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9th Circuit: Fannie Mae is not a consumer reporting agency under the FCRA
On January 9, the U.S. Court of Appeals for the 9th Circuit held that Fannie Mae is not a “consumer reporting agency” under the FCRA and therefore is not liable under the law. According to the opinion, homeowners attempted to refinance their current mortgage loan two years after completing a short sale on their prior mortgage. While shopping for the refinance, lenders used Fannie Mae’s Desktop Underwriting (DU) program to determine if the loan would be eligible for purchase by the agency. Three of the eight DU findings showed the loan would be ineligible due to a foreclosure reported for the homeowners within the last seven years, which was not true. The homeowners sued Fannie Mae alleging the agency violated the FCRA for inaccurate reporting. On cross motions for summary judgment, the lower court determined that Fannie Mae was liable under the FCRA for furnishing inaccurate information because the agency “acts as a consumer reporting agency when it licenses DU to lenders.”
On appeal, the 9th Circuit reviewed whether Fannie Mae was a consumer reporting agency under the FCRA and noted that the agency must “regularly engage[] in . . . the practice of assembling or evaluating” consumer information, which Fannie Mae argues it does not do. Specifically, the agency asserts that it simply provides software that allows lenders to evaluate consumer information. The appeals court agreed, concluding that Fannie Mae created the tool but the person using the tool is the person engaging in the act. The court reasoned, “[t]here is nothing in the record to suggest that Fannie Mae assembles or evaluates consumer information.” Moreover, the court noted, if Fannie Mae were found to be a consumer reporting agency, it would be subject to other FCRA duties to borrowers, which “would contradict Congress’s design for Fannie Mae to operate only in the secondary mortgage market, to deal directly with lenders, and not to deal with borrowers themselves.”
4th Circuit affirms jury’s verdict clearing student loan servicer in FCA suit
On January 8, the U.S. Court of Appeals for the 4th Circuit affirmed a federal jury’s unanimous verdict clearing a Pennsylvania-based student loan servicing agency (defendant) accused of improper billing practices under the False Claims Act (FCA). As previously covered by InfoBytes, the plaintiff—a former Department of Education employee whistleblower—filed a qui tam suit in 2007, seeking treble damages and forfeitures under the FCA. The plaintiff alleged that multiple state-run student loan financing agencies overcharged the U.S. government through fraudulent claims to the Federal Family Education Loan Program in order to unlawfully obtain 9.5 percent special allowance interest payments. Over the course of several appeals, the case proceeded to trial against the student loan servicing agency after the 4th Circuit held that the entity was “an independent political subdivision, not an arm of the commonwealth,” and “therefore a ‘person’ subject to liability under the False Claims Act.” The plaintiff appealed the jury’s verdict, arguing the court erred by excluding evidence at trial and failed to give the jury several of his proposed instructions.
On appeal, the 4th Circuit disagreed with the plaintiff, finding that the court correctly excluded the state audit, which determined the student loan servicer “failed its mission” with lavish spending on unnecessary expenses. The appeal court noted the audit was irrelevant to the only issue in the case: “Did [the servicer] commit fraud and file a false claim?” The appeals court also rejected the plaintiff’s jury instruction arguments, concluding that the court’s instructions substantially covered the substance of the plaintiff’s proposal and “sufficiently explained that the jury had to consider whether [the servicer’s] claims were ‘false or fraudulent.’”
District Court holds debt collector effectively stated account balance
On December 20, 2018, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a debt collector, holding the collection letters effectively stated the amount of the debt under the FDCPA. According to the opinion, a consumer received four collection letters from a debt collector stating an account balance of $794.67. The consumer sued the debt collector, alleging the letters were false, deceptive, or misleading and failed to effectively state the amount of the debt in violation of the FDCPA because, according to the terms in the creditor’s online sample agreement, the original creditor could have collected interest on post-charge off fees after the debt collector closed the account. Both parties moved for summary judgment. The court determined the collection letter at issue complied with the FDCPA because the debt collector “sought to collect only the amount due on the date it sent the letter” and was not “trying to collect the listed balance plus the interest running on it or other charges.” Moreover, the court rejected the consumer’s argument that the letter was false, deceptive, or misleading because it failed to include whether the creditor could charge additional interest or other fees on the original debt, determining the letter could not mislead or deceive an unsophisticated consumer. Specifically, citing the U.S. Court of Appeals for the 7th Circuit’s decision in Wahl v. Midland Credit Management, the court stated that a debt collector “need only request the amount it is owed; it need not provide whatever the credit-card company may be owed more than that.” Because a consumer of reasonable intelligence and basic financial knowledge would read the collection letter and determine that he or she owes $794.67, the court granted summary judgment in favor of the debt collector.
5th Circuit: Loan originators cannot be liable for loan servicers’ violations of RESPA loss mitigation requirements
On December 21, the U.S. Court of Appeals for the 5th Circuit held that a mortgage loan originator cannot be held vicariously liable for a loan servicer’s failure to comply with the loss mitigation requirements of RESPA (and its implementing Regulation X). According to the opinion, in response to a foreclosure action, a consumer filed a third-party complaint against her loan servicers and loan originator alleging, among other things, that the loan servicers had violated Regulation X’s requirement that a servicer evaluate a completed loss mitigation application submitted more than 37 days before a foreclosure sale. In subsequent filings, the consumer clarified that the claims against the loan originator were for breach of contract and vicarious liability for one of the loan servicer’s alleged RESPA violations. The district court dismissed both claims against the loan originator and the consumer appealed the dismissal of the RESPA claim.
On appeal, the 5th Circuit affirmed the dismissal for two independent reasons. First, the 5th Circuit noted it is well established that vicarious liability requires an agency relationship and determined the consumer failed to assert facts that suggested such a relationship existed. Second, in an issue of first impression at the circuit court stage, the court ruled that, as a matter of law, the loan originator could not be vicariously liable for its servicer’s alleged violations of RESPA, as the applicable statutory and regulatory provisions only impose loss mitigation requirements on “servicers,” and therefore only servicers could fail to comply with those obligations. The appellate court reasoned that Congress explicitly imposed RESPA duties more broadly in other sections (using the example of RESPA’s prohibition on kickbacks and unearned fees that applies to any “person”), but chose “a narrower set of potential defendants for the violations [the consumer] alleges.” The court concluded, “the text of this statute plainly and unambiguously shields [the loan originator] from any liability created by the alleged RESPA violations of its loan servicer.”
District Court concludes company’s dialing system is not an autodialer under TCPA
On December 20, the U.S. District Court for the District of New Jersey granted a student loan company’s motion for summary judgment, holding that the plaintiff failed to establish the company’s phone system qualified as an automated telephone dialing system (autodialer) under the TCPA. The plaintiff alleged the company violated the TCPA by using an autodialer to call his cell phone without his prior express consent. Each party filed cross-motions for summary judgment with the plaintiff arguing that the company’s system “had the present capacity without modification to place calls from a stored list without human intervention.” The company disagreed with the plaintiff’s assertions, arguing that it used separate systems for land lines and cell phones, and that the system which dialed the cell phone “contains no features that can be activated, deactivated, or added to the system to enable autodialing.” Citing to the opinion of the U.S. Court of Appeals for the 3rd Circuit in Dominguez v. Yahoo (previously covered by InfoByres here), which held that it would interpret the definition of an autodialer as it would prior to the FCC’s 2015 Declaratory Ruling, the court noted that the term “capacity” in the TCPA’s autodialer definition refers to the system’s current functions, not its potential capacity. Because the plaintiff failed to establish that the system used to dial his cell phone had the “present capacity” to initiate autodialed calls without modifications, the court concluded the claim failed as a matter of law.
New Jersey appellate court finds arbitration provision ambiguous and unenforceable
On December 18, the Appellate Division of the Superior Court of New Jersey reversed a lower court’s order compelling arbitration, concluding the arbitration provision of the plaintiff’s auto lease agreement did not clearly and unambiguously inform the reader that arbitration was the exclusive dispute remedy. According to the opinion, the plaintiff filed a complaint against an auto dealer after allegedly being charged a $75 dollar fee associated with the loan payoff of his trade-in vehicle for which the plaintiff never received an explanation of its purpose, in violation of the New Jersey Consumer Fraud Act and Truth in Consumer Contract, Warranty and Notice Act. The auto dealer moved to compel arbitration under the lease contract’s arbitration notice, which included the statement, “[e]ither you or Lessor/Finance Company/Holder […] may choose at any time, including after a lawsuit is filed, to have any Claim related to this contract decided by arbitration.” The lower court determined that the arbitration provision was not “ambiguous or vague in any way” and ordered arbitration. The plaintiff appealed, arguing the clause is vague because it states the parties “may” arbitrate. On appeal, the appellate court concluded that the arbitration provision was not clear and unambiguous due to the use of a passive “may” when referring to the ability to opt into arbitration. Moreover, the appellate court determined the arbitration provision to be unenforceable because it lacked language that would affirmatively inform the plaintiff that “he could not pursue his statutory rights in court.”
District court grants judgment in favor of loan servicer on remand
On December 10, the U.S. District Court for the District of Minnesota ruled on a motion for summary judgment concerning whether the Minnesota Mortgage Originator and Servicer Licensing Act’s (MOSLA) provision prohibiting “a mortgage servicer from violating ‘federal law regulating residential mortgage loans’” provides a cause of action under state law when a loan servicer violates RESPA but where the consumer ultimately has no federal cause of action because the consumer “sustained no actual damages and thus has no actionable claim under RESPA.”
As previously covered by InfoBytes, the U.S. Court of Appeals for the 8th Circuit reviewed the district court’s earlier decision to grant summary judgement in favor of a consumer who claimed the mortgage loan servicer failed to adequately respond to his qualified written requests concerning erroneous delinquency allegations. The 8th Circuit overturned that ruling, opining that while the loan servicer failed to (i) conduct an adequate investigation following the plaintiff’s request as to why there was a delinquency for his account, and (ii) failed to provide a complete loan payment history when requested, its failure did not cause actual damages.
Now, revisiting the issue on remand, the district court stated that any MOSLA violation or injury is predicated on the RESPA violation or injury. Reasoning that since there were “no actual damages under RESPA, then there are no actual damages under MOSLA,” the court concluded that the consumer did not have a viable cause of action under MOSLA and dismissed the action with prejudice.
District Court holds “dead air” is indicative of a predictive dialer, denies TCPA dismissal bid
On December 10, the U.S. District Court for the District of New Jersey denied a medical laboratory’s motion to dismiss a putative TCPA class action against the company, holding the plaintiff sufficiently alleged the equipment used to make unsolicited calls qualified as an “autodialer.” According to the opinion, the plaintiff filed the class action against the company after receiving an unsolicited call to her cell phone and hearing a “momentary pause” before a representative started speaking, allegedly indicating the company was using an automatic telephone dialing system (autodialer). The plaintiff argues the company violated the TCPA by placing non-emergency calls using an autodialer without having her express consent. The company moved to dismiss the action, arguing the plaintiff did not sufficiently allege the company called her using an autodialer. The court disagreed, stating that “[d]ead air after answering the phone is indicative that the caller used a predictive dialer.” The court noted that a predictive dialer is a device considered an autodialer under binding precedent, citing to the opinion of the U.S. Court of Appeals for the 3rd Circuit in Dominguez v. Yahoo, which held that it would interpret the definition of an autodialer as it would prior to the FCC’s 2015 Declaratory Ruling, which was invalidated by the D.C. Circuit. (Previously covered by InfoBytes here.) The court acknowledged that the actual configuration of the dialing equipment should be explored in discovery, but at this stage, the plaintiff sufficiently alleged the use of an autodialer for purposes of the TCPA.
7th Circuit holds consumers can be expected to read second page of two-page collection letter, affirms dismissal of FDCPA action
On December 7, the U.S. Court of Appeals for the 7th Circuit affirmed the dismissal of a consumer’s class action against a debt collection company for allegedly violating the FDCPA by indicating “additional important information” was on the back of the first page when the required validation notice was actually on the front of the second page. According to the opinion, the consumer alleged the debt collection notice “misleads the unsophisticated consumer by telling him that important information is on the back, but instead providing the validation notice on the front of the second page, thereby ‘overshadowing’ the consumer’s rights” under the FDCPA. The debt collector moved to dismiss the action for failure to state a claim and the district court granted the dismissal and declined to allow the consumer leave to amend the complaint.
On appeal, the 7th Circuit determined that the location of the validation notice—which “is clear, prominent, and readily readable”—did not overshadow the consumer’s FDCPA rights or misrepresent the importance of the notice, notwithstanding the language on the first page indicating the important information would be on the back of the first page, not on the top of the second page. The 7th Circuit explained, “The FDCPA does not say a debt collector must put the validation notice on the first page of a letter. Nor does the FDCPA say the first page of a debt-collection letter must point to the validation notice if it is not on the first page. Nor does the FDCPA say a debt collector must tell a consumer the validation notice is important. Nor does the FDCPA say a debt collector may not tell a consumer that other information is important.” The appellate court rejected the consumer’s unsophisticated consumer argument, concluding that "[e]ven an unsophisticated consumer—maybe especially one—can be expected to read page two of a two-page collection letter." Moreover, the appellate court upheld the denial of the consumer’s request to amend her complaint, noting that no proposed amendment would push the plaintiff’s “original claim into the realm of plausibility.”
9th Circuit reverses lower court’s dismissal of TILA rescission enforcement claims
On December 6, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TILA allegations brought against a bank, finding that the statute of limitations for borrowers to bring TILA rescission enforcement claims is based on state law, and is six years in the state of Washington. The panel opined that, because TILA does not specify a statute of limitations for when an action to enforce a TILA recession must be brought, “courts must borrow the most analogous state law statute of limitations and apply that limitation period” to these type of claims, which, in Washington, is the six-year statute of limitations on contract claims. According to the opinion, the plaintiffs refinanced a mortgage loan in 2010, but failed to receive notice of the right to rescind the loan at the time of refinancing in violation of TILA’s disclosure requirements. Consequently, the plaintiffs had three years—instead of three days—from the loan’s consummation date to rescind the loan. In 2013, within the three-year period, the plaintiffs notified the bank of their intent to rescind the loan. However, instead of taking action in response to the plaintiffs’ notice, the bank instead began a nonjudicial foreclosure nearly four years after the rescission demand, declaring that the plaintiffs were in default on the loan. The plaintiffs filed suit in 2017 to enforce the recession, which the bank moved to dismiss on the argument that the claims were time barred. According to the panel, the lower court wrongly interpreted the plaintiff’s request for damages under the Washington Consumer Protection Act “as a claim for monetary relief under TILA”—which has a one-year statute of limitations—and dismissed the plaintiffs’ claim as time barred without leave to amend. However, the consumers were seeking a declaratory judgment and an injunction, not damages.
On appeal, the 9th Circuit rejected three possible statute of limitations offered by the lower court. The panel also rejected plaintiffs’ argument that no statute of limitations apply to TILA recession enforcement claims, and held that it could not be assumed that “Congress intended that there be no time limit on actions at all”; rather, federal courts must borrow the most applicable state law statute of limitations. Because the mortgage loan agreement was a written contract between the plaintiffs and the bank, and the plaintiffs’ suit was an attempt to rescind that written contract, Washington’s six-year time limit on suits under written contracts must be borrowed. Therefore, the panel concluded that the plaintiffs’ suit was not time-barred and reversed and remanded the case for further proceedings.