Consumer Financial Services Litigation

Yesterday, in Sheen v. Wells Fargo (S258019), the California Supreme Court resolved an important issue for the mortgage servicing industry. The court unanimously held that lenders owe no tort duty to process, review, and respond to a borrower’s loan modification application.
Continue Reading The California Supreme Court Rules that Lenders Have No General Tort Duty to Process, Review, and Respond to a Borrower’s Application for a Loan Modification

The Fourth Circuit recently found that the imposition of convenience fees can run afoul of consumer protection statutes—including the Fair Debt Collection Practices Act.

Convenience fees are commonly charged by financial institutions in exchange for allowing a consumer to easily make payments online or via telephone as opposed to making payments by mail.

The case is Alexander v. Carrington Mortgage Services, LLC, and the three-judge panel for the Fourth Circuit unanimously held that a mortgage servicer violated Maryland’s consumer protection statute when it charged consumers a $5 fee to make mortgage payments online or by phone.

Continue Reading Convenience Fees Face Increased Scrutiny After Fourth Circuit Holds That Online Payments May Violate Consumer Protection Statutes

In a much anticipated decision, the U.S. Supreme Court yesterday provided clarity on the definition of an automatic telephone dialing system (“ATDS”) under the Telephone Consumer Protection Act (“TCPA”) of 1991, 47 U.S.C. § 227. Those in the Financial Services industry have been eagerly awaiting the guidance that the Court’s ruling would provide. And provide guidance it did.

In a rare unanimous opinion, the Court rejected a broad definition of an ATDS previously applied by the Second, Sixth and Ninth Circuits in favor of a much more narrow one. Indeed, the Court found that, in order to qualify as an ATDS under the TCPA, a device must “have the capacity either to store a telephone number using a random or sequential generator or to produce a telephone number using a random or sequential number generator.” Facebook, Inc. v. Duguid, No. 19-511, April 1, 2021, slip op. at 1.
Continue Reading Phonelines Are Buzzing: The Supreme Court Has Finally Provided Clarity Regarding the TCPA’s Definition of Automatic Telephone Dialing Systems

In a closely monitored case, the U.S. Supreme Court today upheld the restriction on robocalls under the Telephone Consumer Protection Act (“TCPA”) of 1991 but struck the Act’s government debt-collection exclusion. Many followed this case, anticipating it would result in a fatal blow to the TCPA. But today’s opinion extinguished these hopes.

In response to consumer complaints, Congress passed the TCPA to prohibit robocalls to cell phones, among other things. 47 U.S.C. 227(b)(1)(A)(iii). In 2015, Congress amended the robocall restriction, carving out a new government-debt exception that allows robocalls made solely to collect a debt owed to or guaranteed by the United States. 129 Stat. 588.

In 2016, the plaintiffs, political and nonprofit organizations, filed a declaratory judgment action in the United States District Court for the Eastern District of North Carolina, claiming that the TCPA (§227(b)(1)(A)(iii)) violated the First Amendment. Plaintiffs sought the ability to make political robocalls to cell phones. Invoking the First Amendment, plaintiffs argued that the 2015 government-debt exception unconstitutionally favored debt-collection speech over political and other speech, and asked the Court to invalidate the TCPA’s entire restriction on robocalls. The District Court held that the government-debt carve-out was content-based but withstood strict scrutiny. The Fourth Circuit disagreed, invalidating the 2015 exception and holding that the content-based restriction did not survive strict scrutiny.
Continue Reading TCPA Protection Against Robocalls Upheld. Did the Supreme Court Sacrifice the Right of Free Speech For the Sake of Rescuing a Bad Statute?

From the inception of the Consumer Financial Protection Bureau (“CFPB”), opponents have argued that its single-director structure is unconstitutional. The arguments focused on the executive power that the Constitution vests in the President, positing that limiting the President’s power to remove the CFPB director only for cause infringes upon the President’s executive power and therefore violates the Constitution’s separation of powers.

As Dykema previously blogged, the constitutionality of the CFPB has been litigated in the lower courts, with lower courts siding with CFPB opponents. Notably, Justice Brett Kavanaugh, a D.C. Circuit Court judge at the time, delivered an opinion finding the CFPB unconstitutional, explaining “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” Justice Kavanaugh was confirmed to the Supreme Court on October 6, 2018 and has proved favorable for those opposing the CFPB.
Continue Reading The Battle Over the Constitutionality of the CFPB Is Finally Settled… So What Now?

In a consumer class action, the United States Court of Appeals for the Seventh Circuit was called on to decide whether “consumer reporting agencies to determine the legal validity of disputed debts.” Denan v. Trans Union LLC, No. 19-1519, 2020 U.S. App. LEXIS 14930, at *1-2 (7th Cir. May 11, 2020). Joining the First, Ninth, and Tenth Circuits, the Seventh Circuit found that “a consumer’s defense to a debt is a question for a court to resolve in a suit against the [creditor,] not a job imposed upon consumer reporting agencies by the FCRA.”  Id. at *12 (internal quotations omitted).

In Denan, the plaintiffs obtained loans from tribal payday lenders. Those loans charged interest rates in excess of 300% and, according to the loan agreements, were governed by tribal law, not state law. The plaintiffs claimed that because the loans violated state usury laws, they were “legally invalid.”  Id. at *4. But instead of bringing suit against the tribal lenders, who may have been protected by sovereign immunity, the plaintiffs brought a putative class action against consumer reporting agency (or CRA) Trans Union, alleging it violated 15 U.S.C. § 1681e(b) for failing to assure the “maximum possible accuracy” of reported information.
Continue Reading Credit Reporting Agencies Are Not Required to Determine What Is a “Legally” Valid Debt

With the growth of the automotive loan market, which just this month has been the subject of examination by national publications such as the Wall Street Journal, has come a corresponding rise in auto loan delinquencies.  For automotive finance companies, auto repossessions represent a risk for affirmative claims by consumers both on an individual and, more significantly, on a class basis.  Recently, there has been an uptick in class actions against automotive finance companies alleging technical violations of state and federal law governing repossessions. 
Continue Reading Trend Analysis: Rise in Automotive Repossession Class Actions

Long before eMortgages, electronic signatures, and mobile apps hit the secured lending scene, Lord Nottingham proposed that the English Parliament pass An Act for Prevention of Frauds and Perjuries in 1677 to prevent nonexistent agreements from being “proved” through false testimony. That statute and its progeny remain an important resource in today’s financial services industry. All states have adopted a version of the statute of frauds and many states have enacted statutes of frauds specifically designed to provide broad protection for financial institutions.  If used effectively, these “super” statutes of frauds can quickly dispose of claims and defenses related to credit agreements, allowing lenders to recover collateral, enforce notes and guarantees, and reduce the expense of litigation. These statutes should be one of the first tools lenders reach for when defending claims for breach of an unsigned credit agreement or prosecuting loan enforcement actions where claims and defenses related to credit agreements are asserted.
Continue Reading Win Your Lender-Liability Lawsuit and Enforce Your Loan Documents with this 342-year-old Statute

This article originally appeared in the November 2018 edition of National Mortgage Professional Magazine.

In the fallout from the 2008 financial crisis, courts across the United States were inundated with litigation challenging the legitimacy of mortgages, notes, and the records purporting the transfer or assign them. Such claims included asserting that endorsements of promissory notes were not enforceable, claiming assignments of mortgages were executed without authority, and allegations that the note, mortgage, or associated disclosure documents were neither presented to nor signed by the borrowers. In recent years, as the economy appears to have improved, much of this litigation has died down. However, it does not take much imagination to assume that if and when the next economic downturn hits, some borrowers may again find themselves in default on their mortgage obligations, and in turn may seek to challenge the enforceability of those agreements. 
Continue Reading What’s Past is Prologue: Applying Lessons from the Financial Crisis to the Future of eMortgage and eNote Litigation

Anyone interested in charters from the Office of the Comptroller of the Currency should be following Lusnak vs. Bank of America, 883 F.3d 1185 (9th Cir. 2018), which is being appealed from the Ninth Circuit to the United States Supreme Court. OCC charters are of course a hot topic—now that the OCC is accepting applications from FinTech companies for national bank charters, the power of federal regulators to excuse federally chartered entities from compliance with state regulations may be more important than ever. After all, the key benefit offered by a national bank charter for many FinTech companies is exemption from state-level money transmission licensing and regulation… in theory.

In reality, many state-vs-federal constitutional questions remain unanswered. Federal courts are still defining the extent of the power of federal financial regulators to exempt federally regulated institutions from state laws. The Supreme Court could help clarify these important issues in the next year or two if it grants the recent request to consider Lusnak
Continue Reading Supreme Court Asked to Clarify Applicability of State Laws to OCC-Chartered Entities in Lusnak v. Bank of America