InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
9th Circuit upholds rejection of consumer’s class action against auto finance company
On May 30, the U.S. Court of Appeals for the 9th Circuit affirmed summary judgment in favor of an auto finance corporation and various dealerships (collectively, “defendants”) in a putative class action alleging the defendants failed to provide add-ons the plaintiff purchased with the vehicle. The case, which was originally brought in Washington state superior court, was removed to federal court over the consumer’s objection, where the consumer amended the complaint to include a federal TILA claim.
According to the opinion, plaintiff alleged that his purchased vehicle did not come with three add-ons listed in the “Dealer Addendum,” which was a sticker affixed to the car. At the time of purchase, the customer was not aware of what the add-ons were, nor were they explained to him; the add-ons were only listed in the addendum. Plaintiff argued that if he had known what the add-ons were, he would have declined them and paid a lower price for the vehicle. The district court rejected plaintiff’s arguments and granted summary judgment for the defendants on all claims.
On appeal, the 9th Circuit upheld the entirety of the district court’s ruling, concluding the consumer offered no evidence that the add-ons identified in the Dealer Addendum were made part of the vehicle purchase transaction. Moreover, the appellate court upheld the district court’s decision not to remand the case back to state court, determining that while the district court did not have subject-matter jurisdiction at the time of removal, it had subject-matter jurisdiction at the time it rendered its final decision, due to the consumer’s voluntary addition of the TILA claim to the complaint. The appellate court also found that the district court did not abuse its discretion in denying the consumer’s request for additional discovery based on plaintiffs failure to “identif[y] the specific facts that further discovery would have revealed or explained[ed].”
SFO fines shipping and logistics company over $1 million for bribery scheme
On June 3, the UK Serious Fraud Office (SFO) announced that it had fined a shipping and logistics company £850,000 (approximately $1.08 million) for bribes paid to secure contracts in Angola. The SFO started investigating the company in September 2014 and announced in July 2016 that it had charged the company and seven individuals with making corrupt payments. The company pleaded guilty in 2017. The SFO found that executives had bribed an agent of the Angolan state oil company to obtain $20 million worth of shipping contracts.
Class action alleges national bank’s grace period practices breach terms of cardholder agreement
On June 3, a consumer filed a class action complaint against a national bank alleging that the bank charges interest on credit card accounts even when consumers’ balances are paid in full by the billing cycle due date, in breach of the bank’s cardholder agreement. The complaint alleges that the cardholder agreement and monthly billing statements disclose to consumers that interest will not be charged on new purchases if those new purchases are paid off by the billing cycle’s due date, but that in practice the grace period is eliminated for new purchases “[i]f a consumer leaves even $1 on her account balance after a billing period due date.” The complaint alleges that the bank’s practice of only providing a grace period on new purchases for consumers “who have paid off their balances in full for two prior months” directly contradicts the cardholder agreement and consumer disclosures. In addition to breach of contract, the consumer alleges a violation of Delaware’s Consumer Fraud Act and breach of the covenant of good faith and fair dealing. The consumer is seeking certification of a class of similarly situated consumers; damages and restitution; and injunctive relief.
Oregon enacts new vendor data breach notification requirements
On May 24, the Oregon Governor signed SB 684, which amends the state’s data breach notification provisions related to third-party vendors. Among other provisions, the amendments require vendors that are contracted to maintain or access personal information on behalf of a covered entity to (i) notify the covered entity “as soon as is practicable but not later than 10 days” after discovering a security breach or believing a breach has occurred; and (ii) notify the state Attorney General if a security breach involves personal information of more than 250 consumers, or an undetermined amount of consumers, provided that the covered entity has not already done so. SB 684 also updates the definition of personal information to include usernames in combination with other authentication factors used to access a consumer’s account, and establishes that a covered entity or vendor may “affirmatively defend” against allegations it has not adequately safeguarded personal information by showing that it maintained reasonable security measures for protecting personal information in compliance with HIPAA or the Gramm-Leach-Bliley Act, as applicable. The amendments take effect January 1, 2020.
SEC charges issuer with conducting sale of unregistered digital tokens
On June 4, the SEC announced it had filed a lawsuit in the U.S. District Court for the Southern District of New York against a tech company issuer for allegedly raising approximately $100 million through an unregistered initial coin offering. According to the complaint, the issuer failed to provide required disclosures to investors and did not register the offer or sale of its digital tokens with the SEC, as required by Section 5 of the Securities Act of 1933. The SEC contends that the issuer marketed the digital tokens as an investment opportunity and told investors that they could earn future profits from the issuer’s efforts to create, develop, and support a digital “ecosystem.” According to the SEC, “[f]uture profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.” The SEC’s suit seeks a permanent injunction, disgorgement of profits plus interest, and a civil penalty.
SEC awards $3 million to joint whistleblowers
On June 3, the SEC announced awards totaling $3 million to two whistleblowers for jointly volunteering information that led to a successful enforcement action involving an alleged securities law violation that impacted retail investors. The SEC noted that the whistleblowers “undertook significant and timely steps to have their employer remediate the harm caused by the alleged violations.” The order does not provide any additional details regarding the whistleblowers or the company involved in the enforcement action. Since the program’s inception in 2012, the SEC has awarded approximately $384 million to 64 whistleblowers.
Maryland amends statute of limitations for UDAP actions against mortgage servicers
On May 25, the Maryland governor signed HB 0425, which amends the state’s statute of limitations applicable to certain civil actions relating to unfair, abusive, or deceptive trade practices (UDAP) filed against a mortgage servicer. Specifically, the bill requires that an action filed by a homeowner alleging damages arising out of a UDAP violation shall be filed within the earlier of: (i) 5 years after a foreclosure sale of the residential property; or (ii) 3 years after the mortgage servicer discloses its UDAP violation to the homeowner. The bill is effective October 1.
4th Circuit upholds certification of TCPA class action against satellite provider
On May 30, the U.S. Court of Appeals for the 4th Circuit held that a lower court correctly certified a class of individuals who claimed a satellite provider (defendant) violated the TCPA when its authorized sales representative routinely placed telemarketing calls to numbers on the national Do-Not-Call registry. The plaintiff-appellee alleged that because his number was on the registry, the calls were not only annoying but illegal. He therefore filed a lawsuit against the defendant for violations of the TCPA, and in 2018, the court issued a final judgment upholding a jury’s verdict as to both liability and damages for a class of 18,066 members, tripling the damages to more than $61 million. The defendant appealed the verdict asserting that the class definition was too broad in that included uninjured consumers. Specifically, the defendant argued that the definition should be limited to telephone subscribers or the person who actually received the calls. The defendant further asserted on appeal that it was not responsible for the sales representative’s actions.
On appeal, the 4th Circuit affirmed the lower court’s judgment, stating that it saw “no basis for imposing such a limit,” on the class definition given that “[t]he text of the TCPA notes that it was intended to protect ‘consumers,’ not simply ‘subscribers.’” Concerning the defendant’s argument that it was not responsible for the violations, the appellate court noted that the sales representative’s “entire business model was to make calls like these on behalf of television service providers,” like the defendant, which the defendant knew were being placed on its behalf.
District Court denies debt collector’s motion for summary judgment FDCPA action concerning a consumer who filed for bankruptcy
On May 29, the U.S. District Court for the Northern District of Ohio denied a debt collector’s motion for summary judgment in an action alleging the debt collector violated the FDCPA by sending a collection letter three days after the consumer filed for bankruptcy. According to the opinion, the debt collector confirmed that the consumer had not yet filed for bankruptcy following placement of the consumer’s account for collection and, thus, sent an initial communication to the consumer’s attorney. Thereafter, the consumer filed for bankruptcy, but before the collector learned of the bankruptcy, it sent a collection letter to the consumer’s counsel. As a result, the consumer filed a lawsuit claiming that the debt collector violated the FDCPA by sending a collection letter to the consumer’s attorney after the bankruptcy proceeding had been initiated. The debt collector moved for summary judgment, arguing that it could not be held liable under the FDCPA because, at the time it sent the collection letter, it had not yet received notice of the bankruptcy proceeding. The court, however, rejected this argument, citing to the U.S. Court of Appeals for the 6th Circuit in stating that “‘[t]he FDCPA is a strict-liability statute: A plaintiff does not need to prove knowledge or intent . . . and does not have to have suffered actual damages.’” Because the debt collector did present arguments or evidence relating to FDCPA’s bona fide error provision, which provides an affirmative defense for a violation that is not intentional and is the result of a bona fide error, the court said that it was essentially being asked by the debt collector “to read an intent or knowledge requirement into the FDCPA,” something it could not do, and, thus, it denied the motion for summary judgment.
CFPB report explores ties between credit score fluctuations and credit applications
On May 30, the CFPB released the latest quarterly consumer credit trends report, which examines the fluctuations in consumers’ credit scores and the timing of consumers’ applications for credit. The report analyzes consumers whose credit scores showed large increases or decreases between 2009 and 2017. Key findings of the report include, (i) consumers with large credit score changes, in either direction, tend to be younger and have considerably lower credit scores on average; (ii) application rates drop sharply as credit scores reach their minimums, and then, after hitting bottom application rates trend steadily upward; and (iii) patterns in application rates generally hold regardless of the levels of minimum and maximum credit scores.
The report notes that while the Bureau did not perform “a full accounting of the underlying mechanism” that leads to the observed patterns, there are a few possible explanations, including (i) consumers are more aware of their credit scores due to the wider availability of them, which would influence timing of applications; (ii) hard inquiries and results from hard inquiries may contribute to the observed peaks and troughs in the scores; (iii) marketing practices by card issuers may contribute to increased applications after a consumer’s credit score qualifies the consumer for a prescreened offer.