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On November 5, the U.S. Court of Appeals for the Second Circuit reversed a district court’s dismissal of an FDCPA action, concluding that warnings in a defendant’s debt collection letter “could have created the misimpression that immediate payment is the consumer’s only means of avoiding a parade of collateral consequences, thereby overshadowing the consumer’s validation rights.” The defendant sent a debt collection letter to the consumer warning that it was instructed to commence litigation in order to collect a debt. The plaintiff was told he could avoid consequences such as paying attorneys’ fees if he made a payment or made suitable payment arrangements. The letter also contained a validation notice, which apprised the plaintiff of his right to dispute the debt within 30 days. The plaintiff filed a complaint alleging the letter violated the FDCPA because it included language that overshadowed the required disclosure of his right to demand that the debt be validated. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to adequately allege an FDCPA violation based on either (i) “the interaction between the letter’s payment demands and its validation notice,” or (ii) the letter’s statement that the plaintiff may be liable for attorneys’ fees in the event of litigation.
On appeal, the 2nd Circuit disagreed with the district court’s conclusions, holding that the complaint stated an FDCPA violation because, among other things, the letter’s payment demand overshadowed its validation notice. The appellate court found that the complaint also adequately stated an FDCPA violation based on the letter’s statements that the plaintiff “may be liable for attorneys’ fees where no such fees could be recovered.” Furthermore, the appellate court determined that the defendant’s introduction of an unsigned form contract supporting its claim to attorneys’ fees “at most raises a factual dispute about whether [the plaintiff] ever signed a contract providing for attorneys’ fees,” and concluded that this factual dispute should not have been resolved at the motion to dismiss stage.
On October 30, the U.S. Court of Appeals for the Second Circuit summarily vacated a 2018 district court order that had dismissed CFPB and New York Attorney General claims against a New Jersey-based finance company accused of misleading first responders to the World Trade Center attack and NFL retirees about high-cost loans mischaracterized as assignments of future payment rights (covered by InfoBytes here). The district court found that the Bureau’s single-director structure was unconstitutional, and that, as such, the agency lacked authority to bring deceptive and abusive claims under the Consumer Financial Protection Act (CFPA). The district court also rejected an attempt by then-acting Director Mulvaney to salvage the Bureau’s claims, concluding that the “ratification of the CFPB’s enforcement action against defendants failed to cure the constitutional deficiencies in the CFPB’s structure or otherwise render defendants’ arguments moot.”
The 2nd Circuit remanded the case to the district court, determining that the U.S. Supreme Court’s ruling in Seila Law LLC v CPFB (covered by a Buckley Special Alert, holding that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau) superseded the 2018 ruling. Following Seila, Director Kathy Kraninger also ratified several prior regulatory actions (covered by InfoBytes here), including the enforcement action brought against the defendants. “In light of these developments, we affirm the district court's holding that the for-cause removal provision is unconstitutional, we reverse the district court's holding that the for-cause removal provision is not severable from the remainder of the CFPA, and we remand for the district court to consider in the first instance the validity of Director Kraninger’s ratification of this enforcement action,” the appellate court wrote.
On October 7, the CFPB and the FTC (collectively, “agencies”) filed an amici curiae brief with the U.S. Court of Appeals for the Second Circuit in an action addressing “whether a person ceases to be an ‘applicant’ under ECOA and its implementing regulation after receiving (or being denied) an extension of credit.” According to the brief, a consumer filed suit against a national bank for allegedly violating ECOA and Regulation B’s adverse-action notice requirement when it closed his line of credit and sent an email acknowledging the closure without including (i) “‘the address of the creditor,’” and (ii) “either a ‘statement of specific reasons for the action taken’ or a disclosure of his ‘right to a statement of specific reasons.’” The district court dismissed the action after adopting the magistrate judge’s Report and Recommendation recommending that the bank’s motion be granted without prejudice to plaintiff, who had leave to brief the court on whether an amended complaint should be permitted.
The agencies disagreed with the district court and filed the amici brief on behalf of the applicant. Specifically, the agencies argue that ECOA’s protections apply to any aspect of a credit transaction, including those who have an existing arrangement with a creditor, noting there is “‘no temporal qualifier in the statute.’” According to the agencies, ECOA has provisions that cover the revocation of credit or the change in credit terms, and therefore, those provisions “would make little sense if ‘applicants’ instead included only those with pending requests for credit.” Moreover, the agencies argue that the district court’s interpretation of “applicant” would “curtail the reach of the statute,” and introduce a large loophole. Lastly, the agencies assert that the legislative history of ECOA supports their interpretation, such as the addition of amendments covering the revocation of credit, and most notably, Regulation B’s definition of “applicant,” which includes those who have received an extension of credit.
On September 29, the U.S. District Court for the Eastern District of New York granted a national bank’s request for interlocutory appeal of the court’s September 2019 decision denying the dismissal of a pair of actions, which alleged that the bank violated New York law by not paying interest on escrow amounts for residential mortgages. As previously covered by InfoBytes, last September, the district court concluded that the National Bank Act (NBA) does not preempt a New York law requiring interest on mortgage escrow accounts, because there is “clear evidence that Congress intended mortgage escrow accounts, even those administered by national banks, to be subject to some measure of consumer protection regulation.” The bank moved to amend the prior order and certify the preemption question for interlocutory appeal to the U.S. Court of Appeals for the Second Circuit. The court granted the motion stating that the case “presents one of the rare instances in which there would be system-wide benefits to granting an interlocutory appeal.” The court noted that certifying the question for appeal would foster an “effective and efficient judiciary” by saving the defendants and jurists “considerable time and effort” by not having to re-litigate the issue. Moreover, certifying for appeal would “materially advance the ultimate disposition of [the] litigation.”
On September 15, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s denial of arbitration, concluding that a national sandwich chain’s website did not provide sufficient notice of the terms and conditions. According to the opinion, a consumer filed a TCPA action against the sandwich chain relating to unsolicited text messages he received after he entered his phone number on a promotional page of the company’s website in order to receive a free sandwich at his next visit. After entering his number, the consumer clicked a button stating “I’M IN,” which the sandwich chain argued “constituted assent to the terms and conditions contained on a separate webpage that was accessible via a hyperlink on the promotional page.” The terms and conditions included an agreement to arbitrate. The sandwich chain moved to compel arbitration of the consumer’s TCPA action and the district court denied the motion, finding that no arbitration agreement existed because “the terms and conditions were not reasonably clear and conspicuous on the promotional page itself.”
On appeal, the 2nd Circuit agreed with the district court, noting that the webpage “was relatively cluttered.” Specifically, the appellate court noted that the webpage lacked language “informing the user that by clicking ‘I’M IN’ the user was agreeing to anything other than the receipt of a coupon.” Moreover, the appellate court held that the link to the terms and conditions was not conspicuous to a reasonable user as it was in small font at the bottom of the page and was “introduced by no language other than the shorthand ‘T & Cs.’” Because the company did not provide sufficient evidence demonstrating the consumer’s knowledge of the terms and conditions, the appellate court affirmed the denial of arbitration.
On September 4, the U.S. Court of Appeals for the Second Circuit affirmed in part and vacated in part a summary judgment ruling in favor of a debt collector, concluding that the debt collector was not entitled to the FDCPA’s bona fide error defense as a matter of law when it erroneously sent communications to a consumer with the same name as the actual debtor. According to the opinion, a debt collector sent collection notices to a consumer with the same first name, middle initial, and last name as the actual debtor. The consumer informed the debt collector that he was not the debtor and provided the last two digits of his social security number, which were different than the debtor’s social security number on file with the debt collector. The debt collector continued to send communications, including a subpoena duces tecum, to the consumer and the consumer filed suit, alleging various violations of the FDCPA. The district court granted summary judgment in favor of the debt collector, concluding that the debt collector did not violate certain provisions of the FDCPA and noting that while it violated others, the FDCPA’s bona fide error defense applied making the debt collector not liable for the violations.
On appeal, the 2nd Circuit agreed with the district court that the debt collector did not violate Section 1692e(5) or Section 1692f of the FDCPA because it did not intend to send the communications to a non-debtor, nor did the debt collector’s actions constitute “unfair or unconscionable means” of collection because the consumer was not forced to respond to the information subpoena or attend a debtor’s examination. However, the appellate court determined that the district court erred in granting summary judgment on the bona fide error defense because a reasonable jury could conclude that the debt collector “did not maintain procedures reasonably adapted to avoid its error.” The appellate court also noted that the debt collector was “in possession of more than enough evidence” that the consumer was not the debtor, including different social security numbers and birth years, and a reasonable jury could conclude the mistake “was not made in good faith.” Additionally, the appellate court emphasized that the debt collector had “no written policies” to address situations in which employees are uncertain about whether a debtor may live at a particular address. Thus, the debt collector was not entitled to summary judgment on the outstanding FDCPA claims, and the appellate court remanded the case to the district court.
On August 13, the OCC filed its reply brief in its appeal of a district court’s 2019 final judgment, which set aside the OCC’s regulation that would allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). As previously covered by InfoBytes, last October, the U.S. District Court for the Southern District of New York entered final judgment in favor of NYDFS, ruling that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State.
As discussed in its opening brief filed in April appealing the final judgment (covered by InfoBytes here), the OCC reiterated that the case is not justiciable until it actually grants a fintech charter, that it is entitled to deference for its interpretation of the term “business of banking,” and that the court should set aside the regulation only with respect to non-depository fintech applicants with a nexus to New York. Following NYDFS’s opening brief filed last month (covered by InfoBytes here), the OCC argued, among other things, that the case is not ripe and NYDFS lacks standing because its alleged injuries are speculative and “rely on a series of events that have not occurred: OCC receiving and approving an SPNB charter application from a non-depository fintech that intends to conduct business in New York, and then does so in a manner that causes the harms [NYDFS] identifies.”
The OCC further argued that NYDFS “cannot show the statutory term ‘business of banking’ is unambiguous, or that it requires a bank to accept deposits to receive an OCC charter.” Highlighting the evolution of the “business of banking” over the last 160 years, the OCC contended that the National Bank Act does not contain a requirement “that an applicant for a national bank charter accept deposits if it can present the OCC with a viable business model that does not require it,” and that its regulation interpreting the ambiguous phrase “business of banking” is reasonable as it is consistent with U.S. Supreme Court case law. Lastly, the OCC argued that NYDFS’s claim that it is entitled to nationwide relief afforded under the Administrative Procedure Act (APA) is inconsistent with another 2nd Circuit decision, “as well as principles of equity and the APA’s text and history.” The OCC stated that even if the appellate court were to conclude that NYDFS’s claims are justiciable, the regulations should be set aside only with respect to non-depository fintech applicants with a nexus to New York.
2nd Circuit: Furnisher’s duty to investigate triggered only after it receives notice of dispute from CRA
On August 10, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal with prejudice of FCRA and related state law allegations against a state bank and trust company, concluding that the bank’s duty to investigate is triggered only after it receive a notice of dispute from a consumer reporting agency (CRA). According to the opinion, the plaintiffs obtained a mortgage from the bank but later defaulted on their payments. The bank initiated foreclosure proceedings, and in 2014 both parties agreed to a deficiency judgment. In February 2016, one of the plaintiffs notified the bank that his credit report “inaccurately indicated ‘that the mortgage. . .was still open and payments had not been made in more than two years.’” The bank acknowledged the error in March, said a correction had been made to report the loan as closed, and indicated that “information [would] be supplied to the credit reporting agencies.” However, the plaintiff claimed the bank did not correct the information until November 2016. In their amended complaint, the plaintiffs alleged the bank violated the FCRA by (i) “negligently and willfully fail[ing] to perform a reasonable reinvestigation and correction of inaccurate information”; and (ii) “engag[ing] in behavior prohibited by [the] FCRA by failing to correct errors in the information that it provided to credit reporting agencies.” The bank countered that its “duty of investigation is only triggered after a furnisher of information receives notice of a dispute from a consumer reporting agency” and that the plaintiffs failed to allege that the bank “‘ever received notice of a dispute from a consumer reporting agency.’” The district court granted the bank’s motion to dismiss with prejudice for failure to state a claim.
On appeal, the 2nd Circuit agreed with district court, concluding, among other things, that the plaintiffs “do not allege that a CRA notified [the bank] of their dispute concerning the information in the [r]eport.” According to the appellate court, the plaintiffs “do not even allege that they notified a CRA of the discrepancy. The [a]mended [c]omplaint alleges only that, after receiving the [r]eport, [the plaintiff] directly notified [the bank] of the [r]eport’s inaccuracy. This alone is insufficient to state a claim under Section 1681s–2(b).”
On July 23, NYDFS filed its opening brief in the appeal of its challenge to the OCC’s decision to allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). The OCC filed its opening brief with the U.S Court of Appeals for the Second Circuit in April (covered by InfoBytes here), appealing the district court’s final judgment in favor of NYDFS, which ruled that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State.
In its brief, NYDFS argued that the district court was “correct to hold that the OCC had exceeded its statutory authority. . .in deciding to issue federal bank charters to nondepository fintech companies.” In response to the OCC’s arguments that NYDFS lacked standing and that the claims were not ripe, NYDFS first stated that “standing and ripeness exist not only when injury has already occurred, but also when it is imminent or when there is a substantial risk of harm.” Specifically, NYDFS asserted that its claims are ripe because (i) the OCC has actively solicited charter applications from the fintech industry and has indicated that companies had started the application process; and (ii) “one of the OCC’s stated objectives in the Fintech Charter Decision is to allow fintech companies that receive [an SPNB charter] to escape state regulation.” NYDFS also argued that because nondepository institutions are not engaged in the “business of banking” within the meaning of the National Bank Act (NBA), they cannot receive federal bank charters. Moreover, it contended that “when Congress did intend to extend OCC’s regulatory jurisdiction over such institutions, it expressly amended the NBA to do so.” Among other arguments, NYDFS claimed it is entitled to nationwide relief, stating that the district court merely granted the relief afforded under the Administrative Procedure Act, which specifies that the proper remedy for when an agency’s actions are contrary to law and “‘in excess of statutory jurisdiction, authority, or limitations” is to set aside the regulation.
Additionally, several parties, including the Conference of State Bank Supervisors and the Independent Community Bankers of America, filed separate amicus briefs (see here and here) in support of NYDFS, arguing that the OCC lacks the authority to grant SPNB charters.
On April 23, the OCC filed its opening brief in the U.S. Court of Appeals for the Second Circuit to appeal a district court’s final judgment in an NYDFS lawsuit that challenged the agency’s decision to allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). As previously covered by InfoBytes, last October the district court entered final judgment in favor of NYDFS, ruling that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State. The judgment followed the court’s denial of the OCC’s motion to dismiss last May (covered by InfoBytes here), in which the court concluded, among other things, that the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, and that engaging in the “business of banking” under the National Bank Act (NBA) “unambiguously requires receiving deposits as an aspect of the business.” Highlights of the OCC’s appeal include:
- The OCC claims that NYDFS lacks standing and that its claims are unripe because its alleged injuries are premised on a non-depository fintech company receiving a SPNB charter and commencing business in the state. However, the OCC has yet to receive even an application. The OCC also argues that NYDFS “would not be prejudiced by waiting to resolve these claims until OCC takes affirmative steps to approve an application” because the period between preliminary conditional approval and final approval would provide “ample opportunity to challenge such an application.”
- The OCC argues that the district court erred in holding that the agency’s decision to accept SPNB charter applications from non-depository fintechs was not entitled to Chevron deference. Specifically, the term “business of banking” under the NBA is “ambiguous” on whether it requires deposit-taking, and the OCC’s resolution of that ambiguity is reasonable as it is consistent with U.S. Supreme Court case law.
- The OCC argues that even if NYDFS’s claims were justiciable (and even if the OCC’s interpretation was not entitled to Chevron deference), any relief NYDFS is entitled to receive must be limited to the state. The OCC contends that the district court’s decision to grant nationwide relief was improper because it is inconsistent with Article III, which establishes that “remedies should not extend beyond what is necessary to redress the plaintiff’s alleged injuries,” as well as equitable principles and the Administrative Procedure Act.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
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