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Financial Services Law Insights and Observations


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  • District Court receives proposed settlement agreement of $6.3 million for alleged breach of contract


    On February 6, the U.S. District Court for the Eastern District of Tennessee received the plaintiffs’ unopposed motion for preliminary approval of a class action settlement agreement as part of their lawsuit against a large bank for alleged breach of contract. According to the motion, the class action started when the plaintiffs allegedly sustained damages after the bank’s predecessor breached its contract. The contract in dispute provided consumers a high-interest market investment account that had an interest rate that was “guaranteed [to] never fall below 6.5%”; however, in 2018, the predecessor bank dropped the interest rate on all accounts below the “guaranteed” floor of 6.5 percent, down to 1.05 percent, and then to nearly zero. While the plaintiffs alleged this to be a breach of contract, the bank’s representative allegedly testified they did not have to honor the guaranteed interest rates “because the signature cards (signed by some account holders) allowed FNB to ‘adjust’ the interest rate.”

    One hundred and twenty-one plaintiffs are seeking court approval of their class action settlement. As part of the proposed settlement, plaintiffs want the defendant to pay $6.3 million to settle the class action. Additionally, the named plaintiffs want to receive $10,000 per plaintiff. The court neither granted nor denied the plaintiffs’ motion, but the defendant bank did not oppose the plaintiffs’ motion. A final hearing to consider entry of a final order is outstanding.

    Courts Settlement Agreement Class Action Breach of Contract

  • District Court grants summary judgement for bank in “spoofing” case


    On September 29, the U.S. District Court for the Southern District of New York granted summary judgement on all claims in favor of the defendant bank, while denying summary judgement for the New Jersey-based plaintiff. The plaintiff alleged violations of the UCC, breach of contract, and gross negligence arising from a “spoofing” fraud incident that resulted in more than $8.5 million being wired from the plaintiff’s account with the defendant. The district court reasoned that the plaintiff was not entitled to a refund because the plaintiff’s employees authorized the wires – and claims under Section 4-A of the UCC require that a payment order be both not authorized and not effective in order to refund a payment. The court rejected the plaintiff’s argument that the wires were improper because the bank’s policy prohibited bank employees from authorizing wires over $500,000 – noting that the policy was for “internal use only,” and solely for the bank’s protection. Further, the court rejected the plaintiff’s common law claims as pre-empted by Article 4-A.


    Courts New York Fraud Breach of Contract

  • District court rejects bank’s bid to dismiss NSF suit


    On February 19, the U.S. District Court for the Southern District of West Virginia denied a bank’s motion to dismiss a putative class action suit alleging the bank violated account agreements by routinely assessing more than one “non-sufficient funds fee [(NSF)] for a single attempted transaction.” According to the order, the plaintiff filed a lawsuit asserting various claims, including for breach of contract, unjust enrichment, and deceptive business practices in violation of the West Virginia Consumer Credit and Collection Act (WVCCCA) due to the bank’s alleged practice of charging multiple $36 NSF fees when customers try to make a purchase but are declined due to insufficient funds. The plaintiff claimed that the bank’s failure to clearly alert customers of its practice of charging more than one NSF fee “for a single transaction . . . is confusing or misleading conduct” and “an unlawful practice under the WVCCCA.” The bank moved to dismiss the claims, arguing among other things, that the plaintiff’s 2012 account agreement contained an arbitration clause and that federal law preempts the plaintiff’s state-law claims regarding fees imposed by national banks.

    The court first disagreed with the bank on the matter of arbitration, stating that the arbitration clause contained in the 2012 account agreement may have been erased by updates the bank made in 2017 to the plaintiff’s account terms, which provided that the account would “be governed by the following terms and conditions” but omitted any mention of arbitration. As for preemption, the court ruled that the plaintiff’s state-law claims “are precisely the sort of claims that are not preempted by federal law.” (Emphasis in the original.) According to the court, “the proposition that ‘state law claims challenging fees imposed by national banks are expressly preempted by federal law’ is as overbroad as it is incorrect.” Furthermore, the court noted that the plaintiff’s “own principal citation makes this point clearly, noting that ‘it is . . . well established that true breach of contract and affirmative misrepresentation claims’—both state law torts—‘are not federally preempted.’” In addition, the court determined that it is unclear whether the bank’s account agreement governing the bank’s relationship with the customer authorized it to charge successive NSF fees per transaction. The court also concluded that it was not clear that the NSF fees could legally constitute billing errors—a contention made by the bank in its argument that the case was time-barred because the plaintiff failed to dispute the additional NSF fees within the 60-day window to challenge a billing error as permitted under the Electronic Funds Transfer Act. Explaining its reasoning, the court noted that it “struggles to conceive of a scenario in which a fee could be justified by a contract and assessed as a regular business practice, yet still be considered an ‘error’ within any reasonable definition of the word.”

    Courts Class Action Arbitration Fees State Issues Breach of Contract

  • Court certifies breach of contract class against bank


    On January 30, the U.S. District Court for the Northern District of California certified a class of mortgage borrowers in a breach of contract suit against a national bank (defendant). In doing so, the court approved a class defined as consumers who (i) had a mortgage loan with the defendant; (ii) qualified for a modification of their loan between 2010 and 2018 “pursuant to the requirements of government-sponsored enterprises (such as Fannie Mae and Freddie Mac), the Federal Housing Administration (FHA), [or] the U.S. Department of Treasury’s Home Affordable Modification Program (HAMP)”; (iii) though they qualified, were not offered a loan modification by the defendant due to defendant’s flawed calculations of eligibility; and (iv) had their homes foreclosed upon and sold by the defendant. According to the order, the plaintiffs claimed that in 2013 the “defendant discovered a calculation error that had caused certain fees to be misstated and had resulted in incorrect mortgage modification denials,” but the problem was not fully resolved until 2018.

    The court also granted the plaintiffs’ motion for leave to file a third amended complaint in order to add a plaintiff “whose property was secured by an FHA instrument.” The plaintiffs reasoned that they should have a representative for the FHA contracts as well as a representative for the GSE contracts, in case it is argued that the FHA and GSE contracts are so different that each requires its own representative.

    Courts HAMP Class Action GSE Foreclosure FHA Mortgages Breach of Contract

  • New York Supreme Court Appellate Division says repurchase obligations not limited to defaulted loans


    On September 17, the New York Supreme Court, Appellate Division, affirmed a trial court’s decision to grant partial summary judgment in favor of four residential mortgage-backed securities (RMBS) trusts (plaintiffs) on breach of contract allegations related to pooling and servicing agreement (PSA) repurchase obligations. The appellate court also concluded that the trial court correctly denied a motion for summary judgment filed by the seller of the mortgage loans (defendant). At issue were PSAs—entered between the plaintiffs and the defendant—containing a “repurchase protocol,” which dictate that the defendant is required to “cure, substitute, or repurchase” any defective loans “within 120 days of the earlier of the discovery by the defendant . . . or [the defendant’s] receipt of written notice from any party of a breach of any representation or warranty in the PSAs which ‘materially and adversely affects’ the interest of certificateholders in any mortgage loan.” The trial court denied the defendant’s motion for summary judgment, which, among other things, sought dismissal of claims related to the defective loans that the defendant argued were not specifically identified in timely breach notices. According to the appellate court, the trial court had correctly held that the trustee had delivered “timely presuit letters” concerning the defective loans that were placed in the trusts and had provided sufficient “notice that the breaches plaintiffs were investigating might uncover additional defective loans for which claims would be made.” The appellate court also agreed with the trial court’s decision to grant the plaintiffs’ motion for partial summary judgment to the extent that it sought a ruling that a breach that “materially and adversely” affects the certificateholders’ interest—as outlined in the repurchase protocol—is not limited to loans in default, but also “applies to any breach that ‘materially increased a loan’s risk of loss.’” Further, the appellate court also concurred with the trial court’s decision to grant the plaintiffs’ motion for partial summary judgment and deny the defendant’s motion concerning the use of statistical sampling to prove breach of contract claims for both liability and damages. However, both courts agreed that the defendant will have an opportunity to raise those arguments if it chooses to challenge the sample size or the loans chosen as part of the sample.

    Courts RMBS Appellate Breach of Contract

  • Court holds credit union must face breach of contract claims over overdraft practices


    On November 8, the U.S. District Court for the District of Massachusetts granted in part and denied in part a credit union’s motion to dismiss a putative class action challenging the institution’s overdraft practices. As summarized in the order, the plaintiff alleged the credit union improperly charged overdraft fees when the “available balance” of her account, which was calculated by deducting pending debits and deposit holds, was insufficient to cover a transaction, even though the “actual” or ledger balance would have covered the transaction. The plaintiff brought multiple claims against the credit union, including breach of contract and Electronic Funds Transfers Act (EFTA) claims.

    The credit union moved to dismiss arguing, in part, that the relevant account agreements referenced the “available balance” method for overdraft purposes and that the term is a “well-known bank term that has long been understood to mean the money in an account minus holds placed on funds to account for uncollected deposits and for pending debit transaction.”

    The court disagreed, concluding that “available balance” is not a defined term, is ambiguous, and therefore its meaning presents a factual dispute that cannot be resolved on a motion to dismiss. The court allowed, however, the EFTA claim to proceed only for violations that occurred within one year of the complaint filing.

    Courts Credit Union Overdraft EFTA Class Action Breach of Contract

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