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Pennsylvania-Based Bank Settles Overdraft Class Action for $1M
On June 12, a Pennsylvania-based bank resolved a class action lawsuit over claims the bank charged its customers improper overdraft fees by agreeing to a proposed $975,000 settlement. According to plaintiff’s unopposed motion for approval of the settlement, the bank had a “practice of assessing overdraft fees even when a customer has sufficient funds in their account to cover all merchant requests for payment.” The plaintiff further alleged that the bank incorrectly charged the fees “to maximize its overdraft fee revenue.” Transactions triggering an overdraft fee using the available balance, but which would not trigger an overdraft fee using the ledger balance, are included in the settlement. The proceeds of the proposed settlement will be distributed to eligible class members within 20 days of the effective date of the settlement.
A preliminary issue in this case was the bank’s belief that the suit was subject to arbitration. The bank claimed the dispute was governed by an agreement to arbitrate contained in plaintiff’s 2008 account agreement, and not, as plaintiff contended, by plaintiff’s 2010 account agreement, which did not contain an arbitration agreement. The trial court disagreed with the bank. In fact, the Pennsylvania Superior Court affirmed the trial court’s decision that there was no agreement to arbitrate the action, after which the Pennsylvania Supreme Court denied the bank’s petition to appeal that decision.
Fourth Circuit States Violation of FCRA that Fails to Demonstrate a Concrete Injury Not Enough for Standing
On May 11, the U.S. Court of Appeals for the Fourth Circuit issued an opinion vacating a nearly $12 million judgment in a class action brought on behalf of a 69,000 member class, concluding that a credit reporting agency’s decision to list a defunct credit card company—rather than the name of its current servicer—on an individual’s credit report does not, without more, create a sufficient injury under the Fair Credit Reporting Act (FCRA) for purposes of Article III standing. Furthermore, although the lead plaintiff alleged that he suffered a cognizable “informational injury,” in that he was denied the source of the adverse information on the report, the appeals court found that he failed to “demonstrate a concrete injury” as a result of the allegedly incorrect information listed on the credit report. (See Dreher v. Experian Info. Sols., Inc., No. 15-2119, 2017 WL 1948916 (4th Cir. May 11, 2017).)
The 2014 class action complaint against the credit reporting agency was filed by an individual who—when undergoing a background check for a security clearance—received a credit report that listed a delinquent credit card account with a creditor that had transferred the debt to a new servicer that was not listed as a source of information. When servicing the defunct company’s accounts, the new servicer had decided to do business using the creditor’s name, and directed the credit reporting agency to continue to reflect that name on the tradeline appearing for those specific accounts on its credit reports. The plaintiffs asserted that the credit reporting agency “deliberately [withheld] and inaccurately [stated] the identity of the source of reported credit information,” in violation of the FCRA. The credit reporting company sought summary judgment on the claims, arguing that the individual and the class lacked standing under the FCRA. However, the district court ruled in favor of the member class finding that the credit reporting company “committed a willful violation of . . . the [FCRA].”
In vacating the district court’s ruling, the Fourth Circuit opined that under the FCRA, a plaintiff “must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” The Fourth Circuit concluded that the individual could not clear the first hurdle. To establish “injury in fact,” the plaintiff must show that he or she suffered an invasion of a legally protected interest that is concrete and particularized. While the plaintiff alleged that the credit reporting agency had violated the FCRA by failing to “clearly and accurately disclose to the consumer . . . [t]he sources of the information [in the consumer’s file at the time of the request],” the Fourth Circuit concluded that the statutory violation alone did not create a concrete informational injury sufficient to support standing. “Rather, a constitutionally cognizable informational injury requires that a person lack access to information to which he is legally entitled and that the denial of that information creates a ‘real’ harm with an adverse effect.” In this instance, “the account had no legitimate effect on the [plaintiff’s] background check process, and [t]hus receiving a creditor’s name rather than a servicer’s name—without hindering the accuracy of the report of efficiency of the credit report resolution process—worked no real world harm.” Instead, the Fourth Circuit categorized the plaintiff’s allegations as chiefly “customer service complaints”—a type of harm unrelated to those Congress sought to prevent when enacting the FCRA.
Proposed FCRA Liability Harmonization Act Seeks to Limit Consumer Remedies in Class Action Suits and Bring Consistency to Consumer Laws
On May 4, Rep. Barry Loudermilk (R-Ga.) introduced legislation that would limit the damages consumers could be awarded in class actions under the Fair Credit Reporting Act (FCRA) and eliminate the availability of punitive damages in such cases. As set forth in a May 8 press release issued by Rep. Loudermilk’s office, the FCRA Liability Harmonization Act (H.R. 2359) would “protect the right of consumers to pursue statutory damages and the right to just compensation for actual harm.” Rep. Loudermilk, a member of the Financial Services Committee, has argued that eliminating the availability of punitive damages and capping class action damages would enable FCRA to be consistent with other consumer protection laws such as TILA, FDCPA, ECOA, and EFTA, all of which have caps on punitive damages. A comment letter from 12 organizations in the consumer financial services industry expressed support for the proposed measure on similar grounds. Among other things, the letter notes that the absence of a cap on class action recoveries under FCRA—which allows plaintiffs to pursue unlimited damages, including punitive damages and attorneys’ fees—forces businesses to settle suits over “technical” or “speculative” violations in order to avoid the danger of excessive damage awards. The proposed legislation is co-sponsored by Rep. Edward Royce (R-Cal.), Rep. Ted Budd (R-N.C.), Rep. Peter King (R-N.Y.), and Rep. Ann Wagner (R-Mo.).
Supreme Court Hears Arguments on Whether a Debt Collector Who Purchases the Debt is Liable Under the FDCPA
On April 18, the United States Supreme Court heard oral argument in Henson v. Santander Consumer USA, Inc., Dkt. No. 16-349, on the question of “[w]hether a company that regularly attempts to collect debts it purchased after the debts had fallen into default is a ‘debt collector’ subject to the Fair Debt Collection Practices Act [FDCPA].” The case arose out of a class action filed by four consumers who had defaulted on automobile loans made by an auto lending affiliate of a major bank. The originator hired Respondent to collect the loans on behalf of the lender and Respondent later purchased the delinquent loans as part of a pool. Though Petitioners did not allege that debt collection was the principal purpose of the Respondent’s business, the consumer-plaintiffs had claimed that the Respondent regularly buys and attempts to collect defaulted debts, and that, in this instance, the Respondent engaged in conduct that violated the FDCPA after it bought the loans. The Petitioner needed to establish, among other things, that the Respondent was a debt collector under the FDCPA and that the loans were in default when they were acquired.
In March 2016, the U.S. Court of Appeals for the Fourth Circuit rejected the consumers’ arguments, concluding that the FDCPA “generally does not regulate creditors when they collect debt on their own account and that, on the facts alleged by the plaintiffs, [the defendant] became a creditor when it purchased the loans before engaging in the challenged practices.” Accordingly, the Fourth Circuit noted that the originator of the loans was irrelevant. In September 2016, the consumer-plaintiffs filed a cert petition with the Supreme Court, which was subsequently granted on January 13. Attorneys general from 28 states and the District of Columbia also joined in an amicus brief supporting the consumers’ argument.
At oral argument before the Supreme Court, the Petitioners cited 15 U.S.C. §1692a(6)(F) and argued that the debts are "owed" to the original lender, but are "due" to the debt buyer. As such, argued Petitioner, a debt buyer should be considered to be collecting debts “owed or due another,” and thus fall within the FDCPA definition of a “debt collector”. Respondent countered that “owed or due another” could only mean that the debt is currently owed to another person. However, Respondent argued, as a debt buyer, it was collecting debts owed to itself, and thus would not be a “debt collector” under the FDCPA. Both sides also presented policy-based arguments. Petitioner suggested that because Respondent was considered a “debt collector” before purchasing the loan, it could not remove itself from the scope of the FDCPA by purchasing the debts. Conversely, Respondent noted that, by purchasing essentially all of the original lender’s loans it had “stepped into [the lender]’s shoes.” Counsel emphasized that Respondent therefore fit the FDCPA definition of “creditor,” and, as a creditor, it had an incentive to maintain a positive relationship with consumers.
Special Alert: California Supreme Court Invalidates Widely Used Arbitration Provisions and Curtails the Scope of Proposition 64
On April 6, the California Supreme Court published its opinion in McGill v. Citibank, N.A., finding unenforceable arbitration agreements that purport to waive claims for public injunctive relief brought under California’s Consumer Legal Remedies Act (CLRA), Civ. Civ. Code, § 1750 et seq., its Unfair Competition Law (UCL)(Bus. & Prof. Code, § 17200), and its false advertising law (id., § 17500 et seq.). In so holding, the court resisted arguments that the Federal Arbitration Act (FAA) preempts California state law, notwithstanding the United States Supreme Court’s landmark holding in AT&T Mobility v. Concepcion (Concepcion). In a second significant holding, the court materially limited the effect of Proposition 64 on claims brought under the UCL, finding that actions for public injunctive relief need not satisfy California requirements for class certification. The court’s decision presents significant questions as to the validity of widely used consumer arbitration clauses, creates the prospect of considerable future litigation regarding the scope of preemption under the FAA, and narrows the effect of Proposition 64 on future litigation under the UCL.
Click here to read full special alert***
If you have questions about the court’s holding or other related issues, visit our Complex Civil Litigation and Class Actions practices for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
National Bank Agrees to $110 Million Class Action Settlement for Improper Sales Practices
On March 28, a national bank announced that it will pay $110 million to settle a 2015 class action lawsuit regarding retail sales practices that involved bank employees creating deposit and credit card accounts without obtaining consent to do so. The settlement class includes all consumers who claim that the bank—without their consent—opened an account, enrolled them in a product or service, or submitted an application for a product or service in their name during the time period from January 1, 2009 through the execution date of the settlement agreement, which must still be approved by the court. The settlement amount will be set aside for consumer compensation and is in addition to remediation amounts already paid to the Los Angeles City Attorney and the fees paid pursuant to consent orders entered into with the CFPB and OCC. The bank also noted that it agreed to the settlement notwithstanding an arbitration clause contained in the Bank’s deposit agreement. The bank is also conducting a voluntary review of accounts from 2009 - 2010 to determine and remediate any consumer harm.
Special Alert: Madden Class Action Moves Forward
On February 27, the U.S. District Court for the Southern District of New York issued a ruling in Madden v. Midland Funding, LLC,[1] holding that New York’s fundamental public policy against usury overrides a Delaware choice-of-law clause in the plaintiff’s credit card agreement. The court allowed the plaintiff to proceed with Fair Debt Collection Practices Act (“FDCPA”) claims (and related state unfair or deceptive acts or practices claims) against the defendants, a debt buyer that had purchased the plaintiff’s charged-off credit card debt and its affiliated debt collector. The court did not allow plaintiff’s claims for violations of New York’s usury law to proceed, as it held that New York’s civil usury statute does not apply to defaulted debts and that the plaintiff cannot directly enforce the criminal usury statute. The court also granted the plaintiff’s motion for class certification.
[1] No. 11-CV-8149, 2017 WL 758518 (S.D.N.Y. Feb. 27, 2017).
Click here to read full special alert* * *
If you have questions about the ruling or other related issues, visit our Class Actions practice for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
District Court Advances Securitization Case Involving N.Y. State Usury Law
On February 27, a U.S. District Court in White Plains, N.Y. issued an Order ruling on motions for summary judgment and class certification in a consumer class-action against a debt collection company that purchased defaulted consumer debt from a national bank, and its affiliate, which sought collection of debt charged at a rate in excess of New York state usury limits. Midland Funding v. Madden, [Opinion & Order] No. 11-CV-8149 (CS) (S.D.N.Y. Mar. 1, 2017).
As previously covered by InfoBytes, the district court had originally ruled in Defendants’ favor, holding that the National Banking Act (NBA) preempted state law usury claims against purchasers of debt from national banks. The Second Circuit, however, overturned that ruling in a May 2015 opinion to the extent it relied on the NBA, but remanded the case for a determination whether Delaware choice of law provisions in the credit agreement precluded the Plaintiff’s claims because the rates were not usurious in Delaware.
Now, revising the issue on remand, the District Court held that New York’s criminal usury cap (but not the civil usury) applies to Plaintiff’s defaulted debt, notwithstanding the Delaware choice of law provision. The Court reasoned that New York does not follow the “rule of validation” (calling for courts to assume the parties intended to enter into a valid contract and apply the law of the state whose usury law would sustain it). The Court concluded, therefore, that the Plaintiff could predicate her FDCPA claims on a violation of New York’s criminal usury cap. Based on the foregoing, the Court granted partial summary judgment for the Defendant. The court also granted, but modified, Plaintiff’s request for class certification.
Chairman of House Judiciary Committee Introduces Major Litigation Reform Bill
In February, Representative Bob Goodlatte (R-Va.) introduced a new bill (H.R. 985) designed to “assure fairer, more efficient outcomes for claimants and defendants” in class-action and multi-district litigation. Dubbed the “Fairness in Class Action Litigation Act of 2017,” the proposed legislation would add a number of new hurdles and disclosure requirements that must be satisfied in connection with any case seeking class certification in federal court.
Among other things, the proposed law would: (i) provide for mandatory disclosures designed to prevent the approval of class actions in which the lawyer representing the class is a relative of a party in the class action suit; (ii) require that “any third-party funding agreement be disclosed to the district court”; and (iii) require federal circuit courts to accept any appeals of district court orders granting or denying class certification. In addition, for plaintiffs seeking “monetary relief,” the law would add an express requirement that the plaintiff “affirmatively demonstrate that each proposed class member suffered the same type and scope of injury as the named class representative.” Moreover, the bill also seeks to address disproportionately large attorney’s fee awards by, among other things, limiting class counsel’s fees to a “reasonable percentage” of the total amount of payments both “distributed to and received by class members,” and, similarly capping the total fee award to no more than that “received by all class members.”
Rep. Goodlatte—who is currently serving as Chairman of the House Judiciary Committee—also authored the Class Action Fairness Act of 2005 and was also behind another class action reform bill introduced in 2015 that failed to clear the Senate . As explained by the Chairman, the proposed legislation “seeks to maximize recoveries by deserving victims, and weed out unmeritorious claims that would otherwise siphon resources away from innocent parties.”
Supreme Court: Settlement Offers Do Not Moot Class Actions, But...
The United States Supreme Court on Wednesday resolved the long-standing circuit split on whether an offer to satisfy the named plaintiff’s individual claims is sufficient to render a case moot when the complaint seeks relief on behalf of the plaintiff and a class of similarly situated individuals. In a 6-3 decision authored by Justice Ginsburg, the Supreme Court held that an unaccepted settlement or Rule 68 offer cannot moot a class action. However, the Court refused to address and explicitly left open the question of whether its ruling would be different if a defendant deposited the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then entered judgment for the plaintiff in that amount. By leaving this question open, defendants in a position to unilaterally provide complete relief may still be able to “pick off” putative class representatives and avoid class action suits.
In Campbell-Ewald Co. v. Gomez, No. 14-857 (Jan. 20, 2016), the United States Navy contracted with Campbell-Ewald Company to develop a multimedia recruiting campaign that included sending text messages to young adults, but only those who had opted in to receiving these type of marketing solicitations. Campbell’s subcontractor generated a list of cellular phone numbers and transmitted the Navy’s message to over 100,000 recipients, allegedly including some people who had not opted into receiving such solicitations. The plaintiff filed a nationwide putative class action alleging that Campbell violated the Telephone Consumer Protection Act (TCPA) and seeking treble statutory damages, attorneys fees and costs, and an injunction. Campbell attempted to moot the claim by offering (i) treble statutory damages for each unsolicited text it sent to the sole plaintiff; and (ii) a stipulated injunction that it would no longer violate the TCPA. Campbell actually made two offers, one in writing conveyed to the plaintiff, and the other substantively the same but under the auspices of Rule 68. Under Rule 68, if the judgment is not more favorable than the unaccepted settlement offer, the offeree must pay the costs incurred after the settlement offer was made. Both offers were made prior to the plaintiff moving for class certification. The plaintiff did not accept the offers and allowed Campbell’s Rule 68 submission to lapse after the 14 day deadline specified in the Federal Rules. Campbell then moved to dismiss under Rule 12(b)(1), arguing that its offers mooted the plaintiff’s individual claim by providing him complete relief and that because the plaintiff had not moved for class certification prior to his claim becoming moot, the putative class action claims also were moot. The district court denied the motion and the Ninth Circuit affirmed.
The Supreme Court affirmed. Writing for the majority, Justice Ginsburg held that the unaccepted settlement offers did not moot the case. Relying upon language from Justice Kagan in a dissenting opinion, the majority reasoned that an unaccepted settlement offer, like any unaccepted contract offer, is a legal nullity with no operative effect. “In short, with no settlement offer still operative, the parties remained adverse; both retained the same stake in the litigation they had at the outset.”
Justice Thomas wrote a concurring opinion relying on the common-law history of formal tenders, i.e., deposit of the entire claim amount in trust for the plaintiff. However, his opinion seems to suggest that such formal tenders would suffice to moot the action. The conservative dissenters would have held any offer, tender or unilateral transfer that fully satisfies the plaintiff’s claims would moot the action. Indeed, even the majority distinguished actual transfer and tender cases from the case here. Thus, there still remains some avenues for attempting to moot consumer lawsuits.