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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.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.
FTC sues fuel card marketer for deceptive advertising and hidden fees
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.”
Internet provider and states agree to nearly $12.5 million for false advertising, hidden fees
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.”
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.
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.
Bank and Philadelphia reach $10 million settlement in redlining suit
On December 16, a national bank and the city of Philadelphia agreed to a $10 million settlement in a fair lending suit filed against a national bank in 2017 in the U.S. District Court for the Eastern District of Pennsylvania. The settlement resolves claims against the bank alleging violations of the Fair Housing Act, as previously covered in InfoBytes. Specifically, the city alleged that the bank engaged in discriminatory mortgage lending practices by placing minority borrowers in loans with less favorable terms than loans to similar non-minority borrowers. According to the complaint, these allegedly discriminatory loans increased foreclosure rates and resulted in falling property values, particularly in minority and low-income neighborhoods in Philadelphia. The empty properties and lower property values in turn reduced tax revenues and increased costs to the city to pay for municipal services including police, fire fighting, housing programs, and also maintenance for the growing number of empty properties. The court had previously denied the bank’s motion to dismiss, (prior InfoBytes coverage here), which argued, among other things, that the city had failed to show that the bank’s alleged lending practices were the proximate cause of the city’s harm.
FTC asks Supreme Court to delay review of $1.3 billion judgment
On December 13, the FTC filed a brief in a U.S. Supreme Court action that is currently awaiting the Court’s decision to grant certiorari. The question presented to the Court asks whether the FTC is empowered by Section 13(b) of the FTC Act to demand equitable monetary relief in civil enforcement actions. The petitioners, who include a Kansas-based operation and its owner, filed the petition for a writ of certiorari in October, appealing a December 2018 decision by the U.S. Court of Appeals for the Ninth Circuit (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme. Among other things, the 9th Circuit rejected the petitioners’ argument that the FTC Act only allows the court to issue injunctions, concluding that a district court may grant any ancillary relief under the FTC Act, including restitution. The 9th Circuit also rejected the petitioners’ request to revisit those precedents in light of the Court’s 2017 holding in Kokesh v. SEC—which limited the SEC’s disgorgement power to a five-year statute of limitations period applicable to penalties and fines under 28 U.S.C. § 2462 (previously covered by InfoBytes here)—concluding that the district court did not abuse its discretion in calculating the award. Additionally, the 9th Circuit referenced the Court’s statement in Kokesh that noted “[n]othing in [its] opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings.”
In response to the petition, the FTC asked the Court to delay reviewing the appeal, stating that the Court should hold the petition pending the disposition in a matter that was recently granted cert “to decide whether district courts may award disgorgement to the [SEC] under analogous provisions of the securities laws.” The FTC acknowledged that while the “relevant statutory schemes are not identical, and the FTC’s and the SEC’s authority to seek monetary relief will not necessarily rise and fall together,” the questions presented in both cases overlap.
Lawsuit says Prepaid Accounts Rule is “arbitrary and capricious”
On December 11, a payments company filed a lawsuit against the CFPB in the U.S. District Court for the District of Columbia alleging that the Bureau’s Prepaid Account Rule (Rule), which took effect April 1 and provides protections for prepaid account consumers, exceeds the agency’s statutory authority and is “arbitrary and capricious” under the Administrative Procedures Act (APA). The company further asserts that the Rule violates its First Amendment rights by requiring it to make confusing disclosures that contain categories not relevant to the company’s products. According to the complaint, the Rule mandates that the company send “short form” fee disclosures to customers that include references to fees for ATM balance inquiries, customer service, electronic withdrawal, international transactions, and other categories, and “prohibits [the company] from including explanatory phrases within the disclosure box to describe the nature of these fee categories.” These disclosures, the company asserts, have confused many customers who mistakenly believe the company charges fees to access funds stored as a balance with the company, to make a purchase with a merchant, or to send money to friends or family in the U.S. The company also claims that the Bureau erroneously lumped it into the same category as providers of general purpose reloadable cards (GPR cards), and argues that the Rule ignores how prepaid cards fundamentally differ from digital wallets, which has resulted in several unintended consequences.
The company asserts that the Rule is unlawful and invalid under the APA and the Constitution for three principal reasons:
- The Rule contravenes the Bureau’s statutory authority by (i) establishing a mandatory and misleading disclosure regime that is not authorized by federal law; and (ii) “impos[ing] a 30-day ban on consumers linking certain credit cards to their prepaid account—a prohibition the law nowhere authorizes the Bureau to impose.”
- Even if the Bureau possesses the statutory authority it claims to have, the rulemaking process was “fundamentally flawed” due to its one-size-fits-all Rule that misunderstands the different characteristics of digital wallets compared to GPR cards. By treating digital wallets as if they are GPR cards, the Rule violates the APA’s reasoned decision-making requirement. Additionally, the Rule is marked by “an insufficient cost-benefit analysis that failed to properly weigh the limited benefits consumers might derive from the Rule against the costs” stemming from the Rule’s changes.
- The Rule violates the First Amendment by failing to satisfy the heightened standard that a law or regulation “directly advances a substantial government interest” because it requires the company to makes certain disclosures that are irrelevant to its digital wallet product. Moreover, the Rule’s disclosure obligations “functionally impair the speech in which [the company] might otherwise engage” by mandating that it provide confusing and misleading disclosures about the nature of its offerings.
The complaint asks that the Rule be vacated and declared arbitrary, an abuse of discretion, not in accordance with the law, and unconstitutional, and additionally seeks injunctive relief, attorneys’ fees and costs.
Written request for HAMP assistance resets foreclosures limitations
On December 13, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s grant of summary judgement in favor of a bank and mortgage servicer defendants in an action brought by a consumer to prevent foreclosure of his property. According to the unpublished opinion, in 2016, the consumer, who was struggling with his mortgage payments, submitted loan modification requests on three occasions. In each request, the consumer provided written acknowledgment of the original debt and expressed his desire to pay in order to keep his property. The consumer asserted that Washington state law and the FDCPA prohibited the defendants from instituting foreclosure proceedings on his mortgage because the six-year statute of limitations for filing for foreclosure had expired. On appeal, the three judge panel rejected the consumer’s argument, determining that the limitation on filing for foreclosure had not run, explaining that because the consumer had not communicated to defendants “an intent not to pay,” and each of the modification requests acknowledged the debt in writing, the foreclosure statute of limitations period was restarted each of the three times he submitted his loan modification requests.