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  • 9th Circuit denies bank’s challenge to FDIC bank secrecy order


    On March 12, the U.S. Court of Appeals for the 9th Circuit upheld a 2016 FDIC cease and desist order against a California bank arising out of alleged deficiencies in compliance management relating to the Bank Secrecy Act (BSA) and anti-money laundering laws. According to the opinion, FDIC examinations dating back to 2010 identified areas for BSA compliance improvement. While the bank made adjustments in response to the original findings, a 2012 FDIC examination found the bank’s BSA compliance program still was deficient, including because it did not “establish and maintain procedures designed to ensure adequate internal controls, independent testing, administration, and training”—known as the “four pillars”—and because the bank had not filed a necessary suspicious activity report. The bank argued that the BSA compliance standards were too vague, accused FDIC examiners of bias during the examination in a manner that violated its due process rights, and alleged that the decision was not supported by substantial evidence.

    The three-judge panel ruled that (i) there was no bias in the FDIC’s decision to assess a penalty against the bank because there was substantial evidence to support an administrative law judge’s findings that the bank’s failure to maintain adequate controls violated BSA regulations; and (ii) because the BSA and FDIC’s implementing regulations are “economic in nature and threaten no constitutionally protected rights,” vagueness is not an overriding concern. While the “four pillars” of BSA compliance are open to interpretation, the panel noted, the FDIC provides banks with a manual written by the Federal Financial Institutions Examination Council that sets forth a uniform compliance standard. Furthermore, FDIC Financial Institution Letter 17-2010 clarifies that the manual contains the FDIC’s BSA compliance supervisory expectations. “A BSA Officer at the Bank bearing the requisite ‘specialized knowledge’ would understand that compliance with the FFIEC Manual ensures compliance with the BSA. . . . The BSA and its implementing regulations are not unconstitutionally vague,” the panel stated. Therefore, the 9th Circuit held that the manual was entitled to Chevron deference and denied the bank’s petition for review.

    Courts Appellate Ninth Circuit Bank Secrecy Act Anti-Money Laundering Compliance FDIC FFIEC

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  • 9th Circuit reinstates class action data breach lawsuit against online retailer


    On March 8, the U.S. Court of Appeals for the 9th Circuit reinstated a putative class action lawsuit against an online retailer, concluding that the increased risk of identity theft resulting from a 2012 data breach affecting over 24 million shoppers gave consumers Article III standing to sue. The three-judge panel held that the district court erred in dismissing claims brought by consumers who did not allege financial losses as a result of the data breach because the stolen information provided hackers the “means to commit fraud or identity theft.” The panel noted that evidence that another group of consumers had suffered financial losses from the same data breach undermined the argument that the data stolen would not lead to fraud or identity theft. In addition, although the defendant asserted that too much time had passed since the data breach for any harm to be considered imminent, the panel found that determining jurisdiction requires an assessment of a plaintiff’s standing at the time the suit was filed, and that the risk of harm was sufficiently imminent at the time of filing. The 9th Circuit remanded the case back to the lower court for review.

    The panel also addressed a separate appeal by the class on the district court’s decision not to enforce a purported settlement agreement, affirming the lower court’s decision “because the parties did not have a meeting of the minds on all essential terms of the agreement.”

    Courts Ninth Circuit Appellate Privacy/Cyber Risk & Data Security Data Breach Class Action

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  • 9th Circuit reverses lower court’s dismissal of TCPA claim


    On February 28, the U.S. Court of Appeals for the 9th Circuit reinstated a consumer’s lawsuit against two banks on charges that the nearly 300 calls she received seeking payment of a debt may have violated the Telephone Consumer Protection Act (TCPA). The three-judge panel stated that the district court’s decision to dismiss the case on standing grounds was incorrect in light of a subsequent 9th Circuit ruling in a different case, which held that “a violation of the TCPA is a concrete, de facto injury.” The court further held that the TCPA is not limited to telemarketing calls, and that the unsolicited contact—“regardless of caller or content”—is evidence of “concrete harm” that can be traced back to the conduct at issue. Additionally, the panel also held that the district court erred in granting the banks’ request for summary judgment on the plaintiff’s claim under California’s Rosenthal Fair Debt Collection Practices Act and her claim for “intrusion upon seclusion,” finding that the banks’ actions “allegedly caused harm” to the plaintiff’s solitude. The court reversed and remanded the case for further proceedings.

    Courts Appellate Ninth Circuit TCPA Debt Collection

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  • 9th Circuit holds California's interest on escrow requirements is not preempted by federal law


    On March 2, the U.S. Court of Appeals for the 9th Circuit held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. The case results from a 2014 lawsuit in which a consumer sued the national bank for refusing to pay interest on the funds in his mortgage escrow account as required by a California state law. The district court dismissed the action, holding that the California state law interfered with the bank’s ability to perform its business making mortgage loans and therefore, was preempted by the National Bank Act (NBA).

    In reversing the district court’s decision, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing NBA preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. The panel cited to Section 1639d(g)(3) of Dodd-Frank (“if prescribed by applicable State or Federal law, each creditor shall pay interest to the consumer on the amount held in any . . . escrow account that is subject to this section in the manner as prescribed by that applicable State or Federal law”), which, according to the opinion, expresses Congress’ view that the type of law at issue does not “prevent or significantly interfere with a national bank’s operations.” Moreover, the panel disagreed with the national bank’s reliance on the OCC’s 2004 preemption regulation, which interpreted the standard more broadly, by concluding that the regulation had no effect on the preemption standard. This decision could have significant implications for the rise of preemption by federally chartered banks.

    Courts U.S. Supreme Court Appellate Ninth Circuit Mortgages Escrow Preemption National Bank Act Dodd-Frank OCC

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  • Supreme Court denies cert petition in Spokeo


    On January 22, the U.S. Supreme Court denied a second petition for writ of certiorari in Spokeo v. Robins, thereby declining to reconsider its position on Article III’s standing to sue requirements or to provide further clarification on what constitutes injury in fact. Citing “widespread confusion” over how to determine whether intangible injuries qualify as injury in fact, and therefore meet the standing threshold, Spokeo argued in its petition that review is “warranted to ensure that the jurisdiction asserted by the federal courts remains within constitutional limits.” The second petition was filed by Spokeo last December to request a review of the U.S. Court of Appeals for the Ninth Circuit’s August 2017 decision—on remand from the Supreme Court (see Buckley Sandler Special Alert here)—which ruled that Robins had established standing to sue for alleged violations of the Fair Credit Reporting Act (FCRA) by claiming an intangible statutory injury without any additional harm. The 9th Circuit opined that information contained in a consumer report about age, marital status, educational background, and employment history is important for employment and loan applications, home purchases, and more, and that it “does not take much imagination to understand how inaccurate reports on such a broad range of material facts about Robins’s life could be deemed a real harm.” Further, guaranteeing the accuracy of such information “seems directly and substantially related to FCRA’s goals.” The 9th Circuit reversed and remanded the case to the Central District of California after finding that Robins had adequately alleged the essential elements of standing (see previous InfoBytes coverage here).

    Courts U.S. Supreme Court Ninth Circuit Appellate FCRA Litigation Spokeo

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  • Ninth Circuit: payday lenders not vicariously liable under TCPA for text messages

    Privacy, Cyber Risk & Data Security

    On January 10, the U.S. Court of Appeals for the Ninth Circuit affirmed that three payday lenders and two marketing companies (together, the defendants) did not indirectly violate the Telephone Consumer Protection Act (TCPA) by accepting marketing help from a separate lead generator company that used a program to send text-messaged advertisements. In upholding the district court’s decision, the three judge panel concluded that “it is undisputed” that the defendants did not enter into a contract with the lead generator company, and further, that the lead generator company did not act as their agent or purported agent. The plaintiff-appellant that received the text-messaged advertisement—which directed consumers who clicked on the link within the message to a loan application website controlled by one of the defendants—filed a putative class action complaint, certified by the district court, against the defendants to allege that they were vicariously liable for sending the text messages in violation of the TCPA. Specifically, the plaintiff-appellant claimed the defendants ratified the lead generator company’s actions when they accepted leads even though they knew the leads were being generated through text messages. The district court granted summary judgments for all the defendants, and ruled they were not vicariously liable for the lead generator company’s actions, and that additionally, the plaintiff-appellant failed to present evidence that defendants had actual knowledge that the texts were being sent in violation of the TCPA. The appellate panel also noted that because one of the defendants—a contracted lead provider—had “no ‘knowledge of facts that would have led a reasonable person to investigate further,’ . . . [the defendant] cannot be deemed to have ratified [the] actions and therefore is not vicariously liable.”

    Privacy/Cyber Risk & Data Security Courts Ninth Circuit Appellate TCPA Payday Lending

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  • Ninth Circuit Rules Banning Credit Card Surcharges Violates First Amendment


    On January 3, the U.S. Court of Appeals for the Ninth Circuit issued an opinion affirming a district court decision that a California law banning credit card surcharges violated the First Amendment because it was an unconstitutional restriction of speech and unconstitutionally vague. California Civil Code Section 1748.1(a) prohibits retailers from imposing surcharges on customers who pay with credit cards, but allows businesses to offer discounts for cash or debit card payments. In 2014, plaintiffs challenged the constitutionality of the law, and the district court granted summary judgment in favor of the plaintiffs and permanently enjoined its enforcement, holding that the statute violated the First Amendment because it amounted to “a content-based restriction on commercial speech rather than an economic regulation.” The California Attorney General's Office appealed.

    The Ninth Circuit affirmed the district court decision, finding that California Civil Code Section 1748.1(a) could not withstand intermediate scrutiny because (i) the plaintiffs’ speech was not misleading, (ii) Section 1748.1(a) failed to promote California’s interest in protecting consumers from deception, and (iii) Section 1748.1(a) was more extensive than necessary to achieve California’s stated interest for the regulation. Though the panel affirmed the district court’s ruling, it also modified the district court’s injunction to apply only to the plaintiffs, and only with respect to the specific pricing practice they seek to employ.

    See previous InfoBytes coverage here on court decisions regarding credit card surcharges

    Courts Ninth Circuit Credit Cards

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  • Ninth Circuit Denies Arbitration, Lacks Jurisdiction to Review Anti-SLAPP Motion


    On December 27, the U.S. Court of Appeals for the Ninth Circuit issued an opinion affirming the district court’s decision to deny the defendants’ request to compel arbitration against plaintiffs who elected to participate in the defendants’ administration of California’s “Bad Check Diversion Program” (BCD Program). The order is the result of two consolidated appeals from separate district court orders related to a putative class action lawsuit claiming that the defendants violated the federal Fair Debt Collection Practices Act (FDCPA) and California Unfair Competition Law in their administration of the BCD Program. The BCD Program, administered by private entities in agreement with a local district attorney, provides consumers accused of writing bad checks the opportunity for deferred prosecution. Under the BCD Program, the defendants sent notices on official district attorney letterhead offering the plaintiffs the chance to avoid criminal prosecution under California’s bad check statute if they participated in the BCD Program and paid specified fees. The notices also included an arbitration clause. In the class action lawsuit, plaintiffs alleged that defendants violated the law by misleading plaintiffs into thinking law enforcement sent the letters and by allegedly including false threats in the letters that implied that failure to pay would result in arrest or imprisonment.

    In response to the lawsuit, defendants filed a motion under California’s Anti-SLAPP law, which protects defendants from strategic lawsuits against public participation (SLAPP), to strike the plaintiffs’ state law claims as well as a motion to compel arbitration pursuant to the arbitration clause in the notices. With respect to the defendant’s motion to compel arbitration, the panel opined that the BCD Program is not subject to Federal Arbitration Act (FAA) provisions because it is “an agreement between a criminal suspect and the local authorities about how to resolve a potential state-law criminal violation” rather than a “private or commercial contract.” In response to the defendants’ Anti-SLAPP motion, the appellate panel concluded that it “lacked jurisdiction to review the district court’s denial of defendants’ Anti-SLAPP motion because, under the terms of the state statute, such a denial in a case deemed [by the lower court] to be filed in the public interest is not immediately appealable.”

    The panel remanded to the district court for further proceedings.

    Courts Ninth Circuit Arbitration FDCPA

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  • CFPB Urges Supreme Court to Reject Tribal Lenders' Petition


    On November 9, the CFPB filed a brief with the Supreme Court opposing the petition for a writ of certiorari submitted by online tribal lending entities.  The lenders are challenging a January decision by the Ninth Circuit Court of Appeals, which ordered the entities to comply with a CFPB investigation (previously covered by Infobytes). The litigation stems from the issuance of a civil investigative demand (CID) by the CFPB to online lending entities owned by Native American tribes. The entities argue that due to tribal sovereignty, the CFPB does not have jurisdiction over the small-dollar lending services in question. The district court and the Ninth Circuit concluded that the Consumer Financial Protection Act (CFPA) did not expressly exclude tribes from the CFPB’s enforcement authority and therefore, the entities cannot claim tribal sovereign immunity.

    In its brief opposing the certiorari petition, the CFPB argues that the Ninth Circuit’s holding does not conflict with any prior Supreme Court or court of appeals decision, making further review unwarranted. The CFPB also argues, among other things, that Supreme Court review is unnecessary because “[t]he question at this juncture is solely whether the Bureau may obtain information from petitioners pursuant to a CID,” not “whether petitioners are subject to the Bureau’s regulatory authority.” 

    Courts CFPB Payday Lending Consumer Lending U.S. Supreme Court Appellate Ninth Circuit

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  • Ninth Circuit Claims California Licensing Law Violates Dormant Commerce Clause


    On October 10, the U.S. Court of Appeals for the Ninth Circuit handed down an opinion concerning alleged violations of certain California statutes by an Ohio-based mortgage servicer (plaintiff). The panel held that the plaintiff is likely to prevail in its bid for a court order blocking the enforcement of the state’s financial code by certain California district attorneys because the law violates the Dormant Commerce Clause—a legal doctrine that prohibits states from unduly burdening interstate commerce. The defendants allege that the plaintiff violated Section 12200 of the California Financial Code, which requires a prorater—a person who is compensated for receiving monies from debtors and distributing the funds to creditors—to obtain a California prorater license and be incorporated in the state before conducting business on an interstate basis. The panel determined that “[t]his form of discrimination between in-state and out-of-state economic interests is incompatible with a functioning national economy, and the prospect of each corporation being required to create a subsidiary in each state is precisely . . . [what] the Dormant Commerce Clause exists to prevent.” Consequently, the panel vacated the district court’s order denying a preliminary injunction, and remanded for further proceedings.

    The panel also affirmed the district court’s ruling that the plaintiff was required to disclose in its mail solicitations to homeowners that it “lacked authorization from lenders,” and opined that the plaintiff would most likely not prevail in its effort to challenge allegations that it violated sections of the California Business and Professions Code on a First Amendment basis. The First Amendment, the panel reasoned, “does not generally protect corporations from being required to tell prospective customers the truth.”

    Finally, in a portion of the opinion in which one of the circuit judges dissented, the panel reversed a district court’s order dismissing both cases under Younger v. Harris “because the cases had proceeded beyond the ‘embryonic stage’ in the district court before the corresponding state cases were filed.” Judge Montgomery—who otherwise joined the opinion with respect to the Dormant Commerce Clause and First Amendment questions—argued that the district court's dismissal under Younger should have been upheld because “[b]oth cases arrived in federal court…as a preemptive strike by [the plaintiff] to enjoin state district attorneys from enforcing state statutes in state court.”

    Courts Appellate Licensing Ninth Circuit

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