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6th Circuit: Rooker-Feldman doctrine does not apply to state court writs of garnishment
On February 26, the U.S. Court of Appeals for the Sixth Circuit reversed a district court’s decision dismissing a group of borrowers’ claims against a number of creditors and their law firms (defendants) for allegedly violating the FDCPA by charging an improper amount of post-judgment interest when trying to recover unpaid debt. According to the opinion, the consumers defaulted on their credit accounts and were sued by the defendants for unpaid debts. Judgments were awarded against the plaintiffs in Michigan state court, and the law firms representing the financial institutions obtained writs of garnishment against the plaintiffs. The plaintiffs filed a lawsuit in federal district court contending that the defendants allegedly applied an “impermissibly high interest rate” of 13 percent to the debt in violation of the FDCPA and state law. The district court dismissed the action on the grounds that it lacked subject matter jurisdiction based on the Rooker-Feldman doctrine.
On appeal, the 6th Circuit discussed the applicability of the Rooker-Feldman doctrine, which prohibits lower federal courts from reviewing state court civil judgments. The 6th Circuit concluded that the doctrine applies only when a state court renders a judgment, and not to “‘ministerial’ actions by court clerks.” In this case, the writs of garnishment were not state-court judgments that the debtors sought to have reviewed in federal court, but were rather “the result of a ‘ministerial process’. . . in which the clerk of the court has a nondiscretionary obligation to issue the writ if the request ‘appears to be correct.’” Moreover, even if the writs of garnishment were state court judgments, the plaintiffs’ alleged injuries did not stem from the writs of garnishment themselves, but rather from the post-judgment interest rate the defendants improperly included in the calculation of costs.
CFPB agrees to publish small-business data proposal by September
On February 26, the U.S. District Court for the Northern District of California approved a stipulated settlement between plaintiffs, including the California Reinvestment Coalition (CRC), and the CFPB to resolve a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act. As previously covered by InfoBytes, the plaintiffs argued that the Bureau’s failure to implement Section 1071—which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses—violates two provisions of the Administrative Procedures Act, and has harmed the CRC’s ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color.
Under the terms of the settlement, the Bureau has agreed to outline a proposal for collecting data and studying discrimination in small-business lending by September 15, and will also create a Small Business Advocacy Review panel by October 15 to prepare a report on the proposal within 60 days. The Bureau and the plaintiffs will also negotiate the deadlines for issuing the proposed rule, and, if an agreement cannot be reached, the parties will accept a court-supervised process for public reporting as well as for the development and issuance of the proposed and final rules.
Last November, the Bureau held a symposium covering small business lending and Section 1071. (Covered by InfoBytes here.) At the time, Director Kathy Kraninger noted in her opening remarks that the symposium would assist the Bureau with information gathering for upcoming rulemaking and emphasized that the Bureau is focused on a rulemaking that would not impede small business access to credit by imposing unnecessary costs on financial institutions.
District court approves $18.5 million “rent-a-tribe” payday loan settlement
On February 25, the U.S. District Court for the Eastern District of Virginia granted preliminary approval of an $18.5 million class action settlement to resolve allegations including violations of the Racketeer Influenced and Corrupt Organizations Act, state usury and lending laws, and unjust enrichment against a financial technology company and a tribal corporation (defendants). According to the complaint, the company evaded state law usury limits by attempting to use the sovereignty of an Indian tribe (“rent-a-tribe”) in order to issue payday loans carrying annual percentage interest rates as high as 460 percent. While the defendants have denied any wrongdoing, they have agreed to, among other things, (i) cancel loans originated during the class period “on the basis that the debt is disputed”; (ii) no longer sell any outstanding loans and cease all collection activity; (iii) contact all consumer reporting agencies to request the permanent removal of any missed payment marks on loans originated during the class period; (iv) no longer sell class members’ personal identifying information to third parties; and (v) establish an $18.5 million fund to go towards costs, service awards, attorneys’ fees, and cash awards to class members.
Hospitality company’s bid to dismiss data breach suit denied
On February 21, the U.S. District Court for the District of Maryland denied an international hospitality company’s motion to dismiss multidistrict litigation resulting from its 2018 data breach. As previously covered by InfoBytes, the court also recently denied the company’s motion to dismiss in a suit brought by the city of Chicago as well as in a suit brought by a group of banks, both based on the same data breach of the company. The plaintiffs in this instance filed suit following the data breach, which exposed personal information including passport numbers and payment card numbers. The company argued, however, that the plaintiffs lacked standing and that they did not state a claim for which relief could be granted.
In the opinion, the court determined that the plaintiffs had successfully established injury-in-fact by claiming, among other things, that (i) plaintiffs’ personal information was targeted in the data breach and some plaintiffs were victims of identity theft, which “makes the threatened injury sufficiently imminent”; (ii) plaintiffs had spent time and money to mitigate harm from the data breach; and (iii) plaintiffs’ personal information lost value. The court also found that the company’s failure to properly secure the plaintiffs’ personal data could be traced to fraudulent accounts opened in certain plaintiffs’ names. In addition, the court denied the company’s motion to dismiss state negligence claims, contract claims, tort claims, and statutory claims in California, Florida, Georgia, Maryland, Michigan, New York, and Oregon. The court did, however, dismiss the plaintiffs’ negligence claims under Illinois law.
District court rejects bank’s bid to dismiss NSF suit
On February 19, the U.S. District Court for the Southern District of West Virginia denied a bank’s motion to dismiss a putative class action suit alleging the bank violated account agreements by routinely assessing more than one “non-sufficient funds fee [(NSF)] for a single attempted transaction.” According to the order, the plaintiff filed a lawsuit asserting various claims, including for breach of contract, unjust enrichment, and deceptive business practices in violation of the West Virginia Consumer Credit and Collection Act (WVCCCA) due to the bank’s alleged practice of charging multiple $36 NSF fees when customers try to make a purchase but are declined due to insufficient funds. The plaintiff claimed that the bank’s failure to clearly alert customers of its practice of charging more than one NSF fee “for a single transaction . . . is confusing or misleading conduct” and “an unlawful practice under the WVCCCA.” The bank moved to dismiss the claims, arguing among other things, that the plaintiff’s 2012 account agreement contained an arbitration clause and that federal law preempts the plaintiff’s state-law claims regarding fees imposed by national banks.
The court first disagreed with the bank on the matter of arbitration, stating that the arbitration clause contained in the 2012 account agreement may have been erased by updates the bank made in 2017 to the plaintiff’s account terms, which provided that the account would “be governed by the following terms and conditions” but omitted any mention of arbitration. As for preemption, the court ruled that the plaintiff’s state-law claims “are precisely the sort of claims that are not preempted by federal law.” (Emphasis in the original.) According to the court, “the proposition that ‘state law claims challenging fees imposed by national banks are expressly preempted by federal law’ is as overbroad as it is incorrect.” Furthermore, the court noted that the plaintiff’s “own principal citation makes this point clearly, noting that ‘it is . . . well established that true breach of contract and affirmative misrepresentation claims’—both state law torts—‘are not federally preempted.’” In addition, the court determined that it is unclear whether the bank’s account agreement governing the bank’s relationship with the customer authorized it to charge successive NSF fees per transaction. The court also concluded that it was not clear that the NSF fees could legally constitute billing errors—a contention made by the bank in its argument that the case was time-barred because the plaintiff failed to dispute the additional NSF fees within the 60-day window to challenge a billing error as permitted under the Electronic Funds Transfer Act. Explaining its reasoning, the court noted that it “struggles to conceive of a scenario in which a fee could be justified by a contract and assessed as a regular business practice, yet still be considered an ‘error’ within any reasonable definition of the word.”
CFPB, South Carolina, and Arkansas file charges in pension-advance scheme
On February 20, the CFPB, the South Carolina Department of Consumer Affairs, and the Arkansas attorney general filed a complaint in the U.S. District Court for the District of South Carolina against a South Carolina-based company and two of its managing partners (defendants) for allegedly violating the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by working with a series of broker companies that brokered contracts offering high-interest credit to disabled veterans and other consumers in exchange for the assignment of some of the consumers’ unpaid earnings, monthly pensions, or disability payments. Under federal law, agreements under which a person acquires the right to receive a veteran’s pension or disability payment are void, and South Carolina law—which governs these contracts—“prohibits sales of unpaid earnings and prohibits assignments of pensions as security on payment of a debt.”
The complaint alleges that the defendants substantially assisted broker companies that allegedly engaged in deceptive and unfair acts or practices through the marketing and administration of high-interest credit. (Covered by InfoBytes here.) The defendants’ alleged actions include: (i) “developing a pre-approval or risk-assessment process for the contracts and conducting underwriting”; (ii) “approving or denying consumers’ applications to enter into the transactions”; (iii) “directing and administering the execution of the contracts”; (iv) “serving as the payment processor for the initial lump-sum payment and fees”; and (v) “continuing to serve as the transactions’ payment processor, tracking and controlling the collection and distribution of consumers’ payments on the contracts.” In addition, the Bureau alleges, among other things, that the defendants provided substantial assistance to the broker companies’ deceptive misrepresentations that consumers could be subjected to criminal prosecution if they breached their contracts. In addition, the defendants also allegedly collected on contracts brokered by the broker companies that were void from inception “by initiating ACH debts to take payments from consumers’ bank accounts,” demanding payments through letters and other communications, and filing suit against consumers who failed to make payments.
The complaint seeks injunctive relief, restitution, damages, disgorgement, and civil money penalties.
7th Circuit: Dialing system that cannot generate random or sequential numbers is not an autodialer under the TCPA
On February 19, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s ruling that a dialing system that lacks the capacity to generate random or sequential numbers does not meet the definition of an automatic telephone dialing system (autodialer) under the TCPA. According to the 7th Circuit, an autodialer must both store and produce phone numbers “using a random or sequential number generator.” The decision results from a lawsuit filed by a consumer alleging a company sent text messages without first receiving his prior consent as required by the TCPA. However, according to the 7th Circuit, the company’s system—the autodialer in this case—failed to meet the TCPA’s statutory definition of an autodialer because it “exclusively dials numbers stored in a customer database” and not numbers obtained from a number generator. As such, the company did not violate the TCPA when it sent unwanted text messages to the consumer, the appellate court wrote.
Though the appellate court admitted that the wording of the provision “is enough to make a grammarian throw down her pen” as there are at least four possible ways to read the definition of an autodialer in the TCPA, the court concluded that while its adopted interpretation—that “using a random or sequential number generator” describes how the numbers are “stored” or “produced”—is “admittedly imperfect,” it “lacks the more significant problems” of other interpretations and is thus the “best reading of a thorny statutory provision.”
The 7th Circuit’s opinion is consistent with similar holdings by the 11th and 3rd Circuits (covered by InfoBytes here and here), which have held that autodialers require the use of randomly or sequentially generated phone numbers, as well as the D.C. Circuit’s holding in ACA International v. FCC, which struck down the FCC’s definition of an autodialer (covered by a Buckley Special Alert here). However, these opinions conflict with the 9th Circuit’s holding 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.
New York AG settles with student debt relief companies
On February 18, the U.S. District Court for the Southern District of New York approved a settlement between the State of New York and a student loan debt relief operation including five debt relief companies and one individual (defendants) in order to resolve allegations that the defendants violated the Telemarketing Sales Rule, the Federal Credit Repair Organizations Act, TILA, state usury laws, and various other state laws. As previously covered by InfoBytes, the New York attorney general brought the lawsuit in 2018 alleging that the defendants “engag[ed] in deceptive, fraudulent and illegal conduct…through their marketing, offering for sale, selling and financing” of debt relief services to student loan borrowers. The AG claimed that, among other things, the defendants allegedly (i) charged consumers who purchased the debt relief services illegal upfront fees; (ii) misrepresented that they were part of or working with the federal government; (iii) falsely claimed that fees paid by borrowers would be applied to borrowers’ student loan balances; and (iv) induced borrowers to enter into usurious financing contracts to pay for the debt relief services.
Under the terms of the agreement, the defendants—without admitting or denying the allegations—agreed to a judgment of $2.2 million, which will be suspended if the defendants promptly pay $50,000 to the State of New York and comply with all other provisions of the agreement. The defendants are also permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Additionally, the defendants must request that any credit reporting agency to which the defendants reported consumer information in connection with the student loan debt relief services remove the information from those consumers’ credit files. The defendants also agreed not to sell, transfer, or benefit from the personal information collected from borrowers. According to the settlement, six additional defendants were not included in the agreement and the AG’s case against them continues.
District court denies auto lender’s “de minimis” $4 million TCPA class action settlement
On February 14, the U.S. District Court for the Eastern District of Pennsylvania denied the approval of a proposed $4 million class action settlement in a TCPA case based on a “confluence of a number of negative factors,” including that the court believed the defendant—a subprime auto lender—would be able to withstand a significantly higher judgement to compensate consumers allegedly harmed by its use of an automatic telephone dialing system. The complaint alleged that the defendant allegedly placed automated and prerecorded phone calls to class members on their cellphones in violation of the TCPA. In 2018, the parties reached a preliminary settlement that would give each of the 67,255 class members who opted into the settlement roughly $35.
In denying the approval, the court cited three primary concerns with the proposed settlement: “first, the lack of information available to counsel to inform their view and advise the class of the strengths and weaknesses of the case given the early posture in which the parties reached agreement; second, the emphasis on [the defendant’s] inability to pay more than $4 million when no underlying financial information was provided to the class members, compounded by the [c]ourt’s belief, after in camera review of the financials, that this statement is inaccurate; and third, the [c]ourt’s skepticism that $4 million is a fair settlement in this case, given that it will result in a de minimis per claimant recovery of $35.30.” Arguing that “de minimis class action recoveries, such as TCPA recoveries, may not be worth the costs they impose on our judicial system,” the court also noted that the TCPA provides for a private right of action and statutory damages of $500 for each violation (or actual monetary loss—whichever is greater), and does not impose a cap on statutory damages in class actions. Moreover, the court argued that the $35.30 that each class member would receive would likely not even cover the cell phone bill for one class member for one month and is, among other things, “simply trivial in light of a possible recovery of $500.”
Indiana Supreme Court: Statute of limitations begins when lender exercises optional acceleration clause
On February 17, the Indiana Supreme Court reversed a trial court’s decision to dismiss a lender’s action as time-barred, holding that under the state’s two statutes of limitation, “a cause of action for payment upon a promissory note with an optional acceleration clause can accrue on multiple dates”—one of which “is when a lender exercises its option to accelerate before a note matures.” According to the opinion, the consumer executed a promissory note and mortgage in 2007 and stopped making payments in 2008. The note was subsequently transferred to the lender, and in 2016, the lender accelerated the debt and demanded payment in full. The lender sued to recover the note in 2017. The consumer argued that the claim was barred by a six-year statute of limitations for a cause of action upon a promissory note under Ind. Code Ann. § 34-11-2-9, and the trial court agreed, granting the consumer’s motion to dismiss. The Indiana Court of Appeals affirmed the decision, finding that the lender did not accelerate the debt within six years of the initial default, and clarified, on rehearing, that the relevant Uniform Commercial Code statute of limitations (Ind. Code Ann. § 26-1-3.1-118(a)) should also apply.
The Indiana Supreme Court reversed the trial court’s ruling, determining, among other things, that the six-year statute of limitations did not start running until the lender exercised the optional acceleration clause in 2016, which was well within the applicable statutes of limitations. “We find that. . .under either applicable statute of limitations, [the lender’s] claim is timely,” the Court wrote. “We thus reverse the trial court’s order dismissing [the lender’s] complaint and remand.”