InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
District Court: No private right of action under PA’s Motor Vehicle Sales Finance Act
On May 20, the U.S. District Court for the Eastern District of Pennsylvania partially granted defendants’ motion for summary judgment in an action concerning alleged violations of the Pennsylvania Motor Vehicle Sales Finance Act (MVSFA) and the FCRA. The plaintiff filed an action against the defendants (an auto finance company and the three major consumer reporting agencies (CRAs) alleging he was unable to obtain credit and suffered loss of work, car rental expenses, and emotional distress following the repossession and sale of his vehicle after he allegedly breached his retail installment sale contract by exposing his vehicle to a lien for accumulated storage charges at a repair facility while waiting for a replacement part to arrive. After the vehicle was repossessed, the plaintiff sent letters to the CRAs disputing the reported information and asked that notations, including “voluntary surrender,” be removed from his credit file. According to the plaintiff, the disputed information was removed from his file well outside the 30-day timeframe required under the FCRA to reinvestigate and delete inaccurate information. The plaintiff also alleged that the auto finance company violated the MVSFA’s provisions governing notice of repossession. Upon review, the court granted defendants’ request for summary judgment on the MVSFA claim, agreeing with the auto finance company that the statute’s repossession notice provisions do not confer a private right of action. However, the court denied summary judgment on the FCRA claim, writing that “the record reflects genuine disputes of material fact as to whether [the auto finance company] reported inaccurate information and whether it reasonably investigated [p]laintiff’s disputes.”
6th Circuit: SBA can’t prioritize race or sex for Covid relief
On May 27, the majority of the U.S. Court of Appeals for the Sixth Circuit held that the Small Business Administration (SBA) cannot allocate limited Covid-19 relief funds based on the race and sex of the applicants. The plaintiff filed a lawsuit claiming the SBA’s practice of giving priority to certain Restaurant Revitalization Fund applicants (i.e. restaurants owned and controlled at least 51 percent by women, veterans, or the “socially and economically disadvantaged”) during the first 21 days violates the U.S. Constitution’s equal protection clause by impermissibly granting priority based on race and gender classifications. The plaintiff applied for funding on the first day the application period opened, but because the restaurant he co-owned 50/50 with his Hispanic wife was not owned 51 percent by a woman or a veteran, he faced an added evidentiary burden to show he qualified as “socially and economically disadvantaged” to get priority status. The plaintiff requested a temporary restraining order and a preliminary injunction to prohibit the SBA from granting funds unless it did so in a manner that ignored race and sex. The district court denied the request, as well as subsequent requests made by the plaintiff, ruling that he was unlikely to succeed on the merits of his claims.
On appeal, the majority of the Sixth Circuit disagreed, concluding that the district court should have issued an injunction pending appeal since the SBA “failed to justify its discriminatory policy.” According to the majority, the SBA “injected explicit racial and ethnic preferences into the priority process” by “presume[ing] certain applicants are socially disadvantaged based solely on their race or ethnicity.” Additionally, the majority stated that the “added evidentiary burden faced by white men and other non-presumptively disadvantaged groups stands in marked contrast with lenient evidentiary standards set by the American Rescue Plan Act,” and pointed out that “broad statistical disparities cited by the government are not nearly enough” to suggest intentional discrimination. Because “an effort to alleviate the effects of societal discrimination is not a compelling interest,” the majority stated, “the government’s policy is not permissible.” The majority also rejected the SBA’s argument that the issue was moot because the priority period for the program has ended, commenting that race and sex preferences continue to factor in whether an applicant receives funds before the program’s money runs out.
The dissenting judge argued, however, that the “Constitution permits the government to use race-based classifications to remediate past discrimination,” and added that the plaintiff has not demonstrated that he will be irreparably harmed by the way the program’s funds are distributed.
CFPB settles with company over misrepresenting deposit risks, loan APRs
On May 27, the CFPB announced a settlement with a Florida-based lender and the CEO of the company (collectively, “defendants”) to resolve allegations that the defendants violated the Consumer Financial Protection Act by misrepresenting the risks associated with their deposit product and the annual percentage rate (APR) associated with their consumer loans. The settlement resolves a complaint against the defendants filed in the U.S. District Court for the Southern District of Florida in November 2020 (covered by InfoBytes here). The CFPB alleged that the company took deposits from consumers to fund loans, claiming their deposits would have a fixed and guaranteed 15 percent annual percentage yield and would be deposited at FDIC-insured institutions. However, according to the complaint, the representations were false in that the funds were not held in FDIC-insured accounts and the rate of return was not guaranteed. The CFPB also alleged that most deposited funds were used to fund short-term, high-interest personal loans that were deceptively marketed as having an APR of 440 percent when the actual APRs are alleged to have been more than 900 percent, well in excess of the rate permitted under Florida’s criminal-usury law, causing the loans to be uncollectable and creating risk that obligations could not be met to depositors who sought to withdraw their deposited funds. The complaint claimed that the defendants had loaned a total of more than $30 million to consumers since 2017.
Under the terms of the stipulated order, the defendants are (i) subject to a judgment for monetary relief and damages for the full amount defendants received from consumers who purchased their financial products and services, around $1 million, plus all interest due to consumers under the terms of the advertised products and services purchased; and (ii) required to pay a $100,000 civil money penalty. The order also permanently bans the defendants from engaging in deposit-taking activity and from making deceptive statements to consumers.
CFPB updates status on women and minority-owned business data
On May 24, the CFPB filed its fifth status report in the U.S. District Court for the Northern District of California as required under a stipulated settlement reached in February with a group of plaintiffs, including the California Reinvestment Coalition. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses.
Among other things, the Bureau notes in the status report that it has satisfied the following required deadlines: (i) last September it released a Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) outline of proposals under consideration (InfoBytes coverage here); and (ii) it convened an SBREFA panel last October and released the panel’s final report last December (InfoBytes coverage here). The Bureau reports that its rulemaking staff continues to brief new Bureau leadership on significant legal and policy issues that must be resolved in order to prepare a notice of proposed rulemaking for the Section 1071 regulations, and states that the parties have met to discuss an appropriate deadline for issuing the NPRM. According to the status report, should the parties agree on a deadline they “will jointly stipulate to the agreed date and request that the court enter that deadline.”
Find continuing Section 1071 coverage here.
D.C Circuit keeps CDC eviction moratorium in place
On June 2, the U.S. Court of Appeals for the District of Columbia denied a group of realtors’ motion to lift an administrative stay placed by a district court on its own order, in which it had previously ruled that the CDC’s nationwide eviction moratorium issued in response to the Covid-19 pandemic exceeded the agency’s statutory authority with the temporary ban. As previously covered by InfoBytes, the district court vacated the CDC’s eviction moratorium and rejected the federal government’s request that the decision be narrowed, ruling that “when ‘regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioner is proscribed.’” However, shortly after the federal government filed a notice of appeal, the district court stayed its own summary judgment order pending appeal.
In denying the plaintiffs’ motion to vacate the stay pending appeal, the appellate court held that the district court did not abuse its discretion in staying its own ruling, and noted that the federal government has a good chance of winning its appeal. “[W]hile of course not resolving the ultimate merits of the legal question, we conclude that [the federal government] has made a strong showing that it is likely to succeed on the merits,” the appellate court wrote, adding, among other things, that “Congress has expressly recognized that the agency had the authority to issue its narrowly crafted moratorium.” Moreover, the D.C. Circuit determined that the plaintiffs failed to show the likelihood of irreparable injury should the stay remain in place.
Bank enjoined from administering prepaid debit cards for EDD benefits
On June 1, the U.S. District Court for the Northern District of California issued a preliminary injunction enjoining a national bank from certain actions in administering prepaid debit cards to class member recipients of Employment Development Department unemployment or disability benefits. Under the terms of the preliminary injunction, the bank is prohibited from “considering the results of [its] initial automated fraud claims filter” when investigating or resolving any alleged unauthorized transaction error claims, or from closing claims or denying credit before conducting an investigation, pursuant to EFTA and Regulation E. Class members are also entitled to a written explanation of investigative findings before the bank can deny or close a claim. Additionally, the bank is, among other things, (i) prohibited from considering the results of its claim fraud filter as justification for freezing the card account of any class member; (ii) required to reopen any claims that were closed or denied “based solely” on results of its claim fraud filter if those claims have not already been paid or previously reopened and investigated; (iii) required to provide written notice to class members with blocked accounts explaining that their accounts will be unblocked if they authenticate their identity; and (iv) establish a process for handing class member claims.
5th Circuit: A single unsolicited text constitutes TCPA standing
On May 26, the U.S. Court of Appeals for the Fifth Circuit held that receiving a single unsolicited text message is enough to establish standing under the TCPA. The plaintiff alleged he received an unsolicited text message on his cell phone from the defendant after he had previously revoked consent and reached a settlement with the defendant to resolve a dispute over two other unsolicited text messages. The plaintiff filed a putative class action alleging that the defendant negligently, willfully, and/or knowingly sent text messages using an automatic telephone dialing system without first receiving consent, and that the unsolicited message was “a nuisance and invasion of privacy.” The district court dismissed the suit for lack of standing, ruling that a “single unwelcome text message will not always involve an intrusion into the privacy of the home in the same way that a voice call to a residential line necessarily does.”
On appeal, the 5th Circuit disagreed, concluding that the nuisance arising from the single text message was a sufficiently concrete injury and enough to establish standing. “In enacting the TCPA, Congress found that ‘unrestricted telemarketing can be an intrusive invasion of privacy’ and a ‘nuisance,’” the appellate court wrote, commenting that the TCPA “cannot be read to regulate unsolicited telemarketing only when it affects the home.” In addition, the appellate court found that the plaintiff separately alleged personal injuries that separated him from the public at large by arguing that the “aggravating and annoying” robodialed text message “interfered with [his] rights and interests in his cellular telephone.” In reversing the district court’s ruling, the 5th Circuit disregarded precedent set by the 11th Circuit in Salcedo v. Hanna (covered by InfoBytes here). Calling the other appellate court’s decision “mistaken,” the 5th Circuit contended the other appellate court took too narrow a view of the theory of harm by concluding that there must be some actual damage before an action can be maintained. Moreover, the 5th Circuit stated the 11th Circuit misunderstood the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, writing “Salcedo’s focus on the substantiality of an alleged harm threatens to make this already difficult area of law even more unmanageable. We therefore reject it.”
District Court finds that lender did not waive arbitration clause by filing collection lawsuit
On May 19, the U.S. District Court for the Southern District of Texas granted a lender’s motion to compel arbitration in a putative class action debt collection case, ruling that the lender’s collection lawsuit against an individual did not waive the arbitration clause in the underlying promissory note. After the plaintiff borrower defaulted on a personal loan, she received a collection letter from a law firm hired by the creditor, which contained a warning that if payment was not made within 30 days, a recommendation would be made to the creditor to file a lawsuit to collect on the debt. Six days after sending the letter, the creditor filed suit in small claims court to recover the unpaid debt. The plaintiff then filed a separate lawsuit against the creditor and the law firm, alleging violations of the FDCPA and the Texas Debt Collection Act (TDCA). The plaintiff claimed, among other things, that the letter made “false, deceptive, or misleading representations” because the creditor demanded payment within 30 days even though the FDCPA provides borrowers 30 days to dispute a debt after receiving a collection letter. The plaintiff further sought to hold the creditor “vicariously liable [under the TDCA]” for the law firm’s allegedly unlawful collection activities. The defendants moved to compel arbitration, but the plaintiff argued that the arbitration clause in the underlying promissory note was waived when the defendants sued to collect on the unpaid debt. The plaintiff also argued that the law firm hired by the creditor could not compel arbitration because it was not a party to the promissory note. The court disagreed, finding that the creditor’s decision to file a lawsuit for breach of contract in small claims court “should not prevent it from later enforcing its right to arbitrate a completely separate claim.” The court further concluded that the allegations brought against the law firm are “inextricably enmeshed and have a significant relationship to the terms” of the promissory note, and that, as such, the law firm may compel arbitration even though it is a nonsignatory to the agreement.
3rd Circuit: Alleging only a statutory violation of the TCPA does not establish standing to sue
On May 19, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s dismissal of a proposed TCPA class action suit for lack of standing, finding that the named plaintiff did not claim anything other than a “bare procedural harm that resulted in no harm.” According to the opinion, the plaintiff—who worked as an investigator for an attorney who prepared TCPA lawsuits—received a prerecorded telemarketing call in 2005 from a marketing company on behalf of the defendant national bank. The plaintiff, using a false name and employer, then placed and recorded more than 20 investigative calls to the marketing company to determine the number and frequency of calls it made. He then provided the recordings to the bank and declined the marketing company’s offer to place him on their Do-Not-Call list. In 2011, the plaintiff sued the bank alleging a single count violation of the TCPA but did not allege that he suffered any annoyance or nuisance from the marketing company’s call. The bank moved for summary judgment, arguing that: (i) the plaintiff lacked Article III standing to sue; (ii) “the call was exempt from the TCPA under FCC rules because the parties had an established business relationship” because the plaintiff was a customer of the bank; and (iii) the recorded message’s content did not violate the TCPA. The district court agreed with the bank and granted summary judgment on all three grounds.
On appeal, the Third Circuit disagreed with the plaintiff’s assertion that all he had to do was allege a statutory violation in order to have standing to sue, declining “to adopt such an absolute rule of standing with respect to the TCPA.” Because “the TCPA is intended to prevent harm stemming from nuisance, invasions of privacy, and other such injuries,” the plaintiff must allege at least one of those injuries to show concrete harm necessary to demonstrate an injury-in-fact and establish standing to sue, the appellate court wrote.
FDIC counters states’ challenge to “valid-when made” rule
On May 20, the FDIC filed a motion for summary judgment in response to a challenge brought by eight state attorneys general to the FDIC’s valid-when-made rule. As previously covered by InfoBytes, the FDIC’s final rule clarifies that, under the Federal Deposit Insurance Act (FDIA), whether interest on a loan is permissible is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan. The AGs filed a lawsuit last year (covered by InfoBytes here) arguing, among other things, that the FDIC does not have the power to issue the rule, and asserting that while the FDIC has the power to issue “‘regulations to carry out’ the provisions of the FDIA,” it cannot issue regulations that would apply to nonbanks. The AGs also claimed that the rule’s extension of state law preemption would “facilitate evasion of state law by enabling ‘rent-a-bank’ schemes,” and that the FDIC failed to explain its consideration of evidence contrary to its assertions, including evidence demonstrating that “consumers and small businesses are harmed by high interest-rate loans.”
The FDIC countered that the AGs’ arguments “misconstrue” the rule, which “does not regulate non-banks, does not interpret state law, and does not preempt state law.” Rather, the FDIC argued that the rule clarifies the FDIA by “reasonably” filling in “two statutory gaps” surrounding banks’ interest rate authority. “The rule, which enjoys widespread support from the banking industry, represents a reasonable interpretation of [the FDIA], and should be upheld under Chevron’s familiar two-step framework,” the FDIC stated. Moreover, the FDIC contended, among other things, that the rule is appropriate because the FDIA does not address at what point in time the validity of a loan’s interest rate should be determined and is “silent” about what effect a loan’s transfer has on the validity of the interest rate. The FDIC also challenged the AGs’ argument that it is improperly trying to regulate non-banks, pointing out that the rule “regulates the conduct and rights of banks when they sell, assign, or transfer loans” and that “any indirect effects the rule has on non-banks do[es] not place the rule outside the agency’s authority.”