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  • District Court Denies Summary Judgement to Both Parties, Cites Issue of Material Fact Concerning Prepopulated Electronic Signature

    Courts

    On October 18, a federal judge in the U.S. District Court for the District of South Carolina denied summary judgment to both parties because there was a genuine issue of material fact regarding whether a “meaningful offer” of underinsured motorist coverage (UIM) was made. The insured’s electronic signature on the UIM form would indicate that the defendant made a “meaningful offer” of UIM coverage, as required under South Carolina law, and such coverage was rejected. The dispute however, in this case was about whether the electronic signature was prepopulated by the defendant.

    Plaintiff purchased an auto insurance policy from the defendant online, and the coverage did not include UIM coverage. Plaintiff argued that he never signed the UIM coverage provision and that instead, his signature was prepopulated by the defendant’s website. The plaintiff argued that his prepopulated signature did not satisfy the requirements for a meaningful offer of UIM coverage. The defendant rebutted by stating that prepopulating portions of the UIM form is compatible with providing a meaningful offer of UIM coverage. The court was “disinclined to agree” with the defendant’s argument that a “prepopulated signature that appears on an insurance policy before the insured reads through and signals affirmative consent. . .fulfills” the UIM requirements. After reviewing the record, which was limited to screenshots produced by the plaintiff (as the defendant’s attempt to proffer additional system-based evidence was refused by the court because the defendant previously objected to producing it during discovery), the court concluded that it could not grant summary judgment to either party because of the factual dispute regarding whether the plaintiff signed the UIM provision.

    Courts Litigation Electronic Signatures Insurance

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  • FTC Settles Suit Against Credit Score Site Schemers

    Courts

    On October 26, the FTC agreed to a settlement of $760,000 with two affiliate marketers of a credit score business who allegedly committed deceptive acts to lure consumers into signing up for their monthly credit monitoring service for $30.00.

    The settlement partly resolves a suit the FTC filed in January against the credit score company, the owner, and the company’s affiliate marketers. The FTC alleged that the defendants posted fake rental ads on Craigslist and required persons responding to the ads to obtain a purportedly “free” credit report from the company’s websites before viewing the property. The defendants, however, used the credit or debit card information consumers entered to obtain the credit report and enrolled consumers for a negative option credit monitoring service with a $30.00 monthly fee.

    The order suspended the balance of the total $6.8 million judgment on the condition that the affiliate marketers pay the FTC the settled amounts. The claims against the company and the owner are ongoing.

    Courts Consumer Finance FTC Fraud Settlement Litigation

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  • Seventh Circuit Upholds Ruling That Excludes Insurance Coverage for Overdraft Fees

    Courts

    On October 12, the U.S. Court of Appeals for the Seventh Circuit affirmed an Indiana District Court’s 2016 ruling, agreeing that an insurance company does not bear the responsibility for covering a bank’s $24 million class action settlement under a policy provision that excludes coverage for any case involving fees. In upholding the lower court’s decision, the three judge panel concluded that the insurance company had no duty to defend or indemnify the bank on the basis that the underlying overdraft fee claims fall under “Exclusion 3(n)” in the bank's professional liability insurance policy, which states that the insurance company “shall not be liable for [l]oss on account of any [c]laim . . . based upon, arising from, or in consequence of any fees or charges.” Class claims alleging that the bank manipulated its debit processing to “maximize overdraft revenue” by charging purportedly excessive fees to consumers who overdraw their checking and savings accounts triggered the exclusion. The panel also noted that an insurance company’s decision to include fee exclusions in banking liability policies is designed to prevent the “moral hazard” of allowing banks to “freely create other customer fee schemes” knowing they could easily secure coverage.

    Courts Appellate Seventh Circuit Overdraft Class Action Settlement Litigation

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  • Second Circuit Upholds Large Monetary Judgment Against International Bank

    Courts

    On September 28, the U.S. Court of Appeals for the Second Circuit affirmed a New York District Court’s 2015 ruling, which requires a major international bank to pay $806 million for selling allegedly faulty mortgage-backed bonds to Fannie Mae and Freddie Mac. In the original suit brought by the Federal Housing Finance Agency (FHFA), FHFA alleged that the bank overstated the reliability of the loans for sale. In upholding the lower court’s decision, the Second Circuit concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact.” Specifically, the prospectus falsely stated that the loans were compiled with the underwriting standards described therein, including standards related to assessing the creditworthiness of the borrowers and appraising the value of properties.

    As previously covered in InfoBytes, the same international bank recently settled with FHFA regarding residential mortgage-back securities trusts purchased in the same timeframe.

    Courts Litigation Second Circuit Appellate Securities FHFA Fannie Mae Freddie Mac Mortgages

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  • Financial Industry Groups Sue the CFPB Over Arbitration Rule

    Courts

    On September 29, the U.S. Chamber of Commerce (Chamber) and other financial industry groups joined together to file a lawsuit in a Texas District Court against the CFPB over the constitutionality and legality of the Bureau’s arbitration rule (rule). The complaint alleges four reasons why the rule is invalid and should be set aside:

    • the rule is a product of the unconstitutional structure of the CFPBas covered in a previous InfoBytes, a similar argument is being heard in the U.S. Court of Appeals for the D.C. Circuit in the case brought by PHH;
    • the CFPB failed to follow procedures in the Administrative Procedures Act (APA) in adopting the conclusions of a flawed arbitration study. Specifically, the complaint alleges that the study improperly limited public participation, applied flawed methodologies, misunderstood relevant data, and did not address key considerations;
    • the rule is a model of arbitrary and capricious agency action because it fails to take into account important aspects of the problem it is attempting to address and runs counter to the record before the Bureau; and
    • the rule is a violation of the Dodd Frank Act because it fails to advance the public interest or consumer welfare.

    Currently, the rule is also under scrutiny by Congress. As previously discussed in InfoBytes, the House passed a disapproval resolution, under the Congressional Review Act, to repeal the rule. A similar measure is set for discussion in the Senate.

    Buckley Sandler will follow up with a more detailed summary of the lawsuit.

    Courts CFPB Litigation Arbitration Consumer Finance

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  • Eleventh Circuit Holds a Debt Collector’s Voicemail Qualifies as a “Communication” Under FDCPA

    Courts

    On September 22, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded, while affirming in part, a lower court’s decision concerning whether a voicemail left by a debt collector constitutes a “communication” and how “meaningful disclosure” should be interpreted under the Fair Debt Collection Practices Act (FDCPA). The panel answered the first issue by noting that the FDCPA’s definition of “communication” includes “the conveying of information regarding a debt [either] directly or indirectly to any person through any medium.” Therefore, the panel opined, under the statutory language, the only requirement for the voicemail to qualify as a communication was that it convey to the consumer that the call concerned a debt—which it did. Accordingly, the appellate court reversed the district court’s dismissal of the claim under section 1692e of the FDCPA and remanded for further proceedings consistent with their findings.

    However, the panel agreed with the lower court’s interpretation of “meaningful disclosure” under section 1692d of the FDCPA—which protects consumers from “harassment and abuse” by prohibiting debt collectors from “placing telephone calls without meaningful disclosure of the caller’s identity.” Specifically, the panel held that a debt collector need only provide the name of the company and the nature of its debt collection business on the call. The statute does not require disclosure of the individual employee’s name as this additional information would not be useful to a consumer. Consequently, the appellate court upheld the district court’s decision to dismiss the claim under section 1692d.

    Courts FDCPA Appellate Eleventh Circuit Debt Collection Litigation

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  • Eleventh Circuit Enforces Binding Arbitration Agreement

    Courts

    On September 26, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit held that a customer is bound to a mandatory arbitration clause in his deposit account agreement with a national bank. In doing so, the appellate court reversed the Florida district court’s decision, which denied the national bank’s motion to compel arbitration. In 2010, the customer filed a putative class action over the charging of overdraft fees associated with a bank account he held jointly with his wife. The case concerns an account agreement signed by the customer when he transferred an existing account into the joint account in 2001. The appellate court reasoned that the customer “was on notice that signing the 2001 signature card represented the start of a new contractual relationship” and therefore, subject to the updated arbitration clause.

    The CFPB’s new arbitration rule, which went into effect September 18, does not allow companies subject to the rule to use arbitration clauses to stop consumers from being part of a class action. However, as previously discussed in InfoBytes, the House passed a disapproval resolution under the Congressional Review Act to repeal the rule. A similar measure is expected to be considered by the Senate within the next week.

    Courts Litigation Eleventh Circuit Appellate Class Action Arbitration CFPB CRA

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  • CFTC Files Anti-Fraud Enforcement Action Against New York-Based Corporation Concerning Bitcoin Investments

    Courts

    On September 21, the U.S. Commodity Futures Trading Commission (CFTC) filed a complaint in the U.S. District Court for the Southern District of New York against a New York-based corporation and its CEO (defendants) for allegedly engaging in fraudulent acts and practices in violation of the Commodity Exchange Act and CFTC Regulations by issuing false account statements in connection with Bitcoin investment solicitations. According to the complaint, the “Bitcoin Ponzi scheme” solicited more than $600,000 from approximately 80 customers to be placed in a pooled fund, executed by the defendants’ computer program called “Jigsaw,” which traded the virtual currency. The CFTC alleges that defendants’ strategy was fake and the “purported performance reports” were false in that they created the appearance of positive Bitcoin trading increases, but the gains were “illusory.” The CFTC further asserts that the “payouts of supposed profits to [pool participants] in actuality consisted of other customers’ misappropriated funds.” In addition, the CFTC alleges that defendants orchestrated a “fake computer ‘hack’” to conceal the scheme. The suit seeks, among other things, disgorgement of profits, civil monetary penalties, restitution, and a ban on commodities trading for the defendants.

    Courts Bitcoin Litigation Enforcement Virtual Currency Fraud CFTC

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  • District Court Grants $30 Million Settlement in Payday Lending Securities Class Action Suit

    Courts

    On September 20, a federal judge in the U.S. District Court for the Eastern District of Pennsylvania issued a memorandum signing off on a settlement between a payday lender and a class of institutional investors, resolving allegations that the lender violated securities laws when it made “materially false and misleading statements” about its financial health and the nature of its U.K. lending practices. According to the plaintiffs, the lender’s misstatements artificially inflated the common stock during the class period (January 28, 2011 through February 3, 2014), so that when the lending practices were revealed, the stock prices declined. Further, the lender allegedly (i) “routinely lent to borrowers without conducting any affordability checks”; (ii) “permitted borrowers to roll over loans that [they] could not afford to repay, enriching [the lender] with fees”; and (iii) presented “loan loss reserves [that] were understated as a result of its poor lending practices, its failure to adequately monitor the quality of its loans, and its failure to properly account for loans that were rolled over.” In 2016, the court granted class certification and the parties reached a settlement after extensive discussions. The final settlement approved in the memorandum creates a settlement fund of $30 million, of which $7.5 million will go towards attorneys’ fees and costs. The court signed a judgment approving the class action settlement the same day.

    Courts Payday Lending Securities Settlement Litigation International

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  • District Court Fines Mortgage Brokers More Than $298 Million for Alleged FCA/FIRREA Violations

    Courts

    On September 14, a federal judge in the U.S. District Court for the Southern District of Texas ruled after a five-week jury trial that defendants, who allegedly submitted fraudulent insurance claims after acquiring risky loans, were liable for treble damages and the maximum civil penalties allowed under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). According to the court, the evidence presented at trial demonstrated that the damages suffered by the U.S. were a “foreseeable consequence” of the defendants’ misconduct and that such misconduct was part of an “prolonged, consistent enterprise of defrauding the [U.S.],” warranting a higher level of penalties. The jury found that one of the defendants along with its CEO “submitted or caused to be submitted 103 insurance claims” while misrepresenting that its branches were registered by HUD, causing the Federal Housing Administration (FHA) to sustain damages in excess of $7 million. A separate mortgage broker defendant was found to have submitted or caused to be submitted 1,192 insurance claims causing over $256 million in damages to the FHA due to the “reckless” underwriting of loan applications, in violation of FCA. The court rejected the defendants’ request for lenient civil penalties, finding the defendants’ behavior to be “custom-designed to flout the very program that relied upon [defendants’] diligence and compliance” and demonstrating “a patent unwillingness to accept responsibility for their actions.” The FIRREA penalties resulted from defendants submitting false annual certifications to HUD that were intended “to serve as a separate and independent quality check on the [defendant’s] branches,” but instead led to injury in the form of borrowers entering into default or foreclosures, as well as elevated mortgage insurance premiums.

    The judge imposed over $291 million in FCA treble damages and penalties against the three defendants. Additionally, each defendant was fined $2.2 million in FIRREA penalties for actions that “were neither isolated or relatively benign . . . [but] were reckless, egregious, and widely injurious.”

    Courts Lending Mortgages False Claims Act / FIRREA Litigation Insurance FHA HUD

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