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  • CFPB’s credit card late fee rule stayed

    Courts

    On May 10, the U.S. District Court for the Northern District of Texas entered an opinion and order granting the plaintiffs, comprising several trade organization, its motion for preliminary injunction and placed a stay on the CFPB’s credit card late fee rule. As previously covered by InfoBytes, a suit was filed against the CFPB by multiple trade organizations to challenge the Bureau’s final rule to amend Regulation Z and limit most credit card late fees to $8.

    The court decided not to address the plaintiffs’ arguments regarding the CARD Act, TILA, and APA violations due to the Court of Appeals for the Fifth Circuit opinion that the CFPB's funding structure was unconstitutional; therefore, any regulations promulgated by the CFPB would be unconstitutional. For that reason, due to the CFPB’s unconstitutional structure found by the 5th Circuit, the District Court decided that all factors weighed in favor of issuing a preliminary injunction and thus staying the final rule. 

    Courts Federal Issues CFPB Litigation Credit Cards Agency Rule-Making & Guidance Fees Consumer Finance

  • FDIC submits amicus brief in Colorado DIDMCA opt-out case

    Courts

    On April 23, the FDIC submitted an amicus brief to the U.S. District Court for the District of Colorado in support of the defendant: the Colorado attorney general. This case involved Colorado HB 23-1229 (the “Act”), which was enacted on June 5, 2023, and will become effective on July 1. As previously covered by InfoBytes, trade groups filed a complaint in the U.S. District Court for the District of Colorado and moved for a preliminary injunction seeking to prevent enforcement of Section 3 of the Act. Section 3 purported to “opt out” of Section 521 of the DIDMCA which had allowed state-chartered banks to export rates of their home state across state borders.

    Section 525 of DIDMCA allows any state to enact legislation to opt out of Section 521 with respect to “loans made in such State.” In the brief, the FDIC argued that courts interpreting federal law have concluded “it is reasonable to conclude that interstate loans are made in the state in which the borrower enters into the transaction and in the state in which the lender enters into the transaction” and that “[i]t would be arbitrary and artificial to select one state when the parties enter into the transaction in two different states.” Thus, according to the FDIC, loans would be made in a state if either the borrower or the lender entered into the transaction in that state. Therefore, the FDIC argued that plaintiffs were incorrect in claiming that the opt-out would apply to loans made by out-of-state creditors to borrowers who were physically located in Colorado.

    In addition, the FDIC disagreed with plaintiffs’ argument that FDIC General Counsel Opinion No. 11, 63 Fed. Reg. 27282 (May 18, 1998), which set forth the FDIC’s position regarding where a bank is “located” for purposes of section 27 of the Federal Deposit Insurance Act, was applicable to interpreting Section 525. The FDIC’s amicus brief stated that Opinion 11 does not address opt-out or Section 525. Moreover, the FDIC argued that “where a loan is made under Section 525 cannot be equated with where a bank is located under Section 521.” The FDIC disagreed similarly with plaintiffs’ reliance on the 1978 Supreme Court of Marquette Nat’l Bank v. First of Omaha Serv. Corp., on the grounds that it concerned where a bank was located and not considered where a loan is “made.”

    The plaintiffs’ reply brief will be submitted by May 7, and a hearing of the pending motion for a preliminary injunction has been scheduled for May 16.

    Courts FDIC Colorado DIDMCA State Legislation Litigation

  • CFPB submits brief alleging “forum shopping,” banking groups defend their choice of venue

    Courts

    On March 12, the CFPB submitted a brief to the U.S. District Court for the Northern District of Texas in opposition to a motion for preliminary injunction filed by a group of industry associations, urging the court to block the implementation of a new rule that would limit the ability of large credit card issuers to charge late fees (covered by InfoBytes here).

    The CFPB defended the rule by stating that it has considered all relevant factors and that the rule aimed to prevent credit card issuers from charging excessive late fees. The CFPB also argued that the case is not properly situated, as the plaintiffs lack a significant connection to the district in which they filed the lawsuit and do not have the standing to sue on behalf of others, stating “it seems not one large card issuer wants its name on the marquee… [t]he rule applies to only the largest card issuers—approximately 30–35 total entities nationwide. Plaintiffs have not identified a single one that is based in this District.” The CFPB suggested that plaintiffs have engaged in “forum shopping”—i.e., choosing this court because they believe it will be more favorable to their case, despite a lack of substantial connection to the district. The brief stated that the plaintiffs are unlikely to succeed on the merits of their claims under the Administrative Procedure Act because they failed to establish proper venue and associational standing. Additionally, the CFPB argued that an injunction was not warranted because the rule was designed to protect consumers and that preventing its implementation would be against the public interest.

    On March 13, plaintiffs submitted a brief defending its motion for preliminary injunction and their choice of venue in Texas as part of an ongoing suit against the CFPB. The brief stated that according to law, the venue was appropriate if one plaintiff resided in the district, which applied to one of the Texas-based chamber plaintiffs, and if a significant portion of the related events occurred in the district, which is true as the rule impacted the local area. That plaintiff argued they have standing to sue because the issues are relevant to its “mission of cultivating a ‘thriving business climate in the Fort Worth region’” and its trade members included credit card issuers affected by the rule. Despite the CFPB’s counterarguments that the plaintiff lacked standing and that a transactional venue was not applicable, the plaintiff asserted it represented members that would be directly impacted by the rule, fulfilling the requirements for standing. Additionally, plaintiff contended that the rule's effects within the district justify the court's jurisdiction over the case.

    Courts CFPB Consumer Finance Fees Agency Rule-Making & Guidance Litigation

  • Bank regulators respond to bankers’ motion to enjoin CRA final rule

    Courts

    On March 8, the Fed, OCC, and FDIC (the federal banking agencies, or “FBAs”) submitted a brief opposing the plaintiffs’ motion for a preliminary injunction to stop the CRA final rule from going into effect. As previously covered by InfoBytes, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the bank regulators’ enforcement of the final rule to implement the CRA before it goes into effect on April 1. The FBAs assert that, in opposing the final rule, the plaintiffs are asking the court to “graft” two exclusions from the CRA’s purpose that are not actually in the statute: first, to exclude geographic areas where a bank conducts retail lending from the scope of the bank’s “entire community”; and second, to exclude a bank’s deposit activities from the assessment on whether a bank is meeting its entire community’s “credit needs.” The banking regulators also argued that the plaintiffs’ motion for preliminary relief should fail because the plaintiffs cannot show irreparable harm, in that they have failed to demonstrate that costs to comply with the CRA final rule, which would not apply until 2026 and 2027, were significant when considered in the context of the bank’s overall finances. Finally, the FBAs argued that the public interest and balance of equities favor allowing the final rule to proceed, as, among other factors, “the rule provides significant regulatory relief and lower compliance costs for smaller institutions by increasing the asset size thresholds that determine which performance tests apply to an institution.” 

    Courts Bank Regulatory CRA OCC FDIC Federal Reserve Agency Rule-Making & Guidance Litigation

  • Business groups sue the CFPB over credit card late fee rule

    Courts

    On March 7, several business groups (plaintiffs) sued the CFPB rule in the U.S. District Court for the Northern District of Texas over its announced credit card late fee rule. As previously covered by InfoBytes, the Bureau’s new final rule limited most credit card late fees to $8, among other actions, and was met immediately with criticism from banks and legislators.

    The plaintiffs’ complaint claimed the CFPB completed the rule hastily to implement a pledge made by President Biden around his State of the Union Address to reduce credit card late fees by 75 percent. The complaint further asserted the CFPB skipped necessary steps, made economic miscalculations, and otherwise breached the Administrative Procedure Act. As alleged, the Bureau likely understated “the volatility of card issuers’ cost-to-fee ratios pertaining to late fees” and improperly relied on data which does not allow for the recovery of a “reasonable and proportional” penalty fee. On the Bureau’s use of the Y-14M data, the complaint alleged the new rule ignored peer-reviewed studies and instead opted to base the rule on an internal study using confidential data that was not available for examination during the period allocated for public comment. The plaintiffs argued the final rule would incur “substantial compliance costs” by amending printed disclosures, using the cost-analysis provisions, and notifying consumers of changes in interest rates to recoup costs, among other problems. The complaint also cited TILA’s effective-date provisions and the Bureau’s embattled funding structure to support the argument that the final rule would cause irreparable harm.

    Courts Federal Issues CFPB Litigation Credit Cards Agency Rule-Making & Guidance Fees Consumer Finance Consumer Protection

  • FTC encourages potential defendants to sign tolling agreements to avoid "undue delay"

    Federal Issues

    On February 20, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, said in an FTC blog post, that although the FTC welcomes open dialogue with parties in open investigations, the Commission is prepared to quickly pivot to litigation in cases should companies cause “undue delay” to redress for consumers. In light of a 2021 Supreme Court ruling in AMG Capital Management, LLC v. FTC, the FTC can no longer pursue monetary relief under Section 13(b) of the FTC Act, which lacks a statute of limitations. Instead, the FTC said, it frequently turns to Section 19, 15 U.S.C. § 57b, which allows courts to order defendants to provide redress only if violations occurred within three years of the Commission’s action. To facilitate timely productive discussions, the FTC Bureau of Consumer Protection often requests tolling agreements from potential defendants to provide time for information gathering and dialogue while preserving the possibility of a pre-litigation settlement or closing the investigation in appropriate cases. Parties are encouraged to sign these agreements, as refusal may impact extension requests and meeting opportunities. If necessary, the FTC will recommend litigation to protect consumer interests.

    Federal Issues FTC FTC Act Litigation Enforcement

  • District Court dismisses FDCPA class action lawsuit for lack of standing on alleged concrete injuries suffered

    Courts

    On January 31, the U.S. District Court for the Eastern District of New York dismissed an FDCPA class action lawsuit for lack of standing. According to the order, plaintiff alleged numerous violations of the FDCPA related to two debt collection letters sent to the plaintiff and his girlfriend. In September 2023, a debt collector (defendant) reportedly sent two letters to the plaintiff which allegedly did not contain the requisite information mandated by the FDCPA for communication with consumers, including validation and itemization details. One of the letters purportedly demanded payment by September 29, falling within the 30-day validation period. Additionally, plaintiff asserted that one of the letters was addressed to his girlfriend who bore no responsibility for the debt. Plaintiff claimed two concrete injuries: (i) the letters allegedly strained his relationship with his girlfriend, causing emotional distress; and (ii) due to the omission of critical information in the letters, plaintiff felt confused and uncertain about how to effectively respond.  

    In considering the plaintiff’s claims, the court discussed the elements required to state a claim for publicity given to private life and examines a specific case where such a claim was rejected by the court. It highlights that for such a claim to succeed, the matter publicized must be highly offensive to a reasonable person and not of legitimate public concern. Additionally, mere communication of private information to a single person typically does not constitute publicity, unless it has the potential to become public knowledge. Although Congress explicitly prohibits debt collectors from sharing consumer financial information with third parties, the court noted that it “does not automatically transform every arguable invasion of privacy into an actionable, concrete injury.” Therefore, the plaintiff's injury, as pleaded, was deemed insufficiently concrete for standing purposes. Regarding the second alleged injury, the court argued that confusion alone does not suffice as a concrete injury for standing purposes, and courts have determined that mere confusion or frustration does not qualify as an injury. Additionally, the court compared the case to other cases where plaintiffs had alleged confusion yet had also demonstrated further injuries.

    Courts FDCPA Class Action Consumer Finance Litigation Standing Debt Collection

  • District Court: Plaintiff has standing but still dismisses FCRA case

    Courts

    On January 19, the U.S. District Court for the District of New Jersey granted a bank’s motion to dismiss an FCRA case. According to the opinion, after plaintiff’s credit report revealed monthly payments towards previously closed accounts with defendant, plaintiff alleged that because the accounts were closed, the entire balance was due and that she had neither the right nor the obligation to pay defendant in monthly installments. Plaintiff then disputed the debt with a credit reporting agency, which forwarded the dispute to defendant, but ultimately plaintiff’s credit report was never updated to $0 monthly payments as she requested. Three days later, plaintiff filed suit alleging defendant violated the FCRA by failing to investigate the dispute and failing to direct the credit reporting agency to report the tradelines with $0 monthly payments. Although plaintiff does not assert in her complaint that her credit reports have been distributed to any potential lender, plaintiff alleged that the tradelines listed in her credit report are inaccurate and “create a misleading impression of her consumer credit file.”

    In determining Article III standing, the court held that plaintiff sufficiently alleged injury in fact because defendant’s “false and misleading reporting to a credit bureau about Plaintiff’s obligation on a debt has a close relationship to reputational harms such as defamation and common law fraud.” The court acknowledged, however, that “[l]ower courts have split on the issue of whether dissemination of a defamatory statement to a credit reporting agency, as opposed to the potential creditors at issue.” On one hand, the U.S. Supreme Court found that class members whose misleading credit reports were not disseminated to a third party did not suffer concrete harm. In another case, the Seventh Circuit concluded that plaintiffs adequately proved third-party dissemination by presenting evidence that debt collectors reported false information about them to a credit reporting agency, dismissing any interpretation precedent that would demand the plaintiffs to additionally demonstrate that the third party shared the false information. The court agreed with the latter decision, citing that “dissemination to a credit reporting agency suffices to establish defamatory publication for standing purposes.”

    Although plaintiff established Article III standing, the court found that plaintiff failed to state a claim under the FCRA because she failed to allege that the tradelines issued by defendant contain inaccurate information. Furthermore, the court found that a report, as plaintiff requested, showing $0 monthly payments on the account would be more misleading, because it would purport that plaintiff does not owe a balance to defendant. 

    Courts FCRA New Jersey Litigation Debt Collection Credit Report

  • District Court grants 1071 Rule nationwide stay

    Courts

    On October 26, the U.S. District Court of the Southern District of Texas entered an order granting intervenors’ motions for preliminary injunction against the CFPB and its small business loan rule.

    As previously covered by InfoBytes, the district court entered an order in August enjoining enforcement of the rule pending the Supreme Court’s decision in Consumer Financial Protection Bureau v. Community Fin. Serv. of Am. and extending the rule’s compliance date to account for the tine the stay remained in place. The court, however, limited that relief to the plaintiffs at that time—a bank and two bank trade associations—and their members. In the wake of this ruling, separate trade associations representing small business lenders asked the CFPB to take administrative action to ensure that the compliance date for other lenders would be adjusted commensurately. The CFPB declined their request.

    In response, separate groups of intervenor plaintiffs, including trade associations representing other types of small business lenders, intervened in the action and filed motions seeking to expand the scope of the preliminary injunction to all affected lenders (or at least their members), claiming the court’s decision to spare some from the rule put them at a competitive disadvantage.  The CFPB opposed those motions (covered by InfoBytes here).

    In its most recent order, the court reasoned that the preliminary injunction should extend to intervenors because the CFPB lacked evidence supporting its argument that that greater harm would result from a stay on its 1071 rule and “its intended benefits for small businesses failed to tip the balance in their favor.” The court reasoned that the purpose of the statute underlying the Bureau’s final rule is the equal application of lending laws to all credit applications to avoid disparate outcomes, presuming uniform application to covered financial institutions. Therefore, to exempt plaintiffs and not all other covered financial institutions would undermine the statute, leaving “non-exempted lenders subject to the discretion of an agency whose very ability to act is a matter of constitutional concern pending resolution on a nationwide scale.” Under that reasoning, the district court granted plaintiffs’ motions for preliminary injunction, enjoining the CFPB from implementing its 1071 Rule for small business lending.  

    Courts CFPB Small Business Lending Litigation Texas Agency Rule-Making & Guidance

  • Kentucky banks win injunction on Small Business Lending Rule enforcement

    Courts

    On September 14, U.S. District Judge Karen K. Caldwell issued an order granting an injunction sought by the Kentucky Bankers Association and eight Kentucky-based banks to enjoin the CFPB from implementing and enforcing requirements for small business lenders until the U.S. Supreme Court rules on the CFPB’s funding structure (previously covered by InfoBytes here and here).

    As previously covered by InfoBytes, the plaintiff banks filed their motion for a preliminary injunction seeking an order to enjoin the CFPB from enforcing the Small Business Lending Rule against them for the same reasons that a Texas district court enjoined enforcement of the rule (Texas decision covered by InfoBytes here). The CFPB argued, among other things, that the plaintiff banks failed to satisfy the factors necessary for preliminary relief, that the plaintiff banks are factually wrong in asserting that the Rule would require lenders to compile “‘scores of additional data points’ about their small business loans,” and the “outlier ruling of the 5th Circuit” in the Texas case does not demonstrate that the plaintiff banks are entitled to the relief they seek.

    In the order granting the preliminary injunction, Judge Caldwell discussed the factors for determining whether injunctive relief is appropriate. Notably, Judge Caldwell determined that the irreparable harm factor weighs in favor of the plaintiffs, stating “[p]laintiffs are already incurring expenses in preparation for enforcement of the Rule and will not be able to recover upon a Supreme Court ruling that the CFPB’s funding structure is unconstitutional.” Additionally, Judge Caldwell indicated that the likelihood of success factor “does not tip the scale in either direction,” and the substantial harm to others if the preliminary injunction is granted, and the public interest factors “carry little weight” because “[b]efore the Rule becomes enforceable, a decision on the merits will be issued by the highest court in the land.”

    Judge Caldwell found that the imposition of the preliminary injunction “will create no harm to the CFPB nor the public since the rule would not otherwise be enforceable in the interim” and granted the preliminary injunction “in the interest of preserving the status quo until the Supreme Court has made its decision.”  

    Courts CFPB Constitution Funding Structure Small Business Lending Litigation Consumer Protection

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