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Financial Services Law Insights and Observations


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  • Housing discrimination lawsuit against national bank can proceed


    On July 18, the U.S. District Court for the District of Maryland denied defendants’ motion to dismiss claims that they violated the Fair Housing Act’s anti-discrimination provisions by allegedly failing to properly maintain bank-owned properties in African American and Latino neighborhoods. According to the plaintiffs—a group of private fair housing organizations along with three individual homeowners—the bank and its maintenance contractor regularly maintained similar bank-owned properties in white neighborhoods, while properties in minority neighborhoods were allowed to fall into disrepair. The plaintiffs cited claims for discrimination under both disparate treatment and disparate impact theories, and asserted that the conduct allegedly depreciated the property values of current residents, discouraged buyers from purchasing homes in a particular neighborhood, and limited available housing. The defendants argued, however, that the fair housing organizations do not have standing to sue because they failed to trace their alleged injury to the conduct at issue or to sufficiently demonstrate they were harmed by the alleged conduct. Moreover, the defendants asserted that the Maryland court does not have jurisdiction over the dispute and that the claims were untimely.

    The court found that the plaintiffs did sufficiently plead an injury-in-fact, stating, “[h]ere the scope and specificity of the plaintiffs’ investigation and the alleged precision with which its proffered regression analysis can attribute the plaintiffs’ injuries to the defendants’ actions, provide plausible proximate cause.” The court also reasoned that it had jurisdictional authority because, even though none of the fair housing organizations are Maryland entities, some of the alleged conduct has occurred in Maryland and state residents have alleged harm. As to the question of timeliness, the court noted that the statute of limitations concerns are “obviated by the continuing violation doctrine.”

    Courts Fair Housing Act Disparate Impact

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  • 7th Circuit holds collection fee was authorized by contract, did not violate FDCPA


    On July 19, the U.S. Court of Appeals for the 7th Circuit affirmed the district court’s determination that a percentage-based collection fee was expressly authorized by the contractual agreement and therefore, did not violate the FDCPA. According to the opinion, a consumer entered into a contract with an amusement park for a monthly pass, which stated the consumer would “be billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [the park] in attempting to collect amounts due.” After the consumer fell behind on payments for the pass, he received a collection letter from a collection agency, seeking the principal amount owed, plus $43.28 in costs to be paid directly to the collection agency or to the amusement park. The consumer filed a class-action lawsuit alleging that the debt collector “charged a fee not ‘expressly authorized by the agreement creating the debt’” in violation of the FDCPA. The district court held a bench trial and found that the collection fee was expressly authorized by the language in the consumer’s contract.

    On appeal, the 7th Circuit agreed with the district court, but noted its decision was in contrast to previous decisions by the 11th and 8th Circuits (both of which have held that percentage-based fees do violate the FDCPA when the underlying contract uses the term “costs.”) The appellate court noted that the contract “allows for ‘any costs,’ and the most reasonable reading of that term is to include fees paid in attempting to collect.” Moreover, the contract “explicitly provided that the term ‘costs’ includes attorney’s fees,” and therefore, the appellate court declined “to hold that the term ‘costs’ bears such a narrow meaning when the contract explicitly tells [the court] that the term is broad enough to include more.” Therefore, the collection fee, according to the appellate court, fell within the contract’s language authorizing “any costs” of the collection and did not violate the FDCPA.

    Courts Seventh Circuit Appellate FDCPA Debt Collection Fees

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  • District Court concludes collection attempt on old debt did not violate FDPCA


    On July 11, the U.S. District Court for the Eastern District of Washington granted a debt collector’s motion for summary judgment, concluding the attempted collection of an old debt did not violate the FDCPA. According to the opinion, a consumer filed a class action lawsuit against the debt collector alleging the collector violated the FDCPA by (i) “falsely representing the legal status of the debt”; and (ii) using “false representations and/or deceptive means to collect or attempt to collect a debt,” when it sent a collection letter in March 2017 attempting to collect on a debt that allegedly incurred before 2009. The debt collector moved for summary judgment arguing that the consumer did not have standing and that the claim failed on the merits. The district court agreed with the debt collector, concluding that the consumer did not have standing to pursue the FDCPA claim because she did not incur any concrete injury, noting she made no claims that she was misled by the letter or confused about the status of her debt, nor did she pay on the debt or make a promise to pay. Moreover, the district court agreed that the debt collector adequately informed the consumer about the status of her debt, stating “[t]he letter clearly states that ‘[t]he law limits how long you can be sued on a debt’ and states that, ‘[d]ue to the age of this debt, we will not sue you for it[.]’” Lastly, the district court found that in order to comply with the FDCPA, the debt collectors were not required to inform consumers of the “supposed risks of partial payments or entering a payment plan.”

    Courts Debt Collection FDCPA Time-Barred Debt

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  • 3rd Circuit: Debt collector cannot enforce original creditor’s arbitration agreement


    On July 12, the U.S. Court of Appeals for the 3rd Circuit affirmed the denial of a debt collector’s motion to compel arbitration, concluding the debt collector did not establish authority to enforce the arbitration agreement made between the consumer and the original creditor. According to the opinion, a consumer executed a credit card agreement with a creditor containing an arbitration clause. After the consumer fell behind on her payments, her account was referred to the debt collector for collection. The consumer filed suit against the debt collector, alleging that one of the collection letters violated the FDCPA by “failing to inform her whether interest would continue to accrue on her account.” The debt collector moved to compel arbitration based on the provision in the consumer’s credit card agreement with the original creditor, under a third-party beneficiary, agency, or equitable-estoppel theory. The district court rejected each theory and denied the motion, concluding that (i) the agreement did not “evince an intent to benefit” the debt collector; (ii) the FDCPA claim “did not bear a sufficient nexus to the credit-card agreement”; and (iii) the debt collector could not equitably estop the consumer from resisting arbitration under the 3rd Circuit’s previous interpretation of South Dakota law.

    On appeal, the 3rd Circuit agreed with the district court. The appellate court noted that the debt collector failed the test to enforce an agreement as a third-party beneficiary under South Dakota law, because the debt collector failed to establish that the original creditor and its consumers “would not have entered the card agreement but for the intent to benefit debt collectors.” As for the debt collector’s agency theory, the appellate court stated that the debt collector did not cite, and the court did not find, “South Dakota authority adopting a freestanding ‘agency’ theory of third-party enforcement.” Further, the appellate court noted that the debt collector’s arguments would fail under the South Dakota test for equitable estoppel and, therefore, the appellate court had “no basis to conclude that South Dakota would allow [the debt collector], as a non-signatory, to enforce [the original creditor]’s arbitration agreement with its customers.”

    Courts Appellate Third Circuit FDCPA Arbitration Debt Collection

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  • District Court strikes class certification from robocall suit


    On July 18, the U.S. District Court for the Northern District of Illinois granted a rental car company’s (defendant) motion to strike class allegations in a TCPA suit over alleged robocalls. The plaintiff, whose telephone number was listed on a rental contract between his mother and the defendant in addition to the mother’s telephone number, claimed he received multiple prerecorded messages on his cellphone from the defendant after his mother failed to return the car when it was due, even though he had allegedly opted out of the communications. The plaintiff commenced the suit, ultimately seeking certification of an amended putative class of all noncustomers who received automated calls from the defendant “where such [a] call was placed after a request to stop calling that phone number.” In August 2018, the court denied summary judgment to the defendant, who subsequently moved to strike class allegations. The court granted the defendant’s motion, stating there were too many contested facts that raised unique defenses particular to the plaintiff’s case, including (i) the type of consent to receive calls that the plaintiff’s mother gave under her contract; (ii) whether the calls to the plaintiff’s phone were robocalls; and (iii) whether and how the plaintiff revoked the consent given by his mother.

    Courts TCPA Autodialer Robocalls Class Action

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  • District Court dismisses most of trust insurer’s settlement suit, allows breach of contract claim to proceed


    On July 16, the U.S. District Court for the Southern District of New York dismissed the majority of the claims brought by the insurer of a trust against a national bank acting as trustee of the securitization trust. The claims accused the bank of breaching its responsibilities as trustee for residential mortgage-backed securities (RMBS) that were allegedly backed by bad loans, and the court’s dismissal left only a claim for breach of contract against the bank “for failing to correctly account for recoveries” to proceed. The insurer commenced the action against the bank asserting, among other claims, that the “unreasonably low settlement” the bank agreed to in a separate action the bank had taken against the mortgage lender seeking damages for the lender’s alleged breach of representations and warranties with respect to 87 percent of liquidated loans, would breach the bank’s obligations to the trust’s beneficiaries. According to the insurer, the bank initiated a “wasteful” trust instruction proceeding in Minnesota state court and agreed to stay an ongoing New York state lawsuit against the mortgage lender for over a year and a half.

    The court noted, however, that the insurer’s complaint “does not allege any non-speculative ‘concrete or imminent’ injury sufficient to confer standing with respect to the breach of contract and breach of fiduciary claims based on [the bank’s] acceptance of the settlement,” and subsequently dismissed the insurer’s claims that the bank’s acceptance of an “unreasonably low settlement” violated contractual and fiduciary duties owed to the trust as trustee, noting that any harm depends on whether the Minnesota court approves the settlement agreement. Moreover, the court stated that “[i]t is too speculative to assume that [the bank] would have obtained a favorable outcome in the New York action or that rejecting the stay would have strengthened [the bank’s] bargaining position.” Additionally, the court dismissed the insurer’s request for declaratory judgment that the bank must account for and distribute recoveries—“amounts received from defaulted mortgage loans that have already been liquidated”—under the pooling agreement, finding that the issue as it relates to past recoveries is addressed in the breach of contract claim, and all other instances are conditioned on the Minnesota court’s approval of the settlement agreement and are therefore hypothetical. However, the court did find that the insurer adequately pled a claim for breach of contract against the bank pertaining to its accounting of recoveries. The court noted that the insurer’s complaint sufficiently alleged damages and outlined the bank’s alleged failure to correctly “write up” the recoveries as laid out in the pooling agreement, and how this affected the timing and amount of payouts the insurer was required to make.

    Courts Mortgages RMBS

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  • 9th Circuit: Law firm owner liable for restitution from mortgage relief scheme


    On July 16, the U.S. Court of Appeals for the 9th Circuit affirmed summary judgment in favor of the FTC in an action alleging two attorneys controlled or participated in a mortgage relief scheme, which falsely told consumers they could join “mass joinder” lawsuits that would save them from foreclosure and provide additional financial awards. In September 2017, the district court granted summary judgment against both defendants, concluding that the defendants knowingly deceived consumers when they falsely marketed that consumers could expect to receive $75,000 in damages or “a judicial determination that the mortgage lien alleged to exist against their particular property is null and void ab initio” if they agreed to join mass joinder lawsuits against their mortgagors. The operation resulted in over $18 million in revenue from the participating consumers.

    On appeal from one defendant, the 9th Circuit agreed with the district court, determining the FTC provided “sufficient undisputed facts to hold [the defendant] individually liable for injunctive relief at summary judgment.” Specifically, the appellate court agreed that the FTC sufficiently proved three separate legal entities, one of which the defendant was the co-owner and corporate officer, “operate[d] together as a common enterprise,” which violated the FTC Act and Mortgage Assistance Relief Services Rule with their mortgage relief operation. Moreover, the appellate court determined that the defendant was “at least recklessly indifferent to [the other entities’] misrepresentations,” based on his knowledge of previous schemes operated by the other owners and reliance on a non-lawyer’s assurance that the marketing materials had been “legally approved,” making him “jointly and severally liable for restitution for the corporation’s unjust gains in violation of the FTC Act.”

    Courts Ninth Circuit Appellate FTC Act Mortgages FTC

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  • 8th Circuit affirms reduction in TCPA statutory damages from $1.6 billion to $32 million


    On July 16, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s decision to reduce a $1.6 billion award in statutory damages for TCPA violations to $32.4 million after the court determined the original award violated the Fifth Amendment’s Due Process Clause. The named plaintiffs in the class action alleged that parties involved in the financing and marketing campaign of a film with religious and political themes violated the TCPA through the use of a telephone campaign in which approximately 3.2 million prerecorded robocalls were made in the course of a week. The plaintiffs—who received two of these messages on their answering machine—filed an appeal after the district court concluded that the original award was “‘obviously unreasonable and wholly disproportionate to the offense’” and reduced the statutory damages awarded by a jury from $500 per call to $10 per call.

    On appeal, the 8th Circuit addressed several issues, including (i) whether the plaintiffs alleged a concrete injury under the TCPA; (ii) whether the district court abused its discretion concerning instructions on direct liability against one of the defendants; and (iii) whether the court erred in finding the amount of statutory damages to be unconstitutional. The appellate court first reviewed whether the plaintiffs had alleged a sufficiently concrete injury under the TCPA. According to the opinion, “[t]he harm to be remedied by the TCPA was ‘the unwanted intrusion and nuisance of unsolicited telemarketing phone calls and fax advertisements. . . .The [plaintiffs’] harm . . . was the receipt of two telemarketing messages without prior consent. These harms bear a close relationship to the types of harms traditionally remedied by tort law, particularly the law of nuisance.” However, the appellate court stated that the district court was correct to reject the plaintiffs’ direct liability instructions against the defendant who helped finance the film, writing that the plaintiffs “improperly blurred the line between direct and agency liability” and that “to be held directly liable, the defendant must be the one who ‘initiates’ the call,” which the financing defendant did not do. Finally, the appellate court agreed with the district court that the $1.6 billion award violated the Due Process Clause, and highlighted evidence that the advertiser “plausibly believed it was not violating the TCPA” and “had prior consent to call the recipients about religious liberty,” which was a predominant theme of the film being promoted. Moreover, the court noted,”[t]he call campaign was conducted for only about a week,” and recipients could only hear the message about the film if they voluntarily opted in during the call. The court further reasoned that “the harm to the recipients was not severe—only about 7% of the calls made it to the third question, the one about the film. Under these facts, $1.6 billion is ‘so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.’”

    Courts Privacy/Cyber Risk & Data Security Robocalls Eighth Circuit Appellate TCPA Class Action

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  • 7th Circuit affirms dismissal of ADA claim against credit union on standing grounds


    On July 15, the U.S. Court of Appeals for the 7th Circuit affirmed a district court’s decision to dismiss a plaintiff’s claim that a credit union’s website accessibility barriers violated his rights under the Americans with Disabilities Act (ADA) because the plaintiff is not a member of the credit union, nor can he become one. As previously covered by InfoBytes, last year the district court granted the credit union’s motion to dismiss on standing grounds because the plaintiff—who tests software that reads text aloud for visually impaired users to access content on the internet—had no plausible reason to use the credit union’s website because the website was directed at members of the credit union for which he was ineligible. The court found that the plaintiff lacked standing because he failed to allege “concrete and particularized” injuries when he claimed he suffered dignitary and informational harm stemming from his inability to access information on the website, and cited to a recent 4th Circuit decision in Griffin v. Dep’t of Labor Fed. Credit Union, which held that “a plaintiff who is legally barred from using a credit union’s services cannot demonstrate an injury that is either concrete or particularized.”

    On appeal, the 7th Circuit agreed with the district court, finding that “Illinois law prevents [the plaintiff’s] dignitary harm from materializing into a concrete injury,” and that “indignation at violation of the law” is not concrete or particularized as is required to show standing. The appellate court also noted that the plaintiff’s informational harm claim failed as well because “[h]is alleged injury flows from the [c]redit [u]nion’s failure to support his software, not its refusal to disclose information about its services.”

    Courts Seventh Circuit Appellate Americans with Disabilities Act

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  • District Court orders mortgage company founder to pay $500,000 FIRREA fine in mortgage fraud suit


    On July 10, the U.S. District Court for the Northern District of Illinois ordered the founder and president of a mortgage company to pay $500,000 in a suit brought under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). The suit accused the defendant of allegedly submitting fraudulent certifications certifying he was not under criminal indictment in order to participate in HUD’s Federal Housing Administration mortgage insurance program. (Certification is necessary to participate in the FHA program.) In 2016, the defendant appealed to the 7th Circuit that the district court’s ruling—which originally ordered approximately $10 million in treble damages and $16,500 in penalties under the FCA—had been held to the wrong causation standard. In 2017, the appellate court issued an opinion referring to the U.S. Supreme Court’s ruling in Universal Health Services, Inc. v. U.S. ex rel. Escobar, holding that in this matter, the district court had improperly relied on a “but for” causation standard for FCA liability, and had failed to adequately develop whether the defendant’s “falsehood was the proximate cause of the government’s harm.”

    On remand, the district court found that the government's losses were not proximately caused by the defendant’s form certifications, and thus failed to satisfy the proximate cause standard for damages in a FCA suit. The district court ordered the defendant to pay $500,000 for making false statements to HUD in violation of FIRREA. “Half a million dollars is a substantial sum of money, and it reflects the seriousness of [the defendant’s] wrongdoing over a series of years, as well as the fact that there is no good-faith explanation for his actions,” the court stated. The court further elaborated that “[a]t the same time, [the fine] also reflects that [the defendant’s] conduct, while serious, does not put him within the worst class of FIRREA violators.”

    Courts False Claims Act / FIRREA Mortgages HUD

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