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Court upholds clickwrap agreement, reiterating that general principles of contract apply
On March 28, the U.S. District Court of New Mexico enforced an arbitration agreement entered into by a consumer on a website. Before completing a purchase of a product through the defendant’s website, the plaintiff had to check a box next to a statement that she had read and agreed to the terms of the hyperlinked user agreement, which included an arbitration clause. The defendant was able to present evidence that it was impossible for the plaintiff to complete the purchase without checking the box and clicking on a button to accept the agreement. Plaintiff provided testimony that she couldn’t remember ever seeing the terms of use or agreeing to them.
The court, in upholding the agreement, reiterated that electronic contracts are still governed by traditional contract principles, including reasonable notice and unambiguous assent requirements. Because the agreement was made available, twice via hyperlink, and because the plaintiff acknowledged her awareness and assent of the agreement by clicking a button in the affirmative twice, the court held that the plaintiff had sufficient notice and had demonstrated adequate assent to the terms. This decision reinforces the effectiveness of electronic arbitration agreements and the use of hyperlinks to present documents, when presented in a manner consistent with underlying contract law.
8th Circuit reverses district court’s decision, rules plaintiff failed to demonstrate actual damages under RESPA
On April 3, the U.S. Court of Appeals for the 8th Circuit reversed a district court’s decision, which granted summary judgement in favor of a consumer (plaintiff) who claimed a mortgage loan servicer violated the Real Estate Settlement Procedure Act (RESPA) and the Minnesota Mortgage Originator and Servicer Licensing Act when it failed to adequately respond to his qualified written requests concerning erroneous delinquency allegations. The district court ruled that the plaintiff suffered actual damages of $80 under his RESPA claims when the loan servicer “made minimal effort to investigate the error” and failed to provide the plaintiff with requested information about his loan history since origination. The “pattern or practice” of non-compliance also, in the district court’s view, justified $2000 in statutory damages. The plaintiff also received a separate damage award, attorney’s fees and costs under the Minnesota statute. However, under RESPA, a plaintiff must demonstrate proof of actual damages resulting from a loan servicer’s failure, and the three-judge panel argued that the plaintiff “failed to prove actual damages” because the loan servicer’s “failure to comply with RESPA did not cause [the plaintiff’s] alleged harm.” The panel opined that while the loan servicer failed to (i) conduct an adequate investigation following the plaintiff’s request as to why there was a delinquency for his account, and (ii) failed to provide a complete loan payment history when requested, its failure to comply with RESPA involved pre-2011 payment history for which the plaintiff eventually requested and received the relevant loan payment records at no cost. In fact, the panel stated, the only evidence of actual damages was the $80 the plaintiff spent for bank account records, but that expense concerned a separate dispute about whether the plaintiff missed two payments in 2012 and 2013, which the plaintiff eventually acknowledged that he did, in fact, fail to make. Since the loan servicer did not commit an error with respect to the missed payments, the court concluded that the $80 spent by plaintiff were not the result of the loan servicer’s failure to investigate and provide information related to the pre-2011 payment history. To the contrary, with respect to responding to the plaintiff’s inquiries regarding the missing payments, the loan servicer had “complied with its duties under RESPA.”
Furthermore, the panel stated that the plaintiff failed to provide evidence that the loan servicer engaged in a “pattern or practice of noncompliance.” The 8th Circuit remanded the case back to the district court with directions to enter judgment in favor of the loan servicer on the RESPA claims and for further proceedings on claims under the Minnesota statute.
CFPB Succession: Mulvaney pleads for Congress to restructure the CFPB; oral arguments held in English litigation
On April 11 and 12, acting Director of the CFPB, Mick Mulvaney, testified before the House Financial Services Committee and the Senate Banking Committee regarding the Bureau’s semi-annual report to Congress. (Previously covered by InfoBytes here). Mulvaney’s prepared testimony, which was submitted to both committees, covers the salient points of the semi-annual report but also includes the same request to Congress that he made in the report: change the law “in order to establish meaningful accountability for the Bureau.” This request, which includes four specific changes (such as, subjecting the Bureau to the Congressional appropriations process and creating an independent Inspector General for the Bureau), was the focus of many of Mulvaney’s responses to questions posed by members of each committee. Specifically, during the House Financial Services hearing, Mulvaney encouraged the members of the committee to include the CFPB restructure in negotiations with the Senate regarding the bipartisan regulatory reform bill, S.2155, which passed the Senate last month. (Previously covered by InfoBytes here).
Mulvaney also fielded many questions regarding the Bureau’s announcement that it plans to reconsider the final rule addressing payday loans, vehicle title loans, and certain other extensions of credit (Rule); however, his responses gave little indication of what the Bureau’s specific plans for the Rule are. As previously covered by InfoBytes, resolutions have been introduced in the House and the Senate to overturn the rule under the Congressional Review Act. Additionally, on April 9, two payday loan trade groups filed a lawsuit in the U.S. District Court for the Western District of Texas asking the court to set aside the Rule because, among other reasons, the CFPB is unconstitutional and the Bureau’s rulemaking failed to comply with the Administrative Procedure Act. The complaint alleges that the Rule is “outside the Bureau's constitutional and statutory authority, as well as unnecessary, arbitrary, capricious, overreaching, procedurally improper and substantially harmful to lenders and borrowers alike.” The complaint also argues that the rule is a product of an agency that violates the Constitution’s separation of powers due to the Bureau’s structure of a single director who may only be removed by the president “for cause.” A similar argument in CFPB v. PHH Corporation was recently rejected by the U.S. Court of Appeals for the D.C. Circuit (covered by a Buckley Sandler Special Alert).
Additionally, on April 12, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in English v. Trump. In this suit, Leandra English, the current deputy director of the CFPB, challenges Mulvaney’s appointment as acting director. Unlike previous arguments, which focused on the president’s authority to appoint Mulvaney under the Federal Vacancies Reform Act (FVRA), the court spent considerable time discussing Mulvaney’s concurrent role as head of the Office of Management and Budget (OMB), and whether that dual role is inconsistent with the independent structure of the Bureau, as established by the Dodd-Frank Act.
SEC gives first “safe harbor” whistleblower award
On April 5, the SEC announced an award of over $2.2 million given to a whistleblower who initially reported information to another federal agency and then later to the SEC. The award was the first paid under the “safe harbor” of the Exchange Act Rule 21F-4(b)(7), which provides that the SEC will treat information submitted to it, by a whistleblower, as though it received the information at the same time as another federal agency as long as the whistleblower submits the information to the SEC within 120 days after its submission to the other agency. According to the announcement, the SEC opened an investigation into the reported conduct after it received a referral from the other federal agency. The whistleblower then reported the same information to the SEC and later provided substantial cooperation in the investigation.
Court grants summary judgment to credit reporting agency over FCRA dispute
On April 4, the U.S. District Court for the Northern District of California granted a consumer reporting agency’s motion for summary judgment, holding that a “firm offer of credit” under the FCRA does not require that an offer based on furnished information result in an enforceable contract. According to the opinion, a consumer filed a putative class action suit alleging that the consumer reporting agency violated the FCRA by providing California residents’ credit report information to two businesses that were not licensed to make consumer loans in California and that offered interest rates which exceed allowable limits under California law. The court disagreed, holding that the FCRA only requires that a prescreened offer not be retracted if the consumer meets the creditor’s pre-selection criteria. Additionally, the court rejected the consumer’s argument that the FCRA also imposes a duty on consumer reporting agencies to separately credential service providers who are given access to the furnished information from their credentialed principals. The court emphasized that “neither the FCRA, nor any case authority addressing the FCRA” imposes this duty.
Department of Education restores accreditor’s federal recognition pending review of its 2016 petition
On April 3, Department of Education (Department) Secretary, Betsey DeVos restored the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a federally recognized accrediting agency, effective as of December 12, 2016. The order follows the U.S. District Court for the District of Columbia’s March 23, 2018 remand of the former Secretary’s December 2016 decision withdrawing recognition. The order states that while federal recognition is restored, the Department will review ACICS’ January 2016 petition to determine whether continued recognition is warranted. As previously covered by InfoBytes, a coalition of state Attorneys General urged the Department to reject ACICS’ application to regain recognition, citing to what the Attorneys General called “ACICS’ systemic accreditation failures.”
NYDFS launches online portal for anti-terrorism and anti-money laundering regulation compliance certification
On April 9, the New York Department of Financial Services (NYDFS) announced the launch of a new online portal that regulated entities may use to securely file certifications required under New York’s risk-based anti-terrorism and anti-money laundering regulation. This regulation took effect January 1, 2017, and regulated entities must file their first certification of compliance by April 16 and annually thereafter. The regulation requires regulated entities to maintain programs to monitor and filter transactions for potential Bank Secrecy Act/anti-money laundering violations, and ban transactions with sanctioned entities. The announcement states that filing through the online portal is preferred over alternative filing mechanisms.
Student loan servicer seeks declaratory and injunctive relief to resolve dispute concerning preemption of state law
On April 4, a Pennsylvania-based student loan servicer (servicer) that services federal student loans on behalf of the U.S. Department of Education (Department) filed a complaint in the U.S. District Court for the District of Columbia against the Connecticut Department of Banking and its banking commissioner (together, the Connecticut Defendants), and the Department, seeking a judicial determination that the federal Privacy Act of 1974 (Privacy Act) preempts Connecticut law requiring the servicer to disclose certain records containing confidential information about its student loan borrowers to the state, along with data related to borrower complaints, or risk revocation of its state servicer’s license. In addition, the servicer seeks injunctive relief against the Connecticut Defendants to prevent the enforcement of state law in contravention of the Privacy Act and revocation of the servicer’s license.
In support of the injunctive relief sought, the servicer cites several irreparable harms, including (i) the potential termination of its federal loan servicing contract; (ii) the revocation of its license to service, which would adversely affect approximately 100,000 student borrowers in the state, and (iii) the potential impact on loan servicing arrangements that the servicer has with “dozens of private lenders doing business in Connecticut.”
As previously covered in InfoBytes, on March 12 Department Secretary Betsy DeVos published an Interpretation that asserted the position that state “regulation of the servicing of Direct Loans” is preempted because it “impedes uniquely Federal interests,” and state regulation of the servicing of loan under the Federal Family Education Loan Program “is preempted to the extent that it undermines uniform administration of the program.” However, last month—as discussed in InfoBytes—a bipartisan coalition of 30 state Attorneys General released a letter urging Congress to reject Section 493E(d) of the Higher Education Act reauthorization—H.R. 4508, known as the “PROSPER Act”—which would prohibit states from “overseeing, licensing, or addressing certain state law violations by companies that originate, service, or collect on student loans.” The states expressed a concern that, if enacted, the law would preempt state consumer protection laws for student borrowers and constitute “an all-out assault on states’ rights and basic principles of federalism.”
VA releases FAQs on IRRRL policy guidance
On April 5, the Department of Veterans Affairs released FAQs regarding policy guidance for VA Interest Rate Reduction Refinance Loans (IRRRL). The FAQs address a range of questions regarding the IRRRL policy guidance issued in February (previously covered by InfoBytes here), including noting that the requirement to provide the Lender Certification disclosure with initial disclosure documents has been removed. If a Lender Certification is necessary, the lender will be required to provide the document at closing. Additionally, the FAQs clarify that, while the lender will need to be able to demonstrate that the Veteran’s Statement was sent to and received by the veteran in the initial disclosure package, the VA will not require the veteran’s signature until the final statement given with the closing documents.
FFIEC joint statement addresses role of cyber insurance in risk management programs
On April 10, the Federal Financial Institutions Examination Council (FFIEC) members issued a joint statement advising financial institutions to consider the role of cyber insurance as a component of their overall risk management programs in light of the increasing number of sophisticated cyber-attacks. While financial institutions are not required to have cyber insurance, the FFIEC stated that it can be an effective tool to help mitigate risk. However, the FFIEC emphasized that cyber insurance does not diminish the need for a sound control environment; rather, it “may be a component of a broader risk management strategy that includes identifying, measuring, mitigating and monitoring cyber risk exposure.” Additionally, cyber insurance may offset financial losses resulting from data breaches that may not be covered by traditional insurance policies. Considerations for financial institutions assessing the costs and benefits of adding cyber insurance include: (i) involving multiple stakeholders in the decision, (ii) conducting proper due diligence to understand coverage and identify any gaps; and (iii) reviewing cyber insurance as part of a financial institution’s annual insurance review and budgeting process.