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Financial Services Law Insights and Observations

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  • California district court rules social media company cannot dismiss non-users’ facial scan privacy claims

    Courts

    On March 2, the U.S. District Court for the Northern District of California denied a motion to dismiss an action for lack of standing in a lawsuit brought under the Illinois Biometric Information Privacy Act (BIPA) against a social media company (defendant) for allegedly collecting and storing non-user facial scans. The action was similar to a consolidated class action lawsuit brought by users of the site in 2016. The court found that the factual difference between the two cases (one involving users and one involving non-users) was irrelevant for its Article III analysis. Citing to his February 26 decision (February decision) in the related case, the judge concluded that the abrogation of the plaintiffs’ procedural rights under BIPA, which allow users to control their biometric information, amounted to a concrete injury under Article III. As the court noted in the February decision: “BIPA vested in Illinois residents the right to control their biometric information by requiring notice before collection and giving residents the power to say no by withholding consent,” and that there is “equally little doubt . . . that a violation of BIPA’s procedures would cause actual and concrete harm.” The court rejected the defendant’s argument that it did not store non-users’ biometric information, stating that such factual evidence, which is disputed by the plaintiffs, goes to the merits of the case and cannot be weighed or resolved at the motion to dismiss stage.

    Courts Privacy/Cyber Risk & Data Security Class Action State Issues

  • Pennsylvania judge partially dismisses action against investors of an online lending scheme

    Courts

    On January 26, the U.S. District Court for the Eastern District of Pennsylvania partially dismissed an action brought by the Pennsylvania Attorney General against out-of-state investors of an online payday lender and the lender for violating Pennsylvania’s Corrupt Organizations Act (COA). The Attorney General alleged that an online payday lender and the investors “designed, implemented, and profited from a consumer lending scheme to circumvent the usury laws of states.” The alleged conduct, which the court referred to generally as “rent-a-bank” and “rent-a-tribe” schemes, involved the online lender partnering with an out-of-state bank and later with tribal nation to act as the nominal lenders of the loans. The investors moved to dismiss the claims against them, arguing that the court lacked personal jurisdiction over them and that the Attorney General failed to plead sufficient allegations with respect to the investors’ involvement in the “rent-a-bank” scheme. The court rejected the jurisdictional arguments, holding that even though the investors were a Delaware LLC with no physical connection to the state, their participation in a scheme targeting Pennsylvania consumers constituted sufficient minimum contacts. However, the court dismissed the “rent-a-bank” aspects of the complaint as to the investors because it found that the Attorney General failed to allege that they were anything more than passive investors in the scheme.

    Courts Payday Lending State Attorney General Jurisdiction Lending

  • 9th Circuit reverses lower court’s dismissal of TCPA claim

    Courts

    On February 28, the U.S. Court of Appeals for the 9th Circuit reinstated a consumer’s lawsuit against two banks on charges that the nearly 300 calls she received seeking payment of a debt may have violated the Telephone Consumer Protection Act (TCPA). The three-judge panel stated that the district court’s decision to dismiss the case on standing grounds was incorrect in light of a subsequent 9th Circuit ruling in a different case, which held that “a violation of the TCPA is a concrete, de facto injury.” The court further held that the TCPA is not limited to telemarketing calls, and that the unsolicited contact—“regardless of caller or content”—is evidence of “concrete harm” that can be traced back to the conduct at issue. Additionally, the panel also held that the district court erred in granting the banks’ request for summary judgment on the plaintiff’s claim under California’s Rosenthal Fair Debt Collection Practices Act and her claim for “intrusion upon seclusion,” finding that the banks’ actions “allegedly caused harm” to the plaintiff’s solitude. The court reversed and remanded the case for further proceedings.

    Courts Appellate Ninth Circuit TCPA Debt Collection

  • 9th Circuit holds California's interest on escrow requirements is not preempted by federal law

    Courts

    On March 2, the U.S. Court of Appeals for the Ninth Circuit held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. The case results from a 2014 lawsuit in which a consumer sued the national bank for refusing to pay interest on the funds in his mortgage escrow account as required by a California state law. The district court dismissed the action, holding that the California state law interfered with the bank’s ability to perform its business making mortgage loans and therefore, was preempted by the National Bank Act (NBA).

    In reversing the district court’s decision, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing NBA preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. The panel cited to Section 1639d(g)(3) of Dodd-Frank (“if prescribed by applicable State or Federal law, each creditor shall pay interest to the consumer on the amount held in any . . . escrow account that is subject to this section in the manner as prescribed by that applicable State or Federal law”), which, according to the opinion, expresses Congress’ view that the type of law at issue does not “prevent or significantly interfere with a national bank’s operations.” Moreover, the panel disagreed with the national bank’s reliance on the OCC’s 2004 preemption regulation, which interpreted the standard more broadly, by concluding that the regulation had no effect on the preemption standard. This decision could have significant implications for the rise of preemption by federally chartered banks.

    Courts U.S. Supreme Court Appellate Ninth Circuit Mortgages Escrow Preemption National Bank Act Dodd-Frank OCC

  • Judge says overdraft fees are not usurious, removes claim from lawsuit

    Courts

    On February 28, the U.S. District Court for the District of South Carolina dismissed a complaint from a consolidated class action against a national bank, which alleged that the bank’s $20 overdraft fee is an interest charge on credit and therefore exceeds usury limits under the National Bank Act (NBA). The plaintiffs in the consolidated class action challenged the bank’s methods for assessing overdraft fees, posting debit transactions, and assessing “sustained” overdraft fees, claiming they violated federal law. In granting the dismissal, the court noted that it had previously rejected a materially identical usury claim in December 2015 and that no new evidence or authority had been brought to light that would change its decision. In addition, the court concluded that “the law is still clear that sustained overdraft fees are not interest, and that assessing such fees cannot violate the usury provision of the NBA.” 

    Courts Usury Overdraft National Bank Act Class Action

  • 5th Circuit affirms dismissal of claims against bank but not Fannie Mae in foreclosure suit

    Courts

    On February 26, the U.S. Court of Appeals for the 5th Circuit issued an opinion in a foreclosure dispute ruling that a lower court wrongly dismissed a breach of contract claim against Fannie Mae but was correct in dismissing the claim against a national bank that serviced the loan (bank). According to the opinion, a group of companies and investors (plaintiffs/appellants) constructed a low-income housing program (earning low income housing tax credits) through the financing of a loan by one of the companies secured by a deed of trust later assigned to Fannie Mae and serviced by the bank. When the plaintiffs/appellants defaulted on the loan, Fannie Mae accelerated the note and instituted non-judicial foreclosure proceedings pursuant to the deed; however, the plaintiffs/appellants alleged that some of the notices of acceleration and foreclosure were not received, and when the foreclosure sale proceeded and the IRS “recaptured” the tax credits earned on the project, the plaintiffs/appellants brought suit against Fannie Mae and the bank for, among other things, breach of contract based on the deed of trust and wrongful foreclosure. After granting a motion for rehearing, the lower court granted the bank’s motion for summary judgment, stating it did not breach a contract because it was not a party to the deed of trust. The lower court also dismissed the breach of contract claims against Fannie Mae and the bank, holding that because the plaintiffs/appellants defaulted on the deed of trust, they had no standing to sue based on a breach of that agreement.

    In affirming in part and reversing in part, the three-judge panel determined that although the bank was the loan servicer at the time of default, “once Fannie Mae was notified of default, Fannie Mae became the loan servicer” and therefore the “primary point of contact.” Therefore, “[b]ecause the only claim on appeal is for breach of contract based on the [d]eed of [t]rust, and [the bank] was never a party to the [d]eed of [t]rust, [the bank] has no liability.” However, concerning the breach of contract against Fannie Mae for failing to serve notice of foreclosure to appellants, the panel reversed the lower court’s decision, stating that this particular breach “exists as a stand-alone cause of action,” separate from a claim of wrongful foreclosure. Further, the “obligation to give notice of foreclosure would not even arise unless and until the [plaintiffs/appellants] were in default under the note.” The 5th Circuit remanded the case back to the lower court for review.

    Courts Appellate Fifth Circuit Foreclosure Fannie Mae Mortgages Mortgage Servicing

  • 8th Circuit holds lender properly delivered TILA disclosures

    Courts

    On February 28, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s decision to grant summary judgment in favor of a national mortgage lender concluding that a borrower’s signed acknowledgment of receipt of TILA’s material disclosures and rescission notice created a rebuttable presumption that the borrowers had received the required number of notices under the law. According to the opinion, the borrowers sought to rescind their mortgage loan on a date close to three-years after settlement, arguing that the lender did not provide the requisite number of copies of required disclosures under TILA. TILA allows for rescission within three days of settlement unless the lender fails to deliver the required notice or material disclosures, which extends the rescission period to three years. After the lender denied the borrower’s request for rescission, a district court dismissed the action as untimely, asserting that the suit must be filed within the same three-year window. Ultimately, in 2015, the Supreme Court held that the three-year period applied to the borrower’s notice of rescission, and not the filing of the lawsuit.

    On remand, the district court granted summary judgment in favor of the lender. In affirming the district court’s decision, the 8th Circuit disagreed with the borrower’s position that while they signed an acknowledgment of receipt of the required disclosures, the acknowledgment did not state that each “acknowledge receipt of two copies each.” The circuit court concluded that the signed acknowledgment is “unambiguous and gives rise to the presumption” of proper delivery and each signature by the borrower indicates personal receipt of two copies each.

    Courts Eighth Circuit Appellate TILA Mortgages Disclosures U.S. Supreme Court

  • 3rd Circuit holds payday lender’s arbitration clause unenforceable

    Courts

    On February 27, the U.S. Court of Appeals for the Third Circuit held that an arbitration clause is unenforceable if the corresponding forum selection provision designates a forum that does not actually exist. According to the opinion, in 2012 the plaintiff obtained a $5,000 loan from the defendant, an online loan servicer. An arbitration provision accompanying the loan agreement stated that arbitration would be conducted by an authorized representative of a specific tribal nation. The plaintiff subsequently sued the defendants for allegedly violating the federal Racketeering Influenced and Corrupt Organization Act, and various New Jersey state laws. The defendants filed a motion to compel arbitration, which the lower court denied. In affirming the lower court’s decision, the 3rd Circuit concluded that the tribal arbitration forum referenced in the loan agreement does not actually exist and “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.

    As previously covered by InfoBytes, in January, a district court judge ordered the same online loan servicer and its affiliates to pay a $10 million penalty for offering high-interest loans in states with usury laws barring the transactions. The penalty was based on a September 2016 finding that online loan servicer was the “true lender” of the loans issued through entities located on tribal lands. The penalty was significantly reduced from the CFPB’s request of over $50 million. 

    Courts Arbitration Third Circuit Payday Lending Appellate

  • Florida judge rules borrower failed to establish RESPA private right of action

    Courts

    On February 20, a federal judge for the U.S. District Court for the Southern District of Florida issued an opinion and order against a borrower after a two-day bench trial, finding that the borrower failed to establish a private right of action for any of her alleged RESPA violations. According to the opinion, one of the defendants, a mortgage company, initiated foreclosure proceedings against the borrower for failing to pay required insurance and tax associated with her reverse mortgage. During this period, the mortgage company purchased force-placed insurance through an insurance intermediary company to protect its collateral for the reverse mortgage. When the borrower later brought the account current, the mortgage company dismissed the foreclosure complaint. However, the borrower filed a suit against the mortgage company for failing to “advance insurance premiums on her behalf through an escrow account” and against the second defendant, an insurance company, for procuring a policy that “tortiously interfered” with her business relationship with the mortgage company. Specifically, the borrower alleged the procedure used to obtain the force-placed rates violated Florida Insurance Code Section 626.916, and were, therefore, “not bona fide and reasonable under RESPA.”

    However, the judge ruled that none of the borrower’s claims created a private right of action under RESPA, and furthermore, the borrower could not “bootstrap Section 626.916 through another cause of action.” Additionally, the judge noted that counsel for the borrower was unable to provide case law authority to support the “proposition that [the borrower’s] RESPA claim could be premised on a Florida statue which lacked a private right of action.” Concerning the borrower’s allegations of tortious interference against the insurance company, the judge concluded that the claim failed to show that the insurance company “intentionally or unjustifiably” interfered with her relationship with the mortgage company.

    Courts State Issues RESPA Mortgages Reverse Mortgages Foreclosure Force-placed Insurance

  • Virginia district judge holds RESPA early intervention requirements confer private right of action

    Courts

    On February 20, a judge for the U.S. District Court for the Western District of Virginia ruled that the early intervention requirements of RESPA allow for a private right of action to pursue claims against loan servicers. According to the opinion, consumers filed a complaint against a mortgage servicer for allegedly violating RESPA’s early intervention requirements under Regulation X, Section 1024.39, which require the servicer to “establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency” and promptly inform the borrower of potential loss mitigation options. The servicer filed a motion to dismiss the action for failure to state a claim, arguing that Section 1024.39 does not provide a private right of action. In denying the motion to dismiss, the court concluded that the CFPB adopted Section 1024.39 pursuant to Section 6 of RESPA, which expressly provides a private right of action and therefore, Section 1024.39 had been intended to convey a private right of action as well.

    Courts RESPA Mortgages State Issues Mortgage Servicing Loss Mitigation

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