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FTC, Florida issue TRO against rate-reduction operation
On July 16, the FTC and the Florida attorney general announced that the U.S. District Court for the Middle District of Florida granted a temporary restraining order against an allegedly fraudulent credit card interest rate reduction operation. According to the complaint, the operation violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices act by targeting “financially distressed consumers and older adults” through telemarketing phone calls promising to substantially reduce their credit card interest rates and charging consumers upfront fees, ranging from $995 to $3,995. The operation typically charged the fees “during, or immediately following, the telemarketing call, often by using remotely created payment orders” against the consumer’s checking account or credit card. The complaint asserts that consumers often did not receive permanently reduced credit card interest rates, nor did they save “thousands of dollars on their credit card debt,” as promised. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, restitution, and civil money penalties.
9th Circuit: FCRA claim cannot prevail without first providing notice of disputed information
On July 14, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a group of defendants, including a credit reporting agency (CRA) and furnisher, after determining that a consumer plaintiff failed to adequately notify the CRA of an error on her credit report. According to the opinion, the plaintiff questioned the accuracy of certain information on her credit report and requested that these inaccuracies be investigated. Defendants investigated and corrected the inaccuracies and informed the plaintiff that if she further disputed the accuracy of the reported information, she could submit additional documentation to support her claim. Plaintiff continued to believe her credit report contained inaccuracies; specifically, she contended that the CRA was misreporting the date on which her bankruptcy was discharged. But rather than notify the CRA, she instead filed suit in federal district court alleging violations under the FCRA. The defendants filed for summary judgment which the district court granted, concluding that while “the date of the bankruptcy may have continued to be misreported after the conclusion of the reinvestigation,’ there was no genuine dispute of material fact on whether [the plaintiff] notified [the CRA] of that specific reporting error.” The 9th Circuit agreed, starting that because the plaintiff failed “to provide adequate notice of this reporting error” the scope of the defendants’ duties were limited. Moreover, the 9th Circuit held that a consumer cannot prevail on a “FCRA claim without first putting the [CRA] on notice of the information that is disputed.”
District court denies interlocutory appeal request in escrow interest action
On July 9, the U.S. District Court for the District of Maryland denied a national bank’s request for interlocutory appeal of the court’s February decision denying the bank’s motion to dismiss an action, which alleged that the bank violated Maryland law by not paying interest on escrow sums for residential mortgages. As previously covered by InfoBytes, after the bank allegedly failed to pay interest on a consumer’s mortgage escrow account, the consumer filed suit against the bank alleging, among other things, a violation of Section 12-109 of the Maryland Consumer Protection Act (MCPA), which “requires lenders to pay interest on funds maintained in escrow on behalf of borrowers.” The court rejected the bank’s assertion that the state law is preempted by the National Bank Act (NBA) and by the OCC’s 2004 preemption regulations. The court concluded that under the Dodd-Frank Act, national banks are required to pay interest on escrow accounts when mandated by applicable state or federal law.
The bank subsequently moved for an interlocutory appeal. In denying the bank’s request, the court explained that there was not a difference of opinion among courts as to whether the NBA preempts Maryland’s interest on escrow law. Specifically, the court noted that its “conclusion aligns with the only other two courts that have examined [the] particular question,” citing to the U.S. Court of Appeals for the Ninth Circuit’s decision in Lusnak v Bank of America and the Eastern District of New York’s decision in Hymes v. Bank of America (covered by InfoBytes here and here, respectively). After finding there is no “difference of opinion as to any ‘controlling legal issue,’” the court concluded the motion failed to satisfy the requisite elements for an interlocutory appeal.
3rd Circuit: Arbitration clause limiting borrowers’ statutory rights is unenforceable
On July 14, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s denial of defendants’ motion to compel arbitration, holding that an arbitration clause contained within an online tribal lender’s payday loan agreement impermissibly strips borrowers of their right to assert statutory claims and is therefore unenforceable. Specifically, because this “limitation constitutes a prospective waiver of statutory rights,” the lender’s arbitration agreement “violates public policy and is therefore unenforceable.” The plaintiffs filed a putative class action contending that they obtained payday loans from the lender, which included annual interest rates between 496.55 percent to 714.88 percent—an alleged violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) and various Pennsylvania consumer protection laws. The defendants moved to compel arbitration. The district court denied the defendants’ arbitration request, ruling that “the arbitration agreement was unenforceable because the arbitrator is permitted only to consider tribal law,” and, therefore, the arbitrator could not consider any of plaintiffs’ federal or state law claims. The 3rd Circuit agreed, rejecting, among other things, the defendants’ argument that the plaintiffs could bring RICO-like claims under tribal law and possibly receive “similar relief.” The appellate court noted: “The question is whether a party can bring and effectively pursue the federal claim—not whether some other law is a sufficient substitute.”
CFPB takes action against student debt-relief operation
On July 13, the CFPB filed a complaint in federal district court against a nationwide student loan debt-relief business—consisting of two companies, their owners, and four attorneys—for allegedly charging thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). According to the complaint, filed in the U.S. District Court for the Central District of California, the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The attorney agreement typically provided for “a fee, typically 40 [percent] of the outstanding debt, to be paid by monthly installments, along with a processing fee that costs an additional $10 per month.” The business allegedly charged the fees before the consumer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees.
On August 17, the court approved stipulated final judgments with four of the defendants (one company owner and three of the attorneys, here, here, and here). The company owner is permanently banned from providing debt-relief services or engaging in telemarketing of any consumer financial product or service, and is required to pay $25,000 in partial satisfaction of a suspended $11.8 million in redress. Similarly, the three attorneys are each banned from providing debt-relief services and required to pay $5,000, $21,567, and $30,000 each in partial satisfaction of various redress amounts. Additionally, the judgments impose a civil money penalty of $1 against each defendant.
District court allows data breach claim to proceed against national credit reporting agency
On July 8, the U.S. District Court for the Eastern District of New York allowed a consumer’s claim under New York’s consumer protection law (N.Y. G.B.L. § 349) to proceed against a national credit reporting agency (CRA) for grievances stemming from a 2017 data breach that compromised the consumer’s personal information. According to the opinion, the consumer alleged that the CRA, among other things, failed to “implement security and privacy measures to safeguard plaintiff’s sensitive information and misrepresented to him that his personal data would be protected from outside threats.” The CRA had previously entered into a class action settlement concerning the data breach and resolved hundreds of data breach cases brought against the company; however, the consumer opted out of that nationwide class action. The CRA moved to dismiss the consumer’s action, arguing, among other things, that data breach claims are not actionable under N.Y. G.B.L. § 349. While the court granted the CRA’s motion as to the consumer’s FCRA claim, the court denied the CRA’s request to dismiss the consumer’s claim under N.Y. G.B.L. § 349. Specifically, the court concluded that the consumer plausibly alleged the CRA misrepresented its ability to protect the consumer’s personal information, which “resulted in actual and pecuniary harm after [the consumer]’s identity was stolen and numerous unauthorized accounts were opened under his name.” The court distinguished this claim from the consumer’s FCRA claim, which asserted the CRA failed to “shield” the consumer’s information from the hackers, whereas the N.Y. G.B.L. § 349 claim rests on the CRA’s representations of protection.
Supreme Court to review FHFA structure, FTC restitution, and TCPA autodialing
On July 9, the U.S. Supreme Court agreed to review the following cases:
- FHFA Constitutionality. The Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s en banc decision in Collins. v. Mnuchin (covered by InfoBytes here), which concluded that the FHFA’s structure—which provides the director with “for cause” removal protection—violates the Constitution’s separation of powers requirements. As previously covered by a Buckley Special Alert last month, the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. The Court further held that the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute.
- FTC Restitution Authority. The Court granted review in two cases: (i) the 9th Circuit’s decision in FTC V. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
- TCPA Autodialer Definition. The Court agreed to review the U.S. Court of Appeals for the Ninth Circuit’s decision in Duguid v. Facebook, Inc. (covered by InfoBytes here), which concluded the plaintiff plausibly alleged the social media company’s text message system fell within the definition of autodialer under the TCPA. The 9th Circuit applied the definition from their 2018 decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list. The 2nd Circuit has since agreed with the 9th Circuit’s holding in Marks. However, these two opinions 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).
CFPB settles claims with debt relief executive
On July 7, a settlement was reached with another of the defendants in an action taken by the CFPB against a mortgage lender and several related individuals and companies (collectively, “the defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January in the U.S. District Court for the Central District of California claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education. An $18 million settlement was reached with several of the defendants in May (covered by InfoBytes here).
The settlement reached with the chief operating officer/part-owner of one of the defendant companies requires the defendant to pay $25,000 of a $7 million settlement—of which the full payment will be suspended provided several obligations are fulfilled. The defendant, who neither admits nor denies the allegations, is permanently banned from providing debt relief services and from accessing, using, or obtaining “prescreened consumer reports” for any purpose. The defendant is also prohibited from using or obtaining consumer reports for any business purposes aside from “underwriting or otherwise evaluating mortgage loans.” The defendant is further required to, among other things, (i) pay a $1 civil money penalty; (ii) comply with reporting requirements; and (iii) fully cooperate with any other investigations.
District court preliminarily approves $6.8 million TCPA settlement
On July 6, the U.S. District Court for the Eastern District of California granted preliminary approval to a nearly $6.8 million settlement between class members and a collection agency that allegedly violated the TCPA, FDCPA, and California’s Rosenthal Fair Debt Collection Practices Act by making calls using an autodialer or prerecorded voice in an attempt to collect purported debts. The lead plaintiff filed a proposed class action suit in 2016 against the collection agency claiming he received at least 25 calls to his cell phone even though he never consented to receiving such calls in the first place and had instructed the collection agency to stop calling him.
According to the court’s order, the settlement consists of two sub-classes: (i) one class of individuals from anywhere in the U.S. who subscribed to call management applications and received automated calls from the defendant without providing the proper consent; and (ii) another class of individuals living in California who received automated calls from the defendant regarding their purported debts. The terms of the settlement provides for a $1.8 million cash fund and requires the forgiveness of nearly $5 million in outstanding debts for class members with existing accounts owned by either the collection agency or one of its affiliates.
District court dismisses False Claims Act suit at DOJ’s request
On July 2, the U.S. District Court for the Southern District of New York dismissed a False Claims Act suit against a British bank accused of allegedly engaging in banking practices that violated U.S. sanctions against Iran. The bank had entered into deferred prosecution agreements in 2012 and 2019 with the DOJ and agreed to pay penalties to federal and New York authorities to resolve allegations that it had facilitated U.S. dollar transactions for Iranian entities in violation of U.S. sanctions and various New York and federal banking regulations. According to the whistleblower’s suit, the bank mislead the DOJ when negotiating the 2012 deferred prosecution agreement, and allegedly continued to engage in sanctions-violating conduct, “notwithstanding their representations to the [DOJ] that they had thereafter ceased doing so.” The DOJ twice declined to intervene in the case and moved to dismiss, arguing that it was “meritless” and that continuing to discovery would waste government resources. The whistleblower countered that the DOJ “failed to properly investigate its contentions,” but the court determined that this argument was “insufficient to transform the Government’s decision into one that is arbitrary and capricious.” In reaching its decision, the court determined that it did not need to adopt a specific standard, stating, “[l]ike other courts in this [d]istrict to have considered this question, the [c]ourt concludes that it need not definitively determine the appropriate standard of review to resolve this case.” According to the court, this “is because the Government has carried its burden even under the more searching. . .standard” outlined by the U.S. Court of Appeals for the Ninth Circuit in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., which requires the DOJ to identify “‘a valid government purpose’ and ‘a rational relation between dismissal and accomplishment of the purpose.’”