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Financial Services Law Insights and Observations


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  • Court rejects consumer’s RESPA claims against mortgage servicer


    On August 5, the U.S. District Court for the Northern District of West Virginia granted a mortgage servicer’s motion for summary judgment, concluding that the servicer “maintained contact and regularly worked” with the consumer to complete her loss mitigation application and thus did not violate Regulation X. According to the opinion, after obtaining the rights to the property and assuming mortgage responsibilities pursuant to a divorce decree, the consumer stopped making mortgage payments in July 2018. The mortgage servicer confirmed the consumer as the successor in interest to the mortgage on March 7, 2019 and on March 14, 2019, the consumer sent the servicer an incomplete loss mitigation application. Between March 2019 and June 2019, the consumer submitted additional loss mitigation application materials and partial application materials for a loan assumption, with the servicer regularly contacting the consumer to obtain documents necessary to complete the applications. The consumer asserted that the servicer, in violation of §1024.41(b)(1), failed to exercise reasonable diligence in obtaining documents and information from her to complete her loss mitigation application and, in violation of §1024.41(c)(1) and §1024.41(c)(2), failed to evaluate her complete loss mitigation application for all loss mitigation options available.

    The court granted summary judgment in favor of the servicer. The court reasoned that “undisputed evidence” establishes that the servicer “maintained contact and regularly worked” with the consumer to obtain the paperwork it needed. Moreover, the court noted that while Regulation X requires a servicer to “evaluate a borrower for all loss mitigation options available, that does not mean it must offer every option it considered—or any option at all.” The court rejected the consumers’ claims that the servicer should have offered a loan modification that did not require information from her ex-husband, concluding that Regulation X “required” her ex-husband’s inclusion and nonetheless, “[u]nder the regulatory framework, [the servicer] has discretion to determine which option(s), if any, it offers an applicant.” Lastly, the court disagreed that the mortgage servicer’s actions caused the consumer to incur “substantial damages,” concluding that “evidence of record is clear that her damages were not caused by or even attributable to [the servicer].”

    Courts RESPA Mortgage Servicing Regulation X Mortgages

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  • 4th Circuit: Arbitration agreement applies to acquired company


    On August 7, the U.S. Court of Appeals for the Fourth Circuit issued a split opinion vacating a district court’s decision against arbitration in a proposed class action, which accused a satellite TV provider (defendant) of violating the TCPA by allegedly making automated and prerecorded telemarketing calls to an individual even though her number was on the National Do Not Call Registry. The plaintiff filed a lawsuit against the defendant and several other entities and individuals seeking class certification as well as statutory damages and injunctive relief. The defendant moved to compel arbitration, claiming that the plaintiff’s dispute was covered by an arbitration agreement in the contract governing her cell phone service with a telecommunications company, which is an affiliate of the defendant. The district court denied the request, ruling that the allegations “did not fall within the scope of the arbitration agreement.” The plaintiff appealed, “defend[ing] the district court’s scope ruling,” but arguing that no agreement was formed.

    On appeal, the majority concluded that not only did the plaintiff form an agreement to arbitrate with the defendant, the allegations fit within the broad scope of the arbitration agreement. Specifically, the appellate court determined that an arbitration agreement signed by the plaintiff with the telecommunications company in 2012 when she opened a new line of service was extended to potential TCPA allegations against the defendant when the telecommunications company acquired the defendant in 2015. Even though the acquisition happened several years after the plaintiff signed the contract, the majority stated the arbitration agreement had a “forward-looking nature” and that it seemed unlikely that the telecommunications company and its affiliates “intended to restrict the covered entities to those existing at the time the agreement was signed.” According to the majority, “[w]e need not define the outer limits of this arbitration agreement to conclude, based on the arbitration provisions and the contract as a whole, that [the plaintiff’s] TCPA claims about [the defendant’s] advertising calls fall within its scope.” As to the plaintiff’s argument that she only signed the account on behalf of her husband who was the account holder, the majority said the agreement covered “all authorized or unauthorized users,” which the plaintiff was at the time.

    Courts Appellate Fourth Circuit TCPA Arbitration

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  • FTC continues to enforce Privacy Shield

    Privacy, Cyber Risk & Data Security

    On August 5, the FTC Commissioners testified before the Senate Committee on Commerce, Science, and Transportation and discussed, among other things, the agency’s continued enforcement of the EU-U.S. Privacy Shield, despite the recent Court of Justice of the European Union (CJEU) invalidation of the framework, and their interest in federal data privacy legislation. As previously covered by InfoBytes, in July, the CJEU determined that because the requirements of U.S. national security, public interest and law enforcement have “primacy” over the data protection principles of the EU-U.S. Privacy Shield, the data transferred under the EU-U.S. Privacy Shield would not be subject to the same level of protections prescribed by the EU General Data Protection Regulation, and thus, declared the EU-U.S. Privacy Shield invalid.

    In his opening remarks, Commissioner Simons emphasized that the FTC will “continue to hold companies accountable for their privacy commitments, including privacy promises made under the Privacy Shield,” which the FTC has also noted on its website. Additionally, Simons urged Congress to enact federal privacy and data security legislation, that would be enforced by the FTC and give the agency, among other things, the “ability to seek civil penalties” and “targeted [Administrative Procedures Act] rulemaking authority to ensure that the law keeps pace with changes and technology in the market.” Moreover, Commissioner Wilson agreed with a senator’s proposition that the enactment of a preemptive federal privacy framework would make “achieving a future adequacy determination by the E.U. easier.”

    Privacy/Cyber Risk & Data Security FTC Courts GDPR European Union EU-US Privacy Shield

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  • NYDFS counters OCC’s arguments in fintech charter challenge appeal


    On July 23, NYDFS filed its opening brief in the appeal of its challenge to the OCC’s decision to allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). The OCC filed its opening brief with the U.S Court of Appeals for the Second Circuit in April (covered by InfoBytes here), appealing the district court’s final judgment in favor of NYDFS, which ruled that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State.

    In its brief, NYDFS argued that the district court was “correct to hold that the OCC had exceeded its statutory authority. . .in deciding to issue federal bank charters to nondepository fintech companies.” In response to the OCC’s arguments that NYDFS lacked standing and that the claims were not ripe, NYDFS first stated that “standing and ripeness exist not only when injury has already occurred, but also when it is imminent or when there is a substantial risk of harm.” Specifically, NYDFS asserted that its claims are ripe because (i) the OCC has actively solicited charter applications from the fintech industry and has indicated that companies had started the application process; and (ii) “one of the OCC’s stated objectives in the Fintech Charter Decision is to allow fintech companies that receive [an SPNB charter] to escape state regulation.” NYDFS also argued that because nondepository institutions are not engaged in the “business of banking” within the meaning of the National Bank Act (NBA), they cannot receive federal bank charters. Moreover, it contended that “when Congress did intend to extend OCC’s regulatory jurisdiction over such institutions, it expressly amended the NBA to do so.” Among other arguments, NYDFS claimed it is entitled to nationwide relief, stating that the district court merely granted the relief afforded under the Administrative Procedure Act, which specifies that the proper remedy for when an agency’s actions are contrary to law and “‘in excess of statutory jurisdiction, authority, or limitations” is to set aside the regulation.

    Additionally, several parties, including the Conference of State Bank Supervisors and the Independent Community Bankers of America, filed separate amicus briefs (see here and here) in support of NYDFS, arguing that the OCC lacks the authority to grant SPNB charters.

    Courts NYDFS OCC Appellate Second Circuit Fintech Charter State Issues

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  • Consumer groups sue CFPB over HMDA threshold increase


    On July 30, a group of consumer fair housing associations (collectively, “plaintiffs”) filed suit against the CFPB, challenging the Bureau’s final rule permanently raising coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. As previously covered by InfoBytes, the final rule, which amends Regulation C, permanently increases the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increases the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200. In the complaint, the plaintiffs argue that the Bureau, among other things, (i) failed to provide a “reasoned explanation” for the changes to the original threshold requirements; (ii) conducted a “flawed analysis of the costs and benefits” of the final rule; and (iii) failed to “adequately consider comments” that were submitted in response to the rule’s proposal. According to the complaint, the final rule “exempts about 40 percent of depository institutions that were previously required to report.” The plaintiffs assert this result “undermines the purpose[]” of HMDA by allowing potential violations of fair lending laws to go undetected. The plaintiffs argue that because the CFPB allegedly violated to the Administrative Procedures Act, the final rule should be vacated and set aside.

    Courts CFPB HMDA Administrative Procedures Act Agency Rule-Making & Guidance Mortgages

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  • 6th Circuit affirms expansive autodialer definition


    On July 29, the U.S. Court of Appeals for the 6th Circuit affirmed summary judgment in favor of the plaintiffs in a TCPA action, holding that a device used by a student loan servicer that only dials from a stored list of numbers qualifies as an automatic telephone dialing system (“autodialer”). According to the opinion, a borrower and co-signer sued the student loan servicer alleging the servicer violated the TCPA by using an autodialer to place calls to their cell phones without consent. The district court granted summary judgment in favor of the plaintiffs and awarded over $176,000 in damages. On appeal, the servicer argued that the equipment used did not qualify as an autodialer under the TCPA’s definition, because the calls are placed from a stored list of numbers and are not “randomly or sequentially” generated. The 6th Circuit rejected this argument, joining the 2nd and 9th Circuits, holding that under the TCPA, an autodialer is defined as “equipment which has the capacity—(A) to store [telephone numbers to be called]; or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” This decision is in conflict with holdings by the 3rd, 7th, and 11th Circuits, which have held that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of an autodialer in ACA International v. FCC (covered by a Buckley Special Alert).

    As previously covered by InfoBytes, the U.S. Supreme Court recently agreed to address the definition of an autodialer under the TCPA, which will resolve the split among the circuits.

    Courts Appellate Sixth Circuit Autodialer TCPA FCC

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  • State AGs challenge OCC’s “valid-when-made” rule


    On July 29, the California, Illinois, and New York attorneys general filed an action in the U.S. District Court for the Northern District of California challenging the OCC’s valid-when-made rule, arguing the rule “impermissibly preempts state law.” As previously covered by a Buckley Special Alert, on June 2 the OCC issued a final rule designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision. The “true lender” rule provides that “[i]nterest on a loan that is permissible under [12 U.S.C. 85 for national bank or 12 U.S.C 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.”

    The attorneys general argue in their complaint that the rule is “contrary to the plain language” of section 85 (and section 1463(g)(1)) and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the complaint asserts that the OCC disregarded congressional procedures for preemption by failing to perform a case-by-case review of state laws and not consulting with the CFPB before “preempting such a state consumer-protection law.” The attorneys general further contend that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule essentially enabling “‘rent-a-bank’ schemes.” The result of the OCC’s actions, according to the attorneys general, is a rule that would allow “predatory lenders to evade state law by partnering with a federally chartered bank to originate loans exempt from state interest-rate caps.” These structures “have long troubled state law-enforcement efforts,” according to the complaint, and the rule will exacerbate these issues by “decreas[ing] licensing fees received by the States and increase[ing] the cost and burden of future supervisory, investigative, and law-enforcement efforts by the States.”

    The complaint requests the court declare that the OCC violated the Administrative Procedures Act in issuing the rule and hold the rule unlawful.

    Courts State Issues State Attorney General OCC Madden Fintech Interest Rate New York California Illinois

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  • 7th Circuit: Separately reporting multiple debts is not a violation of the FDCPA


    On July 28, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an FDCPA action claiming a collection agency (defendant) unfairly reported debts separately to a consumer reporting agency (CRA) instead of aggregating all of them into one debt. According to the opinion, the plaintiffs each defaulted on multiple medical services from their healthcare provider. The defendant eventually reported each debt separately to a consumer reporting agency. An amended complaint was filed alleging the defendant violated FDCPA Section 1692f by using unfair or unconscionable means to collect a debt because the debts were reported separately rather than aggregated together. The district court granted the defendant’s motion to dismiss, ruling that the argument was “unsupported by the FDCPA’s prohibition of ‘unfair or unconscionable’ means to collect a debt.” The plaintiffs appealed, arguing that they owed a single debt to the healthcare providers.

    On appeal, the 7th Circuit examined how the FDCPA defines a “debt,” and determined that its use in the statute is on a “per-transaction” basis”—which meant that the separate debts did not comprise a “single debt” under the FDCPA. The appellate court also determined that none of the eight examples of “unfair or unconscionable to collect or attempt to collect” a debt in the FDCPA addressed the “separate-versus-aggregate reporting of debts.” Thus, the 7th Circuit concluded, “It is reasonable, and not at all deceptive or outrageous, for a collector to report individually debts that correspond to different charges, thereby communicating truthfully how much is owed on each debt.” Moreover, the appellate court noted that “[s]ome consumers may prefer to have their debts reported in a way that conceals debt-specific information, like how much is owed on individual debts, when specific debts were incurred, and which debts are stale. Those consumers may be willing to forego the more detailed information on their credit reports if the aggregated reporting increases their credit scores. But a preference does not necessarily equal an injustice, partiality, or deception.”

    Courts Appellate FDCPA Debt Collection

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  • 3rd Circuit holds Pennsylvania’s loan servicing claims can proceed


    On July 27, the U.S. Court of Appeals for the Third Circuit determined that the Commonwealth of Pennsylvania may pursue claims against a student loan servicer under the Consumer Financial Protection Act (CFPA) despite a concurrent action brought against the servicer by the CFPB. The appellate court also held that the Commonwealth’s claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law are not preempted by the federal Higher Education Act (HEA). The decision results from a lawsuit filed by the Commonwealth claiming the servicer, among other things, originated risky, high-cost student loans, steered borrowers into forbearance, failed to properly inform borrowers about income-driven repayment options, made misrepresentations related to cosigner release, and misapplied borrower payments. Because the CFPB filed a lawsuit alleging similar claims against the servicer nearly nine months prior to the Commonwealth’s suit, the servicer argued that under the applicable provision of the CFPA, the Commonwealth could not file a concurrent suit. The district court disagreed and denied the servicer’s motion to dismiss.

    In addressing whether a concurrent suit is permitted, the appellate court noted, “that the clear statutory language of the [CFPA] permits concurrent state claims, for nothing in the statutory framework suggests otherwise.” With respect to whether the applicable provision of the HEA expressly and impliedly preempts the Commonwealth’s suit, the 3rd Circuit stated that the statute only expressly preempts claims “based on failures to disclose information as required by the statute,” and not claims “based on affirmative misrepresentations.” Thus, because the Commonwealth’s claims were based on alleged affirmative misrepresentations and misconduct, it affirmed the district court’s ruling that the Commonwealth’s case may proceed. The 3rd Circuit highlighted, however, a circuit split over whether the HEA impliedly preempts state-law claims, pointing to the 9th Circuit’s holding that “allowing state law causes of action to proceed would conflict with the purpose of uniformity.” The 3rd Circuit’s decision joins those issued by the 7th and 11th Circuits, which both rejected the argument that uniformity was an intended purpose of the HEA.

    The CFPB and the defendants filed with the district court in May dueling motions for summary judgment in the concurrent CFPB action, but the court has yet to issue a ruling on those motions.  

    Courts Appellate Third Circuit Student Lending State Attorney General CFPB Student Loan Servicer Higher Education Act State Issues CFPA

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  • DOJ sues companies for laundering funds for North Korean banks

    Financial Crimes

    On July 23, the DOJ announced it filed a complaint in the U.S. District Court for the District of Columbia, alleging that four companies engaged in a scheme to launder U.S. dollars on behalf of sanctioned North Korean banks and seeking forfeiture of $2,372,793. The DOJ claims that the North Korean banks illegally accessed the U.S. financial market and used the companies to make and receive U.S. dollar payments to and from North Korean front companies. According to the DOJ, the complaint “illuminates how a global money laundering network coordinates with front companies to move North Korean money through the [U.S.] and violate the sanctions imposed by [the] government on North Korea.” The DOJ further refers to a United Nations Panel of Experts statement that North Korean networks access formal banking channels by, among other things, maintaining correspondent bank accounts and representative offices abroad staffed by foreign nationals that make use of front companies, which permit North Korean banks “to conduct illicit procurement and banking activity.”

    Financial Crimes Courts DOJ Sanctions North Korea Of Interest to Non-US Persons

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