Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter for news affecting the financial services industry.

  • Federal Court in North Dakota Dismisses CFPB Complaint Against Payment Processor for Insufficient Factual Allegations

    Courts

    In an Order issued on March 17, a U.S. District Court for the District of North Dakota dismissed an enforcement action filed by the CFPB against a payment processor and its two top executives.  The Bureau had filed the lawsuit last year against a Fargo-based third-party payment firm, and its co-owners, alleging that the firm had “ignored” warnings from financial institutions of possible unauthorized debits and other possibly suspicious activity, including the possibility that the firm was processing electronic funds transfers on behalf of payday lenders in states where payday loans are illegal. 

    In granting Defendants’ motion to dismiss without prejudice, the Court held, among other things, that the CFPB had failed to “plead[] facts sufficient to support the legal conclusion that consumers were injured or likely to be injured” by the actions attributed to the defendants in the complaint.  As explained by the Court, "[a]lthough the complaint need not contain detailed factual allegations, it must contain 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”  The Court emphasized both that (i) “[f]ormulaic recitations of the elements of a claim or assertions lacking factual enhancement are not sufficient,” and (ii) that “[t]he facts alleged in the complaint must be plausible, not merely conceivable.”  Applying this standard, the Court ultimately held that the CFPB’s complaint “d[id] not contain sufficient factual allegations to back up its conclusory statements regarding Intercept’s allegedly unlawful acts or omissions.”

    Courts CFPB Payment Processors Payday Lending

    Share page with AddThis
  • 9th Circuit Panel Reverses and Remands Dismissal of Pro Se Plaintiff’s Breach of Contract Claim in Connection with Bank’s Trial Loan Modification Process

    Courts

    In an opinion filed on March 13, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a homeowner-plaintiff’s breach of contract claim against a major bank for damages allegedly suffered when she unsuccessfully attempted to modify her home loan over a two-year period. Oskoui v. J.P. Morgan Chase Bank, N.A., [Dkt No. 47-1] Case No. 15-55457 (9th Cir. Mar. 13, 2017) (Trott, S.). The court also remanded with instructions to permit the pro-se plaintiff to amend her complaint to allege a right to rescind in connection with her previously-dismissed TILA claim in light of the Supreme Court’s January 2015 decision in Jesinoski v. Countrywide Home Loans, Inc. And, finally, the panel affirmed the district court’s ruling that the facts alleged demonstrated a claim under California’s Unfair Competition Law (“UCL”) because, among other reasons, the factual record supported a determination that the bank knew or should have known that the homeowner was plainly ineligible for a loan modification; yet, the bank encouraged her to apply for modifications (which she did), and collected payments pursuant to trial modification plans. 

    In reversing and remanding the district court’s ruling dismissing the breach of contract claim, the Ninth Circuit pointed to the styling on the first-page of the complaint—“BREACH OF CONTRACT”—along with allegations about the explicit offer language contained in the bank’s trial modification documents.  The Ninth Circuit relied on the Seventh Circuit’s opinion in Wigod v. Wells Fargo, which it identified as the “leading federal appellate decision on this issue of contract,” to “illuminate the viability” of plaintiff’s breach of contract claim in connection with trial plan documents.  673 F.3d 547 (7th Cir. 2012). The Ninth Circuit remanded the claim with instructions to permit the plaintiff to amend if necessary in order to move forward with her breach of contract claim.

    Courts Lending TILA UDAAP appellate Mortgages CA UCL

    Share page with AddThis
  • In a Split Decision, D.C. Circuit Denies John Doe Company’s Request to Remain Anonymous Pending Appeal Challenging CFPB Subpoena; Judge Kavanaugh Dissents, Reiterates Critique of CFPB

    Courts

    On March 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied the request of an anonymous California-chartered, finance company based in the Philippines to remain anonymous pending the resolution of its challenge to a CFPB administrative subpoena. See John Doe Co. v. CFPB, March 3, [Order] No. 17-5026 (D.C. Cir. Mar. 3, 2017) (per curiam). In a 2-1 decision, the court found that the company had failed to show either that it was likely to succeed on the merits of its challenge to the CFPB’s constitutionality, or that it was likely to suffer irreparable harm from being identified as being under investigation. In denying the company’s motion, the panel majority emphasized, among other things, the fact that “[t]he Company’s sole argument regarding likelihood of success on the merits before this court and the district court has been to point to the now-vacated majority opinion in PHH.”   Judge Kavanaugh—who  back in October, assailed the “massive, unchecked” power of the single director-led CFPB—filed a dissenting opinion, in which he reiterated his call for how to fix the CFPB: namely, giving the president greater power to remove the agency’s director.

    As previously covered on InfoBytes, back in January, the John Doe finance company filed an action seeking to set aside or keep confidential a “civil investigative demand” served on the Company by the CFPB as part of an industry-wide investigation against companies that buy and sell income streams. The Company argued both that the CFPB had strayed outside the scope of its authority, and that in light of the pending challenge to the constitutionality of its structure in a separate case (PHH v CFPB), the Bureau should be barred from pursuing any investigation until the questions about its constitutionality are resolved. Fearing that the CFPB would post documents on its website revealing its identity, the company also sought a temporary restraining order to enjoin the CFPB from, among other things, disclosing the existence of its investigation and taking any action against the company unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). As covered in a recent BuckleySandler Special Alert, however, the D.C. Circuit on February 16, vacated the October 2015 panel decision in PHH v CFPB and will now rehear the case en banc.

    Courts Consumer Finance CIDs John Doe v CFPB PHH v CFPB

    Share page with AddThis
  • Two Trade Associations File Notices of Intent to Submit Amicus Briefs in PHH v. CFPB

    Courts

    On March 8 and 9, two separate Notices of Intention to Participate as Amicus Curiae were filed in PHH Corp. v. CFPB. The first was filed by ACA International, a trade association for the credit and collections industry. The second was filed on behalf of the following parties: American Bankers Association; American Escrow Association; American Financial Services Association; Consumer Bankers Association; Credit Union National Association; Housing Policy Council of the Financial Services Roundtable; Independent Community Bankers of America; Leading Builders of America; Mortgage Bankers Association; National Association of Federally- Insured Credit Unions; National Association of Home Builders; National Association of REALTORS; and Real Estate Services Providers Council. Nearly all of the associations listed above filed either joint or separate amici briefs at the panel stage and believe that “the en banc Court will be aided by a brief addressing how the Bureau’s Order not only contravenes RESPA’s statutory text, governing regulations, and applicable policy statements, but also how the Order’s violation of fair-notice principles disrupts the critically important home-lending market.”

    Courts CFPB PHH v CFPB

    Share page with AddThis
  • District Court Advances Securitization Case Involving N.Y. State Usury Law

    Courts

    On February 27, a U.S. District Court in White Plains, N.Y. issued an Order ruling on motions for summary judgment and class certification in a consumer class-action against a debt collection company that purchased defaulted consumer debt from a national bank, and its affiliate, which sought collection of debt charged at a rate in excess of New York state usury limits. Midland Funding v. Madden, [Opinion & Order] No. 11-CV-8149 (CS) (S.D.N.Y. Mar. 1, 2017).

    As previously covered by InfoBytes, the district court had originally ruled in Defendants’ favor, holding that the National Banking Act (NBA) preempted state law usury claims against purchasers of debt from national banks. The Second Circuit, however, overturned that ruling in a May 2015 opinion to the extent it relied on the NBA, but remanded the case for a determination whether Delaware choice of law provisions in the credit agreement precluded the Plaintiff’s claims because the rates were not usurious in Delaware.

    Now, revising the issue on remand, the District Court held that New York’s criminal usury cap (but not the civil usury) applies to Plaintiff’s defaulted debt, notwithstanding the Delaware choice of law provision. The Court reasoned that New York does not follow the “rule of validation” (calling for courts to assume the parties intended to enter into a valid contract and apply the law of the state whose usury law would sustain it). The Court concluded, therefore, that the Plaintiff could predicate her FDCPA claims on a violation of New York’s criminal usury cap. Based on the foregoing, the Court granted partial summary judgment for the Defendant. The court also granted, but modified, Plaintiff’s request for class certification.

    Courts Consumer Finance Debt Collection Class Action FDCPA National Bank Act Usury

    Share page with AddThis
  • Chairman of House Judiciary Committee Introduces Major Litigation Reform Bill

    Federal Issues

    In February, Representative Bob Goodlatte (R-Va.) introduced a new bill (H.R. 985) designed to “assure fairer, more efficient outcomes for claimants and defendants” in class-action and multi-district litigation. Dubbed the “Fairness in Class Action Litigation Act of 2017,” the proposed legislation would add a number of new hurdles and disclosure requirements that must be satisfied in connection with any case seeking class certification in federal court.

    Among other things, the proposed law would: (i) provide for mandatory disclosures designed to prevent the approval of class actions in which the lawyer representing the class is a relative of a party in the class action suit; (ii) require that “any third-party funding agreement be disclosed to the district court”; and (iii) require federal circuit courts to accept any appeals of district court orders granting or denying class certification. In addition, for plaintiffs seeking “monetary relief,” the law would add an express requirement that the plaintiff “affirmatively demonstrate that each proposed class member suffered the same type and scope of injury as the named class representative.” Moreover, the bill also seeks to address disproportionately large attorney’s fee awards by, among other things, limiting class counsel’s fees to a “reasonable percentage” of the total amount of payments both “distributed to and received by class members,” and, similarly capping the total fee award to no more than that  “received by all class members.”   

    Rep. Goodlatte—who is currently serving as Chairman of the House Judiciary Committee—also authored the Class Action Fairness Act of 2005 and was also behind another class action reform bill introduced in 2015 that failed to clear the Senate . As explained by the Chairman, the proposed legislation “seeks to maximize recoveries by deserving victims, and weed out unmeritorious claims that would otherwise siphon resources away from innocent parties.”

    Federal Issues Courts Class Action House Judiciary Committee

    Share page with AddThis
  • District Court Denies Injunction Against “Operation Choke Point” Activities

    Courts

    On February 23, a U.S. District Court for the District of Columbia issued a Memorandum Opinion denying a request for injunctive relief sought by a group of payday lenders to stop “Operation Choke Point” – a DOJ initiative targeting fraud by investigating US banks and the business they do with companies believed to be a higher risk for fraud and money laundering including, but not limited to, payday lenders. Payday lenders have called the initiative a coordinated effort by federal regulators to stop banks from doing business with them, thereby threatening their survival. See Advance America v. FDIC, [Memorandum Opinion No. 134] No. 14-CV-00953-GK (D.D.C. Feb. 23, 2017). According to the lenders, the Fed, FDIC, and OCC have adopted DOJ guidance on bank reputation risk and then used that guidance to exert “backroom regulatory pressure seeking to coerce banks to terminate longstanding, mutually beneficial relationships with all payday lenders.”  The government has rejected this characterization, asserting that banks can do business with payday lenders as long as the risks are managed properly.

    Evaluating the request under the due process “stigma-plus rule,” the Court focused on whether the payday lenders could show they were likely to succeed on the merits of their case and whether or not they were likely to suffer irreparable harm without the injunction.

    Ultimately, the payday lenders were unable to convince the Court that they were likely to suffer the harm central to a “stigma-plus” claim. The Court reasoned that (i) the closure of some bank accounts would not be enough to constitute the loss of banking services, and that the lenders needed (and failed) to show that the loss of banking services had effectively prevented them from offering payday loans; and (ii) nearly all of the lenders were still in operation; and (iii) because the lenders were still able to find banks to work with, evidence of the possibility of future loss of banking services was too speculative to support an injunction.

    The Court was also not persuaded that the lenders would be able to prove that regulatory actions caused banks to deny services to petitioners. Specifically, the Court determined that the lenders were “unlikely” to be able to set forth evidence of the “campaign of backroom strong-arming” underlying petitioners’ request for injunctive relief. Specifically, the Court noted that the lenders relied on “scattered statements,” some of which the Court characterized as “anonymous double hearsay,” to support their claims. The only direct evidence, according to the Court, was actually just “evidence of a targeted enforcement action against a single scofflaw.”

    Though the Court explained that the two other factors—the balance of equities and the public interest—were of less significance in this situation, it noted in closing that “enjoining an agency’s statutorily delegated enforcement authority is likely to harm the public interest, particularly where plaintiffs are unable to demonstrate a likelihood of success on the merits.”

    Courts Consumer Finance CFPB DOJ Operation Choke Point Payday Lending Prudential Regulators Federal Reserve FDIC OCC

    Share page with AddThis
  • FDIC Announces 22 January 2017 Enforcement Actions

    Courts

    On February 24, the FDIC released its list of administrative enforcement actions taken against banks and individuals in January. Several of the consent agreements included on the list seek the payment of civil money penalties for, among other things, violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Other violations cited in the enforcement actions relate to unsafe or unsound banking practices and breaches of fiduciary duty. The FDIC database containing all of its enforcement decisions and orders may be accessed here.

    Courts Consumer Finance Enforcement FDIC

    Share page with AddThis
  • 28 State AGs File Amicus Brief with Supreme Court in Debt Collection Case

    State Issues

    On February 24, the New Mexico Attorney General, along with 27 other states and the District of Columbia, announced that his office had joined in an amicus brief filed with the Supreme Court supporting the plaintiff in Henson v. Santander. As previously covered in Infobytes, the defendant argued below—and the Fourth Circuit agreed—that the FDCPA did not apply to a consumer finance company that purchased and then sought to collect a debt in default on its own behalf because it was not a debt collector as defined in the statute. In their amicus brief, the attorneys general  oppose the Fourth Circuit holding and argue that any “company that regularly attempts to collect defaulted debt that it has purchased is a ‘debt collector’ as the FDCPA defines [the] term,” and therefore, the obligations and restrictions of the FDCPA should apply. The Supreme Court set oral arguments for April 18 of this year.

    State Issues Courts Debt Collection FDCPA State AGs U.S. Supreme Court

    Share page with AddThis
  • FinCEN and OCC Penalize CA Bank for AML/BSA Violations

    Financial Crimes

    On February 27, the Financial Crimes Enforcement Network (FinCEN) announced that it had assessed a $7 million civil money penalty against a bank specializing in providing services for check-cashers and money transmitters, for alleged “willful violations” of several Bank Secrecy Act provisions. The OCC also identified deficiencies in the bank’s practices and assessed a $1 million civil money penalty for “violations of previous consent orders entered into by [the bank].” As noted in the release, the bank’s payment of the $1 million OCC penalty will go towards satisfying the FinCEN penalty. According to FinCEN, the bank allegedly failed to (i) “establish and implement an adequate anti-money laundering program;” (ii) “conduct required due diligence on its foreign correspondent accounts;” and (iii) “detect and report suspicious activity.” Furthermore, FinCEN claims $192 million in high-risk wire transfers were processed through some of these accounts.

    Financial Crimes Courts Anti-Money Laundering Bank Secrecy Act FinCEN OCC

    Share page with AddThis

Pages