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District Court finds auto dealerships did not violate UTPA or financial elder abuse law
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.
North Dakota allows collection agencies to charge credit card fees to debtors
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.
Indiana Court of Appeals allows class action to proceed against dealership
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.”
Illinois AG sues tax preparers for charging illegal fees
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.
District Court orders ATM and overdraft fee case to arbitration
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.”
Illinois authorizes higher verification fee under Payday Loan Reform Act
On January 4, the Illinois governor signed HB 4873, which amends the state’s Payday Loan Reform Act (the Act) to increase from $1 to $3 the maximum verification fee that a certified consumer reporting service may charge a lender—and that the lender may pass on to the borrower—for verifying an installment payday loan as required by the Act. The increased verification fees may be charged beginning July 1, 2010. The verification fee paid by the borrower cannot exceed the fee paid by the lender.
Court approves final class action settlement; previously ruled that extended overdrawn balance charge fees are “interest” under National Bank Act
On August 31, the U.S. District Court for the Southern District of California granted final approval to a class action settlement, resolving a suit alleging that a national bank’s overdraft fees exceeded the maximum interest rate permitted by the National Bank Act (NBA). According to the order, the settlement ends a putative class action concerning the bank’s practice of charging a $35 “extended overdrawn balance charge” fee (EOBCs) on deposit accounts that remained overdrawn for more than five days when funds were advanced to honor an overdrawn check. Class members argued that the fee amounted to interest and—when taken into account as a percentage of an account holder’s negative balance—exceeded the NBA’s allowable interest rate. The bank countered, stating that “EOBCs were not ‘interest’ and therefore cannot trigger the NBA.” A 2016 order denying the bank’s motion to dismiss, which departed from several other district courts on this issue, found that “covering an overdraft check is an ‘extension of credit’” and therefore overdraft fees can be considered interest under the NBA. The bank appealed the decision to the 9th Circuit in April 2017, but reached a settlement last October with class members.
Under the terms of the approved settlement, the bank will refrain from charging extended overdraft fees for five years—retroactive to December 31, 2017—unless the U.S. Supreme Court “expressly holds that EOBCs or their equivalent do not constitute interest under the NBA.” The bank also will provide $37.5 million in relief to certain class members who paid at least one EOBC and were not provided a refund or a charge-off, and will provide at least $29.1 million in debt reduction for class members whose overdrawn accounts were closed by the bank while they still had an outstanding balance as a result of one or more EOBCs applied during the class period. The bank also will pay attorneys’ fees.
New Jersey amends mortgage statute, includes “transitional mortgage loan originator license”
On August 24, New Jersey Governor Phil Murphy signed AB 2035, which amends the New Jersey Residential Mortgage Lending Act and certain related statutes. Among other technical and clarifying changes, the amendments create a framework for the issuance of a “transitional mortgage loan originator license,” which would allow an “out-of-state mortgage loan originator” or a “registered mortgage loan originator” to obtain temporary authority to engage in the business of mortgage loan origination in New Jersey for 120 days before obtaining a New Jersey mortgage loan originator license. The amendments provide specific definitions for what constitutes a “registered mortgage loan originator” and what constitutes an “out-of-state mortgage loan originator.” Specifically, the amendments define an “out-of-state mortgage loan originator” as an individual who is registered with Nationwide Mortgage Licensing System and currently holds a valid mortgage loan originator license issued under the law of any other state or jurisdiction in the country. And the law amends the definition of “registered mortgage loan originator” to include a requirement that such a person must be validly registered as a mortgage loan originator with a depository institution employer for at least the one-year period prior to applying for licensure under the act.
The amendments revise the types of fees that residential mortgage lenders have the right to charge related to the origination, processing, and closing of a mortgage loan: (i) application fee; (ii) origination fee; (iii) lock-in fee; (iv) commitment fee; (v) warehouse fee; (vi) discount points; and (vii) fees necessary to reimburse the lender for charges imposed by third parties, such as appraisal and credit report fees. The amendments also create a different list of fees a mortgage broker may charge in connection with the brokering of any mortgage loan transaction.
The amendments take effect 90 days after the bill’s enactment.
Georgia Attorney General reaches settlement with mortgage company to resolve allegations concerning unauthorized third-party fees
On August 1, the Georgia Attorney General announced a settlement with a New Jersey-based mortgage company to resolve allegations that it charged unauthorized fees to Georgia consumers in violation of the state’s Fair Business Practices Act. According to the Attorney General’s office, the company allegedly marketed various third-party products and services, such as insurance products and home warranty programs, for certain mortgages it serviced and added the charges for these products and services to consumers’ monthly mortgage bills without their knowledge. Under the settlement terms, the company is required to (i) comply with the Fair Business Practices Act; (ii) refrain from soliciting third-party products and/or services to Georgia consumers; (iii) cease all billing for the alleged third-party products and services; (iv) notify consumers currently being billed for the alleged third-party products and services that the remainder of their contracts may be cancelled without penalty; (v) pay $25,000 in restitution; and (vi) pay $50,000 to the Attorney General’s office to go towards fees, penalties, investigation and litigation costs, and future consumer protection and education costs.
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.”