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Financial Services Law Insights and Observations


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  • District Court lowers punitive damages award in FCRA dispute


    On April 8, the U.S. District Court for the Southern District of Florida denied in part and granted in part a defendant’s motion for judgment as a matter of law and alternative motion for a new trial, after concluding that the debt collector violated the FCRA by incorrectly reporting medical debts on the plaintiff’s credit reports despite allegedly receiving 31 separate disputes challenging the validity of the debt. The plaintiff contended that the medical debts in question belonged to his father, and that due to the inaccurate reporting, he was denied credit by two lenders. At trial, after finding that the defendant failed to conduct a reasonable investigation into the plaintiff’s FCRA disputes as required by the statute, a jury awarded the plaintiff $80,000 in actual damages and $700,000 in punitive damages for willful violations. The defendant challenged the award and requested a new trial, arguing that the court improperly admitted hearsay testimony, that the plaintiff failed to prove he suffered emotional damage, and that the jury’s punitive damages award was too high.

    The court denied defendant’s request for a new trial, finding that the plaintiff suffered emotional damages and that the “verdict could be supported ‘without considering the challenged testimony.’” With respect to the amount of punitive damages awarded, the court concluded that the defendant’s actions were “highly reprehensible” and “callous” in the way it processed consumers’ disputes. However, in comparing the ratio of punitive damages to compensatory damages in other cases, the court determined that $700,000 was too high based on the actual damages award and lowered the punitive damages to $475,000 to be consistent with Eleventh Circuit law. The court concluded, “to be sure, the high punitive damages award likely reflects the jury’s assessment of Defendant’s callous behavior throughout the eighteen months of processing Plaintiff’s approximately thirty disputes, and Defendant’s employees’ testimony which confirmed that such treatment would likely repeatedly occur with countless other consumers,” adding that “given the size of [the defendant], and the number of disputes handled annually, it is not surprising that the jury deemed a high punitive damages award necessary to send the Defendant a deterrence message.”

    Courts FCRA Damages Punitive Damages Consumer Finance Debt Collection Credit Report

  • 7th Circuit holds recoverable costs under FDCPA do not include damages or compensation for expenses


    On June 5, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s holding that the costs recoverable under the FDCPA and Rule 54(d) of the Federal Rules of Civil Procedure do not include damages or compensation for the plaintiff’s time and mailing expenses related to litigation. According to the opinion, the plaintiff filed suit against a debt collector alleging various violations of the FDCPA for failing to verify that the plaintiff owned the debt after it was disputed and for sending a demand letter with the plaintiff’s personal information in an envelope viewing screen. The debt collector made an offer of judgment to the plaintiff for “$1,101, ‘plus costs to be awarded by the Court.’” The plaintiff sought costs that included damages under the FDCPA while the debt collector argued that the offer was only for “taxable costs as a prevailing party.” After the district court concluded that the plaintiff had accepted the offer of judgment, it entered judgment for the award of $1,101 and instructed the plaintiff to file a bill of costs “‘limited to those contemplated by [Federal Rule of Civil Procedure] 54(d).’” The plaintiff demanded over $24,000 for “hundreds of hours” spent litigating the action, over $150 in “mailing costs,” $1,000 in “additional damage costs,” and over $47,000 in punitive damages. The district court denied the costs under Rule 54(d) and awarded final judgment for the $1,101 in statutory damages.

    On appeal, the 7th Circuit disagreed with the plaintiff’s assertion that the costs he submitted were recoverable under Section 1692k(a) of the FDCPA, concluding that “damages are not part of the costs ‘properly awardable under’ § 1692k(a),” which contains both provisions for damages and for costs; therefore, if costs included damages, “the damages provisions would be superfluous.” The appellate court went on to state that “[w]ithout a special definition in the [FDCPA], the ‘costs’ it contemplates are simply those awardable under Federal Rule of Civil Procedure 54(d),” which do not include the damages or compensation sought by the plaintiff.

    Courts Appellate Seventh Circuit FDCPA Damages Debt Collection

  • Maryland Court of Appeals reverses trial court approval of settlement for interfering with CPD action


    On March 3, the Maryland Court of Appeals reversed a trial court’s approval of a proposed settlement in a class action based on fraudulently induced assignments of annuity payments. The class members were recipients of structured settlement annuities from lead paint exposure claims who responded to ads by a structured settlement factoring company (company). The class members then transferred the rights to their settlement annuity contracts to the company, which paid the class members lump sums for the rights at a discount. The class filed a lawsuit against the company in 2016, alleging that it had engaged in fraud in procuring the annuity contract transfers. Around the same time, the Consumer Protection Division of the Maryland AG’s Office (CPD) had filed suit against the company alleging violations of the State Consumer Protection Act. Several months after both actions were filed, the CFPB filed a similar suit against the company based on the same alleged misconduct. All three actions sought similar kids of relief with respect to the same individuals, though the bases for seeking relief and the nature and amount of relief sought differed among the actions.

    The class and the company proceeded towards a negotiated settlement, to which the trial court signed a proposed final order, certifying the class and approving the settlement, despite CPD’s opposition to both issues. Following the court’s approval, the company moved for summary judgment in its case against the CPD, which the court granted because it held CPD’s claim for restitution for the same individuals was barred by res judicata; CPD’s claim for injunctive relief and civil penalties is still currently awaiting trial.

    Following an appeal, the Court of Appeals granted the company’s petition to consider whether “class members [may] lawfully release and assign to others their right to receive money or property sought for their benefit by [CPD] or [CFPB] through those agencies’ separate enforcement actions” under state and federal consumer protection laws, respectively.

    The Court of Appeals held that the lower court erred in approving the settlement, stating that consumers “have no authority, through a private settlement, whether or not approved by a court, to preclude CPD from pursuing its own remedies against those who violate . . . [Maryland’s] Consumer Protection Act, including a general request for disgorgement/restitution.” In particular, the Court of Appeals held that the parties cannot preclude CPD from pursuing the remedies of disgorgement and restitution, as that would directly contravene CPD’s statutory authority to sanction the company for wrongful conduct. For this reason, the Court of Appeals concluded that the trial court’s approval of the settlement must be reversed and remanded the case for further proceedings.

    Courts State Issues Structured Settlement Fraud Disgorgement Class Action Restitution CFPB Federal Issues Appellate Damages

  • District Court rejects law firm’s bona fide error defense in FDCPA action


    On August 15, the U.S. District Court for the District of Connecticut held that a law firm violated the FDCPA, rejecting the law firm’s bona fide error defense, and awarded the consumer statutory damages. According to the opinion, the consumer alleged that the law firm violated the FDCPA in a 2016 debt collection letter sent to the consumer. Specifically, the consumer argued that the letter “‘ma[de] it impossible for a consumer to know how much is owed and if the debt will be considered paid if payment is made in full,’” because the letter contained two different balance amounts: (i) a “Charge-Off Balance” listed at $663.94 and (ii) a “Balance” or “Current Balance” listed as $565.46. The law firm acknowledged the existence of two different balance amounts, but asserted that the Current Balance was the correct amount and that the consumer “was not confused about what he owed.” The court rejected this argument, finding that under the “least sophisticated consumer standard,” a consumer would be confused by the two different balances, noting that the letter provided no explanation about the two different amounts. The law firm also argued that the inaccuracy was not material, and therefore it should not give rise to liability under the FDCPA. The court disagreed, finding that the difference between the two amounts was “more than trivial,” noting it almost exceeded one hundred dollars, and could induce a consumer to delay payment. Lastly, because the error in amounts was not a result of human judgment, but a failure in programming, the court rejected the law firm’s bona fide error defense. The court awarded the consumer statutory damages and authorized the consumer to seek reasonable costs and attorney’s fees.

    Courts FDCPA Debt Collection Least Sophisticated Consumer Attorney Fees Damages

  • District Court reduces jury’s $3 million award in FCRA action to $490,000


    On March 21, the U.S. District Court for the Northern District of Alabama reduced a consumer’s punitive damages award from $3 million to $490,000 in an action against a credit reporting agency for the alleged misreporting of credit information. According to the opinion, after the consumer had a debt dismissed by small claims court, he requested that the credit reporting agencies remove the trade line from his credit report. When one credit reporting agency refused to initiate a dispute investigation because it suspected fraud, the consumer filed a complaint alleging violations of the FCRA. In May 2018, a jury awarded the consumer $5,000 in compensatory damages and $3 million in punitive damages. The credit reporting agency moved to have the court enter judgment as a matter of law and/or have the judgment amended or altered. The court reviewed the award, noting that the punitive to compensatory damages ratio of 600 to 1 “suspiciously cocked” the “court’s eyebrows.” The court emphasized that a single-digit multiplier would not be sufficient to deter the credit reporting agency from future wrongdoing and instead, applied the 98 to 1 ratio used by the U.S. Court of Appeals for the 4th Circuit, bringing the punitive damages down to $490,000. In addition, the court applied the “one satisfaction” rule, concluding the credit reporting agency did not have to pay the compensatory damages, as the consumer already received settlement proceeds that exceed the jury award from other defendants, and “the injuries the [consumer] described are indivisible between [the credit reporting agency] and the settling defendants.”

    Courts Credit Reporting Agency FCRA Damages Punitive Damages Fourth Circuit Appellate

  • 9th Circuit holds plaintiff must establish defendant’s net worth to seek damages under FDCPA


    On August 20, the U.S. Court of Appeals for the 9th Circuit held that the plaintiff bears the burden of establishing a defendant’s net worth when seeking an award of class statutory damages in an FDCPA action. The appeals court affirmed the lower court’s dismissal of the plaintiff’s class action, which alleged a law firm’s letters violated the FDCPA by using “false, deceptive, or misleading representation[s].”  The panel found that the language of the FDCPA’s class statutory damages provision—"not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector"— makes it clear that a defendant’s net worth is a prerequisite to establishing statutory damages. The court noted that the FDCPA is silent as to which party bears the burden, but the “ordinary default rule” establishes the burden upon the party seeking relief and there is no reason to believe Congress intended otherwise under the FDCPA. The court rejected the plaintiff’s argument that because the defendant has “superior access” to the evidence of net worth, it must bear the burden because it is “not uniquely difficult for consumer plaintiffs to acquire the debt collector’s financial information.” Because the plaintiff failed to present evidence of the law firm’s net worth, the 9th Circuit concluded the lower court was correct in dismissing the action.

    Courts Ninth Circuit FDCPA Damages

  • New Jersey state appeals court reverses $1.8 million ruling against bank over flood damage


    On July 30, a New Jersey state appeals court reversed a lower court’s judgment awarding consumers over $1.8 million in connection with allegations that a national bank’s predecessor violated the state’s Consumer Fraud Act (CFA) by misrepresenting information to the town’s planning board in order to secure approvals for a housing development. Specifically, the plaintiffs had argued that, because of misrepresentations to the town’s planning board, the construction of a housing development was approved and resulted in the flooding of their home. According to the plaintiffs, the national bank’s predecessor was aware that their housing section could be susceptible to groundwater runoff but concealed the information from the planning board, and that had the planning board been aware of the information, the board would have denied the plans and the plaintiffs’ home would not have flooded. A jury agreed, and the trial court ultimately awarded the plaintiffs almost $50,000 in treble damages under the CFA claim, and $1.8 million in fees and expenses, along with smaller amounts of damages for nuisance and trespass claims.

    On appeal, the panel reversed the damages for the CFA claims, including the fee award, holding that “there is a complete lack of proof of a causal connection” between the predecessor’s misrepresentations and the plaintiffs’ decision to purchase their residence. The court rejected the plaintiffs’ arguments that had the misrepresentations not been made, the construction of the development would have been denied and their house would not have flooded. The court concluded the argument was “speculative and attenuated” and there was no proof the development “would not have been built by another developer.”

    Courts State Issues Fraud Construction Damages

  • Court dismisses “convenience fee” action against bank for lack of damages


    On June 25, the U.S. District Court for the District of Maryland dismissed a proposed class action alleging a national bank violated the Maryland Credit Grantor Closed End Credit (CLEC) law by charging “convenience fees” in connection with secured vehicle financing. According to the opinion, after the consumer defaulted on vehicle payments, the bank repossessed the consumer’s vehicle and demanded the consumer pay the deficiency balance. In August 2017, the consumer, on behalf of herself and others similarly situated, filed a class action against the bank for allegedly charging convenience fees in connection with over 500 retail installment sales contracts for vehicles governed under the CLEC. Upon removal to federal court, the consumer sought to amend her complaint to replace the CLEC claim with a breach of contract claim based on the same violation in her original complaint and the bank sought dismissal of the claim. The court granted the bank’s motion to dismiss, concluding that even if the bank did charge a convenience fee in violation of the CLEC, the bank (i) did not collect payments in excess of the original principle amount of the loan; and (ii) did not seek a deficiency judgment against the consumer. Additionally, the consumer did not seek injunctive or declaratory relief. Therefore, the court held that the consumer is not entitled to damages under CLEC and her corollary breach of contract claim is “futile and must be dismissed.”

    Courts Class Action Fees Auto Finance Damages

  • 7th Circuit affirms RESPA requires actual damages under QWR rules


    On April 10, the U.S. Court of Appeals for the 7th Circuit affirmed the district court’s dismissal of a RESPA action because the plaintiff did not properly establish actual damages arising out of her non-receipt of a response to her Qualified Written Request (QWR) to the bank. The opinion explains that the plaintiff’s property was vandalized in 2014 and the bank received insurance money to escrow for repairs. In 2015, the bank released funds for the repairs and subsequently, the plaintiff’s contractor abandoned the job; the property was then vandalized twice more. On September 5, 2015, the plaintiff sent the bank a letter asking about the status of her loan, specifically regarding how insurance money was being handled. The bank sent a response to the letter on September 25, 2015, but the plaintiff alleges she never received the bank’s response and contends the bank’s failure to respond to her QWR caused her emotional distress and contributed to her divorce. The 7th Circuit agreed with the district court that the plaintiff failed to establish how a response to her QWR would have resolved her financial inability to make the required repairs since RESPA does not require the bank to pay money in response to a written request. Moreover, the Appeals Court held that some of the plaintiffs asserted injuries, such as her divorce, are outside the scope of RESPA.  


    Courts RESPA Mortgages Damages

  • States enact data breach notification laws; Oregon prohibits fees for security freezes

    Privacy, Cyber Risk & Data Security

    On March 21, the South Dakota governor signed SB 62, which requires companies that hold consumers’ personal information to (i) notify consumers within 60 days of a data breach; and (ii) notify the state Attorney General if more than 250 consumers are affected. Notice must be provided to consumers either by mail; electronic notice; or, in certain circumstances, substitute notice (e.g., a posting on the company’s website or notification to statewide media). The law gives the state Attorney General the authority to prosecute a failure to disclose a data breach as a deceptive act or practice under South Dakota’s consumer protection laws, which can result in penalties of up to $10,000 a day per violation. A disclosure is not required if notice is given to the state Attorney General and following an “appropriate investigation,” the company determines that the breach “will not likely result in harm to the affected person.” The law is effective July 1.

    A similar measure was signed by the Oregon governor on March 16. Effective on or about June 10, Oregon’s SB 1551 mandates that a person or entity that “owns, licenses, or otherwise possesses personal information” that suffered a security breach must notify the affected consumers within 45 days and, if more than 250 consumers were affected, must also notify the state Attorney General. The person or entity must also undertake reasonable measures to “determine scope of breach of security and to restore reasonable integrity, security and confidentiality of personal information.” Additionally, the law sets out guidelines regarding credit monitoring services and security freezes:

    • Credit Monitoring Services. Among other things, SB 1551 provides that if a person or entity offers free credit monitoring services to affected consumers, the entity may not require a credit or debit card number as a condition for the service. If additional identity theft services are offered for a fee, the person or entity must “separately, distinctly, clearly and conspicuously” disclose the charging of the fee.
    • Security Freezes. SB 1551 prohibits a consumer reporting agency from charging a fee for placing, temporarily lifting, or removing a security freeze. Moreover, it prevents credit reporting agencies from charging fees for replacing a lost personal identification number or password. Recently, Michigan, Utah, Washington, and Virginia enacted similar prohibitions (previously covered by InfoBytes, here, here, and here).

    Privacy/Cyber Risk & Data Security Courts Damages Data Breach Credit Reporting Agency Security Freeze State Legislation