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  • District Court preliminarily approves data breach class action settlement

    Privacy, Cyber Risk & Data Security

    On August 24, the U.S. District Court for the Southern District of New York preliminarily approved a putative consolidated class action settlement that would reimburse members for out-of-pocket costs or expenditures actually incurred in connection with a February 2020 data breach. According to class members’ memorandum in support of their motion for preliminary approval of the settlement, the data breach may have exposed the personal financial information (PFI) of approximately 10,300 individuals, including names, addresses, Social Security numbers, driver’s license numbers, bank account numbers, passport numbers, dates of birth, and other information. Class members alleged that defendants failed to adequately protect the PFI of current and former employees and their beneficiaries, and that the resulting data breach “was a direct result of defendants’ failure to implement adequate and reasonable cybersecurity procedures and protocols necessary to protect PFI.” If granted final approval, the settlement will provide each class member the opportunity to make a claim for up to $3,500 in reimbursements for out-of-pocket expenses actually incurred, and compensation for up to four hours of lost time spent remedying issues fairly traceable to the data breach at $18 per hour. Additionally, class members will be given 18 months of credit monitoring protections.

    Privacy, Cyber Risk & Data Security Courts Data Breach Settlement Class Action

  • District Court sends cryptocurrency hack suit to arbitration

    Courts

    On August 24, the U.S. District Court for the Eastern District of New York granted a motion to compel arbitration in an action claiming that a mobile communications company’s failure to protect the personal information of a cryptocurrency company founder allowed a hacker to steal $8.7 million in cryptocurrency. The cryptocurrency company and its founder sued the defendant citing violations of the Federal Communications Act and the New York Consumer Protection Act, along with numerous negligence claims. Plaintiff alleged that due to lack of safeguards, a hacker conducted an unauthorized “SIM swap” and used the plaintiff’s personal information to access his cryptocurrency wallets and exchange accounts. Plaintiff further claimed that even though it reported the SIM swap to the defendant, “[m]ore attacks continued to succeed over the following years.” The defendant moved to compel arbitration claiming that the plaintiff electronically signed receipts agreeing to terms and conditions which require the arbitration of disputes unless a customer opts-out. The plaintiff countered that “he was not shown the full terms and conditions to his service; that he could not conduct a ‘complete review and inspection’ of the digital receipt because of the screen’s small size, resolution, and inadequate backlighting; that the displayed receipt did not permit hyperlinked review of the full terms; that the display did not affirmatively seek his consent to arbitration by requiring he press a button or check a box; that the full terms were not separately provided in another form; and that his consent was not otherwise confirmed by [defendant] personnel.”

    The court found that had the plaintiff “simply thought he was signing a receipt for equipment purchases–and had no idea that any terms and conditions were displayed on the digital device he signed–the court might have concluded that there remained a question of fact suitable for resolution by a jury.” However, the court found that the plaintiff “never claimed that he was unaware that his transactions with [defendant] carried terms and conditions” nor did he allege that he never received “a notice indicating the existence of the terms” even though the court specifically asked the parties to establish these facts in limited discovery. Accordingly, the court ruled that the plaintiff was on notice of defendant’s terms and agreed to them, thus compelling arbitration.

    Courts Digital Assets State Issues Cryptocurrency Arbitration New York Federal Communications Act

  • Court grants summary judgment in payday lender suit

    Courts

    On August 23, a Municipal Court in Ohio granted a defendant’s motion for summary judgment in a case involving payday lending. According to the order, the plaintiff’s complaint alleged that the defendant, in April 2019, executed a Line of Credit and Security Agreement with a lender in the amount of $1,101, and agreed to repay amounts advanced within a 30-day billing cycle pursuant to certain fees and a 24.99 percent interest rate. The complaint further alleged that defendant failed to make timely payment, and thereafter plaintiff, as assignee of the lender, sought to enforce the agreement. In her answer, the defendant denied entering any such agreement and characterized the transaction as “a $500 loan,” asserting that this case “involves an illegal scheme by [the short-term cash lender, the mortgage lender, and the plaintiff] to issue and collect illegal payday loans under a scheme to attempt to evade compliance with new state lending laws. The plaintiff asserted counterclaims for violations of the Short-Term Loan Act, the Mortgage Loan Act, Ohio Consumer Sales Practices Act, and for civil conspiracy.

    On motion for summary judgment, the defendant argued that she was entitled to judgment on “Plaintiff's complaint because the parties’ April 2019 agreement ‘is void because it was made in violation of Ohio lending and consumer laws.’” The defendant presented two arguments: (i) the lender is not licensed under the Short-Term Loan Act to issue a loan less than $1000; and (ii) the lender is “prohibited from engaging in acts or practices to evade the prohibition against Mortgage Loan Act registrants issuing loans for $1,000 or less or that have a duration of one year or less.”

    In granting summary judgment for the defendant, the court found that the underlying transaction was an “open-end loan under the plain language” of the Mortgage Loan Act, and that it was not a loan for $1,000 or less or one with a duration of one year or less under the Mortgage Loan Act, but that by using the security agreement framework, the lender engaged in an act or practice to evade the Mortgage Loan Act’s prohibition. The court found that the evidence showed defendant went to the lender for a simple loan under $1,000 and was provided on that day a check for $501. The court found further that, “it would appear [the lender] gave Defendant what she was seeking, namely a short-term loan … but without complying with any of the myriad restrictions applicable to such loans under the Short-Term Loan Act.” The court held that the security agreement framework did not stand because the “legally convoluted” structure did not benefit the parties in any meaningful way, and “the only explanation the Court can discern as to why that structure was used is that it was a stratagem for eluding the restrictions of the Short-Term Loan Act that would have otherwise applied to the parties’ transaction.”

    Courts State Issues Ohio Payday Lending Mortgages Consumer Finance

  • CFPB “on track” to issue Section 1071 rulemaking by March 31

    Federal Issues

    On August 22, the CFPB filed its tenth status report in the U.S. District Court for the Northern District of California, as required under a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. The current status report states that the Bureau is on track to issue the Section 1071 final rule by March 31, 2023—a deadline established by court order in July (covered by InfoBytes here).

    Find continuing Section 1071 coverage here.

    Federal Issues Courts CFPB Dodd-Frank Section 1071 Small Business Lending Consumer Finance Agency Rule-Making & Guidance

  • California appellate court overturns ruling for collector that stapled note to summons

    Courts

    On August 23, the California Sixth Appellate District overturned summary judgment in favor of a collector (defendant) that was sued for FDCPA and the Rosenthal Fair Debt Collection Practices Act violations. According to the court, the plaintiff incurred an unpaid medical debt, which was referred to the defendant for collection. The defendant sent the plaintiff eight letters; however, the plaintiff was allegedly not aware that the hospital assigned the debt to a debt collector and did not pay the debt. The defendant filed a collection suit against the plaintiff, seeking to recover the unpaid medical debt. The defendant stapled a typewritten note to the summons, which read, “If you have any questions regarding this matter, please contact: []” in English and Spanish. The plaintiff filed a complaint, accusing the defendant of violating the FDCPA and the Rosenthal Act, alleging that “it was unlawful for [the defendant] to send the attachment with the summons and the complaint because the attachment appeared to be a message from the court and did not contain language disclosing that it was sent by a debt collector.” The trial court granted the defendant’s motion for summary judgment, ruling that the communication was lawful, and denied the plaintiff’s cross-request for summary judgment.

    On the appeal, the defendant argued that "the attachment is not a ‘communication’ within the meaning of either statute, on the theory that the attachment itself says nothing about the debt." However, the appellate court wrote that the note was not sent “in a vacuum: The attachment, summons, and complaint comprised a collection of documents delivered by a process server—personally to [the plaintiff’s] girlfriend and then by mail to [the plaintiff].” The appellate court further noted that the reference to “this matter” in the note “unmistakably signified the litigation initiated by the accompanying complaint pleading [the plaintiff’s] indebtedness and the amount and source of indebtedness in a common count cause of action.” With regard to whether the note was a communication in connection with the collection of a debt, the appellate court noted that it “fail[ed] to conceive of any subject other than debt collection [the defendant] might think the communication was in connection with. The message in the attachment refers to the existence of a debt, conveys information regarding the debt, and serves the purpose of debt collection by enticing the recipient to contact the debt collector.” The appellate court concluded that “[b]y omitting the mandatory disclosure that this attachment was from [the defendant], a debt collector, [the defendant] made it reasonably likely that the least sophisticated consumer would believe the suggestion to call [the defendant] was from the court that issued the summons to which the suggestion was affixed. [The defendant’s] communication was therefore deceptive.”

    Courts State Issues California Appellate FDCPA Class Action Rosenthal Fair Debt Collection Practices Act Debt Collection

  • District Court rules email can be a signed, written instrument for purposes of amending a partnership agreement

    Courts

    On August 15, the U.S. District Court for the Southern District of New York granted defendants’ motion for summary judgment, ruling in part that an email could constitute a “written instrument” for purposes of amending a partnership agreement. The plaintiff is one of 33 limited partners in a funding entity formed to pool investments into a fund for litigation-related financing ventures. The plaintiff sued the defendants (the partnership’s general partner and asset manager) asserting four causes of action tied to their alleged failure to dissolve the partnership by a deadline established in the partnership agreement. Cross-motions for summary judgment were filed by the parties, in which the court reviewed plaintiff’s claims as to whether there was a valid amendment extending the term of the partnership, whether the limited partners received notice of this proposed amendment, and whether the limited partners approved the amendment or failed to raise objections within 25 days.

    While the defendants argued that an August 2019 email constitutes a valid amendment of the partnership term, the plaintiff countered that the email “is not a written instrument, is not signed, and does not specify the duration of the extension.” The court first reviewed the text of the partnership agreement, which stated that it “may be amended ‘only by a written instrument signed by the General Partner.’” While the agreement does not define what constitutes a “written instrument,” the court wrote, it “provides that ‘[a]ll notices, requests and other communications to any party hereunder shall be in writing (including electronic means or similar writing).’” As such, the court concluded that an email could constitute a “written instrument” for the purposes of amending the agreement.

    With respect to whether the email was “signed,” the court discussed the federal Electronic Signatures in Global and National Commerce Act (E-SIGN Act), which provides that “a signature . . . may not be denied legal effect . . . solely because it is in electronic form,” and pointed to several court decisions that similarly determined that the “law demands only demonstration of a person’s intent to authenticate a document as her own in order for the document to be signed [and that] [m]any symbols may demonstrate this intent.” In the present action, the court determined that “the e-mail speaks in the plural using ‘we’ and refers to the senders in third person as ‘your General Partners.’” Moreover, the court held that the plaintiff’s “unsubstantiated assertion” that the email is unsigned “is insufficient to create a genuine issue of fact with respect to [managing members’] intent to sign the e-mail.” The court also rejected the plaintiff’s argument that that the email is not a valid amendment because it did not specify the duration of the extension, pointing to language in the email stating that the fund will be extended until 2021. The court further disagreed with the plaintiff’s assertion that the amendment was not approved, noting that unrebutted statements provided by one of the managing members demonstrated that none of the limited partners aside from the plaintiff objected to the proposed extension.

    Courts E-SIGN Act E-Signature

  • D.C. reaches $2.54 million settlement with online delivery company

    Courts

    On August 17, the Superior Court of the District of Columbia issued a consent order and judgment against an online delivery company resolving claims that it charged consumers millions of dollars in deceptive service fees. According to a press release issued by the D.C. AG, from 2016 until 2018, the company allegedly misled consumers into believing that service fees charged on their orders were tips that went to delivery workers. Instead, these fees went to the company to subsidize operating expenses. Without admitting any wrongdoing, the company agreed to pay $1.8 million to the district to go towards restitution and cover litigation costs. The company also agreed it will not seek refunds of $739,057 in previously disputed sales tax payments and will collect and remit sales tax on the total amount of the sales price it charges consumers going forward. Additionally, the company will cease making any misrepresentations about the nature of fees on consumer orders.

    Courts State Issues Consumer Finance Fees District of Columbia Settlement

  • District Court rules use of “obligation” in collection letter carries “litigious connotations”

    Courts

    On August 11, the U.S. District Court for the District of New Jersey denied a defendant debt collector’s motion for judgment on the pleadings, ruling that using the word “obligation” in a letter suggested that a time-barred debt was legally enforceable. The plaintiff received a letter in 2022 seeking to recover unpaid debt that had been in default since August 2017 (the statute of limitations for collecting the debt had expired in August 2021). The letter included language stating: “We recognize that a possible hardship or pitfall may have prevented you from satisfying your obligation. We are presenting three options to resolve your balance. We are not obligated to renew this offer.” The letter also stated that it was an attempt to collect a debt and that “any information obtained will be used for that purpose.” The plaintiff sued for violations of Sections 1692e(2)(A), 1692e(5), and 1692e(10) of the FDCPA, claiming the defendant’s letter offered payment options for time-barred debt. The defendant moved for judgment on the pleadings, arguing that that the claims fail because the letter did not include language that could lead the plaintiff to believe that the time-barred debt could be legally enforced.

    The court reviewed whether the phrase “satisfying your obligation” would confuse the least sophisticated debtor, and eventually determined that the word “obligation” carried “litigious connotations” and therefore was “closer to ‘settlement’ and other impermissible language than it is to permissible language such as ‘satisfy.’” According to the court, “[i]t is more than plausible, and even likely, that the least sophisticated debtor would understand that their ‘obligation’ is a duty to pay that a creditor could enforce in court through the commencement of litigation.” The court also explained that Congress intended “obligation” as used in the FDCPA to mean “a legal duty arising from mutual promises to pay on the one hand and to perform services or provide goods on the other,” including “one susceptible to being ‘reduced to judgement.’” As such, the court concluded that when viewing the letter in its entirety, it appeared to be “carefully crafted to push the envelope of acceptable language under the FDCPA while maximizing the chance of collecting from debtors.”

    Courts Debt Collection FDCPA Consumer Finance

  • Maryland Court of Appeals says law firm collecting HOA debt is not engaged in the business of making loans

    Courts

    On August 11, a split Maryland Court of Appeals held that “a law firm that engages in debt collection activities on behalf of a client, including the preparation of a promissory note containing a confessed judgment clause and the filing of a confessed judgment complaint to collect a consumer debt, is not subject to the Maryland Consumer Loan Law [(MCLL)].” A putative class action challenging the law firm’s debt collection practices was filed in Maryland state court in 2018. According to the opinion, several homeowners associations and condominium regimes (collectively, “HOAs”) retained the law firm to help them draft and negotiate promissory notes memorializing repayment terms of delinquent assessments. These promissory notes, the opinion said, included confessed judgment clauses that were later used against homeowners who defaulted on their obligations. The suit was removed to federal court and was later stayed while the Maryland Court of Appeals weighed in on whether the law firm was subject to the MCLL. Loans made under the MCLL by an unlicensed entity render the loans void and unenforceable, the opinion said.

    Class members claimed that the law firm is in the business of making loans and that the promissory notes are subject to the MCLL and “constitute ‘loans’ because they are an extension of credit enabling the homeowners to pay delinquent debt to the HOAs.” Because neither the law firm nor the HOAs are licensed to make loans the promissory notes are void and unenforceable, class members argued. The law firm countered that it (and the HOAs) are not obligated to be licensed because they are not lenders that “engage in the business of making loans” as provided in the MCLL.

    On appeal, the majority concluded that there is no evidence that the state legislature intended to require HOAs to be licensed “in order to exercise their statutory right to collect delinquent assessments or charges, including entering into payment plans for the repayment of past-due assessments.” Moreover, in order to qualify for a license, an applicant “must demonstrate, among other things, that its ‘business will promote the convenience and advantage of the community in which the place of business will be located[]’”—criteria that does not apply to an HOA or a law firm, the opinion stated. Additionally, applying class members’ interpretation would lead to “illogical and unreasonable results that are inconsistent with common sense,” the opinion read, adding that “[t]o hold that the MCLL covers all transactions involving any small loan or extension of credit—without regard to whether the lender is ‘in the business of making loans’—would cast a broad net over businesses that are not currently licensed under the MCLL.”

    The dissenting judge countered that the law firm should be subject to the MCC because to determine otherwise would allow law firms to engage in the business of making loans in the form of new extensions of credit with confessed judgment clauses and would “create a gap in the Maryland Consumer Loan Law that the General Assembly did not intend.”

    Courts State Issues Licensing Maryland Appellate Consumer Finance Consumer Lending Debt Collection Confessions of Judgement

  • District Court approves $84 million payment processing settlement

    Courts

    On August 17, the U.S. District Court for the District of Nebraska granted final approval of an $84 million class action settlement resolving allegations that a payment processing company’s billing practices overcharged merchants. Class members retained the company to process credit card payments and claimed that the company allegedly charged fees that did not align with the terms of their contracts. Class members accused the company of Racketeer Influenced and Corrupt Organizations Act violations, breach of contract, and fraudulent concealment related to allegations that the company assessed noncompliance fees, increased contractual credit card discount rates, and shifted credit card transactions from lower-cost rate tiers to higher-cost rate tiers. Under the terms of the settlement, the company will pay up to $84 million into a settlement fund, which will provide cash benefits to class members and cover administrative costs, attorney fees, and other expenses.

    Courts Class Action Payment Processors Consumer Finance RICO Settlement

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