Skip to main content
Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


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

  • 4th Circuit upholds sanctions against debt relief operation


    On June 23, the U.S Court of Appeals for the Fourth Circuit upheld a default judgment entered against a debt relief operation and related individuals accused of violating the TCPA and the West Virginia Consumer Credit and Protection Act (WVCCPA). Plaintiff-appellee alleged she received multiple telemarketing phone calls regarding debt relief offered through lower interest rates on credit cards from the defendants (including the appellants). During discovery, defendants allegedly engaged in “evasive discovery tactics” and “relentless sandbagging,” which resulted in a magistrate judge entering multiple orders to compel. Defendants allegedly continued to call the plaintiff-appellee for more than a year after she filed her initial complaint. Additional defendants (including some of the appellants) were added via amended complaints as she discovered defendants had allegedly “formed a vast and complex web of corporate entities.”

    The district court eventually sanctioned the appellants and struck their defenses for, among other things, engaging in a “pattern of concealing discoverable material” and failing to obey court orders. Appellants filed a motion for reconsideration, claiming the sanctions were too harsh and came as a surprise, the discovery abuses were “inadvertent,” and the plaintiff-appellee had not been prejudiced. Plaintiff-appellee then filed a renewed motion for sanctions outlining continued violations by appellants. Eventually, the district court entered a default judgment against the appellants for failing “to respond fulsomely and accurately to discovery requests and to comply with court orders pertaining to those requests.” The sanctions imposed an $828,801.36 judgment plus costs.

    On appeal, the 4th Circuit concluded the district court did not abuse its discretion in finding appellants acted in bad faith and entered default judgment against them. The appellate court explained that there are certain circumstances, including this action, “where the entry of default judgment against a defendant for systemic discovery violations is the natural next step in the litigation, even without an explicit prior warning from the district court.” The appellate court further concluded the record contradicted each of the appellants’ arguments and held appellants “had fair ‘indication that sanctions might be imposed against [them]’ for their continued discovery and scheduling order violations.” With respect to appellants’ arguments that the district court awarded damages for the same purported calls pursuant to both the TCPA and the WVCCPA, the 4th Circuit found that penalties under these statutes are not exclusive and that they separately penalize different violative conduct. “[D]amages under the WVCCPA may be awarded in addition to those under the TCPA for a single communication that violates both statutes,” the appellate court wrote, adding that a plaintiff can also “recover separate penalties under separate sections of the TCPA even if the violations occurred in the same telephone call.”

    Courts State Issues Appellate Fourth Circuit West Virginia TCPA Debt Relief Consumer Finance

  • Divided 4th Circuit: Including GAP coverage does not eliminate auto loan exemption from MLA


    On April 12, a split U.S. Court of Appeals for the Fourth Circuit held that loans borrowed in part to finance the purchase of a car are not governed by the Military Lending Act (MLA), even when the loan covers additional related costs. While the MLA’s requirements apply to the extension of consumer credit to covered members, loans procured “for the express purpose of financing” the purchase of a car (and are secured by the car) are excluded from many of the statute’s protections. Plaintiff purchased a car with an auto loan that included guaranteed asset protection coverage (GAP). The plaintiff then filed a putative class action against the defendant claiming the loan violated the MLA because it mandated arbitration (which is prohibited under the MLA) and failed to disclose certain information. The plaintiff argued that the loan should be protected under the MLA because part of his “bundled” loan went to GAP coverage. The district court disagreed and dismissed the case, ruling that the plaintiff’s contract was exempt from the MLA because GAP coverage and other add-on charges were “inextricably tied” to his purchase of the car.

    On appeal, the majority concluded that loan, which was used for both an MLA-exempt and non-exempt purpose, can be treated together under the statute, because “[i]f a loan finances a car and related costs, then it is for the express purpose of financing the car purchase and the exception can apply.” The key issue was how to interpret the MLA exception that covers loans made for the “express purpose” of financing a car. “If that phrase, as used in the [MLA], means merely ‘for the specific purpose,’ [the defendant] wins. If it means ‘for the sole purpose,’ [plaintiff] wins,” the majority wrote. “We do not care and we do not ask” if the loan also financed GAP coverage, provided the loan was made for the specific purpose of financing a car, the court said, explaining that the loan is exempted from the MLA, “no matter what else it financed.”

    The dissenting judge warned that the majority’s conclusion undermines the purpose of the MLA. “There is no reason to suspect that Congress regulated the marketing of financial products to service members, only to allow them to be smuggled in through a vehicle-loan back door,” the dissenting judge wrote, criticizing the majority’s conclusion and noting that opening up the MLA’s exception to include additional loans “permits lenders to piggyback virtually any financial product onto an exempt vehicle loan” at the expense to service members.

    Notably, the CFPB, DOJ, and Department of Defense (DOD) filed an amicus brief last year on behalf of the United States in support of the plaintiff’s appeal, in which the agencies argued that the “hybrid” loan at issue must comply with the MLA. As previously covered by InfoBytes, the agencies wrote that GAP coverage “is not needed to buy a car and does not advance the purchase or use of the car.” The agencies noted that GAP coverage is identified as a “debt-related product that addresses a financial contingency arising from a total loss of the car” and that the coverage can be purchased as a standalone product. According to the brief, the plaintiff’s loan is a “hybrid loan—that is, a loan that finances a product bundle including both an exempt product (such as a car) and a distinct non-exempt product (such as optional GAP coverage),” and the district court erred in failing to interpret the MLA consistent with guidance issued in 2016 and 2017 by the DOD suggesting that such “hybrid loans” are consumer credit subject to the protections in the MLA. The 2017 guidance explained that “a credit transaction that includes financing for [GAP] insurance … would not qualify for the exception,” and the agencies argued that although the 2017 guidance was withdrawn in 2020, the “withdrawal did not offer a substantive interpretation of the statute that would alter the conclusion” that the plaintiff’s loan was not exempt from the MLA.

    Courts Appellate Fourth Circuit Consumer Finance Auto Finance GAP Fees Military Lending Military Lending Act Class Action

  • 4th Circuit remands privacy suit to state court

    Privacy, Cyber Risk & Data Security

    On February 21, the U.S. Court of Appeals for the Fourth Circuit held that a proposed class action over website login procedures belongs in state court. Plaintiff alleged that after a nonparty credit reporting agency experienced a data breach, it used the defendant subsidiary’s website to inform customers whether their personal data had been compromised. Because the defendant’s website required the plaintiff to enter six digits of his Social Security number to access the information, the plaintiff alleged violations of South Carolina’s Financial Identity Fraud and Identity Theft Protection Act and the state’s common-law right to privacy. Under the state statute, companies are prohibited from requiring consumers to use six digits or more of their Social Security number to access a website unless a password, a unique personal identification number, or another form of authentication is also required. According to the plaintiff, the defendant’s website did not include this requirement.

    The defendant moved the case to federal court under the Class Action Fairness Act and requested that the case be dismissed. Plaintiff filed an amended complaint in federal court, as well as a motion asking the district court to first determine whether it had subject matter jurisdiction, given the U.S. Supreme Court’s ruling in TransUnion LLC v. Ramirez, which clarified the type of concrete injury necessary to establish Article III standing (covered by InfoBytes here). Although the district court held that the plaintiff had alleged “an intangible concrete harm in the manner of an invasion of privacy,” which it said was enough to give it subject-matter jurisdiction “at this early stage of the case,” it dismissed the case after determining the plaintiff had not plausibly stated a claim. 

    In reversing and remanding the action, the 4th Circuit found that the plaintiff alleged only a bare statutory violation and had not pled a concrete injury sufficient to confer Article III standing in federal court. The appellate court vacated the district court’s decision to dismiss the case and ordered the district court to remand the case to state court. The 4th Circuit took the position that an intangible harm, such as a plaintiff “enduring a statutory violation” is insufficient to confer standing unless there is a separate harm “or a materially increased risk of another harm” associated with the violation. “[Plaintiff] hasn’t alleged—even in a speculative or conclusory fashion—that entering six digits of his SSN on [defendant’s] website has somehow raised his risk of identity theft,” the 4th Circuit said. In conclusion, the 4th Circuit wrote: “We offer no opinion about whether the alleged facts state a claim under the Act. Absent Article III jurisdiction, that’s a question for [plaintiff] to take up in state court.”

    Privacy, Cyber Risk & Data Security Courts State Issues Class Action Data Breach Credit Reporting Agency Consumer Protection Appellate Fourth Circuit

  • CFPB says EFTA applies to pandemic assistance prepaid cards


    On January 10, the CFPB filed an amicus brief in a case before the U.S. Court of Appeals for the Fourth Circuit concerning the scope of accounts covered under EFTA and Regulation E. (See also CFPB blog post here.) As previously covered by InfoBytes, last August the U.S. District Court for the District of Maryland dismissed a putative class action alleging violations of EFTA and state privacy and consumer protection laws brought against the national bank on behalf of consumers who were issued prepaid debit cards providing pandemic unemployment benefits. The named plaintiff alleged that he lost nearly $15,000 when an unauthorized user fraudulently used a prepaid debit card containing Pandemic Unemployment Assistance (PUA) funds that were intended for him. However, the district court dismissed the class claims with respect to EFTA and Regulation E, finding that the PUA payments were “qualified disaster relief payments” and, as such, they were excluded from Regulation E’s definition of a “prepaid account.”

    The Bureau disagreed. In its amicus brief, it argued that a prepaid debit card loaded with PUA funds is a “government benefit account” subject to EFTA and Regulation E and their error resolution requirements, which apply to alleged unauthorized transfers such as the one at issue in the case. Writing that the district court erred by applying “a regulatory exclusion to hold that prepaid accounts loaded with pandemic unemployment benefits were excluded from coverage,” the Bureau claimed that the holding is not supported by statutory and regulatory text and “undermines the primary purpose of EFTA to provide individual rights to consumers.” According to the Bureau, a “prepaid account” under Regulation E includes specific categories of accounts, including a “government benefit account,” which is not subject to the prepaid account exclusions.

    Courts CFPB Appellate Fourth Circuit EFTA Regulation E Class Action Covid-19 Consumer Finance

  • 4th Circuit says website does not qualify for Section 230 immunity


    On November 3, the U.S. Court of Appeals for the Fourth Circuit reversed and remanded a district court’s summary judgment ruling that a public records website, its founder, and two affiliated entities (collectively, “defendants”) could use Section 230 liability protections under the Communications Decency Act (CDA) to shield themselves from credit reporting violations. As previously covered by InfoBytes, plaintiffs alleged, among other things, that because the defendants’ website collects, sorts, summarizes, and assembles public record information into reports that are available for third parties to purchase, it qualifies as a consumer reporting agency (CRA) under the FCRA, and as such, must follow process-oriented requirements that the FCRA imposes on CRAs. However, the district court determined that the immunity afforded by Section 230 of the Communication and Decency Act applied to the FCRA and that the defendants qualified for such immunity and could not be held liable for allegedly disseminating inaccurate information and failing to comply with the law’s disclosure requirements.

    On appeal, the 4th Circuit reviewed whether a consumer lawsuit alleging violations of the FCRA’s procedural and disclosure requirements and seeking to hold the defendants liable as the publisher or speaker of information provided by a third party is thereby preempted by Section 230. The appellate court agreed with an amicus brief filed in 2021 by the FTC, CFPB, and the North Carolina Department of Justice, which urged the appellate court to overturn the district court ruling on the basis that the court misconstrued Section 230—which they assert is unrelated to the FCRA—by extending immunity to “claims that do not seek to treat the defendant as the publisher or speaker of any third-party information.” According to the amicus brief, liability turns on the defendants’ alleged failure to comply with FCRA obligations to use reasonable procedures when preparing reports, to provide consumers with a copy of their files, and to obtain certifications and notify consumers when reports are furnished for employment purposes.

    The 4th Circuit held that Section 230(c)(1) of the CDA “extends only to bar certain claims, in specific circumstances, against particular types of parties,” and that the four claims raised in this case were not subject to those protections. “Section 230(c)(1) provides protection to interactive computer services,” the appellate court wrote, “[b]ut it does not insulate a company from liability for all conduct that happens to be transmitted through the internet.” Specifically, the appellate court said two of the counts—which allege that the defendants failed to give consumers a copy of their own report when requested and did not follow FCRA requirements when providing reports for employment purposes—do not seek to hold the defendants liable as a speaker or publisher, and therefore fall outside Section 230 protections. As for the remaining two counts related to claims that the defendant failed to ensure records for employment purposes were complete and up-to-date, or adopt procedures to assure maximum possible accuracy when preparing reports, the 4th Circuit concluded that the defendants “made substantive changes to the records’ content that materially contributed to the records’ unlawfulness. That makes [defendants] an information content provider, under the allegations, for the information relevant to Counts Two and Four, meaning that it is not entitled to § 230(c)(1) protection for those claims.”

    Courts Appellate Fourth Circuit FCRA Communications Decency Act Consumer Reporting Agency

  • 4th Circuit vacates $10.6 million judgment, orders district court to reevaluate class standing


    On October 28, the U.S. Court of Appeals for the Fourth Circuit remanded a $10.6 million damages award it had previously approved in light of the U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez. As previously covered by InfoBytes, in January, the Supreme Court vacated the judgment against the defendants and ordered the 4th Circuit to reexamine its decision in light of TransUnion (which clarified the type of concrete injury necessary to establish Article III standing, and was covered by InfoBytes here). Previously, a divided 4th Circuit affirmed a district court’s award of $10.6 million in penalties and damages based on a summary judgment that an appraisal practice common before 2009 was unconscionable under the West Virginia Consumer Credit and Protection Act (covered by InfoBytes here). During the appeal, the defendants argued that summary judgment was wrongfully granted and that the class should not have been certified since individual issues predominated over common ones, but the appellate court majority determined, among other things, that there was not a large number of uninjured members within the plaintiffs’ class because plaintiffs paid for independent appraisals and “received appraisals that were tainted.” At the time, the 4th Circuit “concluded that the ‘financial harm’ involved in paying for a product that was ‘never received’ was ‘a classic and paradigmatic form of injury in fact.’” On remand, the 4th Circuit considered questions of standing and ultimately determined that TransUnion requires the district court to reevaluate the standing of class members.

    Courts State Issues Settlement Appellate Fourth Circuit U.S. Supreme Court Class Action West Virginia

  • 4th Circuit says AMG Capital does not alter FTC’s $120.2 million judgment


    On November 1, the U.S. Court of Appeals for the Fourth Circuit predominantly upheld a district court’s final judgment in an FTC action involving a Belizean real estate scheme. As previously covered by InfoBytes, the FTC initiated the action in 2018 against several individuals and corporate entities, along with a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. In 2019, a settlement was reached with the Belizean bank requiring payment of $23 million in equitable relief, and in 2020, the district court ordered the defaulted defendants to pay over $120.2 million in redress and granted the FTC’s request for permanent injunctions (covered by InfoBytes here and here). Later, in 2021, the district court denied a request to set aside the $120.2 million default judgment, disagreeing with the defendants’ argument that the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC (which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement”—covered by InfoBytes here) nullified the judgment. The district court stated that the AMG Capital decision does not render judgments in the case void, and that “[i]n its Opinion rendered before the Supreme Court reached its decision, the Court considered the effect that a decision in AMG Capital adverse to the FTC might have, reasoning that: ‘this Court’s findings of fact and determinations as to liability—including contempt of court and violations of the Telemarketing Services Rule []—would not be affected by a decision in AMG.’” (Covered by InfoBytes here.)

    On appeal, the 4th Circuit determined that the defendants advanced “a mixed bag of factual and legal challenges” to various contempt orders, equitable monetary judgments, permanent injunctions, and default judgments, finding that there was no abuse of discretion by the district court. While the appellate court reversed the $120.2 million judgment after finding it to be invalid under the Supreme Court’s decision in AMG Capital, it noted that because the defendants violated the FTC Act and the TSR they cannot escape the judgment. “The findings made by the district court show that [the defendant’s] Belizean business venture was dishonest to the core,” the 4th Circuit wrote. “The district court correctly surmised that this sort of deception lies at the heart of what the FTC is empowered to seek out and stop.” According to the appellate court, while “the FTC may seek injunctive relief under Section 13, the Supreme Court held in AMG Capital that it does not authorize the FTC to seek, or a court to award, ‘equitable monetary relief such as restitution or disgorgement.’” However, the defendant “latches onto this last point, claiming that the judgment in the [] case must be thrown out under AMG Capital. ... Vacating that judgment does not help [him], however, because he already has a $120.2 million judgment against him for contempt of the telemarketing injunction, and the FTC has conceded that it is not seeking $240.4 million against [him].” Essentially, AMG Capital “does not undercut the injunctive relief entered under Section 13(b), and the $120.2 million order can be upheld under the contempt judgment, so AMG does not in fact change the bottom line,” the 4th Circuit concluded.

    Courts Appellate Fourth Circuit FTC Enforcement FTC Act U.S. Supreme Court Telemarketing Sales Rule

  • 4th Circuit: Borrower must return loans proceeds to rescind reverse mortgage


    On July 14, the U.S. Court of Appeals for the Fourth Circuit held that a borrower has three years to rescind a reverse mortgage loan if a lender fails to provide required TILA disclosures, but that in order for the cancellation of the loan to be complete the proceeds must be returned. The borrower attempted to rescind a reverse mortgage she took out on her home after discovering the lender allegedly did not provide required TILA disclosures at closing. She notified the lender seeking to rescind the mortgage, but later sued after the lender failed to honor her rescission rights as required by Section 1635(b) of TILA. At trial, a jury sided with the lender, finding that it did not fail to honor the borrower’s attempt to rescind the loan. However, the district court issued judgment as a matter of law for the borrower, holding that the lender violated TILA’s requirements following the borrower’s notice of rescission, and ruling that because of this failure, the borrower was not required to return $60,000 in loan proceeds. The lender appealed.

    In vacating the district court’s order granting judgment as a matter of law, the appellate court held that the district court’s ruling violated TILA’s recission provisions, which are intended to return all parties to their status prior to the loan agreement. “To decide otherwise would bestow a remarkable windfall on a borrower and penalty on the lender divorced from the text of TILA and the entire purpose of rescission,” the Fourth Circuit wrote. Moreover, the appellate court concluded that while a lender’s obligations in response to a rescission notice are mandatory, nothing in Section 1635(b) “specifies that if the lender fails to take these actions, it loses its right to the monies it loaned to the borrower.”

    Courts Consumer Finance Reverse Mortgages Mortgages Appellate Fourth Circuit TILA Disclosures

  • 4th Circuit says foreign debit fee contract language is ambiguous


    On July 7, the U.S. Court of Appeals for the Fourth Circuit held that a class action breach of contract suit related to foreign debit card fees charged by a credit union may proceed. Class members claimed that the credit union’s contract allows fees only when customers make debit card purchases in a foreign country—not when customers make a purchase while they are physically in the U.S. even if the merchant is abroad. According to the contract’s disclosure agreement and fee schedule, debit card transactions “made in a foreign country” and non-credit union “Point-of-sale and ATM transactions made in a foreign country” will incur a one percent fee.

    In vacating the district court’s ruling that the card contracts clearly prohibited these fees, the 4th Circuit concluded that the contract’s language is ambiguous and subject to different interpretations. While class members and the credit union both cited dictionary definitions in support of their arguments, the appellate court said the contract’s language “simply does not clarify whether the location of the account holder or the seller determines whether the transactions are made in foreign countries.” In an online context, the 4th Circuit pointed to questions posed by the 7th Circuit: “Where is the point of sale for such a purchase—the consumer’s computer? the vendor’s headquarters? the vendor’s server? cyberspace generally?” The 4th Circuit further noted that the contracts could have been clearly drafted to explain whether online transactions were “made in foreign countries” if they were between account holders physically in the U.S. and foreign sellers but “were not.”

    Courts Appellate Fourth Circuit Seventh Circuit Fees Class Action Consumer Finance

  • District Court grants final approval of a $500 million tribal lending settlement


    On May 12, the U.S. District Court for the Eastern District of Virginia granted final approval of a nearly $500 million class action settlement resolving allegations that tribal online lending companies charged usurious interest rates. Plaintiffs’ filings outline their class action against tribal entities, as well as several of the entities’ non-tribal business partners (individual defendants), for making and collecting on high-interest loans.

    The U.S. Court of Appeals for the Fourth Circuit previously upheld a district court’s denial of defendants’ bid to dismiss or compel arbitration in the case (covered by InfoBytes here). The 4th Circuit concluded that the arbitration clauses in the loan agreements impermissibly forced borrowers to waive their federal substantive rights under federal consumer protection laws, and contained an unenforceable tribal choice-of-law provision because Virginia law caps general interest rates at 12 percent. As such, the appellate court stated that the entire arbitration provision was unenforceable. “The [t]ribal [l]enders drafted an invalid contract that strips borrowers of their substantive federal statutory rights,” the appellate court wrote. “[W]e cannot save that contract by revising it on appeal.”

    The 4th Circuit also declined to extend tribal sovereign immunity to the tribal officials, determining that while “the tribe itself retains sovereign immunity, it cannot shroud its officials with immunity in federal court when those officials violate applicable state law.” The appellate court further noted that the “Supreme Court has explicitly blessed suits against tribal officials to enjoin violations of federal and state law.”

    Following more than three years of litigation, the parties eventually reached a settlement that will include tribal officials canceling approximately $450 million in debt. As part of the settlement, the tribal officials will eliminate the balance on any outstanding loans on the basis that the debts are disputed, cease all collection activity, and will not sell, transfer, or assign any outstanding loans for collection. Tribal officials will also request deletion of any negative tradelines for loans in the name of tribal officials or tribal corporations, and will pay an additional $1 million to cover the costs of notice and administration for the settlement and $75,000 to go towards service awards. Additionally, the individual defendants will create a $39 million common fund that will go to class members who repaid unlawful amounts on their loans. Class counsel is also seeking attorneys’ fees and costs totaling around $13 million.

    Courts Tribal Lending Usury Settlement Online Lending Consumer Finance Interest Rate Appellate Fourth Circuit


Upcoming Events