InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Court vacates mandatory disclosures and 30-day credit linking restriction in Prepaid Accounts Rule
On December 30, the U.S. District Court for the District of Columbia granted a payment company’s motion for summary judgment against the CFPB, vacating two provisions of the agency’s Prepaid Account Rule: (i) the short-form disclosure requirement “to the extent it provides mandatory disclosure clauses”; and (ii) the 30-day credit linking restriction. As previously covered by InfoBytes, the company filed a lawsuit against the Bureau alleging, among other things, that the Bureau’s Prepaid Account Rule exceeds the agency’s statutory authority “because Congress only authorized the Bureau to adopt model, optional disclosure clauses—not mandatory disclosure clauses like the short-form disclosure requirement.” The Bureau countered that it had authority to enforce the mandates under federal regulations, including the Electronic Fund Transfer Act (EFTA), TILA, and Dodd-Frank, arguing that the “EFTA and [Dodd-Frank] authorize the Bureau to issue—or at least do not foreclose it from issuing—rules mandating the form of a disclosure.” The Bureau also claimed that its general rulemaking power under either TILA or Dodd-Frank provides authority for the 30-day credit-linking restriction.
With respect to the mandatory disclosure clauses of the short-form requirement in 12 CFR section 1005.18(b), the court concluded, among other things, that the Bureau acted outside of its statutory authority. The court stated that “Congress underscored the need for flexibility by requiring the Bureau to ‘take account of variations in the services and charges under different electronic fund transfer systems’ and ‘issue alternative model clauses’ for different account terms where appropriate” and it could not “presume—as the Bureau does—that Congress delegated power to the Bureau to issue mandatory disclosure clauses just because Congress did not specifically prohibit them from doing so.”
In striking the mandatory 30-day credit linking restriction under 12 CFR section 1026.61(c)(1)(iii), the court determined that “the Bureau once again reads too much into its general rulemaking authority.” First, the court determined that neither TILA nor Dodd-Frank vest the Bureau with the authority to promulgate substantive regulations on when consumers can access and use credit linked to prepaid accounts. Second, the court deemed the regulatory provision to be a “substantive regulation banning a consumer’s access to and use of credit” under the disguise of a disclosure, and thus invalid.
OCC releases 2021 fees and assessments schedule
On December 1, the OCC issued Bulletin 2020-106, which informs all national banks, federal savings associations, and federal branches and agencies of foreign banks of the agency’s 2021 fees and assessment rates. For 2021, the OCC is reducing the rates in all fee schedules by 3 percent, which “reflects cost savings in the OCC’s operations and projections of the OCC’s revenues and expenses.” Additionally, the OCC notes that for the 2021 assessment year, among other things, (i) there will be no inflation adjustment to assessment rates; (ii) new entrants to the federal banking system will be assessed on a prorated basis using call report information as of December 31 or June 30, depending on the entrance date; and (iii) the hourly fee for special examinations and investigations will increase from $140 to $150. The bulletin takes effect January 1, 2021.
Fed’s final rule modifies assessment fees for large financial companies
On November 19, the Federal Reserve Board issued a final rule modifying the annual assessment fees for its supervision and regulation of large financial companies. The final rule is nearly identical to the proposal issued in November 2019, covered by InfoBytes here. The final rule raises the minimum threshold from $50 billion to $100 billion in total consolidated assets to be considered an assessed company and adjusts the amount charged to assessed companies, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule will be effective 30 days after publication in the Federal Register.
New York requires financial institutions to provide written notice prior to charging account inactivity fees
On November 11, the New York governor signed S4188, which requires financial institutions to provide written notice to an account holder 30 days prior to charging any fee based on account inactivity. The provision applies to financial institutions as well as mortgage brokers, mortgage bankers, or other investment entities, “whether headquartered within or outside the state.” E-mail notifications will also satisfy the written notice requirement. The act will take effect 90 days after it was signed.
Online bank reaches settlement with customers over service disruption
On October 28, the U.S. District Court for the Northern District of California issued an order granting preliminary approval of a putative class action settlement concerning allegations that an online bank’s service disruption prevented customers from accessing their account, including through card purchases and ATM withdrawals. The plaintiffs also claimed that after the service disruption, “some customers reported incorrect account balances and unauthorized charges.” The plaintiffs alleged, among other things, claims for negligence, unjust enrichment, breaches of contract and fiduciary duty, conversion, and violations of several state laws. Following a series of settlement negotiations, the parties entered into an amended settlement identifying the settlement class as “[a]ll consumers who attempted to and were unable to access or utilize the functions of their accounts with [the defendant], as confirmed by a failed transaction or locked card as recorded in [the defendant]’s business records, beginning on October 16, 2019 through October 19, 2019, as a result of the Service Disruption.” Under the settlement, tier one customers who are unable or choose not to provide documentation substantiating their alleged losses can receive up to $25 for verified claims. Tier two customers who can show “‘reasonable documentation’ to substantiate their loss” can receive their verified loss, up to $750. The defendant has agreed to set aside $4 million to cover tier one claims and $1.5 million to cover tier two claims. The defendant is also required to make a minimum payment of $1.5 million in addition to the nearly $6 million it already paid to active customers in connection with the service disruption in the form of $10 “courtesy” payments, as well as credits the defendant issued to customers “who incurred ‘certain transaction fees’” during the service disruption.
Parties file unopposed settlement requiring credit union to pay $16 million to resolve insufficient funds fee lawsuit
On October 21, class members filed an unopposed motion for preliminary approval of a class action settlement in the U.S. District Court for the Eastern District of Virginia, which would—if approved—require a national credit union to establish a $16 million common fund, pay all settlement administration costs, and modify its account agreement policy to clarify how it assesses insufficient funds fees. The named plaintiff filed a lawsuit against the credit union alleging that its fee-assessment practices for insufficient funds violated her agreement with the credit union. According to the named plaintiff, the credit union charged multiple $29 insufficient funds fees (NSF fees) per transaction, even though she argued her contract only permitted the credit union to charge one NSF fee per transaction, “regardless of how many times the merchant re-presents the debit item or check for payment.” The credit union, however, denied that its NSF fee assessment practices violated the law or were in breach of member contracts. While the court originally dismissed the suit for failure to state a claim, on appeal, the U.S. Court of Appeals for the Fourth Circuit stayed further proceedings to allow the parties to mediate an agreement. If approved, class members will not be required to file claims to receive settlement benefits.
District court allows some claims to proceed in ATM-fee action
On September 28, the U.S. District Court for the Southern District of California allowed fraud claims under California’s Unfair Competition Law (UCL) and breach of contract claims to proceed against a national bank and several independent ATM operators (collectively, “defendants”) in a putative class action alleging 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. As previously covered by InfoBytes, the class action alleged 13 claims against the defendants for violations of, among other things, the UCL, and claims for conversion, negligence, and breach of contract. In March, the court dismissed all 13 claims but allowed the plaintiffs leave to amend a number of them. After the plaintiffs filed their amended complaint, the defendants subsequently submitted four new motions to dismiss.
The court denied dismissal of the UCL claims against all ATM operators, concluding that the plaintiffs sufficiently alleged claims under the fraud prong. Specifically, the court noted that the plaintiffs provided details with enough particularity, such as the date and location and examples of the specific screen prompts, which established that the ATM operators “employed a misleading series of screen prompts at the ATM machines to trick Plaintiffs, and other accountholders, into engaging in OON balance inquiries.” However, the court dismissed all the unjust enrichment claims and one plaintiff’s breach of contract claim against the national bank, concluding, among other things, that the dispute between the plaintiffs and national bank is covered by a “valid and enforceable written agreement,” which precludes the assertion of unjust enrichment. Moreover, the court allowed two plaintiffs’ breach of contract claims to proceed against the national bank, determining that “[b]oth parties have set forth reasonable, opposing interpretations of the [account agreement],” and the plaintiffs’ definition of “balance inquiry” under the agreement is at least plausible. Thus, the court denied dismissal as to those claims.
Federal Reserve Board extends temporary actions on intraday credit availability
On October 1, the Federal Reserve Board extended certain temporary actions that are designed to increase the availability of intraday credit to mitigate the impact of Covid-19. The temporary actions were previously announced on April 23 (previously covered here), and include: (1) suspending uncollateralized intraday credit limits and waiving overdraft fees for eligible institutions; (2) permitting a streamlined procedure to request collateralized intraday credit; and (3) suspending two collections of information that are used to calculate net debit caps. The actions are extended to March 31, 2021.
District court rescinds arbitration order in ATM and overdraft fee case
On August 10, the U.S. District Court for the Southern District of California agreed to reconsider a prior decision, which granted a bank’s motion to compel arbitration in connection with a lawsuit concerning the bank’s assessment of two types of fees. As previously covered by InfoBytes, the court compelled arbitration of a plaintiff’s lawsuit asserting claims for breach of contract and violation of California’s Unfair Competition Law due to the bank’s alleged practice of charging fees for out-of-network ATM use and overdraft fees related to debit card transaction timing. The court concluded that even if the California Supreme Court case McGill v. Citibank rule— which held that an arbitration agreement is unenforceable if it constitutes a waiver of the plaintiff’s substantive right to seek public injunctive relief (covered by a Buckley Special Alert here)—was applicable to a contract, it would not survive preemption as the U.S. Supreme Court has “consistently held that the Federal Arbitration Act (FAA) preempts states’ attempts to limit the scope of arbitration agreements,” and “the McGill rule is merely the latest ‘device or formula’ intended to achieve the result of rendering an arbitration agreement against public policy.”
The plaintiff moved for the court’s reconsideration after the U.S. Court of Appeals for the Ninth Circuit issued opinions in Blair v. Rent-ACenter, Inc. et al and McArdle v. AT&T Mobility LLC). In Blair (and similarly in McArdle), the 9th Circuit concluded that McGill was not preempted by the FAA. The appellate court found that McGill does not interfere with the bilateral nature of a typical arbitration, stating “[t]he McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims.” (Covered by InfoBytes here.)
The court granted the plaintiff’s motion, concluding that the public injunction waiver in the account agreement is “encompassed by McGill” and therefore, the arbitration agreement is “invalid and unenforceable,” and because the arbitration agreement includes a non-severability clause, the “clause plainly invalidates the entire arbitration agreement section as a result of the invalidity and unenforceability of the public injunction waiver provision therein.”
OCC amends 2020 assessment structure
On August 7, the OCC released an amended fees and assessments structure for 2020 due to the Covid-19 pandemic. The announcement includes information on the OCC’s interim final rule (covered by InfoBytes here), which intended to lower assessments for supervised banks making assessments due on September 30 based on the December 31, 2019 Call Report for each institution, rather than the June 30 Call Report. Additionally, the OCC notes that for the 2020 assessment year, among other things, (i) there will be no inflation adjustment to assessment rates; (ii) new entrants to the federal banking system will be assessed on a prorated basis using call report information as of December 31 or June 30, depending on the entrance date; and (iii) the hourly fee for special examinations and investigations is increasing from $110 to $140.