Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On January 9, the Minnesota attorney general announced that an internet service provider (ISP) agreed to pay nearly $9 million in order to resolve allegations that it overcharged customers for phone, internet and cable services. In a separate action, on December 10, the Washington attorney general’s office announced that it entered into a $6.1 million consent decree with the same ISP to resolve similar claims of deceptive acts and practices. As previously covered by InfoBytes, the ISP entered into settlements over the same alleged actions with the states of Colorado on December 19, and Oregon on December 31.
On December 20, the FTC announced it had filed suit for unfair and deceptive acts and practices in violation of the FTC Act against a fuel payment card services company (company) for its “problematic marketing and fee practices.” The FTC’s complaint, filed in U.S. District Court for the Northern District of Georgia, alleges that the company marketed the fuel payment cards to “companies that operate vehicle fleets” with false promises that the cards would provide (i) cost savings; (ii) protection from unauthorized card purchases; and (iii) “no set-up, transaction, or membership fees, including when used to purchase fuel at any of the thousands of locations nationwide that accept [the company’s] fuel cards.” In fact, according to the complaint, the company “has charged customers at least hundreds of millions of dollars in unexpected fees,” and “at least tens of millions of dollars in recurring fees for programs they have not ordered,” and, in spite of its marketing representing otherwise, the company has not provided advertised fuel savings, and has not provided fraud protection for unauthorized transactions. The complaint also claims that the company has not timely posted customer payments when received, leading to customers being levied additional fees for late charges and “related [i]nterest and [f]inance [c]harges even when the customers have paid their balance in full by the due date.” The FTC seeks permanent injunctive relief against the company to prevent future violations, as well as redress for those consumers injured by the FTC Act violations, “including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
On December 19, the Colorado attorney general announced that an internet service provider (ISP) agreed to pay nearly $8.5 million in order to resolve allegations that it “unfairly and deceptively charg[ed] hidden fees, falsely advertis[ed] guaranteed locked prices, and fail[ed] to provide discounts and refunds it promised” to Colorado consumers in violation of the Colorado Consumer Protection Act. According to the announcement, in 2017 the AG’s office investigated the ISP and compiled information that the ISP had “systematically and deceptively overcharged consumers for services” since 2014 (see the complaint filed by the AG here). In the settlement, the ISP agreed to an order that requires it, among other things, to (i) refrain from making false and misleading statements to consumers in the marketing, advertising and sale of its products and services; (ii) accurately communicate monthly base charges as well as one-time fees, taxes, and other fees and surcharges to consumers; (iii) disclose any “internet cost recovery fee” or “broadband recovery fee” to consumers being charged the fees and allow the affected consumers to switch to different services if they wish to avoid the fees; (iv) refrain from charging an “internet or broadband cost recovery fee” on new orders; and (v) provide refunds to customers who were overcharged for services and to those customers who did not previously receive discounts that the ISP promised.
In a separate action, on December 31, the Oregon attorney general’s office announced that it entered into a $4 million Assurance of Voluntary Compliance with the same ISP to resolve similar claims of deceptive acts and practices in the advertising, sale, and billing of the ISP’s internet, telephone and cable services in violation of the Oregon Unlawful Trade Practices Act. According to the announcement, the Oregon DOJ started an investigation of the ISP in 2014 for allegedly “misrepresenting the price of services, failing to inform consumers of terms and conditions that could affect the price, and billing consumers for services they never received.” The ISP agreed to requirements that are very similar to those in the Colorado settlement. The announcement notes that the “Oregon DOJ will continue to lead a separate securities class action lawsuit arising from the same conduct.”
On December 11, a payments company filed a lawsuit against the CFPB in the U.S. District Court for the District of Columbia alleging that the Bureau’s Prepaid Account Rule (Rule), which took effect April 1 and provides protections for prepaid account consumers, exceeds the agency’s statutory authority and is “arbitrary and capricious” under the Administrative Procedures Act (APA). The company further asserts that the Rule violates its First Amendment rights by requiring it to make confusing disclosures that contain categories not relevant to the company’s products. According to the complaint, the Rule mandates that the company send “short form” fee disclosures to customers that include references to fees for ATM balance inquiries, customer service, electronic withdrawal, international transactions, and other categories, and “prohibits [the company] from including explanatory phrases within the disclosure box to describe the nature of these fee categories.” These disclosures, the company asserts, have confused many customers who mistakenly believe the company charges fees to access funds stored as a balance with the company, to make a purchase with a merchant, or to send money to friends or family in the U.S. The company also claims that the Bureau erroneously lumped it into the same category as providers of general purpose reloadable cards (GPR cards), and argues that the Rule ignores how prepaid cards fundamentally differ from digital wallets, which has resulted in several unintended consequences.
The company asserts that the Rule is unlawful and invalid under the APA and the Constitution for three principal reasons:
- The Rule contravenes the Bureau’s statutory authority by (i) establishing a mandatory and misleading disclosure regime that is not authorized by federal law; and (ii) “impos[ing] a 30-day ban on consumers linking certain credit cards to their prepaid account—a prohibition the law nowhere authorizes the Bureau to impose.”
- Even if the Bureau possesses the statutory authority it claims to have, the rulemaking process was “fundamentally flawed” due to its one-size-fits-all Rule that misunderstands the different characteristics of digital wallets compared to GPR cards. By treating digital wallets as if they are GPR cards, the Rule violates the APA’s reasoned decision-making requirement. Additionally, the Rule is marked by “an insufficient cost-benefit analysis that failed to properly weigh the limited benefits consumers might derive from the Rule against the costs” stemming from the Rule’s changes.
- The Rule violates the First Amendment by failing to satisfy the heightened standard that a law or regulation “directly advances a substantial government interest” because it requires the company to makes certain disclosures that are irrelevant to its digital wallet product. Moreover, the Rule’s disclosure obligations “functionally impair the speech in which [the company] might otherwise engage” by mandating that it provide confusing and misleading disclosures about the nature of its offerings.
The complaint asks that the Rule be vacated and declared arbitrary, an abuse of discretion, not in accordance with the law, and unconstitutional, and additionally seeks injunctive relief, attorneys’ fees and costs.
On November 8, the DOJ announced that it charged the principals and co-founders (collectively, “defendants”) of a mortgage short sale assistance company with allegedly defrauding mortgage lenders and investors out of half a million in proceeds from short sale transactions. The DOJ also alleged the defendants’ actions defrauded Fannie Mae, Freddie Mac, and HUD. According to the announcement, from 2014 to 2017, the defendants negotiated with lenders for approval of short sales in lieu of foreclosure, and falsely claimed during settlement that the lenders had agreed to pay loss mitigation service fees from the proceeds of short sales. The defendants allegedly obtained around 3 percent of the short sale price from the settlement agent, which was separate from fees paid to real estate agents and closing attorneys, among others. In order to further deceive lenders, the defendants would then file fabricated documents to justify or conceal the additional fees being paid to the company. The defendants were charged with conspiracy to commit wire fraud, and one co-founder was also charged with aggravated identity theft.
On October 31, the U.S. District Court for the District of New Jersey certified two classes of consumers alleging a payday lender and its subsidiaries charged usurious, triple-digit interest rates on short-term loans originated by a nonparty entity run by a member of a federally recognized Indian tribe. The lawsuit—which alleges, among other things, usury and consumer fraud in violation of New Jersey law, common law restitution and unjust enrichment, and violations of the Racketeer Influenced and Corrupt Organizations Act—was filed in 2016 with the defendants arguing that the claims were subject to an arbitration provision accompanying the loan agreement. However, as previously covered by InfoBytes, the U.S. Court of Appeals for the Third Circuit upheld the district court’s decision that the tribal arbitration forum referenced in the loan agreement does not actually exist and, “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.
According to the plaintiffs, the defendants evaded state law usury limits by attempting to use the sovereignty of an Indian tribe, with most loans carrying an annual percentage interest rate of 139 percent. While the defendants challenged the notion that common questions about the loan agreements predominated over the individual concerns of each class member, the court determined that the loan agreements at issue have an identical structure of interest amortized over a fixed payment schedule. “Plaintiffs have therefore shown that they can use common evidence to prove their [Consumer Fraud Act] claims, and that common questions predominate,” the court stated. “Namely the nearly identical, allegedly usurious loan agreements, which caused an out of pocket loss in the form of usurious interest.” The court also dismissed the defendants’ argument that the plaintiffs’ suit was inferior to a 2018 CFPB action, which resulted in a $10.3 million civil money penalty but no restitution (previous InfoBytes coverage here), stating that “[i]ncredibly, [d]efendants argue that this CFPB action, which denied any recovery to the putative class members here, is a superior means for them to obtain relief.”
On October 17, the U.S. District Court for the District of New Jersey issued an opinion allowing consumer protection claims to proceed against a car dealership related to fees added to vehicle purchase prices, while granting two other related entities’ motions to dismiss. The plaintiff’s complaint against the dealership and related entities alleged that the dealership charged her additional mandatory fees when purchasing the vehicle, required her to spend $3,500 on a service contract in order to obtain financing, and charged interest on the contract even though, the plaintiff alleged, the contract constituted a fee related to the extension of credit and therefore was not subject to interest. These actions, the plaintiff alleged, violated TILA, the Consumer Fraud Act (CFA), the Truth-in-Consumer Contract, Warranty and Notice Act, and the Consumer Service Contract Act (CSCA). According to the plaintiff, the contracts contained cancellation provisions that guaranteed a full refund if a request was submitted within a specified period with a guaranteed 10 percent penalty for each 30-day period for which the refund was unpaid. The plaintiff executed timely refund requests but claimed that the entities failed to refund the fees within the allotted contractual period. In separate motions to dismiss, the entities argued that, while the allegations could be considered contractual breaches, they were not sufficient to constitute violations under the alleged consumer protection statutes. The court agreed and granted the entities’ motions, ruling that their contract language complied with the CSCA and that, although the entities allegedly failed to perform under their contracts, they would only have violated the CFA if they knew at the time the contract was formed that they did not intend to fulfill their contractual duties. Moreover, the court referred to a New Jersey Supreme Court holding, which said that a breach of warranty or contract, “‘is not per se unfair or unconscionable. . .and. . .alone does not violate a consumer protection statute” unless there are “substantial aggravating circumstances.” As such, the court determined, the entities’ alleged breaches of the cancellation provisions were not “‘unconscionable commercial practices’” as required under the CFA. However, the plaintiff can amend her claims.
Moreover, the court ruled that the allegations against the dealership can proceed, and denied the dealership’s bid to send the case to arbitration. According to the court, the dealership’s argument that it never received notices that the plaintiff had initiated arbitration proceedings because of a “clerical error” or a wrong mailing address were unpersuasive, and referred to the American Arbitration Association’s decision to decline “to administer the case due to the failure of [the dealership] to pay the required arbitration fees.”
On October 7, the U.S. District Court for the Southern District of California denied a national bank’s motion for partial summary judgment in a class action alleging the bank wrongfully charged ATM fees in violation of the bank’s standardized account agreement. According to the opinion, the plaintiffs filed the action asserting that the bank charges its customers two out-of-network (OON) fees when an account holder conducts a balance inquiry and then obtains a cash withdrawal at an OON ATM. The bank moved for summary judgment on the breach of contract claim, arguing that the terms and conditions of the contract provide for the charge of a fee “for each balance inquiry, cash withdrawal, or funds transfer undertaken at a non-[bank] branded ATM.” After conducting a limited discovery on the breach of contract issue, the district court denied the bank’s motion, concluding there are “ambiguities regarding the contract terms.” Specifically, the court noted that contract documents describe a “Foreign ATM Fee” as “initiated at an ATM other than a [bank] ATM” and that it uses the singular term of “fee” while providing “no further explanation as to what ‘initiated’ means.” According to the court, there is “ambiguity in the term ‘initiate’ that is ‘susceptible to at least two reasonable alternative interpretations.’” Moreover, the court also concluded that certain onscreen warnings about the right to cancel caused “uncertainty and ambiguity” regarding the assessment of fees, and because there are ambiguities regarding the fee terms, the court could not conclude that the plaintiffs failed to prove a breach of contract.
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.”
On August 13, the U.S. District Court for the Northern District of California dismissed the majority of an EFTA class action against a national bank, allowing only one claim by the lead plaintiff to proceed. In this case, two customers filed a class action against the bank alleging that it violated the EFTA and California’s Unfair Competition Law (UCL) by charging a $30 stop-payment fee. The bank moved to dismiss the plaintiffs’ third amended complaint arguing, among other things, that the plaintiffs lacked standing, the EFTA does not prohibit stop payment fees, and the California UCL claims are preempted by the National Banking Act. While the district court found that the lead plaintiff had standing to assert the claims against the bank, the court also held that the EFTA, its legislative history, and the U.S. Court of Appeals for the 9th Circuit precedent “unambiguously does not prohibit stop payment fees.” Moreover, the court noted that the EFTA and its legislative history say nothing about “how the reasonableness of any such fees should be determined.” The court dismissed the plaintiffs’ class action claims with prejudice.
- Andrew W. Schilling to moderate "Expectations of in-house counsel from their law firm partners" at the ACI's 7th Annual Advanced Forum on False Claims and Qui Tam
- Sasha Leonhardt to discuss "Cybersecurity basics for compliance staff" at a NAFCU webinar
- Buckley Webcast: Tips for navigating changes to the FHA recertification process
- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference
- Kari K. Hall and Michelle L. Rogers to discuss "Overdrafts and regulatory trends" at the CLE Alabama Banking Law Update
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the 17th Puerto Rican Symposium of Anti Money Laundering 2020 conference
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the MBA's Servicing Solutions Conference & Expo 2020
- APPROVED Checkpoint Webcast: CFL overview
- Sasha Leonhardt to discuss "MLA & SCRA" on a NAFCU webinar
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference