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District Court orders ATM and overdraft fee case to arbitration
On January 25, the U.S. District Court for the Southern District of California granted a bank’s motion to compel arbitration in connection with a lawsuit concerning the bank’s assessment of two types of fees. According to the order, the plaintiff filed a lawsuit asserting claims for breach of contract and violation of California’s Unfair Competition Law due to the bank’s alleged practice of charging fees for out-of-network ATM use and overdraft fees related to debit card transaction timing. The bank moved to compel arbitration pursuant to the arbitration provision in the deposit account agreement executed between the bank and the plaintiff. The plaintiff argued against arbitration, citing a California Supreme Court case, McGill v. Citibank, which held that “waivers of the right to seek public injunctive relief in any forum are unenforceable.” In response, the bank argued that (i) McGill does not apply because the plaintiff is not seeking public injunctive relief; and (ii) McGill is preempted by the Federal Arbitration Act (FAA). The court agreed with the bank, determining that the relief sought by the plaintiff would primarily benefit her, stating “any public injunctive relief sought by [plaintiff] is merely incidental to her primary aim of gaining compensation for injury.” As for preemption, the court noted that even if the McGill rule was applicable to a contract, it would not survive preemption as the U.S. Supreme Court has “consistently held that the FAA preempts states’ attempts to limit the scope of arbitration agreements,” and “the McGill rule is merely the latest ‘device or formula’ intended to achieve the result of rendering an arbitration agreement against public policy.”
CFPB publishes 2019 reportable HMDA data reference chart
On January 31, the CFPB published a new reference chart titled “Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart for Data Collected in 2019.” The chart is designed to be used as a reference tool for required data points to be collected, recorded, and reported under Regulation C, as amended by HMDA rules issued October 15, 2015, and August 24, 2017, as well as section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (implemented and clarified by the 2018 HMDA Rule, which was previously covered by InfoBytes here.) The Bureau noted that this chart does not provide HMDA loan/application register data fields or enumerations, and further emphasized that the chart “does not itself establish any binding obligations” and is not intended to be viewed as a “substitute for the regulation or its official commentary.”
CFPB releases complaint snapshot on mortgages
On January 29, the CFPB released a report on mortgage complaints, and a corresponding blog post, which provide a high-level overview of the mortgage complaints received by the Bureau during the last 24 months. According to the report, mortgage complaints accounted for 11 percent, or approximately 71,000 complaints, of the total complaints the Bureau received from November 2016 through October 2018. An analysis of the complaints indicated that 42 percent of them had to do with issues concerning the payment process, while 36 percent had to do with difficulties in paying off the mortgage. Consumer complaints regarding payment process problems describe a variety of issues, including misapplied payments and escrow analysis inaccuracies. The CFPB notes that complaints from consumers struggling to pay their mortgages often state they have difficulty receiving assistance after a financial hardship, illness, or a natural disaster.
Additional highlights of the report include: (i) the number of mortgage complaints received between August 2018 and October 2018 was 15 percent lower than the number of mortgage complaints received during the same time period in 2017; (iii) 50 percent of mortgage complaints relate to conventional mortgages; and (iii) adjusted for population, the largest mortgage complaint volumes came from the District of Columbia, Maryland and New Jersey.
Delaware law provides financial relief to federal employees impacted by shutdown
On January 23, the Delaware Governor signed HB 2, effective immediately, to provide federal workers residing in the state a “temporary suspension of judicial and administrative proceedings in Delaware” if the worker’s ability to pay certain obligations are affected by a government shutdown. Under the act, furloughed federal workers may apply to a court or administrative agency “for a temporary stay, postponement, or suspension regarding any payment of rent, mortgage, tax, fine, penalty, insurance premium, judgment, or other civil obligation or liability.” The length of the temporary stay may be for the covered period (defined as the period that begins on the date the shutdown started and ends on the date 30 days after the date on which the shutdown ended) and 90 days thereafter, or for any part of that period. The court may also set installment payment terms and amounts “as is considered reasonable.”
Among other things, HB 2 also (i) prohibits the lapse, termination or forfeiture of the health, life, disability, or motor vehicle insurance policy of a federal worker without a court order; (ii) places limits on the maximum interest rate that can be imposed on debts incurred before the shutdown to six percent, and states that the interest rate limit applies to debts related to “a mortgage, trust deed, or other security in the nature of a mortgage” during the covered period and 90 days thereafter, but only applies during the covered period for all other obligations or liabilities; and (iii) provides the Attorney General with the power to enforce the act’s provisions, and allows courts to impose civil penalties of up to $10,000 per violation, with wilful violations to be assessed daily.
OCC allows institutions affected by severe winter weather to close
On January 30, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by severe winter weather in the Midwest and Northeast regions of the United States “for as long as deemed necessary for bank operation or public safety.” In issuing the proclamation, the OCC noted that it expects that only those bank offices directly affected by potentially unsafe conditions will close and that institutions should make every effort to reopen as quickly as possible to address the banking needs of their customers. The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on natural disasters and other emergency conditions.
District Court moves puppy financing action forward
On January 23, the U.S. District Court for the District of Minnesota denied two financing companies’ (collectively, “defendants”) motions to dismiss an action alleging the defendants violated the Consumer Leasing Act (CLA), TILA, and a Minnesota law prohibiting usurious contracts through a transaction to purchase a puppy. According to the opinion, the plaintiff financed the purchase of a puppy through the defendants, which allowed her to take possession of the puppy in exchange for 24 monthly payments through an agreement styled as a “Consumer Pet Lease.” The agreement had an APR of 120 percent. The plaintiff filed suit against the defendants alleging the companies violated (i) the CLA by failing to disclose the number of payments owed under the agreement prior to execution; (ii) TILA by failing to adequately disclose the finance charge, the APR, and the “total of payments” as required under the Act; and (iii) the state’s usury law cap of 8 percent for personal debt. The defendants moved to dismiss the action challenging the plaintiff’s standing, among other things. The court, rejected the defendants arguments, finding that the consumer adequately alleged injury by stating she “would” have, not “might” have, pursued other funding had the defendants disclosed the actual interest rate. Additionally, the court determined the consumer plausibly alleged a CLA violation because the agreement contains information the plaintiff could view as “conflicting and confusing.” With respect to the TILA claims, the plaintiff argued that, although the agreement is styled as a lease, it is actually a credit sale, and the court rejected one of the defendant’s arguments that it was not a creditor, but rather a servicer not subject to TILA. Lastly, the court held the plaintiff adequately pleaded her state usury claim, but noted the claim’s viability would be better informed by discovery. Accordingly, the court denied the defendants’ motions to dismiss.
CFPB releases RFI on consumer credit card market
On January 31, the CFPB published a request for information (RFI) on the consumer credit card market. Section 502 of the Credit Card Accountability and Responsibility Disclosure Act (CARD Act) of 2009 requires the Bureau to conduct a review of the consumer credit card market every two years and to seek public comment to assist in that review. While the Bureau seeks feedback on all aspects of the consumer credit card market, the RFI specifically seeks comments related to, among other things, (i) the terms of credit card agreements and the practices, such as collection efforts, of credit card issuers; (ii) the effectiveness of disclosures related to rates, fees, and other cost terms; (iii) prevalence of unfair, deceptive, or abusive acts or practices in the market; and (iv) credit card product innovation. Comments must be received by May 1, 2019.
District Court: Approval of data breach settlement denied due to several deficiencies
On January 28, the U.S. District Court for the Northern District of California denied preliminary approval of a proposed class action settlement after identifying several deficiencies with the deal. The proposed settlement was intended to resolve allegations concerning security failures by a global internet company, which led to three data breaches between 2013 and 2016 that exposed consumers’ personal information (previously covered by InfoBytes here). The proposed settlement would have required the internet company to (i) establish a $50 million settlement fund; (ii) pay additional attorneys’ fees of up to $35 million; (iii) pay costs and expenses of up to $2.5 million, as well as service awards of up to $7,500 for each class representative; (iv) provide customers with two years of credit monitoring and identity theft protection services; and (v) improve its data security. However, the court stated that the proposed settlement agreement, among other things, inadequately disclosed the sizes of the settlement fund and class, as well as the scope of non-monetary relief, and “appears likely to result in an improper reverter of attorneys’ fees.” Moreover, the court held that the proposed agreement provided insufficient detail about how much the settlement would cost the defendant in total, and did not disclose the costs of credit monitoring or how much the defendant would budget for data security, thus preventing class members from assessing the reasonableness of the settlement or the attorneys’ fee request—which the court indicated seem “unreasonably high.” The court also noted that “[t]he parties’ lack of disclosure also inhibits the court's ability to assess the reasonableness of the settlement.”
Senate Banking Committee agenda released
On January 29, the Chairman of the Senate Banking, Housing, and Urban Affairs Committee, Mike Crapo (R-ID), outlined his upcoming committee agenda, which prioritized housing finance. Specifically, Crapo stated “housing finance reform is the last piece of unaddressed business from the financial crisis,” emphasizing that the continued conservatorship of Fannie Mae and Freddie Mac should be addressed with bipartisan legislation to establish better taxpayer protection and increase competition among mortgage guarantors. Crapo also highlighted, among other things, potential legislative needs for (i) capital markets, specifically legislation that would encourage capital formation and reduce burdens for smaller businesses; (ii) data breaches and solutions to provide consumers greater control over their financial data; (iii) credit bureau reform to make it easier for consumers to interface with credit bureaus generally and dispute inaccuracies; and (iv) improvements in the regulatory landscape covering fintech innovation. Crapo also acknowledged the upcoming expiration of the National Flood Insurance Program in May, noting that the program was extended ten times last Congress, and any significant reforms need to balance taxpayer interest with the assistance of consumers.
The Committee will continue to provide ongoing oversight over the federal financial regulatory agencies, including whether the regulations, guidance and supervisory expectations are consistent with the intent of the sponsors of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Additionally, the Committee will (i) continue its review of the “benefits of agencies that have a bipartisan commission, rather than a single director; a Congressional funding mechanism; and a safety and soundness focus,” and (ii) conduct oversight into financial companies’ actions with regard to access to credit, including whether companies withhold access to customers and industries they disfavor.
District Court approves $30 million settlement for post-payment interest charges on FHA mortgages
On January 25, the U.S. District Court for the Northern District of California granted final approval of a $30 million settlement resolving allegations that a national bank improperly collected post-payment interest on FHA-insured mortgages but did not use the FHA-approved form to provide the appropriate disclosures to consumers before doing so. The settlement covers a nationwide class of borrowers who, between June 1996 and January 2015, obtained an FHA-insured mortgage loan. Participating class members are expected to receive between $25 and $33 each. The court also approved a $7.5 million award for class counsel attorneys’ fees, of which $7,500 and $5,000 will be awarded to the named plaintiffs.