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9th Circuit: Fannie Mae is not a consumer reporting agency under the FCRA
On January 9, the U.S. Court of Appeals for the 9th Circuit held that Fannie Mae is not a “consumer reporting agency” under the FCRA and therefore is not liable under the law. According to the opinion, homeowners attempted to refinance their current mortgage loan two years after completing a short sale on their prior mortgage. While shopping for the refinance, lenders used Fannie Mae’s Desktop Underwriting (DU) program to determine if the loan would be eligible for purchase by the agency. Three of the eight DU findings showed the loan would be ineligible due to a foreclosure reported for the homeowners within the last seven years, which was not true. The homeowners sued Fannie Mae alleging the agency violated the FCRA for inaccurate reporting. On cross motions for summary judgment, the lower court determined that Fannie Mae was liable under the FCRA for furnishing inaccurate information because the agency “acts as a consumer reporting agency when it licenses DU to lenders.”
On appeal, the 9th Circuit reviewed whether Fannie Mae was a consumer reporting agency under the FCRA and noted that the agency must “regularly engage[] in . . . the practice of assembling or evaluating” consumer information, which Fannie Mae argues it does not do. Specifically, the agency asserts that it simply provides software that allows lenders to evaluate consumer information. The appeals court agreed, concluding that Fannie Mae created the tool but the person using the tool is the person engaging in the act. The court reasoned, “[t]here is nothing in the record to suggest that Fannie Mae assembles or evaluates consumer information.” Moreover, the court noted, if Fannie Mae were found to be a consumer reporting agency, it would be subject to other FCRA duties to borrowers, which “would contradict Congress’s design for Fannie Mae to operate only in the secondary mortgage market, to deal directly with lenders, and not to deal with borrowers themselves.”
4th Circuit affirms jury’s verdict clearing student loan servicer in FCA suit
On January 8, the U.S. Court of Appeals for the 4th Circuit affirmed a federal jury’s unanimous verdict clearing a Pennsylvania-based student loan servicing agency (defendant) accused of improper billing practices under the False Claims Act (FCA). As previously covered by InfoBytes, the plaintiff—a former Department of Education employee whistleblower—filed a qui tam suit in 2007, seeking treble damages and forfeitures under the FCA. The plaintiff alleged that multiple state-run student loan financing agencies overcharged the U.S. government through fraudulent claims to the Federal Family Education Loan Program in order to unlawfully obtain 9.5 percent special allowance interest payments. Over the course of several appeals, the case proceeded to trial against the student loan servicing agency after the 4th Circuit held that the entity was “an independent political subdivision, not an arm of the commonwealth,” and “therefore a ‘person’ subject to liability under the False Claims Act.” The plaintiff appealed the jury’s verdict, arguing the court erred by excluding evidence at trial and failed to give the jury several of his proposed instructions.
On appeal, the 4th Circuit disagreed with the plaintiff, finding that the court correctly excluded the state audit, which determined the student loan servicer “failed its mission” with lavish spending on unnecessary expenses. The appeal court noted the audit was irrelevant to the only issue in the case: “Did [the servicer] commit fraud and file a false claim?” The appeals court also rejected the plaintiff’s jury instruction arguments, concluding that the court’s instructions substantially covered the substance of the plaintiff’s proposal and “sufficiently explained that the jury had to consider whether [the servicer’s] claims were ‘false or fraudulent.’”
Maryland appeals court holds HOAs may be vicariously liable under Maryland Consumer Protection Act
On December 21, 2018, the Maryland Special Appeals Court held that a homeowners association (HOA) is not shielded from liability under the Maryland Consumer Protection Act (MCPA) simply because the law firm used by the HOA to collect certain debts is exempt from the law. According to the opinion, after an HOA was awarded a judgment of over $3,000 against homeowners for unpaid fines, the homeowners filed an action against the HOA asserting violations of the MCPA and the Maryland Consumer Debt Collection Act (MCDCA), and the HOA responded by filing a third-party complaint against its law firm, arguing the firm agreed to indemnify it. The lower court granted summary judgment in favor of the HOA on the MCPA claim, holding that because the statute specifically exempts attorneys, the HOA cannot be held vicariously liable under the statute. Additionally, among other things, the lower court held the homeowners improperly used the MCDCA to dispute the validity of the debt and granted the HOA judgment as a matter of law.
The appellate court disagreed and held that the HOA is not shielded from liability under the MCPA solely because the law firm used to collect the debts is exempt from the statute. The court reasoned that a “debt collector should not be able to hire an attorney to engage in illegal debt collection practices on its behalf as a means of avoiding liability” under the MCPA. The court also vacated the lower court’s judgment in favor of the HOA on the MCDCA claims, concluding that the homeowners were challenging the HOA’s methods in filing liens in the collection of the debt, as opposed to disputing the validity of the debt itself.
District Court holds debt collector effectively stated account balance
On December 20, 2018, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a debt collector, holding the collection letters effectively stated the amount of the debt under the FDCPA. According to the opinion, a consumer received four collection letters from a debt collector stating an account balance of $794.67. The consumer sued the debt collector, alleging the letters were false, deceptive, or misleading and failed to effectively state the amount of the debt in violation of the FDCPA because, according to the terms in the creditor’s online sample agreement, the original creditor could have collected interest on post-charge off fees after the debt collector closed the account. Both parties moved for summary judgment. The court determined the collection letter at issue complied with the FDCPA because the debt collector “sought to collect only the amount due on the date it sent the letter” and was not “trying to collect the listed balance plus the interest running on it or other charges.” Moreover, the court rejected the consumer’s argument that the letter was false, deceptive, or misleading because it failed to include whether the creditor could charge additional interest or other fees on the original debt, determining the letter could not mislead or deceive an unsophisticated consumer. Specifically, citing the U.S. Court of Appeals for the 7th Circuit’s decision in Wahl v. Midland Credit Management, the court stated that a debt collector “need only request the amount it is owed; it need not provide whatever the credit-card company may be owed more than that.” Because a consumer of reasonable intelligence and basic financial knowledge would read the collection letter and determine that he or she owes $794.67, the court granted summary judgment in favor of the debt collector.
District Court: Privacy claims related to incentive compensation sales program can proceed
On December 31, 2018, the U.S. District Court for the District of Utah granted in part and denied in part a national bank’s motion to dismiss putative class action claims concerning the bank’s use of confidential customer information to open deposit and credit card accounts as part of its incentive compensation sales program. (See previous InfoBytes coverage here.) According to the court, the plaintiffs claiming accounts were opened in their name plausibly alleged that the bank benefited from an increase in the number of accounts and products, and disagreed with the bank that the misappropriation of name claim should fail because those plaintiffs’ names and identities had value beyond those of the general public. While the majority of the state claims and all federal claims were dismissed, the court allowed four state claims to remain, including invasion of privacy. However, the court requested that the parties address why it should not decline to exercise jurisdiction over the state law claims following the dismissal of all federal claims.
Additionally, the court dismissed claims brought by “Bystander Plaintiffs” who did not allege the opening of any unauthorized accounts in their names, or claim that their information was ever improperly used or accessed or that they were subject to improper sales practices. Because the Bystander Plaintiffs claimed only that they would not have opened accounts if bank employees had told them about the alleged issues, the court dismissed their claims for lack of Article III standing, reasoning that they did not allege any injury.
5th Circuit: Loan originators cannot be liable for loan servicers’ violations of RESPA loss mitigation requirements
On December 21, the U.S. Court of Appeals for the 5th Circuit held that a mortgage loan originator cannot be held vicariously liable for a loan servicer’s failure to comply with the loss mitigation requirements of RESPA (and its implementing Regulation X). According to the opinion, in response to a foreclosure action, a consumer filed a third-party complaint against her loan servicers and loan originator alleging, among other things, that the loan servicers had violated Regulation X’s requirement that a servicer evaluate a completed loss mitigation application submitted more than 37 days before a foreclosure sale. In subsequent filings, the consumer clarified that the claims against the loan originator were for breach of contract and vicarious liability for one of the loan servicer’s alleged RESPA violations. The district court dismissed both claims against the loan originator and the consumer appealed the dismissal of the RESPA claim.
On appeal, the 5th Circuit affirmed the dismissal for two independent reasons. First, the 5th Circuit noted it is well established that vicarious liability requires an agency relationship and determined the consumer failed to assert facts that suggested such a relationship existed. Second, in an issue of first impression at the circuit court stage, the court ruled that, as a matter of law, the loan originator could not be vicariously liable for its servicer’s alleged violations of RESPA, as the applicable statutory and regulatory provisions only impose loss mitigation requirements on “servicers,” and therefore only servicers could fail to comply with those obligations. The appellate court reasoned that Congress explicitly imposed RESPA duties more broadly in other sections (using the example of RESPA’s prohibition on kickbacks and unearned fees that applies to any “person”), but chose “a narrower set of potential defendants for the violations [the consumer] alleges.” The court concluded, “the text of this statute plainly and unambiguously shields [the loan originator] from any liability created by the alleged RESPA violations of its loan servicer.”
Maryland Court of Appeals holds state licensing requirement is a “statutory specialty” with 12-year statute of limitations
On December 18, the Court of Appeals of Maryland held that the licensing requirement, §12-302, of the Maryland Consumer Loan Law (MCLL) is a “statutory specialty” and causes of action under it are accorded a 12-year statute of limitations period. The decision results from a question of law posed to the appeals court by the U.S. District Court for the District of Maryland after consumers brought an action in the district court against a lender for alleged violations of the MCLL that occurred over three years before the lawsuit was filed. The lender claimed the action was time-barred under the state’s three-year general statute of limitations for civil actions, while the consumers argued the MCLL was an “other specialty,” which would provide a 12-year statute of limitations under state law. To answer the question, the appeals court applied a three-part test to determine whether the statute constituted an “other specialty”: (i) if the obligation sought to be enforced is imposed solely by statute; (ii) if the remedy pursued is authorized solely by statute; and (iii) if the civil damages sought are liquidated, fixed, or, by applying clear statutory criteria, are readily ascertainable. The appeals court analyzed the first and third prongs of the test as the parties agreed the second was not an issue. For the first prong, the court concluded that the MCLL’s licensing requirement was created and imposed solely by statute and not by common law. As for the third prong, the court agreed with the consumers that the need for fact-finding with regard to the monetary liability does not preclude “ready ascertainment.” Because all three elements of the test were satisfied, the court concluded the licensing requirement is a “statutory specialty” and is afforded a 12-year statute of limitations period.
District Court concludes company’s dialing system is not an autodialer under TCPA
On December 20, the U.S. District Court for the District of New Jersey granted a student loan company’s motion for summary judgment, holding that the plaintiff failed to establish the company’s phone system qualified as an automated telephone dialing system (autodialer) under the TCPA. The plaintiff alleged the company violated the TCPA by using an autodialer to call his cell phone without his prior express consent. Each party filed cross-motions for summary judgment with the plaintiff arguing that the company’s system “had the present capacity without modification to place calls from a stored list without human intervention.” The company disagreed with the plaintiff’s assertions, arguing that it used separate systems for land lines and cell phones, and that the system which dialed the cell phone “contains no features that can be activated, deactivated, or added to the system to enable autodialing.” Citing to the opinion of the U.S. Court of Appeals for the 3rd Circuit in Dominguez v. Yahoo (previously covered by InfoByres here), which held that it would interpret the definition of an autodialer as it would prior to the FCC’s 2015 Declaratory Ruling, the court noted that the term “capacity” in the TCPA’s autodialer definition refers to the system’s current functions, not its potential capacity. Because the plaintiff failed to establish that the system used to dial his cell phone had the “present capacity” to initiate autodialed calls without modifications, the court concluded the claim failed as a matter of law.
District Court orders mortgage company to pay $260,000 in civil money penalties for deceiving veterans about refinance benefits
On December 21, the U.S. District Court for the District of Nevada ordered a non-bank mortgage company to pay $268,869 in redress to consumers and a civil penalty of $260,000 in an action brought by the CFPB for engaging in allegedly deceptive lending practices to veterans about the benefits of refinancing their mortgages. As previously covered by InfoBytes, the CFPB had alleged that, during in-home presentations, the company used flawed “apples to apples” comparisons between the consumers’ mortgages and a Department of Veterans Affairs’ Interest Rate Reduction Refinancing Loan. According to the Bureau, the presentations misrepresented the cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month. In addition to the monetary penalties, the order prohibits the company from misrepresenting the terms or benefits of mortgage refinancing and requires the company to submit a compliance plan to the Bureau.
Kansas company agrees to $400,000 forfeiture in first U.S. BSA action against a broker-dealer
On December 19, the United States Attorney for the Southern District of New York announced it filed charges against a Kansas-based broker-dealer for allegedly willfully failing to file a suspicious activity report (SAR) in connection with the illegal activities of one of its customers in violation of the Bank Secrecy Act (BSA). According to the announcement, this is the first criminal BSA action ever brought against a U.S. broker-dealer. The allegations are connected to the actions of the broker-dealer’s customer, who was the owner of a Kansas-based payday lending scheme that was ordered to pay a $1.3 billion judgment for making false and misleading representations about loan costs and payments in violation of the FTC Act (previously covered by InfoBytes here). The U.S. Attorney alleges the broker-dealer, among other things, failed to follow its customer identification procedures, disregarded “red flags that were known prior to [the customer] opening the accounts,” and continued to ignore additional red flags that arose over time. Additionally, the U.S. Attorney alleges the broker-dealer failed to monitor transactions using its anti-money laundering (AML) tool, which led to numerous suspicious transactions going undetected and unreported until long after the customer was convicted at trial for his actions in the scheme.
Along with the announcement of the filing, the U.S. Attorney’s Office further stated it had entered into a deferred prosecution agreement with the broker-dealer in which it agreed to accept responsibility for its conduct, pay a $400,000 penalty, and enhance its BSA/AML compliance program.
The SEC also settled with the broker-dealer for the failure to file the SARs. The settlement requires the broker-dealer to hire an independent consultant to review its AML and customer identification program and implement any recommended changes. The independent consultant will monitor for compliance with the recommendations for two years.