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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.
District Court grants TRO and preliminary injunction in FDCPA case
On July 7, the U.S. District Court for the Central District of Illinois granted a motion for a temporary restraining order and preliminary injunction against a defendant in an FDCPA case. In the motion, two individual plaintiffs claimed that the defendant called them 20 times in a three-day period and said he will continue calling “family, friends, and business interests until the [plaintiffs’] adult son’s debts are paid.” The plaintiffs’ attorney sent a notice to the defendant indicating that the plaintiffs were being represented and to not contact them directly. The defendant allegedly responded that he “does not intend to cease or desist.” After communicating with the plaintiffs’ attorney, the defendant allegedly called the plaintiffs’ business associates and employees over 40 times over a six-day period. The plaintiffs filed suit, claiming the defendant violated the FDCPA by, among other things, “using obscene language, and repeatedly and continuously calling Plaintiffs with the intent to abuse, annoy or harass,” and “threaten[ing] to sue them for debts that they do not owe.” According to the order, the defendant argued that the underlying debt is a business debt and thus not subject to the FDCPA. The district court found that the defendant “declined to present any evidence and refused the opportunity to testify under oath.” Ultimately, the district court stated that the plaintiffs “seek an injunction that only goes so far as to require Defendants’ compliance with the law.” Further, the district court noted that the defendant “will suffer no harm in that they are only being ordered to do that which is already legally required of them.”
4th Circuit says foreign debit fee contract language is ambiguous
On July 7, the U.S. Court of Appeals for the Fourth Circuit held that a class action breach of contract suit related to foreign debit card fees charged by a credit union may proceed. Class members claimed that the credit union’s contract allows fees only when customers make debit card purchases in a foreign country—not when customers make a purchase while they are physically in the U.S. even if the merchant is abroad. According to the contract’s disclosure agreement and fee schedule, debit card transactions “made in a foreign country” and non-credit union “Point-of-sale and ATM transactions made in a foreign country” will incur a one percent fee.
In vacating the district court’s ruling that the card contracts clearly prohibited these fees, the 4th Circuit concluded that the contract’s language is ambiguous and subject to different interpretations. While class members and the credit union both cited dictionary definitions in support of their arguments, the appellate court said the contract’s language “simply does not clarify whether the location of the account holder or the seller determines whether the transactions are made in foreign countries.” In an online context, the 4th Circuit pointed to questions posed by the 7th Circuit: “Where is the point of sale for such a purchase—the consumer’s computer? the vendor’s headquarters? the vendor’s server? cyberspace generally?” The 4th Circuit further noted that the contracts could have been clearly drafted to explain whether online transactions were “made in foreign countries” if they were between account holders physically in the U.S. and foreign sellers but “were not.”
District Court orders CFPB to issue Section 1071 rulemaking by March 31
On July 11, the U.S. District Court for the Northern District of California issued an order setting March 31, 2023 as the deadline for the CFPB to issue a notice of proposed rulemaking (NPRM) on small business lending data. As previously covered by InfoBytes, the Bureau is obligated to issue an NPRM for implementing Section 1071 of the Dodd-Frank Act, which requires the agency to collect and disclose data on lending to women and minority-owned small businesses. The requirement was established as part of a stipulated settlement reached in 2020 with a group of plaintiffs, including the California Reinvestment Coalition (CRC), who argued that the Bureau’s failure to implement Section 1071 violated two provisions of the Administrative Procedures Act, and harmed the CRC’s ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color (covered by InfoBytes here).
Find continuing Section 1071 coverage here.
11th Circuit: Statements indicating accrual of debt balance following settlement are enough to state a claim
On July 1, the U.S. Court of Appeals for the Eleventh Circuit overturned a district court’s dismissal of an FDCPA case, holding that statements sent to plaintiffs indicating that a debt balance was accruing after a settlement had been reached is enough to state a claim. According to the opinion, the plaintiffs defaulted on a mortgage and a servicer sued for foreclosure. While the foreclosure suit was pending, the defendant took over servicing of the loan. A “disagreement” arose, which led the plaintiffs to sue the defendant. A settlement was reached and it was agreed that the plaintiffs owed $85,790.99, which was to be paid in one year. However, four months later, the defendant sent a mortgage statement notifying the plaintiffs that their loan had “been accelerated” because they were “late on [their] monthly payments.” On the defendant’s “fast-tracked timetable,” the plaintiff owed $92,789.55 to be paid in a month, and if they did not pay, the defendant’s statement stated that they risked more fees and “the loss of [their] home to a foreclosure sale.” The plaintiffs continued to receive statements and the amount due increased monthly. The plaintiffs sued, saying the defendant violated the FDCPA by sending statements with incorrect balances. A district court ruled the periodic statements were unrelated to debt collection because the defendant was required to send monthly updates under TILA. The district court further determined that the plaintiffs failed to state an FDCPA claim, declined to exercise supplemental jurisdiction over the Florida law claims, and dismissed the complaint.
On appeal, the 11th Circuit ruled that statements must comply with the FDCPA, even if they are not required to be sent under the statute. The 11th Circuit reiterated that the respective requirements of TILA and the FDCPA can be approached in a “harmonized” fashion, stating that “a periodic statement mandated by [TILA] can also be a debt-collection communication covered by the FDCPA.” The appellate court reversed the district court’s dismissal because “the complaint here plausibly alleges that the periodic statements sent to the plaintiffs aimed to collect their debt.”