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  • Student loan servicer must comply with CFPB CID pending appeal

    Courts

    On April 17, the U.S. District Court for the Western District of Pennsylvania ordered a student loan servicer to comply with a CFPB Civil investigative Demand (CID), while the servicer awaits appeal. As previously covered by InfoBytes, in February the court enforced a CFPB CID issued against the student loan servicer in June 2017. In granting the Bureau’s petition to enforce the CID, the court found that the CID’s Notification of Purpose met the statutory notice requirements because nothing in the law bars the CFPB “from investigating the totality of a company’s business operations.” The court also found that the investigation was for a “legitimate purpose,” the information requested is relevant and not already known by the Bureau, and the request is not unreasonably broad or burdensome. On March 26, the servicer filed a motion to stay the court’s order pending appeal to the U.S. Court of Appeals for the 3rd Circuit. In denying the servicer’s motion, the court held that the servicer would not be irreparably harmed if it responded to the CID should the 3rd Circuit reverse the court’s decision as the Appeals Court could order all documents to be returned and prevent the CFPB from acting upon information learned through the CID. Additionally, the servicer argued that the CFPB would not be injured if the court granted the stay because the agency has not yet brought an enforcement action. The court disagreed with this argument, holding that the CFPB cannot bring an enforcement action without reviewing the relevant documents and granting the stay would only “further stall the CFPB’s efforts to obtain documents and information that it requested nine months ago.”

    Courts CFPB Student Lending CIDs Appellate Third Circuit

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  • 2nd Circuit affirms dismissal of class action against international bank for alleged AML control misrepresentations

    Courts

    On April 13, the U.S. Court of Appeals for the 2nd Circuit affirmed a district court’s dismissal of a proposed class action alleging an international bank misrepresented the effectiveness of internal controls to investors, during a time Russian traders were laundering more than $10 billion through the bank. In May 2016, investors filed a class action complaint against the bank alleging securities law violations for touting its compliance efforts while Russian clients were engaging in “mirror trades.” The district court dismissed the complaint for failing to sufficiently allege how the bank misled investors. Specifically, the district court noted that general statements about reputation and compliance amount to “puffery” and are regularly held to be non-actionable. In affirming the district court’s decision, the 2nd Circuit agreed that the plaintiffs failed to adequately allege scienter. The panel rejected the plaintiff’s reliance on, among other things, a consent order between the New York Department of Financial Services (NYDFS) and the bank (previously covered by InfoBytes here) as evidence the bank was aware of Russian wrongdoing during the time it made its alleged misrepresentations, stating “the consent order thus contradicts the plaintiffs’ argument that the individual defendants were aware of any wrongdoing at the time they made their alleged misrepresentations.”

    Courts Anti-Money Laundering Financial Crimes NYDFS Second Circuit Appellate

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  • Bank petitions for rehearing of 9th Circuit preemption decision; OCC to file amicus brief in support of bank

    Courts

    On April 13, a national bank filed a petition for an en banc rehearing of the U.S. Court of Appeals for the 9th Circuit’s March decision, which held that a California law that requires the bank to pay interest on escrow funds is not preempted by federal law. As previously covered by InfoBytes, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing National Bank Act (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, 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” because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. Additionally, the 9th Circuit concluded that the OCC’s 2004 preemption regulation had no effect on the preemption standard.

    In its petition for rehearing, the bank argues that the 9th Circuit’s decision, if allowed to stand, “will create confusion regarding which state laws apply to national banks and restrict the terms on which they may extend credit” because the decision conflicts with previous decisions by the same court, the Supreme Court, and other circuits. The bank also acknowledges the OCC’s intent to file an amicus curiae brief in support of the petition no later than April 23.

    Courts Ninth Circuit Appellate State Issues Escrow National Bank Act Mortgages OCC Preemption

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  • Electronic contracting tools provide evidence and records necessary to undermine opposing affidavits

    Fintech

    On April 3, the Court of Appeals of North Carolina upheld an agreement executed using a third-party electronic contracting service vendor, after finding that the agreement was ratified by the plaintiff’s conduct, even if an unauthorized employee executed it in the first instance. The plaintiff argued that it had never seen the contract and that an employee must have electronically signed the contract without authority. However, the defendant produced evidence and an affidavit showing that its electronic contracting vendor had sent the contract to the plaintiff’s email address, that the emails were viewed and the link to the contract was opened, and that the contract was electronically signed in the vendor’s system. The record also showed several other emails referencing the agreement sent to plaintiff and responses thereto by plaintiff. The court observed that “[w]ere this a more traditional contract negotiation, in which the parties had mailed proposed contracts back and forth, a sworn affidavit stating that [plaintiff] never reviewed or signed the contracts might be sufficient to create a genuine issue of material fact” as to plaintiff’s knowledge of the agreement and its terms, but in the electronic context, the affidavits and audit trails produced by the vendor foreclosed any genuine dispute that the plaintiff company had received the agreement and had knowledge of it before ratifying it through its actions.

    Fintech Courts State Issues ESIGN

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  • Court upholds clickwrap agreement, reiterating that general principles of contract apply

    Fintech

    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.

    Fintech Courts ESIGN Arbitration

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  • 8th Circuit reverses district court’s decision, rules plaintiff failed to demonstrate actual damages under RESPA

    Courts

    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.

    Courts Appellate Eighth Circuit RESPA Mortgage Servicing Mortgages State Issues

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  • Court grants summary judgment to credit reporting agency over FCRA dispute

    Courts

    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.

    Courts FCRA Usury Prescreened Offers

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  • Student loan servicer seeks declaratory and injunctive relief to resolve dispute concerning preemption of state law

    Courts

    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.”

    Courts Department of Education Student Lending State Issues Preemption Congress Federal Legislation

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  • 9th Circuit amended opinion holds company not vicariously liable under TCPA

    Privacy, Cyber Risk & Data Security

    On April 4, the U.S. Court of Appeals for the 9th Circuit issued an amended opinion to further affirm a district court’s decision to grant summary judgment in favor of a defendant concerning allegations that it was vicariously liable for telemarketing activity in violation of the Telephone Consumer Protection Act (TCPA). The three-judge panel held that the defendant, who sells vehicle service contracts (VSCs) through automobile dealers and “marketing vendors,” was not vicariously liable under the TCPA for calls made by telemarketers employed by a company that sold VSCs for the defendant and multiple other companies. Last August, the three-judge panel determined that the company’s telemarketers acted as independent contractors, rather than as the defendant’s agents. In amending their opinion, the three-judge panel further determined that the telemarketers lacked actual authority (under express language contained within the parties’ contract) to place the unlawful calls, and that the defendant “exercised insufficient control over the manner and means of the work to establish vicarious liability under the asserted theory.”

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

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  • District court rejects motions for summary judgement on FDCPA claims filed by CFPB, debt collection law firm

    Courts

    On April 9, the U.S. District Court for the Northern District of Ohio rejected motions for partial summary judgment and summary judgment filed respectively by the CFPB and a law firm accused of making false representations regarding attorney involvement in debt collection calls in violation of the Fair Debt Collection Practices Act (FDCPA) and Dodd-Frank. As previously discussed in InfoBytes, the CFPB alleged in its complaint that the law firm sent demand letters and made collection calls to consumers that falsely implied that the consumer’s account files had been meaningfully reviewed by an attorney, when, in most cases, no attorney had reviewed the account file. Among other things, the law firm countered that, because its communications truthfully identified it as a law firm and it was acting as a debt collector, these communications were not misleading to the “least sophisticated consumer”—a factor of measurement for analyzing FDCPA violations. The court ruled that “whether the communications at issue are misleading is a question of fact that must be determined by a jury.” The jury trial is set for May 1.

    Courts CFPB Debt Collection FDCPA Dodd-Frank

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