million in diverted funds. After the Superior Court denied the writ, the Third District Court of Appeal reversed, concluding that the money still belongs in the NMS Deposit Fund, and not in the state’s General Fund. The state petitioned to the State Supreme Court for review and while the petition was pending, the governor signed SB 861, which states, “It is the intent of the Legislature…to confirm that allocations and uses of funds made by the director of finance from the National Mortgage Special Deposit Fund pursuant to [section 12531] in the 2011-12, 2012-13, and 2013-14 fiscal years were consistent with legislative direction and intent and to abrogate the holding of the Court of Appeal in [this case]. The Legislature further declares that the allocations made by the director of finance pursuant to [section 12531] were made for purposes consistent with the National Mortgage Settlement.” The Supreme Court directed the Court of Appeal to vacate the July 2018 opinion and reconsider in light of SB 861.

    The Court of Appeal, having considered the views of the legislature in SB 861, confirmed its original conclusion from July 2018. Specifically, the court stated that the defendants’ reading of SB 861, “would effectively defeat the purpose of creating a special deposit fund to house the money” and would disregard the former Attorney General’s instructions for use of the settlement money, which was part of the National Mortgage Settlement. The Court of Appeal noted that in SB 861, the legislature declared that “the allocations…were made consistent with the National Mortgage Settlement,” but emphasized that “such a ‘belief is not binding on a court. . . .’” and the interpretation is “an exercise of the judicial power the Constitution assigns to the courts.” Therefore, upon second review, the Court of Appeal again held that the trial court erred when it did not issue a writ of mandate ordering the diverted funds to be returned to the NMS Deposit Fund.

    Courts State Issues State Legislation National Mortgage Settlement Appellate Mortgages

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  • 11th Circuit: An implicit threat of litigation is enough to assert a FDCPA claim

    Courts

    On April 5, the U.S. Court of Appeals for the 11th Circuit reversed in part and affirmed in part a district court’s order dismissing a plaintiff’s action alleging a debt collector violated the FDCPA when attempting to collect on a time-barred debt. According to the opinion, the plaintiff brought a lawsuit asserting a debt collector (i) violated the FDCPA’s prohibition on “false, deceptive or misleading” practices under section 1692e; (ii) violated the FDCPA’s prohibition on “unfair or unconscionable” practices under section 1692f by attempting to collect on a time-barred debt; and (iii) violated Florida state collection laws. The district court dismissed the FDCPA claims, concluding that the law allows for collectors to seek “voluntary repayment of…time-barred debt so long as the debt collector does not initiate or threaten legal action,” and declined to exercise jurisdiction over the state law claims once it dismissed the FDCPA claims.

    On appeal, the 11th Circuit affirmed the dismissal of the section 1692f claim, rejecting the argument that attempts to collect on time-barred debt are generally unconscionable or unfair under the law. As for the claim under section 1692e, the 11th Circuit concluded the collection letter could plausibly be misleading or deceptive to the “least sophisticated consumer.” Specifically, the 11th Circuit noted that, “as a general matter, a creditor can seek voluntary payment of a time-barred debt,” but the “right to seek repayment does not confer a right to mislead” and one must only “reasonably infer an implicit threat” of litigation to state a claim under section 1692e. The 11th Circuit concluded that the letter’s offer to “resolve” the debt at a discount—“combined with a deadline” to accept the offer—is a “warning” that the offer may not be renewed, and that a lack of disclosure that the debt is time barred could “plausibly deceive or mislead an unsophisticated consumer as to the legal status of the debt, even in the absence of an express threat of litigation.” In reversing the dismissal of the claim under section 1692e, the appellate court also reinstated the state law claim and remanded the case back to district court.

    Courts Eleventh Circuit Appellate Debt Collection FDCPA

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  • Colorado Court of Appeals reverses law firm penalty for affiliated vendor relationships

    Courts

    On April 4, the Colorado Court of Appeals reversed the trial court’s ruling assessing civil penalties against a foreclosure law firm for allegedly failing to disclose that its principals had an ownership interest in one of its vendors. The appeals court found that the civil penalty was not warranted because the failure to disclose “did not significantly impact members of the public as actual or potential consumers.” According to the opinion, the State of Colorado brought an enforcement action against a foreclosure law firm and its affiliated vendors, alleging, among other things, that the law firm and its vendors violated the Colorado Consumer Protection Act (the Consumer Act) by making “false or misleading statements of fact concerning the price” of their foreclosure services. The State argued that the relationship between the law firm and its vendors allowed the vendors to charge for services in excess of the market rate, pass on those costs to the law firm’s customers, and share a portion of the inflated costs with the law firm. While the trial court rejected two of the State’s claims against the defendants, it concluded that the law firm committed a deceptive practice under the Consumer Act that, “significantly impact[ed] the public as actual or potential consumers,” by failing to disclose its affiliated relationship with one of the vendors.

    On appeal, the appellate court rejected the trial court’s conclusion that the alleged deception significantly impacted the public, noting that the deception was confined to two clients, Fannie Mae and Freddie Mac, in the context of their private agreements with the firm. Because the misrepresentation was in the context of a private relationship, and the tax-paying public were not “consumers of the law firm’s services for purposes of the Consumer Act,” the appellate court found the trial court erred when awarding the civil penalties under the Act. Moreover, the appellate court affirmed the trial court’s rejection of the State’s other claims against the law firm.

    Courts State Issues Appellate Vendor Management Civil Money Penalties Affiliated Business Relationship Consumer Protection

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