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On February 14, the U.S. District Court for the Eastern District of Pennsylvania denied the approval of a proposed $4 million class action settlement in a TCPA case based on a “confluence of a number of negative factors,” including that the court believed the defendant—a subprime auto lender—would be able to withstand a significantly higher judgement to compensate consumers allegedly harmed by its use of an automatic telephone dialing system. The complaint alleged that the defendant allegedly placed automated and prerecorded phone calls to class members on their cellphones in violation of the TCPA. In 2018, the parties reached a preliminary settlement that would give each of the 67,255 class members who opted into the settlement roughly $35.
In denying the approval, the court cited three primary concerns with the proposed settlement: “first, the lack of information available to counsel to inform their view and advise the class of the strengths and weaknesses of the case given the early posture in which the parties reached agreement; second, the emphasis on [the defendant’s] inability to pay more than $4 million when no underlying financial information was provided to the class members, compounded by the [c]ourt’s belief, after in camera review of the financials, that this statement is inaccurate; and third, the [c]ourt’s skepticism that $4 million is a fair settlement in this case, given that it will result in a de minimis per claimant recovery of $35.30.” Arguing that “de minimis class action recoveries, such as TCPA recoveries, may not be worth the costs they impose on our judicial system,” the court also noted that the TCPA provides for a private right of action and statutory damages of $500 for each violation (or actual monetary loss—whichever is greater), and does not impose a cap on statutory damages in class actions. Moreover, the court argued that the $35.30 that each class member would receive would likely not even cover the cell phone bill for one class member for one month and is, among other things, “simply trivial in light of a possible recovery of $500.”
On February 19, the FDIC issued FIL-11-2020 announcing the Federal Reserve Board, FDIC, and OCC have finalized capital-related reporting revisions (see Federal Register notice and FIL-10-2020) to the Consolidated Reports of Condition and Income (Call Reports) for certain banks (FFIEC 031, 041, 051) as well as the Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101). Among other things, the final revisions include changes to the capital simplifications rule and the community bank leverage ratio rule, in addition to Call Report instructional revisions taking effect in 2021 concerning reporting home equity lines of credit that convert from revolving to non-revolving status. These reporting revisions are subject to approval by OMB.
On February 14, four trade groups filed suit against Maine in the U.S. District Court for the District of Maine, alleging that a recently enacted state privacy law (covered by InfoBytes here) infringes the rights of Internet Service Providers (ISPs). The complaint claims that L.D. 946 “imposes unprecedented and unduly burdensome restrictions on ISPs’, and only ISPs’, protected speech,” and is “not remotely tailored to protecting consumer privacy.” Among other things, the trade groups claim that because the law only stifles the use of consumer data by ISPs and not by other similarly situated companies, it violates their First Amendment protected speech rights. The groups also argue that the Maine law is much stricter to ISPs than other state privacy laws which “provide opt-out rights for most consumer data and reserve opt-in consent for a narrow subset of sensitive personal information,” whereas L.D. 946 uses an opt-in system. L.D. 946 also restricts the ISPs’ use of non-sensitive information that is not personally identifying and prohibits the ISPs from providing customer discounts or rewards programs to consumers who opt-in to sharing information.
On February 18, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13850, as amended, against a Swiss-incorporated, Russian-controlled oil brokerage and its board chairman and president for operating in the oil sector of the Venezuelan economy. According to the press release, the company assisted Venezuela state-owned Petroleos de Venezuela, S.A., in brokering, selling, and transporting Venezuelan petroleum products.
In connection with the designations, OFAC issued Venezuela General License (GL) 36, titled “Authorizing Certain Activities Necessary to the Wind Down of Transactions Involving [company].” GL 36, which expires on May 20, authorizes certain transactions and activities otherwise prohibited under E.O.s 13850 and 13857 that are required in order to wind down business with the company. Concurrently, OFAC issued a new Venezuela-related frequently asked question regarding GL 36, addressing the significance of OFAC’s designation of the company, and whether the E.O. 13850 blocking sanctions on the company apply to its corporate parent and affiliates. In its press release, OFAC added that “all property and interests in property of [the company] and [its president] that are in the United States or in the possession or control of U.S. persons, and of any entities that are owned, directly or indirectly, 50 percent or more by the designated individual and entity, are blocked and must be reported to OFAC.”
Indiana Supreme Court: Statute of limitations begins when lender exercises optional acceleration clause
On February 17, the Indiana Supreme Court reversed a trial court’s decision to dismiss a lender’s action as time-barred, holding that under the state’s two statutes of limitation, “a cause of action for payment upon a promissory note with an optional acceleration clause can accrue on multiple dates”—one of which “is when a lender exercises its option to accelerate before a note matures.” According to the opinion, the consumer executed a promissory note and mortgage in 2007 and stopped making payments in 2008. The note was subsequently transferred to the lender, and in 2016, the lender accelerated the debt and demanded payment in full. The lender sued to recover the note in 2017. The consumer argued that the claim was barred by a six-year statute of limitations for a cause of action upon a promissory note under Ind. Code Ann. § 34-11-2-9, and the trial court agreed, granting the consumer’s motion to dismiss. The Indiana Court of Appeals affirmed the decision, finding that the lender did not accelerate the debt within six years of the initial default, and clarified, on rehearing, that the relevant Uniform Commercial Code statute of limitations (Ind. Code Ann. § 26-1-3.1-118(a)) should also apply.
The Indiana Supreme Court reversed the trial court’s ruling, determining, among other things, that the six-year statute of limitations did not start running until the lender exercised the optional acceleration clause in 2016, which was well within the applicable statutes of limitations. “We find that. . .under either applicable statute of limitations, [the lender’s] claim is timely,” the Court wrote. “We thus reverse the trial court’s order dismissing [the lender’s] complaint and remand.”
U.S. Solicitor General: Supreme Court can decide on severability clause without deciding CFPB's future
On February 14, U.S. Solicitor General Noel J. Francisco filed a reply brief for the CFPB in Seila Law LLC v. CFPB, arguing that the U.S. Supreme Court could decide whether the CFPB’s single-director structure violates the Constitution’s separation of powers under Article II without deciding whether the Bureau as a whole should survive. “Although the removal restriction is unconstitutional, Congress has expressly provided that the rest of the Dodd-Frank Act shall be unaffected,” Francisco said, replying in part to arguments made by Paul D. Clement, the lawyer selected by the Court to defend the leadership structure of the Bureau. As previously covered by InfoBytes, Clement argued, among other things, that Seila Law’s constitutionality arguments are “remarkably weak” and that “a contested removal is the proper context to address a dispute over the President’s removal authority.” Clement also contended that “there is no ‘removal clause’ in the Constitution,” and that because the “constitutional text is simply silent on the removal of executive officers” it does not mean there is a “promising basis for invalidating an Act of Congress.” According to Francisco, Seila Law’s arguments for invalidating the entirety of Title X of Dodd-Frank “are insufficient to overcome the severability clause’s plain text,” and its “arguments for ignoring the severability questions altogether are both procedurally and substantively wrong.” Francisco further emphasized that “refusing to apply the severability provision . . .would be severely disruptive” because the Bureau is the only federal agency dedicated solely to consumer financial protection.
Seila Law also filed a reply brief the same day, countering that Clement offered “no valid justification” for the Court to rule on the severability question separately, and arguing that a “civil investigative demand issued and enforced by an unaccountable director is void, and the only appropriate resolution is to order the denial of the CFPB’s petition for enforcement.” Seila Law further contended that the Court should reverse the U.S. Court of Appeals for the Ninth Circuit’s decision from last May—which deemed the CFPB to be constitutionally structured and upheld a district court’s ruling enforcing Seila Law’s obligation to comply with a 2017 civil investigative demand—and “leave to Congress the quintessentially legislative decision of how the CFPB should function going forward.”
Notably, Francisco disagreed with Seila Law’s argument that the 9th Circuit’s judgment should be reversed outright, stating that to do so “would deprive the Bureau of ratification arguments” that the 9th Circuit chose not to address by instead upholding the removal restriction’s constitutionality. The Bureau’s ratification arguments at the time, Francisco stated, contended that even if the removal restriction was found to be unconstitutional, “the CID could still be enforced because the Bureau’s former Acting Director—who was removable at will—had ratified it.” As such, Francisco recommended that the Court “confirm that the severability clause means what it says and remand the case to the [9th Circuit] to resolve any remaining case-specific ratification questions.”
The same day, the Court approved Seila Law’s motion for enlargement of time for oral argument and for divided argument. The time will be divided as follows: 20 minutes for Seila Law, 20 minutes for the solicitor general, 20 minutes for the court-appointed amicus curiae, and 10 minutes for the House of Representatives.
Find continuing InfoBytes coverage on Seila here.
On February 14, the FDIC released economic scenarios—developed in coordination with the Federal Reserve Board (Fed) and the OCC—for certain supervised financial institutions with consolidated assets of more than $250 billion. The Dodd-Frank Act requires financial companies to run stress tests using the scenarios. According to the FDIC, the scenarios cover a baseline scenario that is “in line with a survey of private sector economic forecasters” and a severely adverse scenario “designed to assess the strength and resilience of financial institutions.”
As previously reported by InfoBytes, the OCC and the Fed both released their stress testing scenarios on February 6.
On February 14, the CFPB released its winter 2020 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of student loan servicing, payday lending, debt collection, and mortgage servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between April and August of 2019. Highlights of the examination findings include:
- Debt collection. The Bureau cited violations of the FDCPA’s requirement that debt collectors must, after the initial written communication, disclose that their communications are from a debt collector. The report also included the failure of some debt collectors to provide a written validation notice to consumers within five days after the debt collector initially contacts the consumer regarding the collection of a debt.
- Payday lending. The Bureau found violations of the CFPA, including among other things, lenders failing to apply consumer payments to their loan balances and treating the accounts as delinquent. The Bureau also found weaknesses in employee training that resulted in providing consumers with inaccurate annual percentage rates in violation of Regulation Z.
- Mortgage servicing. The Bureau pointed out that servicers had violated Regulation X by failing to provide written acknowledgement of receipt of consumer loss mitigation applications, including whether the applications were complete or incomplete, within five days of receipt. Servicers also failed to provide in writing a list of loss mitigation options for which the consumer was eligible within 30 days of receiving a complete loss mitigation application.
- Student loan servicing. The Bureau noted that after loans were transferred, some servicers billed incorrect monthly amounts to the consumers.
The report notes that in response to most examination findings, the companies have taken or are taking remedial and corrective actions, including by identifying and compensating impacted consumers and updating their policies and procedures to prevent future violations. Lastly, the report also highlights the Bureau’s recently issued rules and guidance.
On February 11, the U.S. District Court for the District of Columbia dismissed a relator’s False Claims Act claims, which alleged that a group of prime private student loan debt collectors (defendants) defrauded the federal government of funds intended for small businesses in relation to contracts to service student loans with the Department of Education (Department). The 2015 lawsuit filed by the relator accused the defendants of, among other things, allegedly concealing that “the purportedly small business subcontractors were affiliated with ‘co-conspirator’ larger businesses, ‘making them ineligible to be claimed as small businesses by the prime contractors on the [Department’s private collection agency] task orders.’” The relator also claimed that the defendants convinced the Department to award contracts and provide bonuses they did not deserve. According to the relator, the defendants made claims that hinged “on the factual allegation of undisclosed affiliation and associated submission of false claims and/or misrepresentations concerning business size.”
In the order, the court determined, among other things, that the relator fell short of alleging the specific facts necessary to convince the court that the defendants engaged in fraudulent inducement and implied certification. The court held that “despite [the relator’s] contrary contentions, [the relator’s] pleading does not establish with the requisite particularity the time and place of the false misrepresentations, what constitutes the allegedly false claim for each discrete defendant, and what, precisely, ‘was retained or given up as a consequence of the fraud.’” Specifically, the court stated that the relator “fail[ed] to connect several critical dots in the alleged scheme, leaving the [c]ourt unclear as to what, precisely, was allegedly actionably false and/or fraudulent.” However, the court allowed the relator leave to file an amended complaint, stating that “because the allegation of further facts might cure the identified deficiencies (although the [c]ourt has its doubts, given the length of the investigation and [the relator’s] counsel’s central role in the investigation), the [c]ourt sees no reason to deviate from the general rule [allowing leave].”
On February 11, the CFPB issued updates to its Supervision and Examination Manual to include requirements of the FCRA created by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The updates apply to the examination procedures covering consumer reporting, larger participants, and education loans, and aim to reduce instances of consumer compliance law violations by companies that provide consumer financial products and services. According to the CFPB, the larger participants examination procedures provide guidance to examiners covering a number of areas including, among other things, (i) “accuracy of information and furnisher relations”; (ii) “contents of consumer reports”; (iii) “consumer inquiries, complaints, and disputes and the reinvestigation process”; (vi) “consumer alerts and identity theft provisions”; and (v) “other products and services and risks to consumers.” The Bureau’s guidance to examiners on education loan exam procedures concentrates on servicing and origination. Some of the topics included are: (i) “advertising, marketing, and lead generation”; (ii) “customer application, qualification, loan origination, and disbursement”; (iii) “student loan servicing”; (iv) “borrower inquiries and complaints”; and (v) “information sharing and privacy.”
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- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
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