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7th Circuit rules bank cannot arbitrate debt claim with a minor in TCPA suit
On March 22, the U.S. Court of Appeals for the 7th Circuit reversed a district court’s decision that had granted a national bank’s motion to compel arbitration of a putative class action. In 2014, the plaintiff filed a lawsuit alleging the bank’s debt collection practices violated the Telephone Consumer Protection Act (TCPA), after the bank called the plaintiff’s phone number seeking payment on her mother’s overdue card payments. The three-judge panel held that the district court erred in ruling that the plaintiff—who made a one-time purchase with her mother’s credit card when she was a minor—became an authorized user under the account and was bound by her mother’s credit card agreement, including the arbitration provision, regardless of whether she received a direct benefit from the cardholder agreement. The panel opined that, “an individual does not become an [a]uthorized [u]ser simply by using the credit card to complete the cardholder’s transaction.” Specifically, a provision to add authorized users to an existing account “clearly foresees an [a]uthorized [u]ser as playing a far more durable role in the account,” and in fact, the panel noted, the plaintiff’s mother did not follow the required steps to add an authorized user to the account. Furthermore, the plaintiff did not have the legal capacity to enter into a contractual relationship with the bank, and therefore, could not be bound by the agreement. The 7th Circuit remanded the case back to the district court for review.
7th Circuit affirms debt collector verification of debt satisfies FDCPA and FCRA
On March 21, the U.S. Court of Appeals for the 7th Circuit held that a debt collector does not need to contact an original creditor directly in order to satisfy the verification of debt requirement under the FDCPA. According to the opinion, a consumer filed a lawsuit against a debt collection company for, among other things, allegedly violating Section 1692 of the FDCPA, which requires that a debt collector obtain verification of a debt. The debt collector had sent multiple notices to the consumer regarding a telecommunications debt, but certain digits of the original account number were incorrect. The consumer argued that the debt collector was obligated to contact the telecommunications company to confirm the account number was accurate. The district court granted summary judgment in favor of the debt collector, agreeing that the debt collector’s responsibility under Section 1692 was satisfied when the notices sent to the consumer matched the telecommunications company’s description of the debt amount and debtor’s name. In affirming the lower court’s decision, the 7th Circuit stated “[i]t would be both burdensome and significantly beyond the [FDCPA]’s purpose” to “require[e] a debt collector to undertake an investigation into whether the creditor is actually entitled to the money it seeks.”
The 7th Circuit also affirmed summary judgment for the debt collector with respect to allegations that it violated the FCRA by inadequately investigating the disputed debt. The court, noting that the debt collector’s “investigation was unquestionably reasonable,” concluded that the debt collector satisfied the requirements of the FCRA when it (i) verified the consumer’s information with her debt collection file; and (ii) after learning that the consumer disputed the accuracy of the account number associated with the debt, asked the credit reporting agencies to delete the adverse credit report.
Buckley Sandler Special Alert: D.C. Circuit significantly narrows FCC’s order defining autodialer
On March 16, the D.C. Circuit issued its much-anticipated ruling in ACA International v. FCC. The D.C. Circuit’s ruling significantly narrows a Federal Communication Commission order from 2015, which, among other things, had broadly defined an “autodialer” for purposes of the Telephone Consumer Protection Act.
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Click here to read the full special alert.
If you have questions about the ruling or other related issues, please visit our Class Actions practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.9th Circuit denies bank’s challenge to FDIC bank secrecy order
On March 12, the U.S. Court of Appeals for the 9th Circuit upheld a 2016 FDIC cease and desist order against a California bank arising out of alleged deficiencies in compliance management relating to the Bank Secrecy Act (BSA) and anti-money laundering laws. According to the opinion, FDIC examinations dating back to 2010 identified areas for BSA compliance improvement. While the bank made adjustments in response to the original findings, a 2012 FDIC examination found the bank’s BSA compliance program still was deficient, including because it did not “establish and maintain procedures designed to ensure adequate internal controls, independent testing, administration, and training”—known as the “four pillars”—and because the bank had not filed a necessary suspicious activity report. The bank argued that the BSA compliance standards were too vague, accused FDIC examiners of bias during the examination in a manner that violated its due process rights, and alleged that the decision was not supported by substantial evidence.
The three-judge panel ruled that (i) there was no bias in the FDIC’s decision to assess a penalty against the bank because there was substantial evidence to support an administrative law judge’s findings that the bank’s failure to maintain adequate controls violated BSA regulations; and (ii) because the BSA and FDIC’s implementing regulations are “economic in nature and threaten no constitutionally protected rights,” vagueness is not an overriding concern. While the “four pillars” of BSA compliance are open to interpretation, the panel noted, the FDIC provides banks with a manual written by the Federal Financial Institutions Examination Council that sets forth a uniform compliance standard. Furthermore, FDIC Financial Institution Letter 17-2010 clarifies that the manual contains the FDIC’s BSA compliance supervisory expectations. “A BSA Officer at the Bank bearing the requisite ‘specialized knowledge’ would understand that compliance with the FFIEC Manual ensures compliance with the BSA. . . . The BSA and its implementing regulations are not unconstitutionally vague,” the panel stated. Therefore, the 9th Circuit held that the manual was entitled to Chevron deference and denied the bank’s petition for review.
9th Circuit reinstates class action data breach lawsuit against online retailer
On March 8, the U.S. Court of Appeals for the 9th Circuit reinstated a putative class action lawsuit against an online retailer, concluding that the increased risk of identity theft resulting from a 2012 data breach affecting over 24 million shoppers gave consumers Article III standing to sue. The three-judge panel held that the district court erred in dismissing claims brought by consumers who did not allege financial losses as a result of the data breach because the stolen information provided hackers the “means to commit fraud or identity theft.” The panel noted that evidence that another group of consumers had suffered financial losses from the same data breach undermined the argument that the data stolen would not lead to fraud or identity theft. In addition, although the defendant asserted that too much time had passed since the data breach for any harm to be considered imminent, the panel found that determining jurisdiction requires an assessment of a plaintiff’s standing at the time the suit was filed, and that the risk of harm was sufficiently imminent at the time of filing. The 9th Circuit remanded the case back to the lower court for review.
The panel also addressed a separate appeal by the class on the district court’s decision not to enforce a purported settlement agreement, affirming the lower court’s decision “because the parties did not have a meeting of the minds on all essential terms of the agreement.”
2nd Circuit finds bankruptcy claim non-arbitrable
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.
Judge orders student loan servicer to comply with CFPB CID
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.
9th Circuit reverses lower court’s dismissal of TCPA claim
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.
9th Circuit holds California's interest on escrow requirements is not preempted by federal law
On March 2, the U.S. Court of Appeals for the Ninth 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.
5th Circuit affirms dismissal of claims against bank but not Fannie Mae in foreclosure suit
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.