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Financial Services Law Insights and Observations


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  • 8th Circuit holds lender properly delivered TILA disclosures


    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


    On February 27, the U.S. Court of Appeals for the Third 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


    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


    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


    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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  • D.C. Circuit will not rehear False Claims suit against national bank


    On February 16, the U.S. Court of Appeals for the D.C. Circuit denied a petition for an en banc rehearing of its December 2017 ruling affirming the dismissal of a False Claims Act suit against a national bank. The petition resulted from a 2013 lawsuit filed by a consumer against the bank, which alleged, among other things, that the bank falsely asserted that it had complied with certain obligations under the 2012 National Mortgage Settlement (the “Settlement”). The district court dismissed the suit, finding that the consumer lacked standing because he did not exhaust the required dispute resolution procedures contained in the Settlement. In December 2017, the D.C. Circuit affirmed the dismissal but disagreed with the lower court’s reasoning. According to the appellate opinion, the circuit court held that the consumer’s second amended complaint did not contain any allegedly false or deceptive statements made by the bank to the government-approved settlement monitor and that ultimately, “the decisive point is that the Monitor was aware of the practices and concluded that [the bank] was in compliance.”

    Courts False Claims Act / FIRREA Appellate D.C. Circuit

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  • 3rd Circuit rules settlement offer for time-barred debt could violate FDCPA


    On February 12, the U.S. Court of Appeals for the 3rd Circuit held that a collection letter offering a settlement on a time-barred debt could violate the prohibition against "any false, deceptive, or misleading representation or means in connection with the collection of any debt” of the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff filed a class action complaint against the debt collector after receiving a letter stating that the debt collector would accept a partial “settlement” of the delinquency amount, which was past the New Jersey six-year statute of limitations. The lower court granted the debt collector’s motion to dismiss, finding that the letter did not contain a threat of legal action by the use of the word settlement and therefore, did not violate the FDCPA. In reversing the lower court’s decision, the 3rd Circuit concluded that the “least-sophisticated debtor could be misled into thinking that ‘settlement of the debt’ referred to the creditor’s ability to enforce the debt.” In its conclusion, the appellate court also noted that settlement offers of time-barred debts “do not necessarily constitute deceptive or misleading practices” under the FDCPA and remanded the case back to the lower court for review.

    Courts Third Circuit Appellate FDCPA Debt Collection

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  • NJ appeals court says consumer should have litigated issues in original foreclosure action


    On January 31, the Superior Court of New Jersey Appellate Division affirmed the lower court’s decision that a widower (plaintiff) should have raised improper foreclosure allegations during the final foreclosure action and cannot subsequently litigate the issues in a different forum. According to the opinion, in 2009, the bank initiated a foreclosure complaint against the plaintiff’s husband (borrower) and the borrower raised no defenses to the complaint. The borrower then initiated a modification request, which the bank ultimately denied due to title liens, and a final foreclosure judgment was entered at the end of 2010. The borrower filed an appeal to the foreclosure action but the plaintiff ultimately withdrew it after the borrower died. The current litigation was filed after the final foreclosure judgment was entered and asserted, among other things, that the foreclosure was improper due to the modification curing the default. The lower court dismissed two of the plaintiff’s claims because she was not a party to the original mortgage or modification attempt and granted summary judgment for the bank on the remaining claims because the “issue of the enforceability of the 2010 loan modification agreement is at the heart of plaintiff's claims and was directly related to the foreclosure action and should have been raised as part of that litigation.” The appeals court agreed with the lower court’s reasoning noting that the plaintiff “attempted to litigate the same issue in two forums.”

    Courts Mortgages Foreclosure Appellate

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  • 10th Circuit says FCBA claim ends if credit account is paid

    Consumer Finance

    On January 26, the U.S. Court of Appeals for the 10th Circuit affirmed a District Court’s decision dismissing a consumer’s claim that, under the Fair Credit Billing Act (FCBA), two credit card providers (collectively, defendants) must refund his accounts after a  merchant failed to deliver goods purchased using credit cards issued by the defendants. The FCBA allows consumers to raise the same claims against credit card issuers that can be raised against merchants, but limits such claims to the “amount of credit outstanding with respect to [the disputed] transaction.” According to the opinion, the consumer ordered nearly $1 million in wine from a merchant and prior to delivery of the complete order, the merchant declared bankruptcy. The consumer filed lawsuits against each credit card provider in the U.S. District Court for the District of Colorado seeking a refund to his credit accounts for the amounts of the undelivered wine. The District Court dismissed the suits against both defendants because the consumer had fully paid the balance on his credit cards. In affirming the District Court’s decision, the 10th Circuit concluded that because “‘the amount of credit outstanding with respect to’ the undelivered wine is $0” the consumer had no claim against the defendants under the FCBA.

    Consumer Finance Courts Credit Cards Tenth Circuit Appellate

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  • 10th Circuit reverses lower court decision in mortgage action

    State Issues

    On January 23, the U.S. Court of Appeals for the 10th Circuit reversed a District Court’s decision dismissing a borrower’s claims against a lender and mortgage loan servicer (collectively, “defendants”) under the Rooker-Feldman doctrine, which prohibits lower federal courts from reviewing state court civil judgments. Colorado maintains a unique procedure for non-judicial foreclosure. Specifically, under Rule 120 of the Colorado Rules of Civil Procedure (“Rule 120”) a trustee is required to obtain a trial court ruling that a “reasonable probability” of default exists before moving forward with a non-judicial foreclosure. According to the opinion, in 2014, the defendants initiated a non-judicial foreclosure proceeding against the borrower through the Rule 120 process. Prior to completing the sale, however, the borrower filed suit in the U.S. District Court for the District of Colorado seeking, among other things, an injunction against the sale, damages, and cancellation of the promissory note. Relying on the Rooker-Feldman doctrine, the District Court dismissed the borrower’s suit as an attempt to unwind the results of the Rule 120 proceedings. The 10th Circuit reversed this decision based on its finding that the borrower’s suit did not challenge the Rule 120 state court decision, but rather took issue with the defendant’s actions prior to the state court proceedings. In reaching this conclusion, the 10th Circuit noted that even if the borrower had filed suit after the Rule 120 judgment had been entered, unless the borrower was alleging the state court wrongfully entered the judgment, the suit would not be barred by Rooker-Feldman.

    State Issues Mortgages Foreclosure Tenth Circuit Appellate

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