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Financial Services Law Insights and Observations


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  • CFPB Director Withdraws Notification for Final Decision in Payday Lender Charges; Parties File Differing Opinions


    On March 31, CFPB Director Richard Cordray issued an order directing the Bureau’s Office of Administrative Adjudication to withdraw a February 13 notification informing the parties that the administrative proceeding against an online payday lender and its CEO (Respondents) had been submitted for a final decision by the CFPB.  The order noted that while the withdrawal “delay[s] [the] resolution of this appeal,” Director Cordray believed it to be appropriate in that it “help[s] minimize unnecessary or duplicative proceedings and . . . facilitate[s] a more efficient resolution of this matter.”

    The March 31 order follows a March 9 order in which parties were directed to file statements indicating whether they objected to the withdrawal of the notification. The parties offered differing opinions in their responses. In their March 24 filing, Respondents agreed generally with the Bureau’s reasons for withdrawal but sought clarification on the timing of the “proposed re-notification in this matter” and, furthermore, stressed that that re-notification should only be made once the cases of PHH Corp v. CFPB, Lucia v. SEC, and Bandimere v. SEC have been resolved by their respective courts. A three-judge panel had previously ruled in PHH that the structure of the CFPB was unconstitutional and that the Bureau’s interpretations of the kickback prohibitions of the Real Estate Settlement Procedures Act (RESPA) and RESPA’s statute of limitations provisions were erroneous. The full court granted the CFPB’s petition in February 2017 and explicitly vacated the panel’s decision (see previously posted Special Alert). Conversely, the Enforcement Counsel’s filing “respectfully” objected to the withdrawal of the notice “because resolution of the PHH matter will not determine the resolution of this proceeding and . . . any delay would be inefficient and would exacerbate the harm to affected consumers.”

    Last September, administrative law judge, the Hon. Parlen L. McKenna, recommended civil money penalties against Respondents totaling over $13 million as well as restitution of over $38 million to be paid to affected consumers. It further affirmed the CFPB’s allegations that the Respondents deceived consumers about the cost of short-term loans, thereby violating the Truth in Lending Act, the Electronic Fund Transfer Act, and the Consumer Financial Protection Act’s prohibition against deceptive acts or practices. Following the recommended decision, the Respondents filed a notice of appeal.

    Courts CFPB Payday Lending PHH v. CFPB Litigation Single-Director Structure

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  • Case Update: PHH Corp. v CFPB


    March 31 marked the deadline for the CFPB to file its brief in response to PHH Corporation in the U.S. Court of Appeals for the District of Columbia Circuit’s en banc review of the CFPB’s enforcement action against PHH for alleged violations of the Real Estate Settlement Procedures Act (RESPA). As previously covered by InfoBytes, the PHH case began as a challenge to a 2015 penalty the CFPB levied against PHH, which was collected as part of what the CFPB deemed – a “captive reinsurance arrangement.” In fighting the penalty, PHH called into question the Bureau’s constitutionality and in October 2016, a panel of the D.C. Circuit concluded both that the CFPB misinterpreted RESPA, and also that its single-Director structure violated the constitutional separation of powers. On February 16 of this year, however, the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision. In granting en banc review, the court sought guidance from the parties on three specific questions: 

    • Is the Bureau’s structure unconstitutional because its Director may be removed only for cause, and if so, is the appropriate remedy to sever the for-cause removal provision from the Consumer Financial Protection Act?; 
    • May the Court avoid addressing the constitutionality of the Bureau’s structure if it adopts the panel’s holdings as to PHH’s liability under RESPA (and should it adopt those holdings)?; and
    • What is the appropriate disposition of this case if this Court concludes that the SEC’s administrative law judges are “inferior officers” under Lucia v. SEC? 

    Oral argument is scheduled for May 24. This Court has allocated 30 minutes per side for the argument and, as discussed further below, the Department of Justice (DOJ) has filed an unopposed motion seeking ten minutes of argument time for the United States at the May 24 en banc hearing.

    CFPB’s Brief. On March 31, the CFPB filed its brief for the en banc rehearing in PHH Corp. v CFPB urging the D.C. Circuit  to uphold the constitutionality of the Bureau’s single-director, independent-agency structure. According to the CFPB, neither the Bureau’s current single-director arrangement, nor the “for-cause” restriction on the President’s removal powers prevents the Executive branch from ensuring that the nation’s laws are implemented. Specifically, the brief explains that “[t]he President has no less control over a single-director agency than he does over a multi-member commission.” The brief also sets forth the Bureau’s position that, even “[i]f this Court determines that the Bureau’s structure is unconstitutional,” the appropriate remedy is not to invalidate the agency in its entirety, but rather to “sever the for-cause removal provision” of the Dodd-Frank Act (the Act), thereby allowing the President to remove the Bureau’s director for any reason. In addition to addressing the constitutional question, the CFPB also reiterated its argument that its RESPA interpretation is correct, that PHH and its affiliates violated RESPA, and that the Act’s statute of limitations does not apply to the Bureau’s administrative enforcement authority. And, at the direction of the court, the brief also addressed the potential effect of a decision in Lucia v. SEC that a SEC administrative law judge (ALJ) was an inferior officer under the Constitution. The ALJ used by the CFPB in the PHH enforcement proceeding was, in fact, borrowed from the SEC. Notably, Lucia v. SEC is scheduled to be argued immediately before PHH Corp. v. CFPB, on May 24, 2017.

    Amicus Curiae in Support of the CFPB. Also filed on March 31 were seven amicus curiae briefs, each of which offered arguments, both legal and non-legal, in favor of the CFPB’s continued existence as an independent regulator:

    PHH’s Brief. Briefing for PHH and amicus curiae briefs in support of the mortgage lender were due on March 17. In its opening brief and addendum, PHH focused on the separation-of-powers and remedy issues, raising the RESPA interpretation issue principally in support of the claim that the CFPB’s unconstitutional structure rendered the Bureau dangerously unaccountable. The New Jersey mortgage lender noted, among other things, that Congress has no ability to cut the agency’s budget and the President cannot remove its director without cause. As a general matter, the mortgage lender has argued that the Bureau’s creation “placed massive, unchecked federal power in the hands of a single, unaccountable director” and that “[t]he director alone rules over large swaths of the field of consumer finance, subject to virtually no restraints from the representative branches.”

    DOJ BriefAs previously covered by InfoBytes, the DOJ filed its own brief in the case on March 17, arguing in support of the D.C. Circuit panel’s initial ruling and proposed remedy. The DOJ brief stated, among other things, that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.”  As  covered recently on InfoBytes, the DOJ presented arguments that differed both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December. 

    Also, as mentioned above, on April 3, the DOJ filed an unopposed motion seeking ten minutes of argument time for the United States at the May 24 en banc hearing.

    Amicus Curiae in Support of PHH. The March 10 deadline in the en banc proceeding also brought about the filing of seven amicus curiae briefs in support of PHH’s claims and/or defenses. Six of these filings took the position that the Bureau’s current structure violates separation-of-powers principles:

    A seventh—filed by a combined group of 13 banking and residential real estate-related organizations—argued in support of the company’s interpretation of the RESPA. According to this brief, the CFPB incorrectly changed a long-standing RESPA interpretation that permitted the use of captive reinsurance companies under appropriate circumstances. The changed interpretation was contrary to the Act and to the CFPB’s own regulation. The brief also argued that the Bureau improperly changed the interpretation and applied the new interpretation in an enforcement action without proper notice.

    Courts PHH v. CFPB Consumer Finance Federal Issues RESPA DOJ Mortgages Litigation Single-Director Structure

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  • Supreme Court Remands Texas Credit Card Surcharge Case


    On April 3, the U.S. Supreme Court granted certiorari in a case challenging a Texas law that bars retailers from imposing credit card surcharges, and remanded the case to the Fifth Circuit in light of its ruling last week in Expressions Hair Design, that a similar statute in New York regulated merchants’ First Amendment rights. In Rowell, a landscaping business, a computer networking company, a self-storage facility, and an event design and production company sought to challenge a Texas law allowing merchants to charge different prices to customers who pay with cash and customers who pay with a credit card, but barring merchants from describing the price difference as a surcharge for credit cards, leaving them to describe it instead as a discount for using cash. The Fifth Circuit held that the Texas law did not violate the retailers’ free speech rights, aligning it with the Second Circuit in its September 2015 ruling in the Expressions Hair Design litigation against New York State.

    As previously reported on InfoBytes, the Supreme Court last week in the Expressions case unanimously rejected the Second Circuit’s conclusion that the New York credit card law regulates conduct alone, rather than speech. As explained in the Supreme Court’s opinion, the law at issue “is not like a typical price regulation,” which regulates a seller’s conduct by dictating how much to charge for an item. Rather, the Court explained, the law regulates “how sellers may communicate their prices.” (emphasis added). The Supreme Court, however, did not address the question of whether the law unconstitutionally restricts speech.

    Courts U.S. Supreme Court State Issues Consumer Finance Payment Processors Credit Cards

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  • Special Alert: California Supreme Court Invalidates Widely Used Arbitration Provisions and Curtails the Scope of Proposition 64


    On April 6, the California Supreme Court published its opinion in McGill v. Citibank, N.A., finding unenforceable arbitration agreements that purport to waive claims for public injunctive relief brought under California’s Consumer Legal Remedies Act (CLRA), Civ. Civ. Code, § 1750 et seq., its Unfair Competition Law (UCL)(Bus. & Prof. Code, § 17200), and its false advertising law (id., § 17500 et seq.). In so holding, the court resisted arguments that the Federal Arbitration Act (FAA) preempts California state law, notwithstanding the United States Supreme Court’s landmark holding in AT&T Mobility v. Concepcion (Concepcion). In a second significant holding, the court materially limited the effect of Proposition 64 on claims brought under the UCL, finding that actions for public injunctive relief need not satisfy California requirements for class certification. The court’s decision presents significant questions as to the validity of widely used consumer arbitration clauses, creates the prospect of considerable future litigation regarding the scope of preemption under the FAA, and narrows the effect of Proposition 64 on future litigation under the UCL.

    Click here to read full special alert


    If you have questions about the court’s holding or other related issues, visit our Complex Civil Litigation and Class Actions practices for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.

    Courts Class Action Arbitration

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  • National Bank Agrees to $110 Million Class Action Settlement for Improper Sales Practices


    On March 28, a national bank announced that it will pay $110 million to settle a 2015 class action lawsuit regarding retail sales practices that involved bank employees creating deposit and credit card accounts without obtaining consent to do so. The settlement class includes all consumers who claim that the bank—without their consent—opened an account, enrolled them in a product or service, or submitted an application for a product or service in their name during the time period from January 1, 2009 through the execution date of the settlement agreement, which must still be approved by the court. The settlement amount will be set aside for consumer compensation and is in addition to remediation amounts already paid to the Los Angeles City Attorney and the fees paid pursuant to consent orders entered into with the CFPB and OCC. The bank also noted that it agreed to the settlement notwithstanding an arbitration clause contained in the Bank’s deposit agreement. The bank is also conducting a voluntary review of accounts from 2009 - 2010 to determine and remediate any consumer harm.

    Courts Consumer Finance Class Action UDAAP Incentive Compensation

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  • High Court passes on opportunity to resolve circuit split over statutory requirements for whistleblower protection under Dodd-Frank Act


    On March 21, the U.S. Supreme Court denied a Petition for Writ of Certiorari in Verble v. Morgan Stanley Smith Barney, LLC,  (No. 16-946), thereby declining to resolve a circuit split regarding whether the protections against retaliation provided in the Dodd-Frank Act extend to whistleblowers who do not report the misconduct to the SEC. At issue were the statutory requirements for qualifying as a “whistleblower” under the Dodd-Frank Act. While the Act defines “whistleblower” as an individual who reports wrongdoing “to the Commission,”[1] a separate provision provides protection against retaliation for whistleblowers reporting wrongdoing under Sarbanes-Oxley,[2] which includes both reporting to federal agencies or internal reporting within the company.[3]

    The Verble case came to the Court on appeal from a Sixth Circuit decision affirming the dismissal of Mr. Verble’s claim that he was improperly terminated in retaliation for being a confidential informant (and whistleblower) to the FBI. A U.S. District Court for the Eastern District of Tennessee dismissed the former financial advisor’s Dodd-Frank retaliation claim after finding that Dodd-Frank’s anti-retaliation provision was available only for whistleblowers who reported their concerns directly to the SEC. See Verble v. Morgan Stanley Smith Barney, 148 F. Supp. 3d 644 (E.D. Tenn. 2015). On appeal, the Sixth Circuit affirmed the dismissal, but did not reach the issue regarding the scope of Dodd-Frank’s anti-retaliation provision. Rather than taking sides on the split between circuits, the Sixth Circuit panel opted instead to base its decision solely on the ground that Mr. Verble “fail[ed] to meet the threshold requirement of providing enough facts to state a plausible claim for relief.” 

    On January 26, Mr. Verble filed the aforementioned unsuccessful Petition for Writ of Certiorari. The first question presented in the petition for certiorari was whether the Sixth Circuit erred by avoiding the issue; next, Mr. Verble asked the Court to settle a split between the Fifth and Second Circuits—the only two circuits to have opined on the issue. Weighing in first, the Fifth Circuit had strictly applied the Dodd-Frank Act’s definition of “whistleblower” to the later anti-retaliation provision, so as to require dismissal of the plaintiff’s action in that case because he did not make his disclosures to the SEC. See Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 621 (5th Cir. 2013). In so doing, the court declined to rely upon an SEC regulation adopting a contrary interpretation. By contrast, the Second Circuit, viewing the statute itself as ambiguous, applied Chevron deference to (and accepted) the SEC’s interpretation, which extended protections to all whistleblowers. Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 155 (2d Cir. 2015).

    Notably, while the petition for certiorari was pending, the Ninth Circuit became the third appellate circuit to stake out a position on the existence of an external reporting requirement when, in an opinion filed on March 8, it held that the Dodd-Frank Act whistleblower provision “unambiguously and expressly protects from retaliation all those who report to the SEC and who report internally.” See Somers v. Digital Realty Trust, No. 15-17352, 2017 WL 908245 (9th Cir. 2017).


    [1] 15 U.S.C. § 78u-6(a)(6)

    [2] 15 U.S.C. § 78u-6(h)(1)(A)(iii)

    [3] 17 C.F.R. § 240.21F-2 (2011)

    Courts U.S. Supreme Court Dodd-Frank Whistleblower SOX

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  • FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in February 2017


    On March 31, the FDIC released its list of administrative enforcement actions taken against banks and individuals in February. Several of the consent agreements included on the list seek civil money penalties for, among other things, violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Other violations cited in the enforcement actions relate to unsafe or unsound banking practices, breaches of fiduciary duty, and violations of the Bank Secrecy Act. There are no administrative hearings scheduled for April 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.

    Courts Consumer Finance Enforcement FDIC Flood Insurance Flood Disaster Protection Act Bank Secrecy Act

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  • Federal Judge Sentences Ex-Mortgage Banker to 12.5 Years for $30 Million Scheme, Fined $22.5 Million in Forfeiture and Restitution


    On March 24, the United States Attorney for the Eastern District of New York announced that District Judge Arthur Spatt levied a 12 ½ year prison sentence against the former head of a mortgage lending bank charged in connection with a conspiracy to commit bank fraud in a $30 million scheme to deceive lenders by lying about property values. The former CEO of a New York state licensed mortgage bank allegedly artificially inflated home prices through a series of same-day transactions, submitted loan applications and appraisals to “warehouse lenders” (financial institutions which fund loans for companies lacking the assets to fund the loans themselves) with values nearly double the true sales prices of the homes, and “inflated [his] own personal assets, used straw purchasers and sham trust entities, and concealed significant liabilities to get loan approval, typically obtaining proceeds for 80 to 100-percent more than the actual value of the homes.” The defendant, found guilty by a jury in January 2016, was also ordered to pay $22.5 million in forfeiture and restitution as part of his sentence.

    Courts DOJ Mortgage Fraud Lending

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  • Debt Collection Company President Fined $2 Million for FDCPA Violations


    On March 21, a U.S. district judge in the Eastern District of Texas ordered the president of a Texas-based third-party debt collector company (Defendant) to pay a $2 million civil penalty for FDCPA violations by company employees. U.S. v. Commercial Recovery Systems, Inc., No. 4:15-CV-00036, 2017 WL 1065137 (E.D. Tex. Mar. 21, 2017). The complaint, filed in 2015, alleges that Defendant had the authority to direct and control the employees’ actions and had personal knowledge that employees were “impersonating attorneys, attorneys’ staff and judicial employees; falsely threatening litigation; falsely threatening wage garnishments and asset seizures; and misrepresenting the character or legal status of debts under collection.” In his order, the judge notes that Defendant “admitted to hiring abusive collection managers and refused to fire them if they were effective,” acknowledged that the company had no formal FDCPA training program, and testified that the company had been driven into bankruptcy largely by FDCPA suits brought by private litigants. Such conduct, the judge reasoned, evidences a “lack of good faith.” The Court noted that theoretically the Defendant could have faced a civil penalty exceeding $4 billion if the estimated 109,643 violations were penalized at $40,000 each—the maximum penalty amount authorized by the FTC Act for “each instance of conduct that violates the FDCPA with actual or implied knowledge of the FDCPA.” In additional to the penalty, the Defendant must cease all debt collection activity.

    Courts Financial Crimes FDCPA Debt Collection FTC

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  • Fourth Circuit Permits DOJ to Reject FCA Settlement After Government Declined to Intervene; Declines to Reach Issue of Statistical Sampling


    In an opinion handed down on February 22, the Court of Appeals for the Fourth Circuit decided that the DOJ retains an unreviewable right to object to a proposed settlement agreement between a relator and a defendant even after the Government has declined to intervene in the case. See United States ex rel. Michaels v. Agape Senior Community, Inc., No. 15-2147 (4th Cir. Feb 14, 2017). The case concerned a qui tam relator who had alleged that Agape Senior Community and associated entities violated the FCA by submitting false claims to federal health care programs for nursing home related services that were not provided or provided to patients that were not eligible for them. After the Government declined to intervene in the case, the relator agreed to settle with defendants. However, the DOJ objected to the proposed settlement under 31 U.S.C. § 3730(b)(1)—which provides that an FCA lawsuit “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting”—arguing, among other things, that “the settlement amount was “appreciably less than . . . the Government’s estimate of total damages.”

    The Fourth Circuit concluded that, while a relator has the right to pursue his or her FCA claim after the United States declines to intervene, “the Attorney General possesses an absolute veto power over voluntary settlements in FCA qui tam actions.” In reaching this conclusion, the appellate panel emphasized the fact that, in an FCA case, the United States Government is a real party in interest, and, as such, it suffered damages as a result of the fraudulent conduct at issue. The holding largely aligns with existing Fifth and Sixth Circuit precedent, establishing an absolute veto power for the United States over settlements in declined FCA cases. However, the ruling stands at odds with the Ninth Circuit standard set forth in U.S. ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994), which ruled that, once it has declined to intervene, the Government can object to a proposed settlement only for “good cause,” and a settlement agreement may be invalidated only following a hearing to determine if the settlement is fair and reasonable.

    On the issue of statistical sampling, the district court had determined that the use of statistical sampling evidence would be improper when a case turns on the medical necessity for individual patients. Though the issue was certified for interlocutory review, the Appellate panel declined to decide this issue because, among other reasons, the use of statistical sampling is not a pure question of law and, as such, interlocutory review had been “improvidently granted.”

    Additional information and materials covering the FCA, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the Program Fraud Civil Remedies Act (PFCRA) can also be found in BuckleySandler’s False Claims Act and FIRREA Resource Center.

    Courts False Claims Act / FIRREA DOJ Appellate

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