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Financial Services Law Insights and Observations

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  • Ninth Circuit Holds Nevada AG Suit Against Bank Not Removable Under CAFA

    Lending

    On March 2, the U.S. Court of Appeals for the Ninth Circuit held that a parens patriae suit brought by Nevada’s Attorney General (AG) related to mortgage modification and foreclosure practices could not be removed from state court under the Class Action Fairness Act (CAFA). Nevada v. Bank of America Corp., No 12-15005, 2012 WL 688552 (9th Cir. Mar. 2, 2012). The AG alleges that Bank of America Corp. (BAC) violated state law by misleading Nevada consumers about the terms and operation of its home mortgage modification and foreclosure processes, and that it violated a consent judgment entered between the state and several of its subsidiaries. BAC removed the case to federal court under CAFA. The district court denied the state’s motion to remand, finding that (i) it had jurisdiction over the suit as a CAFA “class action,” but not as a “mass action,” and (ii) it had federal question jurisdiction because the allegations require interpretation of the federal HAMP program and the Fair Debt Collections Practices Act. On appeal, the Ninth Circuit consistent with its opinion in Washington v. Chimei Innolux Corp., 659 F.3d 842 (9th Cir. 2011), which was issued after the district court ruled on Nevada’s motion, held that a parens patriae suit does not qualify as a class action removable under CAFA, and does not otherwise satisfy CAFA’s “mass action” requirements. The court reasoned that Nevada is the real party in interest and therefore held that the case could not qualify as a mass action removable under CAFA. The Ninth Circuit also held that, because only state law causes of action are alleged and there is no overriding federal interest, the district court does not have federal question jurisdiction.

    FDCPA Mortgage Servicing Class Action State Attorney General HAMP / HARP

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  • Nineteen States Settle With Debt Collector Over Collection Practices

    Courts

    On February 6, nineteen state attorneys general announced a multi-state settlement with NCO Financial Systems, a debt collection company, to resolve allegations of misleading and deceptive debt collection practices. Under the agreement, the company must set aside $950,000 ($50,000 for each state) for consumer restitution, and will pay $575,000 for state consumer protection enforcement efforts. Restitution will go to consumers who paid the company for debts the consumers did not owe, who overpaid interest, or who overpaid a debt beyond what the company had agreed to settle an account. The company also agreed to (i) comply with the Fair Debt Collection Practices Act, the federal Fair Credit Reporting Act, and all applicable state laws, (ii) notify credit reporting agencies within 30 days of consumer disputes and results of investigations into disputes, (iii) provide notice to consumers about their debt collection rights under federal and state law, and (iv) monitor compliance, create written policies and procedures for handling consumer complaints, and submit periodic compliance reports.

    FDCPA FCRA

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  • FTC and DOJ Obtain Settlement of Claims Against Debt Buyer

    Consumer Finance

    On January 30, the FTC and the DOJ announced that a Michigan-based debt buyer had agreed to pay a $2.5 million civil penalty to settle allegations of misconduct in connection with the company's debt collection activities. The FTC alleged that the debt buyer violated the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act by, among other things, (i) misrepresenting without substantiation that consumers owed a debt, (ii) failing to disclose that certain time-barred debt did not have to be repaid, (iii) knowingly providing false information to credit reporting agencies, and (iv) failing to investigate disputes raised by credit reporting agencies. In addition to paying the civil penalty, the company must address the failures and misconduct alleged by the FTC. For example, it must inform consumers when a debt is too old to be legally enforceable. Further, the company is prohibited from engaging in certain conduct, such as placing debt on consumer credit reports without notifying the consumer. Concurrent with the announcement, the FTC released a publication to help consumers understand their rights with regard to time-barred debt.

    FTC FDCPA FCRA

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  • Oklahoma District Court Dismisses Most Claims in Putative Wrongful Foreclosure Class Action

    Lending

    On January 6, the U.S. District Court for the Western District of Oklahoma dismissed the majority of claims brought by two borrowers seeking to represent a class of borrowers against Bank of America Corporation, Bank of America N.A., and BAC Home Loans Servicing, LP (collectively BAC) for alleged wrongful foreclosure practices. Risener v. Bank of Am. Corp., No. 10-1110 (W.D. Okla. Jan 6, 2012). In this case, the borrowers claim that after their original servicer ceased operations, their loan servicing was assigned to BAC and their loan was inaccurately recorded as being in default. According to the borrowers, multiple attempts to prove that the borrowers were not in default were ignored by the defendants. Further, according to the borrowers, BAC Home Loans Servicing, LP, continued to send default notices and threatened to foreclose, refused to verify the borrowers’ default status, and reported false information about borrowers to credit reporting agencies.

    As such, the borrowers allege that defendants (i) violated the Fair Debt Collections Practices Act (FDCPA) by using false, deceptive, or misleading representations in the collection of debts and by failing to provide certain required notices; and (ii) violated the Fair Credit Reporting Act (FCRA) by providing false information to credit reporting agencies and by failing to investigate the disputed default loan status. Agreeing with a recent Georgia decision involving a similar fact pattern, the court held that because the borrowers allege their loan was not in default, BAC could not have been “debt collectors” subject to the FDCPA, because the FDCPA requires a loan to be “in default”, not “allegedly in default.” Further, the borrowers do not allege that Bank of America Corporation or Bank of America, N.A. ever attempted to collect a debt and, therefore, regardless of their status as a debt collector, cannot be found in violation of the FDCPA. With regard to the borrowers’ FCRA claims, the court held that the FCRA does not include a cause of action for the act of providing false information but that borrowers’ claims that BAC Home Loans Servicing failed to investigate were sufficiently supported by the allegations in the complaint and therefore could proceed.

    Foreclosure FDCPA FCRA

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