InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Arizona attorney general requests financial assistance for Arizona consumers
On March 19, Arizona’s attorney general issued a request for financial and lending institutions to provide temporary relief to their Arizona customers. The governor’s requests for institutions included taking the following actions for at least 90 days: (ii) forbearing or deferring payments on mortgages, automobile loans, and consumer loans; (ii) postponing foreclosures and evictions; (iii) ceasing automobile repossessions; (iv) waiving late fees and default interest for late payments; and (v) halting negative credit reporting.
District court dismisses class claims regarding out-of-network ATM fees
On March 4, the U.S. District Court for the Southern District of California issued an order granting five separate motions for dismissal filed by a national bank and several independent ATM operators (defendants) regarding allegations that the defendants (i) charged unwarranted fees for using out-of-network (OON) ATMs for balance inquiries; (ii) made deceptive and misleading representations on screens and on signs regarding those fees; and (iii) assessed fees in violation of governing account documents. The plaintiffs’ putative class action alleged 13 claims against the defendants for violations of California’s Unfair Competition Law (CUCL), California’s False Advertising Law (FAL), and the California Consumer Legal Remedies Act (CLRA), as well as for conversion, negligence, and breach of contract. The defendants premised their motions to dismiss on several bases, including a lack of subject matter jurisdiction, lack of personal jurisdiction, and the plaintiffs’ failure to plead the necessary elements of the claims.
The court generally agreed with the arguments made by the defendants as to the court’s lack of subject matter and personal jurisdiction. In particular, the court held that the common law claims brought on behalf of the nationwide class should be dismissed for lack of Article III standing because the named plaintiffs failed to allege they were charged the relevant balance inquiry fees in states outside of California. In addition, the court agreed with an argument raised by one defendant that the plaintiffs lacked standing to file claims for injunctive relief for violations of the CUCL, FAL, and CLRA because they failed to allege a likelihood of actual or imminent future harm; specifically, they failed to allege they intended to use the ATMs in the future to make balance inquiries. The court thereafter assessed the plaintiffs’ remaining common law and statutory claims, and in each case, granted the defendants’ motions to dismiss the claims for various failures to establish the necessary elements of each of the alleged claims. Of the 13 dismissed claims, the court permitted plaintiffs leave to amend 10 of them. The court required any amended complaint address the standing issues related to claims brought on behalf of the California and nationwide classes.
NYDFS allows increased licensed check casher fee
On February 28, NYDFS issued an industry letter to licensed check cashers in the state. Pursuant to Section 372.3 of the New York Banking Law and Part 400.11 of the Superintendent’s Regulations, the maximum fee that licensed check cashers may charge is increased to 2.23 percent of the face amount of the check, “except with respect to the cashing of checks, drafts, or money orders for payees of such checks, drafts, or money orders that are other than natural persons.” The increase takes effect March 2.
District court rejects bank’s bid to dismiss NSF suit
On February 19, the U.S. District Court for the Southern District of West Virginia denied a bank’s motion to dismiss a putative class action suit alleging the bank violated account agreements by routinely assessing more than one “non-sufficient funds fee [(NSF)] for a single attempted transaction.” According to the order, the plaintiff filed a lawsuit asserting various claims, including for breach of contract, unjust enrichment, and deceptive business practices in violation of the West Virginia Consumer Credit and Collection Act (WVCCCA) due to the bank’s alleged practice of charging multiple $36 NSF fees when customers try to make a purchase but are declined due to insufficient funds. The plaintiff claimed that the bank’s failure to clearly alert customers of its practice of charging more than one NSF fee “for a single transaction . . . is confusing or misleading conduct” and “an unlawful practice under the WVCCCA.” The bank moved to dismiss the claims, arguing among other things, that the plaintiff’s 2012 account agreement contained an arbitration clause and that federal law preempts the plaintiff’s state-law claims regarding fees imposed by national banks.
The court first disagreed with the bank on the matter of arbitration, stating that the arbitration clause contained in the 2012 account agreement may have been erased by updates the bank made in 2017 to the plaintiff’s account terms, which provided that the account would “be governed by the following terms and conditions” but omitted any mention of arbitration. As for preemption, the court ruled that the plaintiff’s state-law claims “are precisely the sort of claims that are not preempted by federal law.” (Emphasis in the original.) According to the court, “the proposition that ‘state law claims challenging fees imposed by national banks are expressly preempted by federal law’ is as overbroad as it is incorrect.” Furthermore, the court noted that the plaintiff’s “own principal citation makes this point clearly, noting that ‘it is . . . well established that true breach of contract and affirmative misrepresentation claims’—both state law torts—‘are not federally preempted.’” In addition, the court determined that it is unclear whether the bank’s account agreement governing the bank’s relationship with the customer authorized it to charge successive NSF fees per transaction. The court also concluded that it was not clear that the NSF fees could legally constitute billing errors—a contention made by the bank in its argument that the case was time-barred because the plaintiff failed to dispute the additional NSF fees within the 60-day window to challenge a billing error as permitted under the Electronic Funds Transfer Act. Explaining its reasoning, the court noted that it “struggles to conceive of a scenario in which a fee could be justified by a contract and assessed as a regular business practice, yet still be considered an ‘error’ within any reasonable definition of the word.”
ISP pays $15 million to settle with two more states on hidden fees and false advertising
On January 9, the Minnesota attorney general announced that an internet service provider (ISP) agreed to pay nearly $9 million in order to resolve allegations that it overcharged customers for phone, internet and cable services. In a separate action, on December 10, the Washington attorney general’s office announced that it entered into a $6.1 million consent decree with the same ISP to resolve similar claims of deceptive acts and practices. As previously covered by InfoBytes, the ISP entered into settlements over the same alleged actions with the states of Colorado on December 19, and Oregon on December 31.
FTC sues fuel card marketer for deceptive advertising and hidden fees
On December 20, the FTC announced it had filed suit for unfair and deceptive acts and practices in violation of the FTC Act against a fuel payment card services company (company) for its “problematic marketing and fee practices.” The FTC’s complaint, filed in U.S. District Court for the Northern District of Georgia, alleges that the company marketed the fuel payment cards to “companies that operate vehicle fleets” with false promises that the cards would provide (i) cost savings; (ii) protection from unauthorized card purchases; and (iii) “no set-up, transaction, or membership fees, including when used to purchase fuel at any of the thousands of locations nationwide that accept [the company’s] fuel cards.” In fact, according to the complaint, the company “has charged customers at least hundreds of millions of dollars in unexpected fees,” and “at least tens of millions of dollars in recurring fees for programs they have not ordered,” and, in spite of its marketing representing otherwise, the company has not provided advertised fuel savings, and has not provided fraud protection for unauthorized transactions. The complaint also claims that the company has not timely posted customer payments when received, leading to customers being levied additional fees for late charges and “related [i]nterest and [f]inance [c]harges even when the customers have paid their balance in full by the due date.” The FTC seeks permanent injunctive relief against the company to prevent future violations, as well as redress for those consumers injured by the FTC Act violations, “including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
Internet provider and states agree to nearly $12.5 million for false advertising, hidden fees
On December 19, the Colorado attorney general announced that an internet service provider (ISP) agreed to pay nearly $8.5 million in order to resolve allegations that it “unfairly and deceptively charg[ed] hidden fees, falsely advertis[ed] guaranteed locked prices, and fail[ed] to provide discounts and refunds it promised” to Colorado consumers in violation of the Colorado Consumer Protection Act. According to the announcement, in 2017 the AG’s office investigated the ISP and compiled information that the ISP had “systematically and deceptively overcharged consumers for services” since 2014 (see the complaint filed by the AG here). In the settlement, the ISP agreed to an order that requires it, among other things, to (i) refrain from making false and misleading statements to consumers in the marketing, advertising and sale of its products and services; (ii) accurately communicate monthly base charges as well as one-time fees, taxes, and other fees and surcharges to consumers; (iii) disclose any “internet cost recovery fee” or “broadband recovery fee” to consumers being charged the fees and allow the affected consumers to switch to different services if they wish to avoid the fees; (iv) refrain from charging an “internet or broadband cost recovery fee” on new orders; and (v) provide refunds to customers who were overcharged for services and to those customers who did not previously receive discounts that the ISP promised.
In a separate action, on December 31, the Oregon attorney general’s office announced that it entered into a $4 million Assurance of Voluntary Compliance with the same ISP to resolve similar claims of deceptive acts and practices in the advertising, sale, and billing of the ISP’s internet, telephone and cable services in violation of the Oregon Unlawful Trade Practices Act. According to the announcement, the Oregon DOJ started an investigation of the ISP in 2014 for allegedly “misrepresenting the price of services, failing to inform consumers of terms and conditions that could affect the price, and billing consumers for services they never received.” The ISP agreed to requirements that are very similar to those in the Colorado settlement. The announcement notes that the “Oregon DOJ will continue to lead a separate securities class action lawsuit arising from the same conduct.”
Lawsuit says Prepaid Accounts Rule is “arbitrary and capricious”
On December 11, a payments company filed a lawsuit against the CFPB in the U.S. District Court for the District of Columbia alleging that the Bureau’s Prepaid Account Rule (Rule), which took effect April 1 and provides protections for prepaid account consumers, exceeds the agency’s statutory authority and is “arbitrary and capricious” under the Administrative Procedures Act (APA). The company further asserts that the Rule violates its First Amendment rights by requiring it to make confusing disclosures that contain categories not relevant to the company’s products. According to the complaint, the Rule mandates that the company send “short form” fee disclosures to customers that include references to fees for ATM balance inquiries, customer service, electronic withdrawal, international transactions, and other categories, and “prohibits [the company] from including explanatory phrases within the disclosure box to describe the nature of these fee categories.” These disclosures, the company asserts, have confused many customers who mistakenly believe the company charges fees to access funds stored as a balance with the company, to make a purchase with a merchant, or to send money to friends or family in the U.S. The company also claims that the Bureau erroneously lumped it into the same category as providers of general purpose reloadable cards (GPR cards), and argues that the Rule ignores how prepaid cards fundamentally differ from digital wallets, which has resulted in several unintended consequences.
The company asserts that the Rule is unlawful and invalid under the APA and the Constitution for three principal reasons:
- The Rule contravenes the Bureau’s statutory authority by (i) establishing a mandatory and misleading disclosure regime that is not authorized by federal law; and (ii) “impos[ing] a 30-day ban on consumers linking certain credit cards to their prepaid account—a prohibition the law nowhere authorizes the Bureau to impose.”
- Even if the Bureau possesses the statutory authority it claims to have, the rulemaking process was “fundamentally flawed” due to its one-size-fits-all Rule that misunderstands the different characteristics of digital wallets compared to GPR cards. By treating digital wallets as if they are GPR cards, the Rule violates the APA’s reasoned decision-making requirement. Additionally, the Rule is marked by “an insufficient cost-benefit analysis that failed to properly weigh the limited benefits consumers might derive from the Rule against the costs” stemming from the Rule’s changes.
- The Rule violates the First Amendment by failing to satisfy the heightened standard that a law or regulation “directly advances a substantial government interest” because it requires the company to makes certain disclosures that are irrelevant to its digital wallet product. Moreover, the Rule’s disclosure obligations “functionally impair the speech in which [the company] might otherwise engage” by mandating that it provide confusing and misleading disclosures about the nature of its offerings.
The complaint asks that the Rule be vacated and declared arbitrary, an abuse of discretion, not in accordance with the law, and unconstitutional, and additionally seeks injunctive relief, attorneys’ fees and costs.
DOJ charges short-sale negotiators with fraud
On November 8, the DOJ announced that it charged the principals and co-founders (collectively, “defendants”) of a mortgage short sale assistance company with allegedly defrauding mortgage lenders and investors out of half a million in proceeds from short sale transactions. The DOJ also alleged the defendants’ actions defrauded Fannie Mae, Freddie Mac, and HUD. According to the announcement, from 2014 to 2017, the defendants negotiated with lenders for approval of short sales in lieu of foreclosure, and falsely claimed during settlement that the lenders had agreed to pay loss mitigation service fees from the proceeds of short sales. The defendants allegedly obtained around 3 percent of the short sale price from the settlement agent, which was separate from fees paid to real estate agents and closing attorneys, among others. In order to further deceive lenders, the defendants would then file fabricated documents to justify or conceal the additional fees being paid to the company. The defendants were charged with conspiracy to commit wire fraud, and one co-founder was also charged with aggravated identity theft.
District Court certifies payday lending class action
On October 31, the U.S. District Court for the District of New Jersey certified two classes of consumers alleging a payday lender and its subsidiaries charged usurious, triple-digit interest rates on short-term loans originated by a nonparty entity run by a member of a federally recognized Indian tribe. The lawsuit—which alleges, among other things, usury and consumer fraud in violation of New Jersey law, common law restitution and unjust enrichment, and violations of the Racketeer Influenced and Corrupt Organizations Act—was filed in 2016 with the defendants arguing that the claims were subject to an arbitration provision accompanying the loan agreement. However, as previously covered by InfoBytes, the U.S. Court of Appeals for the Third Circuit upheld the district court’s decision that the tribal arbitration forum referenced in the loan agreement does not actually exist and, “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.
According to the plaintiffs, the defendants evaded state law usury limits by attempting to use the sovereignty of an Indian tribe, with most loans carrying an annual percentage interest rate of 139 percent. While the defendants challenged the notion that common questions about the loan agreements predominated over the individual concerns of each class member, the court determined that the loan agreements at issue have an identical structure of interest amortized over a fixed payment schedule. “Plaintiffs have therefore shown that they can use common evidence to prove their [Consumer Fraud Act] claims, and that common questions predominate,” the court stated. “Namely the nearly identical, allegedly usurious loan agreements, which caused an out of pocket loss in the form of usurious interest.” The court also dismissed the defendants’ argument that the plaintiffs’ suit was inferior to a 2018 CFPB action, which resulted in a $10.3 million civil money penalty but no restitution (previous InfoBytes coverage here), stating that “[i]ncredibly, [d]efendants argue that this CFPB action, which denied any recovery to the putative class members here, is a superior means for them to obtain relief.”