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District Court enters $2.8 million judgment in CFPB student debt relief action
On March 22, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against one of the defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney, alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint asserted that the defendants violated the CFPA, the Telemarketing Sales Rule, and various state laws. Amended complaints (see here and here) also added new defendants and included claims for avoidance of fraudulent transfers under the Federal Debt Collection Procedures Act and California’s Uniform Voidable Transactions Act, among other things. A stipulated final judgment and order was entered against the named defendant in July (covered by InfoBytes here), which required the payment of more than $35 million in redress to affected consumers, a $1 civil money penalty to the Bureau, and $5,000 in civil money penalties to each of the three states. The court also previously entered final judgments against several of the defendants, as well as a default judgment and order against two other defendants and a settlement with two non-parties (covered by InfoBytes here, here, here, here, and here).
The final judgment issued against the settling defendant, who neither admitted nor denied the allegations except as specifically stated, permanently bans the defendant from participating in telemarking services or offering or selling debt-relief services, and prohibits it from misrepresenting benefits consumers may receive from a product or service. The defendant is also permanently restrained from violating applicable state laws, and may not disclose, use, or benefit from customer information obtained in connection with the offering or providing of the debt relief services. The settlement orders the defendant to pay more than $2.8 million in consumer redress, as well as a $1 civil money penalty to the Bureau and $5,000 to each of the three states.
Maine Supreme Judicial Court affirms denial of arbitration in online contract formation case
Earlier this year, the Maine Supreme Judicial Court affirmed a lower court’s decision to deny a ride-sharing company’s motion to compel arbitration in case concerning the enforceability of contracts formed through a smart phone application. In agreeing with the plaintiff that the terms and conditions were not binding under the circumstances, the Court concluded that the plaintiff was not provided reasonable notice of, nor manifested her assent to, binding arbitration when she clicked “DONE” after setting up her account and entering payment information. The Court characterized the company’s rider registration process as a “sign-in wrap agreement,” in which the plaintiff was informed she was assenting to the terms by creating an account, instead of having to affirmatively signify agreement with the terms. The Court stated that while it has not yet considered the enforceability of online contracts, “other courts have held that the formation of online contracts is governed by the same principles as traditional contracts.” The Court analyzed the enforceability of a sign-in wrap agreement using the following three components: (i) “Conspicuous terms or access to terms: The more likely that the user must at least view, if not read, the terms themselves as a condition of utilizing the website or the product, the more likely that a court will hold that the terms are binding”; (ii) “Uncluttered screen: Where notice or the hyperlink to agreement terms appears on an interface that is cluttered with other features and therefore is not easily spotted, an agreement is less likely to be binding on the user”; and (iii) “Explicit manner of expressing assent: The more obvious the user’s assent to terms, the more likely the terms will be binding.”
The Court determined that the plaintiff did not have reasonable notice because the hyperlink containing the terms was presented in muted gray coloring, was “not obviously identifiable as a hyperlink,” and the sequence in which it appeared during the registration process “render[ed] it relatively inconspicuous” and made it less likely to draw the user’s attention, particularly because the focus of the registration process was on entering payment information rather than on the terms. The Court distinguished its conclusion from a decision issued by the U.S. Court of Appeals for the Second Circuit in Meyer v. Uber Technologies Inc., et al. (covered by InfoBytes here), which the company heavily relied upon. In Meyer, the 2nd Circuit upheld contract formation on the grounds that a “reasonably prudent smartphone user” would have been on “reasonably conspicuous notice” of the terms and conditions of service and that the text beneath the registration button put the plaintiff on notice that clicking “REGISTER” meant acceptance of those terms—regardless of whether he actually reviewed them. “The interface in Meyer increased the likelihood that the terms would come to the user’s attention—the hyperlink text to the terms in Meyer was underlined and in blue, and the hyperlink itself appeared in close proximity to the “REGISTER” button,” the Court wrote.
The Court further concluded that the plaintiff did not manifest her assent to the terms because a reasonably prudent user would conclude that by clicking “DONE” she was only entering her payment information given the heading of the window read “LINK PAYMENT.” While the court acknowledged that the hyperlink containing the terms was on the same page as the “DONE” button, the notice did not state that “By clicking DONE, you agree to the Terms.”
The Court concluded that the company “could have designed its rider app to incorporate scrollwrap or clickwrap contracts that provided adequate notice of [the company’s] original and updated Terms and required consumers to express actual assent” but “apparently decided not to do so.” Furthermore, the Court found that a subsequent email notifying users of updates to the terms (which also required arbitration) did not obligate the plaintiff to arbitrate her dispute because the email did not require users to read or acknowledge the updated terms to remain registered as rider.
District Court dismisses time-barred mortgage discrimination claims
On March 17, the U.S. District Court for the Northern District of Georgia agreed that claims against a group of mortgage lenders for conduct arising prior to November 2013 were barred under the two-year statute of limitations of the Fair Housing Act (FHA). Plaintiffs Cobb County, DeKalb County, and Fulton County, Georgia (collectively, “Counties”) alleged that the defendants “engaged in, and continue to engage in, discriminatory schemes that expose borrowers to unreasonable levels of risk; needlessly inflate interest rates, penalties, and fees; generate unauthorized and inflated charges for default related services; and lead to higher foreclosure rates among minority borrowers.” According to the Counties, these alleged practices have caused them to incur financial injury, including foreclosure-related costs, loss of property tax revenue, increased segregation, and organizational harm to County departments and authorities due to the forced reallocation of funds to address harms caused by the defendants’ actions. The Counties filed a complaint on November 20, 2015, asserting three counts related to disparate impact and disparate treatment theories under the FHA. Defendants moved for partial summary judgment on statute-of-limitations grounds, arguing that the Counties’ allegations are time-barred because they are based on allegedly discriminatory conduct occurring before November 20, 2013. Defendants further contended that the Counties could not “allege a ‘continuing violation’ that tolls the statute of limitations for each allegedly discriminatory act until the continuing violation ends because [a plaintiff’s] knowledge of a claim, or reason to have knowledge of a claim, cuts off equitable tolling of the statute of limitations for claims based on a continuing violation, and the Counties knew or should have known of their FHA claims at least as of May 2011.”
The court agreed with the defendants, pointing out that, among other things, there is “copious circumstantial evidence” that the Counties knew or should have known of their claims prior to May 2011, including well publicized allegations against the same defendants for similar conduct, and their retention of outside counsel in 2010 to investigate potential discrimination claims. According to the court, while a reasonable jury could find that the Counties themselves did not know of their claims, the record left no doubt that the outside counsel “knew of the claims prior to the statutory period, or would have known of the claims if he conducted himself with reasonable prudence.” Because the outside counsel’s “knowledge is imputed to his clients, no reasonable jury could find in the Counties’ favor on the statute-of-limitations issue.”
District Court denies defendant’s motion to certify an interlocutory appeal in BIPA case
On March 18, the U.S. District Court for the Northern District of Illinois denied a retailer’s motion to certify for interlocutory appeal the court’s earlier ruling denying, in part, the retailer’s motion to dismiss. This multi-district litigation involves allegations that the retailer used a database containing photographs of individuals and other information to identify people whose images appeared in its surveillance cameras, in violation of the Illinois Biometric Information Privacy Act (BIPA), and California and New York laws. In denying the request for interlocutory appeal, the district court held that its earlier ruling had faithfully applied U.S. Court of Appeals for the Seventh Circuit precedent regarding standing of those who allege invasions of their personal privacy, and that the Supreme Court’s decision in TransUnion v. Ramirez (covered by InfoBytes here) did not undermine that precedent. It also held that the retailer’s disagreement with its prior application of the alleged facts to BIPA and its prior ruling that the plaintiffs had stated claims under California and New York laws did not warrant interlocutory review.
District Court denies motions in FDCPA and TCPA suit
On March 18, the U.S. District Court for the District of Nevada denied motions for judgment on the pleadings filed by both the plaintiff and defendant in a lawsuit alleging violations of the FDCPA and TCPA. According to the order, the defendant allegedly offered to settle an unpaid medical debt with the plaintiff; the plaintiff accepted the offer and paid the debt. After the settlement, the defendant allegedly called the plaintiff and left voicemails seeking to collect the same debt. The plaintiff filed suit, alleging that the calls violated the TCPA because she revoked consent to be contacted after she paid the debt. The plaintiff also alleged that the defendant violated the FDCPA by attempting to collect the debt after it had been settled. In denying the parties’ cross motions for judgment on the pleadings, district court observed that, although the plaintiff had previously consented to being contacted, it could not “determine as a matter of law whether merely settling the Debt was enough to revoke Plaintiff’s consent.” With respect to the FDCPA claim, the district court “would grant Plaintiff’s motion for judgment on the pleadings under the FDCPA, if it were not for Defendant’s affirmative defense ‘bona fide error,’” for which the debt collector has the burden of proof.
District Court grants final approval in data breach case
On January 4, the U.S. District Court for the Eastern District of Texas granted final approval of a settlement in a class action resolving claims that a software company and its subsidiary (collectively, “defendants”) failed to properly safeguard customers' personally identifiable information (PII). According to the memorandum of law in support of the plaintiff’s motion for preliminary approval, the plaintiffs filed suit after a data breach of the defendant’s systems, alleging that defendant violated numerous states’ privacy and other laws by failing to keep their PII confidential and securely maintained. According to the plaintiffs’ motion for preliminary approval, the settlement establishes a settlement class of approximately 4,341,523 members whose PII was potentially compromised by the breach. The settlement would provide $2,000 for each named plaintiff and reimbursement of up to $5,000 of out-of-pocket expenses per class member, including up to eight hours of lost time at $25 per hour and 12 months of financial fraud protection. Additionally, more funds will be given to the California subclass, comprised of 318,091 individuals, who will receive between $100 and $300 in relief each. The defendants are also be required to pay attorneys’ fees and litigation costs and expenses.
2nd Circuit remands case to determine whether loans that violate New York’s criminal usury law are void ab initio
On March 15, the U.S. Court of Appeals for the Second Circuit vacated a district court ruling that had declined to treat an option that permits a lender, in its sole discretion, to convert an outstanding balance to shares of stock, at a fixed discount, as interest for purposes of New York’s criminal usury law. The district court had also observed, though it had no need to reach the issue, that even if the loan was usurious, it would not necessarily be void ab initio. After the case was appealed, the 2nd Circuit certified both issues to the New York Court of Appeals, which concluded, contrary to the district court, that such an option should be treated as interest for purposes of the usury statute and that loans made in violation of the usury statute are void ab initio. In light of the New York Court of Appeals holdings on these issues of state law, the 2nd Circuit vacated the district court’s order, and remanded to the district court to determine, in the first instance, whether the value of the option rendered the loan usurious.
District Court: Failing to invoke the BFE defense does not entitle a plaintiff to judgment as a matter of law
On March 15, the U.S. District Court for the Eastern District of Washington denied a plaintiff’s motion for partial summary judgment, ruling that just because a defendant did not invoke the bona fide error (BFE) defense when accused of allegedly violating the FDCPA it does not mean the defendant has admitted to violating the statute. In 2018, the defendant debt collector attempted to collect unpaid debt in the amount of $786.68 from the plaintiff and began reporting the debt to the consumer reporting agencies (CRAs). In 2021, after the original creditor recalled the account from the defendant for an unspecified reason, the defendant submitted two requests to the CRAs to delete the item from the plaintiff’s credit report and took no further action on the account. Shortly thereafter, the plaintiff noticed a $787.00 debt on one of his credit reports. He contacted the original creditor and was told the company could not find an account in his name that was referred for collection. The plaintiff sued for violations of Section 1692e of the FDCPA and related violations of Washington state law, and later filed for a partial motion for summary judgment contending that the FDCPA “is a strict liability remedial statute that contains a single affirmative defense to liability—the bona fide error defense,” and that because the defendant did not plead the BFE defense “he is entitled to judgment as a matter of law as to Defendant’s liability under the statute.” While the defendant acknowledged that it did not plead the BFE defense, it countered that the plaintiff “cannot prove a prima facie case of liability.”
The court concluded that “[w]hile the statute is strict liability, ‘a debt collector’s false or misleading representation must be ‘material’ in order for it to be actionable under the FDCPA.” Noting that the alleged violation appeared to be based on the grounds that the defendant reported an inflated account balance ($787.00 versus $786.68), the court stated it “has little trouble in concluding that inflating an account balance by 32 cents is not a materially false representation. To the contrary, it is a ‘mere technical falsehood that mislead[s] no one.’” Moreover, the court stated that because the defendant immediately ceased reporting the account and sent deletion requests to the CRAs after the account was recalled, and that there was no evidence to suggest that the debt collector knew or should have known that it was communicating information that was false, the plaintiff could not show, at this stage of the proceeding, that Section 1692e was violated.
District Court denies defendants summary judgment over FCA violations
On March 16, the U.S. District Court for the Eastern District of Texas denied a motion for summary judgment by a mortgage servicer relating to False Claims Act (FCA) claims alleging false certifications of compliance to obtain payment under three different government programs: Treasury’s Home Affordable Modification Program (HAMP), FHA HAMP, and VA HAMP. According to the memorandum opinion and order, the relator, a former loss-mitigation specialist at the mortgage servicer, alleged that the mortgage servicer engaged in widespread dual tracking, continuously moving homeowners’ mortgages through the foreclosure process even as the defendants were supposed to be evaluating the mortgages for loss mitigation options and HAMP. The plaintiff further alleged that “the dual tracking led many homeowners to lose their homes in foreclosure when foreclosure should have been suspended during the resolution of modification and other workout processes,” and that the defendants “knowingly lacked adequate HAMP systems, processes, staffing, and training.”
The defendants argued that, “notwithstanding industrywide difficulties, publicly available service assessments and third-party reviews show that [the mortgage servicer was] one of the highest-rated servicers participating in HAMP []. Further, though Treasury had the power to withhold incentives for HAMP non-compliance, Treasury never did so and consistently paid HAMP incentive payments to [the mortgage servicer] until the program expired.” The mortgage servicer also argued that summary judgment was appropriate for several reasons; (i) the court lacks jurisdiction to consider any of the relator’s claims under the FCA’s first-to-file bar; (ii) the relator’s claims fail because he cannot establish one or more of the required elements as to each claim; and (iii) the relator’s VA claim fails because the he cannot cite to any evidence of a certification by the mortgage servicer to the VA, and thus cannot demonstrate a false statement or fraudulent conduct. The court held that, pursuant to Fifth Circuit precedent, the first-to-file rule is inapplicable here because this case was filed by the same relator in a New York district court. With respect to the remaining claims, the court held that summary judgment is inappropriate where, as here, there exist genuine issues of material fact.
District Court rules ratification unnecessary for CFPB to proceed with 2017 enforcement action
On March 16, the U.S. District Court for the Southern District of New York ruled that the CFPB can proceed with its 2017 enforcement action against a New Jersey-based finance company alleging, among other things, that it misled first responders to the World Trade Center attack and NFL retirees about high-cost loans mischaracterized as assignments of future payment rights. In 2020, the U.S. Court of Appeals for the Second Circuit vacated a 2018 district court order dismissing the case on the grounds that the Bureau’s single-director structure was unconstitutional, and that, as such, the agency lacked authority to bring claims alleging deceptive and abusive conduct by the company (covered by InfoBytes here). The 2nd Circuit remanded the case to the district court, determining that the U.S. Supreme Court’s ruling in Seila Law LLC v. CPFB (holding that the director’s for-cause removal provision was unconstitutional but severable from the statute establishing the Bureau, as covered by a Buckley Special Alert) superseded the 2018 ruling. The appellate court further noted that following Seila, former Director Kathy Kraninger ratified several prior regulatory actions (covered by InfoBytes here), including the enforcement action brought against the defendants, and as such, remanded the case to the district court to consider the validity of the ratification of the enforcement action. The defendants later filed a petition for writ of certiorari, arguing that the Bureau could not use ratification to avoid dismissal of the lawsuit, but the Supreme Court declined the petition. (Covered by InfoBytes here.)
In 2021, the defendants filed a motion to dismiss the Bureau’s enforcement action on the grounds that “it was brought by an unconstitutionally constituted agency” and that the Bureau’s “untimely attempt to subsequently ratify this action cannot cure the agency’s constitutional infirmity.” After narrowly reviewing whether the Bureau had the authority to bring claims under the Consumer Financial Protection Act, the district court turned to the Supreme Court’s June 2021 majority decision in Collins v. Yellen, which held that “‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[.]’” Accordingly, the agency’s actions are not void and do not need to be ratified, unless a plaintiff can show that “the agency action would not have been taken but for the President’s inability to remove the agency head.” (Covered by InfoBytes here.) The district court’s March 16 opinion applied Collins and ruled that “the CFPB possessed the authority to bring this action in February 2017 and, hence, that ratification by Director Kraninger was unnecessary.”