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District Court allows usurious interest and TILA violation claims to proceed
On March 5, the U.S. District Court for the Eastern District of Arkansas denied a request for summary judgment by several defendant pawnbrokers and pawnshops concluding there exists “disputed general issues of material fact” concerning claims filed by two plaintiffs who entered into pawn-loan contracts with the defendants. Among other things, the plaintiffs alleged that the defendants violated Amendment 89 of the Arkansas Constitution (Amendment 89) and the Arkansas Deceptive Trade Practices Act (ADTPA) by charging usurious rates of interest, and violated ADTPA by making false statements on pawn loan contracts (pawn tickets). The plaintiffs additionally claimed that the defendants violated TILA by failing to identify creditors on the face of their pawn tickets.
In dismissing the defendants’ motion for summary judgment, the court determined that success of the claims hinged upon whether “the pawn transactions . . . are ‘loans’ charging usurious rates of interest under Arkansas law.” Specifically, genuine issues of material fact remained on: (i) whether the defendants knowingly entered into loans charging usurious interest because “the differences between traditional bank loans and pawn transactions . . . may not prevent the pawn transactions entered into by [the plaintiffs] from being classified as ‘loans’ under Arkansas law”; (ii) whether the plaintiffs were charged usurious interest or otherwise suffered damages under Amendment 89 or ADTPA as a result of the pawn transactions; (iii) whether the language on the pawn tickets stating that “the finance charge ‘is not interest for any purpose of the law,’” was a false statement in violation of the ADTPA; and (iv) whether the defendants’ failure to disclose the identity of the creditors on the pawn tickets is a violation of TILA, because, among other things, there remains a dispute as to whether the identified finance charges constitute as “credit,” and whether certain defendants qualify as “creditors” under TILA. Furthermore, the court rejected the defendants’ argument that they were entitled to summary judgment on the plaintiffs’ TILA claims “due to plaintiffs’ alleged failure to demonstrate detrimental reliance.”
Indiana Court of Appeals allows class action to proceed against dealership
On March 6, the Indiana Court of Appeals affirmed the lower court’s denial of an auto dealership’s motion to dismiss a proposed class action alleging the dealership violated the Indiana Deceptive Consumer Sales Act (the Consumer Act). According to the opinion, consumers filed the proposed class action alleging that the dealership charged document preparation fees that exceeded the actual costs incurred by the dealership for preparation and that the fees were not affirmatively disclosed or negotiated with the consumers. The proposed class action argued the charging of the fees was an “unfair, abusive, or deceptive act, omission, or practice in connection with a consumer transaction” under the Consumer Act and quoted a statutory provision from the Indiana Motor Vehicle Dealer Services Act (the Dealer Act). The dealership moved to dismiss the action, arguing there was no private right of action under the Dealer Act and that the consumers failed to state a claim for relief under the Consumer Act. The consumers conceded there was no private right under the Dealership Act, but noted the quoted reference was used to merely describe an unfair practice that is prohibited by the Consumer Act. The lower court denied the motion, concluding that the non-disclosure claim fell within the “catch-all” provision of the Consumer Act.
On appeal, the appellate court noted that in order to state a claim under the Consumer Act, the consumer must have alleged the dealership “committed an uncured or incurable deceptive act.” The appellate court acknowledged that the allegations that the dealership charged an unfair fee and “did not state its intention as part of the bargaining process” generally fell within the realm of the Consumer Act, and determined that, even without specifics, the complaint’s “general allegations of uncured and incurable acts are adequate to withstand dismissal.”
District Court dismisses FDCPA and TCPA claims against online retailer
On March 5, the U.S. District Court for the Southern District of New York granted an online retailer’s motion to dismiss an action alleging the retailer violated the FDCPA and the TCPA. According to the opinion, the plaintiff received a $300 credit line with the retailer for a laptop computer, which the plaintiff alleges he never received. The plaintiff alleges that the retailer continued to seek payment for the laptop and repeatedly contacted the plaintiff by phone after the plaintiff disputed the payment and informed the retailer to only communicate in writing. The retailor subsequently sent the plaintiff a letter acknowledging his request to only be contacted in writing, revoking prior consent to be contacted by phone. The plaintiff then filed the FDCPA and TCPA claims against the retailer after the plaintiff sought to collect $150,000 from the retailer for expenses defending against the retailer’s collection attempts, which the plaintiff argued the retailer “tacitly agreed” to pay. The retailer moved to dismiss the claims arguing the plaintiff failed to allege the retailer was a “debt collector” under the FDCPA and that the plaintiff failed to establish the retailer called the plaintiff without his prior consent under the TCPA. The court agreed, noting that the retailer had serviced the plaintiff’s account “well before” the plaintiff owed an actual debt and therefore, is not a debt collector under the FDCPA. As for the TCPA claim, the court found that the plaintiff failed to show the retailer called him after the parties agreed to revoke the prior consent. The court rejected the plaintiff’s argument that he had revoked consent prior to the retailer’s acknowledgment of the revocation, noting that a party cannot unilaterally revoke consent under the TCPA. Because the plaintiff failed to state plausible claims under the FDCPA and the TCPA, the court dismissed the action and denied the plaintiff leave to amend his complaint.
CFTC, SEC settle with foreign trading platform conducting Bitcoin transactions without proper registration
On March 4, the CFTC resolved an action taken against a foreign trading platform and its CEO (defendants) for allegedly offering and selling security-based swaps to U.S. customers without registering as a futures commission merchant or designated contract market with the CFTC. The CFTC alleged that the platform permitted customers to transact in “contracts for difference,” which were transactions to exchange the difference in value of an underlying asset between the time at which the trading position was established and the time at which it was terminated. The transactions were initiated through, and settled in, Bitcoin. The CFTC alleged that these transactions constituted “retail commodity transactions,” which would have required the platform to receive the proper registration.
According to the CFTC, the defendants, among other things, (i) neglected to register as a futures commission merchant with the CFTC; and (ii) failed to comply with required anti-money laundering procedures, including implementing an adequate know-your-customer/customer identification program. The consent order entered by the U.S. District Court for the District of Columbia imposes a civil monetary penalty of $175,000 and requires the disgorgement of $246,000 of gains. The consent order also requires the defendants to certify to the CFTC the liquidation of all U.S. customer accounts and the repayment of approximately $570,000 worth of Bitcoins to U.S. customers.
In a parallel action, the SEC entered into a final judgment the same day to resolve claims that, among other things, the defendants failed to properly register as a security-based swaps dealer. The defendants are permanently restrained and enjoined from future violations of the Securities Act of 1933 and are required to pay disgorgement of approximately $53,393. This action demonstrates the potential application of CFTC and SEC registration requirements to non-U.S. companies engaging in covered transactions with U.S. customers.
Proposed settlement would resolve claims in Madden v. Midland Funding, LLC
On March 1, plaintiffs filed a proposed class action settlement agreement with a debt collection firm in the U.S. District Court for the Southern District of New York, which would potentially end litigation dating back to 2011 concerning alleged violations of state usury limitations. The proposed settlement would resolve claims originally brought by the plaintiffs alleging that the defendants violated the FDCPA and New York state usury law when it attempted to collect charged-off credit card debt, purchased from a national bank, from borrowers with interest rates above the state’s 25 percent cap. As previously covered by InfoBytes, in 2015, the 2nd Circuit reversed the district court’s 2013 decision, and held that a nonbank entity taking assignment of debts originated by a national bank is not entitled to protection under the National Bank Act from state-law usury claims. This ruling contradicted the “Valid-When-Made Doctrine,” which is a longstanding principle of usury law that if a loan is not usurious when made, then it does not become usurious when assigned to another party. Following the U.S. Supreme Court’s decision to decline to hear the case, the district court issued a ruling in 2017 (covered by InfoBytes here) holding that New York’s fundamental public policy against usury overrides a Delaware choice-of-law clause in the plaintiff’s original credit card agreement. The court granted the plaintiff’s motion for class certification, and allowed the FDCPA and related state unfair or deceptive acts or practices claims to proceed. However, the court did not allow the plaintiff’s claims for violations of New York’s usury law to proceed, as it held that New York’s civil usury statute does not apply to defaulted debts and that the plaintiff cannot directly enforce the criminal usury statute.
Under the terms of the proposed settlement, the defendants are required to, among other things, (i) provide class members with $555,000 in monetary relief; (ii) provide $9.2 million in credit balance reductions; (iii) pay $550,000 in attorneys’ fees and costs; and (iv) agree to comply with all applicable laws, regulations, and case law regarding the collection of interest, including the collection of usurious interest.
District Court moves FDCPA credit inquiry action forward
On March 5, the U.S. District Court for the Northern District of Ohio denied a debt buyer’s motion to dismiss a consumer action alleging the company violated the FDCPA and the Ohio Consumer Sales Practices Act (OCSPA) by requesting a credit reporting agency account review after the alleged debt had been discharged in bankruptcy. According to the opinion, the consumer’s debts were discharged in November 2017 after a Chapter 7 bankruptcy, and in December 2017, the company requested an account review through a credit reporting agency for collection purposes. The consumer alleges the company violated the FDCPA and the OCSPA because the company could not legally collect on a debt that had already been discharged in bankruptcy. The company moved to dismiss the action arguing it was not a debt collector under the FDCPA nor was it a “supplier” under the OCSPA, but rather is merely a “passive debt purchaser” and only reviewed the report but took no further action, which does not qualify as collection conduct. The court disagreed, noting that it must accept the consumer’s allegations as true at this stage, and determined the allegations plausibly support her claim that the company is a debt collector under the FDCPA. Moreover, the court acknowledged that while the company only sought to receive information from the credit reporting agency, it did convey that the contact was for the purposes of collection. Therefore, the allegations by the consumer that the company violated the FDCPA for representing a debt was for collection when it was previously discharged were sufficient to survive the motion. As for the OCSPA, the court found that the company’s activities may effect consumer transactions, which makes it plausible that the company is a “supplier” under the statute.
4th Circuit: No waiver of sovereign immunity for lawsuits under the FCRA
On March 6, the U.S. Court of Appeals for the 4th Circuit held that Congress did not waive sovereign immunity for lawsuits under the FCRA, affirming the lower court’s dismissal of a consumer action. According to the opinion, a consumer filed a lawsuit against the U.S. Department of Education (the Department), a student loan company, and the three major credit reporting agencies, alleging numerous claims, including violations of the FCRA for failing to properly investigate disputes that federal student loans were fraudulently opened in his name. The Department filed a motion to dismiss to the FCRA claims against it arguing the court lacked subject matter jurisdiction based upon a claim of sovereign immunity. The lower court agreed, holding Congress had not affirmatively waived sovereign immunity for suits under the FCRA.
On appeal, the 4th Circuit agreed with the lower court. The appellate court noted that, although the FCRA includes a “government or governmental subdivision or agency” as part of the definition of “person” in the statute, there is a “longstanding interpretive presumption that ‘person’ does not include the sovereign,” and that waivers of sovereign immunity need to be “unambiguous and unequivocal.” The appellate court noted that Congress waived immunity in other sections of the FCRA, which were not at issue in this case and, had Congress waived immunity for enforcement purposes under the FCRA, it would raise a new host of “befuddling” and “bizarre” issues, such as the prospect of the government bringing criminal charges against itself. Therefore, the appellate court concluded that the federal government may be a “person” under the substantive provisions, but that without a clear waiver from Congress, the federal government is still immune from lawsuits under the FCRA’s enforcement provisions.
FTC announces new action and proposed settlement in DOJ elder abuse sweep
On March 7, the FTC announced a new legal action and a final settlement issued against individuals and their operations for allegedly engaging in schemes that exploit elderly Americans. The actions are part of an enforcement sweep spearheaded by the DOJ in conjunction with, among others, the FBI, the FTC, Immigration and Customs Enforcement’s Homeland Security Investigations, and the Louisiana Attorney General, which—according to a press release issued the same day by the DOJ—is the largest-ever coordinated nationwide elder fraud sweep, involving multiple cases, over 260 defendants, and more than two million allegedly victimized U.S. Citizens, most of whom are elderly.
According to the FTC’s complaint, the company used deceptive tactics to convince consumers, the majority of whom were older, that their computers were infected with viruses in order to sell expensive and unnecessary computer repair services in violation of the FTC Act, the Telemarketing Sales Rule, and the Restore Online Shoppers’ Confidence Act. Specifically, the company allegedly used internet ads to target consumers looking for email password assistance and once they contacted the consumers, the telemarketers would run phony “diagnostic” tests that falsely showed the consumer’s computer was in danger and needed software and services to be fixed. On February 27, the U.S. District Court for the Southern District of Utah, granted a temporary restraining order against the company and its founder.
The FTC also announced a proposed settlement with a sweepstake operation that allegedly bilked consumers out of tens of millions of dollars through personalized mailers that falsely implied that the recipients had won or were likely to win a cash prize if they paid a fee. As previously covered by InfoBytes, the FTC announced the charges against the company in February 2018, alleging that consumers, most of whom were elderly, paid more than $110 million towards the scheme. The final settlement not only requires the operation to turn over $30 million in assets and cash to provide redress to the victims, but also permanently bans the operators from similar prize promotions in the future. The proposed settlement has not yet been approved by the court.
HOLA preemption question moves to 9th Circuit
On February 27, the U.S. District Court for the Northern District of California granted a national bank’s request to certify for interlocutory appeal whether state law claims involving interest on escrow accounts were preempted by the Home Owners Loan Act (HOLA). As previously covered by InfoBytes, three plaintiffs filed suit against the bank, arguing that it must comply with a California law that requires mortgage lenders to pay interest on funds held in a consumer’s escrow account, following the U.S. Court of Appeals for the 9th Circuit’s decision in Lusnak v. Bank of America. The bank moved to dismiss the action, arguing, among other things, that the claims were preempted by HOLA. The court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan was transferred to a bank whose own lending is not covered by HOLA. Specifically, the court looked to the legislative intent of HOLA and noted it was unclear if Congress intended for preemption to attach through the life of the loan, but found a clear goal of consumer protection.
By granting the motion for interlocutory appeal, the court noted that the frequency with which the HOLA issue arises, “weighs in favor of allowing the Ninth Circuit to resolve this question.” Moreover, the court cited to a recent 9th Circuit case, in which the appellate court recognized HOLA preemption as a “novel legal issue.” The court also temporarily granted the bank’s request to stay the proceedings pending the resolution of the 9th Circuit action.
District Court denies motion to dismiss FDCPA statute of limitations claims
On March 5, the U.S. District Court for the Northern District of Illinois denied defendants’ motion to dismiss a class action lawsuit alleging the defendants violated the FDCPA by failing to mention that payment on a settlement offer would restart the statute of limitations on the underlying “legally unenforceable debt.” According to the opinion, the defendants sent the plaintiff a letter outlining three discount program payment options, with a post-script stating that “[d]ue to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau.” However, the plaintiff claimed that the letter’s failure to disclose that the statute of limitations could be restarted if a payment was made was a concrete information injury sufficient for Article III standing. The court rejected the defendants’ argument that the plaintiff alleged only a bare statutory violation and failed to identify a particularized injury in fact. Instead, the court ruled that even though the plaintiff has a complete defense because the statute of limitations had expired, the alleged injury is clear because the letter “seems to bait the consumer into paying money on a time-barred debt, either by settling for sixty cents on the dollar . . . or by unwittingly renewing the statute of limitations by making a new payment on the debt.”