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Financial Services Law Insights and Observations

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  • District court approves final settlement resolving breach of contract and conversion claims related to debit card overdraft fees

    Courts

    On May 28, the U.S. District Court for the Southern District of California granted final approval to a roughly $24.5 million settlement resolving class action allegations that a credit union unfairly charged optional overdraft protection fees on certain debit card transactions. In 2017, the plaintiffs challenged the credit union’s practices, alleging breaches of contract, covenant of good faith and fair dealing, and conversion. Specifically, the plaintiffs challenged whether the language in the accountholder agreements prohibited the credit union from assessing and collecting optional overdraft protection fees on certain debit card transactions that were authorized against positive available account balances. In 2018, the court granted in part and denied in part the credit union’s motion to dismiss, allowing the plaintiffs’ breach of contract and conversion claims to proceed. The parties entered into settlement discussions, and reached an agreement. Under the terms of the settlement, the credit union will provide $24.5 million in relief to class members, along with approximately $6.1 million in attorneys’ fees. However, the court denied a request to reimburse plaintiffs’ expert witness for work completed after the settlement agreement was preliminary approved last year, stating “as a matter of awarding funds from the [s]ettlement [f]und, the [c]ourt cannot find reasonable the $109,100.00 price tag for an exercise that appears to post-date the preliminary approval order and which merely confirmed what the parties already understood to be the class’s potential recovery.”

    Courts Overdraft Class Action Settlement Debit Cards Fees

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  • Indiana amends delinquency charge provisions for consumer credit sales and consumer loans

    State Issues

    On May 6, the Indiana governor signed HB 1136, which amends the state’s Uniform Consumer Credit Code (UCCC) to, among other things, revise provisions related to authorized delinquency charges on consumer credit sales and consumer loans. Specifically, the amendments authorize a creditor to collect a delinquency charge of not more than (i) $5 for installments not paid in full within 10 days after the scheduled due date if installments are due every 14 days or less; (ii) $25 for installments not paid in full within 10 days after the scheduled due date if installments are due every 15 days or more; or (iii) $25 on single installments due at least 30 days after the consumer loan is made if the installment is not paid within 10 days after its scheduled due date. Furthermore, creditors are prohibited from collecting—whether directly or indirectly—a delinquency charge on any payment that (i) is paid within 10 days following its scheduled due date; and (ii) “is otherwise a full payment of the payment due for the applicable installment period. . .if the only delinquency with respect to a consumer credit sale, refinancing, or consolidation is attributable to a delinquency charge assessed on an earlier installment.” In addition, HB 1136 amends the maximum transaction fee for revolving loan accounts to the greater of 2 percent of the transaction amount or $10. The amendments take effect July 1.

    State Issues State Legislation Consumer Lending Consumer Finance Fees

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  • Oklahoma prohibits credit, debit card surcharges

    State Issues

    On April 30, the Oklahoma governor signed HB 1425, which, among other things, bans surcharges on credit or debit card transactions. The ban prohibits sellers from increasing the price of any sales transaction for buyers who pay with a credit or debit card instead of a check, cash, or similar means. HB 1425 takes effect November 1.

    State Issues State Legislation Credit Cards Fees

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  • Maryland settles with reverse mortgage servicer for alleged illegal inspection fees

    State Issues

    On April 16, the Maryland Attorney General announced a settlement with a reverse mortgage servicer for allegedly charging homeowners illegal inspection fees. According to the Attorney General, from 2010 through 2016, the servicer passed the cost of inspecting properties in default on to homeowners, which Maryland law does not allow. In 2013, the Maryland Commissioner of Financial Regulation put the servicer on notice that it was charging prohibited inspection fees, but the servicer did not cease the activity until January 1, 2017. The servicer has since refunded or reversed nearly $44,000 in property inspection fees charged to consumers. The settlement agreement requires the servicer to (i) refund inspection fees that have not yet been refunded; (ii) provide notice to any sub-servicer that the inspection fees should be refunded or not collected; (iii) pay $5,000 to the state for costs associated with the investigation; and (iv) pay $50,000 in civil money penalties.

    State Issues State Attorney General Settlement Reverse Mortgages Fees

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  • Iowa amends permissible interest rates on credit transactions

    State Issues

    On April 15, the Iowa governor signed HF 260, which amends the maximum interest rate and charges permitted under Iowa Code 2019. Specifically, for interest-bearing consumer credit transactions up to $30,000 (increased from $10,000), the interest rate may not exceed the lesser of $30 or ten percent of the financed amount. The amendments also specify the minimum charge creditors are allowed to collect or retain when prepayments are made in full, and stipulate that if a service charge has been collected on an interest-bearing consumer credit transaction then a “creditor shall not collect or retain a minimum charge upon prepayment.” HF 260 takes effect July 1.

    State Issues State Legislation Interest Rate Fees Consumer Lending

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  • District Court finds auto dealerships did not violate UTPA or financial elder abuse law

    Courts

    On March 30, the U.S. District Court for the District of Oregon granted a group of car dealerships’ (defendants) summary judgment motion in a putative class action involving claims that the dealership violated Oregon’s Unlawful Trade Practices Act (UTPA) as well as the state’s financial elder-abuse law. The plaintiffs, who all purchased vehicles along with other goods or services from one or more of the defendants, asserted that the defendants allegedly failed to “appropriately disclose [their] specific fees associated with arrangement of financing or the profit margins related to the sale of third-party products and services.” By failing to comply with these disclosure requirements, the plaintiffs alleged that the defendants “wrongfully appropriated money from elderly persons.” Concerning the alleged violations of UTPA, the defendants argued that its section titled “Undisclosed Fee Payments” only applies to referral fees greater than $100 paid to non-employee third-parties and not to other payments made by a dealership to a third party. The court agreed and stated that the defendants’ position was further supported by the state’s official commentary. With regard to the plaintiffs’ other claim concerning deficiencies in the disclosures, the court concluded that “strict recitation of the statute is not required to meet the clear and conspicuous standard,” and that the disclosures in question were clearly visible and easy to understand. Finally, the court granted summary dismissal on the plaintiffs’ claim of elder abuse because the claim was premised on the alleged violations of UTPA, which were dismissed.

    Courts Auto Finance Fees Elder Financial Exploitation Third-Party

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  • North Dakota allows collection agencies to charge credit card fees to debtors

    State Issues

    On March 6, the North Dakota governor signed HB 1204, which allows a collection agency to collect a transaction fee for processing a credit card payment. Under the amended law, a collection agency may collect, in addition to the principal amount of the claim, a transaction fee up to two and half percent for processing a credit card payment if: (i) the transaction fee is not otherwise prohibited under the law; (ii) a no-cost payment option is available to the debtor; and (iii) the no-cost payment option is disclosed to the debtor at the same time and in the same manner that the credit card information is taken. The law takes effect on August 1.

    State Issues Debt Collection State Legislation Credit Cards Fees

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  • Indiana Court of Appeals allows class action to proceed against dealership

    Courts

    On March 6, the Indiana Court of Appeals affirmed the lower court’s denial of an auto dealership’s motion to dismiss a proposed class action alleging the dealership violated the Indiana Deceptive Consumer Sales Act (the Consumer Act). According to the opinion, consumers filed the proposed class action alleging that the dealership charged document preparation fees that exceeded the actual costs incurred by the dealership for preparation and that the fees were not affirmatively disclosed or negotiated with the consumers. The proposed class action argued the charging of the fees was an “unfair, abusive, or deceptive act, omission, or practice in connection with a consumer transaction” under the Consumer Act and quoted a statutory provision from the Indiana Motor Vehicle Dealer Services Act (the Dealer Act). The dealership moved to dismiss the action, arguing there was no private right of action under the Dealer Act and that the consumers failed to state a claim for relief under the Consumer Act. The consumers conceded there was no private right under the Dealership Act, but noted the quoted reference was used to merely describe an unfair practice that is prohibited by the Consumer Act. The lower court denied the motion, concluding that the non-disclosure claim fell within the “catch-all” provision of the Consumer Act.

    On appeal, the appellate court noted that in order to state a claim under the Consumer Act, the consumer must have alleged the dealership “committed an uncured or incurable deceptive act.” The appellate court acknowledged that the allegations that the dealership charged an unfair fee and “did not state its intention as part of the bargaining process” generally fell within the realm of the Consumer Act, and determined that, even without specifics, the complaint’s “general allegations of uncured and incurable acts are adequate to withstand dismissal.”

    Courts State Issues UDAAP Appellate Auto Finance Fees Consumer Finance

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  • Illinois AG sues tax preparers for charging illegal fees

    State Issues

    On March 5, the Illinois Attorney General announced a lawsuit against a Georgia-based tax preparation business and its Chicago operators alleging the defendants collected more than $1 million in undisclosed fees from consumers from their anticipated income tax refunds for unnecessary tax-related financial products. According to the press release, the Illinois AG alleges that the defendants advertised services to consumers promising, for a $350 fee, tax refunds double their normal size and free cash advances on anticipated refunds. However, the AG alleges the defendants instead extract high, undisclosed, and unauthorized fees from consumers’ refunds without their knowledge. The complaint asks the court to grant a temporary restraining order to shut down the defendants’ operations.

    State Issues State Attorney General Consumer Finance Fees

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  • District Court orders ATM and overdraft fee case to arbitration

    Courts

    On January 25, the U.S. District Court for the Southern District of California granted a bank’s motion to compel arbitration in connection with a lawsuit concerning the bank’s assessment of two types of fees. According to the order, the plaintiff filed a lawsuit asserting claims for breach of contract and violation of California’s Unfair Competition Law due to the bank’s alleged practice of charging fees for out-of-network ATM use and overdraft fees related to debit card transaction timing. The bank moved to compel arbitration pursuant to the arbitration provision in the deposit account agreement executed between the bank and the plaintiff. The plaintiff argued against arbitration, citing a California Supreme Court case, McGill v. Citibank, which held that “waivers of the right to seek public injunctive relief in any forum are unenforceable.” In response, the bank argued that (i) McGill does not apply because the plaintiff is not seeking public injunctive relief; and (ii) McGill is preempted by the Federal Arbitration Act (FAA). The court agreed with the bank, determining that the relief sought by the plaintiff would primarily benefit her, stating “any public injunctive relief sought by [plaintiff] is merely incidental to her primary aim of gaining compensation for injury.” As for preemption, the court noted that even if the McGill rule was applicable to a contract, it would not survive preemption as the U.S. Supreme Court has “consistently held that the FAA preempts states’ attempts to limit the scope of arbitration agreements,” and “the McGill rule is merely the latest ‘device or formula’ intended to achieve the result of rendering an arbitration agreement against public policy.” 

    Courts State Issues Fees Arbitration Preemption U.S. Supreme Court Federal Arbitration Act

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