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9th Circuit affirms arbitration in putative class action against CRA
On October 21, the U.S. Court of Appeals for the Ninth Circuit affirmed arbitration in a FCRA action against a national credit reporting agency (CRA), concluding that the consumer “expressly agreed” to the 2014 terms of use, which included an enforceable arbitration provision. According to the opinion, a consumer purchased a credit score program from the CRA in June 2014 and assented to the terms and conditions, including an arbitration provision and change-of-terms provision, which stated that each time the consumer accessed the website, “she would be manifesting assent to ‘the then current’ terms of the agreement.” The consumer canceled her credit score subscription in July 2014. The consumer accessed the CRA website against in 2018 and at the time of access, the arbitration provision included a carve out for certain disputes relating to the FCRA. The consumer subsequently filed a putative class action against the CRA, alleging, among other things, a violation of the FCRA’s requirement to assist the consumer in understanding the credit scoring assessment. The district court granted the CRA’s motion to compel arbitration.
On appeal, the 9th Circuit concluded that the consumer was not bound to the new arbitration terms based on her 2018 visit to the website. The appellate court noted that the consumer did not allege she received notice of the new terms in effect, and therefore, she was bound to the 2014 terms to which she had previously assented. Moreover, the appellate court rejected the consumer’s argument that the arbitration agreement was unenforceable under the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable). The appellate court held that the 2014 arbitration provision did not “flatly prohibit a plaintiff seeking public injunctive relief in court,” because it subjects disputes to arbitration “to the fullest extent of the law,” which presumably would “exclude claims for public injunctive relief in California.” Thus, the appellate court affirmed arbitration.
Issuer pays $5 million penalty for unregistered digital offering
On October 21, the SEC announced the U.S. District Court for the Southern District of New York entered a final judgment against a tech company issuer that raised approximately $100 million through an unregistered initial coin offering. As previously covered by InfoBytes, the SEC filed an action alleging the issuer failed to provide required disclosures to investors and did not register the offer or sale of its digital tokens with the SEC, as required by Section 5 of the Securities Act of 1933 (the Act). The SEC argued that the issuer marketed the digital tokens as an investment opportunity and told investors that they could earn future profits from the issuer’s efforts to create, develop, and support a digital “ecosystem.”
The court granted summary judgment in favor of the SEC at the end of September, concluding, among other things, that the issuer violated Section 5 of the Act when it conducted an unregistered offering of securities that did not qualify for any exemption from registration requirements. The final judgment (i) requires the issuer to pay $5 million in a civil penalty; (ii) permanently enjoins the issuer from violating Section 5 of the Act; and (iii) requires the issuer, for a period of three years, to provide notice to the SEC before engaging in any “issuance, offer, sale or transfer” of specified assets.
CFPB, FTC argue ECOA “applicant” includes those with existing credit
On October 7, the CFPB and the FTC (collectively, “agencies”) filed an amici curiae brief with the U.S. Court of Appeals for the Second Circuit in an action addressing “whether a person ceases to be an ‘applicant’ under ECOA and its implementing regulation after receiving (or being denied) an extension of credit.” According to the brief, a consumer filed suit against a national bank for allegedly violating ECOA and Regulation B’s adverse-action notice requirement when it closed his line of credit and sent an email acknowledging the closure without including (i) “‘the address of the creditor,’” and (ii) “either a ‘statement of specific reasons for the action taken’ or a disclosure of his ‘right to a statement of specific reasons.’” The district court dismissed the action after adopting the magistrate judge’s Report and Recommendation recommending that the bank’s motion be granted without prejudice to plaintiff, who had leave to brief the court on whether an amended complaint should be permitted.
The agencies disagreed with the district court and filed the amici brief on behalf of the applicant. Specifically, the agencies argue that ECOA’s protections apply to any aspect of a credit transaction, including those who have an existing arrangement with a creditor, noting there is “‘no temporal qualifier in the statute.’” According to the agencies, ECOA has provisions that cover the revocation of credit or the change in credit terms, and therefore, those provisions “would make little sense if ‘applicants’ instead included only those with pending requests for credit.” Moreover, the agencies argue that the district court’s interpretation of “applicant” would “curtail the reach of the statute,” and introduce a large loophole. Lastly, the agencies assert that the legislative history of ECOA supports their interpretation, such as the addition of amendments covering the revocation of credit, and most notably, Regulation B’s definition of “applicant,” which includes those who have received an extension of credit.
7th Circuit: No FDCPA liability when collection letter leaves future ambiguity
On October 8, the U.S. Court of Appeals for the Seventh Circuit affirmed dismissal of an FDCPA action, concluding that itemized breakdowns in collection letters that include zero balances for interest and other charges would not confuse or mislead the reasonable “unsophisticated consumer” to believe that future interest or other charges would be incurred if the debt is not settled. A creditor charged-off a consumer’s credit card debt and informed the consumer that it would no longer charge interest or fees on the account. The debt was reassigned to a collection agency. Consistent with the original creditor’s communication with the consumer, the collection agency sent a collection letter to the consumer that included an itemized breakdown reflecting a zero balance for “interest” and “other charges.” The “balance due at charge-off” and “current balance” were both listed as $425.86. The letter offered to resolve the debt and stated that no interest would be added to the account balance through the course of collection efforts. The consumer filed a putative class action alleging that the collection letter implied that the original creditor would begin to add interest and fees to the charged-off debt if the collection agency stopped its collection efforts in the future and, therefore, the debt collector violated the FDCPA by using false, deceptive and misleading representations to collect a debt, and failed to disclose the amount of the debt in a clear and unambiguous fashion. The district court dismissed the action, concluding that the collection letter accurately disclosed the amount of the debt.
On appeal, the 7th Circuit agreed with the district court. Specifically, according to the opinion, the appellate court concluded that the breakdown of charges in the letter “cannot be construed as forward looking,” rejecting the consumer’s argument that including zero balances implies that future interest or charges could be incurred if he did not accept the collector’s offer. Moreover, the appellate court noted that when a collection letter “only makes explicit representations about the present that are true, a plaintiff may not establish liability on the basis that it leaves ambiguity about the future.” The statement in the letter that no interest would accrue while the collector pursued the debt is not misleading because it “makes no suggestion regarding the possibility that interest will or will not be assessed in the future if [the debt collector] ends its collection efforts.”
District court: Credit reporting restrictions preempted by FCRA
On October 8, the U.S. District Court for the District of Maine granted a trade association’s motion for declaratory judgment against the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) after it sued the state for enacting amendments to the Maine Fair Credit Reporting Act. The trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—filed the lawsuit concerning the 2019 amendments, which, among other things, place restrictions on how medical debts can be reported by the CRAs and govern how CRAs must investigate debt that is allegedly a “product of ‘economic abuse.’” The trade association argued that the amendments, which attempt to regulate the contents of an individual’s consumer report, are preempted by the federal Fair Credit Reporting Act (FCRA). The parties’ main contention was over how broadly the language under FCRA Section 1681t(b)(1)(E) concerning “subject matter regulated under . . . [15 U.S. C. § 1681c] relating to information contained in consumer reports” should be understood. Plaintiffs argued that the language should be read to encompass all claims relating to information contained in consumer reports. The defendants, on the other hand, claimed that § 1681c should be read “as an itemized list of narrowly delineated subject matters, some of which relate to information contained in consumer reports, and only find preemption where a state imposes a requirement or prohibition that spills into one of those limited domains,” which in this case, the defendants countered, the amendments do not.
The court disagreed, concluding that, as a matter of law, the amendments are preempted by § 1681t(b)(1)(E). According to the court, Congress’ language and amendments to the FCRA’s structure “reflect an affirmative choice by Congress to set ‘uniform federal standards’ regarding the information contained in consumer credit reports,” and that “[b]y seeking to exclude additional types of information” from consumer reports, the amendments “intrude upon a subject matter that Congress has recently sought to expressly preempt from state regulation.”
New York district court grants interlocutory appeal request in escrow interest action
On September 29, the U.S. District Court for the Eastern District of New York granted a national bank’s request for interlocutory appeal of the court’s September 2019 decision denying the dismissal of a pair of actions, which alleged that the bank violated New York law by not paying interest on escrow amounts for residential mortgages. As previously covered by InfoBytes, last September, the district court concluded that the National Bank Act (NBA) does not preempt a New York law requiring interest on mortgage escrow accounts, because there is “clear evidence that Congress intended mortgage escrow accounts, even those administered by national banks, to be subject to some measure of consumer protection regulation.” The bank moved to amend the prior order and certify the preemption question for interlocutory appeal to the U.S. Court of Appeals for the Second Circuit. The court granted the motion stating that the case “presents one of the rare instances in which there would be system-wide benefits to granting an interlocutory appeal.” The court noted that certifying the question for appeal would foster an “effective and efficient judiciary” by saving the defendants and jurists “considerable time and effort” by not having to re-litigate the issue. Moreover, certifying for appeal would “materially advance the ultimate disposition of [the] litigation.”
District court: Debt collector must disclose partial payment or promise to pay will restart statute of limitations
On September 28, the U.S. District Court for the Northern District of Illinois granted a plaintiff’s motion for summary judgment in an FDCPA action, ruling that a debt collector (defendant) was required to disclose that a partial payment or new promise to pay would restart the statute of limitations under state law. The plaintiff received a dunning letter from the defendant seeking to collect time-barred credit card debt. A disclaimer included in the letter, which presented several options to resolve the debt, stated: “The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau. In addition, we will not restart the statute of limitations on the debt if you make a payment.” The plaintiff filed a lawsuit alleging violations of Sections 1692e and 1692f of the FDCPA, claiming that the disclosure language was misleading and deceptive because it failed to disclose (i) “the effect of partial payment on the statute of limitations”; (ii) “that the statute of limitations on the debt had run”; and (iii) “that no information about the debt could be reported to credit bureaus.” The defendant countered that the first two sentences of the disclosure were included pursuant to a consent order with the CFPB and “that its policy is to continue treating a time-barred debt as expired even if a consumer makes a partial payment.” The defendant further argued that there was “no potential ‘pitfall’ to partial payment” because of its policy not to restart the statute of limitations when a partial payment was made, and that its “explicit promise that it will not sue even if Plaintiff makes a payment dispels any potential confusion.”
The court disagreed, finding that the defendant’s promise not to restart the statute of limitations without disclosing that a partial payment or a promise to pay would restart the statute was “misleading and deceptive” under Illinois law. The court also ruled that the plaintiff “is not expected to know [the defendant’s] internal policies regarding suing on debts where the statute of limitations has run or rely on its promises to not pursue a debt collectible in court after the statute of limitations protection has been forfeited.” The defendant’s policy, the court stated, does not obviate the “need to explain the mechanics of reviving the statute of limitations under Illinois law.”
District court certifies another RESPA class over kickback referrals
On October 2, the U.S. District Court for the District of Maryland certified a class of mortgage borrowers who alleged that a Maryland bank referred them to a title firm in exchange for cash and kickbacks in violation of RESPA. The court’s decision approved a class defined as borrowers of federally-related mortgage loans originated or brokered by the bank who were referred to the title firm in connection with the closing of their loan. As previously covered by InfoBytes, the case originally was dismissed on the grounds that the plaintiffs’ RESPA claims were time-barred, but the U.S. Court of Appeals for the Fourth Circuit reversed the decision, finding that the plaintiffs were entitled to proceed because the kickback scheme was allegedly “fraudulently concealed” by the defendants. Among other things, the plaintiffs claimed that the title firm provided bank loan officers kickbacks in exchange for referrals, including cash payments, free marketing materials, credits for future marketing services, and customer referrals from other lenders. Because of these alleged kickbacks, the plaintiffs contended they were deprived of “impartial and fair competition” and “paid more for their settlement services than they otherwise would have.” The defendant argued, among other things, that the plaintiffs lacked standing because they did not suffer a concrete injury, and that the class was overboard because the plaintiffs had not proven that each loan was affected by a RESPA violation or that every loan fell outside a relevant exemption.
The court found that the plaintiffs had standing, stating that the plaintiffs have shown evidence supporting their claims that they may have been overcharged. But the court also noted that the bank may be able to continue to challenge that the plaintiffs failed to allege more than a mere procedural violation of RESPA. The court likewise rejected the bank’s objections to class certification, ruling that the plaintiffs were able to show that a majority of the loans were not subject to a RESPA exemption, and that the concern over RESPA exemptions “does not predominate over the numerous, imperative questions that are answerable on a class-wide basis.”
District court: No subject-matter jurisdiction for unconstitutional TCPA section
On September 28, the U.S. District Court for the Eastern District of Louisiana granted in part and denied in part a motion to dismiss, concluding that the court lacked subject matter jurisdiction in a TCPA action over 129 out of 130 robocalls made prior to the U.S. Supreme Court’s July 6 decision in Barr v. American Association of Political Consultants Inc (AAPC) (covered by InfoBytes here). According to the opinion, the plaintiffs filed a putative class action against a telecommunications company for violating Section 227(b)(1)(A)(iii) of the TCPA, which prohibits robocalls to cell phones without prior express consent. The company moved to dismiss the action, arguing that the Supreme Court decision in AAPC—which concluded the government-debt exception in Section 227(b)(1)(A)(iii) is an unconstitutional content-based speech restriction—makes the alleged violations unenforceable in federal court because the provision was determined to be unconstitutional. In response, the plaintiffs argued that because the Supreme Court’s decision preserved the general ban on robocalls to cellphones by severing “the new-fangled government-debt exception,” the Supreme Court “confirmed that [Section] 227(b)(1)(A)(iii) was constitutional all along.”
The district court disagreed with the plaintiffs, concluding that during the years that Section 227(b)(1)(A)(iii) permitted robocalls for government-debt collection while prohibiting other categories of robocalls, the entirety of the provision was unconstitutional. The district court noted that the Supreme Court’s opinion in AAPC provided little guidance, only “dicta of no precedential force.” The court looked to Justice Gorsuch’s opinion concurring in part and dissenting in part, noting his reasoning was better “as a matter of law and logic.” Because the entirety of Section 227(b)(1)(A)(iii) was unconstitutional prior to the Supreme Court’s severance of the government-debt exception on July 6, the district court dismissed the action with respect to the alleged TCPA violations that occurred prior to that date, but denied dismissal for the one robocall made after July 6. Lastly, the court granted a stay of the action pending the Supreme Court’s decision in Duguid v. Facebook, Inc (covered by InfoBytes here and here).
4th Circuit reverses dismissal of RESPA property tax suit
On October 2, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of a putative class action, concluding that the current mortgage servicer has the obligation under RESPA to pay tax payments as they become due. According to the opinion, after a consumer refinanced their mortgage loan, the mortgage was sold to a new mortgage company (defendant), which took over the servicing rights and responsibilities from the previous servicer, effective October 2017. The consumer continued making payments on the mortgage loan, which included payments to an escrow account for property taxes. The defendant allegedly did not pay the consumer’s property taxes due in November 2017 until sometime in 2018. The city assessed late penalties (which the defendant ultimately paid) and the late payment adversely affected the consumer’s income tax bill in the amount of $895. The consumer filed a putative class action alleging, among other things, that the defendant violated RESPA by failing to make the tax payment on time. The district court dismissed the action, concluding that the previous servicer was “responsible as ‘the servicer’ under RESPA” to make the payments.
On appeal, the 4th Circuit disagreed, concluding that the consumer plausibly alleged that the defendant was responsible for servicing his mortgage at the time, and therefore, responsible for making his tax payment when due. The appellate court rejected the defendant’s argument that RESPA requires the entity that “received funds for escrow” to make the tax payment when due. RESPA, according to the appellate court, “connects the servicer’s obligation to a payment’s due date, not the date of payment into escrow by the borrower.” Thus, the defendant would be “the servicer” responsible for paying the mortgage tax from the borrower’s escrow account on its due date.