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  • 4th Circuit reviews whether borrowers’ letters are QWRs under REPSA

    Courts

    On February 22, the U.S. Court of Appeals for the Fourth Circuit affirmed in part and reversed in part a district court’s dismissal of claims related to whether letters sent by plaintiff borrowers to a defendant loan servicer constituted qualified written requests (QWRs) under RESPA or Regulation X that would require the defendant to stop sending adverse information about accounts to credit reporting agencies. According to the opinion, one of the plaintiffs wrote to the defendant asking to have his records corrected after noticing his credit reports reflected purported overdue home loan payments that were allegedly affecting his employment after his employer expressed concerns about the credit report. The plaintiff noted a discrepancy between the amount he was allegedly behind on his mortgage payment and included a copy of the credit report his employer received, his account number, the ID number of the agent with whom he spoke on the phone, and requested that the error be corrected. However, the plaintiff alleged that the defendant continued to report adverse loan information. The other named plaintiff allegedly fell behind on her loan payments, and the defendant began reporting adverse information to the credit reporting agencies. She later applied for a loan modification, which was not finalized due to the existence of a lien by a solar panel company. The plaintiff sent a letter to the defendant challenging the existence of “title issues” and asked for her dispute to be investigated and corrected. The parties ultimately finalized a loan modification, but in the interim, the defendant continued reporting adverse information. The plaintiffs filed a putative class action alleging that despite sending QWRs, the defendant continued to report adverse information on their loans to credit reporting agencies; however, the district court dismissed the claims.

    On appeal, the 4th Circuit reversed the district court’s dismissal of the first plaintiff’s claim, holding that the plaintiff’s letter was a QWR subject to RESPA because it contained sufficient details to identify his account and indicate why he believed the credit reporting was in error. In particular, the court noted that the letter constituted a QWR because it did not rely solely on the alleged phone call “as the basis for the description of the problem,” but also detailed conflicting balance information received from the defendant and the credit reporting service. The dissenting judge wrote that this plaintiff’s letter was not a QWR because it failed to identify the possible error and did not provide a statement of reasons for believing the unidentified error existed.

    With respect to the other named plaintiff’s claim, the court affirmed dismissal because the letter did not qualify as a QWR. The court explained that the content of the plaintiff’s letter failed to satisfy the requirements of a valid QWR, finding that “correspondence limited to the dispute of contractual issues that do not relate to the servicing of the loan, such as loan modification applications, do not qualify as QWRs.”

    Courts Appellate Fourth Circuit Mortgages Qualified Written Request RESPA Regulation X Consumer Finance

  • 11th Circuit affirms $7.5 million settlement on overdraft appeal

    Courts

    On February 16, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s class certification and approval of a $7.5 million settlement, which resolved allegations that, after merging with another national bank, the former bank (defendant) improperly assessed and collected overdraft fees. According to the opinion, a customer accused the bank of “high-to-low” posting that restructured customers’ debit transactions so that high value debits posted before low value ones, increasing the chance of overdrafts. After the defendant merged with the national bank in 2012, the national bank agreed to the $7.5 million settlement to resolve the claims. A class member (interested party-appellant) appealed the order. The interested party-appellant claimed “that the court abused its discretion by finding that the settlement class’s representative … adequately represented her (and her proposed subclass’s) interests and that the settlement class’s claims were typical of hers (and her proposed subclass’s).”

    The 11th Circuit disagreed and found that the district court did not abuse its discretion because the plaintiff classes “suffered identical injuries” based on the defendant’s alleged high-to-low restructuring practices. Additionally, the appellate court found that “[t]he district court didn’t abuse its discretion by finding [the settlement class’s representative’s] claims were typical of those of the class.” The court also found that “[t]he district court could reasonably conclude that any difference in the value of the plaintiffs’ claims was too speculative or too small to create a fundamental conflict of interest.”

    Courts Appellate Eleventh Circuit Overdraft Class Action Settlement

  • 4th Circuit affirms district court’s decision in lone class member's appeal

    Courts

    On February 10, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s approval of a $3 million class action settlement between a class of consumers (plaintiffs) and a national mortgage lender (defendant), resolving allegations arising from a foreclosure suit. In 2014, the lead plaintiffs alleged that the defendants violated federal and Maryland state law by failing to; (i) timely acknowledge receipt of class members’ loss mitigation applications; (ii) respond to the applications; and (iii) obtain proper documentation. After the case was litigated for six years, a settlement was reached that required the defendant to pay $3 million towards a relief fund. The district court approved the settlement and class counsel’s request for $1.3 million in attorneys’ fees and costs, but an absent class member objected to the settlement, arguing that “the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad; and the attorneys’ fee award was improper.” A magistrate judge overruled the plaintiff’s objections, finding that “both the distribution and content of the notice were sufficient because over 97% of the nearly 350,000 class members received notice,” and that “class members ‘had information to make the necessary decisions and . . . the ability to even get more information if they so desired.’”

    On the appeal, the 4th Circuit rejected the class member’s argument that the magistrate judge lacked jurisdiction to approve the settlement where she had not consented to have the magistrate hear the case. The 4th Circuit noted that only “parties” are required to consent to have a magistrate hear a case and held that absent class members are not “parties,” noting that “every other circuit to address the issue has concluded that absent class members aren’t parties.” The appellate court also upheld the adequacy of the class notice, and held that the magistrate judge did not abuse his discretion in finding that the settlement agreement was fair, reasonable, and adequate.

    Courts Class Action Mortgages Fourth Circuit State Issues Maryland Loss Mitigation Appellate Consumer Finance

  • Appeals Court to consider whether CFPA covers trusts

    Courts

    On February 11, the U.S. District Court for the District of Delaware stayed a 2017 CFPB enforcement action against a collection of Delaware statutory trusts and their debt collector after determining there may be room for reasonable disagreement related to questions of “covered persons” and “timeliness.” As previously covered by InfoBytes, last December the court ruled that the CFPB could proceed with the enforcement action, which alleged, among other things, that the defendants filed lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. The court concluded that the suit was still valid and did not need ratification in light of the U.S. Supreme Court’s 2020 decision in Seila Law v. CFPB (which determined that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau—covered by a Buckley Special Alert), upending its previous dismissal of the case, which had held that the Bureau lacked enforcement authority to bring the action when its structure was unconstitutional. At the time, the court also disagreed with the defendants’ argument that, as trusts, they are not “covered persons” under the Consumer Financial Protection Act (CFPA). While the defendants argued that they used subservicers to collect debt and therefore did not “engage in” providing services listed in the CFPA, the court stated that the trusts were still “engaged” in their business and the alleged misconduct even though they contracted it out. 

    However, the court now certified two questions for appeal to the U.S. Court of Appeals for the Third Circuit. The first question centers on whether the defendants qualify as “covered persons” subject to the Bureau’s enforcement authority. The court concluded that another court may rule differently on this “novel” issue. “I was the first judge to decide whether the Bureau may bring enforcement actions against creditors like the Trusts who contract out debt collection and loan servicing,” the judge wrote, noting that the judge previously assigned to the case had also “expressed ‘some doubt’ that the Trusts are covered persons.” The second question addresses the Bureau’s efforts to continue the case after Seila. The defendants argued that the suit should be dismissed because the initial filing was invalid due to the director’s unconstitutional insulation and was not ratified within the statute of limitations. In December the court had held that the Bureau did not need to ratify the suit because—pointing to the majority opinion in the Supreme Court’s decision in Collins v. Yellen (covered by InfoBytes here)—“‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[,]’” and therefore the agency’s actions are not void and do not need to be ratified, unless a plaintiff can show that “the agency action would not have been taken but for the President’s inability to remove the agency head.” The court now acknowledged, however, that Collins “is a very recent Supreme Court decision” whose scope is still being “hashed out” in lower courts, which therefore “suggests that there is room for reasonable disagreement and thus supports an interlocutory appeal here.”

    Courts CFPB Student Lending Appellate Third Circuit Enforcement UDAAP CFPA Consumer Finance Seila Law U.S. Supreme Court

  • 1st Circuit vacates ruling in Maine FCRA case

    Courts

    On February 10, the U.S. Court of Appeals for the First Circuit vacated a district court’s ruling that the FCRA preempts amendments to the Maine Fair Credit Reporting Act that govern how certain debts are reported to credit reporting agencies. As previously covered by InfoBytes, a trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—sued the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) for enacting the 2019 amendments, which, among other things, place restrictions on how medical debts can be reported by the CRAs and govern how CRAs must investigate debt that is allegedly a “product of ‘economic abuse.’” The trade association argued that the amendments, which attempt to regulate the contents of an individual’s consumer report, are preempted by the FCRA, and contended that language under FCRA Section 1681t(b)(1)(E) should be read to encompass all claims relating to information contained in consumer reports. The district court agreed, ruling that, as a matter of law, the amendments are preempted by § 1681t(b)(1)(E). According to the court, Congress’ language and amendments to the FCRA’s structure “reflect an affirmative choice by Congress to set ‘uniform federal standards’ regarding the information contained in consumer credit reports,” and that “[b]y seeking to exclude additional types of information” from consumer reports, the amendments “intrude upon a subject matter that Congress has recently sought to expressly preempt from state regulation.” The defendants appealed.

    On appeal, the plaintiff argued that the phrase “relating to information contained in consumer reports” broadly preempts all state laws, but the appellate court was not persuaded and concluded that the broad interpretation “is not the most natural reading of the statute’s syntax and structure.” The 1st Circuit found “no reason to presume that Congress intended, in providing some federal protections to consumers regarding the information contained in credit reports, to oust all opportunity for states to provide more protections, even if those protections would not otherwise be preempted as ‘inconsistent’ with the FCRA under 15 U.S.C. § 1681t(a).” In addition, the court reminded the plaintiff that “even where Congress has chosen to preempt state law, it is not ousting states of regulatory authority; state regulators have concurrent enforcement authority under the FCRA, subject to some oversight by federal regulators.” As such, the appellate court held that the FCRA did not broadly preempt the entirety of Maine’s amendments, and remanded the case back to the district court to determine the scope under which the amendments may be preempted by the FCRA.

    Courts Maine State Issues Credit Report Consumer Finance Appellate First Circuit FCRA Credit Reporting Agency

  • District Court says NY champerty statute bars RMBS suit

    Courts

    On February 8, the U.S. District Court for the Southern District of New York issued an opinion granting in part and denying in part defendants’ motion for summary judgment and denying plaintiffs’ motions for partial summary judgment in parallel actions concerning pre-2008 residential mortgage-back securities (RMBS) trusts. In both cases, plaintiffs—RMBS certificateholders—filed suit alleging breaches of contractual, fiduciary, statutory, and common law duties with respect to certificates issued by RMBS trusts for which two of the defendants’ units served as trustee. Both plaintiffs alleged that the defendants failed to follow through on obligations to monitor the pre-2008 RMBS trusts that they administered. However, the court partially ruled in favor of the defendants, concluding that one set of plaintiffs could not avoid their loss in an RMBS trustee case brought against a different national bank, in which the court deemed the plaintiffs lacked a valid legal right to sue. In that matter, the U.S. Court of Appeals for the Second Circuit issued an opinion last October, agreeing with a different New York judge that “found the assignments champertous under New York law, rendering them invalid and leaving Plaintiffs without standing.” According to the 2nd Circuit, district court findings showed it was clear that the assignments were champertous “as they were made ‘with the intent and for the primary purpose of bringing a lawsuit.’”

    The district court noted that the assignments of all the claims in the current matter were essentially identical to the issue already decided by the 2nd Circuit, and saw sufficient overlap to find the plaintiffs’ vehicles “collaterally estopped” from relitigating the issues of prudential standing and champerty. “The issues decided by the court of appeals relating to champerty and prudential standing are dispositive of the present action,” the court wrote. “Without prudential standing, the [] plaintiffs cannot assert claims arising out of the certificates and the entire [] action must be dismissed.” With respect to the other set of plaintiffs, while the court allowed certain claims to stand, it declined to grant any portion of the joint partial summary judgment related to the defendants’ alleged responsibilities as trustee, ruling that plaintiffs must prove those claims at trial.

    Courts RMBS Mortgages Champerty Appellate Second Circuit New York State Issues

  • 7th Circuit affirms ruling in one case, overturns ruling in bona fide error case

    Courts

    On February 2, the U.S. Court of Appeals for the Seventh Circuit, in a consolidated case, affirmed summary judgment for one defendant’s FDCPA bona fide error defense and overturned summary judgment on the same defense for another. According to the opinion, the plaintiffs in each case disputed debts that appeared on their credit reports by notifying the defendants via fax. In the first case, an employee sent the fax dispute to the wrong department, and thus the dispute was never recorded on the account. In the second case, the defendant stopped monitoring the fax machine but had not disconnected it, and therefore did not even realize it received the dispute. The plaintiffs filed separate lawsuits, and the district courts in each case granted summary judgment for the defendants on the grounds that each was entitled to the FDCPA’s bona fide error defense.

    The 7th Circuit consolidated the cases on appeal. The appellate court affirmed the first case, holding that the defendant’s procedures were “reasonably adapted” to avoid errors when receiving faxes because there were step-by-step instructions on which department to send faxes to. The court determined that the employee sent the fax to the wrong department by mistake. The plaintiff argued that the defendant nevertheless needed to have a policy in place for what to do when a fax ended up in the wrong department, but the 7th Circuit agreed with the district court that “[t]he absence of such a policy, however, does not mean that the defendant failed to maintain reasonably adapted procedures.” By contrast, the court found the procedures in the second case were not reasonably adapted and did not qualify for the bona fide error defense. While the defendant did remove its fax number from its website, it did not remove the number from the National Registry and did not announce that it would completely stop checking the machine, leaving it no way to prevent the relevant errors.

    Courts Appellate Seventh Circuit FDCPA Bona Fide Error

  • 9th Circuit affirms judgment for defendant in FCRA suit

    Courts

    On February 8, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a consumer reporting agency (defendant). The suit accused the defendant of violating the FCRA by willfully and negligently disclosing a 10-year-old criminal charge that had been dismissed six years prior to an inquiry made on the plaintiff’s credit report. The plaintiff allegedly submitted an application for housing in 2010, which was denied. In 2010, the defendant provided a tenant screening report, which included details of a criminal charge from 2000, which was outside the seven-year window of the FCRA. However, the plaintiff’s criminal charge was dismissed in 2004, which was within the seven-year reporting window. The plaintiff sued under the FCRA, alleging that the defendant reported criminal information older than seven years, failed to maintain procedures designed to avoid violating the FCRA and ensure the maximum possible accuracy of the information in the report, and failed to conduct a reasonable reinvestigation after receiving a consumer dispute.

    In ruling for the defendant, the 9th Circuit stated that “to prove a negligent violation [of the FCRA], a plaintiff must show that the defendant acted pursuant to an objectively unreasonable interpretation of the statute.” The 9th Circuit held that Section 1681c(a)(5) of the FCRA “does not specifically state the date that triggers the reporting window.” Further, the appellate court looked to guidance from the FTC and the CFPB, which “appeared to permit reporting the charge” at the time.

    As the appellate court explained, whether the consumer reporting agency correctly interpreted § 1681c(a)(5) to permit the reporting of a criminal charge that was filed outside of, but dismissed within, the statute’s seven-year window, arose as a matter of first impression. However, the consumer reporting agency introduced evidence that its interpretation was consistent with industry norms and standards. Likewise, FTC guidance on the question, at the time, appeared to permit reporting the charge. The appellate court noted, therefore, that it “cannot say, nor could any other reasonable fact finder, that on this record defendant’s violation of [the FCRA] was negligent, much less willful.” As a result, the 9th Circuit affirmed summary judgment in favor of the defendant.

    Courts Appellate Ninth Circuit Consumer Reporting Agency Consumer Finance FCRA

  • District Court rules transmitting debtor information to third-party violates FDCPA

    Courts

    On February 2, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion for judgment on the pleadings, ruling that transmitting a debtor’s personal information to a third-party mail vendor for the purposes of sending a debt collection letter constitutes a communication “in connection with the collection of any debt” under the FDCPA. As previously covered by InfoBytes, in Hunstein v. Preferred Collection & Management Services, the U.S. Court of Appeals for the Eleventh Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” The district court found this reasoning “persuasive,” ruling that the plain text of the statute encompasses communications with a third party mail vendor. The district court also rejected the defendant’s arguments that the CFPB and FTC had tacitly endorsed third-party mailers by not pursuing enforcement actions against them: “[B]ecause the agencies tasked with regulating and enforcing the FDCPA have not addressed the use of letter vendors by debt collectors in any legally significant way, and because the statutory language is not subject to a different reading, the Court will afford no deference to the indeterminate actions of the CFPB and FTC.”

    Courts Data Breach Class Action FDCPA Appellate Eleventh Circuit Hunstein Debt Collection

  • Illinois Supreme Court rules Workers’ Compensation Act does not bar BIPA privacy claims

    Privacy, Cyber Risk & Data Security

    On February 3, the Illinois Supreme Court unanimously ruled that the Illinois Workers’ Compensation Act (Compensation Act) does not bar claims for statutory damages under the state’s Biometric Information Privacy Act (BIPA). According to the opinion, the plaintiff sued the defendant and several other long-term care facilities in 2017 for violations of BIPA, alleging their timekeeping systems scanned her fingerprints without first notifying her and seeking her consent. The defendant countered that the Compensation Act preempted the plaintiff’s claims, but in 2020 the Illinois Appellate Court, First District, held that it failed to see how the plaintiff’s claim for liquidated damages under BIPA “fits within the purview of the Compensation Act, which is a remedial statute designed to provide financial protection for workers that have sustained an actual injury.” As such, the appellate panel concluded that the Compensation Act’s exclusivity provisions “do not bar a claim for statutory, liquidated damages, where an employer is alleged to have violated an employee’s statutory privacy rights under the Privacy Act, as such a claim is simply not compensable under the Compensation Act.”

    In affirming the appellate panel’s decision, the Illinois Supreme Court agreed that the “personal and societal injuries caused by violating [BIPA’s] prophylactic requirements are different in nature and scope from the physical and psychological work injuries that are compensable under the Compensation Act. [BIPA] involves prophylactic measures to prevent compromise of an individual’s biometrics.” Additionally, the Illinois Supreme Court held that the plain language of BIPA supports a conclusion that the state legislature did not intend for it to be preempted by the Compensation Act’s exclusivity provisions. Noting that it is aware of the consequences the legislature intended as a result of BIPA violations, the Illinois Supreme Court wrote that the “General Assembly has tried to head off such problems before they occur by imposing safeguards to ensure that the individuals’ privacy rights in their biometric identifiers and biometric information are properly protected before they can be compromised and by subjecting private entities who fail to follow the statute’s requirements to substantial potential liability . . . whether or not actual damages, beyond violation of the law’s provisions, can be shown.” Moreover, if a “different balance should be struck under [BIPA] given the category of injury,” that is “a question more appropriately addressed to the legislature.”

    Privacy/Cyber Risk & Data Security Courts State Issues Illinois BIPA Appellate

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