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  • Eleventh Circuit Holds TCPA Consent Can Be Partially Revoked

    Courts

    On August 10, the U.S. Court of Appeals for the Eleventh Circuit held that the Telephone Consumer Protection Act (TCPA) “permits a consumer to partially revoke her consent to be called by means of an automatic telephone dialing system.” As alleged in this case, when the consumer plaintiff applied for a credit card, she broadly consented to receive automated calls from the bank defendant on her cell phone. After falling behind on her payments, she started receiving automated delinquency calls from the bank. On an October 2014 call with a bank employee, the plaintiff expressed that she did not want to receive these automated calls “in the morning” and “during the work day.” The plaintiff claimed that the bank violated the TCPA by making “over 200 automated calls” thereafter during these restricted times of day, until she fully revoked consent in March 2015.

    The U.S. District Court for the Southern District of Florida had granted summary judgment in favor of the bank, but the Eleventh Circuit reversed. The Eleventh Circuit disagreed with the bank’s legal argument that “the only effective revocations are unequivocal requests for no further communications whatsoever.” Instead, the court 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.” The court also concluded that there was an “issue of material fact” as to whether the plaintiff’s October 2014 statements constituted a partial revocation. Noting that “[t]his issue is close,” the court explained that a reasonable jury could find that the plaintiff revoked her consent to be called “in the morning” and “during the work day,” even if she did not specify exactly what times she meant. Accordingly, the court remanded for trial.

    Courts Eleventh Circuit Appellate Litigation TCPA

  • Ninth Circuit Rules FCRA Plaintiff Has Article III Standing

    Courts

    On August 15, the U.S. Court of Appeals for the Ninth Circuit issued an opinion, on remand from the U.S. Supreme Court, ruling that a consumer plaintiff could proceed with his Fair Credit Reporting Act (FCRA) claims because he had sufficiently alleged a “concrete” injury and therefore had standing to sue under Article III of the Constitution. Robins v. Spokeo, Inc., No. 11-56843, 2017 WL 3480695 (9th Cir. Aug. 15, 2017). By way of background, the plaintiff had alleged that the defendant consumer reporting agency “willfully violated various procedural requirements under FCRA,” and consequently published an inaccurate consumer report on its website that “falsely stated his age, marital status, wealth, education level, and profession” and “included a photo of a different person.” In May 2016, the Supreme Court vacated an earlier Ninth Circuit decision, finding that the court failed to consider an essential element of Article III standing: whether the plaintiff alleged a “concrete” injury. (See previous Special Alert here.) After providing some guidance—including that the plaintiff’s injury must be “real” and not “abstract” or merely “procedural”—the high court remanded to the Ninth Circuit for further consideration. 

    On remand, the court first asked “whether the statutory provisions at issue were established to protect [the plaintiff’s] concrete interests (as opposed to purely procedural rights).” The court answered affirmatively, finding that “the FCRA procedures at issue in this case were crafted to protect consumers’ . . . concrete interest in accurate credit reporting about themselves.” Next, the court asked “whether the specific procedural violations alleged in this case actually harm, or present a material risk of harm to, such interests.” The court again answered affirmatively, finding that the plaintiff sufficiently alleged that he suffered a “real harm” to his “concrete interests in truthful credit reporting.” That is, the plaintiff sufficiently alleged that the defendant “prepared . . . an [inaccurate] report,” “that it then published the report on the Internet,” and that “the nature of the specific alleged reporting inaccuracies” was not “trivial or meaningless,” but instead covered “a broad range of material facts” about the plaintiff’s life “that may be important to employers or others making use of a consumer report.” Finally, the court found that the plaintiff’s allegations were not too speculative, because “both the challenged conduct and the attendant injury have already occurred.” After reaffirming that the plaintiff had adequately alleged the other essential elements of standing, the court remanded to the Central District of California for further proceedings.

    Courts FCRA Appellate Litigation Ninth Circuit U.S. Supreme Court Spokeo

  • District Judge Denies Student Loan Servicer’s Motion to Dismiss, Rules CFPB is Constitutional

    Courts

    On August 4, a federal judge in the U.S. District Court for the Middle District of Pennsylvania denied a motion to dismiss brought by a student loan servicer, ruling that the CFPB is constitutional, and that it has the authority to act against companies without first adopting the rules used to define a specific practice as unfair, deceptive, or abusive. Further, the court found that the Bureau’s complaint is “adequately pleaded.” As previously reported in InfoBytes, the CFPB filed a complaint in January of this year, contending that the student loan servicer systematically created obstacles to repayment and cheated many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans.

    Citing numerous precedents, including several which have already examined the issue of the CFPB’s constitutionality, the court disposed of several arguments raised by the student loan servicer, finding that:

    • There is no merit in the argument that the “CFPB lack[ed] statutory authority to bring an enforcement action without first engaging in rulemaking to declare a specific act or practice unfair, deceptive, or abusive,” because under the provisions of Title X of Dodd-Frank, the CFPB has the authority to declare something as “unlawful” both through rulemaking and litigation.
    • The CFPB isn’t outside the bounds of the Constitution, in part because its provision making it difficult for the President to remove the CFPB’s director isn’t any more burdensome than those of other agencies, such as the FTC. By recognizing this, and that the CFPB director “is not insulated by a second layer of tenure and is removable directly by the President,” the court ruled that the “Bureau’s structure is not constitutionally deficient.”
    • The funding method utilized by the Bureau has parallels in other federal agencies and does not affect presidential authority, stating that “although the CFPB is funded outside of the appropriations process, Congress has not relinquished all control over the agency’s funding because it remains free to change how the Bureau is funded at any time.” The court therefore found that the President’s constitutional powers have not been curtailed.

    The court dismissed the student loan servicer’s assertion that it is unable to “reasonably prepare a response” due to the vague and ambiguous nature of the complaint. Rather, the court argues that the Bureau’s complaint provides enough “multiple specific examples” to warrant a response by way of an answer.

    Courts Student Lending CFPB Dodd-Frank Litigation UDAAP Single-Director Structure

  • District Judge Denies Motion to Compel Arbitration, Rules Arbitration Agreement Contained in Nested Hyperlink Invalid

    Courts

    On July 21, a federal judge in the U.S. District Court for the Southern District of California denied a Defendant’s motion to compel arbitration, finding that the Plaintiff had not agreed to arbitrate where the Defendant had presented the arbitration agreement electronically to the Plaintiff through a multi-layered set of hyperlinks. See McGhee v. North American Bancard, LLC, 17-CV-0586-AJB-KSC, 2017 WL 3118799 (S.D. Cal. Jul. 21, 2017). The dispute revolved around an agreement for the use of a credit card reader provided by the Defendant. The terms and conditions for this service were presented to the Plaintiff electronically via a hyperlink. The hyperlink was placed next to a checkbox and button labeled with the phrase “I have read and agree to the Terms and Conditions.” But the Terms and Conditions document accessible through that hyperlink did not contain the arbitration agreement. Instead, the arbitration agreement was only accessible by clicking on a second hyperlink contained in the first document. Additionally, the Terms and Conditions document accessible through the first-level hyperlink conflicted with the nested arbitration agreement because the Terms and Conditions document included a forum selection clause designating state and federal courts of Georgia. On these facts, the court found that Plaintiff’s consent applied only to the Terms and Conditions document immediately behind the first hyperlink, and did not apply to the arbitration agreement accessible through the nested hyperlink.

    Courts Arbitration Litigation

  • Senators Introduce Legislation to Override Second Circuit’s Decision in Madden v. Midland

    Federal Issues

    On July 27, a bipartisan group of senators introduced draft legislation (S. 1642), which would require bank loans, sold or transferred to another party, to maintain the same interest rate. As previously covered in InfoBytes, similar legislation (H.R. 3299) was introduced in the House earlier in July to reestablish a “legal precedent under federal banking laws that preempts a loan’s interest as valid when made.” Both measures come as a reaction to the 2015 Second Circuit decision in Madden v. Midland Funding, LLC, in which an appellate panel held that a nonbank entity taking assignment of debts originated by a national bank is not entitled to protection under the National Bank Act from state-law usury claims. The draft legislation seeks to amend the Revised Statutes, the Home Owners’ Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act.

    Federal Issues Federal Legislation Usury Lending Second Circuit Litigation National Bank Act Madden

  • Fourth Circuit Affirms SCRA Does Not Apply to Mortgage Loan Incurred During Service

    Courts

    In an opinion handed down on July 17, the U.S. Court of Appeals for the Fourth Circuit ruled that the Servicemembers Civil Relief Act (SCRA) does not apply to a mortgage loan obligation incurred during a borrower’s military service, even if the obligation was incurred during an earlier, distinct period of military service. At issue was the SCRA’s requirement that lenders obtain a court order before foreclosing on or selling property owned by a current or recent servicemember if the mortgage obligation “originated before the period of the servicemember’s military service.”

    The case concerned a borrower who had financed the purchase of a house while serving in the Navy. After his discharge from the Navy, he defaulted on his mortgage loan. The borrower then enlisted in the Army, and shortly thereafter, the bank sold the borrower’s house—without prior court approval—at a foreclosure sale. The borrower signed a move-out agreement and addendum that affirmatively waived “any rights and protections provided by [SCRA] with respect to” the deed and foreclosure sale.

    More than five years after the foreclosure sale, the borrower filed a lawsuit against the bank, alleging that the foreclosure sale was invalid under SCRA. The district court granted summary judgment for the bank, ruling that “[b]ecause it is undisputed that [the borrower’s] mortgage originated while he was in the military, that obligation does not qualify under [SCRA].” Specifically, the district court reasoned that the SCRA is “designed to ensure that servicemembers do not suffer financial or other disadvantages as a result of entering the service . . . by shielding servicemembers whose income changes as a result of their being called to active duty, and who therefore can no longer keep up with obligations negotiated on the basis of prior levels of income.” “Such a change in income and lifestyle,” the district court explained, “was not a factor in [the borrower’s] case, as the mortgage at issue here originated while he was already in the service.”

    The Fourth Circuit adopted the district court’s reasoning in a 2-1 decision. In dissent, Judge King contended that the majority’s ruling was contrary to the SCRA’s plain, unambiguous language. Judge King further reasoned that, even if the SCRA’s language was ambiguous, the borrower would still prevail because the SCRA must be liberally construed to protect servicemembers.

    Of note, because of its ruling, the district court did not address the bank’s alternative argument that the borrower had waived his rights under the SCRA by executing the addendum to his move-out agreement.

    Courts SCRA Appellate Fourth Circuit Litigation Mortgages

  • OCC Files Motion to Dismiss CSBS Suit Over Fintech National Bank Charter

    Fintech

    On July 28, the OCC filed a motion in the U.S. District Court for the District of Columbia to dismiss a lawsuit brought by the Conference of State Bank Supervisors (CSBS) challenging the OCC’s fintech charter. See Conf. of State Bank Supervisors v. Office of the Comptroller of the Currency, Case 1:17-cv-00763-JEB (D.D.C. Jul. 28, 2017). In a memorandum supporting its motion to dismiss, the OCC argued that CSBS does not have standing to bring the case because the OCC has not yet come to a decision on whether it will make special purpose national bank charters available to fintech companies and other nonbank firms, and therefore, “[n]o tangible effect on CSBS or CSBS's members could even arguably occur until a 5.20(e)(1) Charter has been issued to a specific applicant.” For similar reasons, the OCC argued that the case was not ripe for judicial review.

    Addressing the merits, the OCC cited Independent Community Bankers Ass’n of South Dakota, Inc. v. Board of Governors of the Federal Reserve System, 820 F.2d 428 (D.C. Cir. 1987), cert. denied, 484 U.S. 1004 (1988), arguing that the ruling confirms its authority to issue special purpose bank charters and “illustrates that the legal concept of a special purpose national bank power is not novel or unprecedented, but rather follows a decades-old OCC practice.” The OCC further argued that under the National Bank Act, the OCC’s interpretation of “the business of banking”—in which a special purpose bank “must conduct at least one of the following three core banking functions: receiving deposits; paying checks; or lending money”—deserves Chevron deference.

    As previously discussed in a Special Alert, CSBS claimed the fintech charter violates the National Bank Act, Administrative Procedure Act, and the U.S. Constitution, and that the OCC has acted beyond the legal limits of its authority. Furthermore, CSBS asserts that providing special purpose national bank charters to fintech companies “exposes taxpayers to the risk of inevitable [fintech] failures.”

    However, shortly after the OCC’s motion was filed, a federal judge ordered that the OCC’s motion to dismiss be stricken based on excessive footnoting. The judge, in a minute order on the docket, cited that the excessive number of footnotes “appear[] to be an effort to circumvent page limitations.” On August 2, the OCC filed a renewed motion to dismiss.

    Fintech Agency Rule-Making & Guidance CSBS Courts OCC Litigation Licensing Fintech Charter

  • Massachusetts AG Announces Settlement with Law Firm Over Debt Collection Practices

    State Issues

    On July 27, Massachusetts Attorney General Maura Healey announced a $1 million settlement with the largest debt collection law firm in the state to resolve allegations that the firm engaged in unfair and unlawful debt collection practices. According to a lawsuit filed by the Attorney General’s office in 2015, the firm began filing tens of thousands of debt collection lawsuits each year beginning in 2011, at times targeting the wrong consumers or filing claims based on unsubstantiated debts. The firm also allegedly demanded payment from consumers who relied on social security or other exempt income, despite being provided evidence that the income was exempt from court-ordered collection. Under the terms of the settlement, the company is required to reform its debt collection practices by adhering to guidelines including the following:

    • The firm is required to obtain and review “original account-level documentation” prior to initiating a collection to determine whether a consumer is obligated to pay the debt such as, among others, (i) an authenticated bill of sale reflecting the transferred ownership of debt; (ii) original documents reflecting the charge-off balance; (iii) contractual terms and conditions; and (iv) original consumer signed documents showing proof the account was opened;
    • The firm is prohibited from engaging in threatening actions to collect on a debt initiated on behalf of a collector or debt buyer, and is further restrained from commencing a collection suit without possessing a final judgment or execution against the consumer, or acceptable account-level documentation;
    • The firm cannot initiate a collection suit against a consumer until an attorney listed on the company in the collection suit has reviewed the pertinent information and made the determination that the debt owed is not subject to bankruptcy proceedings and certifies in writing that the collection suit is in compliance.

    The settlement terms also stipulate that the firm must comply with collection terms and restrictions concerning exempt and protected income, must adhere to time-barred debt collection restrictions, is enjoined from using false and misleading affidavits to collect debts, and must submit enhanced compliance reporting to AG Healey for review. Additionally, the firm previously paid $1 million to the state to be used in one or more of the following ways: (i) as payments to consumers; (ii) to assist with final judgment facilitation; (iii) to be added to the state’s general fund and/or the Local Consumer Aid Fund; and (iv) to fund programs that “address the negative effect of unfair and deceptive practices related to debt collection.”

    State Issues State Attorney General Debt Collection UDAAP Litigation Settlement

  • Class Action Complaint Filed Against National Bank Related to Auto Insurance Coverage

    Courts

    On July 30, consumers accused a national bank of requiring them to pay for unnecessary auto insurance in a class action complaint filed in the Northern District of California. See Hancock v. Wells Fargo & Co., Case No. 17-cv-04324 (N.D. Cal. Jul. 30, 2017). The consumers allege that they paid for protection against vehicle loss or damage while making monthly loan payments, even though many drivers allege that they already had their own policies. According to the complaint, the bank allegedly received kickbacks from an auto insurance company through shared commissions on policies for more than 800,000 auto loans, which resulted in nearly 250,000 loans becoming delinquent and nearly 25,000 “unlawful vehicle repossessions.” The consumers allege that when they took out auto loans, both the bank and the insurance company failed to check whether the consumer already had coverage or ignored the information, and then created Collateral Protection Insurance (CPI) policies which were “secretly” added to the auto loan bills and the costs automatically deducted from consumer bank accounts.

    In addition to the costs incurred for the unlawful forced-placed insurance policies, consumers also claim to have experienced financial harm in the form of (i) inflated premiums and interest rates; (ii) delinquency charges and late fees; and (iii) repossession costs and damage to credit reports. Consumers seek restitution, disgorgement of revenues and/or profits, and compensatory damages.

    Notably, before the class action complaint was filed, the bank issued a press release on July 27, announcing plans to remediate approximately 570,000 consumers who may have been financially harmed—less than the 800,000 cited in the complaint. The bank stated that it had conducted a review of CPI policies placed between 2012 and 2017 and stated, ““We take full responsibility for our failure to appropriately manage the CPI program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us. . . . Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”

    Courts Consumer Finance Force-placed Insurance Auto Finance UDAAP Class Action Litigation

  • OCC Requests Pre-Motion Conference to Discuss NYDFS Fintech Challenge

    Fintech

    On July 25, acting U.S. Attorney for the Southern District of New York, Joon H. Kim, filed a letter with the federal court in that district on behalf of the OCC, requesting a pre-motion conference to discuss its anticipated motion to dismiss the New York Department of Financial Service’s (NYDFS) suit against the OCC’s special purpose fintech charter. See Vullo v. Office of the Comptroller of the Currency, Case 17-cv-03574 (S.D.N.Y., Jul. 25, 2017). As previously covered in InfoBytes, NYDFS filed the lawsuit May 12 on the grounds that the charter is unlawful and would grant preemptive powers over state law. Kim cites the following three reasons for dismissal of NYDFS’s complaint:

    • NYDFS lacks standing to bring the suit because, although the OCC has “publically [sic] contemplated the possibility of issuing fintech charters…those public statements do not amount to a ‘final agency action’ subject to challenge under the [Administrative Procedure Act].” Indeed, since any harm NYDFS can identify is “conjectural or hypothetical,” and it has not suffered any “actual or imminent” injury, the Court lacks subject matter jurisdiction.
    • OCC’s interpretation of its statutory authority under the National Bank Act (NBA) refers to Section 5.20(e)(1), which “reasonably limits the issuance of charters to institutions that carry on at least one of three ‘core banking activities’ [such as] the receipt of deposits, the payment of checks, or the lending of money.” Thus, regulations that allow chartering approvals—even if the chartered companies don't take deposits—is reasonable because they carry on at least one core banking function.
    • The Supremacy Clause of the U.S. Constitution would protect fintech banks chartered under the relevant OCC rules and entitle them to NBA protections against state interference.   Kim noted that it “is well established that the Supremacy Clause operates in concert with the NBA to displace state laws or state causes of action that conflict with federal law or that prevent or significantly interfere with national bank powers.”

    The OCC faces a separate fintech lawsuit in the District Court for the District of Columbia brought by the Conference of State Bank Supervisors. (See previous Special Alert.)

    Fintech Agency Rule-Making & Guidance OCC NYDFS National Bank Act Litigation Licensing Fintech Charter

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