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2nd Circuit overturns ruling in favor of defendant in FDCPA case
On June 4, the U.S. Court of Appeals for the Second Circuit overturned a district court’s decision, holding that a debt collector’s offer to settle an outstanding debt did not require informing the consumer that the balance could increase as a result of interest and fees. The plaintiff allegedly incurred credit card debt, which was then placed with the defendant for collection. The defendant sent the plaintiff a collection letter offering to settle the account for less than what was owed. The plaintiff sued, alleging that the letter violated Section 1692e of the FDCPA because it did not specify that interest was accruing on the balance. The district court, relying on the 2nd Circuit’s 2016 decision in Avila v. Riexinger & Associates, held that the defendant violated the FDCPA because the letter did not indicate that the balance would increase as a result of interest and fees.
On appeal, the 2nd Circuit clarified that its Avila decision discussed two exceptions, or “safe harbors,” to the requirement for debt collectors to disclose the possibility of interest and fees accruing, which are if the collection notice: (i) “ accurately informs the consumer that the amount of the debt stated in the letter will increase over time”; or (ii) “clearly states that the holder of the debt will accept payment in the amount set forth in full satisfaction of the debt if payment is made by a specified date.” The 2nd Circuit pointed out that the “payment of an amount that the collector indicates will fully satisfy a debt excludes the possibility of further debt to pay.” The appellate court further held that “a settlement offer need not enumerate the consequences of failing to meet its deadline or rejecting it outright so long as it clearly and accurately informs a debtor that payment of a specified sum by a specified date will satisfy the debt.” Therefore, the appellate court concluded that the collection notice to the consumer did not violate FDCPA section 1692e “because it extended a settlement offer that, if accepted through payment of the specified amount(s) by the specified date(s), would have cleared [the plaintiff’s] account.”
2nd Circuit says challenge to OCC’s fintech charter is unripe
On June 3, the U.S. Court of Appeals for the Second Circuit reversed a 2019 district court ruling, holding that NYDFS lacked Article III standing to pursue claims that the OCC’s policy to issue Special Purpose National Bank charters (SPNB charters) to non-depository fintech companies exceeded its statutory authority. As previously covered by InfoBytes, the district court entered final judgment in favor of NYDFS after concluding that the OCC’s SPNB policy 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. Among other things, the district court, in denying the OCC’s motion to dismiss, determined that the OCC exceeded its authority under the National Bank Act because the Act “unambiguously requires receiving deposits as an aspect of the business,” and that “absent a statutory provision to the contrary, only depository institutions are eligible to receive [a SPNB] from [the] OCC.” The OCC appealed, and both parties filed briefs addressing issues related to ripeness and standing (covered by InfoBytes here).
On appeal, the 2nd Circuit concluded that NYDFS lacked Article III standing to pursue its claims because it failed to show that it had suffered an actual or imminent injury from the OCC’s decision to issue SPNB charters. The appellate court also found NYDFS’s claims to be “constitutionally unripe,” holding that NYDFS’s challenge is too speculative since no non-depository fintech companies have applied for or have been granted an SPNB charter. “It is unclear at this juncture whether New York law will ever be preempted in the ways [NYDFS] fears,” the appellate court wrote. However, the 2nd Circuit determined it lacked jurisdiction to decide the remaining issues on appeal and did not address the district court’s finding that “the ‘business of banking’ under the NBA unambiguously requires the receipt of deposits.” The appellate court remanded the case to the district court with instructions to enter a judgment of dismissal without prejudice.
NYDFS Superintendent Linda Lacewell issued a statement following the 2nd Circuit’s decision, in which she reiterated the importance of “guarding against any encroachment on the state regulatory system” and urged the OCC to reconsider its policy.
2nd Circuit affirms borrower standing in mortgage recordation delay suit
On May 10, the U.S. Court of Appeals for the Second Circuit determined that class members have constitutional standing to sue a national bank for allegedly violating New York’s mortgage-satisfaction-recording statutes, which require lenders to record borrowers’ repayments within 30 days. The plaintiffs filed a class action suit alleging the bank’s recordation delay harmed their financial reputations, impaired their credit, and limited their borrowing capacity. The district court agreed, ruling that the plaintiffs had Article III standing to sue because the bank’s alleged violation of the mortgage-satisfaction-recording statutes created a “material risk of harm” to them.
On appeal, the majority opinion first determined, among other things, that “state legislatures may create legally protected interests whose violation supports Article III standing, subject to certain federal limitations.” The alleged state law violations in this matter, the majority wrote, constitute a concrete and particularized harm to the plaintiffs in the form of both reputational injury and limitations in borrowing capacity during the recordation delay period. Moreover, the majority concluded that the bank’s alleged failure to report the plaintiffs’ mortgage discharge “posed a real risk of material harm” because the public record reflected an outstanding debt of over $50,000, which could “reasonably be inferred to have substantially restricted” the plaintiffs’ borrowing capacity. The dissenting judge argued, however, that the plaintiffs “never suffered a cloud on title prohibiting them from selling their property, or adverse effects on their credit, or an inability to finance another property, or even a risk of these harms,” and that the “trivial nature of a recordation delay is reflected in the 30-day delay that is tolerated without penalty, and by the small penalty exacted even after 90 days.”
The 2nd Circuit joined the Third, Seventh, Ninth, and Tenth circuits in holding that state legislatures have the power to “create ‘legally protected interests’” that, when violated, satisfy Article III injury-in-fact requirement, noting that it is “aware of no Circuit holding to the contrary.”
2nd Circuit: No standing if PII is uncompromised
On April 26, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s dismissal of a proposed class action settlement, concluding that although, “in the context of unauthorized data disclosures,” plaintiffs may establish Article III standing on the theory that a data breach increases the risk of identity theft, the appealing plaintiff failed to show that her sensitive personally identifiable information (PII) had been misused or compromised. The plaintiff filed a proposed class action against a former employer after a company employee accidentally sent an email to approximately 65 company employees with an attachment containing PII for roughly 130 current and former workers, including Social Security numbers, home addresses, and birth dates. The plaintiff alleged that the defendant, among other things, violated several state consumer protection statutes, and contended that workers “were ‘at imminent risk of suffering identity theft.’” The plaintiff further claimed that workers had to spend time canceling credit cards, assessing whether to apply for new Social Security numbers, and purchasing credit monitoring and identity theft protection services. While the parties reached a settlement, the court ultimately denied the settlement and dismissed the case for lack of subject-matter jurisdiction after finding the plaintiff lacked Article III standing because she failed to allege “an injury that is concrete and particularized and certainly impending.” According to the district court, it was “arguably a misnomer to even call this case a ‘data breach’ case,” because, “[a]t best, the data was ‘misplaced’” internally rather than accessed by a third party.
On appeal, the Second Circuit agreed with the district court, concluding that the plaintiff failed to demonstrate an increased risk of identity theft and that the cost of taking proactive measures to prevent future identity theft is insufficient to constitute an injury in fact when the threat is speculative. “This notion stems from the Supreme Court’s guidance in [Clapper v. Amnesty Int’l USA], where it noted that plaintiffs ‘cannot manufacture standing merely by inflicting harm on themselves based on their fears of hypothetical future harm that is not certainly impending.’”
2nd Circuit: Credit report showing “satisfied” judgment was not misleading
On April 9, the U.S. Court of Appeals for the Second Circuit held that a credit reporting agency’s (CRA) report that a judgment was “satisfied” was accurate and not misleading under the FCRA. According to the opinion, a debt collection action was brought and default judgment entered against the plaintiff. The parties ultimately filed a joint stipulation to resolve the action and discontinue all claims with prejudice. Afterwards, the CRA’s report showed the default judgment, but was later amended to read “judgment satisfied”—a statement that the plaintiff allegedly repeatedly disputed. The plaintiff ultimately filed a lawsuit against the CRA, alleging the agency “willfully and/or negligently violated various FCRA provisions by persisting in publishing [the] report and failing to follow certain of the FCRA’s procedural notice requirements.” Among other things, the plaintiff claimed that the CRA also violated the FCRA’s source-disclosure and reinvestigation provisions and should have disclosed that the information about the judgment came from a contractor-intermediary working for the CRA. The district court dismissed one of the FCRA claims and granted summary judgment to the CRA on the remaining FCRA claims.
On appeal, the 2nd Circuit agreed with the district court, concluding first that there was no FCRA reporting violation because the description of the judgment as “satisfied” was accurate. Moreover, the appellate court wrote, even if the CRA should have disclosed that the contractor was the source, the plaintiff “failed to present any evidentiary basis for concluding that he suffered actual damages” resulting from the CRA’s failure to not disclose or treat the contractor as a source or furnisher of the information about the judgment. The 2nd Circuit further rejected the plaintiff’s claims against the CRA for willful violations of sections 1681g and 1681i, concluding that the sections “can be reasonably interpreted not to require such a disclosure and no more need be shown.”
2nd Circuit: Banking a known terrorist organization does not, by itself, establish Antiterrorism Act liability
On April 7, the U.S. Court of Appeals for the Second Circuit affirmed summary judgments (see here and here) dismissing amended complaints filed in two actions seeking to hold a U.K. bank and a French bank, respectively, liable under the Antiterrorism Act of 1990 (ATA) for allegedly “providing banking services to a charitable organization with alleged ties to Hamas, a designated Foreign Terrorist Organization (FTO) alleged to have committed a series of terrorist attacks in Israel in 2001-2004.” The complaints alleged that the U.K. bank and the French bank knowingly provided banking services, including sending millions of dollars in wire transfers, to organizations previously designated by the U.S. as Specially Designated Global Terrorists. The district court referred to the 2nd Circuit’s decision in Linde v. Arab Bank PLC, in which the appellate court held that “a bank’s provision of material support to a known terrorist organization is not, by itself, sufficient to establish the bank’s liability under the ATA,” and that “in order to satisfy the ATA’s requirements for civil liability as a principal,” the bank’s act must “also involve violence or endanger human life.” Moreover, the Linde opinion held, among other things, that a bank’s act must be intended to intimidate or coerce the civilian population or influence or affect a government, and that the bank “ must have been ‘generally aware of [its] role as part of an overall illegal or tortious activity at the time’” the assistance was provided.
The plaintiffs argued in a consolidated appeal that the district court misapplied the Linde holding and erred in concluding that the evidence presented was “insufficient to permit an inference that the bank was generally aware that it was playing a role in terrorism.” The banks countered that if the appellate court reversed the judgments, the claims should be thrown out for lack of personal jurisdiction. On appeal, the 2nd Circuit agreed with the district court’s dismissal of claims “on the ground that plaintiffs failed to adduce sufficient evidence that the bank itself committed an act of international terrorism within the meaning of §§ 2333(a) and 2331(1)” of the ATA. The opinion noted, among other things, that the plaintiffs’ experts said the charities to which the banks transferred funds as instructed by one of the organizations actually performed charitable work and that there was no indication that they funded terrorist attacks. As such, the banks’ conditional cross-appeal was dismissed as moot.
2nd Circuit: SEC within authority to bring actions for SAR failings
On December 4, the U.S. Court of Appeals for the Second Circuit affirmed summary judgment in favor of the SEC in an action brought by the agency against a penny stock broker-dealer, concluding the agency has the authority to bring an action under Section 17(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 17a-8 promulgated thereunder for failure to comply with the Suspicious Activity Report (SAR) provisions of the Bank Secrecy Act (BSA). According to the opinion, the SEC filed an action against the broker-dealer for violating the Exchange Act and Rule 17a-8’s reporting, recordkeeping, and record-retention obligations by failing to file SARs as required by the BSA. Both parties moved for summary judgment, with the broker-dealer arguing that the SEC was improperly enforcing the BSA. The district court granted summary judgment in favor of the SEC in part (deferring “its resolution of categories of allegedly deficient SARs pending discovery and additional briefing”) and denied summary judgment for the broker-dealer, concluding that the SEC had authority to bring the action under the Exchange Act. After discovery and additional briefing, the SEC moved for summary judgment on the Rule 17a-8 violations and the district court granted summary judgment as to nearly 3,000 violations on the basis of the broker-dealer’s SARs-reporting and recordkeeping practices and imposed a $12 million civil penalty.
On appeal, the 2nd Circuit agreed with the district court, rejecting the broker-dealer’s argument that the SEC is attempting to enforce the BSA, which only the U.S. Treasury Department has the authority to do. The appellate court noted that the SEC is enforcing the requirements of Rule 17a-8, which requires broker-dealers to adhere to the BSA in order to comply with requirements of the Exchange Act, which does not constitute the agency’s enforcement of the BSA. Moreover, the appellate court concluded that the SEC did not overstep its authority when promulgating Rule 17a-8, as SARs “serve to further the aims of the Exchange Act by protecting investors and helping to guard against market manipulation,” and that the broker-dealer did not meet its “‘heavy burden’ to show that Congress ‘clearly expressed [its] intention’ to preclude the SEC from examining for SAR compliance in conjunction with FinCEN and pursuant to authority delegated under the Exchange Act.” In affirming the $12 million civil penalty, the appellate court stated that the district court acted “within its discretion to impose the [] penalty” considering the broker-dealer’s “systematic and widespread evasion of the law.”
2nd Circuit: Payment demand in debt collection letter overshadows validation notice
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.
2nd Circuit vacates dismissal of CFPB action following Seila
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 CFPB (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.
CFPB, FTC argue ECOA “applicant” includes those with existing credit
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.