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District Court grants summary judgement for bank in “spoofing” case
On September 29, the U.S. District Court for the Southern District of New York granted summary judgement on all claims in favor of the defendant bank, while denying summary judgement for the New Jersey-based plaintiff. The plaintiff alleged violations of the UCC, breach of contract, and gross negligence arising from a “spoofing” fraud incident that resulted in more than $8.5 million being wired from the plaintiff’s account with the defendant. The district court reasoned that the plaintiff was not entitled to a refund because the plaintiff’s employees authorized the wires – and claims under Section 4-A of the UCC require that a payment order be both not authorized and not effective in order to refund a payment. The court rejected the plaintiff’s argument that the wires were improper because the bank’s policy prohibited bank employees from authorizing wires over $500,000 – noting that the policy was for “internal use only,” and solely for the bank’s protection. Further, the court rejected the plaintiff’s common law claims as pre-empted by Article 4-A.
Court infers receipt of validation notice to allow pro se plaintiffs’ FDCPA claim to survive
On September 19, the U.S. District Court for the Eastern District of New York granted in part and denied in part a complaint filed by two pro se plaintiffs who alleged that the defendant’s debt collection efforts related a balance due from a timeshare membership program violated the FCRA, TILA, and FDCPA. In reaching its decision, the court explained that complaints filed by pro se pleadings must be construed more liberally than those drafted by lawyers. Notwithstanding this more liberal approach, however, the court still determined that plaintiffs’ TILA and FCRA claims were insufficiently pled. With respect to the TILA claim, the court stated that plaintiffs failed to specify which provisions were allegedly violated and only alleged that “Defendant has computed and imposed an internal alleged account balance on plaintiff including principal balance, interest rates, fees and terms without property consumer transparency of mode of accounting verification methods,” which was insufficient to allege a TILA violation. The court noted that to the extent it could interpret plaintiffs’ complaint to implicate specific provisions of the FCRA, plaintiffs still failed to state claim under any of the potentially relevant provisions, either because there was no private right of action or there were no facts supporting any alleged claims.
By contrast, plaintiffs did allege specific provisions of the FDCPA that defendant’s conduct purportedly breached. While the court still concluded that plaintiffs failed to state a claim with regard to most of the cited FDCPA provisions, it determined that plaintiffs had plausibly stated a claim under 15 U.S.C. § 1692g, which, among other things, requires a debt collector to cease debt collection efforts if, within 30 days of receiving a validation notice from the debt collector, a consumer disputes the debt or any portion thereof.
Although the record did not reflect whether the defendant had sent plaintiffs a validation notice, the court, in liberally construing plaintiffs’ complaint, found it reasonable to “infer” that such notice had been provided to the plaintiffs. Specifically, the court reasoned that plaintiffs’ notarized letter to defendant, titled “Validation of Debt / Claim” was likely sent in response to a validation notice from defendant, and therefore, under Section 1692g, all collection activity should have ceased following receipt of plaintiffs’ letter.
Challenge to HUD fair housing rule denied
On September 19, the U.S. District Court for the District of Columbia denied a motion for summary judgment from the National Association of Mutual Insurance Companies arguing that the Department of Housing and Urban Development’s disparate-impact rule conflicts with the limits of the Fair Housing Act as interpreted at the Supreme Court. The rule, promulgated in 2013 and reinstated under the Biden administration, a policy is unlawful if it has a “discriminatory effect” on a protected class and was not necessary to achieve a “substantial, legitimate, nondiscriminatory” interest or if there is a less discriminatory alternative. Judge Richard J. Leon held that the rule does not exceed limitations on disparate-impact liability under the FHA placed by the Supreme Court in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519 (2015) where those limitations avoid potential constitutional issues and prevent the Act from forcing housing authorities to reorder their legitimate priorities.
CFPB denies petition to set aside investigative demand in student loan discharge probe
On September 19, the CFPB published a recent decision and order denying the petition of one of the nation’s largest private student loan servicers to set aside the CFPB’s civil investigative demand (CID) in connection with its investigation into potential violations of the CFPA’s prohibition of unfair, deceptive, and abusive acts and practices for attempting to collect on loans that had been previously discharged in bankruptcy. The order instructs the servicer to “comply in full” with the requests for documents and information set forth in the Bureau’s June 2023 CID.
The servicer objected to the CFPB’s investigation, arguing, among other things, that the Bureau lacks authority to enforce the U.S. Bankruptcy Code. The servicer also argued that the Bankruptcy Code displaces the CFPA if the reason a debt is not owed is due to a bankruptcy discharge.
The Bureau rejected the servicer’s arguments, stating “[t]he Bureau seeks to determine whether a student loan servicer violated the prohibition on unfair, deceptive, and abusive acts and practices not just by making individual attempts to collect discharged debts from individual debtors, but also, more globally, by having no policies and procedures in place to determine whether loans in the servicer’s portfolio are dischargeable in bankruptcy via standard bankruptcy orders, a practice that could put entire populations of borrowers at risk of harmful and unlawful collection efforts.” It went on to say “[t]he bureau does not seek to investigate potential violations of the Bankruptcy Code, but rather potential violations of the CFPA.” The CFPB also noted that courts have “repeatedly held that the Bureau can bring CFPA claims based on companies’ attempts to collect debts that consumers do not owe due to the impact of some other statute.”
Kentucky banks win injunction on Small Business Lending Rule enforcement
On September 14, U.S. District Judge Karen K. Caldwell issued an order granting an injunction sought by the Kentucky Bankers Association and eight Kentucky-based banks to enjoin the CFPB from implementing and enforcing requirements for small business lenders until the U.S. Supreme Court rules on the CFPB’s funding structure (previously covered by InfoBytes here and here).
As previously covered by InfoBytes, the plaintiff banks filed their motion for a preliminary injunction seeking an order to enjoin the CFPB from enforcing the Small Business Lending Rule against them for the same reasons that a Texas district court enjoined enforcement of the rule (Texas decision covered by InfoBytes here). The CFPB argued, among other things, that the plaintiff banks failed to satisfy the factors necessary for preliminary relief, that the plaintiff banks are factually wrong in asserting that the Rule would require lenders to compile “‘scores of additional data points’ about their small business loans,” and the “outlier ruling of the 5th Circuit” in the Texas case does not demonstrate that the plaintiff banks are entitled to the relief they seek.
In the order granting the preliminary injunction, Judge Caldwell discussed the factors for determining whether injunctive relief is appropriate. Notably, Judge Caldwell determined that the irreparable harm factor weighs in favor of the plaintiffs, stating “[p]laintiffs are already incurring expenses in preparation for enforcement of the Rule and will not be able to recover upon a Supreme Court ruling that the CFPB’s funding structure is unconstitutional.” Additionally, Judge Caldwell indicated that the likelihood of success factor “does not tip the scale in either direction,” and the substantial harm to others if the preliminary injunction is granted, and the public interest factors “carry little weight” because “[b]efore the Rule becomes enforceable, a decision on the merits will be issued by the highest court in the land.”
Judge Caldwell found that the imposition of the preliminary injunction “will create no harm to the CFPB nor the public since the rule would not otherwise be enforceable in the interim” and granted the preliminary injunction “in the interest of preserving the status quo until the Supreme Court has made its decision.”
Tech giant to pay $62M in smartphone location tracking suit
On September 14, 2023, in the U.S. District Court of the Northern District of California, San Jose Division, plaintiffs filed a motion for preliminary approval of a proposed Class Action Settlement Agreement and Release pursuant to which a tech giant will pay $62 million to resolve claims that it illegally tracked and stored such users’ private location information even after users opted out. According to the filing, the proposed settlement “would be used to pay for the costs of Notice and Settlement administration, any Court-awarded attorneys’ fees and expenses and Class Representative Service Awards” with the balance being “distributed to one or more Court-approved cy pres recipients” each of which must be “independent 501(c)(3) organizations with a track record of addressing privacy concerns on the Internet.”
The company also agreed to injunctive relief for a period of at least three years, requiring it to, among other things: (i) “maintain a policy whereby (a) Location Information stored through Location History (“LH”) and Web & App Activity (“WAA”) is automatically deleted by default after a period of at least 18 months when users opt into these settings for the first time, and (b) users can set their own auto-delete periods;” (ii) provide users with instructions on how to disable each data collection setting, delete the data collected, and set retention limits; and (iii) confirm that the company “does not now share users’ precise Location Information collected in LH or WAA with third parties (except for valid legal reasons).” The settlement class includes as many as 247 million smartphone users whose location information the company stored “while “Location History” was disabled” from January 1, 2014, through the notice date.
In a statement on September 15, a spokesperson for the company said “[c]onsistent with improvements we've made in recent years, we have settled this matter, which was based on outdated product policies that we changed years ago."
NY credit union gets final approval on $2.2M overdraft fee deal
On September 7, the U.S. District Court for the Northern District of New York issued a Final Order approving a more than $2.2 million settlement deal to end a class action over a credit union’s overdraft and insufficient funds fee practices.
The deal includes a $2.1 million settlement fund. After payment of attorneys’ fees to customers’ counsel, 80% of the settlement fund will go to customers who were allegedly charged overdraft fees on debit card transactions that did not overdraw their accounts when the transactions were authorized, and 20% will go to customers who were allegedly hit with multiple insufficient funds fees on a single transaction. In addition, the credit union will forgive, waive and not collect nearly $165,000 in uncollected fees.
On December 7, 2022, plaintiffs filed a putative class action complaint in the United States District Court for the Northern District of New York that consolidated two putative class action cases in which the plaintiffs alleged the credit union’s assessment of more than one insufficient funds fee on a single transaction and assessment of overdraft fees on debit card transactions that did not overdraw the customers’ accounts was a breach of contract, breach of the covenant of good faith and fair dealing, and violative of New York General Business § 349, et seq. Shortly after the actions were consolidated, the parties notified the court that they were working towards a settlement.
9th Circuit affirms summary judgment finding in favor of debt collector in lawsuit over retail card debt collection
On August 28, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision of a district court to throw out a pair of consolidated punitive class action lawsuits brought against a nationwide debt collector company that alleged the company unlawfully attempted to collect debts incurred on retail-branded credit cards. A three-judge panel held that the debt collector did not “intentionally” violate provisions of the FDCPA when it circulated collection letters that did not disclose the time-barred natures of the debts under Oregon law and rejected the plaintiff’s argument that the district court had erred in granted summary judgment in favor of the company. The 9th Circuit noted that “mistakes about the time-barred status of a debt can be bona fide errors” and that the debt collector company presented evidence indicating that its failure to disclose that certain Oregon debts were time-barred were not intentional. Moreover, the 9th Circuit rejected plaintiff’s claim that a four-year statute of limitations applied to store-branded credit card accounts at the time the collection letters were sent, in part because the debt collector had sound reason to take the position that a six-year statute of limitations applied for an “account stated” under Oregon law. Ultimately, the applicable statute of limitations in this scenario remains “unsettled” under Oregon law. This, along with the fact that the 9th Circuit agreed that the company’s alleged violations were unintentional, resulted in the court’s decision to affirm the summary judgment finding in favor of the debt collector.
California appeals court reverses dismissal of Rosenthal Act class action
On August 30, a California Appeals Court (Appeals Court) reversed a lower court’s ruling that a mere alleged debt, whether or not actually due or owing – as opposed to a debt that is, in fact, actually due or owing – is insufficient to state a claim under the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act). Enacted in 1977, the Rosenthal Act aims “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts.” Plaintiff purchased a home with a previously-installed solar energy system. The previous homeowner and plaintiff reached an agreement whereby the prior homeowner would purchase the energy produced through the system through monthly payments. However, the defendant, the provider of the solar energy system, sent late payment notices to plaintiff demanding that he make monthly payments. Although plaintiff did not engage in a “consumer credit transaction” with the defendant, the Appeals Court found that the plaintiff’s receipt of statements and notices from the defendant constituted money “alleged to be due or owing,” as required to state a claim under the Rosenthal Act. In holding that the plaintiff’s claim “has merit,” the Appeals Court emphasized that the Rosenthal Act was specifically designed to “eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid,” and “[i]t is difficult to conceive of a more unfair debt collection practice than dunning the wrong person”.
CFPB contests Kentucky banks' motion to block enforcement of Small Business Lending Rule
On September 5, the CFPB filed an opposition to a motion for a preliminary injunction made by a group of Kentucky banks (plaintiff banks) in the U.S. District Court for the Eastern District of Kentucky. As previously covered by InfoBytes, the plaintiff banks filed their motion for a preliminary injunction seeking an order to enjoin the CFPB from enforcing the Small Business Lending Rule against them for the same reasons that a Texas district court enjoined enforcement of the rule (Texas decision covered by InfoBytes here). The CFPB argues that the plaintiff banks have not satisfied any of the factors necessary for preliminary relief, including that they have not shown that their claim is likely to succeed on the merits, and they have not shown that they face imminent irreparable harm. The Bureau also argues that the plaintiff banks are factually wrong in asserting that the Rule would require lenders to compile “‘scores of additional data points’ about their small business loans,” and that the additional data requirements are consistent with the Bureau’s statutory authority to require such additional data if it assists in “‘fulfilling the purposes of [the statute].’” The CFPB argues, among other things, that the “outlier ruling of the 5th Circuit” in the Texas case does not demonstrate that the plaintiff banks are entitled to the relief they seek.