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  • 8th Circuit pauses student debt relief program

    Courts

    On November 14, the U.S. Court of Appeals for the Eighth Circuit granted an emergency motion for injunction pending appeal filed by state attorneys general from Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina to temporarily prohibit the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan (announced in August and covered by InfoBytes here). Earlier in October, the 8th Circuit issued an order granting an emergency motion filed by the states, which requested an administrative stay prohibiting the discharge of any student loan debt under the cancellation plan until the appellate court had issued a decision on the states’ motion for an injunction pending an appeal. (Covered by InfoBytes here.) The October order followed a ruling issued by the U.S. District Court for the Eastern District of Missouri, which dismissed the states’ action for lack of Article III standing after concluding that the states—which attempted “to assert a threat of imminent harm in the form of lost tax revenue in the future”— failed to establish imminent and non-speculative harm sufficient to confer standing.

    In granting the emergency motion, the appellate court disagreed with the district court’s assertion that the states lacked standing. The 8th Circuit reviewed whether the state of Missouri could rely on any harm the Missouri Higher Education Loan Authority (MOHELA) might suffer as a result of the Department of Education’s cancellation plan. The appellate court found that the relationship between MOHELA and the state is relevant to the standing analysis, especially as Missouri law specifically directs MOHELA (which receives revenue from the student loan accounts it services) to distribute $350 million into the state’s treasury. As such, “MOHELA may well be an arm of the State of Missouri” under this reasoning, the appellate court wrote, adding that several district courts have concluded that MOHELA is an arm of the state. However, regardless of whether MOHELA is an arm of the state, the resulting financial impact due to the cancellation plan would, among other things, affect the state’s ability to fund public higher education institutions, the 8th Circuit noted. “Consequently, we conclude Missouri has shown a likely injury in fact that is concrete and particularized, and which is actual or imminent, traceable to the challenged action of the Secretary, and redressable by a favorable decision,” the appellate court wrote, adding that since one party likely has standing it does not need to address the standing of the other states. The appellate court also determined that “the equities strongly favor an injunction considering the irreversible impact the Secretary’s debt forgiveness action would have as compared to the lack of harm an injunction would presently impose.” The 8th Circuit explained that it considered several criteria, including the fact that the collection of student loan payments and the accrual of interest have both been suspended. The Missouri attorney general released a statement applauding the 8th Circuit’s decision.

    The 8th Circuit’s decision follows a recent ruling issued by the U.S. District Court for the Northern District of Texas, which found that the student loan forgiveness program is “an unconstitutional exercise of Congress’s legislative power.” (Covered by InfoBytes here.)

    Courts Student Lending State Issues Department of Education Appellate Eighth Circuit State Attorney General Nebraska Missouri Arkansas Iowa Kansas South Carolina

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  • 8th Circuit temporarily pauses Biden’s student debt relief plan

    Courts

    On October 21, the U.S. Court of Appeals for the Eighth Circuit issued an order granting an emergency motion filed by state attorneys general from Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina to temporarily prohibit the Biden administration from discharging any federal loans under its student debt relief plan (announced in August and covered by InfoBytes here). The states’ motion requested an administrative stay prohibiting President Biden from discharging any student loan debt under the cancellation plan until the appellate court issues a decision on the states’ motion for an injunction pending an appeal. The order follows an October 20 ruling issued by the U.S. District Court for the Eastern District of Missouri, which dismissed the states’ action for lack of Article III standing after concluding that the states—which attempted “to assert a threat of imminent harm in the form of lost tax revenue in the future”— failed to establish imminent and non-speculative harm sufficient to confer standing. “It should be emphasized that ‘standing in no way depends upon the merits of the Plaintiff[s’] contention that the particular conduct is illegal,’” the district court said. “While Plaintiffs present important and significant challenges to the debt relief plan, the current Plaintiffs are unable to proceed to the resolution of these challenges.” The 8th Circuit ordered an expedited briefing schedule on the states’ motion for an injunction pending appeal, which required both parties to file responses the same week the order was issued.

    Courts Appellate Eighth Circuit Student Lending Biden Department of Education Debt Relief Consumer Finance

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  • 8th Circuit affirms decision in FDCPA case

    Courts

    On September 6, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court’s order to grant a defendant’s motion for judgment on the pleadings in an FDCPA suit. According to the opinion, the defendant sent the plaintiff a debt collection letter identifying the plaintiff as the attorney for a consumer named in the letter. The consumer was not the plaintiff’s client, the consumer had never identified the plaintiff as her attorney to anyone, and the plaintiff had never identified himself as the consumer’s attorney. When the plaintiff was unable to recognize the consumer’s name, he engaged in an extensive search of his files and records to determine if he had ever represented the consumer, and “found nothing to indicate that she was a past or present client.” The plaintiff filed suit, asserting that the defendant violated § 1692c(b) of the FDCPA when it contacted him regarding the debt of a consumer whom he did not represent and without the consumer’s consent. The plaintiff alleged that he suffered injury as a result of the violation, because his search for the consumer’s records cost him “valuable time and resources that he could have spent working on matters for actual clients.” The district court ruled that the defendant’s letter violated § 1692c(b) but said that the plaintiff lacked standing to sue under the statute and entered judgment on the pleadings against the plaintiff.

    On appeal, the 8th Circuit agreed with the district court that the defendant violated the FDCPA when it sent the letter to the attorney, but also agreed with other circuit courts that non-consumers cannot bring § 1692c(b) claims. The appellate court noted that “[b]ecause the purpose of § 1692c(b) is to protect consumers alone, we conclude that [the plaintiff] falls outside § 1692c(b)’s ‘zone of interests’ and thus cannot invoke the protection afforded by it.” The 8th Circuit rejected the plaintiff’s argument that the proper course of action was to remand the case back to state court, where it was originally filed, and affirmed that the decision “was a ruling on the merits of [the plaintiff’s] claim, not on the district court’s jurisdiction.”

    Courts Appellate Eighth Circuit FDCPA Debt Collection Consumer Finance

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  • 8th Circuit affirms rulings for defendant in FCRA suits

    Courts

    On August 16, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection. The bankruptcy court entered a discharge, and when the plaintiff obtained the credit reports, among other things, one debt was still being reported as “Current; Paid or Paying as Agreed” with an outstanding balance. The plaintiff filed suit, alleging the defendants violated the FCRA because they “do not maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.” The plaintiff claimed to suffer emotional distress and obtained credit at less favorable rates. The defendants jointly moved to dismiss the complaint, contending that the plaintiff failed to plausibly allege the reporting. The district court granted the motion and dismissed the case with prejudice.

    According to the 8th Circuit, the plaintiff’s complaint was “too thin to raise a plausible entitlement to relief.” The appellate court noted that, “[i]t is not the credit reporting agencies’ job to “wade into individual bankruptcy dockets to discern whether a debt survived discharge.” The appellate court ultimately agreed with the district court that “’there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’”

    The same day, in a separate suit, the 8th Circuit affirmed another district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection, and after the debts were discharged, the plaintiff’s credit report still listed a debt with an outstanding balance that was noted as “open” and “past due.” The plaintiff filed suit, alleging the defendants violated the FCRA “by neglecting to ‘maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.’” The plaintiff sought damages resulting from emotional distress and financial harm, but the district court granted summary judgment in favor of defendants, agreeing that plaintiff failed to show proof of actual damages.

    On the appeal, the 8th Circuit noted that it was the bankruptcy, not the information in plaintiff’s credit report, that led to her applications for credit cards being denied. Regarding her allegation about emotional distress, the appeals court reasoned that plaintiff “‘suffered no physical injury, she was not medically treated for any psychological or emotional injury, and no other witness corroborated any outward manifestation of emotional distress.’” Accordingly, the court concluded that defendants were entitled to judgment as a matter of law.

    Courts Appellate Eighth Circuit FCRA Credit Report Consumer Finance Credit Reporting Agency

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  • 8th Circuit says bank is entitled to proceeds from condo sale

    Courts

    On June 24, the U.S. Court of Appeals for the Eighth Circuit affirmed a trial court’s decision that a plaintiff bank is entitled to the proceeds from the sale of a condominium despite the defendant’s ex-husband’s bankruptcy and an outstanding balance owed to the bank on a business loan. When the defendant signed and initialed a mortgage securing the financing of a condominium, she consented to her ex-husband’s execution of the note but was not a signatory. The mortgage contained three provisions, including (i) a choice-of-law provision specifying that Iowa law governed the mortgage; (ii) a homestead waiver, in which the defendant and her ex-husband “waive[d] all appraisement and homestead exemption rights relating to” the condominium, except as prohibited by law; and (iii) a future advances clause or “dragnet clause,” which granted the plaintiff a security interest in the mortgage that covered future funds the ex-husband may borrow. The plaintiff initiated litigation against the defendant seeking a declaratory judgment that the defendant’s portion of the escrowed sale proceeds was subject to the mortgage’s future advances clause, and that the plaintiff could apply the proceeds to her ex-husband’s business loan. The trial court concluded that the bank was entitled to the proceeds.

    On appeal, the 8th Circuit concluded that the mortgage’s future advances clause encompassed and secured the defendant’s ex-husband's business loan. Among other things, the appellate court rejected the defendant’s arguments that (i) the plaintiff failed to make a prima facie case that it was entitled to the condo sale proceeds because it purportedly “did not prove the proceeds comported with the mortgage’s maximum obligation limit clause (finding “no miscarriage of justice in declining to analyze her claim”); and (ii) the mortgage forced “her to waive her homestead rights in contravention of public policy” and in violation of the FTC’s “unfair credit practices” regulation (16 C.F.R. § 444.2)—a regulation, the appellate court pointed out, that does not apply to “banks” by its own terms. The 8th Circuit also rejected defendant’s unconscionability claim under Iowa law, stating that the “doctrine of unconscionability does not exist to rescue parties from bad bargains.” The appellate court further rejected the defendant’s other “equitable arguments” as “untenable” primarily because the mortgage is a “credit agreement” regulated under Iowa Code § 535.17(5)(c), and that statute expressly displaces equitable remedies.

    Courts State Issues Iowa Appellate Eighth Circuit Bankruptcy Mortgages Consumer Finance

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  • 8th Circuit: No standing in FCRA action following Spokeo

    Courts

    On May 3, the U.S. Court of Appeals for the Eighth Circuit vacated a district court’s approval of a class action settlement agreement in an FCRA action after determining that the plaintiff lacked Article III standing in light of the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins. According to the opinion, after the plaintiff applied for employment with the defendant, the defendant made a conditional offer of employment to the plaintiff and also asked her to sign an authorization for release of information so that it could conduct a background investigation of the plaintiff, including a criminal background search. The plaintiff contended that, after the defendant reviewed the background screening report, it withdrew the conditional offer of employment and did not provide her an opportunity before the offer was withdrawn to correct or explain the results in the report. A follow-up letter, which included a copy of the report and a description of her rights under the FCRA, was sent to the plaintiff stating that if she planned to dispute the information she had to do so within seven days from receipt of the letter. The plaintiff commenced the action in February 2016, alleging the defendant violated the FCRA by: (i) “taking adverse employment action based on a consumer report without first providing the report to the applicant”; (ii) “obtaining a consumer report without providing a disclosure form that complied with the FCRA”; and (iii) “exceeding the scope of the authorization by obtaining more information than the disclosed in the authorization.” In May 2016, the parties reached a tentative settlement agreement, but four days later the Supreme Court issued its decision in Spokeo, which requires plaintiffs to show that they have suffered a concrete injury in fact that is fairly traceable to the challenged conduct of the defendant, and not just allege a statutory violation. Following Spokeo, the defendant moved to dismiss for lack of standing, but the district court approved the settlement.

    On appeal, the 8th Circuit concluded that the plaintiff lacked Article III standing to bring her FCRA claims, determining, among other things, that “the right to pre-action explanation to the employer is not unambiguously stated in the text of the statute,” and that “[n]either the text of the FCRA nor the legislative history provide support for [plaintiff’s] claim that she has a right under the FCRA to not only receive a copy of her consumer report, but also discuss directly with the employer accurate but negative information within the report prior to the employer taking adverse action.” The plaintiff “may have demonstrated an injury in law, but not an injury in fact,” the appellate court wrote. With respect to the plaintiff’s other two claims, the appellate court noted that she failed to show any claim of harm—tangible or intangible. Because Schumacher lacked standing to assert any of her claims, the appellate court vacated the district court’s order and remanded the case with instructions to return the case to the state court.

    Courts Appellate Eighth Circuit Spokeo FCRA Class Action

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  • 8th Circuit says website terms of use are unenforceable

    Courts

    On October 8, the U.S. Court of Appeals for the Eight Circuit overturned a district court’s ruling that a corporate defendant’s arbitration clause found in its website’s terms of use was unenforceable. The 8th Circuit disagreed holding that a triable issue of material fact existed as to whether the plaintiffs agreed to arbitrate.  Relying on a notation on the back of the gift cards that directed purchasers to its website where the terms of use and arbitration agreement were located, the defendant argued that the plaintiffs had agreed to arbitration. The district court disagreed explaining that plaintiffs “could not assent to it. . .unless they saw it first. For that reason, there was no ‘need’ to hold ‘a trial on the question of arbitrability.’”

    On the appeal, the 8th Circuit explained that the district court’s task was to determine if the defendant and the plaintiffs had an arbitration agreement, and, if so, what it covered; however, the district court improperly addressed the question of mutual consent, which was in dispute and “generally a factual question.” According to the 8th Circuit, where there is a material dispute of fact regarding whether there was an agreement to arbitrate, the Federal Arbitration Act requires the district court to proceed to a trial on the issue.

    Courts Class Action Arbitration Eighth Circuit Appellate

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  • 8th Circuit affirms summary judgment for mortgage servicer

    Courts

    On July 9, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment in favor of a mortgage loan servicer (defendant), concluding that the defendant’s communications were not in connection with an attempt to collect a debt. The plaintiff had alleged that the defendant violated the FDCPA by engaging in misrepresentations and unfair conduct when processing the plaintiff’s application for loss mitigation assistance and selling the plaintiff’s home through a foreclosure sale. According to the 8th Circuit, “the district court applied the ‘animating purpose’ test, which considers the content of each communication individually, and determined that they were not made in connection with the collection of a debt.”

    In affirming the district court’s recent order, the 8th Circuit agreed with the district court’s decision that the defendant did not violate the FDCPA because the substance of each of the communications indicates that none were made in connection with an attempt to collect on the underlying mortgage debt.

    Courts Eighth Circuit Mortgages FDCPA Appellate

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  • 8th Circuit affirms summary judgment for servicer without proof of RESPA injury

    Courts

    On February 11, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment in favor of a mortgage loan servicer, concluding that the consumer failed to establish that he was injured by the servicer’s alleged violation of RESPA. As previously covered by InfoBytes, the U.S. District Court for the District of Minnesota ruled on a motion for summary judgment concerning whether the Minnesota Mortgage Originator and Servicer Licensing Act’s (MOSLA) provision prohibiting “a mortgage servicer from violating ‘federal law regulating residential mortgage loans’” provides a cause of action under state law when a loan servicer violates RESPA but where the consumer ultimately has no federal cause of action because the consumer “sustained no actual damages and thus has no actionable claim under RESPA.” The 8th Circuit previously overturned the district court’s earlier ruling to grant summary judgment in favor of the consumer, concluding that while the loan servicer failed to (i) conduct an adequate investigation following the plaintiff’s request as to why there was a delinquency for his account, and (ii) failed to provide a complete loan payment history when requested, its failure did not cause actual damages.

    In affirming the district court’s recent order, the 8th Circuit agreed that for the consumer to pursue a MOSLA cause of action when a loan servicer violates a federal law regulating mortgage loans, such as RESPA, there must be a federal cause of action. Even though the 8th Circuit previously concluded the servicer violated RESPA, the plaintiff must still prove actual damages to establish an injury in order to prevail under MOSLA.

    Courts Appellate Eighth Circuit RESPA Mortgages

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  • 8th Circuit vacates FDCPA judgment against debt buyer

    Courts

    On December 14, the U.S. Court of Appeals for the Eighth Circuit vacated a $4,000 judgment in favor of a consumer in an FDCPA action against a debt buyer (defendant), concluding that while the defendant qualifies as a debt collector, the actions of the subsequent debt collector cannot be imputed to the defendant. According to the opinion, the defendant brought a collection action against a consumer, which was dismissed by the district court after the consumer retained an attorney and the defendant failed to respond to the consumer’s dismissal motion. The defendant subsequently hired a collection agency to collect on the debt but failed to inform the collection agency that the consumer had previous retained an attorney. After the collection agency sent a settlement offer to the consumer, the consumer filed an action against the defendant alleging violations of the FDCPA and the Arkansas Fair Debt Collection Practices Act (AFDCPA) for contacting her directly when she was represented by an attorney. The district court granted partial summary judgment in favor of the consumer, concluding, among other things, that the defendant (i) qualified as a debt collector under federal and state law; (ii) the defendant was acting as an agent of the collection agency; and (ii) the defendant is liable for the violations arising out of the collection agency’s contact with the consumer. The consumer accepted a $4,000 offer of judgment, and the district court entered final judgment.

    On appeal, the 8th Circuit agreed that the defendant qualified as a debt collector under the FDCPA and the AFDCPA, but determined that the consumer “did not present sufficient evidence to establish that [the collection agency]’s actions may be imputed to [the defendant] as a matter of law.” Specifically, the appellate court concluded that in order to establish the defendant’s liability under the FDCPA, the consumer needed to show that the defendant was responsible for the collection agency’s action. Because it was established that the collection agency did not know that the consumer was represented by an attorney, the appellate court noted that the consumer “cannot prevail against [the defendant] on a theory of vicarious liability,” and instead, must prove that an agency relationship existed for direct liability. Because the consumer failed to put into evidence an agreement between the defendant and the collection agency and the district court failed to address the agency relationship, the appellate court concluded the district court erred in granting partial summary judgment and vacated the $4,000 judgment and remanded the case.

    Courts FDCPA Eighth Circuit Debt Collection Debt Buyer

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