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On February 16, the U.S. Court of Appeals for the D.C. Circuit denied a petition for an en banc rehearing of its December 2017 ruling affirming the dismissal of a False Claims Act suit against a national bank. The petition resulted from a 2013 lawsuit filed by a consumer against the bank, which alleged, among other things, that the bank falsely asserted that it had complied with certain obligations under the 2012 National Mortgage Settlement (the “Settlement”). The district court dismissed the suit, finding that the consumer lacked standing because he did not exhaust the required dispute resolution procedures contained in the Settlement. In December 2017, the D.C. Circuit affirmed the dismissal but disagreed with the lower court’s reasoning. According to the appellate opinion, the circuit court held that the consumer’s second amended complaint did not contain any allegedly false or deceptive statements made by the bank to the government-approved settlement monitor and that ultimately, “the decisive point is that the Monitor was aware of the practices and concluded that [the bank] was in compliance.”
On February 9, a federal judge for the U.S. District Court for the District of Montana denied a plaintiff’s motion for summary judgment, which sought to overturn the State of Montana’s statutory restrictions on robocalls. Among other things, the plaintiff—a Michigan-based political consulting firm that relies on automated calls to gather data—claimed the 1991 Montana statute violated its right to free speech under the First and Fourteenth Amendments of the United States Constitution by prohibiting automated sales and political campaign calls. However, the court ruled that the Montana statute is sufficiently narrowly tailored and is intended to preserve and protect residents’ “control over [their] property and personal choices regarding receipt of communications.” Exemptions to the ban, the court explained, can occur “if the permission of the called party is obtained by a live operator before the recorded message is delivered.” The narrow tailoring leaves “ample alternative (including all of the more traditional) channels of communication for the protected political speech.”
District judge rules financing contingency clause in retail installment contract does not violate TILA
On February 12, a federal judge in the U.S. District Court for the Eastern District of California held that a financing contingency clause in a retail installment contract (contract) did not violate the Truth in Lending Act (TILA). The clause provided that the dealership (defendant) could cancel the contract if it could not assign it to a financial institution on terms acceptable to the seller. According to the opinion, the plaintiff signed the contract with the defendant to purchase a car after being told she was approved for financing; however, the defendant later contacted the plaintiff and informed her that it was unable to assign her loan to a third party bank and demanded that she “return to the dealership with a co-signor or surrender the [v]ehicle.” The plaintiff asserted that “she never received a written notice explaining why [the] defendant [had] revoked its extension of credit” or why it had cancelled the contract. Among other things, the plaintiff argued that the defendant’s actions violated (i) TILA when it inserted a seller’s right to cancel provision in the contract, and (ii) a “breach of ‘good faith and fair dealing obligation.’” However, with respect to TILA, the judge found no violation, holding that while TILA requires certain disclosures for the purpose of avoiding the “uninformed use of credit,” it does not prohibit the inclusion of financing contingencies. Here, the contract included all required elements under TILA and the properly disclosed credit terms were not rendered meaningless or invalid just because the dealership reserved a unilateral right to rescind the contract. The judge further dismissed the breach of good faith claim, noting that the defendant was acting within the allowed terms of the right to cancel provision.
On February 12, the U.S. Court of Appeals for the 3rd Circuit held that a collection letter offering a settlement on a time-barred debt could violate the prohibition against "any false, deceptive, or misleading representation or means in connection with the collection of any debt” of the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff filed a class action complaint against the debt collector after receiving a letter stating that the debt collector would accept a partial “settlement” of the delinquency amount, which was past the New Jersey six-year statute of limitations. The lower court granted the debt collector’s motion to dismiss, finding that the letter did not contain a threat of legal action by the use of the word settlement and therefore, did not violate the FDCPA. In reversing the lower court’s decision, the 3rd Circuit concluded that the “least-sophisticated debtor could be misled into thinking that ‘settlement of the debt’ referred to the creditor’s ability to enforce the debt.” In its conclusion, the appellate court also noted that settlement offers of time-barred debts “do not necessarily constitute deceptive or misleading practices” under the FDCPA and remanded the case back to the lower court for review.
On February 12, following a four-day trial, the U.S. Bankruptcy Court for the Western District of Virginia entered a memorandum opinion to sanction and enjoin a national consumer bankruptcy law firm and its local partner attorneys (defendants) for “systematically engag[ing] in the unauthorized practice of law, provid[ing] inadequate representation to consumer debtor clients, and promot[ing] and participat[ing] in a scheme to convert auto lenders’ collateral and then misrepresent[ing] the nature of that scheme.” According to a DOJ press release, the combined order was entered in two actions consolidated for trial brought by the DOJ’s U.S. Trustee Program. The actions concern a Chicago-based law firm that offered legal services via its website to financially distressed consumers and allegedly had “non-attorney ‘client consultants’” engage in the unauthorized practice of law and employ “high-pressure sales tactics” when encouraging consumers to file for bankruptcy relief. Among other things, the defendants allegedly (i) refused to refund bankruptcy-related legal fees to clients for whom the firm failed to file bankruptcy cases; (ii) failed to have in place oversight and supervision procedures to prevent non-attorney salespeople from practicing law; and (iii) partnered with an Indiana-based towing company to implement a scheme that would allow clients to have their bankruptcy-related legal fees paid if they transferred vehicles “fully encumbered by auto lenders’ liens” to the towing company without lienholder consent. Under the “New Car Custody Program,” the towing company allegedly claimed rights to the vehicles, sold the vehicles at auction, paid the client’s bankruptcy fees to the defendants, and pocketed the proceeds. According to the release, this program “harmed auto lenders by converting collateral in which they had valid security interests,” and exposed clients to “undue risk by causing them to possibly violate the terms of their contracts with their auto lenders as well as state laws.”
Under the terms of the order, the court sanctioned the defendants $250,000, imposed additional sanctions totaling $60,000 against the firm’s managing partner and affiliated partner attorneys, ordered the defendants to disgorge all funds “collected from the consumer debtors in both bankruptcy cases,” and revoked the defendants’ privileges to practice in the Western District of Virginia for various specified periods of time. The court also sanctioned the towing company and “ordered the turnover of all funds it received in connection” with the program. The towing company did not respond to the filed complaints.
On February 12, a judge for the U.S. District Court for the Western District of Wisconsin held that a debt collection law firm could not compel a plaintiff to settle claims in arbitration because the law firm was not a party to the arbitration agreement it sought to enforce. According to the opinion, the plaintiff filed a proposed class action suit against the law firm and a credit card issuer for allegedly violating the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) by publishing the plaintiff’s credit score on a complaint to obtain payment filed with a local country circuit court. The plaintiff subsequently dismissed the claims against the credit card issuer after resolving the issues outside of the court. The law firm filed a motion to compel arbitration, arguing that it is a third party co-defendant of a claim subject to an arbitration provision, which covered the credit card issuer, cardholders, and third party co-defendants. In denying the motion to compel, the judge held that the law firm is not a co-defendant “at the only time that matters, which is when the court is deciding the motion to compel arbitration” because the credit card issuer is no longer a party to the lawsuit. The judge also noted that if the credit card issuer wanted an associated law firm to be covered by the arbitration provision, it could have used broader language in the agreement.
On February 8, a federal judge for the U.S. District Court of the Western District of Pennsylvania denied a debt collector’s motion to dismiss, concluding that the plaintiffs are not precluded from bringing the claims against the debt collector even though the plaintiffs previously settled similar claims with the lender and loan servicer for their maximum recovery amounts under the Fair Debt Collection Practices Act (FDCPA). According to the third amended complaint, a pair of named plaintiff homeowners, defaulted on their mortgages in 2010 and worked out a new payment plan with their lender; however, they continued to receive conflicting foreclosure communications from their lender, servicer, and an associated debt collector, which resulted in the payment of allegedly unauthorized fees and expenses. In 2011, the two homeowners filed class action claims against all three entities and in 2016, they settled one claim with the lender and three claims with the servicer.
In response to the third amended complaint, the debt collector filed a motion to dismiss the remaining class claim, which includes “all former or current homeowners” who received communications from the debt collector demanding foreclosure fees and costs that had not yet been incurred. The debt collector argued, among other things, in its dismissal motion that the plaintiffs are not entitled to any further damages for the alleged FDCPA violations because they previously exhausted the $1,000 maximum penalty per borrower permitted by the FDCPA by settling with the mortgage servicer. In denying the motion, the judge disagreed with the debt collector’s argument, noting that it cannot be assumed the settlement with the mortgage servicer was an admission of liability under the FDCPA; therefore, the judge reasoned, the court cannot credit the debt collector “with the full impact of the [servicer’s] settlement funds that maybe were (or maybe were not) allocated to that specific FDCPA claim.” The judge also noted that there is a “major split” on this issue among U.S. district courts.
On January 29, the U.S. District Court for the Western District of Pennsylvania granted a motion to compel arbitration, finding that an arbitration clause set forth under extension agreements with an automobile finance company to refinance and extend the plaintiff’s loan obligation is “valid and enforceable.” Additionally, the court ruled that alternative motions to dismiss filed by other defendants were moot, and then stayed and administratively closed the matter pending the resolution of the claims subject to arbitration. The plaintiff alleged violations of her Fourth and Fourteenth Amendment rights, the Fair Debt Collections Practices Act, and several other state and federal credit statutes, when defendants—including the automobile finance company—repossessed her vehicle despite having signed extension agreements. In response to the defendants’ assertion that her claims were subject to the arbitration clause, the plaintiff argued that the extension agreements were unenforceable due to the unavailability of the “designated arbitrators,” and that defendants were barred from trying to obtain “alternative relief” by relying on additional terms outlined in a second extension agreement that released defendants from liability. However, the court ruled that the plaintiff’s failure to dispute the scope of the arbitration clause meant that the defendants were “entitled to enforcement of the arbitration clause with respect to all claims and defenses asserted,” so long as the designated arbitrators are available.
On January 31, the Superior Court of New Jersey Appellate Division affirmed the lower court’s decision that a widower (plaintiff) should have raised improper foreclosure allegations during the final foreclosure action and cannot subsequently litigate the issues in a different forum. According to the opinion, in 2009, the bank initiated a foreclosure complaint against the plaintiff’s husband (borrower) and the borrower raised no defenses to the complaint. The borrower then initiated a modification request, which the bank ultimately denied due to title liens, and a final foreclosure judgment was entered at the end of 2010. The borrower filed an appeal to the foreclosure action but the plaintiff ultimately withdrew it after the borrower died. The current litigation was filed after the final foreclosure judgment was entered and asserted, among other things, that the foreclosure was improper due to the modification curing the default. The lower court dismissed two of the plaintiff’s claims because she was not a party to the original mortgage or modification attempt and granted summary judgment for the bank on the remaining claims because the “issue of the enforceability of the 2010 loan modification agreement is at the heart of plaintiff's claims and was directly related to the foreclosure action and should have been raised as part of that litigation.” The appeals court agreed with the lower court’s reasoning noting that the plaintiff “attempted to litigate the same issue in two forums.”
On January 26, the U.S. Court of Appeals for the 10th Circuit affirmed a District Court’s decision dismissing a consumer’s claim that, under the Fair Credit Billing Act (FCBA), two credit card providers (collectively, defendants) must refund his accounts after a merchant failed to deliver goods purchased using credit cards issued by the defendants. The FCBA allows consumers to raise the same claims against credit card issuers that can be raised against merchants, but limits such claims to the “amount of credit outstanding with respect to [the disputed] transaction.” According to the opinion, the consumer ordered nearly $1 million in wine from a merchant and prior to delivery of the complete order, the merchant declared bankruptcy. The consumer filed lawsuits against each credit card provider in the U.S. District Court for the District of Colorado seeking a refund to his credit accounts for the amounts of the undelivered wine. The District Court dismissed the suits against both defendants because the consumer had fully paid the balance on his credit cards. In affirming the District Court’s decision, the 10th Circuit concluded that because “‘the amount of credit outstanding with respect to’ the undelivered wine is $0” the consumer had no claim against the defendants under the FCBA.
- Kathryn L. Ryan and Jedd R. Bellman to discuss “Risk and compliance management: Are you covered?” at a Mortgage Bankers Association webinar
- Melissa Klimkiewicz and Daniel A. Bellovin to discuss “Things to know about flood insurance” at a NAFCU webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Max Bonici will moderate a panel on “Enforcement risk and other regulatory and compliance issues related to crypto and digital assets” at the American Bar Association’s 2022 Annual Meeting
- John R. Coleman to provide a “CFPB Update” at MBA’s 2022 Regulatory Compliance Conference
- Amanda R. Lawrence to discuss “The shifting data privacy and data protection landscape” at MBA’s 2022 Regulatory Compliance Conference
- Jeffrey P. Naimon to provide “An update on key fair lending cases and the CRA and UDAAP rules” at MBA’s 2022 Regulatory Compliance Conference
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar
- James C. Chou to discuss ransomware at NAFCU’s Regulatory Compliance & BSA seminar