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On April 30, a U.S. District Court judge dismissed the Conference of State Bank Supervisors’ (CSBS) challenge to the OCC’s proposed federal charter for fintech firms. (See previous InfoBytes coverage here.) According to the court, the suit is not “constitutionally or prudentially ripe for determination” and cannot proceed because the OCC has yet to issue a fintech charter to any firm. “This dispute would benefit from a more concrete setting and additional percolation. In particular, this dispute will be sharpened if the OCC charters a particular [f]intech—or decides to do so imminently,” the judge wrote.
As previously covered in InfoBytes, last December the U.S. District Court for the Southern District of New York dismissed a lawsuit filed by the New York Department of Financial Services against the OCC, citing to lack of subject matter jurisdiction over the claims because the OOC had yet to finalize its plans to actually issue fintech charters.
On January 22, the U.S. Court of Appeals for the Eleventh Circuit denied an Ohio-based bank’s request for a rehearing en banc. Last August, the three-judge panel reinstated a suit accusing the bank of violating the Telephone Consumer Protection Act (TCPA) when it allegedly made “over 200 automated calls” to the consumer plaintiff who claimed to have partially revoked her consent by telling the bank to stop calling at certain times. As previously covered in InfoBytes, the appellate court’s August 2017 decision to remand the case for trial concluded that “the TCPA allows a consumer to provide limited, i.e., restricted, consent for the receipt of automated calls,” and that “unlimited consent, once given, can also be partially revoked as to future automated calls under the TCPA.” Furthermore, the decision made clear that the lower court erred in its decision to grant summary judgment in favor of the bank “because a reasonable jury could find that [the consumer plaintiff] partially revoked her consent to be called in ‘the morning’ and ‘during the workday’” during a phone call with a bank employee.
However, in its en banc rehearing petition, the bank argued that the “ruling is likely to create ambiguity amongst both consumers and callers regarding the ability of consumers to impose arbitrary limits on communications . . . despite the FCC’s consistent and unwavering proclamation that in order to revoke consent, consumers must clearly request no further communications.” The appellate court’s decision to deny the petition provides no explanation aside from noting that none of its active judges requested that the court be polled on a rehearing en banc.
On January 19, the U.S. Court of Appeals for the 10th Circuit affirmed a lower court decision that the Fair Debt Collection Practices Act (FDCPA) does not cover non-judicial foreclosures in Colorado. In affirming the District Court’s dismissal of the case, the 10th Circuit reasoned that non-judicial foreclosures in Colorado do not constitute an attempt to collect money from a debtor because the state only allows the trustee to obtain payment from the sale of the foreclosed property and a deficiency judgment must be sought through a separate action. According to the opinion, in 2014, a mortgage servicer hired a law firm to initiate a non-judicial foreclosure and the law firm sent the homeowner a letter indicating that it “may be considered to be a debt collector attempting to collect a debt.” The homeowner then filed a complaint in District Court against the firm and the mortgage servicer for FDCPA violations, which was subsequently dismissed. The 10th Circuit reasoned that the mortgage servicer was not considered a debt collector under the law because servicing initiated prior to the loan’s default and the law firm’s communications with the homeowner never attempted to induce payment. The opinion acknowledges that many courts are split on this topic and emphasizes that the holding does not apply to judicial foreclosures.
On January 22, the U.S. Supreme Court denied a second petition for writ of certiorari in Spokeo v. Robins, thereby declining to reconsider its position on Article III’s standing to sue requirements or to provide further clarification on what constitutes injury in fact. Citing “widespread confusion” over how to determine whether intangible injuries qualify as injury in fact, and therefore meet the standing threshold, Spokeo argued in its petition that review is “warranted to ensure that the jurisdiction asserted by the federal courts remains within constitutional limits.” The second petition was filed by Spokeo last December to request a review of the U.S. Court of Appeals for the Ninth Circuit’s August 2017 decision—on remand from the Supreme Court (see Buckley Sandler Special Alert here)—which ruled that Robins had established standing to sue for alleged violations of the Fair Credit Reporting Act (FCRA) by claiming an intangible statutory injury without any additional harm. The 9th Circuit opined that information contained in a consumer report about age, marital status, educational background, and employment history is important for employment and loan applications, home purchases, and more, and that it “does not take much imagination to understand how inaccurate reports on such a broad range of material facts about Robins’s life could be deemed a real harm.” Further, guaranteeing the accuracy of such information “seems directly and substantially related to FCRA’s goals.” The 9th Circuit reversed and remanded the case to the Central District of California after finding that Robins had adequately alleged the essential elements of standing (see previous InfoBytes coverage here).
A U.S. District Court Judge dismissed the New York Department of Financial Services’ (NYDFS) challenge to the OCC’s proposed federal charter for fintech firms. (See previous InfoBytes coverage here.) In the December 12 order, the judge agreed with the OCC that the court lacked subject matter jurisdiction over NYDFS’ claims because the OCC has yet to finalized its plans to actually issue fintech charters. The case was dismissed without prejudice.
As previously covered by InfoBytes, the Conference of State Bank Supervisors (CSBS) has also filed a lawsuit, which challenges the same statutory authority allowing the OCC to create charters for fintech companies. The CSBS lawsuit is still active.
District Court Denies Summary Judgement to Both Parties, Cites Issue of Material Fact Concerning Prepopulated Electronic Signature
On October 18, a federal judge in the U.S. District Court for the District of South Carolina denied summary judgment to both parties because there was a genuine issue of material fact regarding whether a “meaningful offer” of underinsured motorist coverage (UIM) was made. The insured’s electronic signature on the UIM form would indicate that the defendant made a “meaningful offer” of UIM coverage, as required under South Carolina law, and such coverage was rejected. The dispute however, in this case was about whether the electronic signature was prepopulated by the defendant.
Plaintiff purchased an auto insurance policy from the defendant online, and the coverage did not include UIM coverage. Plaintiff argued that he never signed the UIM coverage provision and that instead, his signature was prepopulated by the defendant’s website. The plaintiff argued that his prepopulated signature did not satisfy the requirements for a meaningful offer of UIM coverage. The defendant rebutted by stating that prepopulating portions of the UIM form is compatible with providing a meaningful offer of UIM coverage. The court was “disinclined to agree” with the defendant’s argument that a “prepopulated signature that appears on an insurance policy before the insured reads through and signals affirmative consent. . .fulfills” the UIM requirements. After reviewing the record, which was limited to screenshots produced by the plaintiff (as the defendant’s attempt to proffer additional system-based evidence was refused by the court because the defendant previously objected to producing it during discovery), the court concluded that it could not grant summary judgment to either party because of the factual dispute regarding whether the plaintiff signed the UIM provision.
On October 26, the FTC agreed to a settlement of $760,000 with two affiliate marketers of a credit score business who allegedly committed deceptive acts to lure consumers into signing up for their monthly credit monitoring service for $30.00.
The settlement partly resolves a suit the FTC filed in January against the credit score company, the owner, and the company’s affiliate marketers. The FTC alleged that the defendants posted fake rental ads on Craigslist and required persons responding to the ads to obtain a purportedly “free” credit report from the company’s websites before viewing the property. The defendants, however, used the credit or debit card information consumers entered to obtain the credit report and enrolled consumers for a negative option credit monitoring service with a $30.00 monthly fee.
The order suspended the balance of the total $6.8 million judgment on the condition that the affiliate marketers pay the FTC the settled amounts. The claims against the company and the owner are ongoing.
On October 12, the U.S. Court of Appeals for the Seventh Circuit affirmed an Indiana District Court’s 2016 ruling, agreeing that an insurance company does not bear the responsibility for covering a bank’s $24 million class action settlement under a policy provision that excludes coverage for any case involving fees. In upholding the lower court’s decision, the three judge panel concluded that the insurance company had no duty to defend or indemnify the bank on the basis that the underlying overdraft fee claims fall under “Exclusion 3(n)” in the bank's professional liability insurance policy, which states that the insurance company “shall not be liable for [l]oss on account of any [c]laim . . . based upon, arising from, or in consequence of any fees or charges.” Class claims alleging that the bank manipulated its debit processing to “maximize overdraft revenue” by charging purportedly excessive fees to consumers who overdraw their checking and savings accounts triggered the exclusion. The panel also noted that an insurance company’s decision to include fee exclusions in banking liability policies is designed to prevent the “moral hazard” of allowing banks to “freely create other customer fee schemes” knowing they could easily secure coverage.
On September 28, the U.S. Court of Appeals for the Second Circuit affirmed a New York District Court’s 2015 ruling, which requires a major international bank to pay $806 million for selling allegedly faulty mortgage-backed bonds to Fannie Mae and Freddie Mac. In the original suit brought by the Federal Housing Finance Agency (FHFA), FHFA alleged that the bank overstated the reliability of the loans for sale. In upholding the lower court’s decision, the Second Circuit concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact.” Specifically, the prospectus falsely stated that the loans were compiled with the underwriting standards described therein, including standards related to assessing the creditworthiness of the borrowers and appraising the value of properties.
On September 29, the U.S. Chamber of Commerce (Chamber) and other financial industry groups joined together to file a lawsuit in a Texas District Court against the CFPB over the constitutionality and legality of the Bureau’s arbitration rule (rule). The complaint alleges four reasons why the rule is invalid and should be set aside:
- the rule is a product of the unconstitutional structure of the CFPB – as covered in a previous InfoBytes, a similar argument is being heard in the U.S. Court of Appeals for the D.C. Circuit in the case brought by PHH;
- the CFPB failed to follow procedures in the Administrative Procedures Act (APA) in adopting the conclusions of a flawed arbitration study. Specifically, the complaint alleges that the study improperly limited public participation, applied flawed methodologies, misunderstood relevant data, and did not address key considerations;
- the rule is a model of arbitrary and capricious agency action because it fails to take into account important aspects of the problem it is attempting to address and runs counter to the record before the Bureau; and
- the rule is a violation of the Dodd Frank Act because it fails to advance the public interest or consumer welfare.
Currently, the rule is also under scrutiny by Congress. As previously discussed in InfoBytes, the House passed a disapproval resolution, under the Congressional Review Act, to repeal the rule. A similar measure is set for discussion in the Senate.
Buckley Sandler will follow up with a more detailed summary of the lawsuit.
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the Puerto Rican Symposium of Anti Money Laundering
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the Mortgage Bankers Association Servicing Solutions Conference & Expo
- Jonice Gray Tucker and H Joshua Kotin to discuss regulatory compliance issues in the fintech industry at Protiviti's Risk & Compliance Innovation Roundtable
- APPROVED Checkpoint Webcast: CFL overview
- Amanda R. Lawrence and Sherry-Maria Safchuk to discuss "California privacy rule" on an NAFCU webinar
- Sasha Leonhardt to discuss "MLA & SCRA" on a NAFCU webinar
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS International AML & Financial Crime Conference
- Brandy A. Hood to discuss "RESPA 8 (TRID applied compliance)" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Critique of direct examination; Questions and answers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Hank Asbill to discuss "What judges want from trial lawyers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Steven R. vonBerg to speak at the "Conference super session" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference