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On July 20, the U.S. Court of Appeals for the Ninth Circuit affirmed (in a published and an unpublished opinion) a $142 million class action settlement between a nationwide class of consumers and a national bank, concluding the class was unified by a claim under federal law. The published opinion specifically affirmed the district court’s holding that the class satisfied the predominance requirement under Rule 23 of the Federal Rules of Civil Procedure. In the unpublished memorandum disposition, the 9th Circuit affirmed the district court’s certification of the settlement class, approval of the settlement, award of attorneys’ fees, and approval of notice.
As previously covered by InfoBytes, the settlement covers a 2015 class action lawsuit regarding retail sales practices that involved bank employees creating deposit and credit card accounts without obtaining consent to do so. In April 2017, the bank agreed to expand the original settlement class to include claims dating back to May 2002, resulting in a settlement amount of $142 million. The district court certified the class and approved the settlement. Objectors appealed, arguing that the class did not satisfy the predominance requirement, because the court did not do a choice-of-law analysis.
On appeal, the 9th Circuit upheld the district court’s rulings on the settlement, concluding that the district court did not abuse its discretion in holding the class met the federal predominance requirements. Specifically, the appellate court held that the FCRA claim unified the class, allowing the class to “show that the FCRA’s elements were proven by a common course of conduct.” Moreover, the appellate court concluded that the “existence of potential state-law claims did not outweigh the FCRA claim’s importance.” In a separate unpublished memorandum opinion, the appellate court affirmed, among other things, the award of attorney’s fees, which were “well below the 25% benchmark.”
On February 21, the DOJ and SEC announced that one of the nation’s largest banks agreed to a settlement including a $3 billion monetary penalty to resolve investigations regarding their incentive compensation sales program. (See the DOJ’s Statement of Facts here). As previously covered by InfoBytes, the OCC also recently issued charges against five of the bank’s former executives, and announced settlements with the former CEO and operating committee members for allegedly failing to adequately ensure that the bank’s sales incentive compensation plans operated according to policy.
The SEC alleged in its Cease and Desist order that the bank violated the antifraud provisions of the Securities Exchange Act of 1934. The SEC’s press release states that in addition to agreeing to cease and desist from committing any future violations of the antifraud provisions, the bank agreed to a civil penalty of $500 million, which the SEC will return to harmed investors.
The bank also settled the DOJ’s civil claims under the Financial Institutions Reform, Recovery and Enforcement Act. According to the settlement, the bank accepted responsibility, cooperated in the resulting investigations, and has taken “extensive remedial measures.” In addition, the DOJ’s press release states that it entered into a three-year deferred prosecution agreement with the bank regarding the bank’s sales incentive compensation practices.
On January 23, the OCC issued a notice of charges against five former senior executives for allegedly failing to adequately ensure a national bank’s incentive compensation plans regarding sales practices operated in accordance with bank policy. (See previous InfoBytes coverage here.) The relief sought by the OCC against these individuals could include a lifetime prohibition from participating in the banking industry, a personal cease and desist order, and/or civil money penalties. Under federal law, the individuals may request a hearing to challenge the allegations and relief sought by the OCC. The same day, the OCC also announced settlements with the bank’s former chairman/CEO, its former chief administrative officer and director of corporate human resources, and its former chief risk officer for their alleged roles in the bank’s sales practices misconduct. According to the OCC, the actions serve to, among other things, reinforce the agency’s expectations that management and employees of regulated entities comply with applicable laws and regulations.
In September, the CFPB published documents related to an investigation into whether a national bank opened credit card accounts without customer authorization in violation of various federal laws and regulations, including the Fair Credit Reporting Act and the Consumer Financial Protection Act’s ban on unfair or abusive practices. In March 2019, the Bureau issued a civil investigative demand (CID) to the bank seeking, among other things, “a tally of specific instances of potentially unauthorized credit card accounts,” as well as a manual assessment of card accounts that were never used by the customer. The bank argued in its petition to modify or set aside the CID that it had already provided information to regulators showing that it did not have a “systemic sales misconduct issue,” and cited to the OCC’s broad review into sales practice issues at mid-size and large national banks, which has not, according to the bank, identified systemic issues with bank employees opening unauthorized accounts without consumer consent. Among other things, the bank also contended that the CID was unduly burdensome—requiring manual account-level assessments—and said the CFPB should end its investigation because the facts “refute an investigation’s initial hypothesis.” The bank further argued that the inquiry into its sales practices should be conducted by CFPB supervisory staff instead of as an enforcement investigation, which would be “the proper mechanism for resolving any remaining issues when an investigation fails to uncover evidence warranting [e]nforcement action.”
Concerning the bank’s argument that the CID was unduly burdensome, the Bureau stated in its order denying the petition that the bank had failed to “meaningfully engage” with the Bureau during the course of the investigation in a way that merited modification to the terms of the CID. Moreover, with regard to whether the investigation should be conducted by supervisory staff, the Bureau countered that “[t]his is not a request properly made in a petition to modify or set aside a CID, for the same reasons that it is not proper to use a CID petition to ask that the Bureau close an investigation because (in the recipient’s view) it has already shown that it engaged in no wrongdoing.”
On August 22, a tribal nation issued a press release announcing a $6.5 million settlement with a national bank to resolve allegations related to the opening of deposit and credit card accounts for customers without consent. In 2018, the tribal nation’s suit was dismissed by a district court ruling (previously covered by InfoBytes here), which rejected the tribal nation’s claims under the Consumer Financial Protection Act, holding that the claims were barred by res judicata, as they had previously been litigated under the CFPB’s 2016 consent order and the tribal nation was in privity with the CFPB. (InfoBytes coverage of the CFPB action available here.) The tribal nation appealed the decision to the U.S. Court of Appeals for the 10th Circuit, and on August 20, an order granting a stipulation to dismiss the appeal with prejudice was entered by the court. While the stipulation does not provide any details, the tribal nation’s press release notes that the “settlement compensates the Nation, as well as avoids the uncertainty and expense of continued litigation.”
On February 11, the DOJ announced a $2.5 million settlement with a South Carolina university to resolve allegations that the university violated the False Claims Act (FCA) by submitting false claims to the U.S. Department of Education. According to the announcement, between 2014 and 2016, the university hired a company, which was partially owned by the university, to recruit students to the university and paid the company based on the number of students who enrolled in university programs, in violation of the prohibition on paying incentive compensation in Title IV of the Higher Education Act. The co-owner of the company originally brought a qui tam lawsuit against the university and will receive $375,000 from the settlement.
On December 31, 2018, the U.S. District Court for the District of Utah granted in part and denied in part a national bank’s motion to dismiss putative class action claims concerning the bank’s use of confidential customer information to open deposit and credit card accounts as part of its incentive compensation sales program. (See previous InfoBytes coverage here.) According to the court, the plaintiffs claiming accounts were opened in their name plausibly alleged that the bank benefited from an increase in the number of accounts and products, and disagreed with the bank that the misappropriation of name claim should fail because those plaintiffs’ names and identities had value beyond those of the general public. While the majority of the state claims and all federal claims were dismissed, the court allowed four state claims to remain, including invasion of privacy. However, the court requested that the parties address why it should not decline to exercise jurisdiction over the state law claims following the dismissal of all federal claims.
Additionally, the court dismissed claims brought by “Bystander Plaintiffs” who did not allege the opening of any unauthorized accounts in their names, or claim that their information was ever improperly used or accessed or that they were subject to improper sales practices. Because the Bystander Plaintiffs claimed only that they would not have opened accounts if bank employees had told them about the alleged issues, the court dismissed their claims for lack of Article III standing, reasoning that they did not allege any injury.
State Attorneys General fine national bank $575 million for incentive compensation, mortgage and auto lending practices
On December 28, a national bank reached a $575 million multistate settlement with 50 states and the District of Columbia. Among other things, the settlement resolves allegations that have been the subject of previous litigation concerning the bank’s incentive compensation sales program (covered by InfoBytes here), as well as allegations involving certain practices related to mortgage rate-lock extension fees, auto loan force-placed insurance policies, and guaranteed asset/auto protection products. As previously covered by InfoBytes, the bank reached a settlement last year with the CFPB and the OCC to resolve allegations concerning its auto and mortgage lending practices, which were previously discontinued and for which voluntary consumer remediation was initiated by the bank.
District Court approves $480 million settlement between national bank and investors over incentive compensation sales program
On December 18, the U.S. District Court for the Northern District of California granted final approval following a fairness hearing to a $480 million settlement with a national bank to resolve a consolidated class action related to the bank’s previous incentive compensation sales program. As previously covered by InfoBytes, an agreement in principle was announced last May. The court’s order resolves class action allegations stemming from the September 2016 consent order between the bank and the CFPB, which resolved allegations related to the opening of deposit and credit card accounts for consumers without consent. (See previously InfoBytes coverage here.)
On October 22, the New York Attorney General announced a $65 million settlement with a national bank to resolve allegations regarding its retail sales business model in violation of the Martin Act and New York common law. The Attorney General had alleged the bank failed to disclose to investors that the success of the bank’s incentive compensation program may encourage certain misconduct.
As previously covered by InfoBytes, in May, the bank announced it reached an agreement in principle to pay $480 million to investors to resolve a consolidated action related to the same issues.
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