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Financial Services Law Insights and Observations


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  • 2nd Circuit: Unsolicited text messages are sufficient injury under TCPA


    On April 30, the U.S. Court of Appeals for the 2nd Circuit held that the receipt of unsolicited text messages, absent any additional injury, is sufficient to demonstrate injury-in-fact in a TCPA class action. According to the opinion, consumers filed a class action lawsuit against a retail store for sending unsolicited text messages in violation of the TCPA. The district court approved a settlement between the parties and certified the class despite various objections, including one from a third-party defendant who argued the consumers lacked standing under the 2016 Supreme Court opinion Spokeo, Inc. v. Robins, because “they alleged only a bare statutory violation and statutory damages cannot substitute for concrete harm.”

    On appeal, the appellate court first rejected the third-party defendant’s standing to appeal the district court’s decision because it had not been “‘formally strip[ped]’ of any claim or defense, it lacks standing to pursue its appeal” in the underlying class action. Notwithstanding the lack of standing by the third-party defendant, the appellate court then went on to address the jurisdictional standing issues raised against the consumers. The court reasoned that, even though the third party that raised the jurisdictional question had been dismissed, the court had an “independent obligation to satisfy [itself] of the jurisdiction” of the appellate and district court. The appellate court concluded that the consumers sufficiently alleged “nuisance and privacy invasion” by the unsolicited text messages, which “are the very harms with which Congress was concerned when enacting the TCPA.” Because the harms identified are “of the same character as harms remediable by traditional causes of action,” the appellate court held the consumers sufficiently demonstrated injury-in-fact as required by Article III.

    Courts TCPA Appellate Second Circuit Spokeo Privacy/Cyber Risk & Data Security Class Action

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  • 7th Circuit: Bona fide error defense applies for collection of time-barred debt


    On April 29, the U.S. Court of Appeals for the 7th Circuit affirmed summary judgment for a debt collector, concluding the collector’s FDCPA violations were unintentional and the debt collector was entitled to the bona fide error defense. According to the opinion, a consumer made his last credit card payment in August 2010, but attempted to make an additional payment in June 2011, which never cleared. In December 2015, the debt collector sent a collection letter to the consumer and subsequently filed a collection action in state court, both assuming a last payment date of June 2011 (the date of the payment that did not clear). The state court dismissed the suit because the last payment that actually cleared was outside of the state’s five-year statute of limitations, meaning the debt was time-barred. The consumer filed suit against the debt collector for violating the FDCPA’s prohibition on collecting time-barred debt. The district court granted summary judgment in favor of the debt collector, holding that the debt collector’s violations were “unintentional and occurred despite reasonable procedures aimed at avoiding untimely collection attempts,” under the statute’s bona fide error defense.

    On appeal, the appellate court rejected the consumer’s arguments that the debt collector was unreasonable by not engaging in a meaningful review of the account to learn the true last payment date and that the debt collector had “‘thinly specified policies’” to weed out time-barred debts. The appellate court determined that the FDCPA violations were unintentional, as the debt collector was unaware that the June 2011 payment had failed. Additionally, the appellate court held that the debt collector was not required under the FDCPA to independently verify the validity of the debt to satisfy the requirements of the bona fide error defense. Moreover, while the debt collector’s policies and procedures were “simple,” they were “reasonably adapted to avoid late collection efforts,” and even though they did not prevent the mistake, the FDCPA “‘does not require debt collectors to take every conceivable precaution to avoid errors; rather, it only requires reasonable precaution.’” Because the bona fide error defense applied, the appellate court affirmed summary judgment for the debt collector.

    Courts Appellate Debt Collection FDCPA Seventh Circuit

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  • 3rd Circuit: District court erred in voiding all cash advance agreements in NFL concussion settlement litigation


    On April 26, the U.S. Court of Appeals for the 3rd Circuit, in a consolidated class action, concluded that a district court went “too far” in voiding all of the cash advance arrangements between NFL concussion class members and third party lenders in their entirety. According to the opinion, in December 2017, the district court “issued an order purporting to void in their entirety all assignment agreements” where class members assigned a portion of their settlements from the 2015 NFL concussion injury litigation, concluding that it was “necessary to protect vulnerable class members from predatory funding companies.”

    On appeal, the 3rd Circuit addressed the merits in three of the four timely appeals, noting that the fundamental question was whether the district court had the authority to void the agreements. The appellate court held that the district court retained the authority to enforce and administer the settlement because there was an anti-assignment language in the settlement agreement. The appellate court upheld on the district court’s interpretation of the anti-assignment provision, holding that “any true assignments contained within the cash advance agreements—that is, contractual provisions that allowed the lender to step into the shoes of the player and seek funds directly from the settlement fund were void.” However, the appellate court concluded that the district court “went beyond its authority” by purportedly voiding the agreements in their entirety, because there are portions of some of the cash advance agreements that may still be enforceable after the true assignments are voided, such as ones structured as a non-assignment loan agreement. Since the district court’s authority “does not extend to how class members choose to use their settlement proceeds after they are disbursed,” the appellate court reversed in part the December 2017 order, leaving certain cash advance agreements enforceable to the extent rights are retained after the true assignments are voided.

    Courts Third Circuit Appellate Lending Structured Settlement Class Action

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  • District Court: Usury claim not preempted by National Bank Act


    On April 24, the U.S. District Court for the Western District of Pennsylvania denied in part and granted in part a national bank’s motion to dismiss a complaint alleging violations of, among other things, the Pennsylvania Loan Interest and Protection Act (“Act 6”). The allegations stem from the bank’s servicing of the plaintiffs’ mortgage. Pursuant to a settlement agreement reached between the parties in a separate 2012 lawsuit over alleged misrepresentations made by the bank concerning whether the plaintiffs were in arrears in their mortgage and escrow payments, the mortgage principal was reset. The plaintiffs asserted that although they made timely monthly payments, a 2014 mortgage statement reflected an escrow shortage, including unpaid late charges and outstanding advance/fees. Arguing that because the loan servicers refused their allegedly timely payments, which increased the principal balance, the plaintiffs claimed that the bank breached the terms of the settlement agreement by adding the unauthorized charges without providing notice. However, the bank argued—and the court concurred—that the breach of contract claim was outside the applicable statute of limitations. The plaintiffs further alleged that the bank charged an interest rate that exceed the rate permitted under Act 6, and that the loan servicer charged the plaintiffs “undisclosed, excessive, and retaliatory attorney’s fees ‘from at least one if not two prior lawsuits,’ in violation of the [s]ettlement [a]greement and Act 6,” along with other “unwarranted charges.”

    Concerning the bank’s motion to dismiss the Act 6 usurious interest rate claims based upon preemption, the court referred to the loan’s origination and rejected the bank’s argument that the usury claim was preempted by the National Bank Act, explaining that the homeowners’ mortgage was originated by a non-national bank even though a national bank was later assigned the note and mortgage. Additionally, the court rejected the bank’s argument that the Act 6 claim of unlawful attorney fees was barred by the applicable four-year statute of limitations. According to the court, “an Act 6 claim for excessive fees accrues upon payment of said fee; it does not accrue upon charge of the fee or upon the obligor’s knowledge of the fee.” However, the court determined that the plaintiffs failed to adequately allege that they made “the requisite unlawful payments of usurious interest or unlawful attorney’s fees” required to state valid Act 6 claims. As such, the court dismissed the Act 6 claims without prejudice.

    Courts State Issues Usury Mortgages National Bank Act Debt Collection

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  • 4th Circuit: RESPA time-bar annulled by fraudulent concealment


    On April 26, the U.S. Court of Appeals for the 4th Circuit reversed a district court’s dismissal of five plaintiffs’ putative class actions alleging RESPA violations, concluding that the claims were not time-barred due to the fraudulent concealment tolling doctrine. According to the opinion, between 2009 and 2014, several banks and mortgage companies (collectively, “defendants”) referred plaintiffs to a title company to procure title insurance and obtain settlement services, which allegedly provided the defendants with “several forms of ‘unearned fees and kickbacks’ to induce those referrals” in violation of RESPA. The plaintiffs alleged the kickbacks came in the form of payments to advertising and marketing shell companies for the referrals, which would then make payments to brokers or loan officers of the defendants. The district court dismissed the class actions because the first of the five class actions was not filed until June 2016, which was well beyond the one-year statute of limitations under RESPA.

    On appeal, the plaintiffs argued that they were entitled to relief under RESPA because the kickback scheme was allegedly “fraudulently concealed” by the defendants by using “sham” entities and not reporting the payments on the plaintiffs’ HUD-1 settlement statements. The 4th Circuit agreed, concluding that the district court erred in dismissing the plaintiffs’ claims. The appellate court noted that Congress did not intend to “allow individuals and entities that conceal their unlawful kickback schemes and other RESPA violations to reap the benefit of the statute of limitations as a defense.” Rejecting the defendants’ assertion that publicly-available information, including earlier court filings, should have “‘excited further inquiry’” by the plaintiffs to timely file the action, the appellate court emphasized that the fraudulent concealment doctrine requires only “reasonable diligence” and does not “necessarily hold individual borrowers to the diligence standard of combing court filings in potentially related cases, particularly when the borrower has no reason to be aware of the related cases.”

    Courts RESPA Kickback Statute of Limitations Appellate Fourth Circuit Class Action Mortgages

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  • 11th Circuit: Bank not obligated to investigate FCRA dispute


    On April 25, the U.S. Court of Appeals for the 11th Circuit affirmed a district court’s dismissal of a putative class action against a national bank, finding that the plaintiff failed to show an investigation would reveal the bank inaccurately furnished information to credit reporting agencies (CRAs). According to the opinion, after the plaintiff failed to make payments on his mortgage, the bank reported the delinquencies to the three CRAs. A Florida circuit court entered a final judgment of foreclosure in the bank’s favor, which the plaintiff paid two years later after the account was transferred to a different lender. Two years after he paid the foreclosure judgment, the plaintiff noticed that the CRAs showed his account as past due despite the fact that the judgment had been paid. However, following an investigation, the CRAs confirmed that the information provided by the bank was accurate, since it reflected two years of missed payments that the plaintiff later contended he was not obligated to make due to the filing for the foreclosure action. The plaintiff filed a class action suit alleging the bank violated the FCRA by failing to report that he had paid off the foreclosure judgment. The district court dismissed the case with prejudice, ruling that the bank satisfied its obligations under the FCRA, and that the plaintiff failed to support his claim that the bank was obligated to report the payoff after it transferred the account.

    On appeal, the 11th Circuit agreed with the district court, opining that because the plaintiff never claimed that the bank was informed of the past-due status dispute by the CRAs, the bank was not obligated to investigate under the FCRA. The court noted that the plaintiff “never alleged that [the bank] received notification from the CRAs that he disputed his account's past-due status as of July 2017,. . .that the CRAs provided notification of any such dispute to [the bank],. . .or even that he contacted the CRAs to dispute that aspect of his credit reports.” The plaintiff further argued that the filing of the foreclosure action and acceleration of the loan relieved him of the obligation to make monthly payments. The 11th Circuit was “unconvinced” by the argument and said that, nonetheless, “[w]hether [the plaintiff] was obligated to make payments on the mortgage after the Foreclosure Action was filed is a currently unresolved legal, not a factual, question. Thus, even assuming [the bank] furnished information that turned out to be legally incorrect under some future ruling, [the bank’s] purported legal error was an insufficient basis for a claim under the FCRA.”

    Courts FCRA Credit Reporting Agency Class Action Eleventh Circuit Appellate

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  • 11th Circuit: Increased risk of identity theft is sufficient to bring FACTA claims


    On April 22, the U.S. Court of Appeals for the 11th Circuit affirmed a district court’s ruling that including too many digits of a consumer’s credit card account number on a receipt was sufficient to constitute a concrete injury even if the consumer’s identity was not stolen. Under the Fair and Accurate Credit Transactions Act (FACTA), merchants are prohibited from including more than the final five digits of a consumer’s credit card number on a receipt. According to the opinion, the consumer filed a class action suit against a chocolate company, alleging that one of its stores printed the first six and last four digits of his account number on a receipt, which exposed the class members “to an elevated risk of identity theft.” When the parties sought approval of a proposed settlement, two unnamed class members contested the settlement on the grounds that, among other things, the consumer/class representative lacked standing to sue because he had not suffered a concrete injury as defined in the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins. The district court, however, approved the settlement.

    On appeal, the 11th Circuit held that an increased risk of identity theft is sufficient to bring claims under FACTA, and that the class representative’s “alleged injury is ‘particularized’ because the heightened risk of identity theft affected him ‘in a personal and individual way’—it was his credit card number that appeared on the receipt.” Moreover, the appellate court noted, “In our view, if Congress adopts procedures designed to minimize the risk of harm to a concrete interest, then a violation of that procedure that causes even a marginal increase in the risk of harm to the interest is sufficient to constitute a concrete injury.”

    Courts Appellate FACTA Privacy/Cyber Risk & Data Security Eleventh Circuit Class Action Settlement Spokeo

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  • 4th Circuit: TCPA debt collection exemption is unconstitutional


    On April 24, the U.S. Court of Appeals for the 4th Circuit vacated a district court’s decision to grant summary judgment in favor of the FCC, concluding that an exemption under the TCPA that allows debt collectors to use an autodialer to contact individuals on their cell phones when collecting debts guaranteed by the federal government violates the First Amendment’s Free Speech Clause. According to the opinion, several political consultant groups (plaintiffs) argued that a statutory exemption enacted by Congress as a means of allowing automated calls to be placed to individuals’ cell phones “that relate to the collection of debts owed to or guaranteed by the federal government” is “facially unconstitutional under the Free Speech Clause” of the First Amendment. The plaintiffs argued that the debt-collection exemption to the automated call ban contravenes their free speech rights. Moreover, the plaintiffs claimed that “the free speech infirmity of the debt-collection exemption is not severable from the automated call ban and renders the entire ban unconstitutional.” The FCC, however, argued that the applicability of the exemption depended on the relationship between the government and the debtor and not on the content. The district court awarded summary judgment in favor of the FCC after applying a “strict scrutiny review,” ruling that the exemption does not violate the Free Speech Clause.

    On appeal the 4th Circuit agreed with the plaintiffs that the exemption contravenes the Free Speech Clause, and found that the challenged exemption was a content-based restriction on free speech that did not hold up to strict scrutiny review. “Under the debt-collection exemption, the relationship between the federal government and the debtor is only relevant to the subject matter of the call. In other words, the debt-collection exemption applies to a phone call made to the debtor because the call is about the debt, not because of any relationship between the federal government and the debtor.” And because the exemption is a content-based restriction on speech, it must satisfy strict scrutiny review to be constitutional, which it fails to do, the 4th Circuit opined. “The exemption thus cannot be said to advance the purpose of privacy protection, in that it actually authorizes a broad swath of intrusive calls. . . [and] therefore erodes the privacy protections that the automated call ban was intended to further.” However, the appellate court sided with the FCC to sever the debt collection exemption from the automated call ban. “First and foremost, the explicit directives of the Supreme Court and Congress strongly support a severance of the debt-collection exemption from the automated call ban,” the panel stated. “Furthermore, the ban can operate effectively in the absence of the debt-collection exemption, which is clearly an outlier among the statutory exemptions.”

    Courts Fourth Circuit Appellate TCPA Autodialer FCC

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  • Divided Supreme Court says class arbitration is invalid without explicit permission


    On April 24, the U.S. Supreme Court in a 5-4 vote held that because an arbitration agreement did not explicitly permit class arbitrations, only individual arbitrations are allowed. The case began when an employee of a lighting retailer (petitioner) filed a class-action suit against the company after a hacker—who posed as a company official—persuaded an employee at the company to disclose the tax information of roughly 1,300 workers and then file a fraudulent tax report in the petitioner’s name. The company moved to dismiss the case, arguing that the petitioner was required to bring his claims in individual arbitration under the Supreme Court’s 2010 ruling in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., which bars class arbitration when there is no “contractual basis for concluding” that the parties agreed to it. The district court granted the motion to compel arbitration but rejected the company’s request for individual arbitration and authorized arbitration on a classwide basis. On appeal, the 9th Circuit affirmed the district court’s decision—agreeing that the ambiguous agreement permitted class arbitration—and “followed California law to construe the ambiguity against the drafter”—in this instance, the company who drafted the agreement.

    The company petitioned the Supreme Court to consider, consistent with the Federal Arbitration Act (FAA), whether an ambiguous agreement can provide the “contractual basis” required for compelling class arbitration. The majority deferred to the 9th Circuit’s conclusion that the arbitration agreement in question was ambiguous as to whether class arbitration was an option, and wrote that the lack of clarity cannot provide the “contractual basis” required under Stolt-Nielsen to compel class arbitration. Notably, the majority highlighted that “shifting from individual to class arbitration is a ‘fundamental’ change. . .that ‘sacrifices the principal advantage of arbitration’ and ‘greatly increases risks to defendants.” Citing to “crucial differences” between individual and class arbitration, the majority wrote that “courts may not infer consent to participate in class arbitration absent an affirmative ‘contractual basis for concluding that the party agreed to do so.’” The majority also stated that the 9th Circuit's decision to rely upon California’s contra proferentem doctrine to interpret contractual ambiguities against the drafter is “flatly inconsistent with ‘the foundational FAA principle that arbitration is a matter of consent.’”

    The four justices who voted against the decision all wrote dissents. Among other things, Justice Kagan wrote that the FAA stipulates that state law governs the interpretation of arbitration agreements, provided the law handles other types of contracts in the same way. “Today’s opinion is rooted instead in the majority’s belief that class arbitration ‘undermine[s] the central benefits of arbitration itself. [] But that policy view—of a piece with the majority's ideas about class litigation—cannot justify displacing generally applicable state law about how to interpret ambiguous contracts,” Justice Kagan stated. Justice Breyer, who joined Justices Ginsburg’s and Kagan’s dissents in full, also wrote that the 9th Circuit lacked jurisdiction over the company’s appeal, and consequently, the Supreme Court lacks jurisdiction as well.

    Courts U.S. Supreme Court Arbitration Class Action

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  • 8th Circuit: Letter did not violate FDCPA's “unsophisticated consumer” standard


    On April 22, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s dismissal of a consumer’s FDCPA action. The plaintiff alleged that the credit collections bureau violated the FDCPA’s prohibition against false, misleading, or deceptive representations when it sent a collection letter that included, among other things, the words “PROFESSIONAL DEBT COLLECTORS” along with an acronym for the company, which the plaintiff claimed violated the FDCPA’s provision which states that a debt collection may not use “any business, company, or organization name other than the true name. . . .” The plaintiff further alleged that the defendant violated the FDCPA and Minnesota law by (i) representing that she could submit payments on-line or correspond with the company through a designated website; (ii) stating it may seek pre-judgment interest; and (iii) including the signature of an individual who was not licensed to engage in debt collection activities in the state. The district court dismissed the claims, concluding that the use of the aforementioned language was not false or misleading under the “unsophisticated consumer” standard, and that neither the signature nor the pre-judgment interest statement violated the FDCPA.

    On appeal, the 8th Circuit affirmed the dismissal of the claims, holding that the collection letter did not violate the FDCPA, Minnesota law did not prohibit the defendant from seeking pre-judgment interest, and the Minnesota Supreme Court has yet to determine whether the law “allows for the recovery of pre-judgment interest in a case such as this.” Furthermore, the FDCPA “was not meant to convert every violation of a state debt collection law into a federal violation,” the appellate court wrote, and that even if one of the signatories was not licensed in the state to collect debt, the defendant was legally licensed and did not engage in unfair or unconscionable conduct under the statute.

    Courts Appellate Eighth Circuit FDCPA State Issues Debt Collection

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