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On June 16, the U.S. Court of Appeals for the Fifth Circuit held that a plaintiff borrower’s requested damages in a foreclosure lawsuit did not exceed the federal jurisdictional threshold amount of $75,000, and sent the case back to Texas state court. The plaintiff sued the financial institution in state court after it sought a nonjudicial foreclosure on his house, asserting violations of the Texas Debt Collection Act, breach of the common-law duty of cooperation, fraud, and negligent misrepresentation. The suit was removed to the U.S. District Court for the Northern District of Texas, with the defendant arguing that the suit automatically stayed its nonjudicial foreclosure sale, thus putting the value of the house ($427,662) as the amount in dispute, instead of the plaintiff’s requested relief of $74,500. The plaintiff moved to remand the case to state court on the premise “that the amount in controversy could not exceed the stipulated maximum of $74,500.” The district court denied the plaintiff’s motion, ruling that it “had to measure the amount in controversy ‘by the value of the object of the litigation,’” and not by what the plaintiff’s complaint says the damages were not to exceed.
In reversing and remanding the case to state court, the 5th Circuit concluded that, because the defendant did not show that the automatic stay brought the house’s value into controversy, it “failed to establish by a preponderance of the evidence that the amount in controversy exceeded $75,000.” The appellate court agreed with the plaintiff’s assertion that the house was simply collateral and “thus irrelevant to the amount in controversy,” writing that “[i]t is well-settled that neither the collateral effect of a suit nor the collateral effect of a judgment may count toward the amount in controversy.” The 5th Circuit also determined that the plaintiff expressly stipulated in both his original state-court petition and in a declaration “that he is seeking total damages not to exceed $74,500,” and that this stipulation is legally binding.
On June 10, the U.S. District Court for the Western District of Pennsylvania certified a putative class action against an online apparel company related to alleged violations of the Americans with Disabilities Act (ADA). The plaintiff claimed that he was unable to access the defendant’s website because the website did not facilitate access to customers using screen readers or other auxiliary aids. This lack of access made the website not fully accessible to individuals who are blind or visually impaired—a “violation of the effective communications and equal access requirements of Title III” of the ADA. The plaintiff sued, seeking to include a class of similarly situated blind and visually impaired individuals who use screen readers or other auxiliary aids to access the defendant’s website and/or mobile app. According to the plaintiff, the defendant failed to have in place adequate policies and practices to ensure its website was fully accessible, and that, although the defendant maintains a single brick-and-mortar location, most of its sales are digital. In certifying the class, the court determined, among other things, that the defendant’s “website and other digital properties affected all members of the class, and thus the class as a whole shares the same interest in obtaining the injunctive relief provided by the settlement—prospective changes to [defendant’s] digital properties.” The court also preliminarily approved the proposed class action settlement, which requires, among other things, that the defendant make several changes to its policies and procedures to ensure accessibility of its digital properties and to make sure it complies with the Web Content Accessibility Guidelines 2.1.
FAFT restricts Russia’s membership privileges, takes action against corruption and virtual asset misuse
On June 17, the U.S. Treasury Department announced that the Financial Action Task Force (FATF) concluded another plenary meeting, in which it, among other things, took steps to restrict Russia’s FATF membership privileges. During the meeting, FATF again criticized Russia’s war against Ukraine and issued a statement, stressing that “Russian actions run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system. They also represent a gross violation of the commitment to international cooperation and mutual respect upon which FATF Members have agreed to implement and support the FATF standards.” Treasury Secretary Janet Yellen also stated that she “welcome[s] the serious steps the FATF took to restrict Russia’s presence in its community.” FATF members agreed that Russia can no longer hold any leadership or advisory roles, nor take part in decision making on any standard-setting, peer-review processes, governance, or membership matters. Russia is also prohibited from providing assessors, reviewers, or other experts for FATF peer-review processes. FATF stated it “will monitor the situation and consider at each of its Plenary meetings whether grounds exist for modifying these restrictions.”
FATF also produced policy recommendations for combatting corruption and countering corrupt actors or illicit funds. FATF stated it will continue to fight the abuse of shell companies, trusts, or other legal arrangements employed by bad actors, and intends to seek input on guidance to implement recommendations related to the collection and verification of beneficial ownership information for companies or other legal entities. FATF members will release a white paper for public consultation on important issues concerning “the misuse of trusts and other legal arrangements to facilitate illicit finance,” and will published guidance on ways governments and firms can mitigate money laundering risks within the real estate sector.
Additionally, FATF adopted a report on virtual assets during the meeting, calling “for accelerated compliance by the public and private sectors with the FATF standards, particularly the ‘travel rule,’ for virtual assets and virtual asset service providers.” The travel rule requires virtual asset service providers to collect or send information on the identities of the originator and beneficiary of virtual asset transfers. However, FATF noted that, despite some progress, not all countries have introduced the travel rule, creating significant vulnerabilities for criminal misuse and underscoring the need for universal implementation and enforcement of the travel rule. FATF also approved a new project related to ransomware finance and related money laundering, with an objective of raising global awareness and understanding of how payments for ransomware are made and how these proceeds are often laundered.
On June 16, the DOJ announced that representatives from the U.S. and EU met at a recent workshop in the Hague to share best practices and to plan enhanced collaboration efforts to confront ransomware attacks. According to the DOJ, attorneys from the DOJ’s Computer Crime and Intellectual Property Section, along with representatives from the FBI, the U.S. Secret Service, the U.S. Homeland Security Investigations, European Judicial Cybercrime Network, Eurojust’s Cybercrime Team, and Europol’s European Cybercrime Centre shared “experiences, best practices, and lessons learned in directing an investigation to a successful outcome including collaborating with the tech and private sector.” Participants also discussed “relevant changes in the law, including issues related to electronic evidence, charging options, and cross-border considerations."
On June 14, the California Court of Appeal for the Second Appellate District reversed a trial court’s decision staying a suit against a lender and its loan payment processor (collectively, “defendants”) and enforcing a Delaware forum selection clause. The appeals court held that the plaintiff borrower’s unwaivable right to a jury trial under California law could be violated if the case proceeded in Delaware. According to the opinion, the plaintiff obtained $2.275 million in loans secured by bitcoin from the lender (a Delaware LLC that is licensed and regulated by California’s Department of Financial Protection and Innovation). When the value of bitcoin dropped, the lender sold the plaintiff’s bitcoin under the terms of the governing loan agreements. The plaintiff sued, “seeking, among other things, damages, return of his bitcoin, and cancellation of the loan agreements.” The defendants moved to stay the case because the Delaware forum selection clause required the case to be litigated in Delaware. The plaintiff countered that transferring the case to Delaware would “substantially diminish” his unwaivable rights under California law. The trial court eventually concluded that transferring the case to Delaware would not diminish the plaintiff’s rights and granted the stay pending litigation in Delaware. The trial court also stayed a second suit brought by the plaintiff alleging violations of California’s Unfair Competition Law and False Advertising Law, holding that the second suit involved the same primary rights as the first suit.
In reviewing the consolidated cases, the appeals court determined, among other things, that the Delaware forum selection clause in this case contains a predispute jury waiver. “Because California has a fundamental policy against such a waiver, Defendants carry the burden of proving that Delaware would not diminish this important right,” the appeals court wrote, adding that under Delaware law “contractual provisions that waive the contracting parties’ right to trial by jury have been upheld, and relevant case law provides insufficient assurance that Delaware courts will apply California’s important public policy to this dispute.” Additionally, the appeals court concluded that the defendants’ proposed “offer to stipulate that the Delaware court should apply California law” provides “little assurance that a Delaware court would enforce such a stipulation under the facts present here.”
On June 15, the U.S. Court of Appeals for the Sixth Circuit reversed and remanded a district court’s summary judgment ruling in favor of a defendant-appellee law firm, holding that it did not first exhaust all of its efforts to collect from the actual debtor. According to the opinion, the plaintiff’s husband was convicted of embezzlement and willful failure to pay taxes and was sent invoices for his legal fees by another law firm, which he did not pay. The law firm hired the defendant to collect on the debt. The defendant filed a lawsuit against the plaintiff and her husband, arguing under the Ohio’s Necessaries Statute that the husband was liable to third parties for necessaries, such as food, shelter, and clothing that were provided to his wife. An Ohio state court ruled in favor of the plaintiff, and an interlocutory appeal by the defendant was denied. The plaintiff then filed suit against the defendant, alleging that defendant’s underlying suit violated the FDCPA by attempting to collect under the claim that she was liable for her spouse’s debt. The district court granted the defendant’s summary judgment motion, which the plaintiff appealed.
On the appeal, the 6th Circuit found that the defendant did not follow the express commands of the Ohio Supreme Court's 2018 decision in Embassy Healthcare v. Bell, which held that spouses who are not debtors are liable only if the debtor does not have the assets to pay the debt themselves. The 6th Circuit found that the defendant did not satisfy those prerequisites to collect from the plaintiff when it filed a joint-liability suit against her and her husband. Thus, the collection efforts against the spouse who incurred the debt must be exhausted “before attempting to collect from a spouse.” The 6th Circuit reversed the district court’s judgment and remanded for further proceedings with instructions to enter judgment in favor of the plaintiff.
On June 21, the U.S. District Court for the Southern District of New York granted preliminary approval of a class settlement in an action against a cable TV and communications provider (defendant) for failing to protect current and former employees’ (plaintiffs) personal information and prevent a 2019 phishing attack. According to the plaintiffs’ supplemental memorandum in support of preliminary approval of settlement, the defendant notified the plaintiffs (as well as the attorneys general of several states) that a successful phishing campaign was launched against them. The phishing scheme resulted in cybercriminals being able to “access” and “download” a report containing the unencrypted personally identifiable information (PII) of 52,846 plaintiffs. The plaintiffs alleged that as a result of the data security incident they suffered concrete injuries, including, inter alia, identity theft, the exposure of their PII to cybercriminals, a substantial risk of identity theft, and actual losses. Under the terms of the preliminarily approved settlement, class members are eligible to enroll in three years of identity protection and credit monitoring, and may receive reimbursement of out-of-pocket expenses and compensation for up to three hours spent dealing with the security incident.
The House Subcommittee on Consumer Protection and Commerce held a June 14 hearing, “Protecting America’s Consumers: Bipartisan Legislation to Strengthen Data Privacy and Security,” to listen to testimony from consumer advocates and industry representatives on the recently proposed American Data Privacy and Protection Act (ADPPA).
The bipartisan initiative faces new headwinds following June 22 remarks by Senate Commerce Chair Maria Cantwell (D-WA), who cited “major enforcement holes” in the legislation on preemption issues — but expressed hope that the sponsors could offer revisions.
On June 21, the FDIC Board of Directors issued a notice of proposed rulemaking to increase deposit insurance assessment rates by 2 basis points for all insured depository institutions to increase the likelihood that the reserve ratio of the Deposit Insurance Fund (DIF) reaches the statutory minimum of 1.35 percent by September 2028, the statutory deadline. In September 2020, the FDIC adopted a DIF restoration plan to restore the reserve ratio to at least 1.35 percent by September 2028. However, according to the press release, insured deposits continued to grow and, as of March 31, the reserve ratio declined by 4 basis points to 1.23 percent. The FDIC also adopted on June 21 an Amended Restoration Plan, incorporating the increase in assessment rates to provide a buffer to ensure that the DIF achieves the 2028 target and accelerate capitalization of the fund toward the long-term 2 percent goal. In a memorandum providing an update on the restoration plan to the Board of Directors, the FDIC stated that “for the industry as a whole, staff estimate that the estimated annual increase in assessments would average 1% of income, which includes an average of 0.9% for small banks and an average of 1% percent for large and highly complex institutions.” The FDIC also released a Fact Sheet on the DIF, which provides information on the amended restoration plan and notice of proposed rulemaking on assessments and revised deposit insurance assessment rate. The FDIC released a statement regarding the DIF Restoration Plan to incorporate a uniform increase in initial base deposit insurance assessment rates of 2 basis points and to accelerate the time for the reserve ratio to reach the statutory minimum, stating that it “would allow the banking industry to remain a source of strength for the economy during a potential future downturn, and would promote public confidence in federal deposit insurance.” CFPB Director Rohit Chopra released a statement expressing his support for the Amended Plan and proposed increase, referring to these as “important short-term actions.” Chopra also expressed support for the Board to, in the long term, “explore a new mechanism to automatically adjust premiums upward and downward based on economic conditions, rather than relying on ad-hoc actions.” Comments are due by August 20.
On June 15, CFPB Deputy Director Zixta Martinez spoke before the Consumer Federation of America’s 2022 Consumer Assembly addressing recent research by the Bureau on payday loans, rent-a-bank schemes, overdraft and other banking fees, medical debt, and credit reporting. In her remarks, Martinez first discussed the Bureau’s report on consumer use of state payday loan extended payment plans, which she noted is “the first significant piece of research into extended payment plans” (covered by InfoBytes here). She assured advocates raising concerns about “rent-a-banks” that the Bureau shares those concerns and is focused on this issue. Turning to overdraft and other banking fees, Martinez described overdraft programs as “more like a maze than a service,” which often result in complicated charges being imposed on families who can least afford them, driving them into deeper debt. She pointed to the Bureau’s desire “to move toward a market that works for families and honest financial institutions alike,” recognizing positive shifts made by big banks towards reducing or eliminating such fees as well as the Bureau’s commitment to “returning vigorous competition to this market." Finally, Martinez addressed medical debt, noting that many of the “approximately 43 million Americans with $88 billion in allegedly unpaid medical bills on their credit reports” are trapped in a “bureaucratic doom-loop comprised of the healthcare, insurance, debt collection, and credit reporting industries.” To address this issue, Martinez explained that the Bureau is working broadly across the government and with the non-profit sector to ensure that medical debt does not impact job security, housing, or qualification for affordable credit, and is considering whether it is appropriate for such debt to be included on credit reports at all.
- Jedd R. Bellman to discuss “The CFPB’s crackdown on collection junk fees and the growing anti-CFPB rhetoric” at an Accounts Recovery webinar
- Benjamin W. Hutten to discuss “Latest on AML regulations and impact of economic sanctions” at a Mortgage Bankers Association webinar
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar