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CFPB gets $29.2 million judgment in mortgage relief suit
On August 1, the U.S District Court for the Western District of Wisconsin granted over $29.2 million to the CFPB, revising a $59 million judgment that was thrown out by the U.S. Court of Appeals for the Seventh Circuit last year. As previously covered by InfoBytes, in July 2021, the 7th Circuit vacated a 2019 restitution award in an action brought by the CFPB against two former mortgage-assistance relief companies and their principals (collectively, “defendants”) for violations of Regulation O. In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, including the defendants, alleging they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). The district court’s 2019 order (covered by InfoBytes here) held one company and its principals jointly and severally liable for over $18 million in restitution, while another company and its principals were held jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
According to the recent opinion and order, the district court concluded that it would be “appropriate” to characterize the redress as legal restitution because the “plaintiff’s claim is against defendants generally and not one, identifiable fund or asset,” calling it “valid and necessary” for consumers to be compensated for the advance fees they paid. Instead of ordering “complete restitution,” the district court noted it would require the defendants to “refund 50% of the moneys paid, which plaintiff shall return directly to the injured parties to the extent practical,” because the 7th Circuit “found that defendants' conduct was not the product of reckless disregard of the CFPA, but rather a failure to fit themselves under an exception for the delivery of legal services.”
11th Circuit reverses class action settlement in TCPA case
On July 27, the U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a district court’s approval of a class action certification and settlement agreement in an TCPA action after determining that the plaintiff lacked Article III standing in light of the U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez (covered by InfoBytes here). According to the opinion, the plaintiff sued the defendant, alleging it violated the TCPA by calling and texting her “solely to market its services and products through a prohibited automatic telephone dialing system.” After the case was consolidated, and after negotiating with the defendant, the plaintiffs submitted a proposed class settlement agreement that established a settlement fund of $35 million to the 1.26 million settlement class members, who would receive either a $35 cash payment or a $150 voucher for the defendant’s services. The district court had noted Salcedo v. Hanna, in which the 11th Circuit held “that receipt of a single unwanted text message was not a sufficiently concrete injury to give rise to Article III standing,” and that “the proposed class definition included individuals who received only one text message from [the defendant].” The district court determined that “even though some of the included class members would not have a viable claim in the Eleventh Circuit, they do have a viable claim in their respective Circuit [because of a circuit split]. Thus, [the defendant] is entitled to settle those claims in this class action although this Court would find them meritless had they been brought individually in the Eleventh Circuit”
On appeal, the 11th Circuit noted that TransUnion LLC v. Ramirez held that “every class member must have Article III standing in order to recover individual damages.” The appellate court further noted that “TransUnion says that we can’t award damages to plaintiffs who do not have Article III standing. And Article III standing goes to the heart of our jurisdiction to hear cases in the first place. It further stated that the court “cannot … check [its] Article III requirements at the door of the class action. Any class definition that includes members who would never have standing under our precedent is a class definition that cannot stand.”
Court grants final approval of privacy class action settlement
On July 20, the U.S. District Court for the Northern District of California granted final approval of a class action settlement in a suit against a fintech company alleged to have accessed the personal banking data of users without first obtaining consent, in violation of California privacy, anti-phishing, and contract laws. As previously covered by InfoBytes, the district court granted preliminary approval of the $58 million settlement in November. In granting final approval of the settlement, the court determined it was adequate, and noted that the plaintiffs’ claim that the defendant’s practices breached California’s anti-phishing law was “relatively untested.” In addition to the $58 million settlement fund, the settlement provides for injunctive relief.
Louisiana appellate court affirms district court’s decision in SCRA case
On June 29, the Court of Appeal for the Second District of Louisiana affirmed a trial court’s grant of summary judgment in favor of a national bank in an SCRA case. According to the opinion, an active duty servicemember and his wife filed for bankruptcy after purchasing a mortgage on a property from a national bank (defendant). The defendant appeared in the bankruptcy proceedings and moved to abandon the property for purposes of eventual foreclosure. The plaintiffs moved out of the state and were granted a discharge under Chapter 7 bankruptcy laws. The defendant has not foreclosed on the property, asserting that the mortgage account remains subject to the protections of the federal SCRA. The plaintiffs filed suit, claiming ownership of the property due to the defendant’s failure to foreclose against them within five years of the abandonment of the property in the bankruptcy, asserting that their obligations under the mortgage are prescribed.
The appellate court agreed that the mortgage account is subject to the protections of the SCRA, which tolls any state prescriptive period for the duration of one’s active-duty military service. According to the opinion, despite “no evidence of repayment” to the bank of any of the underlying mortgage debt, the plaintiffs claimed ownership of the subject property because the bank failed to “foreclose against them within five years of the abandonment of the property in the bankruptcy.” Agreeing with the bank that the mortgage account still remained subject to the protections of the SCRA, the court determined that: (i) the servicemember and his wife “cannot point to any law or jurisprudence that would provide an exception to the mandatory tolling provision of the SCRA [50 U.S.C. § 3936] in these circumstances;” (ii) the couple “never executed a waiver of rights form”; (iii) the “five-year prescriptive period [under Louisiana law] has been tolled on the mortgage” for the entirety of the servicemember’s active-duty military service; and (iv) the bank’s time to foreclose on the subject property “has not prescribed, as the prescriptive period has not started to run.” The appellate court concluded that the couple’s “obligations on the mortgage have not been extinguished, and they are not the owners of the subject property.”
District Court grants final approval in a FCRA case remanded by the 9th Circuit
On December 15, the U.S. District Court for the Northern District of California granted final approval of a plaintiff’s motion for preliminary approval in a class action settlement in a FCRA case. In a class action against a credit reporting agency (CRA) for allegedly violating FCRA by erroneously linking class members to criminals and terrorists with similar names in a database maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the district court ruled that all class members had standing to assert their FCRA claims. The jury returned a verdict for the plaintiffs and awarded punitive damages. As previously covered by InfoBytes, in February 2020, the 9th Circuit reduced the punitive damages award and affirmed the district court’s ruling that all class members had standing due to, among other things, the CRA’s alleged “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm.” As previously covered by InfoBytes, in April 2020, the 9th Circuit granted a joint motion to stay the mandate pending the CRA’s filing of a petition for writ of certiorari with the U.S. Supreme Court. The Supreme Court granted the CRA’s petition for certiorari and reversed the 9th Circuit’s finding on standing, holding that the class members whose credit reports were not provided to third-party businesses did not suffer a concrete harm and thus did not have standing to assert their “reasonable procedures” claims under the FCRA. The Court also held that none of the class members had standing to pursue the disclosure claims under the FCRA because they had not “suffered a concrete harm.” The Ninth Circuit remanded to the district court for further proceedings consistent with the Supreme Court’s ruling.
The parties participated in a mediation and reached a class-wide settlement. The plaintiff moved for preliminary approval, which the district court granted on July 19. The settlement class is composed of two categories of individuals: (1) the 1,853 class members that the defendant CRA identified in its pre-trial stipulation as individuals for whom the defendant had delivered a credit report containing OFAC data to a third-party, and (2) class members from the remaining group of 6,332 individuals not identified in the stipulation who submit a claim demonstrating publication of OFAC data to a third-party during the class period. The Settlement agreement, among other things, requires the defendant to establish a settlement fund of $9 million, which includes attorney fees and costs.
District court partially grants summary judgment in FDCPA suit
On July 12, the U.S. District Court for the Northern District of Alabama partially granted a plaintiff’s motion for summary judgment in an FDCPA case. According to the memorandum opinion, the plaintiff purchased a home security system, which, after a period of time, she transferred to someone else. The account became delinquent and the plaintiff began receiving collection letters from a debt collection agency regarding the debt owed to the security company. The plaintiff filed for bankruptcy protection. More than two years later, the debt collection agency assigned plaintiff’s account to the defendant for collection. The plaintiff contended that the defendant violated the FDCPA because when it contacted her – via a text message and several alleged telephone calls – to collect a debt on behalf of the debt collection agency, she was a party to Chapter 13 bankruptcy proceedings in which the alleged debt was listed. The defendant argued that the text message was not an attempt to collect on the debt because it made no demand or request for payment. The district court disagreed, based on the “plain language” of the text message, which stated, “This communication is from a debt collector, this is an attempt to collect a debt.” The text message also referenced a specific debt, thus making the text a “false representation” because it asserted that money was due. The defendant also argued that it should be entitled to the FDCPA’s bona fide error defense. The district court found that the defendant’s actions were “not intentional,” stating that “[w]hen it sent the text message, [the defendant] was not aware that [the plaintiff] had filed for bankruptcy or was represented by an attorney in connection with the debt.” The district court continued, “Moreover, [the plaintiff] had not notified [the defendant] in writing that she refused to pay the debt or that she wished communications to cease. Thus, [the defendant] did not deliberately contact a debtor who had filed for bankruptcy, was represented by an attorney, was refusing to pay the debt, or wished communications to cease.” Though the district court found that the defendant’s error was bona fide, it held that the defendant’s procedure of “relying exclusively” on the collection agency that had assigned the debt to defendant, without any “internal controls,” was “not reasonably adapted to avoid” the error at issue—and thus the defendant was not entitled to the bona fide error defense.
4th Circuit: Borrower must return loans proceeds to rescind reverse mortgage
On July 14, the U.S. Court of Appeals for the Fourth Circuit held that a borrower has three years to rescind a reverse mortgage loan if a lender fails to provide required TILA disclosures, but that in order for the cancellation of the loan to be complete the proceeds must be returned. The borrower attempted to rescind a reverse mortgage she took out on her home after discovering the lender allegedly did not provide required TILA disclosures at closing. She notified the lender seeking to rescind the mortgage, but later sued after the lender failed to honor her rescission rights as required by Section 1635(b) of TILA. At trial, a jury sided with the lender, finding that it did not fail to honor the borrower’s attempt to rescind the loan. However, the district court issued judgment as a matter of law for the borrower, holding that the lender violated TILA’s requirements following the borrower’s notice of rescission, and ruling that because of this failure, the borrower was not required to return $60,000 in loan proceeds. The lender appealed.
In vacating the district court’s order granting judgment as a matter of law, the appellate court held that the district court’s ruling violated TILA’s recission provisions, which are intended to return all parties to their status prior to the loan agreement. “To decide otherwise would bestow a remarkable windfall on a borrower and penalty on the lender divorced from the text of TILA and the entire purpose of rescission,” the Fourth Circuit wrote. Moreover, the appellate court concluded that while a lender’s obligations in response to a rescission notice are mandatory, nothing in Section 1635(b) “specifies that if the lender fails to take these actions, it loses its right to the monies it loaned to the borrower.”
District Court rules nonsignatory to credit card agreement cannot compel arbitration in debt collection case
On July 11, the U.S. District Court for the Central District of California denied a law firm defendant’s motion to compel arbitration in an FDCPA case. According to the order, the plaintiff’s credit card, opened with a South Dakota-based bank, was stolen and charged more than $8,500. The plaintiff claimed that the original creditor did not investigate, refused to remove the charges, and attempted to collect on the debt. The creditor filed suit against the plaintiff to collect, and the plaintiff sought to move the case to arbitration. The creditor placed the account with the defendant, a debt collection law firm, whom the plaintiff then sued in federal court alleging unlawful collection attempts. The defendant sought to compel arbitration, based on the arbitration clause in the original agreement between the plaintiff and the creditor. The district court held that South Dakota law governed the card agreement, and a court ruling from that state’s Supreme Court held that nonsignatories to an arbitration agreement can compel arbitration only where (i) the plaintiff alleged “substantially interdependent and concerted misconduct” between the signatory and nonsignatory; or (ii) the plaintiff’s claims against the nonsignatory arises out of the agreement. The district court stated that the plaintiff did not allege, nor could the district court infer, that the defendant worked “in concert” with the creditor to unlawfully collect the debt, but rather that it did not follow reasonable procedures under the FDCPA. Additionally, the district court held that the plaintiff’s claims did not arise out of the arbitration provision. Therefore, the nonsignatory defendant could not rely on the provision to compel arbitration.
Florida appeals court: Injury required for FACTA standing
On July 13, a Florida District Court of Appeals affirmed the dismissal of Fair and Accurate Credit Transactions Act (FACTA) class claims brought against a defendant shoe company after determining that the lead plaintiff lacked standing because he suffered no “distinct or palpable” injury. The plaintiff first filed a class action suit in federal court, claiming a receipt he received from the company included 10 digits of his credit card number—a violation of FACTA’s truncation requirement, which only permits the last five digits to be printed on a receipt. The plaintiff did not allege that his credit card was used, lost, or stolen in any way, nor was evidence presented to show there was any danger of his credit card being used. The suit was stayed pending the resolution of a different FACTA dispute in the U.S. Court of Appeals for the Eleventh Circuit. As previously covered by InfoBytes, a split en banc 11th Circuit concluded that the plaintiffs in that separate action lacked standing because they did not allege any concrete harm and vacated a $6.3 million settlement. Specifically, the en banc majority rejected the named plaintiff’s argument that “receipt of a noncompliant receipt itself is a concrete injury,” and noted that “nothing in FACTA suggests some kind of intrinsic worth in a compliant receipt.”
Following the 11th Circuit decision, the parties agreed to dismiss the federal action and remanded a later-filed action to state court where the plaintiff argued that “state standing was plenary and therefore less restrictive than federal standing.” The trial court disagreed and granted the defendant’s motion to dismiss, ruling that “Florida requires a concrete injury to have standing,” and “alleging a mere statutory violation does not convey standing per se.” The trial court ruled that “obtaining a receipt in alleged violation of FACTA does not satisfy this requirement,” and the appeals court agreed, holding that, among other things, no actual damages occurred since nothing was alleged to have been charged to the plaintiff’s account, nor was there the imminent possibility of injury because the plaintiff retained possession of the receipt. In its opinion, the appellate court cited the U.S. Supreme Court’s decisions in Spokeo and TransUnion with approval, noting that “individuals ‘must allege some threatened or actual injury resulting from the putatively illegal action.’”
California mortgage lender to pay $1 million to settle fraud allegations
Recently, the United States Attorney for the Eastern District of Washington announced a settlement with a California-based mortgage lender to resolve allegations that it “improperly and fraudulently” originated government-backed mortgage loans insured by FHA, resulting in losses to the government when borrowers defaulted on their mortgages. The settlement concludes a joint investigation conducted by the U.S. Attorney’s Office and the Offices of Inspector General for the Department of Veterans Affairs and HUD, which commenced as required by the False Claims Act after a whistleblower (a former loan processor) filed a qui tam complaint against the lender in 2019. The whistleblower claimed that between December 2011 and March 2019, the lender knowingly underwrote certain FHA mortgages and approved some mortgages for insurance that failed to meet FHA requirements or qualify for insurance. The whistleblower further alleged that the lender “knowingly failed to perform quality control reviews that it was required to perform.”
“By improperly originating ineligible mortgages, lenders take advantage of the limited resources of the FHA program and unfairly pass the risk of loss onto the public,” the U.S. Attorney said. According to the announcement, the lender agreed to pay more than $1.03 million under the terms of the settlement agreement. The whistleblower will receive $228,172 of the settlement proceeds, plus attorney’s fees, expenses, and costs.