InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
9th Circuit ruling broadens the definition of automatic telephone dialing system under TCPA
On September 20, the U.S. Court of Appeals for the 9th Circuit vacated the district court’s order granting summary judgment in a TCPA action, in light of the recent D.C. Circuit opinion in ACA International v. FCC (covered by a Buckley Sandler Special Alert). The case arises from a plaintiff’s allegations that a California gym violated the TCPA by sending three text messages to the plaintiff’s cell phone. In October 2014, the district court granted summary judgment for the gym, holding that the automatic text messaging system used by the gym was not an “automatic telephone dialing system” (autodialer) under the TCPA because it lacked the capacity “to store or produce telephone numbers to be called, using a random or sequential number generator.” In 2016, the 9th Circuit stayed the appeal of the district court’s ruling pending the ACA International decision, which was issued in March of this year. In ACA International, the D.C. Circuit struck down the FCC’s definition of an autodialer, reasoning that the FCC’s definition “unreasonably, and impermissibly” included all smartphones while inadequately describing the functions that made a device an autodialer.
Because the ACA International decision set aside the FCC’s definition, the 9th Circuit performed its own review of the statutory definition of an autodialer in the TCPA. Through this review, the court concluded that the TCPA defined an autodialer as “equipment which has the capacity—(i) to store numbers to be called, or (ii) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers automatically (even if the system must be turned on or triggered by a person).” Because the text system used by the gym stores numbers and dials them automatically to send the messages to the stored list of phone numbers, the 9th Circuit held there is a genuine issue of material fact as to whether the system qualified as an “autodialer” and remanded the case to district court for further proceedings.
FTC announces settlements with website operators over the sale of fake documents allegedly used for fraud and identity theft
On September 18, the FTC announced three proposed settlements with the operators of websites who allegedly violated the FTC Act’s prohibition against unfair practices by selling fake financial documents used to facilitate identity theft and other frauds, including loan and tax fraud. As previously covered in InfoBytes, identity theft was the second largest category of consumer complaints reported in 2017 according to the FTC. The FTC brought charges against the first defendant, alleging the defendant engaged in the sale of fake pay stubs, bank statements, and profit-and-loss statements, as well as providing a product that allowed customers to edit existing (and authentic) bank statements. The second defendant’s charges include the alleged sale of fake pay stubs, auto insurance cards, and utility and cable bills, while the allegations against the third defendant also include the sale of fake tax forms, bank statements, and verifications of employment. While the defendants’ websites claimed that the fake documents were sold for “‘novelty’ and ‘entertainment’ purposes,” the FTC asserts that the defendants “failed to clearly and prominently mark such documents as being for such purposes and did not state on the documents themselves that they were fake.”
Under the terms of the proposed settlement agreements (see here, here, and here), monetary judgments are imposed against the defendants, who also are permanently prohibited from advertising, marketing, or selling similar fake documents.
Federal Reserve seeks to repeal SAFE Act regulations to reflect CFPB authority
On September 21, the Federal Reserve Board (Board) issued a notice of proposed rulemaking seeking comment on the repeal of certain provisions of regulations that incorporate the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which the Board states are intended to reflect the transfer of rulemaking authority to the CFPB by the Dodd-Frank Act. Specifically, the Board proposes amending Regulation H (Membership of State Banking Institutions in the Federal Reserve System) and Regulation K (International Banking Operations) to repeal the provisions that incorporate the SAFE Act because of the change in rulemaking authority and because the CFPB finalized a rule that is substantially identical to the Board's regulations. Comments on the proposal are due within 60 days after publication in the Federal Register.
FTC and NYAG settle with debt collectors who falsely threatened consumers
On September 21, the FTC announced settlements with multiple New York debt collection operations and their principals (defendants) for unlawful debt collection practices. The settlements are a result of 2015 joint lawsuits by the FTC and the New York Attorney General, alleging the defendants unlawfully used threats and abusive language, including false threats that consumers would be arrested, to collect more than $45 million in supposed debts (previously covered by InfoBytes here). The settlement orders ban the defendants from the business of debt collection and prohibit the defendants from (i) misrepresenting information related to financial products and services; (ii) disclosing, using, or benefitting from the consumer information obtained through the course of the debt collection activities; and (iii) failing to disclose of such personal information properly. The two orders (located here and here) impose a $22.5 million judgment against one set of defendants, and a judgment of $4.4 million against other defendants. The judgments are suspended as to some of the defendants due to inability to pay.
Free security freezes available nationwide
On September 21, the FTC announced the nationwide availability of free security freezes and one-year fraud alerts, which were authorized under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Specifically, Section 301 of EGRRCPA prohibits a national credit reporting agency from charging a fee to place, remove, or temporarily lift a security freeze. The law also allows parents to obtain a free credit freeze for any of their children who are under 16, and guardians, conservators, and those with a valid power of attorney can obtain a free freeze for the person for whom they have legal authority to act. Additionally, Section 301 extends the duration of the free fraud alert from 90 days to one year. Consumers are required to contact all three nationwide credit reporting agencies to place the security freeze, but only are required to contact one of the three for the fraud alert, as each bureau is obligated to notify the others of a fraud alert.
SEC announces second-largest whistleblower award; waives “voluntary” requirement for one claimant
On September 6, the SEC announced a whistleblower award totaling more than $54 million— $39 million to one (the second-largest award given under the SEC’s whistleblower program) and $15 million to another—for critical information and continued assistance, which helped the agency bring an enforcement action. The redacted order highlights the denial of related-action claims by both claimants and notes an exception made to the “voluntary submission” requirement for claimant two.
According to the order, the SEC denied claimant one’s request for an additional award based on another agency’s related action, because the claimant failed to demonstrate the causal relationship required to establish that the “submission significantly contributed to the success of the [related action].” Specifically, the SEC noted that the claimant’s information was never directly transmitted to the other agency, which relied on the SEC’s order to pursue its action. The SEC rejected the claimant’s argument that providing information directly to another agency would be “at war with Congress’ clear instruction that the identity of a whistleblower must be protected” due to the fact that the other agency may not offer the same anonymity as possible under the SEC’s whistleblower program. The SEC notes that while a whistleblower may choose not to provide the information to another agency themselves, the rules allow for the SEC to transmit the information directly, while requiring the other agency to maintain confidentiality, which was not done in this case.
The SEC also denied claimant two’s related action request, concluding that the claimant should seek an award through the alternative program available from the other agency. The SEC noted that if the claimant were to receive a related-action award there would be the potential that the cumulative award would exceed the 30-percent ceiling established by Congress and would produce an “irrational result” encouraging “multiple ‘bites at the apple’” as it would allow whistleblowers to have multiple opportunities to adjudicate and obtain separate rewards on the same enforcement actions.
Notably, for claimant two, the redacted order demonstrates that the SEC made an exception to the “voluntary” submission requirements under the rules. Specifically, Rule 21F-4(a)—in order to create an incentive for whistleblowers to proactively provide information about possible violations—requires that a whistleblower “must come forward before the government or regulatory authorities designated in the rule seek information from the whistleblower.” In this instance, it was undisputed that claimant two provided the SEC information after an investigative review by another agency; however, the SEC exercised discretionary authority to grant a limited waiver of Rule 21F-4(a) and permit an award to claimant two. The SEC determined that a limited waiver was appropriate because, although claimant 2 previously “appeared before [the other agency] for an investigative interview” regarding the same violations, at the time of that appearance the claimant was unaware of the information that would ultimately be deemed by the SEC to be the “critical basis” for the whistleblower claim. The SEC concluded that once claimant two became aware of the critical information, they promptly reported it to both agencies, despite no legal obligation to do so and having no other “self-interested motive to come forward,” achieving a primary policy goal of the program to encourage prompt reporting of information about possible securities law violations.
District Court dismisses NFL season ticket class action because plaintiff received the “reasonably expected fruits under the contract”
On August 30, the U.S. District Court for the District of New Jersey dismissed with prejudice a putative class action alleging that an NFL team’s season ticket sales practices had violated the implied covenant of good faith and fair dealing and the New Jersey Consumer Fraud Act (CFA). The case was centered on the named plaintiff’s claim that the team made representations to him that his purchase of a personal seat license (PSL) would give him an exclusive right to purchase season tickets in a particular seating area in the team’s stadium. The plaintiff alleged that the team ran afoul of the CFA when, counter to its alleged representations, it opened up sales for season tickets in that area to people who had not purchased a personal seat license, thus rendering worthless the license plaintiff had purchased.
The Court dismissed the plaintiff’s claims with prejudice because the plaintiff had received the “reasonably expected fruits under the contract.” The PSL agreement did not promise an exclusive right to purchase seats in a particular area of the team’s stadium, nor did it “purport to extend licensing or equity rights to [p]laintiff to control the ticketing policy for other” seats in that area. Rather, the PSL simply promised the plaintiff the right to purchase two seats in the area he chose, and that right had not been interfered with.
California expands state servicemember civil relief protections
On September 19, the California governor signed AB 3212 that provides several benefits and protections to servicemembers under the state’s Military and Veterans Code. The legislation’s protections apply to members of the National Guard, State Military Reserve, and the Naval Militia called to full-time active state service or full-time active federal service, as well as other individuals called to full-time active duty for a period in excess of seven days in any 14-day period. Highlights of the amendments include:
- Extension of Interest Rate Protection. The legislation extends the prohibition on charging an interest rate in excess of six percent on any obligations bearing interest to 120 days after military service. The legislation also extends the six percent interest rate protection for student loans to one year after military service, which previously only applied to mortgage obligations.
- Written response for Good Faith Requests for Relief. The legislation requires that any person who receives a good faith request from a servicemember for relief and believes the servicemember is not entitled to the relief to provide, within 30 days of the request, a written response acknowledging the request. The written response must include (i) the basis for asserting that the request was incomplete or that the servicemember is not entitled to the relief; (ii) information/materials that are missing, if the servicemember’s request was deemed incomplete; and (iii) contact information. If the written response is not provided, the person waives any objection to the request, and the servicemember shall be entitled to the relief requested.
- Extension of the Default Judgment Protection. At any stage in any action or proceeding in which a servicemember is involved, the court may stay an action or proceeding during the period of military service or 120 days thereafter (previously 60 days).
- Inclusion of Motor Vehicles in the Lease Termination Protection. Existing state law allows for the termination of leases of premises that are occupied for dwelling, professional, business, agricultural, or similar purposes by the servicemember, upon entry into military service. The legislation now mirrors the federal Servicemember Civil Relief Act protections for motor vehicle lease termination. Specifically, it provides that a servicemember may terminate a motor vehicle lease after the servicemember’s entry into military service for a period of not less than 180 days. Additionally, it provides for cancelation of leases executed while in a period of military service if the servicemember receives military orders for a change of permanent station from a location in the continental U.S. to a location outside the continental U.S., or from a location in a state outside the continental U.S. to any location outside that state, or to deploy for a period not less than 180 days.
California reinstates provisions of Homeowner Bill of Rights
On September 14, the California governor signed SB 818, which permanently reinstates and amends certain provisions of California’s Homeowner Bill of Rights (HBOR), which expired on January 1, 2018. The revised and restored provisions of the HBOR, among other things, require entities that foreclosed on more than 175 first lien mortgages and deeds of trust on owner-occupied residences during the prior reporting year to: (i) stop foreclosure proceedings if a complete loan modification application is submitted and pending, a homeowner is in compliance with a foreclosure prevention alternative, or an appeal of a loan modification denial is pending; (ii) include in the notice of default a specified declaration regarding contact with a borrower; (iii) send a written notice of a loan modification denial, specifying the reasons for the denial and providing foreclosure prevention alternatives; (iv) assign a single point of contact to any borrower who requests foreclosure prevention assistance; (v) not charge fees in conjunction with applications for foreclosure prevention alternatives; and (vi) honor loss mitigation alternatives following servicing transfers. The legislation also adds a legislative intent clause that emphasizes that any amendment, addition, or repeal of an HBOR section will not have the effect to release, extinguish, or change any liability under a previous section that was in effect at the time of an action.
California governor approves revisions to Student Loan Servicing Act
On September 14, the California governor approved AB 38 amending the state’s Student Loan Servicing Act (Act). The Act provides for the licensure, regulation, and oversight of student loan servicers by the California Department of Business Oversight (CDBO). Among other things, the amendments: (i) clarify the circumstances under which the Commissioner of the CDBO may deny a student loan servicer’s application; (ii) remove debt collectors of defaulted student loans from the definition of a “student loan servicer”; (iii) authorize the Commissioner to require license applicants and licensees to submit required filings with, and pay assessments to, the Commissioner through the Nationwide Multistate Licensing System and Registry; (iv) require the Commissioner to report violations of the Act “as well as other enforcement actions and information to the licensing system and registry to the extent that the information is a public record”; and (v) extend to 10 business days the time for a licensee to acknowledge receipt of a qualified written request from a borrower. The amendments also grant the Commissioner the authority to prescribe circumstances under which electronic records, including applications, financial statements, and reports, may be accepted.