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Financial Services Law Insights and Observations


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  • 9th Circuit affirms no jurisdiction without exhaustion of administrative remedies


    On December 27, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a TILA case brought by a consumer against his mortgage lender, citing lack of subject matter jurisdiction under the provisions of FIRREA that require claims involving a bank that is in receivership to be presented to the FDIC before the borrower files suit. In 2009 the consumer filed an adversary proceeding in bankruptcy court against his lender for rescission of his mortgage loan under TILA. The consumer claimed that the lender’s notice of right to cancel was defective when the loan was signed, resulting in an extended rescission period under TILA, but his suit was dismissed for lack of jurisdiction. Once again, in 2012, the district court dismissed the consumer’s TILA suit after finding that the consumer had not exhausted his administrative remedies with the FDIC before filing suit.

    On appeal, the three-judge panel rejected the consumer’s claim that his lender was not placed into receivership until after his loan was sold, and therefore he did not have to exhaust his administrative remedies before filing suit. The panel subscribed to the Fourth Circuit’s interpretation of the exhaustion requirement, stating that “even where an asset never passes through the FDIC’s receivership estate, the FDIC should assess the claim first.” According to the opinion, the FIRREA requirement that the consumer exhaust his remedies with the FDIC applied to this action because the panel determined that (i) the consumer’s claim was “susceptible of resolution under the FIRREA claims process”; (ii) the consumer’s claim was related to an act or omission of the lender; and (iii) the FDIC, which “was not required to have possessed the loan before determining a claim” had been appointed as receiver for that lender, stripping the appellate court of subject matter jurisdiction until after the FDIC determined his claim.

    Courts TILA Appellate FIRREA FDIC Ninth Circuit Foreclosure Settlement

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  • Mortgage broker allegedly violated federal laws by posting customers’ personal information on website

    Privacy, Cyber Risk & Data Security

    On January 7, the FTC announced a proposed settlement with a California mortgage broker and his company to resolve alleged violations of the FTC Act, FCRA, Regulation P, and the Safeguards Rule. According to a complaint filed by the DOJ on behalf of the FTC, the defendants published the personal information of customers who posted negative reviews on a public website, including customers’ “sources of income, debt-to-income ratios, credit history, taxes, family relationships, and health.” The alleged posts containing negative financial information violated the defendants’ responsibilities under Regulation P (Privacy of Consumer Financial Information) as the required privacy disclosure provided to the customers stated that the defendants would not share personal information with any third party. Regulation P also “prohibits financial institutions from disclosing to any nonaffiliated third party any nonpublic personal information about a customer unless it has provided the customer with an opt-out notice, . . . a reasonable opportunity to opt out of the disclosure, and the customer has not opted out.” In this instance, customers were not given the opportunity to opt out of disclosure of their personal financial information in response to online consumer reviews, the complaint asserts. In addition, the complaint alleges that the defendants also violated the FTC Act by causing unfair or deceptive acts or practices that “deprived consumers of the ability to control whether and to whom they disclosed sensitive information.” The defendants also allegedly violated the FCRA by using consumer reports for impermissible purposes, and the FTC’s Safeguards Rule by failing to implement or maintain an adequate information security program. Under the terms of the proposed settlement, the defendants will pay a $120,000 civil penalty and are prohibited from (i) misrepresenting their privacy and data security practices; (ii) using consumer reports for anything other than a permissible purpose; (iii) not providing required privacy notices; and (iv) improperly disclosing nonpublic personal information to third parties. Among other things, the company is also prohibited from transferring, selling, sharing, collecting, maintaining, or storing nonpublic personal information unless it implements a comprehensive information security program; and must obtain independent third-party assessments of its information security program every two years.

    Privacy/Cyber Risk & Data Security Courts FTC DOJ FTC Act UDAP FCRA Regulation P Safeguards Rule Settlement Consumer Protection

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  • District Court stays proceedings in structured settlement case pending outcome of Seila Law


    On December 23, the U.S. District Court for the District of Maryland granted a motion to stay in an action between the CFPB and parties of a structured-settlement company, pending the U.S. Supreme Court’s decision in CFPB v. Seila Law. According to the court, a decision in Seila Law that the CFPB’s structure violates the Constitution’s separation of powers under Article II may render the CFPB unable prosecute the case. A determination by the Court is expected later this year (previous InfoBytes coverage here).

    As previously covered by InfoBytes, the court allowed to move forward the Bureau’s UDAAP claim, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The defendants asked the court to stay the proceedings pending the outcome of two cases: Seila Law and a case pending in the Maryland Court of Appeals involving a different structured settlement company (covered by InfoBytes here). The court determined that a stay is not appropriate based on the Maryland case since it is not known when the case may be decided. The court also disagreed with the defendants’ argument that if the Maryland Court of Appeals upholds the settlement, the Bureau would be precluded from obtaining relief from the defendants. According to the court, “the extent to which the settlement is preclusive is unclear” and the provision that would preclude action by the Bureau is being disputed on appeal. However, the court concluded that a stay pending the outcome in Seila Law is warranted because “one of the Supreme Court’s paths in Seila Law may render the CFPB unable to prosecute this action; the stay would not be lengthy; and the interests of judicial efficiency and potential harm to the movants justify the stay.”

    Courts CFPB Enforcement UDAAP Structured Settlement U.S. Supreme Court Single-Director Structure Seila Law

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  • District Court settles payday lending suit against investment firm in rent-a-tribe scheme


    On December 31, the U.S. District Court for the Eastern District of Pennsylvania entered an order signing off on a settlement agreement between the state attorney general and an investment firm and its affiliates (the defendants) connected to a lender accused of using Native American tribes to circumvent the state’s usury laws. (See previous InfoBytes coverage here and here.) According to the court’s opinion, the defendants allegedly became involved in the “rent-a-bank” and “rent-a-tribe” schemes when they made “‘an initial commitment of at least $90 million to be used in funding [the] loans’ in exchange for a fixed 20 percent return on investment” guaranteed by the lender.

    In the settlement agreement, the defendants agreed not to provide capital to any third-parties offering Pennsylvania consumers loans that carry an interest rate in excess of the state’s six percent limit on unsecured consumer loans under $50,000. The defendants also agreed to perform regulatory reviews and due diligence “at least once per full calendar year during the term of [a] transaction” involving consumer credit products or services offered to Pennsylvania consumers. While the defendants expressly deny any liability or wrongdoing, the parties agreed to enter into the agreement to “avoid the cost, expense and effort associated with continuing the dispute.” The AG states that the settlement agreement does not constitute an approval by the AG’s office of any of the defendants’ “products, marketing, business practices or website content, acts and/or practices.”

    Courts State Attorney General Payday Lending Settlement Interest Rate Usury

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  • $24 million settlement proposed in FCRA class action against credit reporting agency


    On December 31, a credit reporting agency (agency) and a class of consumers whose payday loan servicer collapsed jointly filed a proposed $24 million settlement agreement for approval by the U.S. District Court for the Central District of California (also, see the memorandum in support here). The proposed agreement would resolve a class action suit alleging that the agency provided incorrect and potentially harmful information on the class members’ credit reports in violation of the FCRA.

    In 2016, the class representative (the consumer) sued the agency claiming it was reporting disputed debts from a payday loan servicer that had previously requested that the agency stop reporting the servicer’s pool of payday loan accounts. Because the servicer had also discontinued its servicing operations, the debts could no longer be verified. The consumer alleged that although the agency claimed to have deleted the payday loan servicer’s accounts in January of 2015, it continued to report as delinquent more than 100,000 loans until the accounts were actually deleted more than a year later. After the district court granted a motion for summary judgment filed by the agency, the consumer appealed to the U.S. Court of Appeals for the Ninth Circuit.

    As previously covered in InfoBytes, upon appeal in 2019, the appellate court vacated the lower court’s grant of summary judgment on the ground that the consumer’s allegations regarding the inaccuracy of the agency’s information and the willfulness of its actions “raised genuine issues of material fact.” On remand, the district court granted class certification in October. The proposed settlement agreement, if approved, would automatically award each class member approximately $270, and provide up to $15,000 to the consumer who originally filed the lawsuit as the class representative. A hearing date is set for January 27.

    Courts FCRA Appellate Class Action Payday Lending Ninth Circuit Credit Reporting Agency Settlement

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  • District Court shuts down mortgage relief operation; issues $18.4 million judgment


    On December 30, the FTC announced that the U.S. District Court for the District of Nevada had, on December 5, granted its motion for summary judgment in an action against a mortgage loan modification operation (operation) for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule (MARS Rule). The January 2018 complaint alleged that the operation had engaged in unfair or deceptive acts or practices when it “preyed on financially distressed homeowners” by making false representations in advertising that its mortgage relief services could prevent foreclosures and “substantially lower” mortgage interest rates, as previously covered here. Additionally, the complaint charged that the operation used “doctored logos” in correspondence with consumers to give the impression that it was “affiliated with, endorsed or approved by, or otherwise associated with the federal government’s Making Home Affordable loan modification program,” and similarly claimed affiliation or “special arrangements” with the holder or servicer of the consumer’s loan. The court agreed with the FTC’s allegations, finding that the operation violated the FTC Act and the MARS Rule. The court entered a monetary judgment against the operation of over $18.4 million as equitable relief, which the FTC may use to compensate consumers harmed by the operation’s business practices. To the extent that an FTC representative determines that direct consumer redress is impracticable or money remains after redress is completed, the FTC may apply any remaining funds to other equitable relief (including consumer information remedies) that it determines is reasonably related to the practices alleged in the complaint. The court also permanently enjoined the operation from marketing or providing any secured or unsecured debt relief product or service, as well as from making deceptive statements to consumers regarding any other financial product or service.

    Courts Loan Modification Consumer Finance FTC Act MARS Rule Debt Relief Mortgages FTC

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  • FTC sues fuel card marketer for deceptive advertising and hidden fees

    Federal Issues

    On December 20, the FTC announced it had filed suit for unfair and deceptive acts and practices in violation of the FTC Act against a fuel payment card services company (company) for its “problematic marketing and fee practices.” The FTC’s complaint, filed in U.S. District Court for the Northern District of Georgia, alleges that the company marketed the fuel payment cards to “companies that operate vehicle fleets” with false promises that the cards would provide (i) cost savings; (ii) protection from unauthorized card purchases; and (iii) “no set-up, transaction, or membership fees, including when used to purchase fuel at any of the thousands of locations nationwide that accept [the company’s] fuel cards.” In fact, according to the complaint, the company “has charged customers at least hundreds of millions of dollars in unexpected fees,” and “at least tens of millions of dollars in recurring fees for programs they have not ordered,” and, in spite of its marketing representing otherwise, the company has not provided advertised fuel savings, and has not provided fraud protection for unauthorized transactions. The complaint also claims that the company has not timely posted customer payments when received, leading to customers being levied additional fees for late charges and “related [i]nterest and [f]inance [c]harges even when the customers have paid their balance in full by the due date.” The FTC seeks permanent injunctive relief against the company to prevent future violations, as well as redress for those consumers injured by the FTC Act violations, “including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”

    Federal Issues Consumer Protection FTC Act Courts UDAP Fees

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  • Internet provider and states agree to nearly $12.5 million for false advertising, hidden fees

    State Issues

    On December 19, the Colorado attorney general announced that an internet service provider (ISP) agreed to pay nearly $8.5 million in order to resolve allegations that it “unfairly and deceptively charg[ed] hidden fees, falsely advertis[ed] guaranteed locked prices, and fail[ed] to provide discounts and refunds it promised” to Colorado consumers in violation of the Colorado Consumer Protection Act. According to the announcement, in 2017 the AG’s office investigated the ISP and compiled information that the ISP had “systematically and deceptively overcharged consumers for services” since 2014 (see the complaint filed by the AG here). In the settlement, the ISP agreed to an order that requires it, among other things, to (i) refrain from making false and misleading statements to consumers in the marketing, advertising and sale of its products and services; (ii) accurately communicate monthly base charges as well as one-time fees, taxes, and other fees and surcharges to consumers; (iii) disclose any “internet cost recovery fee” or “broadband recovery fee” to consumers being charged the fees and allow the affected consumers to switch to different services if they wish to avoid the fees; (iv) refrain from charging an “internet or broadband cost recovery fee” on new orders; and (v) provide refunds to customers who were overcharged for services and to those customers who did not previously receive discounts that the ISP promised.

    In a separate action, on December 31, the Oregon attorney general’s office announced that it entered into a $4 million Assurance of Voluntary Compliance with the same ISP to resolve similar claims of deceptive acts and practices in the advertising, sale, and billing of the ISP’s internet, telephone and cable services in violation of the Oregon Unlawful Trade Practices Act. According to the announcement, the Oregon DOJ started an investigation of the ISP in 2014 for allegedly “misrepresenting the price of services, failing to inform consumers of terms and conditions that could affect the price, and billing consumers for services they never received.” The ISP agreed to requirements that are very similar to those in the Colorado settlement. The announcement notes that the “Oregon DOJ will continue to lead a separate securities class action lawsuit arising from the same conduct.”

    State Issues Courts State Attorney General Consumer Protection Settlement Advertisement Fees Enforcement

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  • California Court of Appeal: Borrowers allowed opportunity to cure default on missed loan modification payments


    On December 16, the California Court of Appeal for the First Appellate District allowed borrowers who missed payments on their modified mortgage loan to reinstate the loan and avoid foreclosure by paying the amount in default under the terms of the modified loan, rather than the amount that would have been in default under the original loan terms. According to the court, the borrowers missed four monthly payments on their modified loan, which had deferred certain amounts due on the original loan (including principal). The loan-modification agreement stated that any future default would allow the lender to void the loan modification and enforce the original loan terms. According to the lender, in order to reinstate their account and avoid foreclosure, the borrowers would have to pay the amount that would have been past due on the original loan principal before the loan was modified, plus the four missed monthly payments, associated late charges, and fees and costs. The borrowers filed suit, alleging violations of California Civil Code §§ 2924c and 2953. Section 2924c overrides typical mortgage acceleration clauses to give the borrower the right to cure a default by paying the amount in default rather than the entire principal balance, plus specified fees and expenses. Section 2953 provides that the right of reinstatement created by § 2924c cannot be waived in “[a]ny express agreement made or entered into by a borrower at the time of or in connection with the making of or renewing of any loan secured by a deed of trust, mortgage, or other instrument creating a lien on real property.”

    The Court of Appeal reversed the trial court’s grant of summary judgment to the lender. It held that the loan modification at issue was “appropriately viewed as the making or renewal of a loan secured by a deed of trust . . . and is thus subject to the anti-waiver provisions of Section 2953.” Therefore, the court held that the lender had failed to show that the borrowers “could not prevail on their claim” that the lender violated § 2924c and was accordingly not entitled to summary judgment, and remanded the matter to the trial court.

    Courts State Issues Appellate Mortgages Foreclosure

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  • 9th Circuit: Student loan guaranty agency is not a debt collector under FDCPA


    On December 18, the U.S. Court of Appeals for the Ninth Circuit held that a nonprofit guaranty agency that collected delinquent student loans was exempt from the FDCPA because its “collection activity was incidental to its fiduciary obligation to the Department of Education.” According to the opinion, the matter dates back decades, where a judgment on the borrower’s three defaulted student loans was eventually assigned to the defendant, which began collection efforts on behalf of the Department of Education (the Department had previously repaid the guarantor of the loans). The defendant sent the borrower a notice in 2009 that it would begin collecting the Department’s claim by having the Department of Treasury “offset ‘all payment streams authorized by law,’ including his Social Security benefits,” to which the borrower did not respond. The borrower eventually disputed the debt in 2012 once the offset took effect, and filed a lawsuit in 2015 claiming FDCPA and Fifth Amendment due process violations. The district court granted summary judgment in favor of the defendant, ruling that the defendant was not a debt collector subject to the FDCPA and was not subject to due process because it was not a state actor.

    On appeal, the 9th Circuit agreed with the district court, concluding that while the defendant satisfied the general criteria for debt collectors because it regularly collected debts that were owed to someone else, the defendant qualified for an exception because its debt collection activities were “incidental to a bona fide fiduciary obligation.” Specifically, the appellate court held that “incidental to” a fiduciary obligation meant that debt collection could not be the “sole or primary” reason the judgment had been assigned to the defendant. The appellate court explained that the defendant had a broader role beyond the collection of debts, because it had also accepted recordkeeping and administrative duties. Finally, concerning the borrower’s argument that the defendant had “arbitrarily and maliciously” garnished his benefits in violation of his due process rights, the 9th Circuit concluded that there was no due process violation because the defendant (i) had provided the borrower with a notice of the debt and its intention to recover the claim from his Social Security benefits; (ii) the notice was sent to the correct address; and (iii) the defendant’s misstatement that the debt arose from one loan rather than the total of three loans was not a due process violation.

    Courts Appellate Ninth Circuit Student Lending Debt Collection Department of Education FDCPA

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