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  • NY District Court holds CFPB structure is unconstitutional

    Courts

    On June 21, the U.S. District Court for the Southern District of New York terminated the CFPB as a party to an action against a New Jersey-based finance company and its affiliates (defendants), concluding that the CFPB’s organizational structure is unconstitutional and therefore, the agency lacks authority to bring claims under the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the Bureau and the New York Attorney General’s office (NYAG) filed a lawsuit in in February 2017, claiming the defendants engaged in deceptive and abusive acts by misleading first responders to the World Trade Center attack and NFL retirees with high-cost loans by mischaracterizing loans as assignments of future payment rights, thereby causing the consumers to repay far more than they received. The defendants sought dismissal of the case, arguing that, among other things, “the CFPB’s unprecedented structure violates fundamental constitutional principles of separation of powers, and the CFPB should be struck down as an unconstitutional administrative agency.”

    The court denied the defendants’ motion as to the NYAG, finding that it had plausibly alleged claims under the CFPA and New York law and had the independent authority to pursue those claims.  But the court concluded that the CFPB lacked such authority, noting that it was not bound by the recent decision of the D.C. Circuit upholding the Bureau’s constitutionality in PHH v. CFPB (covered by a Buckley Sandler Special Alert).  The court instead adopted portions of two separate dissents from that decision to conclude that the Bureau’s single director structure is unconstitutional and that the defect cannot be remedied by striking the limitations on the president’s authority to remove the Bureau director because the “removal for cause” provision is “at the heart of Title X” of Dodd-Frank.  Quoting one of the PHH dissents, the court stated, “I would strike Title X in its entirety.” 

    The court also rejected an attempt by acting Director Mulvaney to salvage the Bureau’s claims.  Although the action was initiated by Director Cordray, the Bureau filed a notice in May ratifying that decision and arguing that, because the Bureau is currently led by an acting director who can be removed by the president at will, defendants’ motion to dismiss the Bureau’s claims should be denied.  The court disagreed, concluding that the constitutional issues presented in the case “are not cured by the appointment of Mr. Mulvaney” because “the relevant provisions of the Dodd-Frank Act that render the CFPB’s structure unconstitutional remain intact.”

    Courts PHH v. CFPB State Attorney General CFPB CFPB Succession Consumer Finance CFPA

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  • 11th Circuit holds ADA action against restaurant chain’s website is not moot

    Courts

    On June 19, the U.S. Court of Appeals for the 11th Circuit held that a plaintiff’s claims against a national restaurant chain for allegedly operating a website that was not compliant with the Americans with Disabilities Act (ADA) are not moot despite a previous settlement with a separate plaintiff. The plaintiff sued the restaurant chain seeking declaratory and injunctive relief, requesting that the court (i) order the restaurant to alter its website and make it accessible to individuals with disabilities as required by Title III of the ADA; and (ii) order the restaurant chain to continually update and maintain that accessibility. Prior to the plaintiff’s filing, the restaurant chain reached a settlement in an earlier case with similar claims. The district court held that the plaintiff’s claims were moot because the restaurant chain had already agreed to the remedy the plaintiff sought in the previous settlement and had begun the process of its remediation plan by placing an accessibility notice on its website. On appeal, the 11th Circuit disagreed with the lower court, holding that the plaintiff’s claims are not moot, finding that the restaurant chain has not yet successfully remediated its website and the plaintiff’s request for an injunction against the restaurant chain if the website is not brought into compliance is still viable. The appellate court also noted that the current plaintiff would have no way of enforcing the settlement’s remediation plan because he was not a party to that action.

    Courts Appellate Eleventh Circuit Americans with Disabilities Act

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  • Supreme Court holds SEC ALJs are subject to the Appointments Clause of the Constitution

    Courts

    On June 21, the U.S. Supreme Court held, in Lucia v. SEC, that SEC administrative law judges (ALJs) are “inferior officers” subject to the Appointments Clause (Clause) of the Constitution. The case began when the SEC instituted an administrative proceeding against the petitioner resulting in a decision by the ALJ imposing sanctions against the petitioner, including civil penalties of $300,000 and a lifetime bar from the investment industry. On appeal, the D.C. Circuit Court of Appeals upheld the ALJ’s sanctions and rejected the petitioner’s argument that ALJs are officers of the United States and therefore subject to provisions of the Clause, including the requirement that officers be appointed by the president, the head of a department, or a court of law. The D.C. Circuit decision conflicts with subsequent decisions by the U.S. Court of Appeals for the 10th and 5th Circuits (available here and here).

    In a 6-3 decision, the Supreme Court reversed the D.C. Circuit decision, holding that ALJs are “Officers of the United States” subject to the Clause under the framework the Court used in Freytag v. Commissioner (concluding that U.S. Tax Court “special trial judges” are officers subject to the Clause). In support of this holding, the majority noted that ALJs receive a career appointment, exercise “significant discretion,” and if the SEC decides against reviewing a decision, their decisions become final and are “deemed the action of the Commission.”

    Notably, the ALJ that presided over the petitioner’s case is the same ALJ that presided over the CFPB’s claims against PHH, which ultimately lead to the D.C. Circuit’s en banc decision in PHH v. CFPB and the CFPB’s subsequent dismissal of the action (covered by Buckley Sandler here and here).

    Courts U.S. Supreme Court ALJ SEC PHH v. CFPB

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  • Court allows certain City of Oakland claims to proceed against national bank

    Courts

    On June 15, the U.S. District Court for the Northern District of California granted in part and denied in part a national bank’s motion to dismiss an action brought by the City of Oakland, alleging violations of the Fair Housing Act (FHA) and California Fair Employment and Housing Act. In its September 2015 complaint, Oakland alleged that the bank violated the FHA and the California Fair Employment and Housing Act by providing minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing reduced property tax revenue for the city. After the 2017 Supreme Court decision in Bank of America v. City of Miami (previously covered by a Buckley Sandler Special Alert), which held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, Oakland filed an amended complaint. The amended complaint expanded Oakland’s alleged injuries to include (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. The bank moved to dismiss all of Oakland’s claims on the basis that the city had failed to sufficiently allege proximate cause. The court granted the bank’s motion without prejudice as to claims based on the second alleged injury to the extent it sought monetary relief and claims based on the third alleged injury entirely. The court allowed the matter to proceed with respect to claims based on the first injury and, to the extent it seeks injunctive and declaratory relief, the second injury.

    Courts Fair Housing FHA Lending Consumer Finance Mortgages

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  • Auto finance company agrees to $19.7 million preliminary class action settlement over extra lease fees

    Courts

    On June 15, the lead plaintiff filed a motion in the U.S. District for the Southern District of Florida for preliminary approval of an approximately $19.7 million class action settlement between a group of consumers and an auto finance company over allegations that extra fees were charged beyond the set purchase option price disclosed in certain vehicle lease contracts. According to the motion, the lead plaintiff alleged that after he chose to purchase his vehicle at the end of his lease term and he was charged extra third-party fees not included in his original lease contract. The class action complaint alleges violations of the Consumer Leasing Act and breach of contract. The settlement class consists of consumers nationwide who entered into certain lease contracts with the company, purchased their leased vehicle after June 4, 2009, and that were required to pay a documentary or dealer fee not disclosed in the lease contract, which allegedly averages about $238 per consumer. The settlement would allow prospective opt-in members to submit a claim for repayment of 100% of the extra fees charged. The $19.7 million settlement figure was determined using a statistically significant sample of the transactional records available and includes up to $2.95 million in attorneys costs and fees. The settlement is awaiting the court’s approval.

    Courts Class Action Auto Finance Consumer Leasing Act

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  • CA Attorney General secures $67 million in debt relief for former students of defunct for-profit school

    State Issues

    On June 13, the Superior Court of the State of California ordered a California-based student loan provider to halt all debt collection efforts and forgive the balances on over 30,000 private student loans, which were used for programs at a now defunct for-profit college. According to the announcement by the California Attorney General, Xavier Becerra, the debt relief totals $67 million for the former students. The complaint, filed on the same day as the order, alleges the company engaged in unlawful debt collection practices, including sending borrowers notices threatening legal action, to collect on the student loans at issue. In addition to the debt forgiveness, the order requires the company to (i) refund all payments made on the student loans by California-residents after August 1, 2017; (ii) refund payments made prior to August 1, 2017 by borrowers who received allegedly unlawful debt collection notices; and (iii) delete negative credit reporting associated with the student loans for all of the for-profit students around the country.

    As previously covered by InfoBytes, in a class action filed by former students, the Department of Education was recently barred by a preliminary injunction from continuing collection efforts on student loans used for the same defunct for-profit college.

    State Issues State Attorney General Student Lending Debt Cancellation Debt Collection Consumer Finance Lending Courts

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  • 8th Circuit affirms $17 million class settlement for retailer data breach

    Courts

    On June 13, the U.S. Court of Appeals for the 8th Circuit affirmed the district court’s ruling approving a $17 million class settlement to resolve consumer claims related to a 2013 data breach, which resulted in the compromise of at least 40 million credit cards and theft of personal information of up to 110 million people. The settlement, which consists of $10 million in consumer redress and almost $7 million in plaintiffs’ attorney fees, was preliminarily approved in 2015 by the district court (previously covered by InfoBytes here) but was remanded back to the court by the 8th Circuit for failing to conduct the appropriate pre-certification analysis. After the district court recertified the class, two settlement challengers appealed, arguing that the class was not properly certified as there were not separate counsel for the subclasses and that the court erred in approving the settlement because the award of attorney’s fees was not reasonable. The appellate court disagreed, holding that no fundamental conflict of interest required separate representation for named class members and class members who suffered no actual losses. The court also concluded that the 29 percent in total monetary payment to the plaintiffs’ attorneys was “well within the amounts [the court] has deemed reasonable in the past” and therefore, the district court did not error in its discretion.

     

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

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  • New York Court of Appeals rules claims under Martin Act governed by three-year statute of limitations

    Courts

    On June 12, the New York Court of Appeals issued a 4 to 1 ruling that claims brought under the state’s Martin Act are governed by a statute of limitations of three years, not six. Former New York Attorney General Eric Schneiderman filed a suit against a bank alleging that in 2006 and 2007, the bank misrepresented the quality of residential mortgage-backed securities it created and sold, bringing its claims under the state’s Martin Act, which grants the Attorney General of New York expanded liability for investigating and enjoining fraudulent practices in the marketing of stocks, bonds and other securities beyond what can be recognized under the common law fraud statute. The bank argued that the action was time-barred because too much time had elapsed to bring claims under the Martin Act, and an argument ensued as to whether the three-year statute of limitations that applies to actions to recover upon a liability or penalty imposed by a statute, or the six-year statute of limitations that applies to an action based upon fraud, applied. In its decision, the majority wrote that the three-year period applied because the Martin Act “expands upon, rather than codifies, the common law of fraud” and “imposes numerous obligations—or ‘liabilities’—that did not exist at common law, justifying the imposition of a three-year statute of limitations.” The court concluded that the broad definition of “fraudulent practices” encompasses wrongs that are not otherwise cognizable under the common law and “dispenses, among other things, with any requirement that the Attorney General prove scienter or justifiable reliance on the part of investors.” The court remanded the case to the New York State Supreme Court for further proceedings concerning the state’s claim against the bank for alleged violations of Executive Law Section 63(12).

    Courts Mortgages RMBS State Issues State Attorney General

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  • District Court denies joint request to stay payday rule but agrees to stay lawsuit

    Courts

    On June 12, the U.S. District Court for the Western District of Texas denied a joint request by the CFPB and two payday loan trade groups to stay the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other high-cost installment loans (Rule) until 445 days after final judgment in the pending litigation. The court declined to provide an explanation for the denial, but did grant the parties’ joint request to stay the lawsuit pending further court order. As previously covered by InfoBytes, the payday loan trade groups filed a lawsuit in April asking the court to set aside the Rule on the grounds that, among other reasons, the CFPB is unconstitutional and the Bureau’s rulemaking failed to comply with the Administrative Procedure Act. On May 31, the parties filed a joint request to stay the lawsuit and the compliance date for the Rule because of the Bureau’s plans to reconsider the Rule, which may repeal or revise certain provisions rendering the case moot or otherwise resolved.

    Courts State Issues CFPB Payday Rule CFPB Succession Federal Issues

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  • Court approves $12 million settlement between FTC and student debt relief company

    Courts

    On June 8, the U.S. District Court for the Central District of California approved an order requiring an owner and his multiple student debt relief companies (defendants) to pay almost $12 million to settle allegations that the defendants violated the FTC Act and Telemarketing Sales Rule (TSR) when marketing and selling student debt relief services. As part of a coordinated effort between the FTC and state law enforcement called Operation Game of Loans, the FTC filed a complaint in September 2017 alleging the defendants, among other things, charged upfront and monthly fees to enroll students in free government programs to manage student loan debt, but did not perform any services. Additionally, the FTC alleged that the defendants marketed themselves as associated with the Department of Education and called consumers listed on the Do Not Call Registry. Under the settlement order, in addition to the nearly $12 million fine, the defendants are permanently banned from: (i) advertising, marketing, promoting, offering, or selling debt relief or credit repair products or services, or assisting others in such activities; (ii) misrepresenting or assisting others in misrepresenting information relating to any products or services and, specifically, financial products or services; (iii) making any misleading or unsubstantiated representation or assisting others in making any such representation about the benefits, performance, or result of any financial product or service; and (iv) engaging in any unlawful telemarketing practices. The defendants neither admit nor deny any of the FTC’s allegations.

    Courts Consumer Finance FTC Federal Issues Enforcement Student Lending Debt Relief

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