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Financial Services Law Insights and Observations


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  • Arizona court upholds debt collection act from industry challenge


    On May 3, the Arizona Court of Appeals affirmed the state superior court’s decision to uphold Arizona’s Predatory Debt Collection Act (the “Act”) after being challenged by judgment creditors. The Act lowered the interest rate cap on medical debt, increased the amount of the homestead exemption, increased the dollar value of personal property and assets exempt from creditor claims, and increased the amount of exempt earnings in garnishment actions. The plaintiffs alleged that the “Saving Clause” of the Act was unconstitutionally vague and unintelligible due to its failure to directly state whether the Act would apply when a judgment pre-dates the Act but a wage garnishment proceeding post-dates the Act. The appellate court found that the Saving Clause was not vague or unintelligible as the language “provides a framework and examples consistent with how Arizona courts have long ensured prospective application of the law[.]” As such, the appellate court upheld the superior court’s decision and could not rule the Act as unconstitutional.

    Courts Arizona Appellate Debt Collection Predatory Lending

  • District Court grants motion for reconsideration on reverse redlining claim


    On April 26, the U.S. District Court for the Eastern District of Michigan granted in part and denied in part the plaintiffs’ motion for reconsideration of its order granting the defendants summary judgment and dismissing claims under the Fair Housing Act (FHA) and the ECOA. The plaintiffs argued the court erred in its decision to dismiss their FHA and ECOA claims without addressing their disparate treatment claims. The court found plaintiffs’ arguments on reverse redlining (i.e., alleged intentional targeting of borrowers in minority areas for predatory loans) supported their claims of disparate treatment under the FHA and the ECOA, and the court had erred in “dismissing those claims in their entirety[.]”

    Since this revived plaintiffs’ FHA and ECOA claims, the court then addressed a defendant’s motion for summary judgment, which argued that it was entitled to summary judgment because it merely facilitated a loan to a co-defendant and did not engage in any conduct controlled or restricted by the FHA. The court found that the scope of FHA § 3604(a) extended beyond owners and agents to other actors who are in a direct position to deny housing rights to a member of a protected group. The court found the defendant participated actively in the acquisition and disposition of residential property (e.g., the defendant was the primary funder of property acquisitions, participated in the design of the purchase contracts, had detailed knowledge of a co-defendant’s business model, reviewed a co-defendant’s marketing and advertising strategies, and participated in decisions on individual purchase contracts).

    According to the court, this supported plaintiffs’ allegation that such defendant directly affected the availability of housing within the meaning of FHA § 3604(a). The court also disagreed with defendant’s alternative arguments regarding plaintiffs’ showing of disparate treatment, stating “plaintiffs can establish disparate treatment based on reverse redlining by showing that (1) they are a member of a protected class; (2) they applied for and were qualified for loans; (3) they received grossly unfavorable terms; and (4) they were intentionally targeted or intentionally discriminated against.” Therefore, because the court found issues of material fact on plaintiffs’ FHA and ECOA claims, the court denied the defendant’s motion for summary judgment.

    Courts Predatory Lending FHA ECOA Michigan

  • 3rd Circuit finds appellant does not have FDCPA standing where only injury was confusion


    On April 26, the U.S. Court of Appeals for the Third Circuit held that an appellant who sued a debt collector for allegedly violating the FDCPA did not have standing to bring her claim because she “failed to plead a concrete injury” under Article III. The appellant received a debt collection letter that failed to explicitly state if the money was owed to the original creditor or the current creditor and then filed a putative class action alleging a violation of the FDCPA. The appellant asserted that the uncertainty caused her confusion, but failed to allege that she suffered any other harm as a result of the confusion and uncertainty. Relying on precedent, the Third Circuit found that while an intangible harm such as confusion or uncertainty could qualify as a cognizable injury, it must still “bear a ‘close relationship’ to an injury ‘traditionally recognized as providing a basis for a lawsuit in American courts[.]’” Failing to do so, the court ruled that the appellant did not reach the threshold for establishing Article III injury. Therefore, the Third Circuit vacated the judgment of the district court (a dismissal for failure to state a claim) and remanded the case with instructions to dismiss the complaint.

    Courts Appellate Debt Collection FDCPA

  • Bank granted motion to dismiss in credit card sign-up bonus class action


    On April 15, the U.S. District Court for the Northern District of California entered an order granting a defendant bank’s motion to dismiss a plaintiff’s claims relating to alleged false advertising in connection with a credit card, with leave to amend. Plaintiff alleged that after responding to a social media advertisement for a credit card in December 2022, promising a $200 cash sign-up bonus for spending $500 within the first three billing cycles, he applied for and was approved for the card. However, the terms of the agreement he entered into with defendant did not mention the sign-up bonus, and he never received it. Consequently, plaintiff sued for "Breach of Contract Including Breach of the Covenant of Good Faith and Fair Dealing," asserting that defendant’s actions are part of a broader marketing strategy to entice customers to apply for defendant’s credit cards. Defendant filed a motion to dismiss the case based on two arguments: (i) plaintiff lacks the necessary Article III standing; and (ii) plaintiff failed to state a claim upon which relief can be granted.

    The court sided with the defendant on both arguments determining that (i) the plaintiff failed to establish the “traceability” element of standing because it is not clear when the advertisement was seen or what it specifically promised; and (ii) the contract did not include a promise for a sign-up bonus, such that no breach of contract had occurred.

    The court provided plaintiff with leave to amend within 45 days from entry of the order.

    Courts California Credit Cards Class Action

  • Court of Chancery throws out suit against bank for alleged fraud


    On April 16, in the Court of Chancery of the State of Delaware, a judge threw out a case with prejudice where a shareholder (the plaintiff) sued a bank but ultimately failed to show a “substantial likelihood of liability.” The plaintiff alleged that the bank, along with its board, violated the EFTA and Regulation E by failing to resolve unauthorized electronic transfer claims and provisionally credit the consumer’s accounts within 10 business days, by failing to resolve unauthorized electronic transfer claims within 45 days, and by failing to reimburse victims of unauthorized electronic fund transfers after 45 days. To bolster the plaintiff’s claims, the plaintiff cited a 2022 U.S. Senate Committee on Banking, Housing, and Urban Affairs (Committee) investigation into the same alleged unauthorized electronic transfers and related reports, including one produced by Senator Elizabeth Warren (D-MA). However, the court found the reports at issue failed to demonstrate a violation of federal regulations. Accordingly, the court denied the plaintiff’s motion for leave to file a supplemental brief and granted the bank’s motion to dismiss.

    Courts EFTA Regulation E U.S. Senate

  • FDIC submits amicus brief in Colorado DIDMCA opt-out case


    On April 23, the FDIC submitted an amicus brief to the U.S. District Court for the District of Colorado in support of the defendant: the Colorado attorney general. This case involved Colorado HB 23-1229 (the “Act”), which was enacted on June 5, 2023, and will become effective on July 1. As previously covered by InfoBytes, trade groups filed a complaint in the U.S. District Court for the District of Colorado and moved for a preliminary injunction seeking to prevent enforcement of Section 3 of the Act. Section 3 purported to “opt out” of Section 521 of the DIDMCA which had allowed state-chartered banks to export rates of their home state across state borders.

    Section 525 of DIDMCA allows any state to enact legislation to opt out of Section 521 with respect to “loans made in such State.” In the brief, the FDIC argued that courts interpreting federal law have concluded “it is reasonable to conclude that interstate loans are made in the state in which the borrower enters into the transaction and in the state in which the lender enters into the transaction” and that “[i]t would be arbitrary and artificial to select one state when the parties enter into the transaction in two different states.” Thus, according to the FDIC, loans would be made in a state if either the borrower or the lender entered into the transaction in that state. Therefore, the FDIC argued that plaintiffs were incorrect in claiming that the opt-out would apply to loans made by out-of-state creditors to borrowers who were physically located in Colorado.

    In addition, the FDIC disagreed with plaintiffs’ argument that FDIC General Counsel Opinion No. 11, 63 Fed. Reg. 27282 (May 18, 1998), which set forth the FDIC’s position regarding where a bank is “located” for purposes of section 27 of the Federal Deposit Insurance Act, was applicable to interpreting Section 525. The FDIC’s amicus brief stated that Opinion 11 does not address opt-out or Section 525. Moreover, the FDIC argued that “where a loan is made under Section 525 cannot be equated with where a bank is located under Section 521.” The FDIC disagreed similarly with plaintiffs’ reliance on the 1978 Supreme Court of Marquette Nat’l Bank v. First of Omaha Serv. Corp., on the grounds that it concerned where a bank was located and not considered where a loan is “made.”

    The plaintiffs’ reply brief will be submitted by May 7, and a hearing of the pending motion for a preliminary injunction has been scheduled for May 16.

    Courts FDIC Colorado DIDMCA State Legislation Litigation

  • 11th Circuit finds plaintiffs failed to show FCRA information is “objectively” available


    On April 24, the U.S. Court of Appeals for the Eleventh Circuit found a defendant, a hotel timeshare company, not liable to two former clients for inaccurately reporting their unpaid debts to a consumer reporting agency (CRA) in violation of the FCRA, as alleged.

    The plaintiffs stopped making monthly payments and, citing the terms of their timeshare agreements, considered their obligations to the company canceled. The hotel timeshare company disagreed and reported the plaintiffs’ debts to a CRA, prompting the plaintiffs to sue for an alleged inaccurate furnishing of data. The hotel timeshare company moved for summary judgment and the district court granted it after finding the alleged inaccuracies related to legal, not factual, disputes and therefore not actionable under Section 1692s-2 of the FCRA. The district court reasoned that “a plaintiff asserting a claim against a furnisher for failure to conduct a reasonable investigation cannot prevail… without demonstrating that had the furnisher conducted a reasonable investigation, the result would have been different.”

    On appeal, the 11th Circuit held that furnishers were not required to resolve “contractual dispute[s] without a straightforward answer” when furnishing information, even if they could be required “to accurately report information derived from the readily verifiable and straightforward application of law to facts.” Because the underlying contract dispute in this case was subject to reasonable dispute, the court found that the information was not “inaccurate” and thus the plaintiffs did not have actionable claims against the defendant under the FCRA. The court pointed out that the consumers could sue for a declaratory judgment that they did not owe the debt and, if successful, use that as a “cudgel” to persuade a furnisher to stop reporting a debt.  But the plaintiffs here had not done that yet. For these reasons the 11th Circuit affirmed the lower court’s judgment. As previously covered by InfoBytes, the CFPB and FTC filed an amicus brief while the case had been appealed in favor of the plaintiffs arguing that a furnisher’s duty under the FCRA would apply not only to factual disputes but also to disputes that are legal in nature.

    Courts FCRA CFPB Debt Collection Appellate

  • CFPB petitions 5th Circuit to keep credit card late fee case in D.C.


    On April 18, the CFPB asked a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit to reconsider its earlier decision to grant a petition for a writ of mandamus requiring the U.S. District Court for the Northern District of Texas to claw back its earlier transfer of industry’s challenge to the CFPB’s credit card late fee rule to Washington D.C. (covered by InfoBytes here). The CFPB urges the 5th Circuit to grant a panel rehearing, suggesting that the panel’s earlier decision rested on “flawed factual premises” and would be “unworkable for courts.”  

    According to the CFPB, the panel relied on the incorrect assumption that “credit card issuers needed to have printed and distributed disclosure materials about the late fees to customers by March 29” to comply with the final rule. The Bureau asserted this was a “manufactured” deadline. The CFPB also stressed that TILA does not require the Bureau to provide advance notice for a reduction in the maximum late fee. Further, the Bureau’s petition expanded into four misconstrued facts, such as that it was not true that the panel needed to grant the plaintiffs’ alleged claim for “urgent relief,” that the plaintiffs’ preliminary injunction motion needed to be decided quickly, that the plaintiffs were “entitled” to a quick resolution, and that the panel erred again in deciding that the final late fee rule did not require compliance until May 14 (thus leaving six more weeks for a decision).

    Second, the CFPB argued that the panel’s new standard for assessing whether a preliminary injunction was denied would be “unworkable” for courts in practice and would improperly interfere with the district courts’ authority to manage their dockets when plaintiffs seek preliminary injunctive relief.  The Fifth Circuit has asked the plaintiffs to respond to the petition for rehearing by April 29, 2024. 

    Separately, the Fifth Circuit has set a schedule for “expedited briefing” on the appeal of the district court’s “effective denial” of plaintiffs’ motion for a preliminary injunction.  The briefing, however, will not conclude until May 17, 2024, days after the CFPB’s credit card late fees rule goes into effect.  The Fifth Circuit has not yet ruled on plaintiffs’ pending motion for a stay pending appeal, raising the prospect that the credit card late fees will go into effect only to be enjoined soon thereafter. 

    Courts CFPB Appellate Junk Fees

  • DOJ appeals District Court's ruling on the Corporate Transparency Act’s constitutionality


    On April 15, the DOJ submitted a brief to the U.S. Court of Appeals for the Eleventh Circuit in support of an appeal of a summary judgment from the Northern District of Alabama that found the Corporate Transparency Act (CTA) unconstitutional, specifically its reporting provision (covered by InfoBytes here). On appeal, the government emphasized that the District Court misunderstood the scope and purpose of the CTA and made two key errors in invalidating it. The first error, according to the DOJ, is that the court mistakenly viewed the CTA as merely regulating the act of filing the incorporation papers, which generally falls under State domain, as opposed to regulating commerce, which Congress has the power to regulate. As to the second error, the DOJ noted that the District Court mischaracterized the CTA as a “single-subject statute” that is unrelated to the federal government’s broader efforts to combat financial crimes, such as money laundering and terrorism financing. The DOJ pointed out that, ownership records often do not exist, which makes the CTA necessary in order to help investigators trace illicit funds by creating easily accessible ownership records. The DOJ also stressed that the determination by Congress that the CTA’s reporting requirements are necessary to detect and prosecute financial crimes should be subject only to “rational basis” review, a standard that the CTA satisfies.

    Courts DOJ Constitution Appellate Corporate Transparency Act

  • District Court grants bank a MSJ in overdraft fee class action case


    On April 16, the U.S. District Court for the Eastern District of Michigan entered an opinion and order granting defendant bank’s motion for summary judgment in an overdraft fee-related consumer class action. In this case, plaintiffs claimed that defendant breached its account agreements in connection with two related but distinct practices that the plaintiffs claimed were inconsistent with their account agreement. The first practice involved the assessment of overdraft fees on transactions that were initially authorized with a positive balance but settled at a time when the account had a negative balance, labeled Authorize Positive, Purportedly Settle Negative transactions (APPSN). The second practice imposed insufficient fund (NSF) fees each time the same item was re-presented by a merchant and declined by the bank due to a lack of funds. The complaint alleged a breach of contract and conversion against the bank based on these two fee practices.

    In a previous order in 2021, the court denied defendant’s motion to dismiss as to plaintiff’s breach of contract claim but granted dismissal as to plaintiff’s conversion claim. In denying the motion to dismiss the breach of contract of claim, the court determined the account agreement was ambiguous as to the overdraft fees since it was unclear whether defendant would assess overdraft fees at the time of a debit's authorization or at the time of its settlement. The court held that the account agreement was similarly ambiguous as to the NSF fees, since the agreement’s language lent itself to multiple reasonable interpretations of the meaning of “item.”

    In the current opinion, the court held that the language of the updated disclosure guide provided to the plaintiff removed the perceived ambiguity in the contractual language, finding that plaintiff’s interpretation was “unreasonable because it contradict[ed] the language of the [a]greement as a whole, including the updated disclosure guide.” The court explained that the updated disclosures made it clear that customers could still incur an overdraft fee if their balance goes negative before a debit authorization hold would be lifted and the actual transaction settled, despite having a positive balance at the time the hold was placed. The court highlighted that the new disclosure guide included a practical example demonstrating the impact of a temporary debit authorization hold on an account’s available balance.

    Further, the court noted that even if the agreement was ambiguous, plaintiff would still be unsuccessful in pursuing her breach of contract claim because it had been established that she did not actually read the specific contract terms in question. The court noted, under Michigan law, there cannot be a factual question as to the meaning of a contract where one party had not read the contract to form a different understanding of the contract. The court applied a similar analysis to dismiss the allegations relating to the NSF fees. Finally, the court held that plaintiff failed to demonstrate a genuine issue of material fact regarding her claim of breach of an implied covenant of good faith and fair dealing because the applicable fees were contemplated by the parties’ agreement.

    Courts Michigan Overdraft NSF Fees Disclosures


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