InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB and South Carolina settle with loan broker for veteran pension loans
On October 30, the CFPB and the South Carolina Department of Consumer Affairs filed a proposed final judgment in the U.S. District Court for the District of South Carolina to settle an action alleging that two companies and their owner (collectively, “defendants”) violated the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. As previously covered by InfoBytes, in October 2019, the regulators filed an action alleging, among other things, that the majority of credit offers that the defendants broker are for veterans with disability pensions or retirement pensions and that the defendants allegedly marketed the contracts as sale of payments and not credit offers. Moreover, the defendants allegedly failed to disclose the interest rate associated with the offers and failed to disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.
If approved by the court, the proposed judgment would require the defendants to pay a $500 civil money penalty to the Bureau and a $500 civil money penalty to South Carolina. The proposed judgment would permanently restrain the defendants from, among other things, (i) extending credit, brokering, and servicing loans; (ii) engaging in deposit-taking activities; (iii) collecting consumer-related debt; and (iv) engaging in any other financial services business in the state of South Carolina. Additionally, the proposed judgment would permanently block the defendants from enforcing or collecting on any contracts related to the action and from misrepresenting any material fact or conditions of consumer financial products or services.
Court orders SBA to release more PPP and EIDL information
On November 5, the U.S. District Court for the District of Columbia ordered the U.S. Small Business Administration (SBA) to release the names, addresses, and precise loan amounts of all Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) borrowers. According to the opinion, national-news organizations filed an action against the SBA seeking disclosure of the loan recipient information, after the rejection of their Freedom of Information Act (FOIA) requests. In July, the SBA released the business information of certain PPP loan recipients (covered by InfoBytes here). For any loan over $150,000, the SBA data release included business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, name of lender, jobs supported, and a loan amount range. For loans under $150,000, the SBA withheld the business names and addresses in the release. Additionally, the SBA did not release the names and addresses of sole proprietorships and independent contractors receiving EIDL loans. The parties filed cross-motions for summary judgment as to the propriety of SBA’s withholdings.
The court agreed with the plaintiffs, concluding that the SBA’s claimed FOIA exemptions do not cover the requested information disclosures. Specifically, the court determined that SBA’s invocation of Exemption 4 of FOIA, which “shields from disclosure ‘commercial or financial information obtained from a person and privileged or confidential,’” was not applicable because the SBA did not give borrowers the assurance of privacy. In fact, according to the court, the government explicitly told the borrowers that the information would be disclosed in a form disclaimer. The court further rejected the SBA’s claim of Exemption 6 of FOIA, concluding that the “weighty public interest in disclosure easily overcomes the far narrower privacy interest of borrowers who collectively received billions of taxpayer dollars in loans.” Thus, the court ordered the SBA to supplement the earlier disclosure and release the “names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL COVID-related loans by November 19, 2020.”
Another district court dismisses TCPA action for lack of jurisdiction
On October 29, the U.S. District Court for the Northern District of Ohio dismissed a TCPA action against an energy service company and “ten John Doe corporations” (collectively, defendants), concluding that the court lacked jurisdiction over cases involving unconstitutional laws. According to the opinion, the plaintiff filed the putative class action against the defendants alleging the companies violated the TCPA by placing pre-recorded calls to the plaintiff’s cell phone without consent. While the action was pending, on July 6, the U.S. Supreme Court concluded in Barr v. American Association of Political Consultants Inc. (AAPC) that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is an unconstitutional content-based speech restriction (covered by InfoBytes here). The defendants moved to dismiss the action for lack of subject matter jurisdiction and the court agreed. Specifically, the court agreed with the defendants that the severance of Section 227(b)(1)(A)(iii) must be applied prospectively, thus, the statute can only be applied to robocalls made after July 6 and prior to 2015 (when the now unconstitutional government-debt exception in Section 227(b)(1)(A)(iii) was enacted). Because “the statute at issue was unconstitutional at the time of the alleged violations,” the court concluded it lacked subject-matter jurisdiction over the matter and dismissed the action.
As previously covered by InfoBytes, the U.S. District Court for the Eastern District of Louisiana was the first known court to dismiss a TCPA action based on lack of jurisdiction over calls occurring after the exception’s enactment but prior to the Supreme Court’s decision on July 6.
2nd Circuit vacates dismissal of CFPB action following Seila
On October 30, the U.S. Court of Appeals for the Second Circuit summarily vacated a 2018 district court order that had dismissed CFPB and New York attorney general claims against a New Jersey-based finance company accused of misleading first responders to the World Trade Center attack and NFL retirees about high-cost loans mischaracterized as assignments of future payment rights (covered by InfoBytes here). The district court found that the Bureau’s single-director structure was unconstitutional, and that, as such, the agency lacked authority to bring deceptive and abusive claims under the Consumer Financial Protection Act (CFPA). The district court also rejected an attempt by then-acting Director Mulvaney to salvage the Bureau’s claims, concluding that the “ratification of the CFPB’s enforcement action against defendants failed to cure the constitutional deficiencies in the CFPB’s structure or otherwise render defendants’ arguments moot.”
The 2nd Circuit remanded the case to the district court, determining that the U.S. Supreme Court’s ruling in Seila Law LLC v CFPB (covered by a Buckley Special Alert, holding that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau) superseded the 2018 ruling. Following Seila, Director Kathy Kraninger also ratified several prior regulatory actions (covered by InfoBytes here), including the enforcement action brought against the defendants. “In light of these developments, we affirm the district court's holding that the for-cause removal provision is unconstitutional, we reverse the district court's holding that the for-cause removal provision is not severable from the remainder of the CFPA, and we remand for the district court to consider in the first instance the validity of Director Kraninger’s ratification of this enforcement action,” the appellate court wrote.
Court dismisses FCA action against national bank
On October 29, the U.S. District Court for the Eastern District of Missouri dismissed a False Claims Act (FCA) suit against a national bank, concluding the relator failed to prove the inapplicability of the public disclosure bar. According to the opinion, the relator filed an action against the national bank alleging that from 2009 to 2013, as an employee of the bank, she witnessed “numerous violations of [the bank]’s obligations under [government] loan modification programs.” The bank moved to dismiss the action on five separate grounds, including statute of limitations and public disclosure bar. The court first addressed the statute of limitations claims, applying the six-year limitation after the violation and holding that because the relator filed her action against the bank on June 2, 2018, any claims occurring before June 2, 2012 are barred as untimely.
The court then addressed the public disclosure bar, which requires courts to dismiss an action under the FCA “if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed….” The bank argued, and the relator did not contest, that the relator’s allegations “had already been publicly disclosed through the news media, a federal lawsuit, and federal reports.” The court rejected the relator’s claims that she should qualify as an original source of the information. Specifically, the court concluded that while the relator may have independent knowledge of the information provided in her complaint by virtue of her employment, she did not “materially add[] to” the public disclosures and thus, did not carry “her burden to prove the inapplicability of the public disclosure bar.” Accordingly, the court dismissed all remaining allegations postdating July 2, 2012.
Trade group sues CFPB over payday repeal
On October 29, a national community advocate group filed a complaint against the CFPB challenging the Bureau’s repeal of the underwriting provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Rule). As previously covered by InfoBytes, in July, the CFPB issued a final rule revoking, among other things, the Rule’s (i) provision that makes it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay the loans according to their terms; (ii) prescribed mandatory underwriting requirements for making the ability-to-repay determination; and (iii) the “principal step-down exemption” provision for certain covered short-term loans.
The complaint alleges that the Bureau’s repeal of the underwriting provisions of the Rule was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” Specifically, the complaint asserts that the Bureau invented a “new evidentiary standard” when it required that evidence supporting the need for the underwriting provisions be “robust and reliable,” which, according to the complaint, is a standard “custom-designed” to repeal the provisions. The complaint further argues that the CFPB “failed to consider the harms that consumers suffer from no-underwriting lending” and relied on analysis and data that was not “previously made available for comment.” The complaint seeks a declaration that the repeal was unlawful and an order requiring the Bureau to “take necessary steps to ensure prompt implementation of the 2017 Payday Lending Rule’s Ability-to-Repay Protections.”
Online bank reaches settlement with customers over service disruption
On October 28, the U.S. District Court for the Northern District of California issued an order granting preliminary approval of a putative class action settlement concerning allegations that an online bank’s service disruption prevented customers from accessing their account, including through card purchases and ATM withdrawals. The plaintiffs also claimed that after the service disruption, “some customers reported incorrect account balances and unauthorized charges.” The plaintiffs alleged, among other things, claims for negligence, unjust enrichment, breaches of contract and fiduciary duty, conversion, and violations of several state laws. Following a series of settlement negotiations, the parties entered into an amended settlement identifying the settlement class as “[a]ll consumers who attempted to and were unable to access or utilize the functions of their accounts with [the defendant], as confirmed by a failed transaction or locked card as recorded in [the defendant]’s business records, beginning on October 16, 2019 through October 19, 2019, as a result of the Service Disruption.” Under the settlement, tier one customers who are unable or choose not to provide documentation substantiating their alleged losses can receive up to $25 for verified claims. Tier two customers who can show “‘reasonable documentation’ to substantiate their loss” can receive their verified loss, up to $750. The defendant has agreed to set aside $4 million to cover tier one claims and $1.5 million to cover tier two claims. The defendant is also required to make a minimum payment of $1.5 million in addition to the nearly $6 million it already paid to active customers in connection with the service disruption in the form of $10 “courtesy” payments, as well as credits the defendant issued to customers “who incurred ‘certain transaction fees’” during the service disruption.
District Court: National bank agrees to obtain customer consent before Covid-19 forbearance placement
On November 2, the U.S. District Court for the Western District of Virginia entered an agreed order resolving a class of homeowners’ motion for preliminary injunction. The national bank defendant voluntarily agreed it will not place mortgages into Covid-19-related forbearance plans unless a customer or their authorized representative has made the request. The agreed order will remain in place until the court enters either a superseding order or a final judgment in the matter. In addition to not activating Covid-19 forbearances without customer permission, the bank has also agreed to stop extending forbearances for any mortgage customers beyond the originally disclosed terms unless an extension has been requested, or a customer or their authorized representative has failed to respond to attempts made by the bank to determine whether the customer would like to extend the forbearance. At issue are allegations made by the plaintiffs that the bank, among other things, “unilaterally” placed their mortgages into CARES Act forbearance without their consent which negatively impacted their credit reports. The agreement notes that nothing in the order prohibits the bank “from delaying or deferring enforcement of any noteholder’s rights and remedies under the applicable mortgage loan documents,” and that, moreover, the agreement does not concede any disputed issue related to the pending preliminary injunction motion or the plaintiffs’ complaint.
Merchant cash advance providers move to dismiss FTC allegations of deceptive and unfair conduct
On October 23, defendants in an FTC lawsuit filed a reply brief in support of their motion to dismiss allegations claiming they misrepresented the terms of their merchant cash advances (MCA), used unfair collection practices, made unauthorized withdrawals from consumer accounts, and misrepresented collateral and personal guarantee requirements in advertisements. As previously covered by InfoBytes, the FTC filed a complaint in August against the defendants—two New York-based merchant cash advance providers and two company executives—alleging deceptive and unfair conduct in violation of Section 5 of the FTC Act. Earlier in October, the defendants filed a motion to dismiss, arguing, among other things, that the FTC “lack[ed] the statutory authority to bring its claims in federal court” under Section 13(b) of the FTC Act because “none of the challenged conduct, to the extent it even occurred or was actionable, is plausibly alleged to be ongoing or ‘about to’ occur.” The FTC countered that it “need only allege” that it had “reason to believe Defendants are violating or are about to violate” Section 5 in order to file suit in federal district court. The FTC further contended that it had also alleged facts sufficient for individual liability.
The defendants responded to the FTC’s opposition to dismissal, arguing, among other things, that even if the FTC invoked the statutory authority under Section 13(b) to have the court hear its claims, the claims fail for other reasons, including that the complaint fails to state a claim under Section 5 by (i) only providing “fragments of advertisements without necessary context”; (ii) ignoring “the express fee disclosures in the MCA agreement” that outline the fees to be paid by a merchant; and (iii) ignoring the fact that “so-called ‘unauthorized’ ACH withdrawals were “explicitly authorized under the MCA agreement.” The defendants further argued that the individual liability claims should also be dismissed because the FTC failed to sufficiently allege that the individual defendants directly participated in or had authority over the alleged conduct.
Split en banc 11th Circuit vacates $6.3 million FACTA settlement
On October 28, the U.S. Court of Appeals for the Eleventh Circuit, in a 7-3 en banc decision, vacated a $6.3 million Fair and Accurate Credit Transactions Act (FACTA) class action settlement, concluding the plaintiffs lacked standing because they did not allege any concrete harm. According to the opinion, the named plaintiff filed a FACTA class action against a chocolate retailer, alleging that the retailer printed too many credit card digits on receipts over several years. The complaint only pursued statutory damages and explicitly stated it did “not intend[] to request any recovery for personal injury.” The parties agreed to settle the litigation for $6.3 million prior to the U.S. Supreme Court decision in Spokeo, Inc. v. Robins (holding that a plaintiff must allege a concrete injury, not just a statutory violation, to establish standing). After Spokeo, the district court approved the class action, and class objectors appealed, with one objector arguing that the district court lacked jurisdiction to approve the settlement because the named plaintiff did not allege an injury in fact. On appeal, the 11th Circuit issued multiple opinions, with the first two affirming the settlement approval. The full panel ordered a rehearing en banc, vacating the last opinion.
The en banc panel vacated the district court order approving the settlement, concluding that the named plaintiff lacked standing under Spokeo. Specifically, the panel rejected the named plaintiff’s argument that “receipt of a noncompliant receipt itself is a concrete injury,” noting that “nothing in FACTA suggests some kind of intrinsic worth in a compliant receipt.” Moreover, the panel disagreed with the named plaintiff’s distinction that his claim was a “substantive” violation and not just a “procedural” one, reasoning that “no matter what label you hang on a statutory violation, it must be accompanied by a concrete injury.” Because the complaint did not allege a concrete injury, the panel vacated the order.
In dissent, one judge argued that the named plaintiff plausibly alleged concrete harm by establishing that the retailer’s FACTA violation elevated his risk of identity theft. In the second dissent, another judge asserted that both common law and congressional intent support the conclusion that the plaintiff’s complaint constitutes a concrete injury in fact. And lastly, the third dissent argued that the order should not be dismissed outright because the majority made “assumptions about the risks of identity theft without the benefit of a factual record, expert reports, or adversarial testing of the issue in the district court.”