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District Court grants bank a MSJ in overdraft fee class action case
On April 16, the U.S. District Court for the Eastern District of Michigan entered an opinion and order granting defendant bank’s motion for summary judgment in an overdraft fee-related consumer class action. In this case, plaintiffs claimed that defendant breached its account agreements in connection with two related but distinct practices that the plaintiffs claimed were inconsistent with their account agreement. The first practice involved the assessment of overdraft fees on transactions that were initially authorized with a positive balance but settled at a time when the account had a negative balance, labeled Authorize Positive, Purportedly Settle Negative transactions (APPSN). The second practice imposed insufficient fund (NSF) fees each time the same item was re-presented by a merchant and declined by the bank due to a lack of funds. The complaint alleged a breach of contract and conversion against the bank based on these two fee practices.
In a previous order in 2021, the court denied defendant’s motion to dismiss as to plaintiff’s breach of contract claim but granted dismissal as to plaintiff’s conversion claim. In denying the motion to dismiss the breach of contract of claim, the court determined the account agreement was ambiguous as to the overdraft fees since it was unclear whether defendant would assess overdraft fees at the time of a debit's authorization or at the time of its settlement. The court held that the account agreement was similarly ambiguous as to the NSF fees, since the agreement’s language lent itself to multiple reasonable interpretations of the meaning of “item.”
In the current opinion, the court held that the language of the updated disclosure guide provided to the plaintiff removed the perceived ambiguity in the contractual language, finding that plaintiff’s interpretation was “unreasonable because it contradict[ed] the language of the [a]greement as a whole, including the updated disclosure guide.” The court explained that the updated disclosures made it clear that customers could still incur an overdraft fee if their balance goes negative before a debit authorization hold would be lifted and the actual transaction settled, despite having a positive balance at the time the hold was placed. The court highlighted that the new disclosure guide included a practical example demonstrating the impact of a temporary debit authorization hold on an account’s available balance.
Further, the court noted that even if the agreement was ambiguous, plaintiff would still be unsuccessful in pursuing her breach of contract claim because it had been established that she did not actually read the specific contract terms in question. The court noted, under Michigan law, there cannot be a factual question as to the meaning of a contract where one party had not read the contract to form a different understanding of the contract. The court applied a similar analysis to dismiss the allegations relating to the NSF fees. Finally, the court held that plaintiff failed to demonstrate a genuine issue of material fact regarding her claim of breach of an implied covenant of good faith and fair dealing because the applicable fees were contemplated by the parties’ agreement.
FDIC wins dismissal as defendant in NSF fee challenge
On April 8, the U.S. District Court for the District of Minnesota granted the FDIC’s motion to dismiss in a case brought by a trade association and a commercial bank challenging the FDIC’s guidance related to insufficient fund fees (NSF fees). Specifically, the plaintiffs challenged the FDIC’s Financial Institution Letter 32 (FIL 32) as a “legislative rule promulgated without adherence to essential administrative procedures,” and asked the court to permanently enjoin FIL 32 and declare it invalid. As previously covered by InfoBytes, FIL 32 warned financial institutions against charging customers multiple NSF fees on the same unpaid transaction – something the FDIC stated could be an “unsafe or unsound practice.” The plaintiffs alleged four violations of the Administrative Procedure Act: (i) the FDIC allegedly implemented FIL 32 without the APA’s required notice and comment period; (ii) FIL 32 was an arbitrary and capricious agency action; (iii) the FDIC exceeded its statutory authority by attempting to define an unfair or deceptive act or practice under the FTC Act; and (iv) the FDIC violated its own regulations in releasing FIL 32 since “those regulations prohibit enforcement actions based on supervisory guidance.” The FDIC moved to dismiss all counts, arguing that FIL 32 was not arbitrary and capricious, and that the FDIC acted within its authority. The court agreed that FIL 32 was not a final agency action, that the plaintiffs lacked standing and dismissed the case without prejudice.
5th Circuit reverses District Court’s decision to transfer credit card late fee case
On April 5, the U.S. Court of Appeals for the Fifth Circuit held that the U.S. District Court for the Northern District of Texas lacked jurisdiction to transfer a case challenging a CFPB rulemaking to the U.S. District Court for the District of Columbia. The 5th Circuit’s decision did not examine whether the transfer order was proper, but rather whether the court had jurisdiction to enter it. As previously covered by InfoBytes, the U.S. District Court for the Northern District of Texas granted the CFPB a change of venue on March 28 because only one of the six plaintiffs resided in Fort Worth. The 5th Circuit found that the lower court erred by granting the CFPB’s motion to change venues instead of ruling on the plaintiffs’ motion for preliminary injunction. The plaintiffs filed a writ of mandamus and argued the lower court “abused its discretion” by transferring the case while the plaintiffs’ appeal was outstanding, and that the lower court did not have jurisdiction to order the transfer. The 5th Circuit agreed and ruled that once a party appeals a district court’s decision, the district court “has zero jurisdiction to do anything” to change the case. The 5th Circuit granted the plaintiffs’ petition of mandamus, vacated the district court’s transfer order, and ordered the district court to reopen the case.
This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees through its alleged authority under the CARD Act, as covered by InfoBytes here.
Utah appellate court upholds ruling for defendant in FDCPA case
Recently, the Utah Court of Appeals affirmed a lower court’s decision granting summary judgment in favor of a defendant debt collector in an FDCPA case. According to the court, defendant’s registration as a debt collection agency had lapsed in Utah when it sent the plaintiff a debt collection letter. Later, when still not registered as a collection agency, defendant served plaintiff with a collection complaint and filed it with the district court. Plaintiff did not contest the complaint, leading to defendant moving for a default judgment, which the district court granted in 2020. Thereafter, plaintiff filed suit against defendant for illegally pursuing the prior collection action, and summary judgment was entered against plaintiff.
On appeal, the court turned to a recent similar case that supported the lower court’s decision that a registration violation was not actionable under the Utah Consumer Sales Practices Act (UCSPA). Regarding plaintiff’s FDCPA claim, the court found that plaintiff did not argue for a different resolution under the FDCPA compared to the Utah Code. Plaintiff contended that since both statutes prohibited the same practices in debt collection, her FDCPA claim should also be valid under the UCSPA. However, as plaintiff did not preserve any argument distinguishing her FDCPA claim from her UCSPA claim, the court affirmed the dismissal of both the FDCPA and UCSPA claims.
District Court rules against CFPB on Prepaid Rule disclosure requirement
On March 28, the U.S. District Court for the District of Columbia (D.D.C.) ruled in favor of a fintech digital wallet provider by granting its motion for summary judgment, denying the CFPB’s cross-motion, and vacating the CFPB’s Prepaid Rule’s short-form disclosure requirements for digital wallets. The suit focused on the applicability of the Prepaid Rule’s short-form disclosure requirements to digital wallet products. The plaintiff sued the CFPB, arguing the CFPB’s Prepaid Rule was arbitrary and capricious because, unlike for general-purpose reloadable (GPR) products, the CFPB failed to provide a “well-founded, non-speculative reason for subjecting digital wallets” to the Prepaid Rule’s short-form disclosure regime.
The CFPB’s Prepaid Rule mandated that pre-acquisition fee disclosures, which were intended to apply to GPR cards, be required for digital wallets––i.e., digital wallet providers would be required to provide consumers with a pre-acquisition fee disclosure in a formatted “short form.” While the judge agreed that this makes sense as applied to GPR products, digital wallet products were fundamentally different from GPRs and were not primarily “used to access funds or to function as a substitute checking account.” While the CFPB’s Advanced Notice of Proposed Rulemaking, did not initially include digital wallets, in the final Prepaid Rule, the CFPB included digital wallets for three reasons: (1) the CFPB reasoned that the Prepaid Rule should apply to digital wallets since digital wallets can carry funds (just like GPRs), and the fee structure “may not hold true in the future”; (2) the CFPB argued that the Prepaid Rule filled a regulatory gap for digital wallets; and (3) the CFPB claimed it “cast a wide net” on purpose to avoid a “patchwork regime.”
In response, the plaintiff argued that the disclosure requirement was arbitrary and capricious due to the Bureau having no rational justification for including digital wallets in the Prepaid Rule. Further, it was arbitrary and capricious because the CFPB did not comply with its role under Dodd-Frank by assessing the costs and benefits of the Rule. Finally, the plaintiff argued that the short-form disclosure regime violated the First Amendment.
While declining to rule on First Amendment issues, the court held that the CFPB lacked a “rational justification” for subjecting digital wallets to the Prepaid Rule’s short-form disclosure requirement, agreeing that the CFPB’s requirement was arbitrary and capricious, and that it had no basis for including digital wallets because they were materially different products. The judge also found the CFPB’s cost-benefit analysis (as mandated by Dodd-Frank) was deficient, as the “general” cost-benefit analysis did not fit for digital wallets.
Complaint filed against the USDA alleging discriminatory loan practices
On March 29, the U.S. District Court for the District of Columbia received a complaint by two Black farmers, among others as part of a class action, alleging that the United States Department of Agriculture (USDA) disproportionately denied them federal farm loans. The plaintiffs alleged the USDA admitted to having a pattern and practice of discrimination against racial and ethnic minorities. The complaint delved into a complex story and long-standing claims from the two primary plaintiffs, with one farmer sharing that a loan manager stated, “I don’t lend to your kind” (italics omitted).
The plaintiffs asserted six causes of action. The first cause of action was under ECOA, where the plaintiffs alleged the USDA violated the ECOA by discriminating based on race. Second, the plaintiffs asserted a cause of action for discrimination under the APA. Third, the plaintiffs asserted a due process claim under the Fifth Amendment, alleging that the USDA allocated funds disproportionally in favor of White farmers. Fourth, the plaintiffs sought a writ of mandamus barring USDA Committeemen from intervening in the loan process. Fifth, the plaintiffs asserted a claim for declaratory relief seeking a declaration that the USDA violated their rights. Finally, the plaintiffs asserted a claim to compel the production of requested documents under FOIA.
District Court severs NJFCRA requirement that agencies must provide credit disclosures in 10 languages
On March 27, the U.S. District Court for the District of New Jersey granted in part and denied in part both the Attorney General for the State of New Jersey’s (AG) motion for summary judgment and a plaintiff international trade association’s motion for summary judgment. In particular, the court held that the New Jersey Fair Credit Reporting Act’s (NJFCRA) 2019 amendment requiring national consumer reporting agencies (NCRAs) to provide consumer reports in a language other than English (if requested) was not preempted by the federal Fair Credit Reporting Act. However, the court stopped short of requiring NCRAs to provide the disclosures in “at least ten languages” in addition to Spanish on First Amendment grounds, explaining that the requirement imposed under the NJFCRA only required a rational basis and while a rational basis existed for Spanish (due to, among other things, the high percentage of Spanish speaking constituents in New Jersey), it did not exist for the additional languages given the relatively lower prevalence of those other languages. Accordingly, the court severed the provision that mandated that credit file disclosures be provided in at least 10 languages.
District Court grants MSJ in FCRA case in favor of defendant
Recently, a plaintiff sued under the FCRA, alleging that the defendant debt collector failed to conduct a reasonable investigation into a disputed credit report item. The plaintiff claimed to be a victim of identity theft and contended that an outstanding telephone debt should not have been listed on his credit report. The defendant maintained that it had performed its duties reasonably, relying on information from the phone company for which it acted as a debt collector. The defendant moved for summary judgment on the grounds that the plaintiff had not provided any evidence to support the claim of an unreasonable investigation by defendant. The U.S. District Court for the Southern District of Florida granted the motion for summary judgment, agreeing with the defendant that the plaintiff had failed to provide any substantial evidence regarding how the defendant’s investigation was conducted or why it was unreasonable.
Indiana appellate court finds debt company violated FDCPA and Indiana’s deceptive consumer sales act
Recently, the U.S. Court of Appeals of Indiana affirmed a state trial court’s decision concluding that the defendant was a debt collector under both the Indiana Deceptive Consumer Sales Act and the FDCPA when it purchased and collected defaulted debt. The Court of Appeals rejected the defendant’s argument in its motion for partial summary judgment arguing it was not a debt collector under both statutes because the plaintiff’s debt was owned by it and due to it, and it did not collect debts owed by another. The court reviewed the evidence that the defendant purchased defaulted debt and utilized agencies to contact consumers as its primary business pursuit. The court found the defendant was a “person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts” or a “debt collector” under 15 U.S.C. § 1692a(6). It likewise concluded that the defendant was a “debt collector under” the state statute because Ind. Code § 24-5-0.5-2(a)(13) incorporated the FDCPA’s definition of debt collector and “[t]he term includes a debt buyer (as defined in IC 24-5-15.5).”
District Court grants full remedies to CFPB, State AGs
On March 31, the U.S. District Court for the Western District of Virginia entered an order granting the plaintiff state attorneys general and CFPB’s requested remedies in full against a defendant accused of violating consumer protection laws in administering “immigration bonds” for indigent consumers facing deportation. As previously covered by InfoBytes, in 2021 the CFPB, and the Massachusetts, New York, and Virginia State Attorneys General filed a 17-count complaint against the defendant, a subsidiary of a bond service for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The complaint accused the defendant of misrepresenting the cost of immigration bond services and deceiving migrants into continuing to pay monthly fees by making false threats of deportation for failure to pay. Last May, the court entered default judgment against defendants (covered by InfoBytes here). In the court’s most recent order, it granted the plaintiff’s request for injunctive relief, stating that the CFPB met the standard for injunctive relief under the CFPA, and it would “undoubtedly serve the public interest.” The court also noted that the plaintiffs’ claims supported injunctive relief under state laws as well. The order also included (i) $230.9 million in restitution to the CFPB; (ii) a $111 million civil money penalty to the CFPB; (iii) a $7.1 million civil money penalty to Virginia; (iv) a $3.4 million civil money penalty to Massachusetts; and (v) a $13.89 million civil money penalty to New York.