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District Court dismisses privacy class action claims citing absence of jurisdiction
On May 5, the U.S. District Court for the Northern District of California granted defendants’ motions to dismiss a putative class action concerning invasion of privacy claims related to the collection of consumer data over an online shopping platform. The Canada-based e-commerce company and two of its wholly-owned subsidiaries operate an e-commerce platform that hosts merchants’ websites and facilitates and verifies customers’ payment information. According to the plaintiff, the defendants’ platform intercepts payment information and collects shoppers’ sensitive personal information through the use of cookies, including names, addresses, and credit card information. The plaintiff alleged that the defendants compile the data into individualized profiles, which is shared with merchants, and also share shoppers' data with other non-merchant third parties. Shoppers are not required to consent to any of these activities and are supposedly unaware that their sensitive information is being tracked and shared, the plaintiff stated, claiming violations of California’s Invasion of Privacy Act, Computer Data Access and Fraud Act, and Unfair Competition Law, among other things. In dismissing the action, the court concluded that the plaintiff’s privacy claims against the defendants are too general and fail to identify which defendant is responsible for the plaintiff’s alleged injuries. The court noted that it would normally permit the plaintiff to amend his complaint to address the issue, but said that in this case the court lacks both general and specific jurisdiction over any of the defendants. The court explained that the plaintiff failed to argue that any of the three entities (based either in Canada or Delaware) are subject to general jurisdiction in California. Simply stating that the platform “enables merchants to sell products online . . . does not represent an intentional act directed at California residents,” the court stated.
Connecticut issues CDO against unlicensed small-dollar marketplace lender
On May 4, the Connecticut Banking Commissioner issued a temporary cease and desist order against an unlicensed California-based marketplace lender after determining it had reason to believe the respondent allegedly violated several provision of the Connecticut General Statutes, as well as Section 1036 of the CFPA. The respondent operates a mobile application to help consumers take out small-dollar loans and solicits lenders via its website through advertisements claiming it “takes the work out of lending by vetting and organizing a marketplace of loan requests” where “[b]orrowers set their own terms and provide appreciation tips to lenders who agree to fund a loan, allowing for mutually beneficial financial outcomes.” Consumers initiate loans on the respondent’s platform for a certain amount, which includes optional monetary tips for both the lender and the respondent of up to 12 and 9 percent of the loan amount respectively. The Commissioner’s investigation noted that while the respondent touted the tips as being optional and not required for submitting a loan request or receiving funding, 100 percent of the loans originated to Connecticut consumers from June 2018 to August 2021 included a tip. When the tips were factored into the finance charge, the APRs of the Connecticut consumers’ loans ranged from 43 percent to over 4,280 percent. During the identified time period, loan disclosures identified the amount of the tips for each loan; however, starting in April 2021, the revised disclosures and promissory notes removed any itemization of the tips, and promissory notes allegedly “failed to indicate any obligation of the borrower to pay tips on their loans.” According to the Commissioner, the corresponding disclosures “stated that only one payment, for the principal loan amount, was due at the end of the loan,” however on the loan’s due date, the total loan amount including tips was withdrawn from the consumer’s account. Additionally, disclosures allegedly informed consumers that the APR on the loans was zero percent even though all the loans carried much higher APRs.
The Commissioner further concluded that the respondent prohibited direct communication between consumers and lenders and charged several fees on delinquent loans, including late fees and recovery fees for its collection efforts. Moreover, at least one of the contracted collection agencies was not licensed in the state, nor was the respondent licensed as a small loan company in Connecticut, and nor did it qualify for a licensure exemption.
In issuing its order to cease and desist, order to make restitution, and notice of intent to impose a civil penalty and other equitable relief, the Commissioner stated that the respondent’s “offering, soliciting, brokering, directly or indirectly arranging, placing or finding a small loan for a prospective Connecticut borrower, without the required license” constitutes at least 1,600 violations of the Connecticut General Statutes. The Commissioner cited additional violations, which included engaging in unlicensed activities such as lead generation and debt collection, and cited the respondent for providing false and misleading information related to the terms and costs of the loan transactions in violation of both state law and the CFPA’s prohibition against deceptive acts or practices. In addition to ordering the respondent to immediately cease and desist from engaging in the alleged violations, the Commissioner ordered the respondent to repay any amounts received from Connecticut consumers in connection with their loan, plus interest.
States urge Biden to forgive student debt
On May 2, a coalition of state attorneys general, led by New York Attorney General Letitia James, announced that they are urging President Biden to cancel all outstanding federal student loan debt. In the letter, the AGs argue that full cancellation of student debt is necessary to address: the (i) enormity of the debt owed; (ii) effects of the Covid-19 pandemic; (iii) “systemically flawed repayment and forgiveness system”; and (vi) disproportionate impact on the borrowers’ debt burden, among other things. The AGs further noted that using resources to help individuals who have been “tricked” into forbearance plans, suing contractors who “bungle critical processes,” and protecting consumers from “aggressive” and “predatory” for-profit colleges have provided the AGs with a “deep understanding of the systemic challenges” facing federal student loan borrowers. The AGs stated that President Biden has authority to act under the Higher Education Act, and that such action “would benefit millions of borrowers and be one of the most impactful racial and economic justice initiatives in recent memory.”
District Court allows data sharing invasion of privacy claims to proceed
On May 4, the U.S. District Court for the Central District of California partially dismissed the majority of a putative class action accusing several large retailers and a data analytics company (collectively, “defendants”) of illegally sharing their consumer transaction data, allowing only an invasion of privacy claim to proceed. In 2020, plaintiffs’ claimed the retail defendants shared consumer data without authorization or consent, including “all unique identification information contained on or within a consumer’s driver’s license, government-issued ID card, or passport, e.g., the consumer’s name, date of birth, race, sex, photograph, complete street address, and zip code,” with the data analytics company who used the information to create “risk scores” that purportedly calculated a consumer’s likelihood of retail fraud or other criminal activity. The court permanently dismissed the plaintiffs’ California Consumer Privacy Act claims, finding that the state law was not in effect when some of the plaintiffs allegedly attempted returns or exchanges and that the law does not contain an express retroactivity provision. Additionally, while plaintiffs argued that the retail defendants engaged in “a pattern or practice of data sharing,” the court concluded that plaintiffs failed “to allege that they are continuing to return or exchange merchandise at these retailers such that their data is disclosed” to the data analytics company. The court also dismissed the FCRA claims, ruling that the data analytics company’s risk report is not a “consumer report” subject to the FCRA because it does not “bear on Plaintiff’s eligibility for credit.” Plaintiffs’ claims for unjust enrichment and violations of California's Unfair Competition Law were also dismissed. However, the court concluded that the plaintiffs had plausibly alleged a reasonable expectation of privacy against the defendants, pointing to “the wide discrepancy between Plaintiffs’ alleged expectations for Retail Defendants’ use of their data and its actual alleged use.”
“The court finds dismissing this claim at the pleading stage particularly inappropriate where, as is the case here, defendants are the only party privy to the true extent of the intrusion on Plaintiffs’ privacy,” the court stated. “Reading the Complaint in a light most favorable to Plaintiffs, Plaintiffs sufficiently allege that [] defendants’ intrusion into Plaintiffs’ privacy was highly offensive.”
New York enacts new consumer protection measures
Recently, the New York governor signed legislation regarding consumer protections and student transcripts. The first piece of legislation, S.1684/A.8293 directs NYDFS to conduct a study of underbanked communities and households in the state and to make recommendations on improving access to financial services. The bill, among other things, updates the data on households that are unbanked and underbanked and analyzes the data to develop an assessment for NYDFS. Additionally, S.4894/A.1693 prohibits banking institutions from issuing unsolicited mail-loan checks, defined by NYDFS as “an unsolicited loan offer that is sent by mail and once cashed or deposited binds the recipient to the loan terms, which may include high interest rates for multiple years.”
The New York governor also signed legislation that prohibits colleges and universities from withholding transcripts from individuals who owe the schools money. This legislation, S.5924/A.6938 establishes, among other things, that no institution, under certain circumstances, can “condition the provision of a transcript on a student's payment of a debt to such institution or school.”
Florida Court of Appeal: Bank may seek attorney’s fees as a condition of loan reinstatement
On May 4, the Florida Court of Appeal, Fourth District, held that a borrower cannot sue a law firm for sending a letter seeking to collect attorney’s fees because the mortgage contract gave the bank the right to seek attorney’s fees from a prior foreclosure action as a condition of reinstating the loan. Previously, a trial court had awarded the borrower attorney’s fees following dismissal of a prior foreclosure action. The bank later brought a new foreclosure action against the borrower concerning the same property, and the law firm representing the bank sent the borrower a reinstatement letter requiring payment of attorney’s fees incurred by the bank in the prior foreclosure action in order to reinstate the loan. The trial court, citing a 2019 decision in U.S. Bank Trust, N.A. v. Leigh, granted summary judgment in favor of the law firm on the grounds that “the law firm was entitled to immunity under the litigation privilege because the Florida Consumer Collection Practices Act (FCCPA) claim was based on the reinstatement letter the law firm sent during the foreclosure proceedings” and because the borrower lacked standing.
On appeal, the Court of Appeal agreed with the law firm that it was entitled to collect attorney fees and costs and that the borrower lacked standing to bring his FCCPA claim. According to the Court of Appeal, a provision in the mortgage contact included language that “if the borrower defaulted and the lender accelerated the loan, the borrower would have the right to reinstate the loan if certain conditions were met.” Among these conditions was that the borrower would agree to “pay all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys’ fees.” Applying the rationale of Leigh, the Court of Appeal found “that the law firm did not violate the FCCPA because it sought to recover a legitimate expense it was entitled to recover pursuant to a contract, that being the expense of attorney’s fees the lender incurred in the prior foreclosure action.”
California governor orders state to create blockchain regulatory framework
On May 4, the California governor issued an executive order calling on the state to create a transparent and consistent framework for companies operating in blockchain, cryptocurrency, and related financial technologies. This framework, the governor stated, should harmonize federal and California laws and balance innovation with consumer protection. The executive order outlined several priorities, including:
- The framework should include input from a range of stakeholders for potential blockchain applications and ventures;
- The Department of Financial Protection and Innovation (DFPI) should engage in a public process, including with federal agencies, to “develop a comprehensive regulatory approach to crypto assets harmonized with the direction of federal regulations and guidance” and should “exercise its authority under the California Consumer Financial Protection Law (CCFPL) to develop guidance and, as appropriate, regulatory clarity and supervision of private entities offering crypto asset-related financial products and services” in the state;
- DFPI should publish consumer protection principles that include model disclosures, error resolution, and other criteria, and “seek input from stakeholders and licensees in order to publish guidance for California state-chartered banks and credit unions”;
- DFPI should engage in actions to protect consumers, including initiating enforcement actions to enforce the CCFPL, enhancing its review of consumer complaints related to crypto asset-related financial products and services and working with companies to remedy such complaints, and publishing consumer education materials;
- GovOps should issue a request for innovative ideas to explore opportunities for deploying blockchain technologies that address public-serving and emerging needs; and
- Members of the Governor's Council for Postsecondary Education should “identify opportunities to create a research and workforce environment to power innovation in blockchain technology, including crypto assets” to “expose students to emerging opportunities.”
The governor emphasized that while blockchain technology over the past decade “has laid the foundation for a new generation of innovation, spurring a rise in entrepreneurialism in sectors including financial technology,” among others, its impact “is both uncertain and profound” and carries risks and legal implications.
Washington Court of Appeals affirms dismissal of suit accusing bank of collecting debt under a different name
On May 3, the Washington Court of Appeals, Division Three, affirmed the dismissal of an action accusing a defendant bank of violating the FDCPA by attempting to collect a debt in a name that differed from its own. The plaintiff obtained a credit card from the bank in 2006. Following a merger between the bank holding company (a separate legal entity at the time) and a card services company, the defendant bank merged with and under the charter of the card services company and notified credit card customers that the new issuer and administrator of their accounts would be the card services company. In 2014, the card services company merged into and under the charter of the national bank of the same name, who subsequently became issuer and administrator of the credit card portfolio and the named creditor of the plaintiff’s account. By 2012, the plaintiff had stopped making payments on his credit card and was sued by the card services company. While this action was pending, the 2014 merger occurred but the collection action was not updated to reflect this development. Eventually, the collection action was dismissed without prejudice, and the plaintiff sued the defendant in Washington state court, claiming the defendant violated the FDCPA because it continued its collection suit under the name of the card services company after the merger had taken place. The state court dismissed the case, and the plaintiff appealed. At issue was whether the national bank “falls under the FDCPA despite its status as a creditor because it used a name other than its own ‘which would indicate that a third person is collecting or attempting to collect’ the debt owed by” the plaintiff.
The Court of Appeals disagreed and held that even a least sophisticated consumer would not be confused and think that the debt had been transferred to a third-party collection agency. “Instead, a least sophisticated consumer (and even average-level consumer) might be led to believe that nothing had changed and [the card services company] was still collecting its credit card debt in its own right,” the Court of Appeals wrote. “There is no reason to think a least sophisticated consumer would be led to believe that [the bank] had acquired [the card services company’s] debt and then contracted with [it] to collect the debt.”
District Court partially affirms summary judgment in interest case
On April 28, the U.S. District Court for the Southern District of New York granted in part and denied in part parties’ motions for summary judgment in a suit challenging the retroactive application of a New York statute reducing the state’s statutory interest rate on money judgments arising out of consumer debt. In doing so, the court considered S5724A, the Fair Consumer Judgment Interest Act. As previously covered by InfoBytes, the New York governor signed S5724A in December 2021, which amended the civil practice law and rules relating to the rate of interest applicable to money judgments arising out of consumer debt. Specifically, the bill provides that the interest rate that can be charged on unpaid money judgments is 2 percent and applies to judgments involving consumer debt, which is defined as “any obligation or alleged obligation of any natural person to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes […], including, but not limited to, a consumer credit transaction, as defined in [section 105(f) of the civil practice law and rules].” The bill became effective April 30. According to the suit, a group of credit unions (plaintiffs) filed a federal class action lawsuit seeking to enjoin the enforcement or implementation of S5724A. The plaintiffs sought to invalidate the retroactive portion of S.5724A, arguing that it is an unconstitutional taking in violation of the Fifth Amendment and violative of their substantive due process rights guaranteed under the Fourteenth Amendment. The plaintiffs claimed that they are collectively owed about $3.8 million of outstanding consumer judgments, which includes approximately $1 million in interest, and sought a preliminary injunction enjoining the effective date of S572A. The plaintiffs brought suit against the Chief Administrative Judge of the New York State Courts, and the sheriffs of three New York counties in their official capacity on the basis that those parties “will be involved in enforcement of the Amendment.” The district court issued the preliminary injunction with respect to the sheriffs, relying on the credit unions’ arguments that retroactive application will “eradicate millions of dollars from the balance of judgments lawfully due and owing to judgment creditors.” The district court noted that “[r]egulatory takings … involve government regulation of private property [that is] . . . so onerous that its effect is tantamount to a direct appropriation or ouster. Thus, ‘while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.’”
Remittance provider denies CFPB allegations
On May 2, a global payments provider recently sued by the New York attorney general and the CFPB responded to allegations claiming the “repeat offender” violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. As previously covered by InfoBytes, the complaint claimed the defendant, among other things, (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further asserted that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders,” and that the defendant failed to adopt and implement a comprehensive fraud prevention program mandated by a 2009 FTC order for permanent injunction (covered by InfoBytes here).
The defendant refuted the charges, calling the allegations “false, inflammatory and misleading.” According to the defendant, “before the CFPB filed its lawsuit against the Company on April 21, 2022, [it] had never before been subject to any enforcement action by the CFPB, nor had [it] ever been publicly accused of violating any of the laws or regulations under the CFPB’s purview.” The defendant also took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm,” contending that “data from the CFPB’s own consumer complaint portal strongly suggest otherwise. For example, a search of the CFPB’s Consumer Complaint Database shows that in the nine years that the Remittance Rule has been in place, only 351 complaints were made to the CFPB against [the defendant] for failing to deliver money when promised. These complaints represent 0.0001% of the over 325 million transactions subject to the Remittance Rule that [the defendant] processed during that time period. In New York, the total number of complaints in the CFPB Database for that time period was 28, approximately three per year. There have simply never been widespread or systemic violations by [the defendant] of the Remittance Rule.”