In this week’s episode of As the CFPB Turns questions remain regarding Director(?) Richard Cordray’s constitutional authority to act as the Director of the CFPB. House Financial Services Committee Chairman, Jeb Hensarling, R-Texas, advised Cordray that the D.C. Circuit’s recent decision, which found that President Obama’s recess appointments to the National Labor Relations Board were unconstitutional, applied to the CFPB director as well. Mr. Hensarling advised Director(?) Cordray that “absent contrary guidance from the United States Supreme Court, you do not meet the statutory requirements of a validly serving director of the CFPB, and cannot be recognized as such.” Thus, Mr. Hensarling advised Director(?) Cordray that he was not allowed to testify before the House Financial Services Committee. Mr. Hensarling’s comments received the expected cheers from the right side of the legislative aisle and jeers from the left. Stay tuned for next week’s episode to find out whether Director(?) Cordray and Mr. Hensarling will meet for beers at the White House. On to other news …
In a recent decision, Tyler v. Michaels Stores, Inc., the Massachusetts Supreme Judicial Court held that zip codes are “personal identification information” and that a merchant asking for that information during a credit card transaction violates a Massachusetts statute [G.L.c. 93, Section 105(a)] designed to protect consumer privacy, becoming the second state high court, after California, to declare that merchants can no longer request zip codes in credit card transactions with their customers. The Court also made clear that its decision applies equally to electronic and paper transaction forms.
The Court reasoned that a zip code, “when combined with the consumer’s name, provides the merchant with enough information to identify through publicly available databases the consumer’s address or telephone number, the very information Section 105(a) expressly identifies as personal identification information….”
A large bank was sued in federal court in New York last week by a putative nationwide class alleging that the bank engaged in “unfair, deceptive, and unconscionable assessment and collection of excessive overdraft fees.”
The complaint accuses HSBC Bank and other companies of manipulating the order of customers’ debit card transactions to maximize overdraft penalties by depleting the customer’s account faster with larger transactions and then charging multiple overdraft fees on smaller transactions that were actually made when the account had sufficient funds to cover those purchases. The compliant also accuses HSBC of failing to advise its debit card customers that they have the right to “opt out” of HSBC’s overdraft program, as required by Federal Reserve, and alleges that HSBC could have simply declined to process a debit or point-of-sale transaction when a customer had insufficient funds to cover the purchase or could have warned the customer that he or she was about to overdraw their account.
Now is a good time to review some of the available regulatory guidance on overdraft protection programs, including that provided by the FDIC and the Department of the Treasury. These agencies have suggested certain practices with respect to overdraft programs, including: 1) informing customers of different ways to handle overdrafts, such as lines of credit or automatic transfers, that would avoid overdraft fees; 2) educating customers about choices they have with respect to overdrafts and giving them an opportunity to “opt-out” before the overdraft program is implemented; 3) monitoring customer activity to track customers who incur multiple overdrafts and educating them about the costs and alternatives to overdrafting; 4) communicating frequently with customers to ensure their understanding of the program.
The HSBC suit is yet another warning to banks against aggressive marketing campaigns. As we know from the Bureau’s credit card settlements this past summer and its recent warning to mortgage lenders, marketing practices are under scrutiny – now is the time to review your procedures!
In Campbell v. First American, a federal judge in Maine has issued a ruling decertifying a class action involving claims that First American Title Insurance Co. overcharged refinance customers for their title insurance.
As members of the financial services industry may be all too aware, class certification is a critical point in litigation. A decision to grant class certification places great pressure on the defendant to settle — often without regard for the actual merits of the case. On the other hand, a certification denial can be the “death knell” of the case because the claim of the named plaintiff alone may be too small to justify the expense of going forward. In general, a court will certify a class if it is persuaded that many related individual claims can be decided together, with a key element being the predominance of “common” issues. Class treatment is generally inappropriate where resolution of the claims would require individualized review.
In the Campbell case, Judge George Z. Singal originally had certified a class of homeowners that included all persons who had refinanced a prior mortgage on residential property in Maine that was issued within two years of the refinancing and who had purchased title insurance from First American and paid more than the statutorily approved refinance rate. Two years later, however, Judge Singal was willing to re-examine — and reverse — that ruling. He explained that courts remain free to revisit class certification order at any time prior to final judgment. Citing stricter class certification standards in the wake of the Supreme Court’s 2011 Wal-Mart Stores, Inc. v. Dukes decision, as well as developments in the factual record, Judge Singal found that there was no longer sufficient commonality to justify class certification.
The court observed that the Dukes decision has transformed the class certification commonality standard from a “low bar” to “a far more searching inquiry.” Under Dukes, class certification requires not just a common question, but also common answers. Moreover, a defendant retains a right to litigate defenses to individual claims.
In Campbell, it became clear to the court that there was no common cause for the alleged title insurance overcharge, but rather that “each class member presents unique facts as to what was presented in connection with their purchase of the title insurance and what steps were taken to ascertain whether they qualified for First American’s published refinance rate.” First American also had different defenses as to why individual class members had not received this lower rate. Thus, “neither liability nor damages can be established on a class wide basis,” the court found.
The record supported this analysis. At the time of the initial class certification, First American largely relied on declarations that it submitted to the court. However, the court was under the impression that if a borrower had previously received a title policy from First American, then it was entitled to a re-issue rate and that the failure to receive this rate could be attributed in some common way to First American’s failure to ascertain or assume the existence of the prior policy. Two years later, when First American moved to decertify, the parties had conducted significant additional discovery, which revealed that the plaintiffs’ claims could not be resolved without reviewing each of their individual transactions. First American had conducted a detailed review of 230 title policies (and their underlying files) identified by the plaintiffs as overcharges. The review showed that about one-third involved no overcharge at all. Some plaintiffs had, in fact, received the refinance rate. For various reasons, others were ineligible. In yet other instances, the file contained insufficient information to determine whether the homeowner was entitled to the refinance rate.
The case is Campbell v. First American Title Insurance Co., No. 2:08-cv-003119-GZS, in the U.S. District Court for the District of Maine. As a practical matter, a decertification order may have a particularly deterrent effect on class counsel who risk investing massive resources pursuing a case post-certification only to have the judge change his or her mind down the road. Judge Singal’s ruling joins a number of recent decisions reflecting a legal climate where it may be increasingly difficult to secure class certification. Of note is a decision earlier this year in Howland v. First American Title Insurance Co., 672 F.3d 525 (7th Cir. 2012), in which the Seventh Circuit affirmed the denial class certification in a RESPA case.
In In Re: American Express Merchants’ Litigation (No. 06-1871-cv), a two judge panel of the Second Circuit breathes new life into arguments to strike arbitration clauses. The court held that, because of the allegedly prohibitive costs for pursuing antitrust claims on an individual basis, forcing the plaintiffs to pursue their claims in arbitration would prohibit them from effectively vindicating their federal claims. The court therefore held that the arbitration agreement at issue was unenforceable. Continue reading this entry
Following on the heals of its pro-arbitration decision in Concepcion from earlier this year, the United States Supreme Court ruled today that a federal statute that provides for a private right of action and even for class actions, but is silent as to whether these claims can proceed in arbitration, does not trump the Federal Arbitration Act. See CompuCredit Corp. v. Greenwood, 566 U.S. __ (2011).
As the U.S. Supreme Court has stated on numerous occasions, there is “a liberal federal policy favoring arbitration.” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). In CompuCredit Corp. v. Greenwood, No. 10-948 (U.S. Jan. 10, 2012), the Court trotted out that old refrain again today, holding that the fact that a federal statute provides for a private right of action—while silent on the issue of whether claims under the statute can be pursued in arbitration—does not mean that the plaintiffs can get out of their agreement to arbitrate with the defendant. The plaintiffs were unhappy with the agreement for a credit card they entered into. They argued that the Credit Repair Organizations Act (CROA), 15 U.S.C. § 1679 et seq., specifically provided a requirement for the defendant to disclose to consumers that “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.” 15 U.S.C. § 1679c(a). The CROA also provides that “Any waiver by any consumer of any protection provided by or any right of the consumer under this subchapter—(1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person.” 15 U.S.C. § 1679f(a).
The U.S. Court of Appeals for the Eighth Circuit recently upheld the enforceability and clarity of a 365/360 day interest calculation clause.
As noted in an earlier posting regarding this case, the U.S. District Court for the Eastern District of Missouri had previously dismissed a class action alleging that the lender breached its contracts with the plaintiff class of borrowers by imposing a full year’s interest charges in a 360 day period while the variable rate clause applied the rate “per annum.” On appeal, the Court of Appeals affirmed the District Court’s findings that the use of a “per annum” rate is not inherently inconsistent with a clear 365/360 interest calculation clause.
The recent Ninth Circuit decision, Gonzalez v. Arrow Financial Services, LLC, — F.3d —, 2011 WL 4430844 (9th Cir Sept. 23, 2011), addresses several issues relating to claims brought under the Fair Debt Collection Practices Act (“FDCPA”) and examines that statute’s interaction with the corresponding California debt collection statute, the Rosenthal Act.
In a decision issued last Friday, chastising both the plaintiff’s lawyer and the district court, the Seventh Circuit rolled back the dismissal, for want of prosecution, of a Fair Debt Collection Practices Act (FDCPA) case. It was abuse of discretion to dismiss plaintiff’s entire case – which included a meritorious FDCPA claim – just because the alleged class action claims were unsupported.
In Kasalo v. Harris & Harris, Ltd., Case No. 10-2755 (7th Cir. August 26, 2011), Kasalo sued Harris & Harris, Ltd., a collections agency, for violations of the FDCPA in connection with the attempted collection of an overdue hospital bill. While Harris & Harris admitted that at least one of Kasalo’s claims was meritorious, and that they intended to settle it, Kasalo’s lawyer undertook to transform the case into a class action (likely to increase the potential damages from the modest $1,000 amount allowed under the Act). Plaintiff’s lawyer included in the original complaint, two class counts, and then during the course of discovery, endeavored to add a third.
On Monday, the U.S. Supreme Court granted certiorari in a proposed class action to determine the scope of a home-buyer’s standing to sue a title insurer company that allegedly violated the Real Estate Settlement Procedures Act of 1974 (RESPA). In First American Financial Corporation, et al. v. Edwards (10‑708), the question before the Court is whether a home-buyer has standing under Article III, § 2 of the United States Constitution to pursue a RESPA claim if the home-buyer cannot establish that the violation resulted in an increase in the amount the home-buyer paid for title insurance services.
The United States Supreme Court issued a much awaited decision today that will dramatically impact class action litigation across the country. In a 5-4 decision, in AT&T Mobility LLC v. Concepcion, No. 09-893 (April 27, 2011), the Court held that arbitration agreements in standard form contracts that waive the right to pursue a class action are enforceable, and that the Federal Arbitration Act, 9 U.S.C. § 1, et seq., preempts a California court ruling to the contrary.
In the recent case of Benavides v. Chicago Title Insurance Co., — F.3d —-, 2011 WL 1107009, No. 10-10136 (5th Cir. March 23, 2011), the Fifth Circuit affirmed the Northern District of Texas’s denial of class certification which was based on a finding that there lacked predominance of common questions over individualized ones. In Benavides, the plaintiff filed a class action alleging that the defendant title insurer failed to provide a discount, mandated by Texas insurance code, applicable to title insurance premiums, “when the new loan is issued within seven years of the initial mortgage and the initial mortgage was also covered by the title insurance policy.”
In Castro v. Collecto, Inc., No. 09-50975, 2011 WL 651921 (5th Cir. Feb. 24, 2011), the Fifth Circuit affirmed the dismissal of the plaintiffs’ Fair Debt Collections Practices Act (“FDCPA”) claims, holding that the two year statute of limitations under the Federal Communications Act (“FCA”) did not preempt the four year Texas statue of limitations period for the collection of mobile services debts.
Castro filed suit against the defendants, Collecto, Inc. and U.S. Asset Management, Inc. alleging violations of the FDCPA due to defendants’ attempt to collect an approximately three year old debt owed to Sprint PCS. Castro alleged that the letters sent by the defendants could be interpreted as threatening litigation, despite the fact that the claims were time-barred under the FCA.
Yesterday the United States Supreme Court unanimously ruled that the pre-2009 version of Reg Z did not require a new notice to be given when a creditor raises the interest rate on a credit card account in response to a cardholder default. Although the case was decided under now repealed law, it is important for a couple of reasons. First, it resolves a split in the circuits about how to interpret certain Federal Reserve Board (“Board”) regulations called Reg Z which were promulgated to implement the Truth in Lending Act. Second it gives additional guidance on how the courts should defer to a federal agency’s interpretation of its own ambiguous regulation.
Lamont and Melissa Simmons filed for bankruptcy protection in 2007. Roundup Funding filed a proof of claim saying the Simmons owed $2039.21. The Simmons responded saying we owe you money, but not that much. The judge agreed and reduced the claim to $1100.
The Simmons then sued, seeking class certification, contending Roundup violated the Fair Debt Collection Practices Act by misrepresenting what they owed. In a case decided Tuesday, the U.S. Court of Appeals for the Second Circuit ruled the Simmons have no claim. While the FDCPA bars misrepresentations of the amount of debt, the court ruled it does not apply in this case.
The FDCPA was designed to eliminate abusive practices in the debt collection industry. "There is no need to protect debtors who are already under the protection of the bankruptcy court." The purpose of protecting unsophisticated consumers is "not implicated when a debtor is instead protected by the court system and its officers." For that reason, the Simmons could not predicate their FDCPA claim based on a creditor’s filing in the bankruptcy court.
Today, the Seventh Circuit issued an opinion holding that even though some class members’ claims lack federal jurisdiction, the district court must consider whether it has jurisdiction over the remaining members’ claims under the Class Action Fairness Act (CAFA).
In this case, the plaintiff lost an arbitration over a credit card debt and the Illinois state court entered an award enforcing the judgment. The plaintiff believed that the law firm collecting the debt, Mann Bracken, LLP, and the National Arbitration Forum “secretly are under common control,” and asked the state judge to vacate the award. The judge vacated the award and dismissed the case without prejudice, but did not provide the reasons. The plaintiff then filed a state court class action against Mann Bracken and the issuer of her credit card on behalf of all persons who have claims arbitrated before the National Arbitration Forum with Mann Bracken representing the creditor.
The Defendants immediately removed the case under CAFA. The district court, however, remanded the case back to the state court under the Rooker-Feldman doctrine, which ”prevents federal adjudication of any claim that seeks to invalidate judgments entered by state courts.” The district court held that because the plaintiff was seeking relief on behalf of individuals whose claims are barred by the Rooker-Feldman doctrine, only the state court could resolve the entire dispute. The Seventh Circuit granted the defendants’ petition for appellate review.
The Seventh Circuit held that the plaintiff’s claim was not barred by Rooker-Feldman, because her state court judgment was invalidated by the state court. The court then found three potential subclasses from her class definition: (1) persons who lost in state court (award confirmed); (2) persons who won in state court (award set aside); and (3) persons who have neither won nor lost. The plaintiff cannot represent anyone in subclass 1 because those claims are barred by Rooker Feldman. Therefore, the Seventh Circuit remanded the case so the district court can determine if subclasses 2 and 3 can meet the jurisdictional elements of CAFA “in a properly defined class.”
In Pendergast v. Sprint Nextel Corporation, Case No. 09-10612 (11th Cir. Jan. 4, 2010), the Eleventh Circuit found that there were unsettled questions of Florida law as to whether a class action waiver was procedurally or substantively unconscionable or void for other reasons and certified the following four questions to the Florida Supreme Court:
- Must Florida courts evaluate both procedural and substantive unconscionability simultaneously in a balancing or sliding scale approach, or may courts consider either procedural or substantive unconscionability independently and conclude their analysis if either one is lacking?
- Is the class action waiver provision in Plaintiff’s contract with Sprint procedurally unconscionable under Florida law?
- Is the class action waiver provision in Plaintiff’s contract with Sprint substantively unconscionable under Florida law?
- Is the class action waiver provision in Plaintiff’s contract with Sprint void under Florida law for any other reason?
Law360 is reporting this morning that JPMorgan Chase & Co. has settled out of a class action suit brought against it and other credit card companies in the Southern District of New York. The plaintiffs allege, among other things, that credit card companies conspired to mandate arbitration to settle disputes against credit cardholders.