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  • 2nd Circuit finds bankruptcy claim non-arbitrable

    Courts

    On March 7, the U.S. Court of Appeals for the 2nd Circuit denied a bank’s motion to compel arbitration, holding that arbitration of the debtor’s claims would present an inherent conflict with the intent of the Bankruptcy Code because the dispute concerns a core bankruptcy proceeding. The debtor’s claims against the bank relate to a purported refusal to remove a “charge-off” status on the debtor’s credit file after the debtor was released from all dischargeable debts through a Chapter 7 bankruptcy. The bankruptcy court allowed the debtor to reopen the proceeding in order to file a putative class action complaint against the bank alleging that the designation amounted to coercion to pay a discharged debt. The bank moved to compel arbitration, based on a clause in the debtor’s cardholder agreement, and the court denied the motion. On appeal, the district court affirmed the bankruptcy court’s decision. In affirming both lower courts’ decisions, the 2nd Circuit reasoned that a claim of coercion to pay a discharged debt is an attempt to undo the effect of the discharge order and, therefore, “strikes at the heart of the bankruptcy court’s unique powers to enforce its own orders.” The circuit court found the debtor’s complaint to be non-arbitrable based on a conclusion that it would create an inherent conflict with the intent of the bankruptcy code.

    Courts Second Circuit Arbitration Bankruptcy Appellate

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  • Judge orders student loan servicer to comply with CFPB CID

    Courts

    On February 28, the U.S. District Court for the Western District of Pennsylvania granted the CFPB’s petition to enforce a Civil Investigative Demand (CID) issued against a student loan servicer. According to the opinion, the student loan servicer filed a petition with the CFPB to set aside a June 2017 CID because the statutorily-mandated Notification of Purpose did not comply with the Bureau’s notice requirements under 12 U.S.C. § 5562(c)(2). The loan servicer argued that the CID’s list of activities under investigation—i.e., processing payments, charging fees, transferring loans, maintaining accounts, and credit reporting—failed to provide the servicer with fair notice as to the nature of the investigation because it “merely categorize[s] all aspects of a student loan servicing operation.” The CFPB denied the petition, and in November 2017, filed a petition in court to enforce the CID. In granting the Bureau’s petition, the court found that the Notification of Purpose met the statutory notice requirements because nothing in the law bars the CFPB “from investigating the totality of a company’s business operations.” Moreover, the court also found that the CID’s Notification of Purpose met the necessary requirements regarding administrative subpoenas set forth by the U.S. Court of Appeals for the 3rd Circuit, concluding that the investigation is for a “legitimate purpose,” the information requested is relevant and not already known by the Bureau, and the request is not unreasonably broad or burdensome.

    Courts CFPB Student Lending CIDs Appellate Third Circuit

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  • 9th Circuit reverses lower court’s dismissal of TCPA claim

    Courts

    On February 28, the U.S. Court of Appeals for the 9th Circuit reinstated a consumer’s lawsuit against two banks on charges that the nearly 300 calls she received seeking payment of a debt may have violated the Telephone Consumer Protection Act (TCPA). The three-judge panel stated that the district court’s decision to dismiss the case on standing grounds was incorrect in light of a subsequent 9th Circuit ruling in a different case, which held that “a violation of the TCPA is a concrete, de facto injury.” The court further held that the TCPA is not limited to telemarketing calls, and that the unsolicited contact—“regardless of caller or content”—is evidence of “concrete harm” that can be traced back to the conduct at issue. Additionally, the panel also held that the district court erred in granting the banks’ request for summary judgment on the plaintiff’s claim under California’s Rosenthal Fair Debt Collection Practices Act and her claim for “intrusion upon seclusion,” finding that the banks’ actions “allegedly caused harm” to the plaintiff’s solitude. The court reversed and remanded the case for further proceedings.

    Courts Appellate Ninth Circuit TCPA Debt Collection

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  • 9th Circuit holds California's interest on escrow requirements is not preempted by federal law

    Courts

    On March 2, the U.S. Court of Appeals for the 9th Circuit held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. The case results from a 2014 lawsuit in which a consumer sued the national bank for refusing to pay interest on the funds in his mortgage escrow account as required by a California state law. The district court dismissed the action, holding that the California state law interfered with the bank’s ability to perform its business making mortgage loans and therefore, was preempted by the National Bank Act (NBA).

    In reversing the district court’s decision, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing NBA preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. The panel cited to Section 1639d(g)(3) of Dodd-Frank (“if prescribed by applicable State or Federal law, each creditor shall pay interest to the consumer on the amount held in any . . . escrow account that is subject to this section in the manner as prescribed by that applicable State or Federal law”), which, according to the opinion, expresses Congress’ view that the type of law at issue does not “prevent or significantly interfere with a national bank’s operations.” Moreover, the panel disagreed with the national bank’s reliance on the OCC’s 2004 preemption regulation, which interpreted the standard more broadly, by concluding that the regulation had no effect on the preemption standard. This decision could have significant implications for the rise of preemption by federally chartered banks.

    Courts U.S. Supreme Court Appellate Ninth Circuit Mortgages Escrow Preemption National Bank Act Dodd-Frank OCC

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  • 5th Circuit affirms dismissal of claims against bank but not Fannie Mae in foreclosure suit

    Courts

    On February 26, the U.S. Court of Appeals for the 5th Circuit issued an opinion in a foreclosure dispute ruling that a lower court wrongly dismissed a breach of contract claim against Fannie Mae but was correct in dismissing the claim against a national bank that serviced the loan (bank). According to the opinion, a group of companies and investors (plaintiffs/appellants) constructed a low-income housing program (earning low income housing tax credits) through the financing of a loan by one of the companies secured by a deed of trust later assigned to Fannie Mae and serviced by the bank. When the plaintiffs/appellants defaulted on the loan, Fannie Mae accelerated the note and instituted non-judicial foreclosure proceedings pursuant to the deed; however, the plaintiffs/appellants alleged that some of the notices of acceleration and foreclosure were not received, and when the foreclosure sale proceeded and the IRS “recaptured” the tax credits earned on the project, the plaintiffs/appellants brought suit against Fannie Mae and the bank for, among other things, breach of contract based on the deed of trust and wrongful foreclosure. After granting a motion for rehearing, the lower court granted the bank’s motion for summary judgment, stating it did not breach a contract because it was not a party to the deed of trust. The lower court also dismissed the breach of contract claims against Fannie Mae and the bank, holding that because the plaintiffs/appellants defaulted on the deed of trust, they had no standing to sue based on a breach of that agreement.

    In affirming in part and reversing in part, the three-judge panel determined that although the bank was the loan servicer at the time of default, “once Fannie Mae was notified of default, Fannie Mae became the loan servicer” and therefore the “primary point of contact.” Therefore, “[b]ecause the only claim on appeal is for breach of contract based on the [d]eed of [t]rust, and [the bank] was never a party to the [d]eed of [t]rust, [the bank] has no liability.” However, concerning the breach of contract against Fannie Mae for failing to serve notice of foreclosure to appellants, the panel reversed the lower court’s decision, stating that this particular breach “exists as a stand-alone cause of action,” separate from a claim of wrongful foreclosure. Further, the “obligation to give notice of foreclosure would not even arise unless and until the [plaintiffs/appellants] were in default under the note.” The 5th Circuit remanded the case back to the lower court for review.

    Courts Appellate Fifth Circuit Foreclosure Fannie Mae Mortgages Mortgage Servicing

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  • 8th Circuit holds lender properly delivered TILA disclosures

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    On February 28, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s decision to grant summary judgment in favor of a national mortgage lender concluding that a borrower’s signed acknowledgment of receipt of TILA’s material disclosures and rescission notice created a rebuttable presumption that the borrowers had received the required number of notices under the law. According to the opinion, the borrowers sought to rescind their mortgage loan on a date close to three-years after settlement, arguing that the lender did not provide the requisite number of copies of required disclosures under TILA. TILA allows for rescission within three days of settlement unless the lender fails to deliver the required notice or material disclosures, which extends the rescission period to three years. After the lender denied the borrower’s request for rescission, a district court dismissed the action as untimely, asserting that the suit must be filed within the same three-year window. Ultimately, in 2015, the Supreme Court held that the three-year period applied to the borrower’s notice of rescission, and not the filing of the lawsuit.

    On remand, the district court granted summary judgment in favor of the lender. In affirming the district court’s decision, the 8th Circuit disagreed with the borrower’s position that while they signed an acknowledgment of receipt of the required disclosures, the acknowledgment did not state that each “acknowledge receipt of two copies each.” The circuit court concluded that the signed acknowledgment is “unambiguous and gives rise to the presumption” of proper delivery and each signature by the borrower indicates personal receipt of two copies each.

    Courts Eighth Circuit Appellate TILA Mortgages Disclosures U.S. Supreme Court

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  • 3rd Circuit holds payday lender’s arbitration clause unenforceable

    Courts

    On February 27, the U.S. Court of Appeals for the 3rd Circuit held that an arbitration clause is unenforceable if the corresponding forum selection provision designates a forum that does not actually exist. According to the opinion, in 2012 the plaintiff obtained a $5,000 loan from the defendant, an online loan servicer. An arbitration provision accompanying the loan agreement stated that arbitration would be conducted by an authorized representative of a specific tribal nation. The plaintiff subsequently sued the defendants for allegedly violating the federal Racketeering Influenced and Corrupt Organization Act, and various New Jersey state laws. The defendants filed a motion to compel arbitration, which the lower court denied. In affirming the lower court’s decision, the 3rd Circuit concluded that the tribal arbitration forum referenced in the loan agreement does not actually exist and “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.

    As previously covered by InfoBytes, in January, a district court judge ordered the same online loan servicer and its affiliates to pay a $10 million penalty for offering high-interest loans in states with usury laws barring the transactions. The penalty was based on a September 2016 finding that online loan servicer was the “true lender” of the loans issued through entities located on tribal lands. The penalty was significantly reduced from the CFPB’s request of over $50 million. 

    Courts Arbitration Third Circuit Payday Lending Appellate

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  • 10th Circuit upholds TCPA statutory damages as uninsurable under Colorado law

    Courts

    On February 21, the U.S. Court of Appeals for the 10th Circuit affirmed a district court’s decision that under Colorado law, an insurance company had no duty to indemnify and defend its insured against TCPA claims seeking statutory damages and injunctive relief. According to the appellate opinion, the FTC and the states of California, Illinois, North Carolina, and Ohio sued a satellite television company for violations of the TCPA, Telemarking Sales Rule (TSR), and various state laws for telephone calls made to numbers on the National Do Not Call Registry (FTC lawsuit). The FTC lawsuit sought statutory damages of up to $1,500 per alleged violation and injunctive relief. The defendant requested that its insurer defend and indemnify it for the claims pursuant to existing policies. The insurance company filed a complaint for declaratory judgment, seeking a declaration that it need not defend or indemnify the company in the FTC lawsuit. The district court determined that there was no coverage for several reasons, including: (i) that the statutory TCPA damages were a “penalty,” rendering them uninsurable under Colorado law; and (ii) that the injunctive relief sought did not qualify as damages under the policies’ definition. The 10th Circuit Court of Appeals affirmed both holdings, concluding that no coverage existed. 

    Courts TCPA Tenth Circuit Appellate Damages Insurance FTC Telemarketing Sales Rule State Issues

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  • Sixth Circuit rules borrowers lack standing under FDCPA

    Courts

    On February 16, the U.S. Court of Appeals for the Sixth Circuit held that a letter sent from an attorney on behalf of a mortgage servicing company to consumers violated the Fair Debt Collection Practices Act (FDCPA), but because the alleged violation did not meet the “injury in fact” requirement for standing, the consumers had no standing to sue. According to the opinion, the letter confirmed receipt of an executed warranty deed in lieu of foreclosure and reaffirmed that the mortgage servicer would “not attempt to collect any deficiency balance.” When the mortgage servicer attempted to collect the debt, the consumers cited the letter and the servicer agreed that nothing was owed. However, the consumers sued the attorney and the mortgage servicer claiming that the letter violated the FDCPA and the Ohio Consumer Sales Practices Act because it did not include a notice that it was from a debt collector. The claims against the servicer were resolved through arbitration, but a district court ruled that the attorney violated Ohio law for failing to include the appropriate disclosures. The attorney appealed, arguing that the consumers did not have standing to assert their federal and state law claims. However, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, the Sixth Circuit held that the consumers must show more than a “bare procedural violation.” Even though the letter lacked the required disclosures required by the FDCPA, this lack of disclosures caused no harm to the consumers, and in fact, the “letter was good news when it arrived, and it became especially good news when [the servicer] persisted in trying to collect a no-longer-collectible debt.” Because the letter created no cognizable injury, the Sixth Circuit reversed the district court’s decision and dismissed the claims brought under the FDCPA and the Ohio Consumer Sales Practice Act for lack of standing.

    Courts Appellate Sixth Circuit FDCPA Spokeo Debt Collection

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  • Supreme Court denies writ challenging data breach standing

    Courts

    On February 20, the U.S. Supreme Court denied without comment a medical insurance company’s petition for writ of certiorari to challenge an August 2017 D.C. Circuit Court of Appeals decision, which reversed the dismissal of a data breach suit filed by the company’s policyholders in 2015. According to the D.C. Circuit opinion, the policyholders sued the medical insurance company after the company announced that an unauthorized party had accessed personal information for 1.1 million members. The lower court dismissed the policyholder’s case, holding that they did not have standing because they could not show an actual injury based on the data breach. In reversing the lower court’s decision, the D.C. Circuit, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, held that it was plausible that the unauthorized party “has both the intent and the ability to use [the] data for ill.” This was sufficient to show that the policyholders had standing to bring the claims because they alleged a plausible risk of future injury.

    Courts Privacy/Cyber Risk & Data Security Spokeo Class Action U.S. Supreme Court Appellate D.C. Circuit Data Breach

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