FTC and New York AG File Joint Suits Against Debt Collectors

On February 26, the FTC and the New York State Attorney General announced joint lawsuits to cease certain practices of two debt collection operations based in upstate New York.  The complaints allege that the defendants unlawfully used threats and abusive language, including false threats that consumers would be arrested, to collect more than $45 million in supposed debts.  The FTC and the State of New York are also seeking monetary relief to provide refunds to consumers.  FTC v. 4 Star Resolution LLC, No. 1:15-cv-00112-WMS (W.D.N.Y. Feb. 9, 2015), FTC v. Vantage Point Services, LLC, No. 1:15-cv-00006-WMS (W.D.N.Y. Jan. 5, 2015).  The District Court has temporarily enjoined the defendants’ practices in both cases.

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Eleventh Circuit Ruling Gives Large Bank Another Chance at Arbitration

On an appeal of five putative class actions alleging the unlawful charging of overdraft fees on consumer checking accounts, On February 10, the U.S. Court of Appeals for the Eleventh Circuit vacated a lower court order holding that the defendant’s waiver of its right to compel arbitration with the named plaintiffs precludes the Bank from compelling arbitration with any unnamed members of the putative classes.  In re Checking Account Overdraft Litigation, No. 13-12082 (11th Cir. Feb. 10, 2015).  The panel held that the lower court lacked jurisdiction to resolve the question.  Additionally, it held that the named plaintiffs lacked standing, under Article III of the U.S. Constitution, to advance claims on behalf of those unnamed putative class members, who—in the absence of class certification—have “no justiciable controversy” with the Bank.

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District Court Denies Motion to Dismiss in Ongoing CFPB Litigation

On February 12, 2015 the U.S. District Court for the Western District of Kentucky held that claims presented by the CFPB regarding a Kentucky-based law firm’s alleged violations of Section 8 of the Real Estate Settlement Procedures Act (“RESPA”) were legally plausible and denied the Defendants’ motion for judgment on the pleadings. The CFPB’s complaint—filed in October 2013 (as reported in InfoBytes Blog)—purported that principals of the law firm received illegal kickbacks for client referrals paid in the form of “profit distributions” from a network of affiliated title insurance companies.  Additionally, it was asserted that the affiliated companies did not provide settlement services, thereby failing to comply with RESPA’s safe harbor for affiliated business agreements.  12 U.S.C. § 2607(c)(4).  The Court stated that there was enough “factual detail” presented within the complaint for it to plausibly conclude that the firm had “committed the alleged misconduct,” that the Defendant failed to meet the first safe harbor element, and that the notice of the claim in the case had been “more than sufficient.”  The memorandum also stated that the statute of limitations, which Defendants attempted to leverage, offered no guidance as to whether the firm was “entitled to judgment” on the pleadings, leading the Court to render its decision for the CFPB. CFPB v. Borders & Borders, PLLC, et al., No. 3:13-cv-1047-jgh (W.D. KY. February 12, 2015).

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Large Global Bank Settles Legacy Claims Surrounding Mortgage-Backed Securities

On February 2, a major bank agreed to a $500 million settlement to resolve years of litigation surrounding the sale of mortgage securities by Bear Stearns, which the company acquired. In re: Bear Stearns Mortgage Pass-Through Certificates Litigation, No. 1:08-cv-08093-LTS (S.D.N.Y. Feb. 2, 2015). The litigation concerned the sale of $17.58 billion in mortgage securities by Bear Stearns, and alleged that the former investment bank “misrepresented the quality of the loans in the loan pools.”  Although investors did not accuse Bear Stearns of fraud, they alleged that it was strictly liable and negligent for the losses incurred, evidenced by the downgrading of most mortgage certificates from a AAA rating to below investment grade, or “junk” status.  In the settlement, the New York-based institution denied any wrongdoing relating to the mortgage sales of Bear Stearns, which occurred during 2006-2007 prior to acquisition.

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Fair Housing Organization Files Suit for Alleged Racial Bias

On February 3, the Fair Housing Justice Center (FHJC), a regional fair housing non-profit organization based in New York City, filed a complaint alleging that a large bank discriminated in its mortgage lending practices on the basis of race and national origin. According to the complaint, the organization hired nine “testers” of various racial backgrounds to inquire about obtaining a mortgage for first-time homebuyers. Specifically, the complaint claims that the bank’s loan officers (i) used neighborhood racial demographics to steer minority testers to racially segregated neighborhoods and (ii) offered different loan terms and conditions based on race or national origin. The plaintiff is seeking compensatory and punitive damages and injunctive relief to ensure compliance with fair housing and fair lending laws. FHJC et al v. M&T Bank Corp., No-15-cv-779 (S.D. NY. Feb. 3, 2014).

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Silk Road Operator Found Guilty

On February 4, a federal jury found Ross Ulbricht guilty on all seven federal charges brought against him in connection with his role in operating the Silk Road website, including narcotics and money laundering charges. According to the government, Mr. Ulbricht created, owned, and operated the website, which functioned as a criminal marketplace for illegal goods and services until the website was shut down in October 2013. This marketplace allowed individuals to sell controlled substances and illegal services, and included a Bitcoin-based payment system that allowed buyers and sellers to conceal their identities. According to Ulbricht’s attorneys, while Ulbricht did create the Silk Road, he turned over operation of the website to other individuals who eventually grew the site into the vast criminal marketplace.  Ulbricht faces a sentence of 20 years to life in prison and is scheduled to be sentenced by Judge Forrest on May 15.  Ulbricht’s attorney described the verdict as “very disappointing” and is planning to appeal. U.S. v. Ulbricht, No-14-cr-68 (S.D. NY. Feb. 3, 2014).

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Eighth Circuit Rules Disputed Debt Claim Does Not Violate FDCPA

On December 4, the U.S. Court of Appeals for the Eighth Circuit held that a debt collector did not violate the FDCPA by informing a consumer reporting agency (CRA) that a consumer owed a debt without also expressly indicating that the consumer had disputed it. McIvor v. Credit Control Services, Inc., No. 14-1164 (8th Cir. Dec. 4, 2014). According to the opinion, the plaintiff brought a claim under § 1692e(8) of the FDCPA, which prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt,” and deems as a violation the conduct of “[c]ommunicating . . . to any person credit information which is known . . . to be false, including the failure to communicate that a disputed debt is disputed.” The court reasoned that no violation occurred here because (i) the CRA already knew that the debt was disputed, and (ii) the debt collector communicated with the CRA “with the purpose of complying with the FCRA, not as an elective report of credit information.”

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Indiana Court of Appeals Reverses “E-Mortgage” Decision

The Indiana Court of Appeals reversed and remanded for further proceedings a trial court’s grant of partial summary judgment and held that because the plaintiff did not show that it controlled the electronic mortgage note (“Note”) for purposes of 15 U.S.C. § 7021(b) as of the date the foreclosure was filed, it had not established that it was the party entitled to enforce the Note as of that date.  The plaintiff was not the original lender, and instead, received the mortgage by assignment. The plaintiff filed a complaint to foreclose the mortgage shortly after taking assignment. The Note stated that the only authoritative copy was the copy within the Note Holder’s control.  15 U.S.C. § 7021 provides conditions under which a party can have control and the court found that the evidence put forward by the plaintiff in support of the motion for summary judgment did not properly address satisfaction of those conditions. Specifically, the court stated that the plaintiff did not present evidence demonstrating that control over the Note had been transferred to the plaintiff in accordance with the requirements of 15 U.S.C. 7021. The court specifically noted in the decision that the plaintiff, upon demonstrating it had received a transfer of control, would be entitled to the same rights as the holder of a written promissory note under UCC Article 3, and that delivery, endorsement and possession of a physical note were not required. Good v. Wells Fargo Bank, N.A., No. 20A03-1401-MF-14 (Ct. App. Ind. 2014).

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Supreme Court Hears Oral Arguments on Fair Housing Act Disparate Impact Case

On January 21, the U.S. Supreme Court heard oral arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, in which Texas challenged the disparate impact theory of discrimination under the Fair Housing Act (FHA). In their questions to counsel, the Justices focused on (i) whether the phrase “making unavailable” in the FHA provides a textual basis for disparate impact, (ii) whether three provisions of the 1988 amendments to the FHA demonstrate congressional acknowledgement that the FHA permits disparate impact claims, and (iii) whether the Court should defer to HUD’s disparate impact rule. The Court is expected to issue its ruling by the end of June. For more information on the oral argument, please refer to our previously issued Special Alert.

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Large National Bank Faces Class Action Suit Over Alleged SCRA Violations

On January 15, an Army Reserve sergeant filed a class action suit against a large national bank for allegedly violating the SCRA limitation on a lender’s ability to foreclose on an active duty service member’s property. According to the complaint, the bank violated the law by foreclosing on the plaintiff’s home and seizing personal property while the sergeant was on active duty. Wensel et al v. The Bank of New York, No 2:15-cv-00068, (W.D. Penn. Jan. 15, 2015)

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Supreme Court Holds That Notice of Rescission Is Sufficient For Borrowers to Exercise TILA’s Extended Right to Rescind

As previously reported in our January 15 Special Alert, the Supreme Court held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” BuckleySandler submitted an amicus curiae brief in the case on behalf of industry groups, arguing that notice alone is insufficient to effectuate rescission under Section 1635(f).

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District Court Rules Online Agreement Does Not Bind Customers to Unknown Future Contract Terms

On December 10, the U.S. District Court for the Northern District of California granted plaintiff’s motion for partial summary judgment in a class action suit filed against a large grocery chain. Plaintiff claims that the grocer’s online prices for groceries were approximately 10 percent higher than those in its stores and alleged causes of action for breach of contract and under California’s Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law. A class was certified for the breach of contract claim on March 9, 2014. In granting summary judgment on the breach of contract claim, the Court found that the grocer breached its agreement with consumers because its terms of use promised that the online prices and in-store prices would be identical. Furthermore, the Court rejected the grocer’s claims that class members should not be allowed to recover damages for the period after it made revisions to its terms of use where it noted the pricing disparities. The Court stated, “even in light of [customer’s] agreement to the Special Terms at the time of registration, customers’ assent to the revised Terms cannot be inferred from their continued use of the [grocer’s online service] when they were never given notice that the Special Terms had been altered.” Rodman v Safeway Inc., No 11-cv-03003-JST (N.D. Cal. Dec. 10, 2014).

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Large National Bank Fights Against Latest Suit Alleging Improper Overdraft Fees

On January 6, a large national bank filed a motion to dismiss a suit alleging it charged improper overdraft fees. Filed last year in the Central District of California, the suit claims the bank violated federal and state laws – the EFTA and California’s unfair competition law – by posting customers’ larger debit transactions first, causing customer accounts to deplete faster resulting in more overdraft fees. In its motion, the bank claims it voluntarily stopped charging overdraft fees for one-time debit card transactions and most ATM withdrawals prior to the effective date of the amended regulations. The bank also argues that state law claims regarding good faith practices are preempted by the federal National Banking Act (NBA). The matter is scheduled to be heard on March 3. Stanionis et al v. Bank of America, No. 14-cv-2222

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District Court Dismisses Class Action Against Payday Lender

On December 29, the U.S. District Court for the District of Delaware dismissed a class action accusing a payday lender of consumer fraud. Zieger v. Advance America, No. 13-cv-1614 (D. Del. Dec. 29, 2014). Filed in 2013, the suit sought damages on behalf of borrowers who obtained loans from the lender on allegedly “unconscionable and incomprehensible” terms. Among these terms, from which the plaintiff had opted out, was a dispute resolution provision that effectively prohibits a borrower’s right to a jury trial. In its order, the Court ruled that the plaintiffs’ claims of the lender’s misrepresentations lacked specificity and that general attacks on payday lending were not sufficient to support fraud claims. The Court granted the lender’s motion to strike the class allegations and also granted the plaintiff leave to amend the complaint with class allegations pertaining to those similarly situated borrowers who may have also opted out of the dispute resolution clause.

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District Court Denies Motion to Dismiss Class Action Against Debt Collection Firm Over “Misleading” Collection Letters

On December 15, the U.S. District Court for the District of New Jersey denied a motion to dismiss a class action suit against a fund and law firm specializing in debt collection. Marucci et al v. Cawley & Bergmann, LLP et al, No. 13-cv-4884 (D.N.J. Dec. 15, 2014). The suit claims that the firm violated the FDCPA by not informing consumers that interest was accruing on the amount specified in their collection letters. According to the complaint, the debt collection letters used by the firm “would lead the least sophisticated consumer to believe that payment of the amount stated in the letter would satisfy the Debt, when in fact interest is accruing and the consumer may still owe additional accrued interest.” The court found that the plaintiff’s interpretation of the letter was sufficiently reasonable to state a claim.

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