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3rd Circuit: Arbitration clause limiting borrowers’ statutory rights is unenforceable
On July 14, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s denial of defendants’ motion to compel arbitration, holding that an arbitration clause contained within an online tribal lender’s payday loan agreement impermissibly strips borrowers of their right to assert statutory claims and is therefore unenforceable. Specifically, because this “limitation constitutes a prospective waiver of statutory rights,” the lender’s arbitration agreement “violates public policy and is therefore unenforceable.” The plaintiffs filed a putative class action contending that they obtained payday loans from the lender, which included annual interest rates between 496.55 percent to 714.88 percent—an alleged violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) and various Pennsylvania consumer protection laws. The defendants moved to compel arbitration. The district court denied the defendants’ arbitration request, ruling that “the arbitration agreement was unenforceable because the arbitrator is permitted only to consider tribal law,” and, therefore, the arbitrator could not consider any of plaintiffs’ federal or state law claims. The 3rd Circuit agreed, rejecting, among other things, the defendants’ argument that the plaintiffs could bring RICO-like claims under tribal law and possibly receive “similar relief.” The appellate court noted: “The question is whether a party can bring and effectively pursue the federal claim—not whether some other law is a sufficient substitute.”
Supreme Court to review FHFA structure, FTC restitution, and TCPA autodialing
On July 9, the U.S. Supreme Court agreed to review the following cases:
- FHFA Constitutionality. The Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s en banc decision in Collins. v. Mnuchin (covered by InfoBytes here), which concluded that the FHFA’s structure—which provides the director with “for cause” removal protection—violates the Constitution’s separation of powers requirements. As previously covered by a Buckley Special Alert last month, the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. The Court further held that the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute.
- FTC Restitution Authority. The Court granted review in two cases: (i) the 9th Circuit’s decision in FTC V. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
- TCPA Autodialer Definition. The Court agreed to review the U.S. Court of Appeals for the Ninth Circuit’s decision in Duguid v. Facebook, Inc. (covered by InfoBytes here), which concluded the plaintiff plausibly alleged the social media company’s text message system fell within the definition of autodialer under the TCPA. The 9th Circuit applied the definition from their 2018 decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list. The 2nd Circuit has since agreed with the 9th Circuit’s holding in Marks. However, these two opinions conflict with holdings by the 3rd, 7th, and 11th Circuits, which have held that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of an autodialer in ACA International v. FCC (covered by a Buckley Special Alert).
3rd Circuit: Filed-rate doctrine precludes borrowers’ fraud claims
On July 1, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of a class action challenging the lender placed insurance practices of a mortgage servicer, concluding that the filed-rate doctrine blocked the claims. According to the opinion, borrowers from North Carolina and New Jersey filed suit against their reverse mortgage lender and insurance company, alleging the lender and insurer colluded to overcharge consumers for lender placed insurance in violation of TILA, the federal Racketeer Influenced and Corrupt Organizations Act (RICO), and various state laws. Specifically, the plaintiffs asserted that the insurance company charged an insurance rate, which was appropriately filed with state regulators, that was higher than the mortgage lender paid. The plaintiffs asserted the insurer then returned a portion of the profits back to the lender in order to induce continued insurance business. The district court dismissed the action, holding that the filed-rate doctrine blocked the claims.
On appeal, the 3rd Circuit agreed with the lower court. The appellate court emphasized that under the filed-rate doctrine, there is no distinction between “challenging a filed rate as unreasonable and…challenging an overcharge fraudulently included in a filed rate.” Because the plaintiffs sought damages in connection with the alleged overcharge of insurance premiums, the appellate court concluded that the plaintiffs were “functionally challeng[ing] the reasonableness of rates filed with state regulators.” Moreover, the appellate court noted that if the court were to award damages to the plaintiffs, the court would essentially be “giving these borrowers a better price for [lender placed insurance] than other  borrowers using a different lender,” but the same insurer. Thus, because the insurance rate was appropriately filed with the state regulators, the appellate court had no ability to decide whether the rate was “unreasonable or fraudulently inflated,” because the claims were precluded by the filed-rate doctrine.
3rd Circuit: Credit card customers’ claims against retailer and national bank fail
On June 9, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s order granting summary judgment in favor of a retailer and a national bank (collectively, “defendants”), holding that the proposed class failed to assert their claims for implied covenant of good faith and fair dealing and unjust enrichment. The class, comprised of customers who applied for private-label credit cards offered and serviced by the retailer, argued they were prompted to purchase a debt-cancellation product, which would “cancel the balance on the customer’s account up to $10,000 when a covered person experienced a qualifying involuntary unemployment, disability, hospitalization, or loss of life.” The class’s first claim—that the debt cancellation product provided “‘little or no value,” and that they did not voluntarily enroll in the product because the retailer allegedly unilaterally enrolled card holders in the product—was no longer viable after discovery showed that customers voluntarily enrolled. The class posed a second claim asserting breach of the implied covenant of good faith and fair dealing, arguing, among other things, that any legal authorization they gave was to the retailer and to the original issuing bank who sold the cards to the defendant bank. However, the district court rejected this second theory and granted summary judgement in favor of the defendants, ruling that the debt cancellation product was assigned to the defendant bank and stating the class failed to show that the retailer did not honor the terms of the debt cancellation product because they received exactly what was described in their contracts. Nor were the defendants unjustly enriched “because their collection of  fees was ‘legally justified.’”
On appeal, the 3rd Circuit, among other things, reviewed and rejected a third theory presented by the class, which blamed the district court for fundamentally misinterpreting their claims and asserted that the retailer failed to notify customers that it had stopped enforcing certain terms of the debt cancellation product and implemented a new refund policy, holding that this theory was not grounds for reversal because it was not argued in court. Moreover, the appellate court agreed with the district court that the retailer stopped enforcing its rights under amendments made to the debt cancellation product, but did not change the formal terms.
3rd Circuit: No written dispute requirement under FDCPA Section 1692g(a)(3)
On March 30, the U.S. Court of Appeals for the Third Circuit overturned previous precedent set in Graziano v. Harrison, holding that there is no written dispute requirement under Section 1692g(a)(3) of the FDCPA. In affirming a district court’s judgment on the pleadings in favor of a debt collector (defendant), the en banc panel joined several other appellate courts in concluding that disputes under Section 1692g(a)(3) can be made orally, as well as in writing. According to the opinion, the plaintiff filed suit against the defendant alleging violations of Section 1692g(a)(3) after she received a letter in which she was provided multiple options for contacting the defendant, instead of an explicit requirement that any dispute be done in writing. The district court granted the defendant’s motion for judgment on the pleadings.
On appeal, the 3rd Circuit considered the question of whether a collection letter “must require all disputes to be in writing, or whether [Section] 1692g(a)(3) permits oral disputes.” According to the appellate court, while other sections of 1692g specifically include the word “written,” Section 1692g(a)(3) “refers only to ‘disputes,’ without specifying oral or written.” The en banc court reversed its prior holding in Graziano v. Harrison, in which a panel of the 3rd Circuit held that Section 1692g(a)(3) “must be read to require that a dispute, to be effective, must be in writing.” It determined that after “reading the statutory text with fresh eyes”—as well as considering “the past three decades of Supreme Court statutory-interpretation caselaw”—it now believes Section 1692g(a)(3) allows for oral disputes. According to the appellate court, because Congress did not write Section 1692g(a)(3) to include a written dispute requirement, it must rely on the language Congress chose. “By expressing our view today, we put an end to a circuit split and restore national uniformity to the meaning of §1692g,” the 3rd Circuit wrote.
7th Circuit: Dialing system that cannot generate random or sequential numbers is not an autodialer under the TCPA
On February 19, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s ruling that a dialing system that lacks the capacity to generate random or sequential numbers does not meet the definition of an automatic telephone dialing system (autodialer) under the TCPA. According to the 7th Circuit, an autodialer must both store and produce phone numbers “using a random or sequential number generator.” The decision results from a lawsuit filed by a consumer alleging a company sent text messages without first receiving his prior consent as required by the TCPA. However, according to the 7th Circuit, the company’s system—the autodialer in this case—failed to meet the TCPA’s statutory definition of an autodialer because it “exclusively dials numbers stored in a customer database” and not numbers obtained from a number generator. As such, the company did not violate the TCPA when it sent unwanted text messages to the consumer, the appellate court wrote.
Though the appellate court admitted that the wording of the provision “is enough to make a grammarian throw down her pen” as there are at least four possible ways to read the definition of an autodialer in the TCPA, the court concluded that while its adopted interpretation—that “using a random or sequential number generator” describes how the numbers are “stored” or “produced”—is “admittedly imperfect,” it “lacks the more significant problems” of other interpretations and is thus the “best reading of a thorny statutory provision.”
The 7th Circuit’s opinion is consistent with similar holdings by the 11th and 3rd Circuits (covered by InfoBytes here and here), which have held that autodialers require the use of randomly or sequentially generated phone numbers, as well as the D.C. Circuit’s holding in ACA International v. FCC, which struck down the FCC’s definition of an autodialer (covered by a Buckley Special Alert here). However, these opinions conflict with the 9th Circuit’s holding in Marks v. Crunch San Diego, LLC, (covered by InfoBytes here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list.
3rd Circuit affirms summary judgment in bankruptcy, FDCPA action
On October 23, the U.S. Court of Appeals for the Third Circuit affirmed summary judgment for a debt collection law firm and attorney (collectively, “defendants”) in an action alleging the defendants violated the U.S. Bankruptcy Code and the FDCPA. According to the opinion, the plaintiffs had to make monthly payments to their condominium association as part of a special assessment to pay for an improvement project. The plaintiffs made payments until filing for bankruptcy in 2014. After the bankruptcy closed, the plaintiffs did not resume payments to the association for the improvement project. The balance continued to accrue and a lien was filed for the outstanding balance of $10,137.38. The association also created a “Certificate of Amount of Unpaid Assessments” that referenced the outstanding balance and explained over $8,000 of the total balance had been discharged in the 2014 bankruptcy. The plaintiffs sued the defendants, asserting that the bankruptcy discharged all the debt owed, including the post-discharge payments, and that the defendants’ collection efforts “were coercive and misleading.” The district court granted summary judgment in favor of the defendants.
On appeal, the 3rd Circuit affirmed. The court concluded that the payment owed to the condominium association was a “fee or assessment” under the Bankruptcy Code that was not discharged here because the plaintiffs retained ownership interest in the property and the assessment payment became due after the bankruptcy. The court also rejected the plaintiffs’ FDCPA claims against the defendants. The court explained that the defendants were not responsible for the amount listed in the condominium association’s certificate and, in any event, the amount the defendants’ attempted to collect did not include the discharged amount. The court concluded that the plaintiffs failed to provide any evidence that would create an issue of material fact on the FDCPA claim and affirmed the district court’s summary judgment ruling.
3rd Circuit: FCA does not guarantee an in-person hearing before dismissal
On September 12, the U.S. Court of Appeals for the Third Circuit held that the False Claims Act (FCA) does not guarantee relators an automatic in-person hearing before a case can be dismissed. According to the opinion, a relator filed a qui tam action against a Delaware non-profit organization, asserting claims on behalf of the United States and the State of Delaware under the FCA and the Delaware False Claims Act (DFCA), alleging the organization received funding from state and federal governments by misrepresenting material information. Delaware and the federal government declined to intervene and, three years later, both moved to dismiss the case. Both governments argued that the relator’s allegations were “factually incorrect and legally insufficient.” The district court granted the motions without conducting an in-person hearing. The relator appealed, arguing that the FCA guarantees an automatic in-person hearing before a case can be dismissed.
On appeal, the 3rd Circuit disagreed with the relator. The appellate court noted that the government “has an interest in minimizing unnecessary or burdensome litigation costs,” and, once the government moved to dismiss, the burden shifted to the relator to prove that dismissal would be “fraudulent, arbitrary and capricious, or illegal.” The appellate court concluded that the relator failed to do so, and rejected his argument that he should have been allowed to introduce evidence during a hearing to satisfy his burden. While the FCA and the DFCA state that a relator has an “‘opportunity for a hearing’ when the government moves to dismiss,” it is the relator’s responsibility to avail himself or herself of this opportunity, according to the appellate court. The court concluded that the FCA and DFCA do not guarantee an automatic in-person hearing and, because the relator failed to request a hearing and his motions failed to prove the dismissal was fraudulent, arbitrary, capricious, or illegal, the district court did not err in dismissing the action.
3rd Circuit affirms dismissal of NFL season ticket class action
On August 29, the U.S. Court of Appeals for the 3rd Circuit affirmed the dismissal of a putative class action alleging that an NFL team’s season ticket sales practices had violated the implied covenant of good faith and fair dealing and the New Jersey Consumer Fraud Act (CFA). As previously covered by InfoBytes, the case was centered on the plaintiff’s purchase of a personal seat license (PSL) that “both allows and obligates” him to buy season tickets for particular seats at the team’s home games. The team later began selling seats in the same seating section without requiring PSLs, which the plaintiff alleged made his PSL “valueless” and “‘unsellable’ because defendants are currently giving away for free what cost him $8,000.” The district court dismissed the plaintiff’s claims with prejudice because the plaintiff had received the “reasonably expected fruits under the contract.”
On appeal, the 3rd Circuit agreed with the district court that the plaintiff had “received the fruits of his contract” because “[n]othing in the complaint suggests [the plaintiff] has lost the exclusive right to purchase season tickets for these seats” and the fact that the team “might now sell adjacent seats to members of the general public does not implicate [the plaintiff’s] rights and certainly does not strip him of the benefit for which he bargained.” Regarding the value of his PSA, the appellate court noted that when purchasing the PSL, the plaintiff represented that he was not acquiring it as an investment and had no expectation of profit. Finally, with regard to the CFA claim, the appellate court held that “simply changing the terms on which defendants sell other seats in the stadium is not misleading.”
3rd Circuit: Proof of written agreement needed for TILA claims
On August 20, the U.S. Court of Appeals for the 3rd Circuit concluded that a plaintiff failed to adequately allege the existence of a written agreement for his deductible payment plan and therefore, his surgery institute did not violate TILA’s disclosure requirements. According to the opinion, the day before his surgery, the surgery institute orally agreed to accept a partial deductible payment and agreed to permit the plaintiff to pay the remaining deductible requirements in monthly installments. The plaintiff received two emails, one confirming the initial payment and the other confirming the payment plan and listing the plaintiff’s credit card. The institute performed the surgery, but the plaintiff failed to make any further payments on the deductible. Instead, the plaintiff filed an action against the institute alleging it violated TILA by extending credit and failing to provide the required disclosures. The district court granted judgment on the pleadings for the institute, concluding that the plaintiff' failed to establish a written agreement for the extension of credit. The court also issued sanctions, in the form of attorneys’ fees, against the plaintiff’s counsel, reasoning the counsel could have reasonably discovered the lack of written agreement and lack of payment before initiating the action.
On appeal, the 3rd Circuit affirmed in part and reversed in part in the district court’s judgment. The appellate court agreed with the district court that the plaintiff failed to establish the existence of a written agreement for credit with the institute, noting “the requirement of a written agreement [under TILA] is not satisfied by a ‘letter that merely confirms an oral agreement.’” But the appellate court noted that the district court erred in relying on an admission to that effect by plaintiff’s counsel during a telephone conference. Nonetheless, the error was “harmless” because the plaintiff failed to establish a written agreement was executed and signed, stating “[n]owhere does he allege that he signed a written agreement, and the  email correspondence was merely ‘confirming’ the ‘previously discussed’ agreement." The appellate court then reversed the district court’s sanctions ruling, concluding it abused its discretion when it imposed them.