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Financial Services Law Insights and Observations


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  • 2nd Circuit: Interest disclosure in collection letter did not violate FDCPA


    On April 9, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s dismissal of an FDCPA action, holding that a debt collection letter that stated interest, late charges, and other charges “may” vary from day to day is not deceptive or misleading. According to the opinion, the plaintiff co-signed a student loan that fell into default and was charged-off. The creditor purchased the debt and placed the account with a collection agency (collectively, defendants), and a letter was sent to the plaintiff that included a “‘time sensitive’ offer” to pay a slightly reduced amount, as well as the following language: “Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.” The plaintiff filed a class action complaint against the defendants, claiming the letter violated the FDCPA because it suggested that late fees and other charges could accrue, even though “such charges are not legally or contractually available.” After the defendants filed a motion to dismiss, the plaintiff filed an amended complaint adding more allegations. However, the amended complaint was marked as “deficient,” and because the 21-day window had closed, the plaintiff was required to request leave from either the defendants or the district court to re-file. The defendants did not consent to re-filing, and the district court denied the plaintiff’s motion for leave and granted the defendants’ motion to dismiss.

    On appeal, the 2nd Circuit first examined whether the plaintiff had timely filed her amended complaint. In concluding that the amended complaint was timely filed (notwithstanding the deficiency notice), the appellate court stated that “when a plaintiff properly amends her complaint after a defendant has filed a motion to dismiss that is still pending, the district court has the option of either denying the pending motion as moot or evaluating the motion in light of the facts alleged in the amended complaint.” However, the appellate court nevertheless concluded that the district court properly dismissed the plaintiff’s amended complaint on the merits because she failed to sufficiently state a plausible claim for relief. Furthermore, because the initial letter said that interest and late charges “may” be applied to the balance, the appellate court concluded that the letter was not inaccurate and therefore not deceptive or misleading under the FDCPA even though the debt collector had not previously charged interest and did not intend to do so in the future. Moreover, acknowledging that interest may accrue is not “threatening” language under the FDCPA, the appellate court wrote.

    Courts State Issues Second Circuit Appellate Debt Collection FDCPA

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  • 2nd Circuit joins 9th Circuit in broadening the definition of an autodialer under TCPA


    On April 7, the U.S. Court of Appeals for the Second Circuit vacated a district court’s order granting summary judgment in favor of a defendant in a TCPA action. The decision results from a lawsuit filed by a plaintiff who claimed to have received more than 300 unsolicited text messages from the defendant through the use of an autodialer after the plaintiff texted a code to receive free admission to a party. The defendant countered that the programs used to send the text messages were not autodialers because they “required too much human intervention when dialing,” and therefore did not fall under the TCPA. The district court granted the defendant’s motion for summary judgment, agreeing that the defendant’s programs were not autodialers because a human being determined when the text messages are sent.

    On appeal, the 2nd Circuit concluded that while human beings do play some role in the defendant’s systems, “[c]licking ‘send’ does not require enough human intervention to turn an automatic dialing system into an non-automatic one.” According to the appellate court, “[a]s the FCC additionally clarified in 2012, the statutory definition of an [autodialer] ‘covers any equipment that has the specified capacity to generate numbers and dial them without human intervention regardless of whether the numbers called are randomly or sequentially generated or come from calling lists.’” (Emphasis in the original.) “The FCC’s interpretation of the statute is consistent with our own, for only an interpretation that permits an [autodialer] to store numbers—no matter how produced—will also allow for the [autodialer] to dial from non-random, non-sequential ‘calling lists.’ . . . What matters is that the system can store those numbers and make calls using them.”

    The 2nd Circuit’s opinion is consistent with the 9th Circuit’s holding in Marks v. Crunch San Diego, LLC (covered by InfoBytes here). 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).

    Courts Appellate Second Circuit TCPA Autodialer FCC ACA International

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  • 2nd Circuit: Collection letter failed to properly identify creditor in violation of FDCPA


    On April 3, the U.S. Court of Appeals for the Second Circuit reversed and vacated the dismissal of an FDCPA action against a debt collector (defendant), holding that a collection letter failed to identify the correct creditor to whom a debt was owed. The consumer (plaintiff) alleged that the defendant sent him a collection letter concerning a private-label credit card account offered by a merchant. The defaulted debt originally was owned by one national bank and later acquired by a different national bank. The collection letter, however, identified the merchant (the servicer of the account) and the original credit grantor, but failed to disclose the current creditor. The plaintiff filed a class-action complaint alleging that the defendant violated Section 1692g of the FDCPA by not properly identifying the name of the creditor to whom the debt was owed, and violated Section 1692e by making a “false or misleading communication in connection with a debt.” The district court granted the defendant’s motion for judgment on the pleadings and dismissed the complaint, concluding that the merchant, as servicer, was the creditor to whom the debt is owed and that the failure to name the current creditor “would not have materially affected a consumer’s decision-making process.”

    On appeal, the 2nd Circuit concluded that, because the cardmember agreements between the merchant, the current creditor, and the plaintiff clearly acknowledge that the national bank—and not the merchant—is the creditor, the defendant violated Section 1692g by not naming the correct creditor in the letter. With respect to the plaintiff’s Section 1692e claim, the appellate court determined that “it is far from clear that [the defendant’s] failure to identify [the current creditor] constituted a materially misleading statement under Section 1692e.” In fact, the appellate court stated that “it might be argued that if [the defendant] had identified [the current creditor] and not [the merchant], such an action ‘likely would have caused confusion.’” (Emphasis in the original.) However, the 2nd Circuit determined that the claim should not have been dismissed because the district court erroneously concluded that the merchant was the creditor to whom the debt was owned, and that the district court failed to address whether the defendant’s failure to identify the current creditor was a materially misleading statement under Section 1692e. The appellate court vacated the district court’s judgment and remanded the case for further proceedings.

    Courts Appellate Second Circuit FDCPA Debt Collection

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  • 2nd Circuit: New York usury law does not apply to interest rate applied after default


    On March 30, the U.S. Court of Appeals for the Second Circuit affirmed multiple orders issued by a district court in favor of an assignee mortgage holder (plaintiff), concluding that a borrower (defendant) was liable for interest at a default rate of 24 percent per year. After the defendant fell behind on his mortgage payments, the debt ultimately was assigned to the plaintiff, who initiated a foreclosure action. The plaintiff alleged a default date of February 1, 2008, and contended that the defendant was liable for interest at the 24 percent per year default rate. The district court granted the plaintiff’s motion for summary judgment, holding that the motion was supported by record evidence and that defendant’s affirmative defenses were meritless. The defendant’s motion for reconsideration was denied. A court-appointed Referee issued a report calculating the amount due on the note and mortgage, which the defendant appealed on several grounds, arguing, among other things, that (i) the plaintiff is a “debt collection agency” under New York City Administrative Code, and is precluded from taking action without being licensed; (ii) the 24 percent default interest rate applied by the Referee violates New York’s civil usury stature (which caps interest rates at 16 percent); and (iii) “the Referee erred by applying the default interest rate from the date of default rather than from the date of acceleration.”

    On appeal, the 2nd Circuit concluded that, regardless of whether the plaintiff allegedly failed to obtain a debt collection agency license, the plaintiff was not necessarily barred from foreclosing on the mortgage and collecting the debt at issue. The appellate court also determined that New York’s civil usury statute “‘do[es] not apply to defaulted obligations . . . where the terms of the mortgage and note impose a rate of interest in excess of the statutory maximum only after default or maturity.” The appellate court further held that the mortgage note and agreement clearly stated that a lender is “entitled to interest at the [d]efault [r]ate . . . from the time of said default. . . .”

    Courts State Issues Appellate Second Circuit Interest Usury Debt Collection

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  • 2nd Circuit: Confirmation email to consumer satisfies EFTA’s written authorization requirement


    On March 20, the U.S. Court of Appeals for the Second Circuit partially affirmed a district court’s order granting summary judgment in favor of one of two defendants on plaintiff’s Electronic Funds Transfer Act (EFTA) claims, holding that the defendant satisfied its EFTA obligations by providing the plaintiff a confirmation email containing the material terms and conditions authorizing a recurring monthly charge to the plaintiff’s debit card. However, the appellate court vacated the district court’s dismissal of the plaintiff’s Connecticut Unfair Trade Practices Act (CUTPA) claims against the defendants for lack of subject matter jurisdiction and remanded for further proceedings. The plaintiff contended that one of the defendants—a discount club operator—failed to provide him with a written copy of the authorized electronic fund transfer after he joined the defendant’s fee-based monthly discount club. The plaintiff filed a putative class action lawsuit against the defendant club operator, as well as the retailer from whom he purchased a video game online, alleging, among other things, that the defendant violated the EFTA, and that both defendants engaged in “unfair or deceptive trade practices in violation of CUTPA.” The district could granted summary judgment in favor of the defendants on both claims.

    The opinion discusses the 2nd Circuit’s holding from the plaintiff’s first appeal, in which the appellate court previously held “that the district court improperly rested its decision on evidence outside the scope of [the plaintiff’s] complaint,” with respect to the claim that the defendant failed to provide “‘a copy of such authorization’” to the plaintiff, as required by the EFTA. In addressing the plaintiff’s second appeal, the 2nd Circuit considered the plaintiff’s argument that the defendant failed to satisfy the EFTA’s requirements because it did not provide him with a “duplicate or facsimile of the Enrollment Page on which he authorized recurring payments.” The appellate court determined that: (i) the EFTA does not require the defendant to provide the plaintiff “with a duplicate of the webpage on which he provided authorization for recurring fund transfers”; and (ii) the defendant’s confirmation email to the plaintiff was sufficient to satisfy its EFTA obligations. The appellate court emphasized that, despite the parties’ “dueling dictionary definitions” of “copy” and “authorization,” the “EFTA’s stated purpose of consumer protection would be served whether the term ‘copy of such authorization’ is read to mean a duplicate or a summary of material terms.” The appellate court also highlighted the CFPB’s Official Interpretation of Regulation E, which states that a person “‘that obtains the [payment] authorization must provide a copy of the terms of the authorization to the consumer either electronically or in paper form.’ 12 C.F.R. Pt. 205, supp. I, §10(b), cmt. 5 (emphasis added).”

    Courts Appellate Second Circuit EFTA State Issues CFPB

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  • 2nd Circuit says loan requests at Fed banks are claims under the FCA


    On November 21, the U.S. Court of Appeals for the Second Circuit vacated the dismissal of a relator’s qui tam action, concluding that allegedly fraudulent loan requests made to one or more of the Federal Reserve Banks (FRBs) qualify as claims within the meaning of the False Claims Act (FCA). In the case, two qui tam relators brought an action under the FCA against a national bank and its predecessors-in-interest (defendants), alleging the defendants presented false information to FRBs in connection with their applications for loans. However the district court dismissed the action, holding that allegations of false or fraudulent claims being presented to the FRBs cannot form the basis of an FCA action because the FRBs cannot be characterized as the federal government for purposes of the FCA. In addition, the district court agreed with the defendants’ argument that the bank’s loan requests did not create FCA liability for claims, because the relators did not, and could not, “allege that the [g]overnment either provided any portion of the money loaned to the defendants, or reimbursed FRBs for making the loans.” (Previously covered by InfoBytes here.)

    On appeal, the 2nd Circuit concluded that although the FRBs are not a “part of any executive department or agency,” the FRBs still act as agents of the U.S. because the U.S. “created the FRBs to act on its behalf in extending emergency credit to banks; the FRBs extend such credit; and the FRBs do so in compliance with the strictures enacted by Congress and the regulations promulgated by the [Board of Governors of the Federal Reserve System], an independent agency within the executive branch.” The 2nd Circuit also held that the loan requests qualified as claims under the FCA because the money requested by the defendants is provided from the Federal Reserve System’s (Fed’s) emergency lending facilities and “is to be spent to advance a [g]overnment program or interest.” In supporting its conclusion, the appellate court stated that the U.S. “is the source of the purchasing power conferred on the banks when they borrow from the Fed’s emergency lending facilities.” The 2nd Circuit also referred to a U.S. Supreme Court holding in Rainwater v. United States, which stated that “the objective of Congress was broadly to protect the funds and property of the government from fraudulent claims, regardless of the particular form or function, of the government instrumentality upon which such claims were made.”

    Courts Appellate Second Circuit False Claims Act / FIRREA Federal Reserve

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  • 2nd Circuit denies three petitioners seeking whistleblower awards for SEC settlement


    On November 8, the U.S. Court of Appeals for the Second Circuit denied petitions from three whistleblowers seeking awards following a $55 million settlement between the SEC and a global financial institution, which the SEC previously denied. According to the opinion, multiple individuals disclosed information to the SEC during an investigation into the financial institution’s financial statements. In 2015, the SEC reached a settlement with the institution, and nine whistleblower claimants filed applications to receive awards based on the information they provided. The SEC granted the applications for two claimants and denied the rest. The three individuals involved in this action were denied the awards because the SEC concluded that the individuals “did not provide ‘original information that led to a successful enforcement action,’” as required by the Securities and Exchange Act’s whistleblower provisions. Specifically, for the two named individuals, the SEC determined that it had already received the information they provided through an individual known as “Claimant 2,” who had previously submitted an expert report prepared by the two individuals to the SEC. The appellate court agreed with the determination made by the SEC, concluding that “their [] submission did not significantly contribute to the success of the [] action; Claimant 2ʹs submissions did.” The appellate court noted that the individual’s expert report did not qualify for Rule 21F‐4’s “original source exception,” which was designed to treat information submitted to another federal agency as though it had been submitted to the SEC directly.

    As for the third, unnamed individual, the appellate court also denied the petition, concluding that the unnamed individual’s interpretation of the whistleblower program would “disincentivise whistleblowers from curating their submissions.” Specifically, the SEC asserted that the unnamed individual “‘appeared to be very disjointed and had difficulty articulating credible and coherent information concerning any potential violation of the federal securities laws’” and “‘brought with him to the meeting a wet brown paper bag containing what he claimed to be evidence.’” The SEC further noted that the documents were “jumbled and disorganized” and ultimately used similar information brought by a subsequent whistleblower. The appellate court noted that “[a] whistleblower might still be rewarded for being the first to bring incriminating information to the SECʹs attention, but only if that information is contained in a credible, and ultimately useful submission.”

    Courts SEC Whistleblower Second Circuit Appellate

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  • 2nd Circuit: Failure to clarify static balance of debt is not an FDCPA violation


    On November 4, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s decision that a debt collector does not violate the FDCPA by sending notices to consumers that do not clarify that a debt is static. The plaintiff in that case alleged that the defendant violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with the collection of a debt when it sent her a letter that contained a breakdown of interest and charges or fees accrued on the balance as separate line items, even though the amounts accrued explicitly reflect $0, along with the phrase “[a]s of the date of this letter, you owe $ [amount].” By implying that the amount owed might increase, the plaintiff argued that the least sophisticated consumer may erroneously think the debt is dynamic. The district court disagreed and granted the defendant’s motion for judgment on the pleadings.

    In affirming this decision on appeal, the 2nd Circuit cited its own holding in Taylor v. Financial Recovery Services, Inc., in which it previously determined “that ‘a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of [the FDCPA].” The appellate court was not persuaded by the plaintiff’s attempt to distinguish her case from Taylor, finding that the language in the plaintiff’s letter is “stock language. . .present in a number of collection notices, including those considered not misleading in Taylor.” The 2nd Circuit further noted that “requiring debt collectors to draw attention to the static nature of a debt could incentivize collectors to make debts dynamic instead of static.”

    Courts Appellate Second Circuit FDCPA Debt Collection Least Sophisticated Consumer

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  • District Court allows NCUA to substitute plaintiff, denies dismissal of breach of contract claim in RMBS action


    On October 15, the U.S. District Court for the Southern District of New York held that the NCUA may substitute a new plaintiff to represent the agency’s claims in a residential mortgage-backed securities (RMBS) action against an international bank serving as an RMBS trustee. In the same order, the court dismissed certain tort claims, but allowed claims for breach of contract to move forward against the trustee.

    According to the opinion, NCUA brought the action on behalf of 97 trusts for which the international bank served as the trustee, even though NCUA only had direct interest in eight of the trusts. NCUA argued it had derivative standing to pursue the claims on behalf of the other 89 trusts “on the theory that it had a latent interest in the [the 89 trusts] after they wound down and as ‘an express third-party beneficiary under the [89 trusts] Indenture Agreements.’” The trustee moved to dismiss the action and after hearing oral arguments on the motion, the court stayed the case pending the outcome of NCUA’s appeal regarding derivative standing in similar action before the U.S. Court of Appeals for the Second Circuit. In August 2018, the 2nd Circuit held that NCUA lacked standing to bring the derivative claims because the trusts had granted the right, title, and interest to their assets, including the RMBS trusts, to the Indenture Trustee. (Previously covered by InfoBytes here.) Based on the appellate court decision in the similar action, NCUA moved to file a second amended complaint and substitute a newly appointed trustee as plaintiff for the claims made on behalf of the 89 trusts for which it did not have direct standing.

    Despite the trustee’s objections, the district court granted NCUA’s request, concluding that NCUA’s claims were timely and allowing the NCUA’s “Extender Statute”—which gives the agency the ability to bring contract claims at “the longer of” “the 6-year period beginning on the date the claim accrues” or “the period applicable under State law”—to apply to the new substitute plaintiff. Additionally, the court denied the bank’s motion to dismiss NCUA’s breach of contract claim alleging the trustee had notice of the defects in the mortgage files held in the various trusts. The court concluded that NCUA sufficiently plead that the trustee “did indeed receive notice [of the defective mortgages] and should have thus acted,” under the Pooling and Servicing Agreements.

    Courts RMBS NCUA Appellate Second Circuit Standing Securities

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  • McDonnell rule does not apply to the FCPA, says 2nd Circuit


    On August 9, the U.S. Court of Appeals for the 2nd Circuit affirmed the conviction of a Chinese real estate developer arising from the alleged bribery of United Nations officials. In affirming the conviction, the court held that the U.S. Supreme Court’s holding in McDonnell v. U.S.—that, in cases brought under the domestic federal anti-bribery statute, the government must show that the bribe was paid in exchange for an “official act”—does not apply to prosecutions under the Foreign Corrupt Practices Act (FCPA) or 18 U.S.C. § 666, a federal anti-corruption law related to federal funds.

    In the most recent case, a federal jury convicted the developer of paying bribes and gratuities to United Nations officials in violation of the FCPA and 18 U.S.C. § 666. The developer appealed the conviction and argued, among other things, that the jury should have been instructed that the bribe must have be paid for an “official act,” in light of McDonnell. On appeal, the 2nd Circuit rejected the developer’s arguments, explaining that the FCPA and 18 U.S.C. § 666 target a broader set of bribery goals than the statute at issue in McDonnell. Specifically, the court noted that the FCPA and 18 U.S.C. § 666 prohibit giving anything of value in exchange for specific “quos” that do not include reference to an “official act.” Thus, based on the “textual differences among various bribery statutes,” the appellate court concluded that the “official act” standard does not apply to prosecutions under the FCPA or 18. U.S.C. § 666.

    Courts FCPA Appellate Second Circuit U.S. Supreme Court Bribery Of Interest to Non-US Persons

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