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On March 14, the U.S. District Court for the Western District of North Carolina issued an order certifying a settlement class of individuals who alleged that, while they were subject to Chapter 13 bankruptcy proceedings, a national bank imposed “no-application loan modifications” (NAMs) to their mortgages without consent. The class members claimed that the bank filed payment change notices in their bankruptcy proceedings around the time it sent out the NAM solicitations, which asserted that the mortgage payments had been adjusted to the amount of the proposed NAM payment, even though borrowers had not requested or accepted the changes. As a result, class members’ mortgage loans went into contractual default. According to the class, the bank has since ended the alleged practice. Under the terms of the settlement approved by the court, the bank has agreed to pay approximately $13.8 million into a common fund that will go to class members, account remediation, and attorneys’ fees and costs, as well as to injunctive relief.
On March 12, the U.S. District Court for the Northern District of Illinois granted a national bank’s motion to dismiss a former associate vice president/lending manager’s whistleblower claims that it violated the False Claims Act (FCA) by submitting fraudulent claims and providing false information about loan applications to Fannie Mae and Freddie Mac. The whistleblower alleged that the bank (i) knowingly submitted fraudulent claims for payment to the U.S. government; (ii) told Fannie Mae and Freddie Mac that the applications met underwriting standards; and (iii) later terminated his employment as retaliation for notifying his superiors about the alleged false statements. However, according to the court, the whistleblower failed to sufficiently plead that the bank actually submitted the false claims, did not provide enough specificity as to whom the bank sent the alleged false claims to, and failed to “allege specific facts that link [the bank’s] fraudulent conduct to a claim submitted to the government.” Moreover, the court stated that under the FCA’s public disclosure bar, a whistleblower cannot base his case on allegations raised in prior litigation or publically disclosed information, and identified several similarities between the whistleblower’s allegations and previously disclosed claims. Because the whistleblower’s FCA claims failed, the retaliation claims were also dismissed.
On March 13, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of two online short-term rental companies’ (plaintiffs) action challenging the City of Santa Monica’s Ordinance 2535. According to the opinion, Ordinance 2535, which was amended in 2017, imposed four obligations on online platforms hosting rentals: (i) collecting and remitting Transient Occupancy Taxes; (ii) regularly disclosing listings and booking information to Santa Monica; (iii) only booking properties licensed and listed on Santa Monica’s registry; and (iv) refraining from collecting a fee for “ancillary services.” The plaintiffs challenged the Ordinance, arguing that it was preempted by the Communications Decency Act of 1996 (CDA) and it violated the First Amendment by restricting commercial speech, because it required the plaintiffs to monitor and remove third-party content. The lower court dismissed the action concluding the plaintiffs failed to state a claim under the CDA and the First Amendment.
On appeal, the 9th Circuit upheld the lower court’s ruling. The appellate court determined that Ordinance 2535 was not expressly preempted by its terms, nor would it “pose an obstacle to Congress’s aim to encourage self-monitoring of third-party content” under the CDA because it only required the plaintiffs to monitor incoming requests to complete a booking transaction, which is content that is “distinct, internal, and nonpublic.” As for the First Amendment claim, the appellate court concluded that the effect of Ordinance 2535 on its face is to regulate booking transactions, which is “nonexpressive conduct,” rejecting the plaintiffs’ claims that it required them to monitor screen advertisements. Moreover, the appellate court noted that the Ordinance does not target websites that advertise the very same properties but do not process transactions, which underscores the proposition that the Ordinance is only targeting companies that “engage in unlawful booking transactions.”
On March 8, the U.S. Court of Appeals for the 3rd Circuit issued a precedential opinion holding that, without concrete evidence of harm, a consumer lacks standing under the Fair and Accurate Credit Transactions Act (FACTA) to sue a merchant for including too many digits of his credit card account number on a receipt. According to the opinion, the plaintiff claimed that he received receipts from three different stores owned by the defendant, all of which included both the final four digits and the first six digits of his account number. The plaintiff filed a class action lawsuit alleging the defendant willfully violated FACTA, which prohibits printing more than the last five digits of credit card number on a receipt. The plaintiff alleged that this violation, which he also claimed increased the risk of identity theft, constituted an injury-in-fact sufficient to confer Article III standing as required under the U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Special Alert). The district court dismissed the suit.
On appeal, the 3rd Circuit agreed with the lower court, holding that the plaintiff failed to allege actual harm from the defendant’s practice. The appellate court held that the defendant’s technical violation of FACTA did not give the plaintiff standing to sue. Moreover, in the absence of actual harm, or a material risk of actual harm (the plaintiff did not allege that anyone—aside from the cashier—saw the receipt, that his credit card number had been misappropriated, or that his identity was stolen), the plaintiff would not have suffered the injury-in-fact that created federal court jurisdiction.
On March 12, the U.S. Court of Appeals for the 2nd Circuit affirmed dismissal of a consumer’s action against a debt collector, holding that the collection letter complied with the FDCPA. According to the opinion, the consumer filed a putative class action alleging the letter he received from the debt collection company violated Sections 1692e and 1692g of the FDCPA because it failed to inform him of details about his debt, such as what portion is principal and if there is interest. Additionally, the consumer alleged the letter conveyed the “mistaken impression ‘that the debt could be satisfied by remitting the listed amount as of the date of the letter, at any time after receipt of the letter.’” The lower court dismissed the action, noting that the letter stated the debt owed as of its date and stated that the amount may increase because of interest and fees, as required by the FDCPA.
On appeal, the 2nd Circuit agreed with the lower court. The appellate court rejected the consumer’s arguments that the letter failed under Section 1692g because it didn’t specify what portion of the debt is principal and if interest applied when it stated, “[a]s of the date of this letter, you owe $5918.69.” The appellate court found that the letter adequately informed the consumer of the total quantity of his debt and emphasized that nothing in Section 1692g requires the debt collector to explain the components of the debt or “precise rates by which it might later increase.” Moreover, the appellate court concluded that nothing about the debt collection letter “could be fairly characterized as ‘false, deceptive, or misleading’” under Section 1692e, as the letter explicitly stated the consumer’s balance may increase based on the day he remitted payment.
On March 8, the CFPB and two payday loan trade groups filed a joint status report with the U.S. District Court for the Western District of Texas in the litigation over the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule). As previously covered by InfoBytes, the two payday loan trade groups initiated the suit against the Bureau in April 2018, asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedures Act. In June 2018 and November 2018, the court stayed the litigation and the compliance date of the Rule, after the Bureau’s announcement that it intended to issue a proposed rulemaking to reconsider parts of the Rule. In February 2019, the Bureau issued a proposal, which seeks to rescind certain provisions of the Rule related to the ability-to-repay underwriting standards and delay the compliance date of those affected provisions until August 2020. The proposal does not reconsider the payment-related provisions of the Rule, leaving the compliance date for those provisions at August 19, 2019. (Covered by InfoBytes here.)
In the joint status report, both parties agree that the court’s stay of compliance date and stay of litigation should remain with regard to the underwriting provisions until the Bureau concludes the rulemaking process. As for the payment-related provisions, the payday loan trade groups request the court maintain both the litigation stay and compliance stay of payment provisions until the Bureau completes the underwriting rulemaking process, because the Bureau acknowledged in the proposals that it intends to examine issues related to the payment provisions and “and if the Bureau determines that further action is warranted, the Bureau will commence a separate rulemaking initiative,” which may ultimately moot the litigation. Moreover, the trade groups believe lifting the stays would lead to “piecemeal and potentially wasteful litigation.”
The Bureau also does not seek a lift to the stay of the litigation or compliance date for the payment-related provisions, but for separate reasons. The Bureau argues that the stay of the litigation should be “more limited,” at least until the 5th Circuit issues a decision on the Bureau’s constitutionality in a pending action (covered by InfoBytes here). As for the compliance date stay for the payment-related provisions, the Bureau believes it is not an issue the court needs to decide at this time, but acknowledges that should it request the court lift the stay in the future, the trade groups and the Bureau would have an opportunity to address whether lifting the stay should be delayed to “allow companies to come into compliance with the payments provisions.”
In response to the joint status report, on March 19, the court entered an order continuing the stay of the litigation and the compliance date for both the Rule’s underwriting provisions and its payment-related provisions.
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.”
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.”
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.
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
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- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- APPROVED Webcast: State and SAFE Act licensing requirements for banks
- John C. Redding to discuss "TCPA compliance in the era of mobile" at the Auto Finance Risk Summit
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- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium