InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Second Circuit Affirms No Unilateral Revocation Under TCPA
On June 22, the Second Circuit held in Reyes v. Lincoln Automotive Financial Services, No. 16-2014-cv, 2017 WL 2675363 (2nd Cir. June 22, 2017), that the Telephone Consumer Protection Act (TCPA) does not permit a consumer to unilaterally revoke his or her consent to be contacted by telephone when that consent was given as a “bargained-for consideration in a bilateral contract.” The defendant had leased an automobile from the plaintiff. As a condition of that lease agreement, the plaintiff consented to receive automated or manual telephone calls from the defendant. After the plaintiff defaulted, the defendant regularly called the plaintiff and continued to do so even after the plaintiff allegedly revoked his consent. To support his argument that the TCPA permits him to revoke his consent, the plaintiff relied on prior case law and a recent ruling from the FCC that stated that under the TCPA, “prior express consent” can be revoked. The Second Circuit, however, distinguished this case from those relied on by the plaintiff on the grounds that the prior cases and the FCC’s ruling support the proposition that consent not given in exchange for consideration, and which is not part of a binding legal agreement, can be revoked. The Court further stated that where the consent is not provided gratuitously but is instead an express provision of a contract, the TCPA does not allow such consent to be unilaterally revoked.
Judge Issues Ruling Ordering Unused Consumer Redress Funds to be Deposited in the Treasury
On June 20, a federal judge in the U.S. District Court for the Southern District of New York ordered that leftover funds from a $50 million settlement must be transferred to the Treasury, ultimately ruling against a memorandum filed by the Attorneys General of Connecticut, Indiana, Kansas, and Vermont (State AGs) that sought to redirect the remaining $15 million to be used to “train, support and improve the coordination of the state consumer protection attorneys charged with enforcement of the laws prohibiting the type of unfair and deceptive practices alleged by the CFPB in this [a]ction.” (See previous InfoBytes summary here.) Notably, the judge stated, “the State AGs’ proposal does not reflect the [settling] parties' true intent . . . Nowhere in the Final Judgment or the Redress Plan is there any language supporting the State AGs’ view that leftover funds should broadly aid consumers.” The judge opines further that “[c]ondoning an unintended use of the settlement funds—in the absence of any other equitable relief reasonably related to the allegations of the Complaint—would be tantamount to misappropriating funds that otherwise should be in the public fisc.” The judge further noted that had the State AGs’ memorandum been granted, it would “permit State actors . . . to hijack a significant portion of the settlement funds under the guise of ‘consumer protection,’ all for the purpose of underwriting a project that principally benefits the States.”
PHH v. CFPB Update: PHH Counters CFPB’s Statute of Limitations Interpretation
On June 13, PHH Corporation sent a letter to the U.S. Court of Appeals for the District of Columbia Circuit responding to a June 7 letter from the CFPB that stated RESPA’s three-year statute of limitations is not applicable in its enforcement action against the company. In its letter, the CFPB cited a decision in Kokesh v. SEC where the U.S. Supreme Court ruled that a five-year limit applies to civil penalties, and that, furthermore, “[d]isgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.” The Bureau further supported its argument for a five-year limit by claiming that RESPA’s three-year statute of limitations provision applies only to “actions” brought in a “United States district court or any other court of competent jurisdiction,” and its administrative proceeding against the company for alleged mortgage kickbacks was not an “action” under RESPA.
In response, PHH countered that Section 2462 contains a “catch-all limitations period ‘[e]xcept as otherwise provided’ by Congress.” Thus, the D.C. Circuit panel was correct when it held that Congress “otherwise provided” a three-year statute of limitations under RESPA that applies to enforcement proceedings because in the “second part of Section 2614, the term ‘actions’ is not limited to actions brought in court.” PHH further asserts that Dodd-Frank “repeatedly uses the term ‘action’ to encompass court actions and administrative proceedings.”
As previously covered in InfoBytes, on May 24, the D.C. Circuit, sitting en banc, heard oral arguments on the constitutionality of the CFPB. It did not indicate that it was inclined to revisit the panel’s determination that the Bureau misinterpreted RESPA when applying it to PHH’s practices.
Pennsylvania-Based Bank Settles Overdraft Class Action for $1M
On June 12, a Pennsylvania-based bank resolved a class action lawsuit over claims the bank charged its customers improper overdraft fees by agreeing to a proposed $975,000 settlement. According to plaintiff’s unopposed motion for approval of the settlement, the bank had a “practice of assessing overdraft fees even when a customer has sufficient funds in their account to cover all merchant requests for payment.” The plaintiff further alleged that the bank incorrectly charged the fees “to maximize its overdraft fee revenue.” Transactions triggering an overdraft fee using the available balance, but which would not trigger an overdraft fee using the ledger balance, are included in the settlement. The proceeds of the proposed settlement will be distributed to eligible class members within 20 days of the effective date of the settlement.
A preliminary issue in this case was the bank’s belief that the suit was subject to arbitration. The bank claimed the dispute was governed by an agreement to arbitrate contained in plaintiff’s 2008 account agreement, and not, as plaintiff contended, by plaintiff’s 2010 account agreement, which did not contain an arbitration agreement. The trial court disagreed with the bank. In fact, the Pennsylvania Superior Court affirmed the trial court’s decision that there was no agreement to arbitrate the action, after which the Pennsylvania Supreme Court denied the bank’s petition to appeal that decision.
DOJ Intervenes in False Claims Act Litigation Against City of Los Angeles for Alleged Misuse of HUD Funds
On June 7, the Department of Justice (DOJ) announced that the United States has intervened (see proposed order here) in a lawsuit against the city of Los Angeles (City) alleging that the City misused Department of Housing and Urban Development (HUD) funds intended for affordable housing that is accessible to people with disabilities. See U.S. ex rel Ling et al v. City of Los Angeles et al, No. 11-00974 (D.C. Cal. 2017).
The DOJ joins in the lawsuit originally instituted by a disabled Los Angeles resident, who filed the False Claims Act (FCA) suit as a whistleblower. The FCA whistleblower provision allows private citizens to file suit on behalf of the government and likewise permits the government to intervene in the suit. Together, the DOJ and the whistleblower allege that the City and a city agency called the CRA/LA falsely certified compliance with federal accessibility laws, including the Fair Housing Act and Section 504 of the Rehabilitation Act as well as the duty to further fair housing in the City, in order to receive millions of dollars in HUD housing grants.
As recipients of the HUD funds, the City and the CRA/LA were obligated to ensure that (i) “five percent of all units in certain federally-assisted multifamily housing be accessible for people with mobility impairments”; (ii) “an additional two percent be accessible for people with visual and auditory impairments”; (iii) “the City and the CRA/LA maintain a publicly available list of accessible units and their accessibility features”; (iv) “the City and the CRA/LA have a monitoring program in place to ensure people with disabilities are not excluded from participation in, denied the benefits of, or otherwise subjected to discrimination in, federally-assisted housing programs and activities solely on the basis of a disability.” The false certifications resulted in too few accessible housing units, the suit claims.
The City denies the allegations.
CFPB Withdraws CID, Petition to Enforce CID is Moot Due to Lack of Subject-Matter Jurisdiction
On June 8, the CFPB filed a petition to withdraw a 2015 CID issued to a financial services company concerning its structured settlement and annuity payment purchasing activities, and subsequently agreed to the dismissal of the petition to enforce the CID as moot due to lack of subject-matter jurisdiction. The action stems from a petition filed by the company to set aside the CID, arguing that structured settlements and annuity payment purchasing is not an extension of credit, nor qualifies as a consumer financial product. Therefore, the company claimed, its business activities do not fall under the CFPB’s UDAAP or Truth in Lending Act authority. The Bureau denied the petition, and in June 2016, it filed a memorandum in the U.S. District Court for the Eastern District of Pennsylvania for an order requiring the company to comply with the CID, asserting that “regulations authorize the Bureau to petition the district court in ‘any judicial district in which [that entity] resides, is found, or transacts business’ for an order to enforce the CID.” However, on June 5, the CFPB filed a notice to withdraw stating that “[b]ecause the CID is no longer active, the Bureau intends to soon dismiss the Petition,” and asked the court to “refrain from ruling on the petition.” The CFPB did not disclose a reason for its decision to withdraw the CID.
Notably, before the dismissal, the U.S. Chamber of Commerce (Chamber) filed an amicus brief opposing the CFPB’s petition. The Chamber opined that, should the CFPB be allowed to issue CIDs under a “virtually unlimited definition of the term ‘financial advisory services,’” under which it would include “advice with a financial element offered in connection with transactions unrelated to a consumer financial product,” it would expand the Bureau’s jurisdiction beyond the limits of Dodd-Frank’s prohibition on unfair, deceptive, and abuse acts and practices.
Filipino National Sentenced for Running $9 Million Cybercrime Ring
On June 8, a U.S. District Court Judge sentenced a Filipino national to over five years in prison and two years of supervised release after pleading guilty to conspiracy to commit bank fraud last year. The defendant operated a $9 million international cybercrime operation that utilized stolen credit and debit accounts to process unauthorized financial transactions, according to an investigation led by the District of New Jersey U.S. Attorney’s Office. To obtain credit and debit card account information, the defendant engaged in computer hacking and ATM skimming, whereby millions of dollars were “monetized” through a “global network of ‘cashers’” who encoded the data onto counterfeit cards and then used the cards to withdraw money and make purchases.
FTC Announces Settlement with Operators of Tech Support Scam
On June 7, the FTC announced two settlements in a pending action brought against defendants who allegedly used pop-up internet ads to deceive consumers into believing their computers were infected and then sold unnecessary technical support services to fix the issues. Under the terms of the settlements (available here and here), the defendants (i) will relinquish assets combined at nearly $6 million to provide restitution to victims, and (ii) are banned from marketing, promoting, or misrepresenting technical support products or services in the future. The settlement is part of the FTC’s ongoing efforts to pursue tech support scams through its Operation Tech Trap initiative. (See previous InfoBytes coverage here.)
Charges Filed by SEC Allege Bank Secrecy Act Violations
On June 5, the SEC filed charges against a U.S. brokerage firm (firm) for failure to comply with suspicious activity reports (SARs) filing requirements, in violation of the Bank Secrecy Act (BSA), the Exchange Act Section 17(a), and Rule 17a-8. The complaint, filed in the U.S. District Court for the Southern District of New York, alleges that although the firm had a BSA Compliance Program, the program did not accurately reflect what the firm did in practice. More specifically, the SEC alleges thousands of violations including failure to file SARs, failure to file SARs within the required 30 days after the date the suspicious activity was detected, and filing incomplete SARs that did not include the requisite narratives describing what is “unusual, irregular, or suspicious” about the transaction. According to the SEC press release, “by failing to file SARs, [the firm] deprived regulators and law enforcement of critically important information often related to trades in microcap securities used to investigate potentially serious misconduct.”
The SEC requested relief in the form of permanent injunctions and monetary penalties and interest.
Attorney General Sessions Issues Memorandum Ending Payments to Third-Party Organizations as Part of Future Settlement Agreements
On June 7, Attorney General Jeff Sessions issued a memorandum entitled “Prohibition on Settlement Payments to Third Parties” instructing the Department of Justice (DOJ) to cease entering into settlement agreements that include payments to third-party organizations. Attorney General Sessions stated in a press release released by the DOJ, “[w]hen the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people—not to bankroll third-party special interest groups or the political friends of whoever is in power.”
Summary of Memorandum. The memorandum, which became effective immediately and applies to future settlements, notes that previous settlement agreements involving the DOJ required “payments to various non-governmental, third-party organizations . . . [that] were neither victims nor parties to the lawsuits.” The memorandum now states that DOJ “attorneys may not enter into any agreement on behalf of the United States in settlement of federal claims or charges . . . that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.” The following are “limited” exceptions:
- “the policy does not apply to an otherwise lawful payment or loan that provides restitution to a victim or that otherwise directly remedies the harm that is sought to be redressed, including, for example, harm to the environment or from official corruption”;
- “the policy does not apply to payments for legal or other professional services rendered in connection with the case”; and
- “the policy does not apply to payments expressly authorized by statute, including restitution and forfeiture.”
The memorandum states that it applies to “all civil and criminal cases litigated under the direction of the Attorney General and includes civil settlement agreements, cy pres agreements or provisions, plea agreements, non-prosecution agreements, and deferred prosecution agreements.”