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California appeals court reverses dismissal of Rosenthal Act class action
On August 30, a California Appeals Court (Appeals Court) reversed a lower court’s ruling that a mere alleged debt, whether or not actually due or owing – as opposed to a debt that is, in fact, actually due or owing – is insufficient to state a claim under the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act). Enacted in 1977, the Rosenthal Act aims “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts.” Plaintiff purchased a home with a previously-installed solar energy system. The previous homeowner and plaintiff reached an agreement whereby the prior homeowner would purchase the energy produced through the system through monthly payments. However, the defendant, the provider of the solar energy system, sent late payment notices to plaintiff demanding that he make monthly payments. Although plaintiff did not engage in a “consumer credit transaction” with the defendant, the Appeals Court found that the plaintiff’s receipt of statements and notices from the defendant constituted money “alleged to be due or owing,” as required to state a claim under the Rosenthal Act. In holding that the plaintiff’s claim “has merit,” the Appeals Court emphasized that the Rosenthal Act was specifically designed to “eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid,” and “[i]t is difficult to conceive of a more unfair debt collection practice than dunning the wrong person”.
CFPB contests Kentucky banks' motion to block enforcement of Small Business Lending Rule
On September 5, the CFPB filed an opposition to a motion for a preliminary injunction made by a group of Kentucky banks (plaintiff banks) in the U.S. District Court for the Eastern District of Kentucky. As previously covered by InfoBytes, the plaintiff banks filed their motion for a preliminary injunction seeking an order to enjoin the CFPB from enforcing the Small Business Lending Rule against them for the same reasons that a Texas district court enjoined enforcement of the rule (Texas decision covered by InfoBytes here). The CFPB argues that the plaintiff banks have not satisfied any of the factors necessary for preliminary relief, including that they have not shown that their claim is likely to succeed on the merits, and they have not shown that they face imminent irreparable harm. The Bureau also argues that the plaintiff banks are factually wrong in asserting that the Rule would require lenders to compile “‘scores of additional data points’ about their small business loans,” and that the additional data requirements are consistent with the Bureau’s statutory authority to require such additional data if it assists in “‘fulfilling the purposes of [the statute].’” The CFPB argues, among other things, that the “outlier ruling of the 5th Circuit” in the Texas case does not demonstrate that the plaintiff banks are entitled to the relief they seek.
Federal and state financial regulatory agencies issue joint statement on the effects of Hurricane Idalia on supervisory practices
On September 1, the FDIC, Fed, NCUA, OCC and CSBS issued a joint statement recognizing the serious impact of Hurricane Idalia on the customers and operations of many financial institutions in the effected area.
The guidance discusses the following aspects of financial institution operations:
- Lending: The agencies encourage financial institutions to work constructively with borrowers in affected communities, including prudent efforts to adjust existing loan terms, and declares that the agencies will not subject such efforts to examiner criticism. “The agencies recognize that efforts to work with borrowers in communities under stress can be consistent with safe-and-sound practices as well as in the public interest.”
- Temporary Facilities: The agencies understand that many financial institutions face staffing, power, telecommunications, and other challenges in re-opening facilities and will expedite, as appropriate, any request to operate in temporary facilities.
- Publishing Requirements: The agencies understand that the damage that the hurricane caused may affect compliance with publishing and other requirements for branch closings, relocations, and temporary facilities. Impacted institutions should contact their primary federal and/or state regulator.
- Regulatory Reporting Requirements: Impacted institutions that expect to encounter difficulty meeting the agencies' reporting requirements should contact their primary federal and/or state regulator to discuss their situation.
- Community Reinvestment Act: Financial institutions may receive CRA consideration for community development loans, investments or services that revitalize or stabilize federally designated disaster areas.
- Investments: The agencies encourage financial institutions to monitor municipal securities and loans affected by the hurricane, including those related to local government projects.
CFPB reaches $2.6 billion settlement with credit repair telemarketers
On August 28, the CFPB announced a proposed settlement with Utah-based credit repair telemarketers and various affiliates (collectively, "defendants") for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by collecting illegal advance fees. As previously covered by InfoBytes, in its initial lawsuit the CFPB alleged the defendants requested and received payment of “prohibited” upfront fees for telemarketed credit repair services when they signed up. In June, a district court ruling put a hold on the Bureau’s initial attempt to impose the settlement because of “outstanding issues of fact” which precluded it from entering the agency’s requested relief at that time (covered by InfoBytes here). The Bureau and defendants have now agreed to a new settlement which will, among other things, (i) impose over $2.7 billion in redress (understanding that the principal corporate defendant is in Chapter 11 bankruptcy proceedings); (ii) impose over $64 million in civil money penalties; (iii) ban defendants from telemarketing and from doing business with certain marketing affiliates for ten years; and (iv) require defendants to send a notice of the settlement to “any remaining enrolled customers who were previously signed up through telemarketing.”
The proposed settlement is subject to final approval by the court.
OCC allows institutions in Florida affected by Hurricane Idalia to temporarily close
On August 29, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices in areas of Florida affected by Hurricane Idalia “for as long as deemed necessary for bank operation or public safety.” In issuing the proclamation, the OCC noted that only bank offices directly affected by potentially unsafe conditions should close, and that banks should make every effort to reopen as quickly as possible to address customers’ banking needs. The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on natural disasters and other emergency conditions.
Find continuing InfoBytes coverage on disaster relief here.
DOJ, Oklahoma bank agree to consent order over redlining
On August 28, the DOJ announced a settlement agreement to resolve allegations of redlining by an Oklahoma-based bank. According to the complaint, defendant allegedly engaged in redlining by refraining from providing home loans and other mortgage-related services, and also engaged in biased behavior, to deter individuals residing in or seeking credit within predominantly Black and Hispanic neighborhoods in Tulsa from pursuing mortgage opportunities. According to the proposed consent order, without admitting or denying the allegations, defendant agreed to (i) invest $1.15 million to increase credit opportunities in neighborhoods of color; (ii) invest at least $950,000 in a loan subsidy fund for predominantly Black and Hispanic neighborhoods in Tulsa; (iii) invest $100,000 for advertising, outreach and consumer education; (iv) invest $100,000 for community partnerships to improve access to residential mortgage credit services; (v) “open a new community-oriented loan production office in the historically Black area of Tulsa”; and (vi) assign at least two mortgage loan officers to solicit mortgage applications in predominantly Black and Hispanic neighborhoods in Tulsa, among other things.
The DOJ press release makes reference to the 1921 Tulsa Race Massacre. The bank's press release announcing the settlement responded by stating that “[a]s Oklahomans, we carry a profound sense of sorrow for the tragic events of the Tulsa Race Massacre over a century ago. It is with deep concern that we note the Justice Department’s decision to reference this distressing historical event in its complaint against our bank, established a mere 25 years ago.”
DFPI finalizes small business UDAAP and data reporting rule
DFPI recently approved the final regulation for implementing and interpreting certain sections of the California Consumer Financial Protection Law (CCFPL) related to commercial financial products and services. After considering comments and releasing three rounds of modifications to Sections 1060, 1061, and 1062, the final regulation will, among other things, bring protections to small businesses seeking loans, by (i) defining and prohibiting unfair, deceptive, and abusive acts and practices in the offering or provision of commercial financing to small businesses, nonprofits, and family farms; and (ii) establishing data collection and reporting requirements.
Previous InfoBytes coverage on the (i) initial modifications to the CCFPL proposed regulation can be found here; (ii) the second round of CCFPL modifications proposal is found here; and (iii) the third iteration of the modified CCFPL proposal is located here.
This DFPI regulation was notably finalized on the heels of the CFPB’s finalized Section 1071 rule on small business lending data, which similarly will require financial institutions to collect and provide the Bureau data on lending to small businesses (covered by InfoBytes here)
Sections 1060, 1061, and 1062 will be effective on October 1.
CFPB contests motions for preliminary injunctions to block enforcement of Small Business Lending Rule
On August 22, the CFPB filed an opposition to a motion made by a group of intervenors seeking to expand the scope of a preliminary injunction issued by the U.S. District Court for the Southern District of Texas, which enjoined the CFPB from implementing its Small Business Lending Rule. As previously covered by InfoBytes, the original plaintiffs in the litigation, a Texas banking association and a Texas bank, challenged the legality of the CFPB’s Small Business Lending Rule. After the American Bankers Association joined the case, the plaintiffs sought, and the court granted, a preliminary injunction enjoining implementation and enforcement of the rule against plaintiffs and their members. The intervenors, who consist of both banking and credit union trade associations, as well as individual banks and credit unions, seek a nationwide injunction that would apply beyond the parties to the case, or at least to the intervenors and their members. The CFPB’s opposition to this request for an expanded preliminary injunction argues that the intervenors fail to show that they would suffer immediate harm from enforcement of the Small Business Lending Rule.
In a related matter, on August 21, a group of Kentucky banks and a Kentucky banking association filed a motion for a preliminary injunction in the U.S. District Court for the Eastern District of Kentucky against the CFPB, seeking a preliminary injunction enjoining the CFPB from enforcing the Small Business Lending Rule against the plaintiffs and their members. Referencing the parallel Texas litigation, the Kentucky plaintiffs allege that they are entitled to an order enjoining enforcement of the Small Business Lending Rule against them for the same reasons that the Texas district court enjoined enforcement of the rule.
The most recent litigation activity follows a request from a group of trade associations to the CFPB to take administrative action to address the disparity in compliance dates that results from the district court’s injunction, a disparity that the trade associations argue is both unfair and disruptive to the market’s compliance efforts. The CFPB declined this request.
Both of these challenges to the Small Business Lending Rule point to a recent decision issued by the U.S. Court of Appeals for the Fifth Circuit in Community Financial Services Association of America v. Consumer Financial Protection Bureau, where the court found that the CFPB’s “perpetual self-directed, double-insulated funding structure” violated the Constitution’s Appropriations Clause (covered by InfoBytes here), as justification for why the final rule should ultimately be set aside.
2nd Circuit affirms leveraged loans are not securities
On August 24, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s order dismissing plaintiff’s claim that a national bank’s nearly $1.8 billion syndicated loan for a drug testing company were securities. The drug testing company filed for bankruptcy subsequent to a $256 million global settlement with the DOJ in qui tam litigation involving the company’s billing practices.
Plaintiff, a trustee of the drug testing company, brought claims to the New York Supreme Court in 2017 against defendant for violations of (i) state securities laws; (ii) negligent misrepresentation; (iii) breach of fiduciary duty; (iv) breach of contract; and (v) breach of the implied contractual duty of good faith and fair dealing. Defendant filed a notice of removal to the U.S. District Court for the Southern District of New York, where the district court denied plaintiff’s motion to remand after concluding it had jurisdiction under the Edge Act, and later granted defendant’s motion to dismiss because plaintiff failed to plead facts plausibly suggesting the notes are securities.
The 2nd Circuit held that the district court had subject matter jurisdiction pursuant to the Edge Act. The court then applied a “family resemblance” test to determine whether a note is a security and examined four separate factors to help uncover the context of a note. In comparing the loan note to “judicially crafted” list of instruments that are not securities, the court found that the defendant’s note “‘bears a strong resemblance’” to one, therefore concluding that the note is not a security and affirming the district court’s earlier decision.
White House launches SAVE Plan
On August 22, the White House announced the SAVE Plan, an income-driven repayment plan, intended to calculate payments based on a borrower’s income and family size rather than the loan balance and provide forgiveness for balances after a certain number of years since repayment. It is estimated that over 20 million borrowers could benefit from this plan and that it will have particular critical benefits for low- and middle-income borrowers, community college students, and borrowers who work in public service. In order to encourage participation by borrowers, the Department of Education is partnering with grassroots organizations on an outreach campaign. This plan builds on broader actions taken by the current administration to deliver relief to borrowers and make college more affordable.