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Financial Services Law Insights and Observations


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  • District Court grants preliminary approval in usury class action settlement


    On April 16, the U.S. District Court for the Eastern District of Virginia granted preliminary approval of a class action settlement resolving a purported scheme to unlawfully use tribe-owned firms to make online short-term loans and charge triple-digit interest rates. According to the memorandum of law in support of plaintiffs’ motion for preliminary approval of class action settlement and the stipulation and agreement of settlement, the district court previously approved two class settlements related to the lending enterprise. The first resulted in the purported lender and others: (i) repaying over $53 million dollars in cash; and (ii) forgiving over $380 million dollars of debt owed by consumers who took out loans with three lending companies. However, these settlements did not resolve every claim surrounding the purported scheme, and did not resolve claims with the settling defendant. The plaintiffs claimed that the settling defendant assisted the purported lender’s operations despite a corporate spinoff in May 2014, alleging that “[b]ecause many [of the purported lender’s] employees with institutional knowledge of and involvement in the company’s rent-a-tribe lending business were quickly transferred to [the settling defendant], [the purported lender] required and depended on continued involvement by [the settling defendant] and its employees in operating its rent-a-tribe lending business, which involvement was freely and often provided.” Under the terms of the preliminarily approved settlement, the settling defendant must provide monetary relief to class members totaling approximately $45 million.

    Courts Tribal Lending Class Action Usury Settlement Consumer Finance Interest Rate Online Lending

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  • District Court grants final approval of $10 million class action settlement


    On April 11, the U.S. District Court for the Eastern District of New York granted final approval to a $10 million class action settlement resolving allegations that a defendant bank breached its payment card processing servicing contracts with merchants by imposing excessive fees without contractually required notice. Additionally, the plaintiffs alleged that the defendant was “unjustly enriched by imposing early termination fees that constituted unlawful penalties.” The settlement class includes over 200,000 merchants that entered into a payment card processing servicing contract with the defendant and who paid at least one of the fees underlying the litigation from October 2011 to the settlement date. Those fees include annual fees, early termination fees, and paper statement fees. According to the memorandum in support of the unopposed motion for preliminary approval of class settlement, the deal would provide $10 million in cash to the settlement class, and attorneys representing the class can seek up to one-third of that fund in attorneys’ fees. In addition, each of the three class representatives will be granted $10,000 service awards, per the motion.

    Courts Class Action Fees Consumer Finance Settlement

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  • District Court rules “informational harm” does not create standing in FDCPA case


    On April 6, the U.S. District Court for the District of Connecticut granted a defendant law firm’s motion for judgment on the pleadings in a putative class action, ruling the plaintiff lacked standing to bring a claim for abusive debt collection under the FDCPA. The plaintiff incurred a debt that was placed with a collection agency. The collection agency sent the plaintiff a letter, to which the plaintiff sent three letters disputing the debt and requesting validation of the debt as well as the agency’s authority to collect on the debt. According to the plaintiff, she never received the requested verification. The original creditor eventually hired the defendant to collect the debt. The defendant sent its own letter enclosing verification of the debt. The plaintiff sued alleging the defendant’s letter violated Section 1692g(b) of the FDCPA, which requires debt collection efforts to cease after timely dispute of a debt until the debt collector provides verification of the debt to the debtor. According to the plaintiff, her previous requests for validation triggered obligations under Section 1692g(b) with respect to the defendant, thus obligating the defendant to cease collection efforts until the validation information was provided to the plaintiff. She also asserted violations of Section 1692(e) on the grounds that an attorney did not meaningfully review her file before the defendant’s letter was sent. The defendant moved for judgment on the pleadings on two grounds: lack of standing and failure to state a claim that defendant violated the FDCPA.

    The court agreed with the defendant that the plaintiff failed to show an injury-in-fact, as required for Article IIII standing, and instead only alleged informational harm including confusion caused by the defendant’s letter. The court held that confusion is not a legally cognizable injury and found that the plaintiff lacked standing because she did not suffer a cognizable injury.

    Courts FDCPA Debt Collection Consumer Finance Class Action

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  • 9th Circuit: Defendant is liable for third-party calls


    Recently, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s ruling that a defendant knew its third-party contractor was making pre-recorded calls to prospective consumers without consumers’ consent in violation of the TCPA. As previously covered by InfoBytes, in December 2017, consumers filed a consolidated class action against a cruise line, alleging violations of, among other things, the TCPA for marketing calls made to class members’ cell phones using an automatic telephone dialing system between November 2016 and December 2017. The suit alleged that the defendant hired a company to generate leads and initiate telephone calls to prospective consumers for cruise packages. The U.S. District Court for the Southern District of California denied dismissal of the TCPA action for lack of subject matter jurisdiction, concluding that the Court’s decision in Barr v. American Association of Political Consultants Inc., did not invalidate the TCPA in its entirety from 2015 until July 2020. In Barr the U.S. Supreme Court held that the TCPA’s government-debt exception is an unconstitutional content-based speech restriction and severed the provision from the remainder of the statute. (Covered previously by InfoBytes here.)

    On the appeal, the issue was whether the defendant is liable under the TCPA for prerecorded voice calls made by the third-party contractor to the plaintiffs, who had not given prior express consent to be called. The 9th Circuit agreed with the district court’s decision in granting summary judgment for the defendant where the TCPA did not require the defendant to ensure that the third-party contractor had prior express consent for each call that it made to the defendant’s customers, nor did the defendant have actual authority over the third-party contractor. However, the 9th Circuit concluded that the defendant may be vicariously liable for the third-party contractor’s calls because it might have ratified them. The appellate court noted that the defendant knew that it received 2.1 million warm-transferred calls from the company between January 2017 and June 2018, but only 80,081 of those transfers were from individuals who had allegedly consented to receiving the calls. The defendant also had knowledge that there was a slew of mismatched caller data, and that the third-party contractor placed calls using prerecorded voices. The appellate court wrote that, “[t]hese facts, in combination with the evidence of widespread TCPA violations in the cruise industry, would support a finding that [the defendant] knew facts that should have led it to investigate [the company’s] work for TCPA violations.”

    Courts TCPA Class Action Autodialer U.S. Supreme Court Appellate Ninth Circuit Third-Party

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  • 10th Circuit: Extended overdraft fees do not qualify as interest under the NBA


    On April 8, the U.S. Court of Appeals for the Tenth Circuit concluded that extended overdraft fees do not legally qualify as interest under the National Bank Act (NBA). According to the opinion, after the plaintiff overdrew funds from his checking account, the bank covered the cost of the item and charged an initial overdraft fee. The bank later began imposing an extended overdraft fee each business day following the initial overdraft, ultimately assessing 36 separate overdraft fees. The plaintiff filed a putative class action, contending that the bank’s extended overdraft fees qualify as interest under the NBA, and that the amount charged (which he claimed translated to an effective annualized interest rate between 501 and 2,462 percent) violated the NBA’s anti-usury provisions because it exceeded Oklahoma’s maximum annualized interest rate of 6 percent. While the plaintiff recognized that the initial overdraft fee qualifies as a “deposit account service,” he argued that the extended overdraft fee “‘is an interest charge levied by [the bank] for the continued extension of credit made in covering a customer’s overdraft’ and therefore cannot be considered connected to the same banking services that [the bank] provides to its depositors.” The district court disagreed and dismissed the action for failure to state a claim after determining that the bank’s extended overdraft fees were fees for “deposit account services” and were not “interest” under the NBA.

    In affirming the district court’s dismissal, the appellate majority (an issue of first impression in the 10th Circuit) agreed that the fees qualify as non-interest account fees rather than interest charges under the NBA. The majority deferred to the OCC’s 2007 Interpretive Letter, which addressed the legality of a similar overdraft program fee structure. The letter “represents OCC’s reasonable interpretation of genuinely ambiguous regulations, and OCC’s determination that fees like [the bank’s] extended overdraft fees are ‘non-interest charges’ is neither plainly erroneous nor inconsistent with the regulations it interprets,” the majority wrote. “As ‘non-interest charges’ under § 7.4002, [the bank’s] extended overdraft fees are not subject to the NBA’s usury limits, and [plaintiff] fails to state a claim,” the majority added.

    The dissenting judge countered that extended overdraft fees are interest, and that the OCC’s interpretation did not deserve deference because these fees “unambiguously” meet the definition of interest under 12 C.F.R. § 7.4001(a). According to the dissenting judge, this regulation provides that “‘interest’ ... includes any payment compensating a creditor ... for an extension of credit,” and that as such, the “definition maps onto extended overdraft fees like [the bank’s]” and thus the plaintiff had stated a claim.

    Courts Appellate Tenth Circuit Overdraft Interest National Bank Act Fees Consumer Finance OCC Class Action

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  • 8th Circuit: No standing in FCRA action following Spokeo


    On May 3, the U.S. Court of Appeals for the Eighth Circuit vacated a district court’s approval of a class action settlement agreement in an FCRA action after determining that the plaintiff lacked Article III standing in light of the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins. According to the opinion, after the plaintiff applied for employment with the defendant, the defendant made a conditional offer of employment to the plaintiff and also asked her to sign an authorization for release of information so that it could conduct a background investigation of the plaintiff, including a criminal background search. The plaintiff contended that, after the defendant reviewed the background screening report, it withdrew the conditional offer of employment and did not provide her an opportunity before the offer was withdrawn to correct or explain the results in the report. A follow-up letter, which included a copy of the report and a description of her rights under the FCRA, was sent to the plaintiff stating that if she planned to dispute the information she had to do so within seven days from receipt of the letter. The plaintiff commenced the action in February 2016, alleging the defendant violated the FCRA by: (i) “taking adverse employment action based on a consumer report without first providing the report to the applicant”; (ii) “obtaining a consumer report without providing a disclosure form that complied with the FCRA”; and (iii) “exceeding the scope of the authorization by obtaining more information than the disclosed in the authorization.” In May 2016, the parties reached a tentative settlement agreement, but four days later the Supreme Court issued its decision in Spokeo, which requires plaintiffs to show that they have suffered a concrete injury in fact that is fairly traceable to the challenged conduct of the defendant, and not just allege a statutory violation. Following Spokeo, the defendant moved to dismiss for lack of standing, but the district court approved the settlement.

    On appeal, the 8th Circuit concluded that the plaintiff lacked Article III standing to bring her FCRA claims, determining, among other things, that “the right to pre-action explanation to the employer is not unambiguously stated in the text of the statute,” and that “[n]either the text of the FCRA nor the legislative history provide support for [plaintiff’s] claim that she has a right under the FCRA to not only receive a copy of her consumer report, but also discuss directly with the employer accurate but negative information within the report prior to the employer taking adverse action.” The plaintiff “may have demonstrated an injury in law, but not an injury in fact,” the appellate court wrote. With respect to the plaintiff’s other two claims, the appellate court noted that she failed to show any claim of harm—tangible or intangible. Because Schumacher lacked standing to assert any of her claims, the appellate court vacated the district court’s order and remanded the case with instructions to return the case to the state court.

    Courts Appellate Eighth Circuit Spokeo FCRA Class Action

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  • District Court preliminarily approves TCPA class action settlement


    On April 7, the U.S. District Court for the Northern District of California granted preliminary approval for a $13 million settlement in a class action against an affiliate of a real estate services company for allegedly violating the TCPA by soliciting calls to consumers. According to the plaintiff’s motion for preliminary approval, the plaintiff alleged that he received unwanted telephone solicitations on behalf of the defendant to his residential telephone lines that he had previously registered on the “Do Not Call” registry, in addition to alleging that he received repeated unwanted telemarketing calls even after he had requested that the defendant and/or its agents to not to call him back. If the settlement is approved, each member of the settlement class, which consists of individuals in the U.S. who received two or more calls since September 13, 2014 on their residential telephone number from the defendant’s affiliate that promoted the purchase of the defendant’s goods and services, would receive $350.00. The proposed settlement also seeks an additional $2.77 million in attorney fees and costs.

    Courts TCPA Class Action Real Estate Do Not Call Registry Settlement

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  • District Court dismisses bank from class action on out-of-network ATM fees


    On April 4, the U.S. District Court for the Southern District of California granted a defendant bank’s motion for summary judgment and denied class certification in an action concerning out-of-network fees charged on purportedly invalid balance inquiries performed at out-of-network (OON) ATM machines. The defendant is a member of two cardholder networks, which permit account holders to access and use OON ATMs. In 2019, plaintiff account holders filed a lawsuit alleging the defendant violated several California state consumer protection laws and breached its deposit account agreements by systematically charging excessive fees. Plaintiffs further alleged the defendant assessed multiple fees if a consumer made a balance inquiry at the same time as a cash withdrawal. The defendant argued in its motion for summary judgment that the deposit agreement was unambiguous and that its assessment of the OON fees for balance inquiries is permitted under the agreement’s express terms. In agreeing with the defendant that no ambiguity existed in the language in the agreement regarding such fees, the court, among other things, also held that language in the agreement providing the defendant and ATM operators discretion to charge or waive fees for use of OON ATMs did not imply that the defendant relied on that contract term in bad faith. The court found that nothing about the use of the word “may” in the phrase “[w]e may also charge you a fee,” necessitates “the conclusion that the bank ‘abuses its power and takes advantage of contractual uncertainty by charging OON Fees when it knows, or should know, of the [alleged] systematic deception occurring at [OON] ATMs resulting in invalid balance inquiries.’”

    In its motion, the defendant bank also maintained that the claims against it fail because the plaintiffs failed to follow express reporting and pre-dispute notification procedures outlined in their agreements, which require account holders to review their statements and notify the bank within 60 days of any problems or unauthorized transactions. The court declined to find that the pre-dispute procedures provided an alternative basis for summary judgment in favor of the defendant, finding that it was not clear that plaintiffs’ obligation to provide defendant with notice of unauthorized transactions covered disputed OON ATM fees. The court explained that such fees may not be apparent on the plaintiffs’ billing statements and that “the notice provisions seem to relate to major issues such as fraud and unauthorized or stolen checks” rather than problematic fees.

    Courts Class Action State Issues Fees Consumer Finance ATM California

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  • District Court preliminarily approves $90 million settlement in data tracking suit


    On March 31, the U.S. District Court for the Northern District of California preliminarily approved a $90 million class action settlement resolving claims that a social media platform unlawfully tracked consumers’ browsing data. According to the settlement agreement, the defendant obtained and collected data from approximately 124 million platform users in the U.S. who visited websites that displayed the defendant’s “Like” button between April 22, 2010 and September 26, 2011. If the settlement is granted final approval, in addition to paying a $90 million settlement, the company will be required to delete the data it had collected from users during the class period.

    Courts Privacy/Cyber Risk & Data Security Class Action California Settlement

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  • Social networking apps settle minors' data claims for $1.1 million

    Privacy, Cyber Risk & Data Security

    On March 25, the U.S. District Court for the Northern District of Illinois granted final approval to a $1.1 million class action settlement resolving claims that the operators of two video social networking apps (defendants) “‘surreptitiously tracked, collected, and disclosed the personally identifiable information and/or viewing data of children under the age of 13,’ ‘without parental consent’” in violation of federal and California privacy law. Specifically, plaintiffs asserted violations of the Video Privacy Protection Act (VPPA), the California constitutional right to privacy, the California Consumers Legal Remedies Act (CLRA), and the Illinois Consumer Fraud and Deceptive Businesses Practices Act. Defendants countered that plaintiffs’ state-law claims were preempted by the Children’s Online Privacy Protection Act, and that, furthermore, the “alleged conduct is not within the scope of VPPA or the cited state consumer protection laws” and “does not amount to a common law invasion of privacy or a violation of Plaintiffs’ rights under the California Constitution.” Moreover, defendants argued that plaintiffs could not recover actual damages. According to plaintiffs’ supplemental motion for final approval, following months-long negotiations, the parties agreed to settle the action on a class-wide basis.

    The settlement requires defendants to pay $1.1 million into a non-reversionary settlement fund, to be dispersed pro rata to class members (anyone in the U.S. who, prior to the settlement’s effective date and while under the age of 13, registered for or used the apps) who submit a valid claim after the payment of settlement administration expenses, taxes, fees, and service awards. The court’s order, however, declined to award an objector’s counsel any attorneys’ fees for his efforts to negotiate modified relief because the agreement was negotiated in a separate proceeding in related multidistrict litigation. The court also denied plaintiffs’ motion for sanctions against the objector’s law firm.

    Privacy/Cyber Risk & Data Security Courts Settlement Class Action State Issues Illinois California COPPA

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