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On May 6, a small California business filed a proposed class action against a nonbank lender, accusing the lender of a “scheme to enrich itself at the expense of small businesses in connection with the federal government’s Paycheck Protection Program (PPP),” in violation of California’s Unfair Competition Law. In the complaint, the plaintiff alleges she submitted an application for less than $25,000 to the lender on March 28 and received an email response that same day acknowledging receipt of her application. On March 29, the plaintiff received another email from the lender, which asked her to gather documentation and stated that she would receive an invitation to a secure portal in the next “48 business hours.” According to the complaint, however, by April 13, the plaintiff had not yet received a link to the portal, but the lender had sent an email acknowledging the delay. The complaint states that the plaintiff “informed and believes, and on that basis alleges” that the lender “chose to prioritize higher loans that would yield higher fees,” and did not disclose to the public that “it was prioritizing loans not on a first come, first served basis, but on criteria relating to the value of the loan.” The plaintiff alleges she would have chosen a different lender had she known the lender was going to prioritize larger loans. The complaint seeks injunctive relief, restitution, as well as compensatory and punitive damages.
On April 27, a majority panel for the U.S. Court of Appeals for the Eleventh Circuit denied the City of Miami Gardens’s petition for rehearing en banc after determining that the City “faced an uphill battle” to establish standing to bring a Fair Housing Act lawsuit against a national bank because it mainly relied on “an attenuated theory of injury.” As previously covered by InfoBytes, last July the 11th Circuit dismissed the City’s lawsuit against the bank for lack of standing after concluding, among other things, that the City’s evidence that certain loans may go into foreclosure at some point in the future “does not satisfy the requirement that a threatened injury be ‘imminent, not conjectural or hypothetical,’” and that the City failed to provide evidence that certain foreclosed loans had an effect on property-tax revenues or municipal spending or were issued on discriminatory terms. In explaining their decision to not rehear its 2019 ruling en banc, the majority stated that its decision—that the City failed to satisfy its burden of establishing standing—respects “the concerns and fairness and notice demanded by” both U.S. Supreme Court and 11th Circuit precedent. Two dissenting judges countered, however, that the rehearing should have been granted because, among other things, the 11th Circuit’s dismissal for lack of standing was done sua sponte “even though the City received neither proper notice that it failed to prove standing nor a legitimate opportunity to discover or produce the requisite evidence.”
On May 6, the U.S. District Court for the District of Massachusetts entered a temporary restraining order (TRO) enjoining the Massachusetts attorney general from enforcing an emergency regulation that made numerous standard debt collection actions an unfair or deceptive act or practice during the Covid-19 pandemic. As previously covered by InfoBytes, a debt collection trade association filed a complaint last month contending that the emergency regulation is a content-based restriction on free speech and unconstitutional because it, among other things, excludes six classes of collectors from the prohibition on placing collection calls, and does not treat all “communications” equally by excluding certain types of collections communications. The trade association argued that the emergency regulation, among other things, bars debt collectors from being able to initiate phone conversations with individuals who have unpaid debts. In granting the TRO, the court wrote that the measure violates debt collection agencies’ First Amendment rights without adding meaningful consumer protections, and that, “[w]hile the [r]egulation promises some relief from unwanted telephone calls, it does not pretend to offer any relief from the debt itself or the obligation to repay it in full.” The court also noted that the emergency regulation “singles out one group debt collectors and imposes a blanket suppression order on their ability to use what they believe is their most effective means of communication, the telephone. If what the Attorney General meant to accomplish by way of the [r]egulation was a strict liability ban on all deceptive and misleading debt collection calls, the [r]egulation is redundant as that is already the law, both state and federally.”
On May 1, the U.S. Court of Appeals for the Eleventh Circuit held that the TCPA does not permit a consumer (plaintiff) to later revoke her consent to be contacted by telephone when the consent was given in a bargained-for contract. The plaintiff entered into an agreement with the defendant that provided express authorization to be contacted by the defendant through the use of an automated telephone dialing system to recover unpaid obligations. The plaintiff’s attorneys later sent the defendant faxes to, among other things, revoke the plaintiff’s consent to be contacted. Notwithstanding those faxes, the defendant continued to place calls to collect debt, and the plaintiff filed suit alleging violations of the TCPA, among other allegations. The district court granted summary judgment to the defendant, ruling that the automated calls did not violate the TCPA because consent cannot be unilaterally revoked when provided as part of a bargained-for contract.
On appeal, the 11th Circuit affirmed the district court’s summary judgment order on the plaintiff’s TCPA claims because “common law contract principles do not allow unilateral revocation of consent when given as consideration in a bargained-for agreement.” Referencing a decision issued in 2017 concerning the same situation (covered by InfoBytes here), the appellate court wrote, “[w]e, like the Second Circuit, are also unpersuaded by the argument that unilateral revocation of consent given in a legally binding agreement is permissible because it comports with the consumer-protection purposes of the TCPA.”
On May 4, a group of businesses filed a lawsuit in the U.S. District Court for the Central District of California against the Small Business Administration (SBA) and the U.S. Department of Treasury (defendants) challenging guidance issued by the defendants in April that they claim “directly contradicts and changes the CARES Act.” The guidance, issued in the form of FAQs #31 and 37 (covered by InfoBytes here and here), addresses whether businesses owned by large companies or private companies with adequate sources of liquidity are eligible for a Paycheck Protection Program (PPP) loan. Among other things, the guidance instructs borrowers to consider other sources of liquidity other than PPP funds, and states that while lenders may rely on the borrower certification of need, a borrower must still certify in good faith that their PPP loan request is necessary.
The plaintiffs argue that the guidance is contrary to the CARES Act because it imposes a requirement that borrowers must be unable to get credit elsewhere before they can qualify, and suggests that businesses may be ineligible for PPP loans if they qualify for “other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” The consequences of the guidance, they argue, is that they may now be required to repay PPP funds with money they either do not have or must borrow since they could have obtained “credit elsewhere,” thus damaging their financial stability. The plaintiffs seek injunctive relief enjoining the defendants from enforcing the guidance, as well as a declaration that the guidance is contrary to law and must be withdrawn.
5th Circuit: Collection letters misrepresenting legal enforceability of underlying debt violate FDCPA
On April 29, the U.S. Court of Appeals for the Fifth Circuit held that letters seeking the collection of time-barred debt that include ambiguous offers and contain threats misrepresenting the legal enforceability of the underlying debt violate section 1692e of the FDCPA. In 2011, a creditor placed the plaintiff’s debt with the defendant for collection. Six collection letters were initially sent to the plaintiff for which there was no response, and in 2017, the defendant sent four more letters to the plaintiff. While it was undisputed that the four-year statute of limitations to sue to collect the debt had expired, none of the letters mentioned that the debt was time-barred or that a partial payment may restart the statute of limitations clock. The plaintiff filed suit claiming the 2017 letters violated the Texas Debt Collection Act and were false or misleading and unfair or unconscionable in violation of FDCPA §§ 1692e and 1692f respectively. The district court granted summary judgment for the plaintiff on the 1692e claim, but ruled that “‘there is a growing consensus’ that a claim under § 1692f is a ‘backstop’ to catch conduct outside that barred by § 1692e and other provisions,” and granted summary judgment to the defendant on the 1692f claim. The defendant appealed the 1692e decision.
On appeal, the 5th Circuit affirmed and held that, read as a whole, the letters misrepresented the legal enforceability and character of the debt in violation of § 1692e. The appellate court found that the 2017 letters were ambiguous and failed to even mention when the debt was incurred, which may have provided some insight to the plaintiff as to whether the debt might be legally enforceable. The appellate court also took issue with the 2017 letters’ use of unexplained “urgent” language and vague collection threats, and stated that “the complete silence in these letters works in conjunction with their vague language to mislead the unsophisticated consumer that the debt is enforceable.”
4th Circuit: Disgorgement calculation lacks necessary casual connection between profits and violations
On April 27, the U.S. Court of Appeals for the Fourth Circuit held that a district court’s disgorgement calculation for a banker found in contempt of a consent order rested on “an erroneous legal interpretation of the terms of the underlying consent order” and “lacked the necessary causal connection” between profits and a violation. As previously covered by InfoBytes, the banker settled RESPA and state law allegations with the CFPB and the Maryland Attorney General concerning his participation in a mortgage-kickback scheme. The 2015 final judgment order banned the defendant from participating in the mortgage industry for two years but did not prohibit him “from acting solely as a personnel or human-resources manager for a mortgage business operated by a FDIC-insured banking institution. . . .” In 2018, the banker was held in civil contempt for violating the final judgment order, and the district court ordered the disgorgement of over half-a-million dollars of his contemptuous earnings. The banker appealed the contempt finding and disgorgement.
On appeal, the 4th Circuit first held that the district court properly found the banker in violation of the consent order, determining among other things that, while the final judgment order did not broadly prohibit his participation in the mortgage industry, there was sufficient evidence that he “continued to communicate impermissibly with third-party businesses engaged in settlement services” and that he failed to follow various reporting requirements, such as uploading the consent order to a national registry and notifying regulators of a change in residence and business activity. However, the 4th Circuit found that the district court erred in its approach to calculating disgorgement because it assumed that “managing the business was improper and set out identifying [the banker’s] profits from his business because any such profit was contemptuous income.” (Emphasis in the original.) Holding that the district court’s view relied on an overbroad interpretation of the consent order and lacked the causal connection between the banker’s profits and a violation, the 4th Circuit vacated the disgorgement order and remanded the case to the district court to reassess the disgorgement calculation based on the banker’s more limited conduct that did not comply with the order.
On April 21, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s order denying a plaintiff’s motion to compel arbitration, holding that two credit reporting agencies (CRAs) are not subject to arbitration because of their contractual relationships with a bank. The plaintiff sued the bank and the CRAs, alleging violations of the FCRA and that the bank additionally violated the TCPA and the Fair Credit Billing Act in connection with disputed, unfamiliar charges that appeared on his credit card. The bank moved to compel arbitration pursuant to a provision in its credit card agreement, and the CRA defendants moved to stay the claims against them pending the outcome of the arbitration between the plaintiff and the bank. While the plaintiff opposed the bank’s motion to compel arbitration, he simultaneously moved to compel the CRAs to arbitration in the event that the bank’s motion was granted. The district court granted the bank’s motion to compel arbitration and denied the plaintiff’s motion to compel the CRAs to arbitration, reasoning that “‘there is a rebuttable presumption that non-signatories to a contract cannot be bound by arbitration agreements.’”
On appeal, the 5th Circuit agreed with the district court, concluding that because the CRAs were not signatories to the credit card agreement and were neither expressly nor implicitly parties to the agreement, they could not be compelled to arbitrate the plaintiff’s FCRA claims. Furthermore, while Alabama law governed the agreement, the appellate court rejected the plaintiff’s arguments that equitable estoppel and third-party beneficiary theories under Alabama common law required the CRAs to arbitrate the claims.
On April 23, the OCC filed its opening brief in the U.S. Court of Appeals for the Second Circuit to appeal a district court’s final judgment in an NYDFS lawsuit that challenged the agency’s decision to allow non-depository fintech companies to apply for Special Purpose National Bank charters (SPNB charter). As previously covered by InfoBytes, last October the district court entered final judgment in favor of NYDFS, ruling that the SPNB regulation should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State. The judgment followed the court’s denial of the OCC’s motion to dismiss last May (covered by InfoBytes here), in which the court concluded, among other things, that the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, and that engaging in the “business of banking” under the National Bank Act (NBA) “unambiguously requires receiving deposits as an aspect of the business.” Highlights of the OCC’s appeal include:
- The OCC claims that NYDFS lacks standing and that its claims are unripe because its alleged injuries are premised on a non-depository fintech company receiving a SPNB charter and commencing business in the state. However, the OCC has yet to receive even an application. The OCC also argues that NYDFS “would not be prejudiced by waiting to resolve these claims until OCC takes affirmative steps to approve an application” because the period between preliminary conditional approval and final approval would provide “ample opportunity to challenge such an application.”
- The OCC argues that the district court erred in holding that the agency’s decision to accept SPNB charter applications from non-depository fintechs was not entitled to Chevron deference. Specifically, the term “business of banking” under the NBA is “ambiguous” on whether it requires deposit-taking, and the OCC’s resolution of that ambiguity is reasonable as it is consistent with U.S. Supreme Court case law.
- The OCC argues that even if NYDFS’s claims were justiciable (and even if the OCC’s interpretation was not entitled to Chevron deference), any relief NYDFS is entitled to receive must be limited to the state. The OCC contends that the district court’s decision to grant nationwide relief was improper because it is inconsistent with Article III, which establishes that “remedies should not extend beyond what is necessary to redress the plaintiff’s alleged injuries,” as well as equitable principles and the Administrative Procedure Act.
On April 24, a proposed class of borrowers and a national student loan servicer agreed to settle a lawsuit, which alleged the servicer failed to inform the borrowers of a loan forgiveness program for public service employees. The proposed settlement, pending final court approval, settles the one remaining deceptive acts and practices claim under a section of the New York General Business Law after the U.S. District Court for the Southern District of New York dismissed the rest of the borrowers’ claims last July. The court noted in its order that it did not agree with the servicer’s argument that the claims were preempted by the federal Higher Education Act (HEA), stating that the borrowers “do not seek to impose state law ‘disclosure requirements’ on federal student loans,” but instead “seek to hold [the servicer] liable for affirmative misrepresentations made in the course of performing its duties under various contracts.” According to the court’s order, language under the HEA “does not express the ‘clear and manifest purpose of Congress’ to preempt such claims.”
While the servicer denies any allegations of wrongful conduct and damages, it has agreed to, among other things, put in place enhancements to identify borrowers who may qualify for Public Service Loan Forgiveness and “distribute comprehensive and accurate information about how to qualify, which are meaningful business practice enhancements.” The servicer will also fund a $1.75 million education and counseling program for student loan borrowers in public service.
- Daniel R. Alonso to discuss "When can trial lawyers take their case to the public? The Harvey Weinstein case and beyond" at a New York City Bar Association webcast
- Jonice Gray Tucker to discuss "Fair servicing in wake of Covid-19" at an American Bar Association webinar
- APPROVED Webcast: Maximizing vendor value
- Daniel P. Stipano to discuss "Cram for the exam: Best prep strategies for a regulatory examination" at an ACAMS webinar
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)