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ARRC proposes legislation for US dollar LIBOR contracts
On March 6, the Alternative Reference Rates Committee (ARRC) announced a legislative proposal for New York state legislation for U.S. dollar LIBOR contracts intended to “minimize legal uncertainty and adverse economic impacts associated with LIBOR transition.” The ARRC—a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York in cooperation with a number of other federal financial regulatory agencies—explained that it proposed legislation in New York because the state’s law governs a substantial number of financial contracts that refer to U.S. dollar LIBOR. The proposed bill includes measures to address the absence of sufficient LIBOR fallback or transition language in existing financial contracts referencing LIBOR. The proposed legislation would prohibit parties from being able to use the discontinuance of LIBOR as a reason for declaring a breach of contract, establish a recommended benchmark replacement index as a commercially reasonable substitute for LIBOR, and override contractual language referencing a LIBOR-based rate and require use of the benchmark replacement. Contractual parties would also be permitted to mutually opt-out of any mandatory application of the proposed legislation under the bill. The ARRC specifically highlighted that its proposed legislation would not override existing contract language that already delineated a non-LIBOR rate as a fallback to LIBOR.
Massachusetts AG fines auto dealer $1.5 million for predatory lending
On March 9, the Massachusetts attorney general announced a consent judgment to resolve a 2017 lawsuit brought against an auto dealership and its in-house lender alleging that the dealership misled consumers into purchasing unfavorable sale packages in violation of Massachusetts’ consumer protection law. As previously covered by InfoBytes, the complaint alleged that more than half of the auto dealer’s sales failed or ended in repossession due to misleading sales practices, predatory lending, and faulty underwriting. The consent judgment follows a January court decision awarding summary judgment in favor of the AG’s office. According to the AG’s press release, the auto dealer agreed to provide monetary and injunctive relief to resolve the entirety of the lawsuit’s allegations. The relief includes (i) paying $1.5 million, half of which will go towards reducing ongoing payments on active loans for consumers who purchased cars prior to 2018; (ii) providing eligible consumers who had their vehicles repossessed the option to cancel outstanding debts and repair their credit from the repossession; (iii) improving business practices to ensure provision of fair disclosures and enhanced repair services; and (iv) developing a structured process for handling consumer complaints received by the AG.
Maryland Court of Appeals reverses trial court approval of settlement for interfering with CPD action
On March 3, the Maryland Court of Appeals reversed a trial court’s approval of a proposed settlement in a class action based on fraudulently induced assignments of annuity payments. The class members were recipients of structured settlement annuities from lead paint exposure claims who responded to ads by a structured settlement factoring company (company). The class members then transferred the rights to their settlement annuity contracts to the company, which paid the class members lump sums for the rights at a discount. The class filed a lawsuit against the company in 2016, alleging that it had engaged in fraud in procuring the annuity contract transfers. Around the same time, the Consumer Protection Division of the Maryland AG’s Office (CPD) had filed suit against the company alleging violations of the State Consumer Protection Act. Several months after both actions were filed, the CFPB filed a similar suit against the company based on the same alleged misconduct. All three actions sought similar kids of relief with respect to the same individuals, though the bases for seeking relief and the nature and amount of relief sought differed among the actions.
The class and the company proceeded towards a negotiated settlement, to which the trial court signed a proposed final order, certifying the class and approving the settlement, despite CPD’s opposition to both issues. Following the court’s approval, the company moved for summary judgment in its case against the CPD, which the court granted because it held CPD’s claim for restitution for the same individuals was barred by res judicata; CPD’s claim for injunctive relief and civil penalties is still currently awaiting trial.
Following an appeal, the Court of Appeals granted the company’s petition to consider whether “class members [may] lawfully release and assign to others their right to receive money or property sought for their benefit by [CPD] or [CFPB] through those agencies’ separate enforcement actions” under state and federal consumer protection laws, respectively.
The Court of Appeals held that the lower court erred in approving the settlement, stating that consumers “have no authority, through a private settlement, whether or not approved by a court, to preclude CPD from pursuing its own remedies against those who violate . . . [Maryland’s] Consumer Protection Act, including a general request for disgorgement/restitution.” In particular, the Court of Appeals held that the parties cannot preclude CPD from pursuing the remedies of disgorgement and restitution, as that would directly contravene CPD’s statutory authority to sanction the company for wrongful conduct. For this reason, the Court of Appeals concluded that the trial court’s approval of the settlement must be reversed and remanded the case for further proceedings.
South Dakota regulator encourages pandemic planning
On March 12, the South Dakota Division of Banking issued a memorandum encouraging state-chartered banks to review recent pandemic planning guidance issued by the Federal Financial Institutions Examination Council and then revise or establish appropriate pandemic plans. The Division advised that the plans should be integrated into business continuity plans and consider ways to maintain essential financial services for customers while limiting impact to employees. Finally, the Division indicated that it will monitor the impact of Covid-19 and alter onsite examination activities as needed.
Minnesota Commerce Department instructs banks on temporary closures
On March 12, the Minnesota Commerce Department issued guidance on emergency closures for banks, and a similar guidance for credit unions. In an emergency (including for Covid-19 or other pandemic, related conditions), officers have the authority to decide not to open or to close an already open office, but prior approval is needed for closures lasting more than 48 hours, excluding legal holidays. The Department should be notified of closures as soon as practical. On March 17, the Department issued a clarification that a bank is not considered closed if it elects to close the lobby but maintains drive-through service or if the lobby is open (i.e., not by appointment-only basis) but not immediately accessible due to locked doors.
Montana regulator permits state banks, credit unions to close
On March 12, the Montana Division of Banking and Financial Institutions issued a proclamation permitting state-chartered banks and credit unions located in Montana to close any office to protect the health and safety of employees and customers. The proclamation orders all institutions to develop and implement plans to continue providing essential financial services to their customers via ATMs, mobile applications, or drive through windows. Additionally, the proclamation orders all institutions unable to continue providing essential services to immediately notify the Division.
Idaho regulator issues “Work from Home” guidance
On March 12, the Idaho Department of Finance issued guidance to its licensees and registrants—including mortgage brokers/lenders, mortgage loan originators, regulated lenders, title lenders, payday lenders and collection agencies—permitting employees to work from home even where the residence is not a licensed branch. The Department stated it will not take action against a licensee or registrant so long as the licensable activities meet specified data security and privacy requirements, and the licensee or registrant avoids advertising the unlicensed address or phone number, meeting consumers at the residence, or otherwise holding out or suggesting that the residence is a licensed location. The guidance is effective until June 30.
District court dismisses class claims regarding out-of-network ATM fees
On March 4, the U.S. District Court for the Southern District of California issued an order granting five separate motions for dismissal filed by a national bank and several independent ATM operators (defendants) regarding allegations that the defendants (i) charged unwarranted fees for using out-of-network (OON) ATMs for balance inquiries; (ii) made deceptive and misleading representations on screens and on signs regarding those fees; and (iii) assessed fees in violation of governing account documents. The plaintiffs’ putative class action alleged 13 claims against the defendants for violations of California’s Unfair Competition Law (CUCL), California’s False Advertising Law (FAL), and the California Consumer Legal Remedies Act (CLRA), as well as for conversion, negligence, and breach of contract. The defendants premised their motions to dismiss on several bases, including a lack of subject matter jurisdiction, lack of personal jurisdiction, and the plaintiffs’ failure to plead the necessary elements of the claims.
The court generally agreed with the arguments made by the defendants as to the court’s lack of subject matter and personal jurisdiction. In particular, the court held that the common law claims brought on behalf of the nationwide class should be dismissed for lack of Article III standing because the named plaintiffs failed to allege they were charged the relevant balance inquiry fees in states outside of California. In addition, the court agreed with an argument raised by one defendant that the plaintiffs lacked standing to file claims for injunctive relief for violations of the CUCL, FAL, and CLRA because they failed to allege a likelihood of actual or imminent future harm; specifically, they failed to allege they intended to use the ATMs in the future to make balance inquiries. The court thereafter assessed the plaintiffs’ remaining common law and statutory claims, and in each case, granted the defendants’ motions to dismiss the claims for various failures to establish the necessary elements of each of the alleged claims. Of the 13 dismissed claims, the court permitted plaintiffs leave to amend 10 of them. The court required any amended complaint address the standing issues related to claims brought on behalf of the California and nationwide classes.
Kansas Department of Credit Unions issues guidance on pandemic planning
On March 11, the Kansas Department of Credit Unions issued guidance to Kansas-chartered credit unions on pandemic planning. The guidance outlines areas and objectives that should be met by a credit union’s business continuity plan. Among other things, the guidance encourages credit unions to have a comprehensive framework of facilities, systems, or procedures to provide the organization with the capability to continue its critical operations in the event that staff members may be unavailable for prolonged periods.
Massachusetts DOB reminds licensees of requirement for pandemic planning
On March 11, the Massachusetts Division of Banks issued a reminder to licensees to have business continuity plans that address the circumstances of a pandemic outbreak. The Division further advised licensees that it does not require an MLO’s home to be licensed as a branch so long as they do not advertise it as an office or meet consumers there and that it would permit other licensees to work from home, if feasible, subject to the same requirements.