InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
District Court approves $2.8 million settlement in FDCPA convenience fee class action
On December 22, the U.S. District Court for the Southern District of Florida granted preliminary approval of a $2.8 million settlement in an FDCPA class-action suit resolving allegations that convenience fees were charged when consumers made payments on their mortgages over the phone or online. According to the suit, the plaintiffs claimed the defendant did not charge processing fees if borrowers made payments by check or signed up for automatic monthly debits from their bank accounts. The plaintiffs further argued that the processing fees were “illegal and improper because neither the mortgages themselves nor applicable statutes authorize such fees.” The parties agreed to mediation in April 2022, and a motion for preliminary approval of a settlement was filed in August. A coalition of state attorneys general from 32 states and the District of Columbia, led by the New York AG filed an amicus brief in the district court opposing the original proposed $13 million settlement in the suit (covered previously by InfoBytes here). The AGs outlined concerns with the proposed settlement, including that (i) the relief provided to class members violates various state laws, and that the defendant seeks to ratify fees in an “unwritten, mass amendment” that violates state laws and regulations; (ii) class members only receive an “inadequate” one-time payment, while the defendant may continue to charge excessive fees for the life of the loan; and (iii) low- and moderate-income borrowers are not treated equitably under the proposed settlement. Under the terms of the new settlement, members of the class who do not opt out of the settlement will receive a share of the $2.8 million. The settlement also reduces the fees class members will have to pay when making payments online or via the telephone for the next two years. The defendant also agreed to add additional disclosures to its website to increase borrower awareness of alternative payment methods that could have lower fees or no fees. Defendant’s representatives will also receive additional training to ensure they provide additional information and disclosures about convenience fees when speaking with customers.
On June 16, the court granted final approval of the settlement.
Massachusetts reaches settlement in unfair debt collection and mortgage servicing matter
On December 22, the Massachusetts attorney general announced a settlement with a South Carolina mortgage servicer to resolve claims that it allegedly failed to assist homeowners avoid foreclosure and engaged in unfair debt collection and mortgage servicing practices. According to an assurance of discontinuance filed in Suffolk Superior Court, the servicer allegedly violated the Massachusetts’ Act to Prevent Unlawful and Unnecessary Foreclosures, which requires servicers to make a good faith effort to help borrowers with certain unfair loan terms avoid foreclosure. Among other things, the servicer allegedly failed to (i) properly review borrowers’ income, debts, and obligations when assessing affordable loan modifications; (ii) provide borrowers with the results of these assessments; or (iii) provide borrowers with notice of their right to present a counteroffer after being offered a loan modification. The servicer also allegedly violated the state’s debt collection regulations by failing to timely issue compliant debt validation notices, and calling borrowers more than twice in a seven-day period. While denying the allegations, the servicer agreed to pay $975,000 to the state and will undertake significant business practice changes and provide ongoing reporting to the AG to ensure compliance.
States have their say on CFPB funding
Recently, a coalition of state attorneys general from 22 states, including the District of Columbia, filed an amicus brief supporting the CFPB’s petition for a writ of certiorari, which asked the U.S. Supreme Court to review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. A separate coalition of 16 state attorneys general filed an amicus brief opposing the Bureau’s position and supporting the 5th Circuit’s decision, however these states also urged the Supreme Court to grant the Bureau’s petition to address whether the 5th Circuit’s conclusion was correct.
As previously covered by a Buckley Special Alert, the 5th Circuit’s October 19 holding found that although the Bureau spends money pursuant to a validly enacted statute, the structure violates the Appropriations Clause because (i) the Bureau obtains its funds from the Federal Reserve (not the Treasury); (ii) the agency maintains funds in a separate account; (iii) the Appropriations Committees do not have authority to review the agency’s expenditures; and (iv) the Bureau exercises broad authority over the economy. The case involves a challenge to the Bureau’s Payday Lending Rule, which prohibits lenders from attempting to withdraw payments for covered loans from consumers’ accounts after two consecutive withdrawal attempts have failed due to insufficient funds. As a result of the 5th Circuit’s decision, lenders’ obligation to comply with the rule (originally set for August 19, 2019, but repeatedly delayed) will be further delayed while the constitutional issue winds its way through the courts. The Bureau’s petition also asked the court to consider the 5th Circuit’s decision to vacate the Payday Lending Rule on the premise that it was promulgated at a time when the Bureau was receiving unconstitutional funding. (Covered by InfoBytes here.)
- Amicus brief supporting CFPB’s position. The 22 states urged the Supreme Court to review the 5th Circuit’s decision, arguing that the Bureau’s funding is lawful and that even if the Supreme Court were to find a constitutional defect in the funding scheme, vacating otherwise lawfully-promulgated regulations is neither justified nor compelled by law. “Left undisturbed, the court of appeals’ reasoning could jeopardize many of the CFPB’s actions from across its decade-long existence, to the detriment of both consumers protected by those actions and financial-services providers that rely on them to guide their conduct,” the states said. In their brief, the states argued, among other things, that the Supreme Court should grant the petition “to review at least the question of whether the court of appeals erred in vacating a regulation promulgated during a time when the CFPB received allegedly unconstitutional funding.” The states asserted that the decision “threatens substantial harm” to the states because the states and their residents “could stand to lose the benefits of the CFPB’s critical enforcement, regulatory, and informational functions if the decision [] stands and is interpreted to impair the CFPB’s ongoing operations.” With respect to questions related to the Bureau’s funding structure, the states claimed that it is altogether speculative as to whether the Bureau would have behaved differently if its funding had come from the Treasury rather than the Federal Reserve. Former Director Kraninger’s ratification and reissuance of the Payday Lending Rule “is strong evidence that the CFPB would have issued the same regulation once again, after any constitutional defect was corrected,” the states said.
- Amicus brief opposing CFPB’s position. The 16 opposing states argued, however, that the Supreme Court should grant the Bureau’s petition to provide states with “certainty over their role” in regulating the financial system, and should affirm the 5th Circuit’s decision to “restore the CFPB’s accountability to the states.” In their brief, the states asked the Supreme Court “to resolve this issue quickly” and to “reinvigorate the protections of the Appropriations Clause, not weaken them.” The states maintained that if the Supreme Court does not quickly resolve the dispute, states “will have to litigate the same issue in other districts and circuits over and over,” and “[a]ny continuing confusion could seriously impede the growth of the consumer-financial services market at a time when the economy is already strained.” According to the brief, congressional oversight “ensures a level of state participation that ordinary administrative processes don’t allow.” In summary, the states’ position is that the 5th Circuit’s decision on the funding question is correct and that the court “was right to vacate a rule enacted without constitutional funding.”
New Jersey settles with car dealerships over consumer protection violations
On December 15, the New Jersey attorney general announced that the Division of Consumer Affairs has now reached settlements with six car dealerships totaling over $260,000 to resolve alleged consumer protection violations. Among other things, the dealerships allegedly failed to honor the advertised price of used vehicles, charged excessive vehicle preparation fees that were not properly itemized or disclosed, failed to disclose the vehicle’s full sale price, and engaged in deceptive advertising. Under the terms of the most recent settlement (joining five other settlements announced earlier in the year), the dealership is required to pay $180,000, and must stop engaging in any unfair or deceptive acts practices. The dealership must also (i) comply with all applicable state and federal laws, including the Consumer Fraud Act, the Motor Vehicle Advertising Regulations, and the Automotive Sales Practices Regulations; (ii) honor all advertised sale or lease prices; (iii) accurately disclose a vehicle’s sale price; (iv) disclose previous damage and substantial repairs done to used cars when advertising; (v) clearly and conspicuously disclose all disclaimers, qualifiers, or offer limitations in advertisements; and (vi) enter binding arbitration to resolve any pending consumer complaints, as well as any additional complaints received by the Division for a one-year period.
CFPB to issue $95 million in redress to victims of student loan debt relief operation
On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by a student loan debt relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.
District Court stays action against remittance provider while Supreme Court weighs CFPB’s funding structure
On December 9, the U.S. District Court for the Southern District of New York stayed an action brought by the CFPB and the New York attorney general against a defendant remittance provider until after the U.S. Supreme Court decides if it will review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. Last month the DOJ, on behalf of the CFPB, submitted a petition for a writ of certiorari seeking Supreme Court review of the 5th Circuit’s decision during its current term. (Covered by InfoBytes here.) The New York AG and the Bureau sued the defendant in April for allegedly violating the EFTA and its implementing Regulation E, the Remittance Rule, and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws, in its handling of remittance transfers. (Covered by InfoBytes here.)
The defendant argued that the district court should hold off on deciding on its motion to dismiss per the aforementioned argument, but should nonetheless rule on its pending motion to transfer. The Bureau opposed the defendant’s request for a stay, countering “that a stay would not promote efficiency” since the issue of the Bureau’s standing would not affect the claims brought in the current action. The Bureau further asserted “that the public and the parties’ interest weighs against a stay, as it would hinder Plaintiffs’ enforcement of the consumer protection laws and make obtaining evidence down the line more difficult.”
The district court disagreed, stating that the Supreme Court may address the broader issue of the Bureau’s standing to bring enforcement actions in its decision, and that, regardless, the agency’s claims in the current action “are inextricably linked to CFPB rules and regulations, which themselves may be implicated by a Supreme Court decision should it grant the petition.” The district court stayed the case in its entirety and said that it will wait to decide on both motions until after the Supreme Court decides on the Bureau’s filed petition for a writ of certiorari.
FTC, Florida permanently shut down grant funding operation
On December 8, the FTC and the Florida attorney general announced that a Florida-based grant funding company and its owner (collectively, “defendants”) will be permanently banned from offering grant-writing and business consulting services as a result of a lawsuit the regulators brought against the defendants in June. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Protection Act, the FTC Act, and the Florida Deceptive Unfair Trade Practices Act by deceptively marketing their services to minority-owned small businesses. Among other things, the defendants (i) promised grant funding that did not exist and/or was never awarded; (ii) misled customers about the status of grant awards; and (iii) failed to honor a “money-back guarantee” and suppressed customer complaints. The defendants agreed to the terms of a proposed court order, which would ban them from providing grant-related services and business consulting, and prohibit them from making misrepresentations regarding advertised products or services. Defendants would also be required to turn over certain property to be sold in order to provide refunds to affected businesses. The proposed order also includes a more than $2 million monetary judgment, which is partially suspended due to defendants’ inability to pay.
States ask FTC to increase consumer data privacy protections
On November 17, the Massachusetts attorney general announced that a coalition of more than 30 state AGs sent a letter to the FTC urging the Commission to consider the heightened sensitivity around consumers’ medical data, biometric data, and location data, along with other dangers that arise from data brokers and the surveillance of consumers in response to the FTC’s August advanced notice of proposed rulemaking (ANPR). As previously covered by InfoBytes, in August the FTC announced the ANPR covering a wide range of concerns about commercial surveillance practices, specifically related to the business of collecting, analyzing, and profiting from information about individuals. In the letter, the AGs expressed that they share the FTC’s concern about “the alarming amount of sensitive consumer data that is amassed, manipulated, and monetized.” The AGs noted, among other things, that many consumers are not even aware that their location information is being collected, and when a consumer wishes to disable location sharing, their options are quite limited. The coalition also urged the FTC to consider the risks of commercial surveillance practices that use or facilitate the use of facial recognition, fingerprinting, or other biometric technologies. The letter stated that “consumers provide this information to companies for security purposes or personal pursuits, such as to learn about their ancestry,” but are not always aware of when and how their data is collected. The AGs emphasized the persistent dangers of data brokers, and warned that data brokers profile consumers by scouring their information and use it to create profiles of certain consumers who are susceptible to certain advertising or are likely to buy certain products. In regard to data minimization, the letter emphasized that it is “vital that the Commission consider data minimization requirements and limitations.” The AGs encouraged the FTC “to examine the approach taken in the California, Colorado, Connecticut, Utah and Virginia consumer privacy laws,” and further explained that “each statute mandates that businesses tie and limit the collection of personal data to what is ‘reasonably necessary’ in relation to specified purposes.”
States say student loan trusts are subject to the CFPA’s prohibition on unfair debt collection practices
On November 15, a bipartisan coalition of 23 state attorneys general led by the Illinois AG announced the filing of an amicus brief supporting the CFPB’s efforts to combat allegedly illegal debt collection practices in the student loan industry. As previously covered by InfoBytes, in February, the U.S. District Court for the District of Delaware stayed the Bureau’s 2017 enforcement action against a collection of Delaware statutory trusts and their debt collector after determining there may be room for reasonable disagreement related to questions of “covered persons” and “timeliness.” The district court certified two questions for appeal to the U.S. Court of Appeals for the Third Circuit related to (i) whether the defendants qualify as “covered persons” subject to the Bureau’s enforcement authority; and (ii) whether the case can be continued after the Supreme Court’s 2020 decision in Seila Law v. CFPB (which determined that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau—covered by a Buckley Special Alert). Previously, the district court concluded that the suit was still valid and did not need ratification because—pointing to the majority opinion in the Supreme Court’s decision in Collins v. Yellen (covered by InfoBytes here)—“‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[,]’” and therefore the Bureau’s actions are not void and do not need to be ratified, unless a plaintiff can show that “the agency action would not have been taken but for the President’s inability to remove the agency head.” The district court later acknowledged, however, that Collins “is a very recent Supreme Court decision” whose scope is still being “hashed out” in lower courts, which therefore “suggests that there is room for reasonable disagreement and thus supports an interlocutory appeal here.”
The states argued that they have a “substantial interest” in protecting state residents from unlawful debt collection practices, and that this interest is implicated by this action, which addresses whether the defendant student loan trusts are “covered persons” subject to the prohibition on unfair debt collection practices under the CFPA. Urging the 3rd Circuit to affirm the district court’s decision to deny the trusts’ motion to dismiss, the states contended among other things, that hiring third-party agencies to collect on purchased debts poses a large risk to consumers. These types of trusts, the states said, “profit only when the third parties that they have hired are able to collect on the flawed debt portfolios that they have purchased.” Moreover, “[d]ebt purchasing entities, including entities like the [t]rusts, are thus often even more likely than the original creditors to resort to unlawful tactics in undertaking collection activities,” the states stressed, explaining that in order to combat this growing problem, many states apply their prohibitions on unlawful debt collection practices “to all debt purchasers that seek to reap profits from these illegal activities, including those purchasers that outsource collection to third parties.” The Bureau’s decision to do the same is therefore appropriate under the CFPA, the states wrote, adding that “as a practical matter, these debt purchasers are as problematic as debt purchasers that collect on their own debt. The [t]rusts’ request to be treated differently because of their decision to hire third party agents to collect on the debts that they have purchased (and reap the profits on) should be rejected.”
District Court issues judgment against company bilking 9/11 first responders
On November 23, the U.S. District Court for the Southern District of New York entered a stipulated final judgment and order against a finance company, two related entities, and the companies’ founder and owner (collectively, “defendants”) for engaging in deceptive and abusive acts or practices under the Consumer Financial Protection Act (CFPA) related to the offering of cash advances to people on their settlement payouts from victim-compensation funds established for certain first responders to the World Trade Center attack on September 11, 2001.
As previously covered by InfoBytes, in 2017, the CFPB and the New York attorney general filed a complaint alleging that the defendants engaged in deceptive and abusive acts by misleading consumers into selling expensive advances on benefits to which they were entitled by mischaracterizing extensions of credit as assignments of future payment rights, thereby causing the consumers to repay far more than they received. In March 2022, the district court ruled that the CFPB could proceed with its 2017 enforcement action against the defendants (covered by InfoBytes here) two years after the U.S. Court of Appeals for the Second Circuit vacated a 2018 district court order dismissing the case on the grounds that the Bureau’s single-director structure was unconstitutional, and that, as such, the agency lacked authority to bring claims alleging deceptive and abusive conduct by the company (covered by InfoBytes here).
The 2nd Circuit remanded the case to the district court, determining that the U.S. Supreme Court’s ruling in Seila Law LLC v. CPFB (holding that the director’s for-cause removal provision was unconstitutional but severable from the statute establishing the Bureau, as covered by a Buckley Special Alert) superseded the 2018 ruling. The appellate court further noted that following Seila, former Director Kathy Kraninger ratified several prior regulatory actions (covered by InfoBytes here), including the enforcement action brought against the defendants, and as such, remanded the case to the district court to consider the validity of the ratification of the enforcement action. The defendants later filed a petition for writ of certiorari, arguing that the Bureau could not use ratification to avoid dismissal of the lawsuit, but the Supreme Court declined the petition. (Covered by InfoBytes here). In 2021, the defendants filed a motion to dismiss the Bureau’s enforcement action on the grounds that “it was brought by an unconstitutionally constituted agency” and that the Bureau’s “untimely attempt to subsequently ratify this action cannot cure the agency’s constitutional infirmity.” (Covered by InfoBytes here). The district court turned to the Supreme Court’s June 2021 majority decision in Collins v. Yellen, which held that “‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[.]’” Accordingly, the agency’s actions are not void and do not need to be ratified, unless a plaintiff can show that “the agency action would not have been taken but for the President’s inability to remove the agency head.” (Covered by InfoBytes here).
In the amended complaint, filed in July 2022, the Bureau and the New York AG alleged that, among other things, the defendants engaged in deceptive acts by misrepresenting to consumers that the company’s contracts created valid and enforceable assignments of their payment proceeds when, in fact, the assignments were not valid and enforceable. The amended complaint also alleged that the company misrepresented to consumers when they would receive funds from the company, often promising consumers an earlier date of disbursement than the actual disbursement. Additionally, the joint complaint alleged that the defendants violated state law by collecting on purported assignments that are void, unenforceable, and uncollectable, or alternatively, by collecting on contracts that functioned as loans with interest rates that exceed usury limits under state law, which are also void and on which no payment is due.
Under the terms of the final judgment, defendants must pay a $1 civil money penalty to the Bureau and must not take any action to collect any unpaid or future amounts owed by the harmed responders, which totals at least $600,000. Under the order, defendants must also refrain from participating in offering, brokering, or providing credit or advances of funds to individuals entitled to payments from governmentally created funds established to compensate victims of 9/11.