InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
7th Circuit rejects request to void $17.5 million TCPA settlement
On February 25, the U.S. Court of Appeals for the Seventh Circuit denied a request to overturn a $17.5 million settlement agreement arising out of a national bank’s alleged violations of the TCPA. Six different class actions had been filed against the bank in different federal courts, all alleging that the bank had violated the TCPA by making robocalls and autodialed calls and sending text messages to the class members even though they were not customers of the bank. The settlement resolved all six cases, involving roughly 440,000 total class members. An individual claiming to be a class member sought to object to the settlement, but the district court found that he lacked standing to object because he could not show that he had received a call or text, and the bank’s records indicated that he had not, and therefore he was not a member of the class.
Upon appeal, the 7th Circuit affirmed the lower court’s determination that the objector was not a class member in a brief, unsigned order. The panel corrected the objector’s misrepresentation of the lower court’s ruling that the objector’s own testimony could not prove that he was a class member, stating that “[t]he problem here is that [the objector’s] account was so vague—no dates, no subject matter, and not even whether the calls were ‘artificial or pre-recorded’”—that the court reasonably discounted it in comparison to the evidence from [the bank] that [the objector] never received one of the disputed types of calls.”
Supreme Court vacates as moot 11th Circuit’s FHA decision
On March 2, the U.S. Supreme Court vacated as moot a 2019 judgment of the U.S. Court of Appeals for the Eleventh Circuit, which had held that the City of Miami plausibly alleged that two national banks’ lending practices violated the Fair Housing Act (FHA) and led to defaults, foreclosures, and vacancies, eventually reducing property values and corresponding property tax revenues. (Covered by InfoBytes here.) This follows the City’s voluntarily dismissal in January of fair housing lawsuits brought against four national banks (covered by InfoBytes here).
The Supreme Court first addressed the underlying case in 2017, holding that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices. (Covered by a Buckley Special Alert.) However, the Court held that such injuries must be proximately caused by, rather than simply the foreseeable result of, the alleged misconduct. On remand, the 11th Circuit found “a logical and direct bond between discriminatory lending as a pattern and practice applied to neighborhoods throughout the City and the reduction in property values,” but also noted that the City’s allegations fell short of establishing a direct relationship between the alleged misconduct and the City’s purported increase in its municipal services expenditures. The banks subsequently filed petitions (see here and here) last November, asking the Supreme Court to review “[w]hether proximate cause in private litigation about the [FHA] requires more than a ‘logical bond’ between the alleged statutory violation and the plaintiff’s injury.”
Supreme Court hears arguments on CFPB’s structure
On March 3, the U.S. Supreme Court heard oral arguments in Seila Law LLC v. CFPB to consider whether the Constitution prohibits an agency being led by a single director who cannot be removed at will by the President. In addition, the arguments addressed the question of the appropriate remedy if the Court determines that the limitation on the President’s ability to remove the director is unconstitutional.
The case arises out of a Civil Investigative Demand (CID) issued by the CFPB to the petitioner Seila Law, a law firm providing debt relief services to consumers. Seila Law refused to respond to the CID, arguing that it is invalid because the CFPB’s structure is unconstitutional. The CFPB and the DOJ agreed with the contention that the statute is unconstitutional. However, the parties differed on the question of remedy. The government argued that the removal restriction should simply be severed from the statute, leaving the remainder of the Consumer Financial Protection Act in place. But Seila Law argued that to do so would amount to a judicial “rewrite” of the statute, and the Court should instead simply hold that the CID is unenforceable and leave to Congress the task of revising the statute to comply with the Constitution.
Because the government was not defending the constitutionality of the statute, the court appointed a former Solicitor General to act as an amicus to defend the constitutionality of the statute. In addition, the House of Representatives, which had filed an amicus brief on behalf of that legislative body, also defended the constitutionality of the statute at the oral arguments.
Find continuing InfoBytes coverage of Seila Law here.
Washington regulator requests notice of credit union closures
On March 5, the Washington Department of Financial Institutions, Division of Credit Unions asked credit unions to provide notification if they temporarily close a branch or other location typically open to the public. The regulator also asked credit unions to provide notification if they otherwise limit the availability of services.
FTC paper discusses small business financing issues
On February 26, the FTC released a staff perspective paper covering topics discussed during the Commission’s “Strictly Business” forum on small business financing held in 2019, as well as an online tool for small businesses to submit lending- or financing-related complaints. As previously covered by InfoBytes, the forum heard from members of the small business marketplace who discussed the recent uptick in online loans and alternative financing products, and analyzed the potential for unfair and deceptive marketing, sales, and collection practices in the industry. The staff paper provides an overview of key issues discussed during the forum, as well as enforcement information, recent small business financing marketplace trends, potential benefits and risks of newer online financing products, and consumer protection issues associated with merchant cash advances. Among other things, the staff paper emphasized that “small business finance providers should avoid the sorts of practices that the Commission has alleged to be deceptive” in its enforcement actions involving either small business consumers or individual consumers, such as actions charging lenders with making “misleading claims regarding fees, consumer savings, payment amounts, and interest rates” in connection with personal loans. The staff paper also stressed that finance providers should understand that using marketing intermediaries, such as brokers and lead generators, “does not immunize them from liability under the FTC Act,” and that finance providers “should take steps to ensure that their marketers do not engage in deceptive or other unlawful conduct.” Small business consumers, the staff paper noted, would also likely benefit from more uniform and easily understood financing disclosures in order to compare costs and product features in the small business marketplace.
9th Circuit reduces punitive damages in FCRA class action
On February 27, the U.S. Court of Appeals for the Ninth Circuit reduced punitive damages in a class action against a credit reporting agency (CRA) for allegedly violating the Fair Credit Reporting Act (FCRA) by erroneously linking class members to criminals and terrorists with similar names in a database maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). At trial, the jury found that the CRA violated the FCRA by willfully failing to (i) “follow reasonable procedures to assure accuracy of the terrorist alerts”; (ii) “disclose to the class members their entire credit reports by excluding the alerts from the reports”; and (iii) “provide a summary of rights” to class members with each disclosure. Subsequently, the jury awarded $8 million in statutory damages and $52 million in punitive damages to the class.
Upon appeal, the 9th Circuit affirmed the lower court’s determinations that all class members—not just the class representative—must have “standing at the final stage of a money damages suit when class members are to be awarded individual monetary damages.” But the appellate court found that all class members did have standing due to, among other things, the CRA’s “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm,” and because “the violation of a statutory right constituted a concrete injury.” In addition, the appellate court rejected the CRA’s request for judgment as a matter of law or a new trial on the basis that the class had failed to provide sufficient evidence of injuries or to support the damages award. Moreover, the appellate court held that the district court did not abuse its discretion in finding that the class representative’s claims were typical of the class’s claims, nor in certifying the class or denying the CRA’s motion to decertify the class. The appellate court also agreed with the lower court on statutory damages, but it held that the $52 million punitive damages award was “unconstitutionally excessive.” The appellate court explained that although the CRA’s “conduct was reprehensible, it was not so egregious as to justify a punitive award of more than six times an already substantial compensatory award.” Accordingly, the appellate court vacated the jury’s award of punitive damages and remanded, directing that the punitive damages be reduced to four times the statutory damages award.
OFAC designates Hizballah-associated companies and officials as global terrorists
On February 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated three individuals and 12 entities—all based in Lebanon—as Specially Designated Global Terrorists (SDGTs). Pursuant to Executive Order 13224, as amended, OFAC designated two of the individuals as leaders or officials of a Hizballah-related foundation that was previously designated for supporting terrorism in 2007. The entities are also associated with the foundation. One of the entities controlled by the foundation and a number of its subsidiaries reportedly did business with a Lebanon-based bank, which had been designated as an SDGT in August, allowing Hizballah to avoid close examination of its transactions by Lebanese banking authorities.
OFAC reiterated that “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC’s regulations generally prohibit all dealings by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of blocked or designated persons. In addition, persons that engage in certain transactions with the individuals and entities designated today may themselves be exposed to sanctions or subject to an enforcement action.”
SEC settles with investment entities over ETF recommendations
On February 27, the SEC announced a settlement with a national bank to resolve allegations that two of its investment entities failed to monitor sales of exchange-traded funds (ETFs) to retail investors. The SEC alleged in its order that the bank’s compliance policies and procedures and supervisory processes were unable to adequately prevent and detect unsuitable recommendations of single-inverse ETFs, which allegedly led to bank investment advisors making recommendations to certain clients who were unaware of the risk of losses when ETFs are held long term. While the bank neither admitted nor denied the SEC’s findings, it agreed to pay a $35 million penalty and distribute funds to affected clients. The bank also agreed to cease and desist from engaging in any future violations of the relevant provisions.
District court says unlicensed debt collection agency violated FDCPA
On February 24, the U.S. District Court for the District of Utah issued an order granting in part and denying in part a Wisconsin debt collection agency’s (defendant) motion for judgment on the pleadings in a suit concerning alleged FDCPA and state law violations. In 2019, the plaintiffs filed a lawsuit against the defendant—who had purchased the plaintiffs’ debts from various lending agencies—for attempting to garnish their wages to satisfy default judgments. The plaintiffs contended that the defendant violated Section 1692e(5) of the FDCPA and the Utah Consumer Sales Practice Act (UCSPA) because it operated as a collection agency in the state without being registered according to the Utah Collection Agency Act (UCAA). The defendant argued, however, that “failing to comply with the UCAA’s registration provision would not make it illegal for it to file debt collection actions in Utah,” and that “even if it is illegal to file suit while unregistered, courts cannot transform a UCAA violation into a private right of action under the FDCPA.”
The court determined that the plaintiffs adequately pleaded an FDCPA claim against the defendant for false, deceptive, or misleading representations, stating that it is illegal for a collection agency to file a debt collection action in Utah if it is not registered with the state according to UCAA provisions. According to the court, violating the UCAA’s registration provision “may provide a basis for finding an FDCPA violation when accompanied by the filing of a lawsuit to collect debt.” However, the court ruled that the plaintiffs failed to show that the defendant engaged in “deceptive and unconscionable sales practices” under the UCSPA. According to the court, the plaintiffs were “improperly attempting to transform a violation of the UCAA into a private right of action under the UCSPA” since they failed to plead sufficient facts to show that the defendant “knowingly made misleading statements or intended to deceive [the plaintiffs] regarding its registration or bond status.”
OCC updates PTFA booklet in Comptroller’s Handbook
On March 2, the OCC announced an update to the Protecting Tenants at Foreclosure Act booklet of the Comptroller’s Handbook. The revised booklet is intended to provide examiners with information and procedures concerning foreclosure activities and related consumer protections under the Protecting Tenants at Foreclosure Act of 2009 (PTFA). Among other things, the booklet provides a summary of requirements and addresses risks associated with a bank’s compliance with PTFA. The OCC notes that the Economic Growth, Regulatory Relief, and Consumer Protection Act made permanent certain sections of PTFA, and states that the applicable provisions “apply to any immediate successor in interest—including banks—that foreclose on a federally related mortgage loan or on any dwelling or residential real property, as defined in section 3 of [RESPA], that is subject to a bona fide lease, as defined in the PTFA and in 12 USC 2602.”