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Waters and 101 representatives urge CFPB to reconsider payday compliance delay
On August 23, House Financial Services Committee Chair, Maxine Waters (D-Calif) and 101 other members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the Bureau’s recent amendment of and delay to certain ability-to-repay provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule), previously covered by InfoBytes here and here. Specifically, the letter opposes the CFPB’s decision to remove certain ability-to-repay requirements, as well as the Bureau’s June 2019 decision to delay the August 19 compliance date for the mandatory underwriting provisions of the Rule until November 19, 2020. The letter cites to an April 30 subcommittee hearing that examined the payday lending industry and argues that “payday and car-title lenders lack the incentive to make loans that borrowers have the ability to repay while still being able to afford basic necessities of life.” The agency, according to the letter, is betraying “its statutory purpose and objectives to put consumers, rather than lenders, first” by delaying the Rule’s implementation.
Additionally, in the press release announcing the letter, Waters also expressed concern that the CFPB had not yet asked the U.S. District Court for the Western District of Texas to lift a stay of compliance so that the payment provisions of the Rule could be implemented. As previously covered by InfoBytes, two payday loan trade groups initiated the suit against the Bureau in April 2018, asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedures Act. The court recently ordered the stay of the full Rule’s compliance date to remain in full force and effect and requested another joint status report from the parties by December 6.
District Court allows Sacramento's FHA claims to proceed against bank
On August 22, the U.S. District Court for the Eastern District of California granted in part and denied in part a national bank’s motion to dismiss an action by the City of Sacramento (City) alleging violations of the Fair Housing Act (FHA) and California Fair Employment and Housing Act. In its complaint, the City alleged that the bank violated the FHA and the California Fair Employment and Housing Act by providing minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing reduced property tax revenue and increased costs for municipal services for the city. The bank moved to dismiss the action. In reviewing the motion, the court looked to the 2017 Supreme Court decision in Bank of America v. City of Miami (previously covered by a Buckley Special Alert), which held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices. The court rejected the majority of the bank’s arguments, denying the motion as to the City’s tax revenue claims and non-economic claims. The court concluded that “there is ‘no reason to think as a general matter that the City’s [tax revenue] claims are out of step with the ‘nature of the statutory cause of action’ and the remedial scheme that Congress created’” in the FHA. Conversely, as for the claims for increased municipal services costs, such as police, fire fighting, and code enforcement, the court found that the claims “rely on conclusory allegations and a foreseeability-only theory without establishing proximate cause” and granted the bank’s motion to dismiss, but allowed the City leave to amend the complaint to establish proximate cause.
Tribal nation reaches settlement with national bank over account operations
On August 22, a tribal nation issued a press release announcing a $6.5 million settlement with a national bank to resolve allegations related to the opening of deposit and credit card accounts for customers without consent. In 2018, the tribal nation’s suit was dismissed by a district court ruling (previously covered by InfoBytes here), which rejected the tribal nation’s claims under the Consumer Financial Protection Act, holding that the claims were barred by res judicata, as they had previously been litigated under the CFPB’s 2016 consent order and the tribal nation was in privity with the CFPB. (InfoBytes coverage of the CFPB action available here.) The tribal nation appealed the decision to the U.S. Court of Appeals for the 10th Circuit, and on August 20, an order granting a stipulation to dismiss the appeal with prejudice was entered by the court. While the stipulation does not provide any details, the tribal nation’s press release notes that the “settlement compensates the Nation, as well as avoids the uncertainty and expense of continued litigation.”
District Court compels arbitration for most class action overdraft claims
On August 23, the U.S. District Court for the Northern District of California held that a portion of a class action suit alleging a bank improperly assessed overdraft fees must proceed to arbitration. According to the opinion, a consumer filed the class action complaint alleging the bank charged multiple non-sufficient funds fees for the same credit card payment transaction, in violation of the contract between the bank and the consumer. The class action alleged claims for breach of contract, or, in the alternative, unjust enrichment, as well as a claim for violating the California Business & Professions Code and a claim for violating the California Consumer Legal Remedies Act. The bank moved to compel arbitration of all the claims based on an arbitration clause contained in the customer deposit agreement. The court concluded that the claims for breach of contract and unjust enrichment are covered by the arbitration clause in the deposit agreement and therefore compelled arbitration. As for the injunctive relief the consumer sought under the California state statutory claims, the consumer argued that the court should apply the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here), which held that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable, and that “Texas law is contrary to a fundamental policy of California.” The court determined that because Texas does not have a “rule comparable to McGill and because California has a materially greater interest than Texas,” California law applies to the injunctive relief claims and therefore, the claims “must be litigated and not arbitrated.” However, to the extent the consumer sought monetary relief under the state statutory claims, those claims must be arbitrated.
Democratic members ask FSOC to deem cloud providers as "systemically important"
On August 22, two members of the U.S. House of Representatives, Katie Porter (D-Calif.) and Nydia Velázquez (D-N.Y.), sent a letter to the U.S. Department of Treasury requesting that the Financial Stability Oversight Council (FSOC) consider designating the three leading providers of cloud-based storage systems for the financial industry as systemically important financial market utilities. The letter is in response to the recent data breach announcement by a national bank (covered by InfoBytes here), where an alleged former employee of the bank’s cloud-based storage system gained unauthorized access to the personal information of credit card customers and people who had applied for credit card products. According to the Congresswomen, 57 percent of the cloud services market is “cornered by” three main providers, and “a lack of substitutability for the services provided by these very few firms creates systemic risk.” The letter argues that cloud services are not currently subject to an enforced regulatory regime and, “[w]ithout a dedicated regulatory regime proportional and tailored to their very unique structure and risks, cloud comparing companies will continue to evade supervision.”
New York restores Martin Act’s six-year statute of limitations
On August 26, the New York governor signed S 6536, which returns the statute of limitations within which the state’s attorney general must bring financial fraud claims under the Martin Act to six years. As previously covered by InfoBytes, in 2018 the New York Court of Appeals issued a ruling that claims brought under the Martin Act are governed by a statute of limitations of three years, not six. According to the majority in that court decision, the three-year period applied because the Martin Act “expands upon, rather than codifies, the common law of fraud” and “imposes numerous obligations—or ‘liabilities’—that did not exist at common law,” which justified the imposition of a three-year statute of limitations. However, Governor Andrew Cuomo noted that “[b]y restoring the six-year statute of limitations under the Martin Act, we are enhancing one of the state’s most powerful tools to prosecute financial fraud so we can hold more bad actors accountable, protect investors and achieve a fairer New York for all.” Effective immediately, S 6536 will amend Section 213 of the state’s Civil Practice Law and Rules to include Martin Act cases among those that must be brought within six years.
Waters previews committee priorities
On August 23, House Financial Services Committee Chairwoman Maxine Waters released an overview of the Committee’s fall 2019 priorities and highlighted efforts undertaken during the 116th Congress so far. Upcoming areas of focus will include (i) holding hearings to examine the state of minority depository institutions, review stock buybacks, and analyze innovations for loan instruments; (ii) conducting an ongoing review of a social media company’s proposed cryptocurrency and digital wallet; (iii) continuing oversight of federal financial agencies through testimony from Treasury Secretary Steven T. Mnuchin, CFPB Director Kathy Kraninger, FHFA Director Mark Calabria, and Federal Reserve Vice Chairman Randal K. Quarles; (iv) examining the Terrorism Risk Insurance Program; (v) analyzing workforce diversity improvements; and (vi) increasing homeownership access through Federal Housing Administration improvements and housing finance reform. The Committee will also continue its task forces on data privacy, the use of artificial intelligence in the financial services market, and the evolution of payments and cash.
District Court rejects law firm’s bona fide error defense in FDCPA action
On August 15, the U.S. District Court for the District of Connecticut held that a law firm violated the FDCPA, rejecting the law firm’s bona fide error defense, and awarded the consumer statutory damages. According to the opinion, the consumer alleged that the law firm violated the FDCPA in a 2016 debt collection letter sent to the consumer. Specifically, the consumer argued that the letter “‘ma[de] it impossible for a consumer to know how much is owed and if the debt will be considered paid if payment is made in full,’” because the letter contained two different balance amounts: (i) a “Charge-Off Balance” listed at $663.94 and (ii) a “Balance” or “Current Balance” listed as $565.46. The law firm acknowledged the existence of two different balance amounts, but asserted that the Current Balance was the correct amount and that the consumer “was not confused about what he owed.” The court rejected this argument, finding that under the “least sophisticated consumer standard,” a consumer would be confused by the two different balances, noting that the letter provided no explanation about the two different amounts. The law firm also argued that the inaccuracy was not material, and therefore it should not give rise to liability under the FDCPA. The court disagreed, finding that the difference between the two amounts was “more than trivial,” noting it almost exceeded one hundred dollars, and could induce a consumer to delay payment. Lastly, because the error in amounts was not a result of human judgment, but a failure in programming, the court rejected the law firm’s bona fide error defense. The court awarded the consumer statutory damages and authorized the consumer to seek reasonable costs and attorney’s fees.
District Court: No negligent misrepresentation claims in smart-TV privacy suit
On August 20, the U.S. District Court for the District of New Jersey dismissed without prejudice a proposed class action alleging consumer fraud claims. Specifically, in 2017, the plaintiffs filed a complaint alleging that smart televisions manufactured by the defendants surreptitiously collected consumer data such as programs viewed and when they were viewed, along with certain identifying information including IP addresses and zip codes. This information, the plaintiffs contended, was sold to third parties who used the data to advertise to the same consumers, in violation of the (i) New Jersey Consumer Fraud Act (NJCFA); (ii) Florida's Deceptive and Unfair Trade Practices Act (FDUTPA); (iii) the Video Privacy Protection Act; (iv) the Wiretap Act; and (v) common law negligent misrepresentation. In response to the defendants’ motion to dismiss, the court held that the claims were pled with sufficient particularity under the Federal Rules of Civil Procedure to withstand a motion to dismiss, but dismissed the state consumer fraud claims, reasoning that the plaintiffs failed to adequately allege their damages. The court ruled that the FDUTPA and NJCFA claims failed because the plaintiffs had not alleged actual damages, rejecting plaintiffs’ assertions that the invasion of their privacy counted as damages because there was no out-of-pocket loss. Additionally, the court dismissed the plaintiffs’ federal Video Privacy Protection Act, reasoning that the information allegedly collected did not constitute personally identifiable information under 3rd Circuit precedent. By contrast, the court allowed the Wiretap Act allegations to proceed after determining the plaintiffs “adequately alleged that their ‘content’ was intercepted.” Finally, with respect to the common law negligent misrepresentation claim, the court agreed with the defendants that the plaintiffs failed to allege that a special relationship existed between the plaintiffs and the defendants that could support a negligent misrepresentation claim.
State AGs and VSPs to collaborate on robocalls
On August 22, North Carolina Attorney General Josh Stein announced a bipartisan agreement between 51 state attorneys general and 12 voice service providers, adopting eight principles for fighting illegal robocalls and preventing consumer fraud. Under the principles, the voice providers will: (i) offer no-cost call-blocking technology, including easy-to-use call blocking and labeling tools; (ii) implement STIR/SHAKEN call authentication (as previously covered by InfoBytes, in June the FCC adopted a Notice of Proposed Rulemaking requiring voice providers to implement the caller ID authentication framework); (iii) analyze and monitor high-volume voice network traffic for robocall patterns; (iv) investigate suspicious calls and calling patterns and take appropriate action; (v) confirm identities of new commercial customers; (vi) require traceback cooperation in new and renegotiated contracts; (vii) provide for timely and comprehensive law enforcement efforts through cooperation in traceback investigations; and (viii) communicate with state attorneys general about recognized robocall scams and trends and potential solutions. AG Stein noted that the principles will also “make it easier for attorneys general to investigate and prosecute bad actors.”