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On November 5, the FTC and the Utah Division of Consumer Protection filed a complaint in the U.S. District Court for the District of Utah against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to purchase real estate training packages costing thousands of dollars. According to the complaint, the defendants violated the FTC Act, the Telemarketing Sales Rule, and Utah state law by marketing real estate training packages with false claims through the use of celebrity endorsements. The defendants’ marketing materials allegedly told consumers, among other things, that they would (i) receive strategies for making profitable real estate deals during seminars included in the packages; and (ii) learn how to access wholesale or deeply discounted properties. The complaint argues, however, that the promises were false and misleading, as, among other things, the seminars promoted additional workshops costing more than $1,100 to attend where consumers largely received general information about real estate investing, along with promotions for “advanced training” costing tens of thousands of dollars. In addition, the discounted properties were typically sold or brokered to consumers by the defendants at inflated prices with concealed markups, the complaint alleges. Among other things, the FTC and Utah Division of Consumer Protection seek monetary and injunctive relief against the defendants.
On October 31, the U.S. Court of Appeals for the Ninth Circuit, in a split panel decision, reversed the district court’s dismissal of a consumer’s FCRA action against a national bank alleging the bank obtained her credit report for an impermissible purpose. According to the opinion, the consumer filed the complaint against the bank after reviewing her credit report and noticing the bank had submitted “numerous credit report inquiries” in violation of the FCRA because she “did not have a credit relationship with [the bank]” as specified in the FCRA and, therefore, the inquiries were not for a permissible purpose. The bank moved to dismiss the action, arguing that the consumer did not suffer any injury from the credit inquiries. The district court agreed, and dismissed her claim with prejudice for lack of standing and failure to state a claim.
On appeal, the majority disagreed with the district court, concluding that (i) a consumer suffers a concrete injury in fact when a credit report is obtained for an impermissible purpose; and (ii) a consumer only needs to allege that her credit report was obtained for an impermissible purpose to survive a motion to dismiss. The appellate majority emphasized that the consumer does not have the burden of pleading the actual purpose behind the bank’s use of her credit report; the burden is on the defendant to prove the credit report was obtained for an authorized purpose. Moreover, the majority noted that the consumer alleges she only learned about the bank’s inquiry after reviewing her credit report and, therefore, it is implied “that she never received a firm offer of credit from [the bank],” and taken together with the fact that the bank actually obtained her credit report, she stated a plausible claim for relief.
One panel judge concurred in part and dissented in part, arguing that the consumer had standing but failed to state a plausible claim. Specifically, the judge argued that “the majority characterize[d] [the] plaintiff’s claim in terms of ‘possibility,’” but “mere possibility of liability does not plead a plausible claim.” Moreover, the judge disagreed with the majority’s conclusion that the defendant bears the burden of proof in these instances, stating “the Supreme Court has expressly placed the burden of pleading a plausible claim squarely on the plaintiff rather than on the defendant.”
District Court orders millions in restitution and civil penalties against two foreclosure relief companies
On November 4, the U.S. District Court for the Western District of Wisconsin ordered restitution and disgorgement, civil penalties, and permanent injunctive relief in an action brought by the CFPB against two former foreclosure relief companies and their principals (collectively, “defendants”) for violations of Regulation O. As previously covered by InfoBytes, in 2014, the CFPB, FTC, and 15 state authorities took action against foreclosure relief companies and associated individuals, including the defendants, alleging the use of deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. Specifically, the CFPB alleged that the companies and individuals (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers, in violation of Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule. Among other things, the court order holds company one and its principals jointly and severally liable for over $18 million in restitution, while company two and its same principals are jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
On November 4, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s decision that a debt collector does not violate the FDCPA by sending notices to consumers that do not clarify that a debt is static. The plaintiff in that case alleged that the defendant violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with the collection of a debt when it sent her a letter that contained a breakdown of interest and charges or fees accrued on the balance as separate line items, even though the amounts accrued explicitly reflect $0, along with the phrase “[a]s of the date of this letter, you owe $ [amount].” By implying that the amount owed might increase, the plaintiff argued that the least sophisticated consumer may erroneously think the debt is dynamic. The district court disagreed and granted the defendant’s motion for judgment on the pleadings.
In affirming this decision on appeal, the 2nd Circuit cited its own holding in Taylor v. Financial Recovery Services, Inc., in which it previously determined “that ‘a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of [the FDCPA].” The appellate court was not persuaded by the plaintiff’s attempt to distinguish her case from Taylor, finding that the language in the plaintiff’s letter is “stock language. . .present in a number of collection notices, including those considered not misleading in Taylor.” The 2nd Circuit further noted that “requiring debt collectors to draw attention to the static nature of a debt could incentivize collectors to make debts dynamic instead of static.”
On October 31, the U.S. District Court for the District of New Jersey certified two classes of consumers alleging a payday lender and its subsidiaries charged usurious, triple-digit interest rates on short-term loans originated by a nonparty entity run by a member of a federally recognized Indian tribe. The lawsuit—which alleges, among other things, usury and consumer fraud in violation of New Jersey law, common law restitution and unjust enrichment, and violations of the Racketeer Influenced and Corrupt Organizations Act—was filed in 2016 with the defendants arguing that the claims were subject to an arbitration provision accompanying the loan agreement. However, as previously covered by InfoBytes, the U.S. Court of Appeals for the Third Circuit upheld the district court’s decision that the tribal arbitration forum referenced in the loan agreement does not actually exist and, “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.
According to the plaintiffs, the defendants evaded state law usury limits by attempting to use the sovereignty of an Indian tribe, with most loans carrying an annual percentage interest rate of 139 percent. While the defendants challenged the notion that common questions about the loan agreements predominated over the individual concerns of each class member, the court determined that the loan agreements at issue have an identical structure of interest amortized over a fixed payment schedule. “Plaintiffs have therefore shown that they can use common evidence to prove their [Consumer Fraud Act] claims, and that common questions predominate,” the court stated. “Namely the nearly identical, allegedly usurious loan agreements, which caused an out of pocket loss in the form of usurious interest.” The court also dismissed the defendants’ argument that the plaintiffs’ suit was inferior to a 2018 CFPB action, which resulted in a $10.3 million civil money penalty but no restitution (previous InfoBytes coverage here), stating that “[i]ncredibly, [d]efendants argue that this CFPB action, which denied any recovery to the putative class members here, is a superior means for them to obtain relief.”
On October 30, the U.S. District Court for the Northern District of California certified a class of borrowers who allegedly applied for student loan relief based on their higher education institution’s misconduct but have yet to receive a decision from the Department of Education. The borrowers allege that the Department has arbitrarily and capriciously stonewalled its own process for adjudicating the borrowers’ defense claims under the Higher Education Act, which “allows the Department to cancel a student federal loan repayment based on a school’s misconduct.” The borrowers claim the Department has failed to decide a borrower defense claim since June 2018. According to the borrowers—former students of for-profit schools with claims dating back to 2015—“the Department’s inaction continues to cause putative class members ongoing harm.” The Department argued, however, that the class should not be certified because the borrowers’ claims rely too much on individual circumstances and fail to prove a “systemic policy of inaction[.]” The court disagreed and certified the class, stating that the borrowers “have identified a single uniform policy—namely, the Department’s alleged ‘blanket refusal’ to adjudicate borrower defenses—which ‘bridges all their claims.’” Moreover, the court noted that “this alleged uniform policy is supported by the undisputed fact that the Department has failed to adjudicate a single borrower defense claim in over a year.” The class does not include borrowers who are part of a separate action filed against the Department (covered by InfoBytes here).
On October 28, the U.S. District Court for the Northern District of Illinois granted final approval of a $12.5 million TCPA class action settlement between a group of consumers and three cruise lines and their marketing group (collectively, “defendants”). According to the opinion, a consumer filed the action against the defendants alleging they violated the TCPA’s prohibition of the use of an autodialer without prior consent. While the motion for class certification was pending, the parties reached an agreement-in-principle for a class-wide settlement. The settlement requires the defendants to, among other things, set up a common fund of $12.5 million to permit each claimant to “recover for up to three calls per telephone number, with a maximum value for each call set at $300.” The court noted that after deducting attorneys’ fees, other costs, and an incentive award for the principal plaintiff, the nearly 275,000 class members will be eligible to receive an average of about $22 per claim. The court noted that while $22 is “significantly below the $500 recovery available under the statute for each call… a settlement does not need to provide the class with the maximum possible damages in order to be reasonable.” The court went on to state that the settlement “still serves the purpose of punishing [the cruise lines] for their role in the controversy,” and the total settlement fund is a “deterrent to potential future defendants who might think twice about violating the TCPA in an effort to boost business.”
11th Circuit: District Court erred in denying class certification over bankruptcy preemption defense
On October 29, the U.S. Court of Appeals for the Eleventh Circuit vacated a district court decision denying class certification, concluding the court erred in its determination that each FDCPA and Florida Consumer Collection Practices Act (FCCPA) claim’s individualized inquiries predominated over issues common to the proposed class. According to the opinion, two plaintiffs filed a class action against their mortgage servicer alleging the servicer violated the FDCPA and the FCCPA by sending monthly mortgage statements after the debt was discharged in a Chapter 7 bankruptcy and they moved out of the home. The servicer objected to class certification that included both consumers who vacated their homes and those who remained in their homes because the Bankruptcy Code treats the two groups differently, thus requiring an individualized review to decide how the rules would be applied. Additionally, the servicer argued that the court would be required to decide whether the Bankruptcy Code precluded or preempted the claims for only class members who chose to remain in their homes. The district court denied class certification, concluding that individualized claims predominated over common issues, because “the question of ‘whether the Bankruptcy Code precluded and/or preempted the FDCPA and FCCPA’ presented an individualized rather than a common issue.”
On appeal, the 11th Circuit disagreed. The appellate court noted that the district court erred when it concluded that the question of whether the Bankruptcy Code precluded or preempted the FDCPA only applied to those consumers who chose to remain in their homes, because the preemption defense “potentially barred every class member’s FDCPA claim,” thus requiring the court to treat it as a common issue. The appellate court made a similar determination for the FCCPA claims. The appellate court cautioned that its conclusion was not an opinion about whether the servicer’s “defense is meritorious,” but was “limited to the conclusion that [the] defense raises questions common to all class members.” The appellate court, therefore, vacated and remanded the case back to district court.
On October 30, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against a student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21 and unsealed on October 29 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015 the defendants have violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the Bureau and the states claim the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments. The defendants also allegedly failed to inform borrowers that they automatically requested that the loans be placed in forbearance and submitted false information to student loan servicers to qualify borrowers for lower payments. The complaint seeks injunctive relief, as well as damages, restitution, disgorgement, and civil money penalties.
On October 24, a magistrate judge for the U.S. District Court for the Northern District of California held the Department of Education and Secretary Betsy DeVos in civil contempt and ordered them to pay $100,000 in sanctions for violating a May 2018 preliminary injunction that prohibited them from collecting on student loans used for programs at a now defunct for-profit college (previously covered by InfoBytes here). According to the October 24 order, the defendants allegedly showed “only minimal efforts to comply with the preliminary injunction.” Moreover, a compliance report filed in September was “silent as to the normal actions one would expect from an entity facing a binding court order: multiple in-person meetings or telephone calls to explain the preliminary injunction and to confirm that the contractors were complying with the preliminary injunction.” The court further stated that the defendants acknowledged in their compliance report, among other things, that (i) more than 16,000 former student were told they had payments due on their student loans after the court-ordered prohibition went into effect in May 2018; (ii) nearly 3,300 of the borrowers made one or more payments; and (iii) more than 1,800 other borrowers had wages or tax returns garnished to collect on unpaid student loans. In addition to the finding of contempt and the monetary penalty, the defendants are required to file monthly status reports on their compliance with the injunction and “submit a revised notice to be sent to the entire potential class regarding [d]efendants’ noncompliance with the preliminary injunction and their forthcoming efforts to fully comply.”
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "Adapting to the rapidly changing compliance landscape involving marijuana and marijuana-related businesses" at an ACAMS webinar
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference
- Steven R. vonBerg to discuss "State and Federal regulatory panel-solutions to the Non-QM Patch" at the Inaugural Non-QM Forum
- Sherry-Maria Safchuk to speak on the "California Consumer Privacy Act (CCPA) Workshop" panel at the California Mortgage Banker's 2019 Legal Issues & Regulatory Compliance Conference
- Daniel P. Stipano to discuss “Connecting the dots on your CDD program” at the ABA/ABA Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss “Beneficial Ownership: You have questions – We have quick answers” at the ABA/ABA Financial Crimes Enforcement Conference