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  • State AGs sue to block Biden's SAVE Plan for student loan forgiveness

    Federal Issues

    On April 1, 10 state attorneys general filed a lawsuit in the U.S. District Court for the District of Kansas against President Biden, the Secretary of Education, and the Department of Education seeking to block the enactment of the SAVE Plan. As previously covered by InfoBytes, the SAVE Plan was an income-driven repayment plan, intended to calculate payments based on a borrower’s income and family size, rather than the loan balance, and forgave balances after several years since repayment. According to the complaint, the government released a rule for the new SAVE Plan intended to eliminate at least $156 billion in student debt as the second step in a three-part loan forgiveness initiative. The first step involved an attempt to cancel $430 billion in student loans under the HEROES Act, which the U.S. Supreme Court ruled unconstitutional in Biden v. Nebraska.

    The SAVE Plan assumed $430 billion in loans would be forgiven beforehand, but after the Supreme Court's decision, the defendants allegedly did not revise the cost estimate in anticipation of overturning the case. This oversight led to a significant underestimation of the SAVE Plan's true cost; plaintiffs alleged.

    Plaintiffs further claimed that the SAVE Plan was written before the Supreme Court's ruling in Biden v. Nebraska and thus included outdated statements of confidence in the defendants' authority to pursue debt relief. The rule would take effect on July 1, but defendants allegedly have already started forgiving loans for some individuals before this date. The complaint alleged that on February 21, the Department of Education forgave the debt of 153,000 borrowers, which the state attorneys general claimed violated Biden v. Nebraska.

    Plaintiffs brought claims under the Administrative Procedure Act, contending that the Department of Education exceeded its authority under the Higher Education Act of 1965 by issuing the rule and that the rule would be arbitrary and capricious since defendants failed to account for the full cost of the rule.

    Federal Issues Courts State Attorney General SAVE Plan Student Loans Biden

  • Trade groups sue Colorado Attorney General to block enforcement of law limiting out-of-state bank charges on consumer credit

    Courts

    On March 25, three trade groups filed a lawsuit in the U.S. District Court for the District of Colorado, against the Colorado Attorney General and the Administrator of the Colorado Uniform Consumer Credit Code to prevent enforcement of Section 3 of House Bill 23-1229, which was signed into law last year to limit out-of-state bank charges on consumer credit (the “Act”). As previously covered by InfoBytes, the Act amended the state’s Uniform Consumer Credit Code to opt out of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) provision that allowed state-chartered banks to charge the interest allowed by the state where they are located, regardless of the location of the borrower and regardless of conflicting out-of-state law. The Act would go into effect on July 1. 

    According to the complaint, the Act “far exceed[s]” the authority Congress granted Colorado under DIDMCA and would be deemed “invalid on its face.” Plaintiffs alleged that Colorado ignored the federal definition of where a loan was deemed to be “made,” imposing “its state interest-rate caps on any ‘consumer credit transaction[] in’ Colorado,” including “any loan to a Colorado consumer by any state-chartered bank that advertises on the internet in Colorado.” Plaintiffs further alleged that the Act’s opt out “is preempted by DIDMCA and violates the Supremacy Clause of the U.S. Constitution by attempting to expand the federally granted opt-out right to loans not actually ‘made in’ Colorado under federal law,” and “violates the Commerce Clause because it will impede the flow of interstate commerce and subject state-chartered banks to inconsistent obligations across different states.” The Plaintiffs also alleged that Colorado’s stated goal of combatting “predatory, payday-style lending” will not be accomplished through the opt out, as plaintiffs’ members are not payday lenders and offer “a wide variety of useful, familiar, everyday credit products” that “are provided at a range of rate and fee options, which sometimes—to account for credit risk—are above Colorado’s rate and fee caps, but within the rate caps allowed by DIDMCA.” Furthermore, plaintiffs warn that the Act “will prevent Plaintiffs’ members from offering these mainstream products to many Colorado consumers,” while “national banks will still offer these very same loan products to Colorado residents at interest rates in excess of Colorado’s interest-rate and fee caps.” Plaintiffs urged the court to issue a ruling stating that the Act “is void with respect to loans not ‘made in’ Colorado as defined by applicable federal law” and to enjoin Colorado from enforcing or implementing the Act with respect to those loans.

    Courts State Issues Colorado State Attorney General Consumer Protection Consumer Finance Interest Rate DIDMCA

  • Borrower’s RESPA claim stays afloat in District Court

    Courts

    The U.S. District Court for the Southern District of Ohio, Eastern Division, granted in part and denied in part defendant mortgage servicer’s motion to dismiss claims for RESPA Qualified Written Requests violations. Defendant approved plaintiffs for a trial payment plan for their mortgage loan. After plaintiffs completed that plan, defendants sent an initial modification agreement with a misspelled plaintiff name. Plaintiffs notified defendant of the error but continued making payments pursuant to the initial modification agreement. Defendant then sent a corrected version which plaintiffs signed, and defendants recorded with the Delaware County Recorder’s office. However, defendants did not update the new terms in its billing system and, after realizing the agreement contained terms different from what it intended, sent a third version of the modification agreement to plaintiffs with an adjusted principal balance and interest rate. Plaintiffs refused to sign the third modified agreement, and defendants refused to honor the recorded version or accept payments, stating that plaintiffs were in default on their mortgage.

    In making its judgement, the court considered how defendant handled plaintiffs’ qualified written requests (QWR). Regarding defendant’s response to plaintiffs’ notice of error, plaintiffs claimed defendant did not conduct a reasonable investigation, inadequately explained the discrepancy between the modification agreements’ interest rates and fee charges to their account, and entirely ignored the change in principal balances between the initial and the recorded modification agreements. Defendant argued that its conclusion, that no enforceable loan modification existed, would not change had it conducted the investigation. The court found that defendant could not bypass its responsibility to conduct a reasonable investigation, and that defendant did not address the difference in principal balance between the initial and recorded modification agreements.

    On the issue of defendant’s response to plaintiffs’ request for information (RFI), plaintiffs claimed defendant’s response did not address their claims of missing records, nor did it mention that such records were unavailable. Plaintiffs also claimed defendant failed to produce requested documents. Refuting defendant’s argument that plaintiffs did not “even hint” that they suffered damages from the RFI portion of the QWR, the court found that plaintiffs’ damages were legally cognizable. However, the court dismissed plaintiffs’ claim as to the RFI because it did not satisfy the necessary standing requirements. 

    Courts RESPA Ohio Qualified Written Request RFI Mortgages Consumer Finance

  • Washington State Attorney General obtains civil penalties against debt collection agency for medical debt collection practices

    Courts

    On March 19, the Washington State Attorney General (AG) obtained an order from the King County Superior Court providing that a debt collection agency must pay civil penalties for allegedly failing to comply with the Washington Collection Agency Act and Consumer Protection Act when collecting medical debts, specifically by failing to provide the required disclosures in its consumer communications. The court found that the debt collection agency sent 82,729 debt collection notices to medical debtors without the necessary disclosures, which included notification of the debtor’s right to request the original or redacted account number assigned to the debt, the date of last payment, and an itemized statement. The notices also did not inform the debtor that the debtor may be eligible for charity care from the hospital or provided contact information for the hospital. According to the AG’s Office, the collection agency “unlawfully collected payments from … patients without providing critical information about their rights when faced with medical debt. By excluding the legally required disclosures about financial assistance in its collection letters, [the collection agency] created barriers that kept patients who likely qualified for financial assistance from learning about and accessing help with their hospital bills.”

    The court ordered a civil penalty of $10 per violation for the debt collection agency’s 82,729 alleged violations of the state Consumer Protection Act, totaling $827,290. Additionally, the court ordered the debt collection agency to reimburse the AG’s office for the costs of bringing the case, which is estimated to exceed $400,000 and to update its practices to comply with Washington law. In determining the civil penalty amount, the court found, among other things, that the debt collection agency acted in bad faith by “fail[ing] to take basic compliance steps,” and “fail[ing] to obtain the correct license … maintain an office in the state, and … include the mandatory disclosures on medical and hospital debt.”

    As previously covered by InfoBytes, the AG successfully sued the nonprofit health system in early February, entering a consent decree pursuant to which the health system must pay $158 million in patient refunds, debt forgiveness, and AG costs.

    Courts State Issues State Attorney General Debt Collection Consumer Protection Act

  • 5th Circuit reverses judgment in FDCPA case

    Courts

    Recently, the U.S. Court of Appeals for the Fifth Circuit ordered an FDCPA case to be reversed and remanded after the U.S. District Court for the Eastern District of Louisiana granted a motion for summary judgment. The plaintiffs filed a putative class action alleging that the defendant law firm violated the FDCPA for misrepresenting judicial enforceability of a debt in their dunning letters. The case concerned Congress’s “Road Home” grant program, which was created to provide grants to repair and rebuild homes in the aftermath of Hurricanes Katrina and Rita. All Road Home grant recipients were required to disclose repair benefits previously received. The named plaintiffs in this case applied for and received Road Home grants but failed to disclose repair benefits previously received from FEMA or a privacy insurance carrier. In March 2008, the State’s contractor, ICF, noticed the potential double payments to the two named plaintiffs and placed an internal flag on their accounts in the Road Home database. After a decade, the defendant law firm was engaged to help recover these double payments. The defendants sent a dunning letter demanding repayment in 90 days or the defendants “may proceed with further action against you, including legal action.” The dunning letter further stated that “you may be responsible for legal interest from judicial demand, court costs, and attorneys fees if it is necessary to bring legal action against you.” The plaintiffs filed suit under Section 1692e of the FDCPA and, in an amended complaint, alleged the defendants collected or attempted to collect time-barred debts, failed to itemize the alleged debts, and threatened to assess attorneys’ fees without determining if that right existed. The district court granted summary judgment to the defendants.

    The 5th Circuit reversed on appeal. Concerning the first allegation of collecting or attempting to collect a time-barred debt, the court reasoned that while it does not violate the FDCPA to collect on a time-barred debt, a debt-collector “can run afoul of the FDCPA by threatening judicial action while completely failing to mention that a limitations period might affect judicial enforceability.” Further, the appellate court found the dunning letters were “untimely even under the most liberal, 10-year time window” as the plaintiffs breached their agreements when they closed on their Road Home grants or when the State of Louisiana was provided actual notice of the alleged duplicative payments, both of which occurred more than 10 years before the dunning letters were received. The court also found that the defendants mischaracterized one plaintiff’s debt as the dunning letter said the amount owed was for insurance proceeds when it included a 30 percent penalty for lack of flood insurance. Finally, the court explained that because there was no lawful basis to recover attorneys fees, the defendants violated the FDCPA. 

    Courts FDCPA Louisiana FEMA

  • CFPB submits brief alleging “forum shopping,” banking groups defend their choice of venue

    Courts

    On March 12, the CFPB submitted a brief to the U.S. District Court for the Northern District of Texas in opposition to a motion for preliminary injunction filed by a group of industry associations, urging the court to block the implementation of a new rule that would limit the ability of large credit card issuers to charge late fees (covered by InfoBytes here).

    The CFPB defended the rule by stating that it has considered all relevant factors and that the rule aimed to prevent credit card issuers from charging excessive late fees. The CFPB also argued that the case is not properly situated, as the plaintiffs lack a significant connection to the district in which they filed the lawsuit and do not have the standing to sue on behalf of others, stating “it seems not one large card issuer wants its name on the marquee… [t]he rule applies to only the largest card issuers—approximately 30–35 total entities nationwide. Plaintiffs have not identified a single one that is based in this District.” The CFPB suggested that plaintiffs have engaged in “forum shopping”—i.e., choosing this court because they believe it will be more favorable to their case, despite a lack of substantial connection to the district. The brief stated that the plaintiffs are unlikely to succeed on the merits of their claims under the Administrative Procedure Act because they failed to establish proper venue and associational standing. Additionally, the CFPB argued that an injunction was not warranted because the rule was designed to protect consumers and that preventing its implementation would be against the public interest.

    On March 13, plaintiffs submitted a brief defending its motion for preliminary injunction and their choice of venue in Texas as part of an ongoing suit against the CFPB. The brief stated that according to law, the venue was appropriate if one plaintiff resided in the district, which applied to one of the Texas-based chamber plaintiffs, and if a significant portion of the related events occurred in the district, which is true as the rule impacted the local area. That plaintiff argued they have standing to sue because the issues are relevant to its “mission of cultivating a ‘thriving business climate in the Fort Worth region’” and its trade members included credit card issuers affected by the rule. Despite the CFPB’s counterarguments that the plaintiff lacked standing and that a transactional venue was not applicable, the plaintiff asserted it represented members that would be directly impacted by the rule, fulfilling the requirements for standing. Additionally, plaintiff contended that the rule's effects within the district justify the court's jurisdiction over the case.

    Courts CFPB Consumer Finance Fees Agency Rule-Making & Guidance Litigation

  • U.S. SDNY grants partial summary judgment in favor of bank’s FCRA case

    Courts

    Recently, the U.S. District Court for the Southern District of New York opined on a bank’s motion for partial summary judgment, granting the motion as to whether the bank “knowingly” violated the FCRA but denying whether the bank acted “recklessly.” The complaint originated when the individual plaintiff opened a credit card and the plaintiff, along with other cardholders, was enrolled in a disaster relief program (DRP) that provided short-term relief for customers negatively impacted by the Covid-19 pandemic. The plaintiff alleged that the bank reported an outstanding account balance to the credit bureaus as delinquent despite promising that the balance would not be reported due to the protections of the DRP. Upon discovering this, the plaintiff disputed the reporting with the bank. The bank then investigated the plaintiff’s payment history, concluding that there had been no error because there was in fact an outstanding delinquent balance. The plaintiff eventually filed complaints with the CFPB in 2022 and proceeded to file suit later that year.

    The plaintiff alleged that the Bank failed to conduct a reasonable investigation by limiting the investigation to the plaintiff’s payment history, and by failing to consider whether the delinquent balance should have been reported due to the protections of the DRP. The court found that a reasonable jury could determine the bank recklessly reported the outstanding account balance to the credit bureaus without performing a reasonable investigation, and thus denied summary judgment. The court noted that the bank’s investigation relied on automated computer programs as to some items, and a manual review that was limited to the account history as to other items. 

    The bank argued it did not “knowingly” violate the FCRA. The court agreed and found the bank could not be “consciously aware” that a violation would come about as a result of its investigation, concluding the bank is entitled to summary judgment on whether it “knowingly” violated § 1681s-2(b) of FCRA. 

    Courts SDNY FCRA Covid-19 CFPB

  • District Court finds SEC acted in bad faith and orders it to pay defendant’s attorney fees partially

    Courts

    On March 18, the U.S. District Court in Utah ordered the SEC to pay a defendant’s attorney fees and legal costs partially after the Commission was found to have engaged in “gross abuse” and acted in bad faith on how it presented evidence as part of a temporary restraining order (TRO). Additionally, the court denied the SEC’s motion to dismiss the case without prejudice.

    The SEC had filed suit against the defendant, a cryptocurrency company, for allegedly making false and misleading statements to investors, specifically how the company wished to move its assets to the United Arab Emirates in an online video to purportedly “evade law enforcement.” The court had agreed with the SEC and eventually froze the defendant’s assets. In reply, the defendants contended the SEC’s representations were “highly misleading” as they were in response to a viewer’s question posed in a comment as weighing the benefits of operating in the UAE compared to a U.S. regulatory environment. Despite the SEC “affirmatively and repeatedly” asserting that the defendants were moving funds and assets overseas, the court found no evidence to support that claim and had decided to grant the SEC a TRO because of these misrepresentations.

    The court emphasized that it does not take its authority to issue TROs lightly, since this authority invokes extreme powers of the federal judiciary. The court now found the SEC made false statements, and despite having multiple opportunities to correct them, proceeded to make additional “layers of false statements” demonstrating “subjective bad faith.”

    The court refused to write these issues off as mistakes. In its reply, the SEC stated that its attorneys made inaccurate statements, failed to correct them, and improperly labeled an inference as fact. The court acknowledged that the SEC’s attorneys “fell short” of the responsibility entrusted to it by Congress. On reply, the Commission “deeply regrets” its errors but argued it does not deserve any sanctions since it had not engaged in any “bad faith conduct.” The court disagreed, noting “companies were seized, assets were frozen, and lives were upended.”

    Further, the SEC argued that sovereign immunity barred it from any monetary sanctions; the court disagreed. The court admonished the SEC: “[W]hen an attorney makes a false statement of material fact to a court, the lawyer is required to correct it.” The court found the SEC’s explanations unsatisfactory. It also denied the SEC’s motion to dismiss without prejudice. The court sided with the defendants eventually after they asserted the SEC sought to “evade” the court’s oversight. While weighing the decision to impose a greater sanction, the court decided against imposing fees and costs for the entire court case, but directed the Defendants to submit a fee request, if they would like. In all, the court found with “clear evidence” there was a “complete lack of color and an improper purpose on the part of the government.”

    Courts Securities Exchange Commission Attorney Fees

  • Trusts are covered persons subject to the CFPA, 3rd Circuit upholds CFPB FDCPA case

    Courts

    On March 19, the U.S. Court of Appeals for the Third Circuit filed an opinion remanding a case between the CFPB and defendant statutory trusts to the District Court. After issuing a civil investigative demand in 2014, the CFPB initiated an enforcement action in September 2017 against a collection of 15 Delaware statutory trusts that furnished over 800,000 private loans and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or was outside the applicable statute of limitations (covered by InfoBytes here). Then, early last year, the parties settled and asked the court to enter a consent judgment, which was denied (covered by InfoBytes here).

    The 3rd Circuit addressed two questions: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau. On the statutory issue, the court found that the trusts fell within the purview of the CFPA because trusts “engage” in offering or providing a consumer financial product or service, specifically student loan servicing and debt collection, as explicitly stated in the trust agreements each trust entered. Regarding the constitutional question, the defendants argued that the Bureau needed to ratify the underlying suit because it was initiated while the agency head was improperly insulated, and since the Bureau ratified it after the statute of limitations had run, the suit was untimely. The court disagreed and found that the defendants’ analysis of the here-and-now injury “doesn’t go far enough,” therefore the CFPB did not need to ratify this action before the statute of limitations had run because the impermissible insulation provision does not, on its own, cause harm.  

    Courts Federal Issues CFPB Third Circuit FDCPA Student Lending Debt Collection Enforcement Consumer Finance CFPA

  • Bank regulators respond to bankers’ motion to enjoin CRA final rule

    Courts

    On March 8, the Fed, OCC, and FDIC (the federal banking agencies, or “FBAs”) submitted a brief opposing the plaintiffs’ motion for a preliminary injunction to stop the CRA final rule from going into effect. As previously covered by InfoBytes, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the bank regulators’ enforcement of the final rule to implement the CRA before it goes into effect on April 1. The FBAs assert that, in opposing the final rule, the plaintiffs are asking the court to “graft” two exclusions from the CRA’s purpose that are not actually in the statute: first, to exclude geographic areas where a bank conducts retail lending from the scope of the bank’s “entire community”; and second, to exclude a bank’s deposit activities from the assessment on whether a bank is meeting its entire community’s “credit needs.” The banking regulators also argued that the plaintiffs’ motion for preliminary relief should fail because the plaintiffs cannot show irreparable harm, in that they have failed to demonstrate that costs to comply with the CRA final rule, which would not apply until 2026 and 2027, were significant when considered in the context of the bank’s overall finances. Finally, the FBAs argued that the public interest and balance of equities favor allowing the final rule to proceed, as, among other factors, “the rule provides significant regulatory relief and lower compliance costs for smaller institutions by increasing the asset size thresholds that determine which performance tests apply to an institution.” 

    Courts Bank Regulatory CRA OCC FDIC Federal Reserve Agency Rule-Making & Guidance Litigation

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