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On December 12, the FCC adopted new rules to establish a single, comprehensive database designed to reduce the number of calls inadvertently made to reassigned numbers as part of its strategy to help stop unwanted calls. According to FCC Chairman Ajit Pai, the database would enable callers to verify—prior to placing a call—whether a number has been permanently disconnected and is therefore eligible for reassignment. Currently, callers may be held liable under the TCPA should they call a reassigned number where the new party did not consent to receiving calls. The FCC also announced it will (i) add a safeguard requiring a “minimum ‘aging’ period of 45 days before permanently disconnected telephone numbers can be reassigned”; and (ii) provide a safe harbor from TCPA liability for any calls to reassigned numbers due to database error. However, FCC Commissioner Michael O’Reilly stated that while he supported the creation of the database, he expressed reservations about both the cost and effectiveness, stating “only the honest and legitimate callers will consult the reassigned numbers database—not the criminals and scammers.” O’Reilly suggested developing better, more logical interpretations of the TCPA, asserting that “much more work remains, particularly on narrowing the prior Commission’s ludicrous definition of ‘autodialer,’ and eliminating the lawless revocation of consent rule.”
Additionally, the FCC announced a ruling (see FCC 18-178) denying requests from mass-texting companies and other parties for text messages to be classified as ‘“telecommunications services’ subject to common carrier regulations under the Communication Act.” If the request had been granted, the FCC stated, the classification would have limited wireless providers’ efforts to effectively combat spam and scam robotexts. Rather, the FCC classified SMS and Multimedia Messaging Services as “information services” under the Communications Act, which allows wireless providers the ability to take action to stop unwanted text messages, such as applying filtering technologies to block messages that are likely spam.
DOJ says CFPB structure is unconstitutional, but urges Supreme Court to deny writ since case is a “poor vehicle”
On December 10, the DOJ filed a brief in response to a Texas bank and two associations’ (petitioners) petition for writ of certiorari with the U.S. Supreme Court, challenging the constitutionality of the CFPB’s structure, with the DOJ arguing that the Bureau’s structure infringes on the president’s responsibility to ensure that federal laws are faithfully executed, but urging the court to deny the writ as the case is a “poor vehicle” for the constitutionality consideration. Specifically, the DOJ argues that the decision would warrant review by the full court, which would be unlikely due to newly appointed Judge Kavanaugh’s involvement in the January 2018 D.C. Circuit en banc decision in PHH v. CFPB (covered by a Buckley Sandler Special Alert). Additionally, the DOJ acknowledges that the petitioners’ standing to sue “is sufficiently questionable to present a significant vehicle problem,” as the Texas bank is supervised by the OCC and the two associations are not regulated by the Bureau. On the merits, however, the DOJ agrees with the petitioners that statutory restriction on the president’s authority to remove the Bureau’s director violates the constitution. Citing to Judge Kavanaugh’s dissent opinion in the PHH en banc decision, the DOJ asserts that not only does the for-cause removal restrict the president’s powers to ensure the laws are faithfully executed, a single-director lacks the attributes of a multi-member commission that would warrant a for-cause removal provision. The DOJ concludes that the proper remedy would be to sever the for-cause provision while leaving the remaining applicable portions of the Dodd-Frank Act intact. Lastly, the DOJ notes that since it would not argue in favor of constitutionality, it recommends that if the Court were to grant certiorari, it should wait until the Bureau’s new director, Kathy Kraninger, has an opportunity to decide if the Bureau would defend the judgment before appointing an amicus curiae.
As previously covered by InfoBytes, the petitioners asked the Court (i) whether the CFPB as an independent agency headed by a single director that can only be removed from office for cause violates the Constitution’s separation of powers; (ii) whether a 1935 Supreme Court case upholding removal restrictions on members of the FTC should be overturned; and (iii) whether the CFPB’s “perpetual, on-demand funding streams” are permitted under the Appropriations Clause. The petition for writ resulted from a June decision by the D.C. Circuit upholding summary judgment against the petitioners, based on the D.C. Circuit en banc decision in PHH v. CFPB, which concluded the Bureau’s single-director structure is constitutional.
Court grants summary judgment in favor of FTC and Florida State Attorney General in debt relief scam case
On December 10, the U.S. District Court for the Middle District of Florida granted the FTC and the Florida Attorney General’s motion for summary judgment against an individual accused of participating in a scheme that allegedly targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. According to a 2016 complaint, several interrelated companies and the founder of such companies (defendants), among other things, allegedly violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act by (i) claiming to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates; (ii) charging up-front payments for debt relief and rate-reduction services; and (iii) pitching credit card debt-elimination services, claiming the defendants could access money from a government fund to pay off consumers’ credit card debt in 18 months, when in actuality, no such government fund existed. In some cases, the defendants instructed consumers to stop paying their credit-card bills, resulting in “significant harm in the form of reduced creditworthiness, higher interest rates on their existing credit-card debt, and higher overall credit-card debt due to the accrual of late fees and interest charges.”
The court entered a permanent injunction ordering the defendant founder of the companies involved to pay over $23 million in equitable monetary relief. The order also permanently restrains and enjoins such defendant from, among other things, participating—whether directly or indirectly—in (i) telemarketing; (ii) advertising, marketing, selling, or promoting any debt relief products or services; or (iii) misrepresenting material facts.
District Court rejects dismissal bid, determining plaintiff sufficiently alleged ICO tokens were unregistered stock
On December 10, the U.S. District Court for the District of New Jersey denied a motion to dismiss a putative class action, finding the plaintiff sufficiently alleged that a company’s sale of unregistered cryptocurrency tokens were “investment contracts” under securities law. According to the opinion, the plaintiff filed the proposed class action against the company alleging it sold unregistered securities in violation of the Securities Act after purchasing $25,000 worth of tokens during the company’s initial coin offering (ICO). The company moved to dismiss the complaint, arguing that the tokens were not securities subject to the registration requirements of the Act. The court applied the three-prong “investment contract” test from SEC v. W.J. Howey Co.—“the three requirements for establishing an investment contract are: (1) an investment of money, (2) in a common enterprise, (3) with profits to come solely from the efforts of others”—and determined the token sales met the requirements. Focusing on the second and third prongs, because the company acknowledged the first was satisfied, the court concluded that the plaintiff sufficiently alleged the existence of a common enterprise by showing a “horizontal commonality” from the pooling of the contributions used to develop and maintain the company’s tasking platform. As for the third prong, the court determined the investors had an expectation of profit rather than simply a means to use the tasking platform, as demonstrated by the company’s marketing of the ICO as a “‘unique investment opportunity’ that would ‘generate better financial returns[.]’”
On December 4, the Financial Crimes Enforcement Network (FinCEN) issued Notice 2018-1 announcing a further extension of time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings in light of FinCEN’s notice of proposed rulemaking (NPR) published March 10, 2016. (See previous InfoBytes coverage on the 2016 NPR here.) Specifically, one of the proposed amendments seeks to “expand and clarify the exemptions for certain U.S. persons with signature or other authority over foreign financial accounts,” but with no financial interest, as outlined in FinCEN Notice 2017-1 issued December 22, 2017. FinCEN noted that because the proposal has not been finalized, it is extending the filing due date to April 15, 2020 for individuals who previously qualified for a filing due date extension under Notice 2017-1. All other individuals must submit FBAR filings by April 15, 2019.
7th Circuit holds consumers can be expected to read second page of two-page collection letter, affirms dismissal of FDCPA action
On December 7, the U.S. Court of Appeals for the 7th Circuit affirmed the dismissal of a consumer’s class action against a debt collection company for allegedly violating the FDCPA by indicating “additional important information” was on the back of the first page when the required validation notice was actually on the front of the second page. According to the opinion, the consumer alleged the debt collection notice “misleads the unsophisticated consumer by telling him that important information is on the back, but instead providing the validation notice on the front of the second page, thereby ‘overshadowing’ the consumer’s rights” under the FDCPA. The debt collector moved to dismiss the action for failure to state a claim and the district court granted the dismissal and declined to allow the consumer leave to amend the complaint.
On appeal, the 7th Circuit determined that the location of the validation notice—which “is clear, prominent, and readily readable”—did not overshadow the consumer’s FDCPA rights or misrepresent the importance of the notice, notwithstanding the language on the first page indicating the important information would be on the back of the first page, not on the top of the second page. The 7th Circuit explained, “The FDCPA does not say a debt collector must put the validation notice on the first page of a letter. Nor does the FDCPA say the first page of a debt-collection letter must point to the validation notice if it is not on the first page. Nor does the FDCPA say a debt collector must tell a consumer the validation notice is important. Nor does the FDCPA say a debt collector may not tell a consumer that other information is important.” The appellate court rejected the consumer’s unsophisticated consumer argument, concluding that "[e]ven an unsophisticated consumer—maybe especially one—can be expected to read page two of a two-page collection letter." Moreover, the appellate court upheld the denial of the consumer’s request to amend her complaint, noting that no proposed amendment would push the plaintiff’s “original claim into the realm of plausibility.”
On December 11, the FTC entered into a proposed settlement with an Arizona-based company and its officer (defendants) relating to an allegedly deceptive credit card telemarketing operation. As previously covered by InfoBytes, the FTC alleged that the defendants—as part of a larger group of 12 defendants comprised of an independent sales organization, sales agents, payment processors, and identified principals—violated the FTC Act and the Telemarketing Sales Rule by assisting a telemarketing company in masking its identity by processing the company’s credit card payments and laundering credit card transactions on behalf of multiple fictitious companies. The proposed settlement, among other things, prohibits the defendants from engaging in credit card laundering and bans them from telemarketing, processing payments, or acting as an independent sales organization or sales agent. The order also stipulates a judgment of $5.7 million, which will be suspended unless it is determined that the financial statements submitted by the defendants contain any inaccuracies.
In March 2018, the FTC reached settlements with two of the other defendants (see InfoBytes coverage here). Litigation continues against the remaining defendants.
Washington State Department of Financial Institutions adopts amendments concerning student education loan servicers
On December 3, the Washington State Department of Financial Institutions (DFI) issued a final rule adopting amendments including student education loan servicing and servicers as activities and persons regulated under the state’s Consumer Loan Act. According to DFI, the amendments will provide consumers with student education loans a number of consumer protections and allow DFI to monitor servicers’ activities. Among other things, the amendments (i) change the definition of a “borrower” to include consumers with student education loans; (ii) specify that collection agencies and attorneys licensed in the state collecting student education loans in default do not qualify as student education loan servicers; and (iii) stipulate that businesses must either qualify for specific exemptions or possess a consumer loan license in order to lend money, extend credit, or service student education loans. In addition, the amendments provide new requirements for servicers concerning the acquisition, transfer, or sale of servicing activities, and specify borrower notification rights. Servicers who engage in these activities for federal student education loans in compliance with the Department of Education’s contractual requirements are exempt.
The amendments take effect January 1, 2019.
On December 6, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TILA allegations brought against a bank, finding that the statute of limitations for borrowers to bring TILA rescission enforcement claims is based on state law, and is six years in the state of Washington. The panel opined that, because TILA does not specify a statute of limitations for when an action to enforce a TILA recession must be brought, “courts must borrow the most analogous state law statute of limitations and apply that limitation period” to these type of claims, which, in Washington, is the six-year statute of limitations on contract claims. According to the opinion, the plaintiffs refinanced a mortgage loan in 2010, but failed to receive notice of the right to rescind the loan at the time of refinancing in violation of TILA’s disclosure requirements. Consequently, the plaintiffs had three years—instead of three days—from the loan’s consummation date to rescind the loan. In 2013, within the three-year period, the plaintiffs notified the bank of their intent to rescind the loan. However, instead of taking action in response to the plaintiffs’ notice, the bank instead began a nonjudicial foreclosure nearly four years after the rescission demand, declaring that the plaintiffs were in default on the loan. The plaintiffs filed suit in 2017 to enforce the recession, which the bank moved to dismiss on the argument that the claims were time barred. According to the panel, the lower court wrongly interpreted the plaintiff’s request for damages under the Washington Consumer Protection Act “as a claim for monetary relief under TILA”—which has a one-year statute of limitations—and dismissed the plaintiffs’ claim as time barred without leave to amend. However, the consumers were seeking a declaratory judgment and an injunction, not damages.
On appeal, the 9th Circuit rejected three possible statute of limitations offered by the lower court. The panel also rejected plaintiffs’ argument that no statute of limitations apply to TILA recession enforcement claims, and held that it could not be assumed that “Congress intended that there be no time limit on actions at all”; rather, federal courts must borrow the most applicable state law statute of limitations. Because the mortgage loan agreement was a written contract between the plaintiffs and the bank, and the plaintiffs’ suit was an attempt to rescind that written contract, Washington’s six-year time limit on suits under written contracts must be borrowed. Therefore, the panel concluded that the plaintiffs’ suit was not time-barred and reversed and remanded the case for further proceedings.
On December 7, the U.S. District Court for the District of Maryland granted a motion for summary judgment filed by a real estate team and title company (defendants), finding that an alleged kickback scheme involving the defendants did not constitute a violation of RESPA, and that the plaintiffs failed to demonstrate that they suffered from any concrete harm. According to the court, the plaintiffs filed a suit on behalf of a putative class more than four and a half years after they purchased their home, claiming the defendants violated RESPA by allegedly “using a ‘sham’ marketing agreement . . . to disguise an illegal kickback scheme,” which provided the real estate team with “unearned fees” through settlement referrals to the title company. The plaintiffs further argued that they were entitled to equitable tolling because the kickback scheme was allegedly concealed in an undisclosed marketing and services agreement, and that even if the agreement had been disclosed, it would have seemingly appeared to be valid. However, the court found “no genuine issue of material fact that the [p]laintiffs failed to exercise reasonable diligence to discover their claim” because at the time of closing, “they knew that they could choose their own settlement and title company” but elected not to. In addition, the court disagreed with the plaintiffs’ argument that they had Article III standing because they were “deprived of impartial and fair competition between settlement services,” finding that the plaintiffs were not overcharged for services due to the alleged kickback scheme and failed to show that the costs of settlement services were unnecessarily increased.
Moreover, the court found that the plaintiffs (i) did not inquire about a potential relationship between the defendants; (ii) did not claim dissatisfaction with the title company services provided; and (iii) did not claim that the fees paid to the title company were “unreasonable or undeserved.” Furthermore, the court found that the claim was barred by RESPA’s one-year statute of limitations and that equitable tolling did not apply.
- Jonice Gray Tucker to discuss "Trends in regulatory enforcement" at the American Bar Association Banking Law Committee Meeting
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo