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FTC adds two defendants to real estate investment scheme suit
On February 25, the FTC and the Utah Division of Consumer Protection announced the addition of two additional defendants in an action taken against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. As previously covered by InfoBytes, the FTC and the Utah Division of Consumer Protection claimed that the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law by marketing real estate events with false claims and using celebrity endorsements. The defendants allegedly promised consumers they would (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “a minimum of three times” the price of the workshop within six months. In October 2019, the U.S. District Court for the District of Utah granted a temporary restraining order against the defendants, prohibiting the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.
CFPB files Section 1071 status report, evaluates recommendations
On February 22, the CFPB filed its fourth 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 settlement next requires the parties to confer about a deadline for the Bureau to issue a Section 1071 notice of proposed rulemaking (NPRM). According to the status report, the Bureau’s rulemaking staff is in the process of evaluating the panel’s recommendations as well as stakeholder feedback, and has begun briefing new Bureau leadership “on the significant legal and policy issues that must be resolved to implement the Section 1071 regulations” and prepare the NPRM. The Bureau notes that the parties continue to discuss an appropriate deadline for issuing the NPRM, emphasizing that if the parties agree on a deadline, they “will jointly stipulate to the agreed date and request that the court enter that deadline.” As previously covered by InfoBytes, acting Director Dave Uejio stated recently that he has “pledged” the Bureau’s Division of Research, Markets, and Regulations “the support it needs to implement section 1071 of the Dodd-Frank Act without delay.”
Find continuing Section 1071 coverage here.
Court grants injunctive relief against pension advance company
On February 22, the U.S. District Court for the District of South Carolina granted the CFPB’s motion for default judgment and appointment of receiver in an action alleging defendants violated the CFPA and TILA by falsely representing that their lump-sum pension advances were not loans and that they carried no applicable interest rate. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2018 claiming that consumers were actually required to pay back advances with interest and were charged various fees for the product. The Bureau also alleged, among other things, that the defendants failed to provide customers with TILA closed-end-credit disclosures, and provided income streams from the advance payments as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates.
In its decision, the court upheld a magistrate judge’s report and recommendations, which concluded that the Bureau’s complaint sufficiently stated “a deception claim” under the CFPA, as well as violations of TILA and Regulation Z by the corporate defendants. The magistrate judge recommended that the court grant the Bureau “a permanent injunction to prevent future violations of the law,” redress and a civil money penalty awarded jointly and severally against the defendants, and appointment of a receiver. The court overruled various objections raised by the individual defendant’, including for failure to timely raise the objection before the magistrate judge, and because certain claims were without merit. Ultimately, the court granted the Bureau a default judgment against the defendants and adopted the report and recommendations of the magistrate judge for injunctive relief, consumer redress, a civil money penalty, and the appointment of a receiver.
Convenience store chain agrees to pay $12 million to resolve data security incident
On February 19, consolidated class members filed an unopposed motion for preliminary approval of a settlement agreement in the U.S. District Court for the Eastern District of Pennsylvania to resolve data security incident claims. Class members—comprised of a nationwide group of consumers whose credit and debit card information was compromised in a 2019 data security incident affecting a nationwide convenience store chain—alleged that “despite the foreseeability of a data breach” the convenience store chain, among other things, “failed to implement adequate measures to protect the sensitive, non-public payment card information entrusted to it by its customers.” The claims also alleged that certain class members continued to experience fraudulent transactions on their payment cards, and that many class members spent time responding to the data security incident, spent money on protective measures, and may experience a heightened risk of future misuse of their payment card information.
Following mediation, the parties agreed to the preliminary settlement terms, which will provide monetary relief to class members through a three-tier system totaling up to $9 million, plus $3.2 million for attorneys’ fees and expenses and class representative service awards. The convenience store chain is also required to take additional measures for a period of two years to prevent future unauthorized intrusions, including (i) retaining a qualified security assessor; (ii) conducting annual tests of its cybersecurity protocols; (iii) operating payment systems that encrypt payment card information and comply with credit card issuers’ security procedures, including systems at point-of-sale fuel pump terminals; and (iv) maintaining information security programs, policies, and procedures.
New York Court of Appeals reverses mortgage foreclosure timeliness claims
On February 18, the New York Court of Appeals reversed appellate division orders in four cases concerning the timeliness of mortgage foreclosure claims, seeking to develop “clarity and consistency” for cases affecting real property ownership. In particular, the decision clarifies questions regarding what actions will constitute acceleration of a debt and how such acceleration can be revoked, or de-accelerated, which resets the foreclosure timeline.
The Court of Appeals first addressed the question about how and when a default letter to a borrower constitutes an acceleration, thus commencing the six-year statute of limitations period for initiating a foreclosure action. With respect to two of the cases (appellants three and four), the Court of Appeals applied the ruling from Albertina Realty Co. v. Rosbro Realty Corp., which held “that a noteholder must effect an ‘unequivocal overt act’ to accomplish such a substantial change in the parties’ contractual relationship.” The Court of Appeals reviewed a default letter sent in one of the cases and agreed with the bank that merely warning a borrower of a potential future foreclosure via a default letter does not count as an “overt, unequivocal act.” “Noteholders should be free to accurately inform borrowers of their default, the steps required for a cure and the practical consequences if the borrower fails to act, without running the risk of being deemed to have taken the drastic step of accelerating the loan,” the Court of Appeals stated. Instead, the letter must be accompanied by some other overt, unequivocal act. In addition, the Court of Appeals also reviewed a portion of the appellate division’s decision in appellant four’s case, which held that the bank “could not de-accelerate because it ‘admitted that its primary reason for revoking acceleration of the mortgage debt was to avoid the statute of limitations bar.’” The Court of Appeals majority wrote, “We reject the theory. . .that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt. A noteholder's motivation for exercising a contractual right is generally irrelevant.”
The Court of Appeals also addressed the issue of “whether a valid election to accelerate, effectuated by the commencement of a prior foreclosure action, was revoked upon the noteholder’s voluntary discontinuance of that action” in the two other cases (appellants one and two). According to Court of Appeals, when a noteholder has accelerated a loan by filing a foreclosure action, “voluntary discontinuance” of that foreclosure action de-accelerates the loan unless the noteholder states otherwise. Thus, the noteholder can later choose to re-accelerate the loan and file another foreclosure action with a new six-year statute of limitations period, the Court of Appeals wrote, reversing appellate division orders that had dismissed the two cases as untimely.
While largely unanimous, one judge issued a dissenting opinion on two of the rulings concerning whether the noteholders effectively revoked acceleration. The judge stated that if the court is going to impose a deceleration rule based on a noteholder’s voluntary withdrawal of a foreclosure action, she would require that noteholders “provide express notice to the borrower regarding the effect of that withdrawal.”
9th Circuit: Arbitration agreement authorizes public injunctive relief under California law
On February 19, the U.S. Court of Appeals for the Ninth Circuit affirmed a grant of a motion to compel arbitration filed by the operator of a smartphone app that offers financial services to consumers, holding that an agreement between a consumer and the lender authorizes the arbitrator to award all injunctive remedies available in an individual lawsuit under California law. In this case, the plaintiff took out a credit-builder loan and was required to enroll in a program offered by the lender as a prerequisite for applying for the loan, which required the payment of monthly fees. After the consumer fell behind on her fees, deposits, and loan payments, she filed a putative class action suit claiming that when she tried to cancel her membership in the program, the lender informed her that she first had to pay off the loan in full, which could only happen after she paid the still-accumulating past-due membership fees. The lender moved to compel arbitration, which the district court granted, ruling that the arbitration agreement was fully enforceable and that the agreement “explicitly” did not violate the ruling established in McGill v. Citibank NA, as it allowed the arbitrator to award “all remedies in an individual lawsuit,” including, without limitation, public injunctive relief. On appeal, the 9th Circuit rejected the consumer’s argument that she could only secure public injunctive relief by acting as a private attorney general, which the arbitration agreement explicitly prohibited. “Public injunctive relief is available under California law in individual lawsuits—not just in private-attorney-general suits,” the appellate court wrote. “It follows that [the consumer] may secure that relief in arbitration under the [a]greement.” As a result, the court affirmed the district court’s order to compel arbitration.
Court holds satellite provider not liable for telemarketer’s calls
On February 12, the U.S. District Court for the Northern District of Georgia granted summary judgment in favor of a satellite TV company as to a class action’s TCPA claims, concluding that the company was not liable for its telemarketing service provider’s cold calls. As previously covered by InfoBytes, a consumer filed a class action against the company alleging that the company failed to maintain an “internal do-not-call list,” which allowed the company and its telemarketing service provider to contact him eighteen times after he repeatedly asked to not be contacted. The consumer sought certification “of all persons who received more than one telemarketing call from [the telemarketing service provider] on behalf of [the company] while it failed to maintain an internal do-not-call list.” The district court certified two representative classes: the Internal Do Not Call (IDNC) class and the National Do Not Call (NDNC) class. The company appealed the IDNC class and the U.S. Court of Appeals for the Eleventh Circuit vacated the district court’s certification of the IDNC class. The company then moved for summary judgment on the certified NDNC class claims and plaintiff’s individual IDNC claim.
Upon review, the court granted summary judgment in favor of the company concluding that there was no evidence that (i) the cold calls were made by the telemarketing provider within its actual authority from the company; (ii) the company made representations sufficient to give the telemarketing provider the apparent authority to make the cold calls; or (iii) the company ever ratified the cold calls. Specifically, the court noted that not only did the company “categorically ban[] all residential and cellular cold calls,” it also “regularly issued reminders that [the telemarketing provider] was required to continue implementation of national-do-not-call procedures in compliance with the TCPA.”
Court again rejects “unconscionable” arbitration provision
On February 12, the U.S. District Court for the Northern District of West Virginia denied for a second time a satellite TV provider’s (defendant) motion to compel arbitration in a TCPA class action, concluding that the arbitration provision was “overbroad, absurd and unconscionable.” As previously covered by InfoBytes, the plaintiff filed a lawsuit against the defendant alleging the defendant violated the TCPA by making automated and prerecorded telemarketing calls to an individual even though her number was on the National Do Not Call Registry. The defendant moved to compel arbitration, claiming that the plaintiff’s dispute was covered by an arbitration agreement in the contract governing her cell phone service with a telecommunications company, which is an affiliate of the defendant. The district court denied the request, ruling that the allegations “did not fall within the scope of the arbitration agreement.” On appeal, the U.S. Court of Appeals for the Fourth Circuit issued a split opinion vacating a district court’s decision with the majority concluding that the allegations fit within the broad scope of the arbitration agreement, and that even though the plaintiff agreed to arbitration with a telecommunications company in 2012, the agreement extends to the TCPA allegations against the defendant after the telecommunications company acquired the defendant in 2015. Specifically, the appellate court stated that the arbitration agreement had a “forward-looking nature,” and that it seemed unlikely that the telecommunications company and its affiliates “intended to restrict the covered entities to those existing at the time the agreement was signed.” The 4th Circuit remanded the case back to the district court for consideration of unconscionability.
On remand, the district court again denied the motion, stating that the “arbitration provision is overbroad, absurd and unconscionable, and far exceeds anything contemplated by Congress in enacting the [Federal Arbitration Act].” Specifically, the court stated the plaintiff was “an ordinary wireless consumer” given a “small electronic pinpad device” with a few lines of the agreement displayed at a time and an option to skip to an acknowledgment screen, which required her signature, in order to “obtain her line of service.” She would then be “irrevocably locked in to face demands that she arbitrate any dispute arising out of any relationship with virtually any of [the telecommunications company]’s corporate cousins—a list that could, overtime, comprise [] current competitors or not-yet created subsidiaries.” Because the arbitration provision was unconscionably broad, the court denied the motion to arbitrate.
8th Circuit affirms summary judgment for servicer without proof of RESPA injury
On February 11, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment in favor of a mortgage loan servicer, concluding that the consumer failed to establish that he was injured by the servicer’s alleged violation of RESPA. As previously covered by InfoBytes, the U.S. District Court for the District of Minnesota ruled on a motion for summary judgment concerning whether the Minnesota Mortgage Originator and Servicer Licensing Act’s (MOSLA) provision prohibiting “a mortgage servicer from violating ‘federal law regulating residential mortgage loans’” provides a cause of action under state law when a loan servicer violates RESPA but where the consumer ultimately has no federal cause of action because the consumer “sustained no actual damages and thus has no actionable claim under RESPA.” The 8th Circuit previously overturned the district court’s earlier ruling to grant summary judgment in favor of the consumer, concluding that while the loan servicer failed to (i) conduct an adequate investigation following the plaintiff’s request as to why there was a delinquency for his account, and (ii) failed to provide a complete loan payment history when requested, its failure did not cause actual damages.
In affirming the district court’s recent order, the 8th Circuit agreed that for the consumer to pursue a MOSLA cause of action when a loan servicer violates a federal law regulating mortgage loans, such as RESPA, there must be a federal cause of action. Even though the 8th Circuit previously concluded the servicer violated RESPA, the plaintiff must still prove actual damages to establish an injury in order to prevail under MOSLA.
Insurance company not obligated to indemnify retailer’s payment card claims following data breach
On February 8, the U.S. District Court for the District of Minnesota granted defendant’s motion for summary judgment, ruling that an insurance company is not obligated to indemnify a national retailer (plaintiff) for settlements paid to multiple banks to resolve claims over the costs of canceling and reissuing customers’ compromised credit and debit cards after a 2013 data breach. After the data breach, the banks sued the plaintiff for the costs associated with cancelling and reissuing the cards (payment card claims). The plaintiff notified the defendant of its potential liability for payment card costs associated with the data breach, claiming that the payment card claims were covered under the defendant’s commercial general liability policies. The defendant denied coverage under the policies, and the plaintiff filed a breach-of-contract action seeking both declaratory judgment that its liability for the payment-card claims was covered under the policies, as well as judgment against the defendant for the settlement payments related to the payment card claims. In granting the defendant’s motion for summary judgment, the court determined, among other things, that the plaintiff failed to “establish[] a connection between the damages incurred for settling claims related to replacing the payment cards and the value of the use of those cards, either to the payment-card holders or issuers.” As such, “the connection between the damages claimed and the loss of use of the payment cards is insufficiently direct and, therefore, the damages claimed are not loss-of-use damages covered under the policies,” the court stated, noting that the defendant’s policies only allowed for indemnification when the plaintiff had a legal obligation to pay damages because of a “loss of use” of “tangible property that is not physically injured.”