Source: http://bankingfinancelawdaily.blogspot.com/2017/07/
Timestamp: 2017-11-21 00:25:45
Document Index: 119248191

Matched Legal Cases: ['§24', '§5', '§46', '§46', '§227', '§227', 'art 1026']

WK Banking & Finance Law Blog: July 2017
When can the OCC charter a fintech as a national bank?
The Office of the Comptroller of the Currency’s plan to create some form of national bank charter for financial technology companies has stirred up a hornets’ nest of responses, and the OCC does not seem inclined to let things calm down. Despite opposition from state banking regulators, concerns of some banking industry groups, and several lawsuits, the OCC seems intent on moving forward with its plan. Acting Comptroller Keith Noreika continued, as recently as July 19, to defend the idea of special charters against assertions that they would threaten consumer protection and exceed the OCC’s statutory authority.
The dispute over national fintech charters can be analyzed from several points of view. Concerns have been expressed over:
the legality of special purpose national bank fintech charters; and
the effect of national bank fintech charters on the dual state-federal charter banking system—perhaps, a state v. federal regulators’ turf war.
OCC’s first steps. The OCC began to move toward granting fintech charters under prior Comptroller Thomas J. Curry, as part of the agency’s “responsible innovation framework.” Whether national bank charters should be granted to fintech companies conducting banking activities was one of the most important financial innovation questions the agency faced, Curry said.
The following month, Curry announced that the OCC intended to create special charters for fintech companies that offer bank products and services. The agency also published “Exploring Special Purpose National BankCharters for Fintech Companies,” which explored related issues.
In a Georgetown University Law Center speech, Curry asserted that a special purpose national bank charter would allow the OCC to enhance both consumer protection and safety and soundness. Fintech companies were providing bank-like services without the need to comply with federal laws like the Community Reinvestment Act and without rigorous financial stability standards, he said, and a chartering process would give his agency the ability to introduce more supervision.
At that time, he promised that any fintech companies chartered by the OCC would be held to the same standards that applied to any other OCC-supervised business. Fintech businesses would receive no competitive advantage over traditional national banks that offered the same products and services, Curry pledged.
Licensing manual proposed. In order to create a path toward special purpose national bank charters, the OCC then proposed a dedicated supplement to its Licensing Manual. The agency again promised that fintech companies receiving national bank charters would be required to meet the same fairness and safety and soundness standards that applied to other national banks. The manual supplement was intended to outline how compliance with those standards would be measured.
The proposed supplement began by describing what fintech companies would be considered to be special purpose national banks that are eligible for charters. A company would have to perform at least one of two bank functions—lending money, or paying checks (or making comparable electronic fund transfers). However, the companies would not be permitted to accept deposits and thus would not be covered by federal deposit insurance. The OCC added that such a company might want to engage in other activities that have not previously been considered to be banking; if so, the company would have to explain why the activity should be considered to be permissible for a chartered institution.
A fintech company that holds a charter would be subject to both leverage and risk-based capital standards, according to the proposed supplement. Since these companies are likely to have comparatively few on-balance sheet assets, higher requirements might be called for. The companies also would be required to comply with the Bank Secrecy Act, related anti-money laundering regulations, and Office of Foreign Assets Control rules.
The OCC sought to assure banks that a special purpose charter will not be an avenue to improperly mixing business and commerce. Products with predatory features, and unfair or deceptive acts or practices, will not be permitted, the agency also said.
Response to OCC plans. Banking industry associations and consumer advocacy groups are, for once, fairly united in their skepticism about the OCC’s plans. The American Bankers Association is the most opened minded about the idea of a special purpose charter as long as the fintech companies are held to the same rules and subject to the same oversight as traditional national banks.
However, the Independent Community Bankers of America said a year ago that fintech companies would immediately have a competitive advantage over community banks, especially if the fintech companies were not adequately supervised In April, the ICBA urged the OCC not to act on special purpose charters without clear congressional authorization.
Litigation. Of perhaps greater significance is the resistance of the Conference of State Bank Supervisors, which has filed suit in an effort to block the OCC from issuing the planned charters. In is suit, filed in the U.S. District Court of the District of Columbia, CSBS describes the OCC’s plan as “an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks.” According to CSBS, a bank must, at a minimum, accept deposits; however, the OCC says that fintech companies with special purpose charters will not accept deposits. That means they will not be engaged in the business of banking, CSBS charges, and therefore they cannot be given national bank charters.
The complaint in CSBS v. OCC raises several specific charges against the OCC. According to the complaint:
The OCC claims the authority to create charters for a broad variety of nonbank financial services providers, regardless of whether they might be thought of as fintech companies. This exceeds the agency’s authority under the National Bank Act.
The OCC should have proposed a regulation on special purpose fintech charters. Instead, it published a white paper and then proposed changes to the Licensing Manual. The agency has never asked for comments on whether the National Bank Act gives it the authority to charter fintech companies.
The OCC intends, as part of the chartering process, to negotiate a secret agreement with each company about which federal banking laws will be applied to it. Also, by virtue of their federal special purpose charters, the companies will be exempt from state banking laws and regulations, which will create significant preemption issues.
Previous OCC efforts to charter companies that do not take deposits have been rejected by the courts, according to CSBS’s complaint. There are only three exceptions—trust banks, banker’s banks, and credit card banks. The special purpose fintech companies contemplated by the OCC would not fit into any of those categories, and Congress has rejected efforts to create other special purpose charters, CSBS asserts.
The CSBS suit is not the only court effort to block the OCC. The New York State Department of Financial Services, a CSBS member, has filed a separate suit in the U.S. District Court for the Southern District of New York. In Vullo v. OCC, DFS characterizes the OCC’s plan as “lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York State.” According to the complaint, “The OCC’s reckless folly should be stopped.”
In addition to challenging the OCC’s authority under the National Bank Act, the DFS alleges that:
special purpose bank charters for fintech companies would preempt state payday loan, usury, and predatory lending consumer protections;
multiple non-depository business lines would be consolidated under a single federal charter, resulting in more institutions that are “too big to fail”; and
a competitive advantage would be given to large, well-capitalized fintech companies that then could overwhelm smaller companies (presumably including community banks, although they were not mentioned specifically).
The DFS also repeats CSBS’s claim that judicial precedent has twice rejected OCC efforts to grant charters to companies that do not accept deposits.
OCC response. In remarks prepared for a July 19 appearance at the Exchequer Club, Noreika laid out the OCC’s replies to the various objections that have been raised. Disclaiming any intent to comment on the two pending suits, Noreika said he could share his views on “the idea of granting national bank charters to fintech companies that are engaged in the business of banking and requiring them to meet the high standards for receiving a charter.”
Noreika warned against defining the business of banking too narrowly. The banking system must be allowed to evolve and take advantage of technological advances. A national bank charter should be one option for a company that provides banking products and services, while state bank charters, other state financial service provider licenses, and partnerships with existing banks all should be available as well.
One reason for the OCC’s plan is the belief that a company which provides banking products and services while acting like a bank should be regulated and supervised like a bank, Noreika said. However, that currently is not the situation, as “Hundreds of fintechs presently compete against banks without the rigorous oversight and requirements facing national banks and federal savings associations.” People who fear that national bank charters for fintechs will put banks at a disadvantage “have it backwards,” he asserted; banks may be at a disadvantage now, and OCC regulation and supervision could be a remedy.
The OCC has repeatedly pledged that fintech companies given charters would be subject to regular examinations and capital and liquidity standards. They also would be subject to financial inclusion expectations “where appropriate,” he said.
Consumer protection concerns are equally misplaced, Noreika claimed. The Dodd-Frank Act clarified the preemption rules, so that state anti-discrimination, fair lending, and other laws apply to national banks. The OCC agrees that many state laws that ban unfair or deceptive acts and practices apply to national banks, he added, and the same ban is imposed by the Federal Trade Commission Act.
Specifically, Noreika attempted to refute claims that charters for fintech companies would “somehow let unfair and deceptive lending practices creep into the federal banking system.” He claimed that the OCC has fought against those practices for many years. State-licensed companies, not national banks, are responsible for abuses by payday lenders and similar companies, he charged.
Worries about abuses arising from fintech companies’ ability to export interest rates also are “unfounded,” according to Noreika. Banks with federal charters have been able to export interest rates for years “without such feared practices taking root,” he asserted. Besides, state banks have had the same ability to export interest rates since 1980, he noted.
No deposits. Responding to the litigation claims that the OCC does not have the legal authority to grant national banks charters to companies that do not accept deposits, Noreika made clear the OCC believes it does. A regulation adopted in 2003 made that authority clear he said. (CSBS, in its suit, claims that the OCC can point to no statute that authorized the OCC to adopt that regulation.)
In his speech, Noreika said the OCC had discussed charter applications with fintech companies. The agency intended to continue those discussions, but no applications have been submitted, he told the Exchequer Club. However, less than two weeks later, mobile banking startup Varo Money Inc. applied for a national bank charter for Varo Bank N.A., which would be a full-service bank, not a special purpose bank.
Noreika added that there is no question about the OCC’s ability to charter full-service national banks that offer fintech products and services, or about the agency’s authority to charter trust banks, banker’s banks, and credit card banks. “Many fintech business models may fit well into these long-established categories of special purpose national bank charters that do not rely on the contested provision of regulation . . .,” Noreika said. The OCC may decide simply to grant charters under that undisputed authority.
The Acting Comptroller did remind the audience that considering special purpose national bank charters for fintechs is an initiative that was started by his predecessor, Comptroller Curry. That makes it a rare example of a financial services initiative begun by the Obama administration and whole-heartedly continued by the Trump administration.
Choice of charters. Noreika made clear his desire to cast special purpose charters as simply one of several options that fintech companies can choose among. In his view, having more options would strengthen the dual-charter system. Granting special purpose charters also would allow the OCC to create a more level playing field between national banks and federal savings associations on the one hand and fintech companies on the other, because all would be subject to the same regulatory standards.
What is a bank? The outcome of the two pending suits likely will turn on the answer to one question: What is a bank? Or, put differently, what is the business of banking? Oddly, federal law offers no succinct definition.
The National Bank Act—which created the OCC—unhelpfully fails to define either term.
The Bank Holding Company Act refers in part to the Federal Deposit Insurance Act definition of “insured bank” for its definition, but adds that a bank also can be an institution organized under federal or state law that either accepts demand deposits or offers checking accounts and that makes commercial loans.
The FDIA says that a bank is a national bank, federal branch, insured branch, or state bank. Interestingly, the FDIA definition of state bank requires the institution to accept deposits, but no comparable definition of national bank is offered.
The NBA describes, in 12 U.S.C. §24, all of the things that a national bank may do. However, it does not describe what a financial institution must do in order to be a bank. In 12 CFR §5.20(e), the OCC claims the authority to charter a special purpose bank that engages in at least one of three “core banking functions”: accepting deposits, paying checks, or making loans. That regulation is the source of the OCC’s assertion that fintechs can be given special purpose charters even if they do not accept deposits.
Precedents. As noted, CSBS and New York’s DFS claim that two previous OCC efforts to expand its special purpose charter authority have been rejected. They cite Independent Bankers Association of Americav. Conover, 1985 U.S. Dist. LEXIS 22529, Fed. Banking L. Rep. ¶86,178, and National State Bank v. Smith 1977 U.S. Dist. LEXIS 18184.
Conover offered an in-depth discussion of the issue, reaching the conclusion that a bank must both accept demand deposits and make commercial loans. Smith, on the other hand, is a less convincing, not-for-publication opinion that the OCC could not charter a national bank solely as a fiduciary institution with no other banking powers, based on OCC regulations then in effect. As both of these are only district court opinions, they have no binding effect.
Chevron effects. In the end, there is a chance that both suits could be determined by the Supreme Court’s far-reaching decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984). Under Chevron, a regulatory agency’s interpretation of an ambiguous statute is entitled to deference if Congress gave the agency the authority to interpret and implement the statute, the agency’s interpretation is reasonable, and the regulation was adopted pursuant to a notice-and-comment process.
The lack of any statutory definition of “bank” in the NBA implies that the word is ambiguous, and the OCC clearly has the authority to interpret and adopt regulations under the NBA. Also, the regulation in question would have been subject to a notice and public comment period.
Therefore, it could be seen as likely that a judge would feel bound to defer to the OCC’s conclusion as to what constitutes a bank. In that case, a fintech that carried out any of the three identified core banking functions specified by the OCC regulations could satisfy the criteria to be given a national bank charter.
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Regulators propose higher CRE loan appraisal threshold
The Federal Reserve Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation are proposing to make it easier for banks to originate commercial real estate loans by raising the threshold for loans that require appraisals. Under the proposal, the current $250,000 threshold would be increased to $400,000. Loans for lower amounts could be made based on less-detailed evaluations that could be completed by individuals who are not licensed or certified appraisers.
The current $250,000 threshold has been in effect since 1994. According to the proposal, a commercial property that sold for $250,000 in 1994 could have a market value of up to $830,000 today. However, CRE property values are volatile, and $400,000 is the approximate low point of the current cycle, which was set in 2010.
The proposal would have no effect on residential mortgage loans.
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Senate action. “Members of Congress previously expressed concerns with the proposed version of the rulemaking—concerns that were not addressed in the final rule,” said Banking Committee Chairman Mike Crapo (R-Idaho). “The rule is based on a flawed study that leading scholars have criticized as biased and inadequate, noting that it could leave consumers worse off by removing access to an important dispute resolution tool. By ignoring requests from Congress to reexamine the rule and develop alternatives between the status quo and effectively eliminating arbitration, the CFPB has once again proven a lack of accountability. Given the problems with the study and the Bureau’s failure to address significant concerns, it is not only appropriate but incumbent on Congress to vote to overturn this rule.”
Rounds joined in the resolution, calling the arbitration rule “yet another example of the CFPB overstepping its authority to impose burdensome, unnecessary regulations that do more harm than good.” Rounds stated that the rule “would actually cost consumers more in the long run by pushing consumers into class action lawsuits as opposed to arbitration.”
Democratic response. In response to the resolutions, Rep. Maxine Waters (D-Calif), Ranking Member of the Financial Services Committee, blasted Republicans for trying to take away consumers’ rights to be heard in a court of law. According to Waters, the “forced arbitration rule ensures that consumers are not required to sign away their legal rights in order to open a bank account, obtain a credit card, finance a car, or obtain a private student loan.” In addition, Waters emphasized that the development of the rule was a methodical and well-thought-out process, done in consultation with other federal financial regulators.
Senate Banking Committee Ranking member Sherrod Brown (D-Ohio) stated that “overturning the arbitration rule will help banks and payday lenders continue getting away with cheating customers, and I intend to put up one hell of a fight.” According to Brown, “[a]lmost a year after millions of fake accounts were uncovered, Wells Fargo is still using fine print arbitration clauses to cheat those customers out of the justice they deserve.”
Industry applause. The American Bankers Association has applauded the congressional resolutions for putting consumers first and taking the first steps to overturn the CFPB’s “misguided” arbitration rule. “In reality, the vast majority of disputes get resolved quickly and amicably without the need for arbitration or legal action,” said Rob Nichols, ABA president and CEO. “If arbitration disappears, the Bureau will force consumers to navigate an already overcrowded legal system where the only winners will be trial lawyers. We think our customers deserve better, and we urge lawmakers in both chambers of Congress to overturn this anti-consumer rule as soon as possible.”
Richard Hunt, President and CEO of the Consumer Bankers Association (CBA), released a statement in favor of the resolutions. “Arbitration has long provided a faster, more cost-effective, and higher recovery means of addressing consumer disputes than class action lawsuits. The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit. The real benefactors of the CFPB’s arbitration rule are not consumers, but trial lawyers who pocket over $1 million on average per class action lawsuit.”
Industry associations oppose rollback. In a statement, the National Consumer Law Center stated that barring forced arbitration clauses in contracts with class action bans allows individuals to join together with other victims of fraud and wrongdoing to hold violators accountable. Lauren Saunders, the center’s associate director, stated that “Wells Fargo used a forced arbitration clause in their contracts to hide widespread wrongdoing for years from the public by sidestepping our justice system,” said Saunders.
Center for Responsible Lending Senior Policy Counsel Melissa Stegman released a statement praising the bureau’s rule to restore the ability of consumers to “join together and have their day in court.” Stegman stated that forced arbitration clauses “block consumers’ access to the courts and force consumers into an arbitration process rigged in favor of the company.” She stated that “the Wells Fargo scandal highlights the real harm of forced arbitration clauses, as customers who attempted to bring class action lawsuits against the bank over phony accounts were blocked from the court.”
Allied Progress executive director Karl Frisch called the bureau’s arbitration rule a “major victory for all Americans,” and said the companion bills “puts the power back in the hands of Wall Street and the big banks—essentially establishing secret arbitration courts where big business has the advantage and consumers hardly stand a chance.” Americans for Financial Reform also opposes efforts to roll back the bureau’s rule, with its executive director Lisa Donner stating that these efforts would “strip consumers of their constitutional right to hold lawbreakers accountable in court.”
Michael Best, Director of Advocacy Outreach at Consumer Federation of America, issued a statement that the bureau’s rule “would restore to consumers the choice to band together to seek refunds when their bank breaks the law. The financial industry claims that arbitration is superior to pursuing claims in court. If true, then consumers will choose this option—they shouldn’t be forced into it with fine print.”
“Repealing the CFPB’s arbitration rule is payback for the more than $100 million in campaign contributions Republicans have taken from the financial industry,” said Robert Weissman, president of Public Citizen, referring to analysis the group released asserting that the financial industry has given more than $100 million in campaign contributions to Republicans in the U.S. Senate.
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Cordray: Arbitration clauses 'bad for consumers': Critics beg to differ
Consumer Financial Protection Bureau Director Richard Cordray has spoken out on the bureau’s final rule banning mandatory predispute arbitration clauses that prevent class actions. The rule, adopted as final by the CFPB on July 10, 2017, allows arbitration clauses only if applied to individual claims Cordray, in prepared remarks, said that the bureau’s research, mandated by the Dodd-Frank Act, showed that "these little-known clauses are bad for consumers." The rule met with both approval and criticism by legislators, trade groups, and consumer organizations.
Consumers are likely to continue facing ongoing harm that does not get corrected
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Number of debt-collection phone calls, by itself, insufficient evidence of violation
Addressing what it deemed a “matter of first impression,” a majority of justices on the West Virginia Supreme Court of Appeals recently determined that the number of phone calls made to a consumer by a debt collector does not, by itself, constitute sufficient evidence to establish an “intent to annoy, abuse, oppress or threaten” the consumer in violation of the West Virginia Consumer Credit and Protection Act (WVCCPA). Through its programmed auto-dialer system, the third-party debt collector telephoned the consumer 250 times during an eight-month period, and the consumer never answered the phone calls or contacted the collector to contest the debt.
In Valentine & Kebartas, Inc. v. Lenahan, West Virginia’s high court decided that the state trial court erred as a matter of law in ruling in favor of the consumer after a bench trial. While the court’s majority reversed the judge’s verdict, two justices dissented.
Collector’s phone calls. As relayed by the majority’s opinion, the third-party debt collector, Valentine & Kebartas, Inc., purchased a delinquent account from a provider of home security systems to consumers. While the consumer informed the provider that he disputed a $1,350 debt attributed to him, the consumer never notified the collector that he denied owing the debt.
After mailing a collection letter to the consumer, who admitted receiving the letter, the collector made 250 phone calls to him on his cell phone over an eight-month period by use of an auto-dialer system. The system not only was programmed to make calls “according to certain parameters such as time of day and number of calls per day or week in compliance with applicable laws,” it also was programmed to not leave a message. Rather, if a phone call were to be answered, the auto-dialer system would then “connect a collection agent with the person making the call.” The facts showed that the consumer did not answer any of the 250 phone calls.
Trial court’s verdict. Notably, the trial judge found that the debt collector “ramped up its collection campaign” after the initial 22 phone calls, viewing the practice as evidence of the collector’s intent. Consequently, the judge ruled that the volume of the debt collector’s unanswered telephone calls to the consumer constituted “abuse or unreasonable oppression by virtue of ‘causing a telephone to ring … repeatedly or continuously … with intent to annoy, abuse, oppress or threaten” the consumer under the WVCCPA.
Appellate review. At the outset, the West Virginia Supreme Court framed the legal issue before it as “[w]hether the number of collection calls alone is sufficient to find V&K liable to Mr. Lenahan under West Virginia Code §46A-2-125(d).” In answering that question in the negative, the court stressed that the trial court relied “solely on the volume of telephone calls” placed by the debt collector’s auto-dialer system to find a “lack of legitimate purpose” for the collector’s conduct.
In reviewing the WVCCPA provision and examining state and federal case law on the issue, the court reasoned that: (i) “the weight of federal authority requires some evidence of intent to establish liability under the federal equivalent to West Virginia Code §46A-2-125(d);” (ii) the collector’s calls continued because the consumer never answered them and never informed the collector that he contested the debt; (iii) the trial court made a faulty “inference of intent” derived from the volume of phone calls; (iv) that inference inappropriately relieved the consumer of his burden of proof; and (v) the consumer’s silence about the numerous auto-dialer calls did not trigger “imputed knowledge” to the collector that it should discontinue the calls.
Dissent. In her dissenting opinion, Justice Workman asserted that “the majority reverses the trial court’s verdict in direct contradiction of a universally-accepted rule pertaining to evidence from which intent may be inferred for purposes of unlawful debt collection practices.” Workman indicated that “Justice Davis joins me in this dissent.”
From Workman’s perspective, even though the majority characterized the legal issue in the case as one of first impression, “the majority issues no new syllabus point to this effect, undoubtedly because it flies directly in the face of all written authority and common sense.” Further, she maintained that the majority’s decision represented a “complete departure from the overwhelming consensus of courts addressing this issue.”
Single prerecorded call in voicemail can constitute a TCPA violation
A single unsolicited prerecorded message left in cell phone voicemail can constitute a claim under the Telephone Consumer Protection Act (TCPA), even where the recipient is not charged for the call, the U.S. Court of Appeals for the Third Circuit has ruled. Furthermore, the court said in reversing the lower court’s dismissal of the suit, an intangible injury, such as invasion of privacy, can constitute a concrete injury, thus giving the plaintiff standing to assert her claim, where (1) the alleged injury is the very injury the statute is intended to prevent and (2) the injury has a close relationship to the harm traditionally providing a basis for lawsuits in American courts (Susinno v. Work Out World Inc.).
Noreen Susinno filed suit in New Jersey federal court against Work Out World Inc., alleging that Work Out World violated the TCPA when it left a single unsolicited prerecorded message on her voicemail. Work Out World filed a motion to dismiss for lack of subject matter jurisdiction.
The district court held that: (1) a single solicitation was not the type of situation that Congress intended to protect people against and (2) Susinno suffered no concrete injury and, thus, lacked standing to assert her claim. As a result, the court granted the motion to dismiss for lack of subject matter jurisdiction. Susinno appealed the decision to the Third Circuit.
The TCPA makes it “unlawful for any person…to make any call…using any automatic telephone dialing system or an artificial or prerecorded device…to any telephone number…or any service for which the called party is charged for the call.” 47 U.S.C. §227(b)(1)). The Eleventh Circuit has stated that the phrase “for the which the called party is charged for the call” applies only to “any service” rather than to every other type of service previously mentioned in the statute (Osorio v. State Farm Bank, F.S.B., 746 F.3d 1242, 1257 (11th Cir. 2014).
The Third Circuit opined that an even more direct rebuttal existed in another TCPA subsection that gave the FCC discretion to exempt some calls that were not charged (47 U.S.C. §227(b)(2)(C)). If only calls that were charged were subject to the TCPA, the court said, Congress would not have needed to permit the FCC to exempt some that were not. The Third Circuit also rejected Work Out World’s argument that the TCPA applies only to home phone calls, and not to cell phone calls, finding that the TCPA’s emphasis on home phone calls (the law was enacted in 1991) did not preclude application to all types of calls. As a result, the court said, she had a cause of action under the TCPA for a single call even where she was not charged for the call.
Standing. In Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), the U.S. Supreme Court ruled that intangible injuries can satisfy the Article III standing requirement that injuries be concrete. Intangible injuries will be concrete, the Court said, where the alleged intangible harm is the type of harm traditionally regarded as providing a basis for American or English lawsuits. Furthermore, the Court said, Congress can always elevate intangible harms previously unrecognized to the level of a legally cognizable injury. In In re Horizon Healthcare Services Inc. Data Breach Litigation (3d Cir. 2017), the Third Circuit applied Spokeo to a claim for inadequate protection of personal information in violation of the Fair Credit Reporting Act. Even though no proof existed that the information was used to the owner’s detriment, the plaintiff had standing to bring the suit, the court said.
Applying Spokeo and Horizon to these facts, the Third Circuit concluded that her injuries were concrete, and she had standing, for two reasons. First, Congress squarely identified this injury in enacting the TCPA. These calls, Congress said, constituted an invasion of privacy. Even a single call invades her privacy, and, thus, her claim asserts the very harm that Congress sought to prevent. Second, Congress elevated privacy as a harm that, although perhaps previously inadequate in law, was, after the TCPA was enacted, of the same character as existing legally cognizable injuries. As a result, she has alleged a concrete harm and has standing to assert the claim.
The Third Circuit ruled, therefore, that the TCPA provided her with a cause of action and that the concreteness of her claim afforded her standing to assert that cause of action. The appellate court reversed the lower court’s granting of the motion to dismiss, and it remanded for further proceedings.
Federal judge allows attack on Operation Choke Point to continue
A U.S. district judge has allowed a suit by payday lenders attacking Operation Choke Point to continue. The judge denied motions by the Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency for summary judgment and to dismiss claims by the lenders that the agencies’ involvement in Operation Choke Point is depriving the lenders of their due process rights (Advance America v. FDIC).
Future harm. The federal banking agencies argued that, given the undisputed material facts, the lenders cannot show that they have suffered a deprivation of liberty without due process. Although the agencies demonstrated that the lenders "continue to access the banking system and remain quite profitable," the judge found it insufficient to grant summary judgment. The "crux" of the lenders’ argument, according to the judge, is that if Operation Choke Point continues, they will be effectively cut off from the banking system in the future, and the fact that the agencies "can definitively prove that those harms have yet to befall Plaintiffs does not refute this claim."
Plausible allegations. The agencies’ motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim was also denied. The judge determined that the lenders’ allegations that they have previously lost bank accounts as a result of the actions of the agencies, and that they will continue to do so if those actions continue, are sufficient to demonstrate the injury in fact, causation, and redressability necessary to establish standing. Also, even though the judge previously ruled on a preliminary injunction that the lenders were unlikely to prevail on the merits, she ruled that because the lenders’ "allegations are sufficiently plausible, though just barely," the agencies’ motion to dismiss must be denied.
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An arbitration rule was proposed in May 2016. The bureau says it received more than 110,000 responsive comments.
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The Consumer Financial Protection Bureau has finalized updates to its “Know Before You Owe” mortgage disclosure rule. The CFPB notes that the amendments to the federal Truth in Lending Act’s Regulation Z (12 CFR Part 1026) not only seek to “formalize guidance in the rule and provide greater clarity and certainty,” but also aim to facilitate the mortgage industry’s implementation of the rule. While the final rule takes effect 60 days after its publication in the Federal Register, the mandatory compliance date is set at Oct. 1, 2018.
In addition, the CFPB has issued a “follow-up proposal” to address occasions when a creditor may use a Closing Disclosure, instead of a Loan Estimate, to determine whether an estimated closing cost was disclosed “in good faith and within tolerance.” Public comments on the CFPB’s proposal are due 60 days after its publication in the Federal Register.
CFPB Director Richard Cordray stated that the CFPB’s latest rules will “help ensure consumers have the easy-to-understand information they need before making a decision that will significantly impact their financial lives. Our updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process for lenders and consumers.”
The CFPB’s “Know Before You Owe” mortgage disclosure rule, which took effect Oct. 3, 2015, created new, streamlined forms that consumers receive when applying for a mortgage loan and when closing on the mortgage. According to the CFPB, in adopting its final updates, the bureau took into account more than 1,600 comments it received from industry groups, trade associations, consumer groups, the government-sponsored enterprises, and others.
Cooperatives. The mortgage disclosure rule’s coverage is now extended to include all cooperative units—those secured by or treated as real property and those secured by or treated as personal property under state law. According to the CFPB, by including all cooperatives in the rule, “the Bureau is simplifying compliance and ensuring that more consumers benefit from the rule.”
Privacy and sharing of information. The CFPB indicates that it has received many questions about sharing the mortgage disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. Since the CFPB recognizes that it is “usual, accepted, and appropriate for creditors and settlement agents to provide a Closing Disclosure to consumers, sellers, and their real estate brokers or other agents,” the bureau has finalized its commentary to “clarify how a creditor may provide separate disclosure forms to the consumer and the seller.”
Proposed rule. In addressing what it describes as a Reg. Z “implementation issue,” the CFPB is proposing to modify RESPA and TILA mortgage disclosure requirements contained in Reg. Z. Generally, the proposed amendments pertain to the situation in which a creditor may compare charges paid by or imposed on the consumer to amounts disclosed on a Closing Disclosure, instead of a Loan Estimate, to determine whether an estimated closing cost was disclosed in good faith. More specifically, the proposal would permit creditors to do so regardless of when the Closing Disclosure is provided relative to the transaction’s consummation.
House Dems to Hensarling: Investigate Trump Administration OneWest settlement
Representatives Maxine Waters (D-Calif), Ranking Member of the House Committee on Financial Services, and Al Green(D-Texas), Ranking Member of the Subcommittee on Oversight and Investigations, are urging House Financial Services Committee Chair Jeb Hensarling (R-Texas) to launch a probe into "the high potential for conflicts of interest" of the Trump Administration’s settlement with OneWest Bank while under Treasury Secretary Steven Mnuchin’s leadership. The legislators also have requested that the committee look into any pending investigations concerning OneWest and its subsidiary, Financial Freedom.
Letter to committee chair. In a letter to Hensarling, Waters and Green noted that Mnuchin served as co-owner, chairman, and CEO of OneWest Bank from 2009 to 2015. According to the letter, the Department of Housing and Urban Development, HUD’s Inspector General, and the Department of Justice have separately launched investigations into "the questionable practices of OneWest Bank under Mr. Mnuchin’s leadership."
Questions remain. "While the DOJ recently announced a settlement with Financial Freedom, a myriad of questions remain regarding the impartiality and adequacy of this settlement, as well as that of the other ongoing investigations," Waters and Green stated in their letter. On May 16, 2017, the DOJ announced that it had reached a settlement with Financial Freedom of approximately $89 million to resolve allegations that it violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The lawmakers wrote, "In a troubling departure from DOJ practice under the previous Administration, the DOJ press release announcing this settlement failed to include the actual text of the settlement agreement and omitted important details such as the basis for the settlement amount." According to Waters and Green, there is no possible way to determine whether the settlement was fair because of the "scant details" included in the release.
Advocate action. The letter also outlined an action by the California Reinvestment Coalition and Fair Housing Advocates of Northern California alleging that OneWest, under Mnuchin’s leadership, violated the Fair Housing Act through redlining practices. Further, the legislators noted, CIT Group, which acquired OneWest Bank in 2015, disclosed to investors that it has been under investigation by HUD since 2015 regarding Financial Freedom’s servicing of reverse mortgage loans.
Legislators’ conclusion. Waters and Green concluded their letter by stating that "there is room for considerable doubt as to the impartiality and the adequacy of this Administration’s investigations into OneWest and Financial Freedom, and this Committee must act swiftly to take a close look at these issues."
For more information about the Trump Administration and OneWest Bank, subscribe to the Banking and Finance Law Daily.
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