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On February 22, the CFPB launched an inquiry into overdraft practices with a coordinated release of information. The official announcement came during a CFPB Roundtable discussion at Hunter College in New York City. At that event, CFPB Director Richard Cordray drew similarities between overdraft practices and payday lending, which was the subject of a prior CFPB field event. Mr. Cordray expressed his “concern that overdraft practices employed by some banks unnecessarily increase consumer costs by making it difficult to anticipate and avoid fees.” He also identified some practices the CFPB views as problematic, including those related to (i) ordering of transactions, (ii) missing or confusing information, and (iii) misleading marketing. To address those and other practices, the CFPB issued a request for information from consumers, third party processors, and financial institutions, regarding overdraft programs and their costs, benefits and risks to consumers. The CFPB also released and is seeking comment on a prototype “penalty fee box” that would appear on checking account statements to highlight overdraft activity and fees. Finally, the CFPB is collecting data from several large banks to inform a study of the effects of prior federal regulations and guidance regarding overdraft fees. While conducting these initiatives, Director Cordray promised to employ the CFPB’s supervisory and enforcement authorities to take action against financial institutions engaged in deceptive marketing related to overdrafts.
In the last three months, five class action cases filed in California under the state’s “Shine a Light” statute have alleged that online businesses, including Microsoft Corp., CBS Interactive Inc., and Time Inc., failed to properly label links to their privacy policies. The five suits, all filed by a single firm, claim $3,000 per violation plus additional damages (Boorstein v. CBS Interactive Inc., Cal. Super. Ct., No. 476015, complaint filed 12/28/11; Boorstein v. Men's Journal LLC, Cal. Super. Ct., No. 475697, complaint filed 12/22/11; Miller v. Hearst Communications, C.D. Cal., No. 12-733, complaint filed 1/27/12; Murray v. Time Inc., N.D. Cal., No. 12–431, notice of removal filed 1/26/12; Smith v. Microsoft Corp., Cal. Super. Ct., No. 476413, complaint filed 1/9/12). The "Shine a Light" statute, in effect since 2005, requires businesses that collect California residents’ personal data and then share that data for marketing purposes to disclose or allow consumers to opt out of that sharing. Each defendant company allegedly mislabeled links to their online privacy policies or otherwise failed to meet the statute’s requirements.
Colorado State Court Rules Payday Lending Firms Affiliated with Native American Tribes are Immune from State Investigation and Prosecution
On February 13, the District Court for the City and County of Denver ruled that online payday lending businesses affiliated with two Native American tribes are protected from state investigation and enforcement. Colorado v. Cash Advance, No. 05-1143 (Col. Dist. Ct. Feb. 13, 2012). For several years the state had been trying to investigate and regulate the payday lending practices of the firms and brought suit to enforce subpoenas and cease and desist orders issued with regard to the firms’ operations. The state claimed that, among other things, the businesses were in violation of state laws that require firms doing business with Colorado consumers over the internet to have a valid state license. The defendants moved to dismiss, arguing that the firms are immune from those subpoenas and enforcement orders under the doctrine of tribal sovereign immunity. The defendant’s motion to dismiss was denied. On appeal, the state supreme court held that tribal sovereign immunity applies to state investigative subpoena enforcement actions and remanded the case to the trial court for additional inquiry into the immunity status of the tribes’ affiliated businesses. On remand, the state claimed that sovereign immunity did not apply because the firms engaged non-tribal members in some of their operations and designed their affiliation with two online payday lending firms to avoid state regulation and oversight, a practice sometimes referred to as “rent-a-tribe.” After discovery, the court disagreed and ruled for the defendant tribes and their businesses, holding that the companies are extensions of the tribes and therefore immune from state investigatory actions and judicial enforcement.
New York State Appeals Panel Reinstates Foreclosure Action, Reversing Justice Known for Tossing Out Foreclosure Motions
On February 14, a panel of judges in the Appellate Division, Second Department of the New York State Supreme Court reinstated the foreclosure action at issue in Aurora Loan Services, LLC v. Sookoo, 2012 WL 503663 (N.Y. App. Div. Feb. 14, 2012). The borrower defaulted on her mortgage loan and did not later appear in the foreclosure action or answer the complaint. The plaintiff, the holder of the mortgage and note, moved for an order of reference appointing a referee to compute the amount due. Brooklyn New York State Supreme Court Justice Aaron Schack, sua sponte, directed the dismissal of the complaint with prejudice and cancelled the notice of pendency based upon the plaintiff’s failure to provide the loan origination documents as required by the judge’s earlier order dated March 31, 2009. Reversing the decision, the unanimous panel wrote that Justice Schack "erred in, sua sponte, directing the dismissal of the complaint with prejudice and the cancellation of the notice of pendency.” The panel remitted the matter for proceedings before a different justice, deeming it “appropriate” “under the circumstances of this case.” Justice Schack is known for his staunch stance against banks pursuing foreclosure actions and this is not the first instance in which he has been reversed in a foreclosure action (see, for example, US Bank, N.A. v. Guichardo, 90 A.D.3d 1032 (N.Y. App. Div. 2011)).
On February 21, the FTC announced that, at its request, a U.S. federal court stopped the operations of entities the FTC alleges collected over $5 million of payday loan debts that either did not exist or were owed to another entity. The FTC asked the court to freeze the assets of the firm while it continues its investigation and prosecution. The FTC charges that the defendants, California-based American Credit Crunchers LLC and affiliated entities and individuals, violated the FTC Act and the Fair Debt Collection Practices Act by posing as law enforcement and demanding immediate payment of payday loan debts from consumers that had no such debt.
On February 21, the U.S. Supreme Court upheld the Federal Arbitration Act’s (FAA) pre-emptive power over conflicting state laws and vacated a West Virginia Supreme Court of Appeals decision in which the West Virginia court found that arbitration clauses in nursing home contracts were unenforceable if adopted prior to an occurrence of negligence that resulted in personal injury or wrongful death. Marmet Health Care Center, Inc. v. Brown, 565 U.S. __ (2012) (per curiam). The three plaintiffs—family members of patients who had died in nursing homes—sued the homes in state court alleging negligence. The trial court dismissed two of the suits based on agreements to arbitrate that were found in the contracts. The Supreme Court of Appeals of West Virginia consolidated all three cases, and held that the arbitration clauses in the contracts were unenforceable “as a matter of public policy.” The U.S. Supreme Court, citing recent decisions in which the FAA pre-emptive power was reinforced, reversed the West Virginia court, stating, “[t]he West Virginia court’s interpretation of the FAA was both incorrect and inconsistent with clear instruction in the precedents of this Court.” The Court explained that whenever a state law prohibits outright the arbitration of a particular type of claim, the conflicting rule is displaced by the FAA. Because West Virginia’s prohibition against predispute agreements to arbitrate negligence claims in nursing home suits was a categorical rule prohibiting arbitration, the rule was contrary to the terms and coverage of the FAA and could not be used to avoid arbitration.
On February 22, California Attorney General Kamala Harris announced an agreement with six leading mobile platform companies to ensure that apps on those platforms have privacy policies. Privacy policies are already required under the California Online Privacy Protection Act, which governs commercial websites and online services that collect personal data from California residents. The new agreement also includes commitments from the six companies - Amazon, Apple, Google, Hewlett-Packard, Microsoft, and Research in Motion - to educate app developers about user privacy obligations.
On February 21, the CFPB announced the formation of a small business panel to provide feedback on the Bureau’s mortgage disclosure form initiatives, as required under the Small Business Regulatory Enforcement Fairness Act. That law requires that federal agencies gather small business input to help the agencies fulfill the related legal requirement that regulations avoid significant economic impact on a substantial number of small firms. The panel will provide feedback on small business compliance burdens related to the CFPB’s proposed mortgage disclosures and related proposed regulations. The CFPB’s announcement included the release of several documents that will be shared with the panel, including a detailed overview of the mortgage disclosure proposals under consideration, a fact sheet summarizing the review process, and an outline of questions the panel will address. In a related blog post, the CFPB also sought public comment on the proposals to be considered by the small business panel. The formation of the panel follows the CFPB’s recent release of another round of prototype integrated mortgage disclosures. After several rounds of previous testing, the CFPB provides in this most recent release a prototype loan estimate and settlement disclosure. At this stage, the CFPB no longer is offering multiple versions to compare, but is still testing the prototypes in person while seeking broader public feedback online. The CFPB promises that this is the last round of testing before it turns to crafting a proposed rule.
On February 21, the FTC issued a reminder that public comments may be submitted through April 1, 2012 as part of the FTC’s ongoing project to gather information on consumer experiences in the sale, financing, and leasing of motor vehicles at dealerships. The FTC held multiple events on the topic last year. A recent FTC report identified automobile finance as an area of focus in 2012.
On February 23, the White House released a report on consumer privacy, setting out a Consumer Privacy Bill of Rights. The proposed Bill of Rights consists of seven broad principles, including individual control, security, and transparency of data use. The report asks Congress to codify the recommendations as a statute enforceable by the Federal Trade Commission, and identifies FTC enforcement as critical to ensuring privacy protections. Pending or absent congressional action, the report promises that the administration will work with the private sector to adopt new protections on voluntary basis. The administration will hold stakeholder forums to develop legally enforceable codes of conduct. Finally, the report addresses the need for international interoperability and coordination of enforcement.
- Jonice Gray Tucker to discuss "Trends in regulatory enforcement" at the American Bar Association Banking Law Committee Meeting
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo