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Financial Services Law Insights and Observations


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  • New Jersey says realty company misled consumers about homeowner program

    State Issues

    On June 6, the New Jersey attorney general and the New Jersey Division of Consumer Affairs filed an action against a realty company and its principals (collectively, “defendants”) for allegedly violating the state’s Consumer Fraud Act by making deceptive misrepresentations about its “Homeowner Benefit Program” (HBP). Concurrently, the New Jersey Real Estate Commission in the Department of Banking and Insurance filed an order to show cause alleging similar misconduct and taking action against the real estate licenses belonging to the company and certain related individuals.

    According to the complaint, the defendants’ HBP was marketed to consumers as a low-risk opportunity to obtain quick, upfront cash between $300 and $5000 in exchange for giving defendants the right to act as their real estate agents if they sold their homes in the future. The HBP was not marketed as a loan and consumers were told they were not obligated to repay the defendants or to ever sell their home in the future. However, the press release alleged that the HBP functions as a high-interest mortgage loan giving the defendants the right to list the property for 40 years, and that the loan survives the homeowner’s death and levies a high early termination fee against the homeowners. The complaint further charged the defendants with failing to disclose the true nature of the HBP and failing to present the terms upfront. Moreover, in order to sell the HBP, the defendants allegedly placed unsolicited telephone calls to consumers despite not being licensed as a telemarketer in New Jersey. The complaint seeks an order requiring defendants to discharge all liens against homeowners, pay restitution and disgorgement, and pay civil penalties and attorneys’ fees and costs.

    The order to show cause alleges violations of the state’s Real Estate License Act and requires defendants to show why their real estate licenses should not be suspended or revoked, as well as why fines or other sanctions, such as restitution, should not be imposed. Defendants have agreed to cease any attempt to engage New Jersey consumers in an HBP agreement pending resolution of the order to show cause.

    State Issues Licensing Enforcement New Jersey Consumer Finance Predatory Lending State Attorney General State Regulators

  • 3rd Circuit: Now-invalid default judgment still in effect when debt collection attempts were made


    On January 11, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s decision to grant summary judgment in favor of defendants accused of violating the FDCPA when attempting to collect on a judgment that was later vacated. According to the opinion, the plaintiff was sued in state court for an unpaid debt. Contradictory orders were entered by the Superior Court, one which dismissed the action due to one of the defendant’s failure to attend trial, and another that entered default judgment against the plaintiff (which was confirmed two years later by the state court).

    A few years later, an attempt was made to collect on the debt. The plaintiff disputed the debt and later sued, claiming the defendants “knew or should have known” that the debt was unenforceable. The plaintiff later filed a motion in state court to vacate the default judgment and declare it “void ab initio,” which was eventually granted by the state court after it determined that the judgment was erroneously entered by the clerk after the court had already dismissed the case due to the debt collector’s failure to appear for trial. The plaintiff filed a cross-motion for summary judgment in the district court.

    The district court, however, found that the defendants’ alleged efforts to collect the debt were not false or misleading because the now-invalid default judgment at issue was technically still valid and existed when the collection attempts were made. The plaintiff appealed, arguing that the summary judgment violated the Rooker-Feldman doctrine because the district court “‘could not have reached the decision that it did without necessarily supplanting’ the Superior Court’s order vacating the judgment against her.” The plaintiff also argued that the district court erred when it found the Superior Court judgment against the plaintiff to be “in effect . . . until such time as it was vacated, . . . rather than ‘per se not valid’” when the defendants engaged in their efforts to collect the debt.

    On appeal, the 3rd Circuit disagreed with the plaintiff’s assertions. According to the appellate court, the plaintiff satisfied none of the four requirements to trigger the Rooker-Feldman doctrine, adding that regardless of whether the state court declared the judgment “void ab initio,” it was in effect when the defendant attempted to collect on the debt. Moreover, the appellate court noted that the plaintiff “failed to present a triable issue that any communication from Defendants to [the plaintiff] regarding the collection of the default judgment was made unlawful retroactively upon the Superior Court vacating its default judgment order.”

    Courts State Issues Appellate FDCPA Debt Collection Consumer Finance New Jersey

  • New Jersey reaches $27.3 million settlement with merchant cash advance operation

    State Issues

    On January 3, the New Jersey attorney general announced a $27.4 million settlement with a private equity firm, its parent company, and six other associated companies (collectively, “respondents”) to resolve allegations related to violations of the New Jersey Consumer Fraud Act (CFA). According to the press release, the respondents targeted small businesses to enter into lending arrangements disguised as merchant cash advances (MCA) on future receivables. The AG claimed these loans effectively charged interest rates far exceeding the state’s usury caps. According to the attorney general’s press release, the respondents also allegedly engaged in deceptive servicing and collection practices against small businesses.

    Under the terms of the consent order, the respondents are permanently enjoined from engaging in any acts or practices that violate the CFA and any applicable Advertising Regulations. The respondents have also agreed to forgive all outstanding balances for customers who entered MCAs (approximately $21.75 million) and pay $5.625 million to cover restitution, attorneys’ fees, costs of investigation and litigation and costs of administering restitution, and penalties not to exceed $250,000. The press release stated that the respondents will also (i) dismiss any pending debt collection actions against customers who had their balances forgiven as a result of the settlement; (ii) provide current customers with the ability to request modifications to their payment terms based on actual receivables; (iii) “[i]mprove internal business practices, be transparent in any terms of future MCA agreements regarding fees and reconciliation rights, and give notice to customers before taking legal action to collect on purported unpaid balances”; and (iv) ensure that all respondents, principals, and any future business entities that may result from a change in structure comply with the terms of the consent order.

    State Issues Enforcement Usury Consumer Finance State Attorney General Merchant Cash Advance Small Business Lending Interest Rate New Jersey

  • New Jersey settles with car dealerships over consumer protection violations

    State Issues

    On December 15, the New Jersey attorney general announced that the Division of Consumer Affairs has now reached settlements with six car dealerships totaling over $260,000 to resolve alleged consumer protection violations. Among other things, the dealerships allegedly failed to honor the advertised price of used vehicles, charged excessive vehicle preparation fees that were not properly itemized or disclosed, failed to disclose the vehicle’s full sale price, and engaged in deceptive advertising. Under the terms of the most recent settlement (joining five other settlements announced earlier in the year), the dealership is required to pay $180,000, and must stop engaging in any unfair or deceptive acts practices. The dealership must also (i) comply with all applicable state and federal laws, including the Consumer Fraud Act, the Motor Vehicle Advertising Regulations, and the Automotive Sales Practices Regulations; (ii) honor all advertised sale or lease prices; (iii) accurately disclose a vehicle’s sale price; (iv) disclose previous damage and substantial repairs done to used cars when advertising; (v) clearly and conspicuously disclose all disclaimers, qualifiers, or offer limitations in advertisements; and (vi) enter binding arbitration to resolve any pending consumer complaints, as well as any additional complaints received by the Division for a one-year period.

    State Issues Enforcement State Attorney General Consumer Finance Fees Auto Finance New Jersey Deceptive UDAP

  • New Jersey reaches $495 million RMBS settlement with Swiss bank


    On October 17, the New Jersey attorney general’s office announced it had reached a $495 million agreement in principle with a Swiss bank to resolve allegations related to its residential mortgage-backed securities (RMBS) practices leading up to the 2008 financial crisis. The AG stated that if finalized, the settlement will be one of the state’s largest civil monetary recoveries in history. According to the AG, the bank violated New Jersey’s securities laws by making material misrepresentations about the risks of the RMBS in offering documents, including by purportedly failing to disclose to investors material defects about the underlying mortgages. The announcement further stated that the bank allegedly sold the RMBS through registration statements, prospectuses, and other offering materials that contained fraudulent representations about the quality of the underlying loans, and allegedly “failed to disclose to investors the wholesale abandonment of underwriting guidelines designed to ensure that the mortgage loans underlying its securities trusts were made in accordance with appropriate lending guidelines; that numerous loan originators had poor track records of defaults and delinquencies; and that some loan originators had even been suspended from doing business with [the bank].” While neither admitting nor denying the allegations, the bank agreed to pay a $100 million civil monetary penalty and will provide approximately $300 million in restitution for affected investors. The bank is also permanently enjoined from future violations of state securities laws.

    Securities State Issues Enforcement New Jersey State Attorney General Settlement RMBS Mortgages Of Interest to Non-US Persons

  • State AGs announce settlement to resolve alleged data security breach

    Privacy, Cyber Risk & Data Security

    On July 26, a coalition of state attorneys general, co-led by the New Jersey AG and Pennsylvania AG, announced a settlement with a Pennsylvania-based convenience store chain related to an alleged data breach that compromised payment cards of consumers. According to the Assurance of Voluntary Compliance, the company experienced a breach of security between April 2019 and December 2019 that exposed consumer payment card data, including customers’ card numbers, expiration dates and cardholder names in New Jersey, Pennsylvania, Florida, Delaware, Maryland, and Virginia, as well as Washington, D.C. The AGs alleged that the company “failed to employ reasonable data security measures,” in violation of the states’ Consumer Protection Acts and Personal Information Protection Acts. Under the terms of the settlement, the company—without admitting to the allegations—has agreed to pay an $8 million fine, of which New Jersey is to receive approximately $2.5 million. The settlement also requires the company to strengthen its network protections and take measures to better protect consumer payment data.

    Privacy, Cyber Risk & Data Security State Attorney General State Issues New Jersey Pennsylvania Data Breach Settlement

  • New Jersey warns licensed “teams” about violating state real estate statute

    On July 12, the New Jersey Department of Banking and Insurance issued Bulletin No. 22-07 to remind real estate licensees (particularly licensees operating as a “team”), and brokers of record who are responsible for managing and supervising teams, of the requirement to ensure compliance with the Real Estate Broker and Salesperson Act and related regulations. Explaining that real estate “teams” are a growing trend in the industry, the Bulletin warned that while a team may “appear to operate independent of the brokerage firm through which they are licensed,” the team is not actually a separate brokerage, and “teams, their team leaders, team members and their supervising brokers must comply with the act and regulations.” The Bulletin continued that “[l]icensees can only accept compensation, including commissions, from their employing broker, and not a member of their team or their team leader. . . . Further, teams may not operate out of a separate, satellite office, unless such location is properly licensed with the New Jersey Real Estate Commission and maintained and supervised in accordance with the act and regulations.” The Bulletin also addressed advertising and webpage requirements for licensees.

    Licensees who fail to comply with the regulations may be subject to fines, potential license suspension or revocation. Brokers who fail to supervise licensees or team members are subject to these penalties as well.

    Licensing State Issues New Jersey Mortgages State Regulators

  • N.J. appeals court says debt collector may file suit during the pandemic


    On June 29, the Superior Court of New Jersey, Appellate Division affirmed a lower court’s granting of summary judgment in favor of a plaintiff debt collector in an action over whether a suit could be filed during the Covid-19 pandemic despite a clause in an agreement with the original creditor that barred collection actions in a disaster area. According to the opinion, the plaintiff purchased a portfolio of debts, including two credit card debts owned by the individual defendant. The plaintiff sued the defendant after attempts to collect on the debts were unsuccessful. The defendant filed a third-party complaint against the plaintiff asserting counterclaims accusing the plaintiff of violating the FDCPA, and stating that collection agencies were barred by an executive order that allegedly prohibited the initiation and adjudication of debt collection matters during the pandemic. A lower court granted the plaintiff’s motion for summary judgment, after finding no genuine issue of material fact which would prevent summary judgment in favor of the plaintiff. Specifically, the lower court “found that plaintiff provided sufficient, credible evidence in the record that established the nexus between the accounts and defendant,” and “also found the executive order and FDCPA argument meritless,” as “no directive existed that prevented agencies from initiating debt collection matters during the COVID-19 pandemic.” The defendant appealed.

    On appeal, the defendant argued, among other things, that the lower court had “improperly relied on inadmissible hearsay documents” and erred in finding the executive order and FDCPA inapplicable. The defendant referred to a clause in an agreement she had with the original creditor, which said: “Without limiting the foregoing, [plaintiff] further represents and warrants that it shall: . . . (x) upon declaration by [the Federal Emergency Management Agency] or any appropriate local, state or federal agency that a location is a disaster area, [plaintiff] agrees to temporarily suspend its collection activities within said area until such time as is reasonable and practicable.” The appeals court agreed with the lower court’s reasoning, and called the defendant’s argument “baseless.” According to the appeals court, the defendant “failed to present evidence that an executive order prohibited the commencement and adjudication of debt collection matters during a state emergency related to the COVID-19 pandemic” and failed to establish “that there is a contractual bar to plaintiff filing a debt collection suit in a disaster area.”

    Courts State Issues Debt Collection FDCPA Consumer Finance Covid-19 Appellate New Jersey

  • 3rd Circuit affirms decision that creditors can collect after issuing 1099-C notice


    On June 14, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s dismissal of a class action alleging a national bank (defendant) violated state laws in New Jersey by attempting to collect on a debt after it had issued a 1099-C notice to the plaintiff to cover the debt that was discharged. According to the opinion, the defendant obtained a judgment against the plaintiff and his wife for an unpaid debt, which the plaintiff did not satisfy. The defendant issued an IRS 1099-C form to the plaintiffs, indicating that $199,427.80 of the $244,248.49 was discharged. After issuing the 1099-C, the defendant notified the plaintiff that such filing had not caused the defendant to release the judgment and that the plaintiff needed to either pay the judgment or reach a settlement. The plaintiff sued, alleging the defendant violated the New Jersey Consumer Fraud Act and other state laws based on defendant’s issuance of a 1099-C IRS Form for cancellation of debt. The district court granted a motion to dismiss filed by the defendant, which the plaintiff appealed.

    On appeal, the plaintiff argued the creditors should not send 1099-C notices unless the debt has actually been canceled, and that sending such a notice while still intending to collect on the debt constitutes an “unlawful practice.” The 3rd Circuit disagreed, holding that the text of the governing IRS regulation, 26 C.F.R. § 1.650P-1(a)(1), indicates that “the filing of a Form 1099-C is a reporting requirement that does not depend on whether the debt has been ‘actually discharged,’ or the debtor has actually been released from his obligations on the underlying debt.” The appellate court further noted that “[t]he satisfaction of this reporting requirement, additionally, does not operate to forgive or extinguish a debtor’s obligations to repay the debt at issue.”

    Courts Appellate Third Circuit IRS Consumer Finance State Issues New Jersey

  • New Jersey Superior Court grants summary judgment in favor of debt buyer


    On January 21, the Superior Court of New Jersey granted a defendant debt buyer’s cross-motion for summary judgment following the Appellate Division’s partial remand. The plaintiff filed a proposed class action lawsuit in 2017, claiming that the defendant violated the New Jersey Consumer Fraud Act (CFA) by unlawfully acquiring defaulted credit card accounts without obtaining a license to engage as a sales finance company or a consumer lender. The case was dismissed, but later partially remanded on appeal. The Superior Court struck the portion of the complaint alleging class claims and focused on the remaining individual claim concerning the plaintiff’s account. The Superior Court ultimately determined that the plaintiff’s CFA claim failed because the alleged conduct did not rise “to the level of deception, fraud, or misrepresentation in connection with the sale of merchandise or services” required for a claim under CFA. According to the Superior Court, the CFA requires that claimants show an ascertainable loss. The plaintiff’s claim that she suffered a loss by paying the defendant rather than the bank that originally extended the credit was not convincing, the Superior Court stated. The plaintiff admitted “that after the [account] was sold to Defendant, [the bank] did not seek payment of the credit card account. Thus, the record establishes that Plaintiff has not suffered any harm. Without an ascertainable loss, Plaintiff’s CFA claim fails,” the decision said. The Superior Court also disagreed with the plaintiff’s assertion that the defendant was required to obtain a consumer lending license under the New Jersey Consumer Finance Licensing Act. Noting that the defendant is a debt buyer and not a consumer lender, the Superior Court held that the defendant was not required to be licensed.

    Courts Debt Buyer State Issues New Jersey Debt Collection Licensing


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