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Financial Services Law Insights and Observations


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  • 6th Circuit affirms expansive autodialer definition


    On July 29, the U.S. Court of Appeals for the 6th Circuit affirmed summary judgment in favor of the plaintiffs in a TCPA action, holding that a device used by a student loan servicer that only dials from a stored list of numbers qualifies as an automatic telephone dialing system (“autodialer”). According to the opinion, a borrower and co-signer sued the student loan servicer alleging the servicer violated the TCPA by using an autodialer to place calls to their cell phones without consent. The district court granted summary judgment in favor of the plaintiffs and awarded over $176,000 in damages. On appeal, the servicer argued that the equipment used did not qualify as an autodialer under the TCPA’s definition, because the calls are placed from a stored list of numbers and are not “randomly or sequentially” generated. The 6th Circuit rejected this argument, joining the 2nd and 9th Circuits, holding that under the TCPA, an autodialer is defined as “equipment which has the capacity—(A) to store [telephone numbers to be called]; or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” This decision is in conflict with holdings by the 3rd, 7th, and 11th Circuits, which have held that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of an autodialer in ACA International v. FCC (covered by a Buckley Special Alert).

    As previously covered by InfoBytes, the U.S. Supreme Court recently agreed to address the definition of an autodialer under the TCPA, which will resolve the split among the circuits.

    Courts Appellate Sixth Circuit Autodialer TCPA FCC

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  • 6th Circuit denies stay of injunction against PPP Ineligibility Rule

    Federal Issues

    On May 15, the U.S. Court of Appeals for the Sixth Circuit denied the SBA’s emergency motion for a stay of the district court’s injunction against the agency’s Paycheck Protection Program (PPP) Ineligibility Rule. As previously covered by InfoBytes, the district court granted a preliminary injunction against the SBA’s PPP Ineligibility Rule—which, in relevant part, excludes from PPP loan eligibility “sexually oriented businesses that present entertainment or sell products of a ‘prurient’ (but not unlawful) nature.” The district court concluded that the Rule was in conflict with the Congressional purpose of the CARES Act, which houses the PPP, to protect workers in need during the Covid-19 pandemic, including workers for businesses that have been historically excluded from SBA financial assistance.

    The 6th Circuit agreed with the district court, denying the motion for a stay. The court noted that the CARES Act specifies that eligibility “is conferred on ‘any business concern,’” which “encompasses sexually oriented businesses.” It went on to state that “the public interest is served in guaranteeing that any business, including plaintiffs, receive loans to protect and support their employees during the pandemic.”

    In dissent, one judge argued that it is “unclear whether Congress meant that any business concern was eligible for a PPP loan regardless of SBA restrictions,” and therefore, the injunction should be stayed pending a decision on the merits.

    Federal Issues Courts SBA Covid-19 Small Business Lending Appellate Sixth Circuit CARES Act

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  • 6th Circuit holds condo company and law firm did not act as debt collectors in non-judicial foreclosure


    On May 4, the U.S. Court of Appeals for the Sixth Circuit held that a condominium management company, condominium association, and its law firm (collectively, “defendants”) acted as “security-interest enforcers” and not debt collectors and therefore, did not violate the FDCPA. According to the opinion, the homeowners lost their condominium to a non-judicial foreclosure after they fell behind on condominium association dues. The homeowners filed suit against the defendants alleging various violations of the FDCPA during the foreclosure process. The homeowners did not assert a violation of Section 1692f(6), which applies to security-interest enforcers. The district court dismissed the action, concluding that the homeowners failed to allege facts that the defendants did more than act as security-interest enforcers.

    On appeal, the 6th Circuit agreed, citing to the U.S. Supreme Court’s opinion in Obduskey v. McCarthy & Holthus LLP, which held that parties who assist creditors with the non-judicial foreclosure of a home fall within the separate definition under Section 1692f(6) as security-interest enforcers and not the general debt collector definition (previously covered by InfoBytes here). The appellate court noted that the homeowners’ complaint did not allege the defendants’ regular business activity was debt collection. Moreover, the appellate court rejected the homeowners’ argument that the defendants recording of a lien on their condo was a step beyond enforcing a security interest. According to the court, Michigan law requires the recording of the lien in order to enforce a security-interest and therefore, the action “falls squarely within Obduskey’s central holding.”


    Courts Appellate Sixth Circuit FDCPA Debt Collection U.S. Supreme Court

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  • 6th Circuit affirms access-device fraud and identity theft convictions


    On April 17, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s access-device fraud and aggravated identity theft convictions, finding that there was sufficient evidence to support the court’s factual findings on both charges. According to the opinion, the defendant applied for a debit card for his great-grandfather’s bank account without authorization and used the card to pay for his own expenses. The defendant was also seen multiple times on bank security cameras withdrawing money from an ATM using this card. The district court also heard testimony that the defendant opened accounts and applied for loans under his own name but used his great-grandfather’s social security number. The district convicted the defendant on one count of access-device fraud and two counts of aggravated identity theft. The defendant appealed, arguing that the district court failed to make adequate findings of fact and that the government failed to present sufficient evidence to support the charges for which he was convicted.

    On appeal, the 6th Circuit reviewed the factual findings underlying the convictions, and first concluded that, with respect to the count of access-device fraud, the government proved each element: that the defendant (i) knowingly used an access device assigned to another individual; (ii) possessed an intent to defraud; (iii) obtained a thing or things with an aggregate value of $1,000 or more within a year using the access device; and (iv) affected interstate or foreign commerce in using the access device. The appellate court explained that there was ample circumstantial evidence to support lack of authorization from the proper owners of the accounts at issue, and that the card was issued in Kentucky and the bank issuing the card was headquartered in Minnesota. The appellate court next considered whether evidence supported the district court’s finding that the defendant committed aggravated identity theft under the bank-fraud statute by opening a checking account and applying for a loan using his great-grandfather’s social security number. The appellate court held that the defendant’s use of his great-grandfather’s social security number properly supported the district court’s finding that the defendant knowingly used, without lawful authority, another person’s means of identification and that the defendant committed a predicate felony under the bank-fraud statute.

    Courts Appellate Sixth Circuit Identity Theft Privacy/Cyber Risk & Data Security Fraud ATM

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  • 6th Circuit: Rooker-Feldman doctrine does not apply to state court writs of garnishment


    On February 26, the U.S. Court of Appeals for the Sixth Circuit reversed a district court’s decision dismissing a group of borrowers’ claims against a number of creditors and their law firms (defendants) for allegedly violating the FDCPA by charging an improper amount of post-judgment interest when trying to recover unpaid debt. According to the opinion, the consumers defaulted on their credit accounts and were sued by the defendants for unpaid debts. Judgments were awarded against the plaintiffs in Michigan state court, and the law firms representing the financial institutions obtained writs of garnishment against the plaintiffs. The plaintiffs filed a lawsuit in federal district court contending that the defendants allegedly applied an “impermissibly high interest rate” of 13 percent to the debt in violation of the FDCPA and state law. The district court dismissed the action on the grounds that it lacked subject matter jurisdiction based on the Rooker-Feldman doctrine.

    On appeal, the 6th Circuit discussed the applicability of the Rooker-Feldman doctrine, which prohibits lower federal courts from reviewing state court civil judgments. The 6th Circuit concluded that the doctrine applies only when a state court renders a judgment, and not to “‘ministerial’ actions by court clerks.” In this case, the writs of garnishment were not state-court judgments that the debtors sought to have reviewed in federal court, but were rather “the result of a ‘ministerial process’. . . in which the clerk of the court has a nondiscretionary obligation to issue the writ if the request ‘appears to be correct.’” Moreover, even if the writs of garnishment were state court judgments, the plaintiffs’ alleged injuries did not stem from the writs of garnishment themselves, but rather from the post-judgment interest rate the defendants improperly included in the calculation of costs.

    Courts Appellate Sixth Circuit FDCPA Rooker-Feldman Debt Collection State Issues

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  • FDCPA class action garnishments award overturned


    On January 16, the U.S. Court of Appeals for the Sixth Circuit overturned a district court’s class action award to the plaintiffs in an FDCPA action. According to the opinion, the credit card company hired the defendant, a law firm, to collect an unpaid credit card debt from the plaintiff. The defendant filed suit against the plaintiff and secured a judgment against her. The defendant then filed several writ of garnishment requests attempting to satisfy the judgment and, in addition, seeking the costs of the current writ request. In later garnishment requests, the defendant also added the costs of prior failed garnishments. The plaintiff then filed a class action in district court against the defendant alleging the requests for writ of garnishment from the defendant contained false statements in violation of the FDCPA. The court found for the plaintiff and awarded class members a total of $3,662, and attorney’s fees of $186,680 and the defendant appealed.

    After rejecting a jurisdictional argument by the defendant, the appellate court addressed whether the defendant’s writ of garnishment requests seeking all total costs to date, including the cost of the current garnishment,” were false, deceptive, or misleading. The appellate court concluded that it was reasonable to request the costs of the current garnishment request, as Michigan law at the time allowed creditors to include “the total amount of the post-judgment costs accrued to date” in their garnishment requests. Additionally, the opinion pointed to the recently revised Michigan rule that explicitly allows debt collectors to “include the costs associated with filing the current writ of garnishment” as clarification that the prior version of the rule was intended to cover current costs.

    Regarding the costs of prior failed garnishment requests, the opinion stated that Michigan law did not allow a creditor to seek these costs and that including them was therefore a false representation under the FDCPA. The appellate court remanded the case, however, to provide the defendants an opportunity to prove the violation was a “bona fide” mistake of fact and that its procedure for preventing such mistakes were sufficient. In addition to vacating the award and attorney’s fees, and remanding the case, the court vacated the class certification order.

    Courts Appellate Sixth Circuit FDCPA Debt Collection Class Action Class Certification

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  • 6th Circuit affirms dismissal of FDCPA action for lack of standing


    On January 3, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal for lack of standing of an FDCPA suit brought by a consumer who claimed that because collection letters sent to him by a law firm caused him anxiety, the firm had violated the FDCPA. According to the opinion, the consumer had two delinquent accounts with a bank, which the law firm attempted to recover by sending collection letters to the consumer. The consumer asserted that the letters the law firm sent caused him “an undue sense of anxiety” that he would be sued by the firm, and he subsequently filed a lawsuit against the firm for violating the FDCPA. The court held that the consumer did not have standing to sue under Article III of the U.S. Constitution, for three main reasons: (i) the debtor’s anxiety about a potential lawsuit amounted to a fear of future harm that was not “certainly impending” because the consumer had not alleged that the law firm had threatened to sue him or that he refused to pay, and, therefore, his anxiety did not satisfy the injury-in-fact element for Article III standing; (ii) the consumer was “anxious about the consequences of his decision to not pay the debts that he does not dispute he owes,” and such a “self-inflicted injury” is not a basis for standing because it was not “fairly traceable” to the law firm’s conduct, but instead reflected the consumer’s own behavior; and (iii) “even assuming [the law firm” violated the statute by misrepresenting that an attorney had reviewed [the consumer’s] debts,” that violation did not cause any injury to the consumer because the consumer gave the court “no reason to believe he did not owe the debts,” and, therefore, he could not show that the law firm’s alleged procedural violation of the FDCPA, by itself, was an “injury in fact.” Because the court held that the consumer did not have standing, it affirmed the lower court’s dismissal of the action.

    Courts Appellate FDCPA Debt Collection Credit Reporting Agency Sixth Circuit Standing

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  • 6th Circuit: FCRA claims require consumer to notify consumer reporting agency of dispute


    On August 29, the U.S. Court of Appeals for the 6th Circuit affirmed a district court’s ruling that a bank was not obligated under the Fair Credit Reporting Act (FCRA) to investigate a credit reporting error because the consumers failed to ever notify a consumer reporting agency. According to the opinion, after plaintiffs paid off their line of credit, the bank (defendant) continued reporting the plaintiff as delinquent on the account. After plaintiffs contacted the bank regarding the reporting error, the bank employee ensured plaintiffs that the defendant submitted amendments to the credit reporting bureaus to correct the situation. However, the plaintiffs claimed the error was not corrected until almost a year later. Plaintiffs also alleged that they did not contact the credit reporting bureau in reliance on the bank employee’s statements. The district court granted summary judgment in favor of the bank, concluding that the FCRA requires that notification of a credit dispute be provided to a consumer reporting agency as a prerequisite for a claim that a furnisher failed to investigate the dispute. Since the plaintiffs failed to trigger the defendant’s FCRA obligations because they never filed a dispute with a consumer reporting agency, the defendant’s responsibility to investigate was never activated.

    On appeal, the 6th Circuit agreed with the district court that direct notification to the furnisher of the inaccurate credit report does not meet the FCRA’s prerequisite. Additionally, the plaintiffs’ state common law claims for breach of the duty of good faith and fair dealing and tortious interference with contractual relationships were preempted by the FCRA, and their fraudulent misrepresentation claim was forfeited on appeal.

    Courts Appellate Sixth Circuit FCRA Credit Report Credit Furnishing Consumer Reporting Agency

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  • 6th Circuit: Collection fee authorized under contractual agreement valid under FDCPA


    On August 21, the U.S. Court of Appeals for the 6th Circuit affirmed a district court’s determination that a collection fee charged by a debt collector seeking to recover past due homeowner’s association fees was expressly authorized by a contractual agreement and did not violate the FDCPA. According to the opinion, after the plaintiffs fell behind on their homeownership association assessments and fees, the account was placed for collection with the defendant, who sought to collect both the past-due amount plus additional fees it charged the association for its collection services. The plaintiffs filed a lawsuit alleging that the debt collector violated the FDCPA by collecting the collection fees directly from the plaintiffs without authorization and attempting to collect an amount after agreeing to a settlement. The district court held a bench trial, which returned a verdict in favor of the defendant, finding that collecting the fees directly from the plaintiff was expressly authorized by the language in an agreement creating the debt (the Declaration). The plaintiffs appealed, arguing, among other things, that (i) the Declaration did not expressly authorize the collection of fees directly from them, and that moreover, because the association had not yet incurred the costs the additional fees should not have been collected until the original debt was paid; and (ii) the costs should have been limited to legal fees and costs.

    On appeal, the 6th Circuit agreed with the district court, citing a provision in the Declaration providing that “‘[e]ach such assessment, together, with interest, costs, and reasonable attorney’s fees’. . . ‘shall also be the personal obligation’ of the property owner.” Additionally, the 6th Circuit noted that if the defendant waited to collect the additional fees, it would create an impractical, never-ending cycle of collections. Moreover, the appellate court was not persuaded by the plaintiffs’ argument that the Declaration limited the authorization of costs, noting that “[b]ecause collection often occurs outside of litigation, it makes little sense to read the Declaration to silently limit ‘costs’ to ‘legal costs’ associated only with litigation.”

    Courts Sixth Circuit Appellate FDCPA Fees Debt Collection

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  • 6th Circuit: Reversed conviction in alleged mortgage application fraud


    On August 5, the U.S. Court of Appeals for the 6th Circuit reversed the conviction of two individuals for bank fraud, holding that the government had failed to prove that the defendants intended to obtain bank property or defraud the financial institutions that owned the mortgage companies targeted by the scheme. The complaint alleged the defendants—a homebuilder and a mortgage broker—recruited straw buyers to purchase the homebuilder’s homes, in which they obtained more than $5 million from mortgage companies through fraudulent mortgage applications that made several misrepresentations, including overstating the buyers’ incomes and falsely claiming that the buyers planned to live in the homes. During the trial, the government argued that the jury could reasonably infer that the federally insured parent banks controlled the funds, since the mortgage companies were wholly owned subsidiaries of the banks. The government further asserted that the mortgage companies’ funds belonged to the banks because “any losses incurred by the mortgage companies would ‘flow directly up’ to the banks.”

    On appeal, the 6th Circuit reversed the defendants’ bank fraud convictions, holding that the mortgage companies held no federally insured deposits, and that while each mortgage company is a wholly owned subsidiary of a bank, the mortgage companies and the banks are distinct entities. As such, the mortgage companies did not qualify as “financial institutions,” as defined under 18 U.S.C. § 20(1). The appellate court also rejected the government’s arguments because Congress had amended § 20 after the events at issue in the case by adding language covering mortgage lenders to its “enumeration of ‘financial institutions,’” thereby demonstrating that mortgage lenders were not covered by the prior version of § 20. In addition, the court also indicated that the government offered no evidence proving that the defendants sought to obtain bank property “by means of” a misrepresentation, pointing out that no evidence was presented to show that any of the misrepresentations on the loan applications ever reached anyone at the parent banks. As such, “the scheme’s effect on the value of the banks’ ownership interests in the mortgage companies was merely ‘incidental’ to the scheme’s goal of defrauding the mortgage companies.”  Accordingly, the court held that the government failed to prove that the defendants committed bank fraud.

    Courts Sixth Circuit Appellate Mortgages Fraud

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