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Financial Services Law Insights and Observations


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  • District Court says defendant violated TCPA written consent requirement


    On June 6, the U.S. District Court for the District of Maryland held that the prerecorded telemarking calls placed by a health insurance provider and its affiliated marketing company required prior written consent from consumers. Plaintiffs brought a class action against defendants for their marketing practices related to dental savings plans, alleging defendants’ practices violated the Telephone Consumer Protection Act (TCPA). The defendants placed numerous, prerecorded “winback” calls to plaintiffs encouraging them to renew a dental plan expired previously. While the lead plaintiff provided verbal consent to receive text messages and prerecorded phone calls while enrolled in the plan, plaintiff alleged that the automated calls received after the plan ended were not authorized.

    The court denied the defendants’ motion for summary judgment and granted the plaintiff’s motion for class certification. The court found that the “winback” calls qualified as telemarketing advertisements under 47 C.F.R. § 64.1200(f)(13) and, as such, were subject to the heightened requirement for “prior express written consent” under the TCPA. The court discussed the “complex tapestry” comprising the definition for prior express written consent, and concluded that such consent will be satisfied if it is in writing and the following three elements are met, at a minimum: “(1) an agreement; (2) a signature (that the signatory intended to function as a signature); and (3) “clear and conspicuous” disclosures about the content of the agreement and that the consumer need not sign the agreement.” Additionally, the court held that the “consumer disclosure” section of the E-SIGN Act applied in this case, further requiring written disclosures to obtain consumer consent under the TCPA.

    The court also found that the class action waiver and arbitration clauses on the defendants’ website did not apply to members of the class because: (1) the class members signed up by phone; and (2) similar to the TCPA analysis, telemarketing phone calls to former customers after their plans ended and they were no longer customers did not fall under the "sites and services" governed by the terms of use.

    Courts TCPA E-SIGN Act Telemarketing Consent Disclosures

  • CFPB proposes order against co-trustees for concealing assets to avoid fine

    Federal Issues

    On June 17, the CFPB filed a stipulated order and judgment, subject to court approval in the U.S. District Court for the District of Kansas, in an action against two individuals to resolve a lawsuit accusing them of concealing assets. The CFPB averred the defendants engaged in multiple fraudulent transfers over two years to avoid paying a fine owed to the Bureau. As previously covered by InfoBytes, the CFPB filed a complaint last year accusing the individuals of concealing assets to avoid paying $38 million in restitution and $12.5 million in civil penalties owed by the company and an individual defendant related to their payday lending practices. The Bureau will be seeking recovery of the transferred funds by declaring the transactions fraudulent and imposing liens on properties, as well as pursuing monetary judgment against the wife of one of the individual defendants and her trust.

    The stipulated order and judgment would release freezes and holds on defendants’ accounts and require defendants to pay about $7.3 million of an imposed $12.3 million judgment, with the remainder suspended due to a demonstrated inability to pay more. The payment will apply toward satisfying one defendant’s existing $43 million judgment, which included consumer redress and civil money penalties. That defendant must also share their filed federal and state income taxes with the Bureau until the fine is paid. If any additional financial information is found or if defendants made any financial misrepresentations, then defendants would be required to pay the fine in full. 

    Federal Issues Courts CFPB Enforcement Trust Fund Payday Lending Online Lending FDCPA

  • District Court clarifies law related to post-foreclosure RESPA communications


    Recently, the U.S. District Court for the District of New Jersey ruled that obligations under RESPA extended beyond the issuance of a foreclosure judgment, but dismissed the plaintiff’s other claim under RESPA. The Court rejected the argument by the servicer-defendant that a loan’s “merger” with a foreclosure judgment under state law exempted them from RESPA’s loss mitigation rules. The Court pointed to the servicer’s active engagement with the borrower’s loan modification application post-judgment as a basis for maintaining the servicer’s liability under RESPA.

    Elaborating on the scope of RESPA, the Court addressed the nature of correspondence that can be classified as “qualified written requests” (QWRs). The Court held that the plaintiff’s letters regarding her loss mitigation efforts did not qualify as QWRs because a request for modification of loan terms did not align with the statutory purpose of a QWR, which was intended to facilitate information exchange or dispute resolutions specifically related to the servicing of the loan, such as payment history or charges on the account, rather than the negotiation of new loan terms. Therefore, the Court dismissed the plaintiff’s claim alleging a violation of RESPA due to a failure to respond to a QWR.

    The Court also allowed a claim under the New Jersey Consumer Fraud Act (NJCFA) to move forward, signaling that foreclosure judgments do not render the NJCFA inoperative. Finally, the Court dismissed the plaintiff’s breach of good faith and fair dealing claims against the lender’s law firm and the servicer/lender due to the absence of a direct contractual relationship with the borrower and no evidence of denied mortgage agreement benefits.

    Courts RESPA New Jersey Qualified Written Request

  • North Carolina Supreme Court upholds credit union’s right to enforce unilaterally inserted arbitration clause


    On May 23, the North Carolina Supreme Court ruled that a defendant credit union can enforce an arbitration clause added to a customer’s contract years after its inception. The case centered on a “Notice of Amendments” provision in the contract, which customers agreed to when opening accounts, allowing the credit union to unilaterally change contract terms with proper notice to the consumer.

    In January 2021, the credit union notified the plaintiff that it was updating its membership agreement to include an arbitration requirement for certain disputes and a waiver of class actions. In March 2021, the plaintiff filed a class action lawsuit against the credit union, alleging that it was improperly collecting overdraft fees on accounts that were never overdrawn. The trial court denied the credit union's motion to compel arbitration, but the appeals court reversed that decision and remanded the case with instructions to stay the case pending arbitration, holding that the addition of the arbitration provision was enforceable.

    The North Carolina Supreme Court addressed in its opinion whether the inclusion of the arbitration violated the implied covenant of good faith and fair dealing. The Court highlighted the economic necessity for companies to adapt contractual terms efficiently and found that amendments adhering to the original contract's subject matter met the covenant of good faith and fair dealing.

    The court then turned to the question of whether the original agreement “reasonably anticipated” the changes and whether the changes reasonably related to “subjects discussed” in the agreement. The court held that the inclusion of an arbitration clause was foreseeable due to the original contract's dispute resolution terms, which stated that the agreement was subject to the laws of North Carolina and set the venue for any dispute. Since the agreement’s changes addressed the forum for disputes, the court deemed this to be within the “same universe of terms.” Moreover, the court determined the contract was not illusory because the language included in the change to the contract limited its scope by stating “[e]xcept as prohibited by applicable law.”

    Finally, the court rejected the plaintiff’s argument that she did not accept the offer to arbitrate “through silence,” holding that there was an agreement between the credit union and the plaintiff that the credit union could change the terms upon proper notice, not with consent of the plaintiff. 

    Courts Credit Union North Carolina Arbitration Contracts

  • California appellate court upholds ruling on debt collection practices


    Recently, the California Court of Appeal for the First Appellate District upheld a ruling against a defendant and its related entities. Plaintiff had filed a class action lawsuit against the defendants, alleging that they had violated the FDCPA and California’s Unfair Competition Law (UCL) in their debt collection practices related to homeowners’ associate (HOA) assessments.

    The case was removed from federal to state court after the parties agreed on the move. Plaintiff was permitted to amend her complaint to include allegations against the law firm representing the debt collector and its associates, asserting they were “alter egos” of the debt collector. The state court agreed to bifurcate the claims and first addressed the UCL claim. The court found in favor of plaintiff, ruling that defendant had violated the FDCPA (a prerequisite to finding liability under the UCL) and that the law firm was jointly and severally liable for restitution and attorney fees for class counsel.

    On appeal, defendants contended first that the trial court incorrectly upheld the federal court's decision that a waiver of California Civil Code section 5655(a), which required the application of payments be first applied to assessments owed, was invalid. This waiver was included as part of the payment plan that plaintiff agreed to, but the federal court determined it was void as a matter of public policy. Second, the defendants argued that the court was incorrect that defendants breached the FDCPA by issuing pre-lien notices and letters before issuing a notice of default. Finally, the defendants challenged the trial court's decision to approve plaintiff’s request to split the trial and prioritize a non-jury trial on her claim under the UCL.

    In denying defendants’ claims, the appellate court agreed that the section 5655(a) waiver was invalid because it contradicted public policy intended to protect homeowners. Additionally, the court doubted whether the collection agency’s pre-lien letter could reasonably be characterized as threatening foreclosure and agreed with the trial court that “the least sophisticated debtor would reasonably understand this language in [defendant’s] pre-[notice of default] letter as threatening foreclosure in violation of section 5720.” Finally, regarding the decision to bifurcate plaintiff’s claims, the court decided that defendant did not sufficiently demonstrate that the trial court had abused its discretion in granting plaintiff’s motion to bifurcate. 

    Courts California Debt Collection Consumer Protection HOA Consumer Finance

  • District Court highlights the importance of precise dispute letters when challenging debt collection


    On June 6, the U.S. District Court for the Northern District of Alabama ruled on dueling motions for summary judgment in a suit against a debt collection agency for alleged violations of the FDCPA. The plaintiff contended the debt collection agency improperly handled the reporting of two accounts to credit reporting agencies, one of which the debt collection agency failed to identify as disputed after receiving a dispute letter from the plaintiff’s counsel, violating both § 1692e and § 1692f of the FDCPA.

    First, the court concluded that the plaintiff’s § 1692f claim was defective because it was duplicative of the § 1692e claim. A claim under the 1692f “catch-all” prohibition against unfair and unconscionable conduct must be supported to conduct “beyond that which [s]he asserts violates other provisions of the FDCPA.” Since the plaintiff offered no additional allegations beyond what was claimed to support the 1692e claim, the court granted the debt collection agency summary judgment on the § 1692f claim.

    The court found that there was a genuine dispute as to whether the debt collection agency should have known that one of the debts was disputed, and denied summary judgment to both parties. Here, the plaintiff sent a dispute letter notifying the debt collection agency of a dispute “for all debts that [plaintiff] may have,” and then stated that “the above referenced individual(s) disputes the debt which you are attempting to collect.” While the plaintiff alleged that the reference to “all debts” put the debt collection agency on notice of multiple debts being disputed, the debt collection agency halted negative reporting on the first account by matching the plaintiff’s name and social security number, it did not do the same for the second account because no matching information was provided. The court found that the dispute letter was ambiguous, and consequently denied motion for summary judgment for both sides.

    Courts FDCPA Debt Collection Bona Fide Error

  • 5th Circuit vacates SEC private fund adviser rule


    On June 5, the U.S. Court of Appeals for the Fifth Circuit vacated an SEC rule that represented a significant change in how private funds and their fund advisers are regulated. As it stands, the decision will spare private funds and their advisers from what would have been a material increase in regulatory burden. Prior to the 5th Circuit’s ruling, the rule expanded the scope of disclosure, reporting, and other obligations for private funds and their advisers.

    You can read more about the court’s decision here as an Orrick Insight.  

    Courts Securities Appellate Securities Exchange Commission Hedge Fund

  • SEC ordered to pay $1.8 mil. to defendants for misrepresentations


    On May 28, the U.S. District Court for the District of Utah ordered the SEC to cover all attorney fees and related costs as part of sanctions imposed following the court’s earlier emergency ex parte relief it entered into “improvidently.” The SEC originally filed a complaint against the defendants for allegedly violating federal securities law. Concurrently, the SEC sought a temporary restraining order (TRO), a freeze on assets, and appointed a receiver, all of which were granted by the court.

    However, in September 2023, the defendants filed a motion to dissolve the TRO and argued the SEC made misrepresentations to the court. The following month, the court agreed with the defendants, dissolving the TRO and receivership. The SEC moved to dismiss the case without prejudice in January. In March, the court imposed sanctions against the SEC for “bad faith conduct” regarding the TRO. Additionally, in a separate dismissal order, the court issued an order to dismiss the case without prejudice.

    Siding with the defendants, the court determined the proper method for calculating costs was straight fee recovery, allowing the defendants to submit their specific legal fees rather than using a lodestar method. The court granted most defendants’ fee petitions and the receiver’s application for fees and costs, ordering the SEC to pay over $1.8 million. 

    Courts Securities Exchange Commission Attorney Fees

  • District Court denies class certification in lending discrimination suit


    On May 30, the U.S. District Court for the Eastern District of Virginia entered an opinion denying class certification in a suit accusing a credit union (defendant) of lending discrimination. Each plaintiff applied to defendant for at least one home loan product, including first-lien mortgages, VA-backed loans, and refinancings. Plaintiffs’ complaint alleged that defendant’s mortgage underwriting policies violated the Fair Housing Act (the FHA) and the ECOA because they have had a “disparate impact on minority loan applicants” and defendant’s “refusal to correct those discrepancies constitutes intentional discrimination.” Plaintiffs based their claims on three independent reports analyzing publicly-available HMDA data from 2019-2022.

    The court found that plaintiffs failed to establish a disparate treatment claim under the FHA, the ECOA, section 1981, and state law. Among other things, the court found that plaintiffs failed to address defendant’s argument that the data relied on in the reports lacked important metrics relating to credit scores and debt-to-income ratios. The court reasoned that plaintiffs’ sole reliance on reports analyzing defendant’s HMDA data – absent other allegations of evidence of discriminatory intent – did not make out a plausible claim of intentional discrimination. Moreover, the court found defendant’s argument persuasive that some of the plaintiffs attained loans elsewhere at higher interest rates than the loans originally sought from defendant, which suggested that plaintiffs were unqualified for the lower-interest rate loans for which they originally applied.

    The court did, however, find that the complaint sufficiently pled a claim for disparate impact under the FHA and the ECOA at the motion to dismiss stage because the statistical analyses cited in the complaint revealed a disparate impact among non-white loan applicants and the underwriting algorithm and process was alleged to have caused the disparity. However, the court cautioned that if plaintiffs later failed to link during discovery the described “secret” underwriting process to the precise disparities and adverse consequences experienced by plaintiffs, the court may revisit whether the claim can survive at summary judgment.

    Finally, the court struck the class allegation because the circumstances of plaintiffs’ loan application processes are too varied. Even though the proposed class was denied, plaintiffs may proceed on their FHA and ECOA disparate impact claims.

    Courts Consumer Finance Mortgages Credit Union ECOA FHA

  • U.S. Supreme Court vacates decision on interest for escrow accounts, orders further review


    On May 30, the U.S. Supreme Court vacated and remanded for further proceedings a 2022 decision by the Second Circuit that held that the National Bank Act preempted a New York state law requiring the payment of interest on mortgage escrow accounts. The plaintiff borrowers obtained home mortgage loans from a national bank and were required to make monthly deposits into escrow accounts for the payment of property taxes and insurance. New York law required the payment of interest on such accounts. When the national bank, relying on federal preemption, did not pay such interest, the borrowers sued. The district court rejected the bank’s preemption argument, but the 2nd Circuit reversed, holding that the state law significantly interfered with the bank’s exercise of its authorized power to create and fund escrow accounts (covered by InfoBytes here). The Supreme Court granted certiorari to resolve a split between the 2nd Circuit’s decision and an earlier decision of the 9th Circuit (covered by InfoBytes here).

    The Supreme Court held that the 2nd Circuit did not properly apply the applicable preemption standard created by the Dodd-Frank Act. The Dodd-Frank Act preempts state law “only if” the state law (i) discriminates against national banks as compared to state banks; or (ii) “prevents or significantly interferes with the exercise by the national bank of its powers,” as determined “in accordance with the legal standard for preemption in the Supreme Court’s decision in Barnett Bank of Marion County, N. A. v. Nelson, Florida Insurance Commissioner, et al.”

    Because the state law did not discriminate against national banks, the Court focused its analysis on the Barnett Bank/significant interference test.  The Court held that “Barnett Bank did not purport to establish a clear line to demarcate when a state law ‘significantly interfere[s] with the national bank’s exercise of its powers[,]’” but instead “analyzed the Court’s precedents on that issue.” Stating that those precedents “furnish content to Barnett Bank’s significant interference test—and therefore also to Dodd-Frank’s preemption standard,” the Court then proceeded to analyze those same precedents, identifying cases that illustrate the types of state laws that do and do not constitute a “significant interference” with national bank powers. The Court ultimately concluded that a “court applying [the] Barnett Bank standard must make a practical assessment of the nature and degree of the interference caused by a state law.” In a footnote, the Court added that in “Barnett Bank and each of the earlier precedents, the Court reached its conclusions about the nature and degree of the state laws’ alleged interference with the national banks’ exercise of their powers based on the text and structure of the laws, comparison to other precedents, and common sense.”

    Because the 2nd Circuit had not analyzed the preemption issue “in a manner consistent with Dodd-Frank and Barnett Bank,” the Court vacated its decision and remanded the case for further proceedings.  

    Courts U.S. Supreme Court Escrow Interest Mortgages Second Circuit Appellate


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