Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • District Court dismisses PPP putative class action against nonbank

    Courts

    On November 24, the U.S. District Court for the Central District of California dismissed, with prejudice, a putative class action alleging that a nonbank lender prioritized high-dollar Paycheck Protection Program (PPP) loan applicants. The plaintiff’s complaint—which alleged claims of fraudulent concealment, fraudulent deceit, unfair business practices, and false advertising—claimed, among other things, that the lender (i) was not licensed to make loans in California when she applied; (ii) did not have adequate funding to make the loans; and (iii) advertised it would process loan requests on a first-come, first-served basis, but actually prioritized favored customers and higher-value loans that yielded higher lending fees. The court granted the lender’s motion to dismiss. According to the court, the plaintiff’s allegation that the parties were “transacting business in order to enter into a contractual, borrower-lender relationship” was not supported by any facts, and that while the plaintiff claimed she submitted a PPP loan application to the lender, a confirmation e-mail from the lender did not mention a submitted application—only a loan request. “This court cannot, therefore, assume the truth of Plaintiff’s allegation that she submitted a loan application, let alone her conclusory allegation that the parties entered into a borrower-lender relationship or engaged in any other transaction,” the court stated. The court also determined that the plaintiff’s fraudulent deceit claim failed because her allegation, made on information and belief, that the lender prioritized large loans had no factual foundation, and the plaintiff failed to plead the elements of that claim.

    Courts Covid-19 Small Business Lending SBA Class Action CARES Act Nonbank State Issues California

  • CFPB agrees taskforce was illegally chartered

    Courts

    On November 29, the parties reached a stipulated settlement in an action filed by several consumer advocacy groups against the CFPB, which claimed that the Bureau’s Taskforce on Federal Consumer Financial Law established under former Director Kathy Kraninger was “illegally chartered” and violated the Federal Advisory Committee Act (FACA). The consumer advocacy groups’ complaint alleged that the taskforce—which was established by the Bureau in 2019 to examine the existing legal and regulatory environment facing consumers and financial services providers—lacks balance, and that the appointed members who “uniformly represent industry views” have worked on behalf of several large financial institutions or work as industry consultants or lawyers. (Covered by InfoBytes here.) This composition, the consumer advocacy groups argued, undermines the purpose of the taskforce and is a violation of FACA and the Administrative Procedure Act. The complaint also stated that while FACA requires advisory committee meetings to be open to the public and that records be disclosed, the taskforce has held closed-session meetings without providing public notice and has failed to make available any of the records related to these meetings or its other work.

    Under the terms of the stipulated settlement filed in the U.S. District Court for the District of Massachusetts, the parties agreed that the taskforce “was subject to FACA because it was ‘established’ and ‘utilized’ by the Bureau ‘in the interest of obtaining advice or recommendations.’” The parties also stipulated that the Bureau failed to comply with FACA in its establishment and operation of the taskforce, including by releasing a two volume report in January containing recommendations for modernizing the consumer financial services marketplace (covered by InfoBytes here) without being produced by a FACA-compliant advisory committee. The stipulated settlement agreement requires the Bureau to, among other things, (i) release all taskforce records; (ii) amend the final report to include a disclaimer that the report was produced in violation of FACA; (iii) relocate the taskforce webpage and remove the current version of the report from its website; (iv) issue a press release by January 17, 2022, notifying the public of the settlement agreement; and (v) provide status reports until the Bureau has come into full compliance.

    Courts CFPB Taskforce Federal Advisory Committee Act Settlement Administrative Procedures Act

  • 2nd Circuit reverses itself, finding no standing to sue for recording delays

    Courts

    On November 17, the U.S. Court of Appeals for the Second Circuit reversed its earlier determination that class members had standing to sue a national bank for allegedly violating New York’s mortgage-satisfaction-recording statutes, which require lenders to record borrowers’ repayments within 30 days. As previously covered by InfoBytes, the plaintiffs filed a class action suit alleging the bank’s recordation delay harmed their financial reputations, impaired their credit, and limited their borrowing capacity. While the bank did not dispute that the discharge was untimely filed, it argued that class members lacked Article III standing because they did not suffer actual damages and failed to plead a concrete harm under the U.S. Supreme Court’s decision in Spokeo Inc. v. Robins. At the time, the majority determined, among other things, that “state legislatures may create legally protected interests whose violation supports Article III standing, subject to certain federal limitations.” The alleged state law violations in this matter, the majority wrote, constituted “a concrete and particularized harm to the plaintiffs in the form of both reputational injury and limitations in borrowing capacity” during the recordation delay period. The majority further concluded that the bank’s alleged failure to report the plaintiffs’ mortgage discharge “posed a real risk of material harm” because the public record reflected an outstanding debt of over $50,000, which could “reasonably be inferred to have substantially restricted” the plaintiffs’ borrowing capacity.

    In withdrawing its earlier opinion, the 2nd Circuit found that the Supreme Court’s June decision in TransUnion v. Ramirez (which clarified what constitutes a concrete injury for the purposes of Article III standing in order to recover statutory damages, and was covered by InfoBytes here) “bears directly on our analysis.” The parties filed supplemental briefs addressing the potential impacts of the TransUnion ruling on the 2nd Circuit’s previous decision. The bank argued that while “New York State Legislature may have implicitly recognized that delayed recording can create [certain] harms,” the plaintiffs cannot allege that they suffered these harms. Class members challenged that “the harms that the Legislature aimed to preclude need not have come to fruition for a plaintiff to have suffered a material risk of real harm sufficient to seek the statutory remedy afforded by the Legislature.” Citing the Supreme Court’s conclusion of “no concrete harm; no standing,” the appellate court concluded, among other things, that class members failed to allege that delayed recording caused a cloud on the property’s title, forced them to pay duplicate filing fees, or resulted in reputational harm. Moreover, while publishing false information can be actionable, the appellate court pointed out that the class “may have suffered a nebulous risk of future harm during the period of delayed recordation—i.e., a risk that someone (a creditor, in all likelihood) might access the record and act upon it—but that risk, which was not alleged to have materialized, cannot not form the basis of Article III standing.” The appellate court further stated that in any event class members may recover a statutory penalty in state court for reporting the bank’s delay in recording the mortgage satisfaction.

    Courts Appellate Second Circuit Mortgages Spokeo Consumer Finance U.S. Supreme Court Class Action

  • District Court grants preliminary approval of privacy class action settlement

    Courts

    On November 19, the U.S. District Court for the Northern District of California granted preliminary approval of a $58 million settlement in a class action against a fintech company (defendant) alleged to have accessed the personal banking data of users without first obtaining consent, in violation of California privacy, anti-phishing, and contract laws. The plaintiffs alleged the defendant obtained data from class members’ financial accounts without authorization. The plaintiffs also claimed the defendant collected class members’ bank login information through a user interface that made it appear as if class members were interfacing directly with their financial institution, when they were actually interfacing with the defendant.

    In granting preliminary approval of the settlement, the court determined it was unclear whether the plaintiffs would have prevailed on the merits at trial, particularly with regard to the “relatively untested” claim that the defendant practices breached California’s anti-phishing law. Several other claims originally brought by the plaintiffs were dismissed in May, including allegations that the defendant breached the Stored Communications Act, the Computer Fraud and Abuse Act, and California’s Unfair Competition Law. In addition to the $58 million settlement fund, the proposed settlement would also provide for injunctive relief.

    Courts California Class Action Privacy/Cyber Risk & Data Security State Issues Settlement

  • District Court partially grants SEC’s motion in confidentiality agreements case

    Securities

    On November 17, the U.S. District Court for the Southern District of New York partially granted the SEC’s (plaintiff) motion for summary judgment in a case questioning the extent to which confidentiality agreements can prevent communication with the SEC regarding potential violations of securities laws. The court found that the Commission did not exceed its authority on a count of impeding SEC rules that is connected to a broader civil suit accusing an online store and its CEO (collectively, “defendants”) of stealing nearly $6 million from investors. The plaintiff alleged that the defendants impeded “individuals’ communication with the SEC regarding potential securities laws violations by enforcing or threatening to enforce confidentiality agreements that would prevent individuals’ communications thereof,” in violation of Rule 21F-17 of the Exchange Act. According to the order, in its stock purchase agreements, the defendants allegedly required investors to reject communication with “governmental or administrative agencies or enforcement bodies for the purpose of commencing or otherwise prompting investigation or other action.” The defendants allegedly used lawsuits to prevent communications that would violate its confidentiality agreements, and advertised these suits “to chill further communication,” which the court ruled were “undoubtedly ‘action[s] to impede’ communications, especially where the Rule explicitly prohibits ‘enforcing, or threatening to enforce’ such agreements.” The district court also denied the defendants' cross-motion for summary judgment stating that “the Court is still not persuaded that Rule 21F-17 exceeds the SEC’s rulemaking nor that it violates the First Amendment,” and concluded that the defendants’ conduct violated Rule 21F-17.

    Securities SEC Courts Securities Exchange Act

  • District Court enters final judgment in 2016 CFPB structured settlement action

    Courts

    On November 18, the U.S. District Court for the District of Maryland entered a stipulated final judgment and order against one of the individual defendants in an action concerning allegedly unfair, abusive, and deceptive structured settlement practices. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by employing abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. According to the Bureau, the defendants encouraged consumers to take advances on their structured settlements and falsely represented that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” In July 2021, the court considered the defendants’ motion to dismiss the Bureau’s amended complaint, as well as the defendants’ motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired (covered by InfoBytes here). The court’s opinion allowed the Bureau to pursue its amended 2016 enforcement action, which alleged unfair, deceptive, and abusive acts and practices and sought a permanent injunction, damages, disgorgement, redress, civil penalties, and costs.

    Under the terms of the settlement, the individual defendant—“an attorney who provided purportedly independent professional advice for almost all Maryland consumers who made structured-settlement transfers with [the defendants]” and who has neither admitted nor denied the allegations—is prohibited from, among other things, (i) participating or assisting others in participating in any structured-settlement transactions; (ii) owning, being employed by, or serving as an agent of any structured-settlement-factoring company; or (iii) providing independent professional advice concerning any structured-settlement transactions. The individual defendant is also prohibited from disclosing, using, or benefiting from affected consumers’ information, and must pay $40,000 in disgorgement and a $10,000 civil money penalty.

    Courts CFPB Enforcement Settlement Structured Settlement CFPA UDAAP Unfair Deceptive Abusive Consumer Finance

  • 11th Circuit to rehear Hunstein v. Preferred Collection & Management Services

    Courts

    On November 17, the U.S. Court of Appeals for the Eleventh Circuit vacated an opinion in Hunstein v. Preferred Collection & Management Services, ordering an en banc rehearing of the case. The order vacates an 11th Circuit decision to revive claims that the defendant’s use of a third-party mail vendor to write, print, and send requests for medical debt repayment violated privacy rights established in the FDCPA. As previously covered by InfoBytes, in April, the 11th Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” According to the order issued sua sponte by the 11th Circuit, an en banc panel of appellate judges will convene at a later date to rehear the case.

    Courts Debt Collection Third-Party Disclosures Appellate Eleventh Circuit Vendor Hunstein FDCPA Privacy/Cyber Risk & Data Security

  • 4th Circuit: Tribal lenders must face usury claims

    Courts

    On November 16, the U.S. Court of Appeals for the Fourth Circuit upheld a district court’s ruling denying defendants’ bid to dismiss or compel arbitration of a class action concerning alleged usury law violations. The plaintiffs—Virginia consumers who defaulted on short-term loans received from online lenders affiliated with a federally-recognized tribe—filed a putative class action against tribal officials as well as two non-members affiliated with the tribal lenders, alleging the lenders violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and Virginia usury laws by charging interest rates between 544 and 920 percent. The defendants moved to compel arbitration under a clause in the loan agreements and moved to dismiss on various grounds, including that they were exempt from Virginia usury laws. The district court denied the motions to compel arbitration and to dismiss, ruling that the arbitration provision was unenforceable as a prospective waiver of the borrowers’ federal rights and that the defendants could not claim tribal sovereign immunity. The district court also “held the loan agreements’ choice of tribal law unenforceable as a violation of Virginia’s strong public policy against unregulated lending of usurious loans.” However, the district court dismissed the RICO claim against the tribal officials, ruling that RICO only authorizes private plaintiffs to sue for money damages and not injunctive or declaratory relief.

    On appeal, the 4th Circuit concluded that the arbitration clauses in the loan agreements impermissibly force borrowers to waive their federal substantive rights under federal consumer protection laws, and contained an unenforceable tribal choice-of-law provision because Virginia law caps general interest rates at 12 percent. As such, the appellate court stated that the entire arbitration provision is unenforceable. “The [t]ribal [l]enders drafted an invalid contract that strips borrowers of their substantive federal statutory rights,” the appellate court wrote. “[W]e cannot save that contract by revising it on appeal.” The 4th Circuit also declined to extend tribal sovereign immunity to the tribal officials, determining that while “the tribe itself retains sovereign immunity, it cannot shroud its officials with immunity in federal court when those officials violate applicable state law.” The appellate court further noted that the “Supreme Court has explicitly blessed suits against tribal officials to enjoin violations of federal and state law.” The 4th Circuit ultimately affirmed the district court’s judgment, noting that the loan agreement provisions were unenforceable because “tribal law’s authorization of triple-digit interest rates on low-dollar, short-term loans violates Virginia’s compelling public policy against unregulated usurious lending.”

    The appellate court also agreed with the district court that RICO does not permit private plaintiffs to seek an injunction. “Congress’s use of significantly different language” to define the scope of governmental and private claims under RICO “compels us to conclude” that “private plaintiffs may sue only for treble damages and costs,” the appellate court stated. While plaintiffs “urge us to consider by analogy the antitrust statutes,” provisions outlined in the Clayton Act (which explicitly authorize injunction-seeking private suits) have “no analogue in the RICO statute,” the appellate court wrote, adding that “nowhere in the RICO statute has Congress explicitly authorized private actions for injunctive relief.”

    Courts Fourth Circuit Appellate Tribal Lending Tribal Immunity RICO State Issues Interest Usury Online Lending Class Action Consumer Finance

  • District Court grants defendant’s motion in FCRA, FDCPA case

    Courts

    On November 10, the U.S. District Court for the Western District of New York granted a defendant debt agency’s motion for judgment resolving FCRA and FDCPA allegations. A father allegedly co-signed an apartment lease for his daughter (collectively, “plaintiffs”), which included a provision that allowed the plaintiffs to terminate the lease if another individual took over the lease. The plaintiffs allegedly did not move in but identified two replacement tenants to take over the lease. The owner of the apartment allegedly signed separate leases with the identified replacement tenants and “thwarted [plaintiffs’] efforts to have someone take over [the] [l]ease.” The owner placed the debt with the defendant for collection, who reported the debt to three credit reporting agencies. The plaintiffs disputed the debt, but the defendant confirmed the accuracy of the information. The plaintiffs sued, alleging the defendant violated the FCRA for not conducting a proper investigation of the dispute, and the FDCPA for attempting to collect the allegedly invalid debt, which allegedly negatively impacted the plaintiffs’ credit scores, their ability to obtain a car loan, and efforts to apply for an apartment.

    With respect to the FCRA claim, the district court found that the plaintiffs’ allegation regarding an inaccurate debt “turns on an unresolved legal question, a section 1681s-2(b) claim that a furnisher failed to conduct a reasonable investigation of disputed credit information cannot stand.” Additionally, since the claim was “tethered to a legal dispute,” the district court found that it cannot form the basis of an FCRA claim. With respect to the FDCPA allegations, the district court dismissed the claim finding that the plaintiffs did not adequately state a claim because the plaintiffs’ claim was based on “nothing more than their conclusory and self-serving allegations that they do not owe the [d]ebt.”

    Courts FCRA FDCPA New York Debt Collection Consumer Finance

  • District Court approves e-commerce platform data breach settlement

    Courts

    On November 4, the U.S. District Court for the District of Massachusetts granted final approval to a settlement in a class action against an alcohol e-commerce platform stemming from a data breach that allegedly compromised customers’ personally identifiable information. The plaintiffs’ memorandum of law requested approval of the class action settlement, which included a settlement class of 2.5 million individuals whose information was compromised. Class members claimed that the company did not publicly report the data breach until July 2020, and that customers’ information was available for purchase on the dark web. A complaint was filed against the defendant asserting claims of negligence, negligence per se, breach of implied contract, unjust enrichment, and violations of several state consumer protection statutes. The defendant moved to compel arbitration, citing a provision in its terms of service, as well as a class action waiver that required customers to arbitrate their claims individually. However, the parties entered into settlement discussions and agreed to mediate their dispute. Under the terms of the settlement, which is valued between $3.35 million and $7.1 million, the defendant has agreed to pay all associated administration costs, attorneys’ fees and expenses, and incentive awards. Class members will receive individual cash payments and will also receive a pro rata portion of a pool of up to $447,750 in the form of a credit against the cost of service fees for future orders on the defendant’s platform. The defendant will also implement certain data security measures for two years.

    Courts Privacy/Cyber Risk & Data Security Data Breach Class Action Settlement State Issues

Pages

Upcoming Events