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Financial Services Law Insights and Observations


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  • District Court preliminarily approves class action settlement concerning mortgage “Pay-to-Pay” fees


    On July 19, the U.S. District Court for the District of Minnesota granted preliminary approval of a proposed settlement in a class action against a mortgage lender (defendant) alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment, as well as violations of the FDCPA and various state laws. The plaintiffs originally filed three separate putative class actions against the defendant alleging the lender violated state laws in Minnesota, North Carolina, and Texas and breached consumers’ mortgage agreements by improperly charging and collecting “Pay-to-Pay” fees when borrowers made monthly mortgage payments by telephone, interactive voice response, or the internet. The defendant denied the allegations and any wrongdoing and moved to dismiss the claims. After proceedings were stayed in all three class actions pending mediation, notices of settlement were filed in each case providing that a global settlement had been reached and that plaintiffs would be added to one lawsuit. Under the terms of the preliminarily approved settlement, the defendant agreed to pay $5 million to establish a settlement fund and resolve the plaintiffs’ claims.

    Courts Mortgages Class Action Fees State Issues Consumer Finance

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  • Colorado limits credit and debit card surcharges

    State Issues

    On July 7, the Colorado governor signed SB 91, which, among other things, repeals a prior ban on surcharges for credit or debit card transactions. The bill limits the maximum surcharge amount per transaction to 2 percent of the payment amount or the actual fee. Merchants are required to display a specified notice regarding the surcharge on their premises or, for online purchases, before a customer’s completion of the transaction. The act becomes effective July 1, 2022.

    State Issues Colorado Credit Cards State Legislation Fees

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  • Bank reaches auto loan settlement


    On June 8, the U.S. District Court for the Central District of California preliminarily approved a class action settlement, resolving allegations that a national bank failed to properly refund payments made pursuant to guaranteed asset protection waiver (GAP Waiver) agreements entered into in connection with auto loans. As previously covered by InfoBytes, the plaintiffs claimed that the bank knowingly collected unearned fees for GAP Waivers and allegedly “concealed its obligation” to issue refunds on GAP Waiver fees for the portion of the GAP Waiver’s initial coverage that was cut short by early payoff. The bank sought dismissal of the suit, arguing, among other things, that—with the exception of one consumer’s claims—all of the plaintiffs’ contracts include “a condition precedent under which the [p]laintiffs must first submit a written refund request for unearned GAP fees before being entitled to a refund,” a condition, the bank argued, which was not fulfilled. The court dismissed breach of contract claims brought by the majority of the plaintiffs, noting that most of the plaintiffs were not excused from complying with the condition precedent in their contracts with the bank. The court did, however, allow claims filed by plaintiffs whose contracts did not contain condition precedent language to proceed.

    Under the terms of the preliminary settlement reached between the parties, beginning in 2022 and continuing for four years, the bank is obligated to automatically refund unearned GAP fees to consumers who pay off their auto loans early, and will pay refunds along with compensation for the loss of the use of the funds to class members who have not yet received such payment. The bank will also add $45 million in a “supplemental” settlement fund to cover refunds, additional compensation payments, and other settlement-related costs and expenses. This amount is in addition to the more than $33 million in refunds the bank has already issued. The bank did not admit any wrongdoing and maintained that it did not breach the terms of any GAP agreements or otherwise fail to pay early payoff GAP refunds.

    Courts Class Action Settlement Auto Finance Guaranteed Asset Protection Fees Consumer Finance State Issues

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  • Custody bank to pay $115 million to end overbilling investigation


    On May 13, a Massachusetts-based custody bank entered into a deferred prosecution agreement (agreement) with the DOJ related to a criminal indictment for a single count of conspiracy to commit wire fraud. According to the DOJ’s press release, the bank acknowledged that, from at least 1998 through 2015, it, along with eight co-conspirator bank executives (collectively, “defendants”), defrauded clients of more than $290 million by charging hidden markups to out-of-pocket (OOP) expenses “on top of fees that the clients had agreed to pay the bank, and despite written agreements that caused clients to believe the expenses would be passed through to them without a markup.”

    Under the terms of the agreement, the bank agreed to (i) pay a $115 million monetary penalty; (ii) continue to cooperate with the U.S. Attorney’s Office; (iii) enhance its compliance practices; and (iv) hire an independent compliance and business ethics monitor for two years. The DOJ credited the bank for (i) voluntarily disclosing its misconduct; (ii) cooperating with the DOJ’s investigation; (iii) undertaking remedial measures to enhance its compliance program and to ensure consequences for individuals and business units involved in the misconduct; (iv) reimbursing affected clients for the overbilled amounts; and (v) previously paying $88 million in civil money penalties to the SEC and $8.575 million in civil penalties to state regulators.

    Courts Fees Department of Justice Indictment Wire Fraud

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  • District Court signals approval of $3.3 million mortgage convenience fee settlement


    On May 6, the U.S. District Court for the Central District of California preliminarily approved a revised class action settlement concerning allegations that a mortgage servicer charged borrowers a $15 convenience fee for making mortgage payments over the phone. The plaintiff filed a class action complaint in 2019 against the servicer alleging, among other things, that the servicer’s assessment of the convenience fee breached her mortgage agreement and violated the FDCPA, California’s Rosenthal Fair Debt Collection Practices Act, and California’s Unfair Competition Law. The parties reached a settlement in 2020, but the court denied approval, expressing concerns with several aspects of the settlement, including the adequacy of the settlement fund, anticipated attorneys’ fees and incentive award requests, and proposed notice to potential class members. Under the terms of the revised settlement, the servicer will be required to pay approximately $3.3 million into a settlement fund, which will be distributed to class members according to the proportional amount of the pay-to-pay fees charged to each borrower within the class period. Additionally, the named plaintiff agreed to seek an incentive award not to exceed $5,000, and attorneys’ fees and expenses will be capped at 25 percent of the settlement fund.

    Courts Mortgages Fees Consumer Finance State Issues

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  • New York law prohibiting paper billing statement fees is an unconstitutional restriction of commercial speech


    On March 16, the U.S. District Court for the Northern District of New York dismissed a putative class action with prejudice over whether a national bank violated state law by charging a fee for paper billing statements in certain circumstances. The consumer’s suit alleged violations of N.Y. Gen. Bus. Law § 399-zzz as well as N.Y. Gen. Bus. Law § 349, which prohibits deceptive acts and practices. The bank argued, among other things, that (i) the consumer’s § 399-zzz claim was preempted by the National Bank Act (NBA); (ii) the consumer’s interpretation of § 399-zzz “would prevent [the bank] from exercising its federally authorized power to charge non-interest fees”; (iii) § 399-zzz is unconstitutional under the First Amendment because it limits the bank’s communication of fees and pricing to consumers; (iv) the statute does not apply to national banking institutions like the defendant; and (v) the statute does not prohibit the conduct at issue. The court disagreed, ruling that § 399-zzz is not preempted by the NBA because paper statement fees are not limited to only banking institutions. Moreover the court determined that the state statute is a rule of general application and “does not prevent or significantly interfere with [the bank’s] exercise of its powers.” However, the court ultimately dismissed the consumer’s action, agreeing that § 399-zzz constitutes an unconstitutional restriction on the bank’s First Amendment right of commercial speech under intermediate scrutiny. According to the court, § 399-zzz regulates “how businesses can communicate their fees” by “prohibit[ing] businesses from charging consumers for receiving a paper statement” but permits businesses “to offer consumers a credit for receiving an electronic statement instead of a paper statement.” The court also ruled that the consumer failed to state a claim for a deceptive act or practice because §399-zzz unconstitutionally infringes on the bank’s First Amendment rights.

    Courts State Issues National Bank Act Fees Class Action First Amendment

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  • Bank reaches $5.2 million settlement in ATM fee class action


    On February 3, consolidated class members filed an unopposed motion for preliminary approval of a settlement agreement in the U.S. District Court for the Southern District of Ohio to resolve allegations that a national bank breached its account agreement by assessing balance inquiry fees in certain circumstances. Class members, comprised of current and former account holders, claimed that the bank assessed fees if account holders used an ATM outside of the bank’s network (non-bank ATM) to check their balances. The class also alleged that the bank assessed multiple fees if a balance inquiry was undertaken “during the same ATM visit as a cash withdrawal or other funds transfer.” As a result of the action, the bank modified its account disclosures to “better inform its customers that they could be charged a fee for a balance inquiry” at a non-bank ATM. The preliminary settlement seeks to certify class members who were assessed the contested fees from January 1, 2010 through October 31, 2018 and will not require class members to file claims to receive the settlement’s benefits. Under the preliminary settlement terms, the bank will pay $5.2 million into a common fund, and has agreed to analyze its historical transaction data to identify settlement class members and automatically credit settlement proceeds into their accounts via direct deposit.

    Courts ATM Fees Settlement Class Action

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  • District court approves $13 million settlement in ATM fee class action


    On January 21, the U.S. District Court for the Southern District of California granted final approval of a $13 million class action out-of-network (OON) ATM fee settlement. As previously covered by InfoBytes, the plaintiffs filed the action asserting that the bank charges its customers two 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, which the district court denied, concluding that there were ambiguities regarding the fee terms provided in the contract and on the on-screen ATM warnings. After participating in a private mediation, the plaintiffs filed an unopposed motion for preliminary approval of the settlement. The $13 million settlement covers a total of over 1.6 million class members—defined as all bank account holders in the U.S. who incurred at least one OON balance inquiry fee during varying time periods based on location— and provides for a $10,000 incentive award to each of the named plaintiffs and $3.9 million for plaintiffs’ counsel. In exchange for their share of the settlement funds, the class members will agree to release the bank from all claims relating to the action.

    Courts ATM Fees Class Action Settlement

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  • Court vacates mandatory disclosures and 30-day credit linking restriction in Prepaid Accounts Rule


    On December 30, the U.S. District Court for the District of Columbia granted a payment company’s motion for summary judgment against the CFPB, vacating two provisions of the agency’s Prepaid Account Rule: (i) the short-form disclosure requirement “to the extent it provides mandatory disclosure clauses”; and (ii) the 30-day credit linking restriction. As previously covered by InfoBytes, the company filed a lawsuit against the Bureau alleging, among other things, that the Bureau’s Prepaid Account Rule exceeds the agency’s statutory authority “because Congress only authorized the Bureau to adopt model, optional disclosure clauses—not mandatory disclosure clauses like the short-form disclosure requirement.” The Bureau countered that it had authority to enforce the mandates under federal regulations, including the Electronic Fund Transfer Act (EFTA), TILA, and Dodd-Frank, arguing that the “EFTA and [Dodd-Frank] authorize the Bureau to issue—or at least do not foreclose it from issuing—rules mandating the form of a disclosure.” The Bureau also claimed that its general rulemaking power under either TILA or Dodd-Frank provides authority for the 30-day credit-linking restriction.

    With respect to the mandatory disclosure clauses of the short-form requirement in 12 CFR section 1005.18(b), the court concluded, among other things, that the Bureau acted outside of its statutory authority. The court stated that “Congress underscored the need for flexibility by requiring the Bureau to ‘take account of variations in the services and charges under different electronic fund transfer systems’ and ‘issue alternative model clauses’ for different account terms where appropriate” and it could not “presume—as the Bureau does—that Congress delegated power to the Bureau to issue mandatory disclosure clauses just because Congress did not specifically prohibit them from doing so.”  

    In striking the mandatory 30-day credit linking restriction under 12 CFR section 1026.61(c)(1)(iii), the court determined that “the Bureau once again reads too much into its general rulemaking authority.” First, the court determined that neither TILA nor Dodd-Frank vest the Bureau with the authority to promulgate substantive regulations on when consumers can access and use credit linked to prepaid accounts. Second, the court deemed the regulatory provision to be a “substantive regulation banning a consumer’s access to and use of credit” under the disguise of a disclosure, and thus invalid.  

    Courts CFPB Digital Commerce Prepaid Rule Fees Disclosures Prepaid Cards EFTA TILA Dodd-Frank

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  • OCC releases 2021 fees and assessments schedule

    Agency Rule-Making & Guidance

    On December 1, the OCC issued Bulletin 2020-106, which informs all national banks, federal savings associations, and federal branches and agencies of foreign banks of the agency’s 2021 fees and assessment rates. For 2021, the OCC is reducing the rates in all fee schedules by 3 percent, which “reflects cost savings in the OCC’s operations and projections of the OCC’s revenues and expenses.” Additionally, the OCC notes that for the 2021 assessment year, among other things, (i) there will be no inflation adjustment to assessment rates; (ii) new entrants to the federal banking system will be assessed on a prorated basis using call report information as of December 31 or June 30, depending on the entrance date; and (iii) the hourly fee for special examinations and investigations will increase from $140 to $150. The bulletin takes effect January 1, 2021.

    Agency Rule-Making & Guidance OCC Fees Assessments

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