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CFPB urges 9th Circuit to reverse district court’s order and impose higher penalty in tribal lending action
On October 19, the CFPB filed its opening brief before the U.S. Court of Appeals for the 9th Circuit in Consumer Financial Protection Bureau v. CashCall, Inc., an action brought by the CFPB to limit the reach of the so-called “tribal model” of online lending. In the original action, the court found that an online loan servicer that operated on tribal lands engaged in deceptive practices by collecting on loans that exceeded the usury limits in various states, and ordered it and its affiliates to pay a $10 million penalty, far short of the Bureau’s request. (Previously covered by InfoBtyes here and here.) The CFPB appealed, arguing that the district court erred by imposing a civil penalty that was “inappropriately low” and by refusing to order appropriate restitution. In its brief, the Bureau argued that the district court misapplied the law when finding that restitution was not “an appropriate remedy.” According to the Bureau, the district court believed it had discretionary power to deny restitution, based on the court’s view of the equities. But the district court had no such discretion, the Bureau asserted, claiming that if a plaintiff proves a violation and resulting harm, it is entitled to restitution under the CFPA. In addition, the Bureau argued that the district court should not have denied restitution on the grounds that the servicer had not acted in bad faith. The Bureau argued that allowing the servicer to earn $200 million in ill-gotten gains while paying a $10 million penalty leaves companies with “little incentive to follow the law.” The Bureau also argued that the loan servicer’s actions were reckless and warranted a higher civil penalty. The district court had concluded that the servicer did not act recklessly because its primary counsel opined that it could contract around state law. In response, the Bureau asserted that the servicer had “ample reason to know” its attempts to circumvent state usury laws posed an unjustifiably high risk that it was “collecting amounts consumers did not owe” after multiple lawyers warned the servicer that its attempts to avoid state law “likely” would not work.”
CFPB announces settlement with companies that allegedly delayed transfer of consumer payments to debt buyers
On October 4, the CFPB announced a settlement with a group of Minnesota-based companies that allegedly violated the Consumer Financial Protection Act when consumers made payments on debts that the companies had already sold to third parties, and the companies improperly delayed the forwarding of some of those payments to debt buyers. According to the consent order, the companies—whose practices include the purchasing, servicing, collection, and furnishing consumer-report information on consumer loans—partnered with third-party banks to sell merchandise on closed-end or open-end revolving credit. Within a few days, banks originated the loans and sold the receivables to the companies. The companies subsequently serviced the debts and sold the receivables to a third party. For defaulted accounts, the companies charged off the accounts and sold them to third-party debt buyers. According to the Bureau, the companies allegedly failed to notify consumers when their accounts were sold, failed to inform them who now owned the debt, and continued to accept direct pays from consumers. The Bureau contends that between 2013 and 2016, the companies delayed forwarding direct pays for more than 31 days in 18,000 instances, and in 3,500 of those instances, the companies did not forward the payments for more than a year. Moreover, the Bureau asserts that these delays led to misleading collection efforts, including collection activity on accounts consumers had completely paid off. The order requires the companies to pay a civil money penalty of $200,000, and improve their policies and procedures to prevent further violations.
Court dismisses action by a tribal nation against a national bank for claims relating to the bank’s incentive compensation sales program
On September 25, the U.S. District Court for the District of New Mexico dismissed an action brought by a tribal nation against a national bank alleging, among other things, that the bank’s incentive compensation sales program resulted in the bank’s employees opening deposit and credit card accounts for consumers without obtaining their consent to do so. In December 2017, the tribal nation brought 17 claims against the national bank, including alleged violations of the Consumer Financial Protection Act (CFPA) and a variety of federal, state, tribal, and common law violations. The court rejected the tribal nation’s claims under the CFPA, holding they are barred by res judicata, as the claims previously had been litigated under the CFPB’s 2016 consent order (previously covered by InfoBytes here) and that the tribal nation was in privity with the CFPB. The court also rejected the tribal nation’s argument that it was entitled to civil penalties, injunctive and declaratory relief under the doctrine parens patriae, finding the tribal nation failed to allege facts sufficient to demonstrate standing for each claim and each form of relief. As for the state and tribal law claims, the court held that it lacked an independent basis for jurisdiction due to the court’s dismissal of all of the federal law claims.
CFPB files lawsuit against pension advance company citing alleged CFPA and TILA violations
On September 13, the CFPB filed a complaint against a pension advance company, its owner, and related entities (defendants) based upon alleged violations of the Consumer Financial Protection Act (CFPA) and the Truth in Lending Act (TILA). In a complaint filed with the U.S. District Court for the Central District of California, the Bureau charged that the defendants engaged in deceptive practices in violation of the CFPA when they allegedly misrepresented to customers that “lump-sum” pension advances were not loans and carried no applicable interest rate, even though customers were required to pay back advances at amounts equivalent to a 183 percent interest rate and often incurred fees such as one-time $300 set up fees, monthly management fees, and 1.5 percent late fees. According to the Bureau, the defendants allowed customers to take out advance payments ranging from $100 to $60,000. The defendants then allegedly provided the income streams as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates. Moreover, the defendants allegedly failed to provide customers with TILA closed-end-credit disclosures. The complaint seeks civil penalties, monetary and injunctive relief.
As previously covered in InfoBytes, the pension advance company initiated a suit against the CFPB in January 2017 after the Bureau declined to set aside or keep confidential a civil investigative demand served against the company. The suit challenged the Bureau’s constitutionality and argued that the company was likely to suffer irreparable harm from being identified as being under investigation. However, in a split decision, the D.C. Circuit Court ultimately denied the company’s bid for an emergency injunction, citing the now-vacated majority opinion in PHH v. CFPB.
Court dismisses NYAG’s claims under CFPA after determining Title X is invalid
On September 12, the U.S. District Court for the Southern District of New York issued an order dismissing the New York Attorney General’s (NYAG) claims against a New Jersey-based finance company and its affiliates (defendants) under the Consumer Financial Protection Act (CFPA). In doing so, the court reversed its June ruling that the NYAG could proceed with its CFPA claims despite the court’s conclusion that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional and therefore, the CFPB lacks authority to bring claims against the defendants, as previously covered by InfoBytes.
According to the new order, the remedy for Title X’s constitutional defect is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. The court concluded that it lacked jurisdiction over NYAG’s remaining state law claims and dismissed the NYAG’s action against the defendants in its entirety.
The amended order is the culmination of a process that began with an August request by the CFPB for the court to enter a final judgment with respect to its dismissal of the CFPB’s claims, which would allow the Bureau to appeal to the U.S. Court of Appeals for the 2nd Circuit. (Previously covered by InfoBytes here.) After numerous letters were submitted by all the parties, the court granted the CFPB’s request for entry of final judgment and granted the defendant’s request to stay the NYAG claims during the pendency of the CFPB’s appeal. The NYAG subsequently responded with a letter requesting clarity on the court’s jurisdiction over the claims, which resulted in the new order dismissing the NYAG claims in their entirety.
Court opens door for CFPB to appeal constitutionality determination to 2nd Circuit
On August 23, the U.S. District Court for the Southern District of New York granted the CFPB’s request for entry of final judgment with respect to the court’s June decision to terminate the CFPB as a party to an action. The court has previously concluded that the CFPB could not proceed with its claims under the Consumer Financial Protection Act (CFPA). The entry of final judgment will allow the CFPB to appeal the court’s constitutionality determination to the U.S. Court of Appeals for the 2nd Circuit. As previously covered by InfoBytes, the CFPB brought the action with the New York Attorney’s General office (NYAG) against a New Jersey-based finance company and its affiliates (defendants). Although the court dismissed the CFPB’s claims, it determined that the NYAG had plausibly alleged claims under New York law and the CFPA and had the independent authority to pursue those claims.
The court also granted the defendants’ request to stay the NYAG case during the pendency of the CFPB’s appeal to the 2nd Circuit.
District Court denies service provider’s motion to dismiss on several grounds, rules Bureau’s structure is constitutional
On August 3, the U.S. District Court for the District of Montana denied a Texas-based service provider’s motion to dismiss a suit brought by the CFPB over allegations that the service provider engaged in unfair, deceptive, and abusive acts or practices in violation of the Consumer Financial Protection Act (CFPA) by assisting three tribal lenders in the improper collection of short-term, small-dollar loans that were, in whole or in part, void under state law. (See previous InfoBytes coverage here.) The defendants moved to dismiss the claims on multiple grounds: (i) the Bureau’s structure is unconstitutional; (ii) the claims are not permitted under the CFPA; (iii) the complaint “fails to, and cannot, join indispensable parties;” and (iv) certain claims are time-barred.
In answering the service provider’s challenges to the Bureau’s constitutionality, the court ruled that the CFPB’s structure is legal and cited to orders from nine district courts and an en banc panel of the D.C. Circuit Court, which also rejected similar arguments. (See Buckley Sandler Special Alert.) Addressing whether the Bureau’s claims were permitted under the CFPA, the court ruled that other courts have held that enforcing a prohibition on amounts that consumers do not owe is different from establishing a usury limit, and that moreover, “[t]he fact that state law may underlie the violation . . . does not relieve [d]efendants . . . of their obligation to comply with the CFPA.” Regarding the defendants’ argument that the complaint should be dismissed on the grounds of failure to join an indispensable party because the tribal lenders possess sovereign immunity to the suit, the court wrote that “[u]nder these circumstances, the Court will not create a means for businesses to avoid regulation by hiding behind the sovereign immunity of tribes when the tribes themselves have failed to claim an interest in the litigation.” Furthermore, the court found that the remedies sought by the Bureau would not “impede the [t]ribal [l]enders’ ability to collect on their contracts or enforce their choice of law provisions directly.” Finally, the court stated that, among other things, the service provider failed to show that the Bureau’s suit fell outside the CFPA’s three-year statute of limitations for filing claims after violations have been identified.
District court approves stipulated final judgment in favor of CFPB against one of the operators of online lending operation
On July 23, the U.S. District Court for the Western District of Missouri approved a stipulated final judgment and order against one of the two dozen defendants in the CFPB’s suit against an alleged online payday lending operation. In 2014, the Bureau filed a complaint against numerous entities and three individuals, accusing the defendants of violating the Consumer Financial Protection Act, Truth in Lending Act, and Electronic Fund Transfer Act by, among other things, purchasing information from online lead generators in order to access checking accounts to illegally deposit payday loans and withdraw fees without consumer consent, along with falsifying loan documents as evidence that the consumers had agreed to the loans. The stipulated final judgment and order resolved the Bureau’s claims against one of the individual defendants, an in-house accountant who monitored the bank accounts and the movement of funds between the entity and individual defendants. While the settling defendant neither admitted nor denied the Bureau’s allegations (except with respect to jurisdiction), he agreed to pay a civil money penalty of $1 (based, in part, on his inability to pay) and to fully cooperate with the Bureau.
District court dismisses CFPB suit against law firm over debt collection letters
On July 25, the U.S. District Court for the Northern District of Ohio entered judgment against the CFPB in its lawsuit against a law firm that had previously collected debts for the State of Ohio under the direction of former Ohio Attorney General and Bureau Director Richard Cordray. The Bureau’s claims focused on whether demand letters sent on firm letterhead were misleading if attorneys were not meaningfully involved in preparing those letters. As previously covered in InfoBytes, the CFPB sought a permanent injunction and fines against the law firm for violating the Fair Debt Collection Practices Act and the Consumer Financial Protection Act. However, according to the court’s memorandum opinion and order following a May 2018 trial, the Bureau did not meet its burden of supporting its claims by a preponderance of the evidence because, even if attorneys did not review every account before a demand letter was sent, attorneys were “meaningfully and substantially involved in the debt collection process both before and after the issuance of demand letters.” The court also concluded that the Bureau’s expert witness “did not present credible evidence from which the finder of fact could infer that any consumer’s [sic] were misled by [the firm’s] demand letter,” and therefore there was “no evidence that any consumer’s decision on when and whether to pay a debt was influenced by the inclusion of the attorney identifiers in [the firm’s] demand letters.” Instead, in the court’s words, “[t]he demand letters accurately describe the identity and legal description of the entity sending the letter. As such, it cannot be described as false or misleading simply for correctly identifying [itself] as a law firm.” The court entered judgment against the Bureau on all counts and assessed all the costs of the action to the Bureau.
CFPB announces settlement with Alabama-based operation for allegedly failing to properly disclose finance charges
On July 19, the CFPB announced a settlement with a small-dollar lending operation that allegedly failed to properly disclose finance charges and annual percentage rates associated with auto title loans in violation of the Truth in Lending Act (TILA) and the prohibition on deceptive practices in the Consumer Financial Protection Act (CFPA). According to the consent order, the Alabama-based operation, which owned and operated approximately 100 retail lending outlets in Alabama, Mississippi, and South Carolina under several names, materially misrepresented the finance charges consumers would incur for Mississippi auto title loans by disclosing a finance charge based on a 30-day term while having consumers sign a 10-month payment schedule. The Bureau asserts that “[c]onsumers acting reasonably likely would not understand that the finance charge disclosed in the loan agreement does not actually correspond to their loan payment term.” Furthermore, the Bureau contends that the operation also failed to disclose the annual percentage rate on in-store advertisements as required under TILA. The order requires the operation to pay redress in the amount of $1,522,298, which represents the total undisclosed finance charges made directly or indirectly by affected consumers on their loans. However, based on defendants’ inability to pay this amount, full payment is suspended subject to the operation’s paying $500,000 to affected consumers. In addition to the penalties, the operation is prohibited from continuing the illegal behavior and the operation’s board must ensure full compliance with the consent order.