Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Court again rejects “unconscionable” arbitration provision

    Courts

    On February 12, the U.S. District Court for the Northern District of West Virginia denied for a second time a satellite TV provider’s (defendant) motion to compel arbitration in a TCPA class action, concluding that the arbitration provision was “overbroad, absurd and unconscionable.” As previously covered by InfoBytes, the plaintiff filed a lawsuit against the defendant alleging the defendant violated the TCPA by making automated and prerecorded telemarketing calls to an individual even though her number was on the National Do Not Call Registry. The defendant moved to compel arbitration, claiming that the plaintiff’s dispute was covered by an arbitration agreement in the contract governing her cell phone service with a telecommunications company, which is an affiliate of the defendant. The district court denied the request, ruling that the allegations “did not fall within the scope of the arbitration agreement.” On appeal, the U.S. Court of Appeals for the Fourth Circuit issued a split opinion vacating a district court’s decision with the majority concluding that the allegations fit within the broad scope of the arbitration agreement, and that even though the plaintiff agreed to arbitration with a telecommunications company in 2012, the agreement extends to the TCPA allegations against the defendant after the telecommunications company acquired the defendant in 2015. Specifically, the appellate court stated that the arbitration agreement had a “forward-looking nature,” and that it seemed unlikely that the telecommunications company and its affiliates “intended to restrict the covered entities to those existing at the time the agreement was signed.” The 4th Circuit remanded the case back to the district court for consideration of unconscionability.

    On remand, the district court again denied the motion, stating that the “arbitration provision is overbroad, absurd and unconscionable, and far exceeds anything contemplated by Congress in enacting the [Federal Arbitration Act].” Specifically, the court stated the plaintiff was “an ordinary wireless consumer” given a “small electronic pinpad device” with a few lines of the agreement displayed at a time and an option to skip to an acknowledgment screen, which required her signature, in order to “obtain her line of service.” She would then be “irrevocably locked in to face demands that she arbitrate any dispute arising out of any relationship with virtually any of [the telecommunications company]’s corporate cousins—a list that could, overtime, comprise [] current competitors or not-yet created subsidiaries.” Because the arbitration provision was unconscionably broad, the court denied the motion to arbitrate.

    Courts TCPA Appellate Fourth Circuit Arbitration Federal Arbitration Act

    Share page with AddThis
  • 4th Circuit reverses dismissal of RESPA property tax suit

    Courts

    On October 2, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of a putative class action, concluding that the current mortgage servicer has the obligation under RESPA to pay tax payments as they become due. According to the opinion, after a consumer refinanced their mortgage loan, the mortgage was sold to a new mortgage company (defendant), which took over the servicing rights and responsibilities from the previous servicer, effective October 2017. The consumer continued making payments on the mortgage loan, which included payments to an escrow account for property taxes. The defendant allegedly did not pay the consumer’s property taxes due in November 2017 until sometime in 2018. The city assessed late penalties (which the defendant ultimately paid) and the late payment adversely affected the consumer’s income tax bill in the amount of $895. The consumer filed a putative class action alleging, among other things, that the defendant violated RESPA by failing to make the tax payment on time. The district court dismissed the action, concluding that the previous servicer was “responsible as ‘the servicer’ under RESPA” to make the payments.

    On appeal, the 4th Circuit disagreed, concluding that the consumer plausibly alleged that the defendant was responsible for servicing his mortgage at the time, and therefore, responsible for making his tax payment when due. The appellate court rejected the defendant’s argument that RESPA requires the entity that “received funds for escrow” to make the tax payment when due. RESPA, according to the appellate court, “connects the servicer’s obligation to a payment’s due date, not the date of payment into escrow by the borrower.” Thus, the defendant would be “the servicer” responsible for paying the mortgage tax from the borrower’s escrow account on its due date.

    Courts Appellate Fourth Circuit Escrow RESPA Mortgages

    Share page with AddThis
  • 9th Circuit splits with 4th Circuit, concludes arbitration agreement does not apply to acquired company

    Courts

    On September 30, the U.S. Court of Appeals for the Ninth Circuit issued a split opinion affirming a district court’s decision against arbitration in a proposed class action, which accused a satellite TV provider (defendant) of violating the TCPA by allegedly placing unauthorized prerecorded messages to customers’ cell phones without prior express written consent. According to the opinion, the plaintiff signed a contract containing an arbitration agreement with a telecommunications company in 2011 that eventually acquired the defendant in 2015. After the plaintiff filed his complaint, the defendant moved to compel arbitration, arguing that as an affiliate of the telecommunications company, it was entitled to arbitration. The district court disagreed and ruled that the contract signed between the plaintiff and the telecommunications company “did not reflect an intent to arbitrate the claim that [the plaintiff] asserts against [the defendant].”

    On appeal, the majority concluded that “under California contract law, looking to the reasonable expectations of the parties at the time of the contract, a valid agreement to arbitrate did not exist between plaintiff and [the defendant] because [the defendant] was not an affiliate of the [telecommunications company] when the contract was signed.” The majority acknowledged that its decision is contrary to a recent 4th Circuit opinion (covered by InfoBytes here), in which that majority concluded that that an arbitration agreement signed by the plaintiff with the telecommunications company in 2012 when she opened a new line of service was extended to potential TCPA allegations against the defendant when the telecommunications company acquired the defendant in 2015. However, the 9th Circuit majority held that under the defendant’s interpretation of the agreement, the plaintiff “would be forced to arbitrate any dispute with any corporate entity that happens to be acquired by [the telecommunications company], even if neither the entity nor the dispute has anything to do with providing wireless services to [the plaintiff]—and even if the entity becomes an affiliate years or even decades in the future.” Moreover, the majority concluded that to enforce an agreement the plaintiff signed with the telecommunications company before it acquired the satellite TV provider would lead to “absurd results.”

    In dissent, the minority wrote that because the agreement with the telecommunications company covered its affiliates and there is nothing in the agreement’s wording stating that it would only “refer to present affiliates” on the day of signing, the defendant should be able to compel arbitration.

    Courts Appellate Ninth Circuit Fourth Circuit TCPA Class Action Arbitration

    Share page with AddThis
  • 4th Circuit: Arbitration agreement applies to acquired company

    Courts

    On August 7, the U.S. Court of Appeals for the Fourth Circuit issued a split opinion vacating a district court’s decision against arbitration in a proposed class action, which accused a satellite TV provider (defendant) of violating the TCPA by allegedly making automated and prerecorded telemarketing calls to an individual even though her number was on the National Do Not Call Registry. The plaintiff filed a lawsuit against the defendant and several other entities and individuals seeking class certification as well as statutory damages and injunctive relief. The defendant moved to compel arbitration, claiming that the plaintiff’s dispute was covered by an arbitration agreement in the contract governing her cell phone service with a telecommunications company, which is an affiliate of the defendant. The district court denied the request, ruling that the allegations “did not fall within the scope of the arbitration agreement.” The plaintiff appealed, “defend[ing] the district court’s scope ruling,” but arguing that no agreement was formed.

    On appeal, the majority concluded that not only did the plaintiff form an agreement to arbitrate with the defendant, the allegations fit within the broad scope of the arbitration agreement. Specifically, the appellate court determined that an arbitration agreement signed by the plaintiff with the telecommunications company in 2012 when she opened a new line of service was extended to potential TCPA allegations against the defendant when the telecommunications company acquired the defendant in 2015. Even though the acquisition happened several years after the plaintiff signed the contract, the majority stated the arbitration agreement had a “forward-looking nature” and that it seemed unlikely that the telecommunications company and its affiliates “intended to restrict the covered entities to those existing at the time the agreement was signed.” According to the majority, “[w]e need not define the outer limits of this arbitration agreement to conclude, based on the arbitration provisions and the contract as a whole, that [the plaintiff’s] TCPA claims about [the defendant’s] advertising calls fall within its scope.” As to the plaintiff’s argument that she only signed the account on behalf of her husband who was the account holder, the majority said the agreement covered “all authorized or unauthorized users,” which the plaintiff was at the time.

    Courts Appellate Fourth Circuit TCPA Arbitration

    Share page with AddThis
  • 4th Circuit affirms arbitration clause waiving statutory rights is unenforceable

    Courts

    On July 21, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s denial of defendants’ motion to compel arbitration, holding that the arbitration agreements operated as prospective waivers of federal law and were thus unenforceable. According to the opinion, a group of Virginia borrowers filed suit against two online lenders owned by a sovereign Native American tribe and their investors (collectively, “defendants”). In the action, the plaintiffs contended that they obtained payday loans from the defendants, which included annual interest rates between 219 percent to 373 percent—an alleged violation of Virginia’s usury laws and the Racketeer Influenced and Corrupt Organizations Act (RICO). The defendants moved to compel arbitration, which the district court denied, concluding that choice-of-law provisions—such as “‘[t]his agreement to arbitrate shall be governed by Tribal Law’; ‘[t]he arbitrator shall apply Tribal Law’; and the arbitration award ‘must be consistent with this Agreement and Tribal Law’”—prospectively excluded federal law, making them unenforceable.

    On appeal, the 4th Circuit agreed with the district court despite a “strong federal policy in favor of enforcing arbitration agreements.” Most significantly, the appellate court rejected the defendants’ assertion that the choice-of-law provisions did not operate as a prospective waiver. The court noted that while the choice-of-law provisions “do not explicitly disclaim the application of federal law, the practical effect is the same,” as they limit an arbitrator’s award to “remedies available under Tribal Law,” effectively preempting “the application of any contrary law—including contrary federal law.” Moreover, the appellate court concluded that under the arbitration agreement, borrowers would be unable to effectively pursue RICO claims against the defendants, and more specifically, would be unable to “effectively vindicate a federal statutory claim for treble damages” under RICO. Thus, because federal statutory protections and remedies are unavailable to borrowers under the agreement, the appellate court concluded the entire agreement is unenforceable.  

    Courts Payday Lending Tribal Lending Arbitration Interest Rate Fourth Circuit Appellate Online Lending State Issues Virginia RICO

    Share page with AddThis
  • Supreme Court keeps TCPA, severs government-debt exception as unconstitutional

    Courts

    On July 6, the U.S. Supreme Court held in Barr v. American Association of Political Consultants Inc. that the TCPA’s government-debt exception is an unconstitutional content-based speech restriction and severed the provision from the remainder of the statute. As previously covered by InfoBytes, several political consultant groups (plaintiffs) argued that the TCPA’s statutory exemption enacted by Congress as a means of allowing automated calls to be placed to individuals’ cell phones “that relate to the collection of debts owed to or guaranteed by the federal government” is “facially unconstitutional under the Free Speech Clause” of the First Amendment. The plaintiffs argued that the debt-collection exemption to the automated call ban contravenes their free speech rights. Moreover, the plaintiffs claimed that “the free speech infirmity of the debt-collection exemption is not severable from the automated call ban and renders the entire ban unconstitutional.” The FCC, however, argued that the applicability of the exemption depended on the relationship between the government and the debtor and not on the content. The district court awarded summary judgment in favor of the FCC, which the U.S. Court of Appeals for the Fourth Circuit vacated, concluding the exemption violated the First Amendment’s Free Speech Clause.

    In a plurality opinion, the Supreme Court agreed with the 4th Circuit. The Court noted that “a law is content-based if ‘a regulation of speech ‘on its face’ draws distinctions based on the message a speaker conveys’”; and a law that allows for robocalls asking for payment of government debt but does not allow robocalls for political donations, “is about as content-based as it gets.” The Court agreed with the government that the content-based restriction failed to satisfy strict scrutiny, as the government could not sufficiently justify the difference “between government-debt collection speech and other categories of robocall speech.” As for remedy, the Court applied “traditional severability principles,” with seven Justices concluding that the entire TCPA should not be invalidated but that the government-debt exception should be severed from the statute. The Court noted that its cases have “developed a strong presumption of severability,” and its “power and preference to partially invalidate a statute in that fashion has been firmly established since Marbury v. Madison.” Moreover, because the government-debt exception is “relatively narrow exception” to the TCPA’s broad robocall restriction, the Court concluded that severing the exception would “not raise any other constitutional problems.”

    Courts U.S. Supreme Court TCPA Autodialer Debt Collection FCC Appellate Fourth Circuit First Amendment

    Share page with AddThis
  • 4th Circuit holds FDCPA’s limitation period restarts at each new violation

    Courts

    On July 2, the U.S. Court of Appeals for the Fourth Circuit vacated the dismissal of an action alleging violations of the FDCPA, concluding that each violation of the FDCPA is governed by its own limitation period. According to the opinion, in April 2018, homeowners filed a complaint against a law firm retained by their homeowners’ association for allegedly violating various provisions of the FDCPA for collection actions taken between April 2016 and February 2018. The district court dismissed the action, concluding that the entire complaint was time-barred because the “FDCPA’s limitations period runs from the date of the first violation, and that later violations of the same type do not trigger a new limitations period under the Act.”

    On appeal, the 4th Circuit disagreed with the lower court. Specifically, the appellate court noted that “nothing in the FDCPA suggests that ‘similar’ violations should be grouped together and treated as a single claim for purposes of the FDCPA’s statute of limitations.” And, similar to holdings of other circuits, the 4th Circuit stated that the “FDCPA’s limitations period runs anew from the date of each violation.” While the homeowners did not dispute that several alleged violations fall outside of the FDCPA’s one-year limitations period, the appellate court agreed that the district court erred in dismissing the entire complaint, because it contained at least two potential violations occurring within one-year of the April 2018 filing date.

    Courts Appellate Fourth Circuit FDCPA Statute of Limitations Debt Collection

    Share page with AddThis
  • 4th Circuit: Disgorgement calculation lacks necessary casual connection between profits and violations

    Courts

    On April 27, the U.S. Court of Appeals for the Fourth Circuit held that a district court’s disgorgement calculation for a banker found in contempt of a consent order rested on “an erroneous legal interpretation of the terms of the underlying consent order” and “lacked the necessary causal connection” between profits and a violation. As previously covered by InfoBytes, the banker settled RESPA and state law allegations with the CFPB and the Maryland Attorney General concerning his participation in a mortgage-kickback scheme. The 2015 final judgment order banned the defendant from participating in the mortgage industry for two years but did not prohibit him “from acting solely as a personnel or human-resources manager for a mortgage business operated by a FDIC-insured banking institution. . . .” In 2018, the banker was held in civil contempt for violating the final judgment order, and the district court ordered the disgorgement of over half-a-million dollars of his contemptuous earnings. The banker appealed the contempt finding and disgorgement.

    On appeal, the 4th Circuit first held that the district court properly found the banker in violation of the consent order, determining among other things that, while the final judgment order did not broadly prohibit his participation in the mortgage industry, there was sufficient evidence that he “continued to communicate impermissibly with third-party businesses engaged in settlement services” and that he failed to follow various reporting requirements, such as uploading the consent order to a national registry and notifying regulators of a change in residence and business activity. However, the 4th Circuit found that the district court erred in its approach to calculating disgorgement because it assumed that “managing the business was improper and set out identifying [the banker’s] profits from his business because any such profit was contemptuous income.” (Emphasis in the original.) Holding that the district court’s view relied on an overbroad interpretation of the consent order and lacked the causal connection between the banker’s profits and a violation, the 4th Circuit vacated the disgorgement order and remanded the case to the district court to reassess the disgorgement calculation based on the banker’s more limited conduct that did not comply with the order.

    Courts OCC Appellate Fourth Circuit CFPB State Attorney General State Issues Disgorgement

    Share page with AddThis
  • Supreme Court schedules oral arguments to review TCPA debt collection exemption

    Courts

    On April 15, the U.S. Supreme Court announced it will hear oral arguments via telephone conference on May 6 in a case concerning an exemption to the TCPA that allows debt collectors to use an autodialer to contact individuals on their cell phones without obtaining prior consent to do so when collecting debts guaranteed by the federal government. As previously covered by InfoBytes, the U.S. Court of Appeals for the Fourth Circuit held that the government-debt exemption contravenes the First Amendment’s Free Speech Clause, and found that the challenged exemption was a content-based restriction on free speech that did not hold up to strict scrutiny review. The petitioners—Attorney General William Barr and the FCC—ask the Court to review whether the government-debt exception to the TCPA’s automated-call restriction is a violation of the First Amendment, and if so, whether the proper remedy is to sever the exception from the remainder of the statute.

    Courts U.S. Supreme Court Appellate Fourth Circuit TCPA

    Share page with AddThis
  • Appellate court affirms dismissal of RESPA kickback suit

    Courts

    On March 13, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action filed by two consumers (plaintiffs) against a real estate brokerage group (real estate defendant) and a title company (title defendant), (collectively defendants), alleging a kickback scheme in violation of RESPA. The plaintiffs bought a house in 2008 with the help of a real estate agent affiliated with the real estate defendant. The real estate agent told the plaintiffs that the title defendant would provide settlement services, after which the plaintiffs filed an acknowledgment that they understood they could use the title company of their choice for their closing, and that they were not first-time homebuyers. The plaintiffs indicated their approval to use the settlement company selected by the real estate agent. Five years later, the plaintiffs filed suit, claiming that the real estate agent’s referral to the title defendant violated RESPA. The consumers, as lead class members, alleged that a marketing agreement between the defendants provided for payments by the title defendant to the real estate defendant for settlement services referrals. The plaintiffs claimed that the illegal kickback arrangement denied class members of ‘“impartial and fair competition between settlement service[s] providers in violation of RESPA.’”

    The district court granted the defendants’ motion for summary judgement, holding that the plaintiffs lacked Article III standing to file suit because they were not overcharged in the settlement of their real estate transaction and did not otherwise show an injury-in-fact. In addition, the court determined that the claim was time-barred under RESPA’s one-year statute of limitations.

    On appeal, the 4th Circuit agreed with the district court that the plaintiffs lacked standing, noting that “a statutory violation is not necessarily synonymous with an intangible harm that constitutes injury-in-fact.” The appellate court pointed out that the plaintiffs did not claim to have been overcharged for settlement services, and indeed, the plaintiffs agreed that the settlement service fees were reasonable. The appellate court also rejected the plaintiffs’ assertion that they suffered a concrete injury due to the lack of competition between settlement service providers.

    Courts Appellate Fourth Circuit RESPA Class Action Statute of Limitations Kickback Mortgages

    Share page with AddThis

Pages