Firm News

The Consumer Financial Protection Bureau (“CFPB”) has entered into a consent order with a debt buyer to resolve allegations that the debt buyer violated the federal Fair Debt Collection Practices Act (“FDCPA”) and Section 1031 of the Consumer Financial Protection Act (“CFPA”) by sending demand letters and filing collection lawsuits through law firms without the proper licenses in ….Read More

On December 11, 2020, the New York legislature finally delivered a bill that, similar to California, requires that specific disclosures be provided in certain commercial financing transactions. The New York bill is strikingly similar to, but does differ from, the California commercial disclosure bill as the New York bill….Read More

On December 10, 2020, the California Attorney General’s Office released a fourth set of proposed modifications made to the regulations regarding the California Consumer Privacy Act (“CCPA”). These modifications build upon the third draft set of modifications issued on October 12, 2020….Read More

The CFPB has approved Bank of America’s no action letter application for its new short-term, payday loan program. Bank of America is the first major bank to receive such a letter. The application was based on the No-Action Letter Template issued by the CFPB on May 22, 2020…Read More

On Election Day, Californians voted in favor of Proposition 24, the California Privacy Rights and Enforcement Act of 2020 (“CPRA”,a/k/a “CCPA 2.0”). See our prior ALERTS of July 7, 2020, May 6,
2020 and September 26, 2019…Read More

On October 30th, the Consumer Financial Protection Bureau (“CFPB”) released part one of its final debt collection rule (known as Regulation F, to be codified at 12 C.F.R. Part 1006) under the federal
Fair Debt Collection Practices Act (“FDCPA”)…Read More

Only two months after the California Consumer Privacy Act (“CCPA”) implementing regulations went into effect, the California Attorney General’s Office has released a third set of proposed modifications. When the final CCPA Regulations went into effect on August 14, 2020, a handful of requirements were removed during the Office of Administrative Law’s review process. See our prior ALERT dated Aug. 14, 2020. Among the provisions that were removed were the requirements that (i) a business must provide notice to the consumer by an offline method and (ii) the method for submitting requests to opt-out must be easy for consumers to execute and require minimal steps to allow for opt-out.

In response to the removal of such provisions, the proposed modifications make the following changes:

• Requiring businesses that collect personal information offline must provide notice by an offline method. The proposed modifications include two illustrative examples of providing “offline” notice of right to opt-out;
• Requiring that a business’s method for submitting requests to opt-out must be easy for consumers to execute and providing five examples of how the method for submitting such requests should appear to consumers; and
• Allowing businesses to require that an authorized agent must provide proof to the business that the consumer gave the agent signed permission to submit the request.

The Attorney General’s office will accept written comments regarding the proposed changes until October 28, 2020. On November 3, 2020, Californians will vote on the California Privacy Rights Act ballot initiative, also known as “CCPA 2.0.” If the CCPA 2.0 receives a majority of “yes” votes, then it will become law and expand and amend the CCPA creating new consumer privacy rights, privacy requirements and enforcement mechanisms. See our prior ALERT dated July 7, 2020.

We continue to monitor updates on the CCPA. If you have any questions regarding the CCPA or need help developing a compliance program that complies with the CCPA, please let us know.

• Mike Tomkies and Lindsay Valentine

A federal court in New York has dismissed a class action filed against two credit card securitization trusts and a nonbank limited liability company finding that the National Bank Act (“NBA”) preempts New York usury claims. Peterson v. Chase Card Funding LLC, No. 19-00741 (W.D.N.Y. Sept. 21, 2020). In rendering its decision, the federal court distinguished Madden v. Midland Funding and deferred to the Office of the Comptroller of the Currency’s (“OCC”) new rule regarding the permissible interest rate on transferred loans (i.e., the “Madden fix” valid-when-made (“VWM”) rule; see our ALERT of June 26, 2020).

The plaintiff in Peterson had an unsecured credit card originated by a national bank located outside of New York. The national bank sold credit card receivables to a nonbank limited liability company, which then sold the receivables to two trusts. The trusts issued asset-based securities to finance the purchases of receivables and contracted with the originating national bank to service the credit card accounts. The national bank remained the owner of the credit card accounts. The plaintiff did not name the national bank as a defendant.

The federal court found that the plaintiff’s state usury claims are expressly and implicitly preempted by the NBA. With respect to express preemption, the court observed that, as the account owner, the national bank retained a substantial interest in credit card accounts, including the right to increase or decrease the interest rates on accounts. Application of the New York usury limit would conflict with the national bank’s powers under the NBA to charge the interest rate permitted under the laws of the national bank’s “home state.” Thus, the state usury claims were preempted.

Sitting in the U.S. Court of Appeals for the Second Circuit’s jurisdiction and bound by the Second Circuit’s decisions, the federal court handled Madden in its analysis. The federal court determined that Madden involved “materially different facts” from the facts in Peterson. In Madden, the national bank forfeited all interests and rights in the loan accounts by selling whole loans to third-party debt

buyers that acted solely on their own. The court in Peterson recognized that the national bank, as the credit card account owner, retained a number of rights in the accounts. The federal court recounted that the Second Circuit distinguished the facts of Madden from the Eighth Circuit’s decision in Krispin v. May Department Stores on the basis that Krispin involved receivable sales where a bank retained “substantial rights.” The federal court said the national bank in Peterson is akin to the bank in Krispin. Therefore, the Madden ruling does not apply.

The federal court also found that the NBA implicitly preempts the plaintiff’s state usury claims because application of state usury laws against the credit card receivables purchasers (i.e., the defendants) would significantly interfere with the national bank’s exercise of its powers under the NBA. To support its conclusion, the federal court discussed the OCC’s recently finalized “Madden-fix” (VWM) rule and deferred to the OCC’s reasoned judgment in the rule that making transferred loans susceptible to state usury laws would prevent or significantly interfere with the exercise by the national bank of its NBA powers.

A similar ruling is expected in Cohen v. Capital One Funding, LLC, No. 1:19-cv-03479 (E.D.N.Y. filed June 12, 2019), which had substantially similar facts and allegations. The National Consumer Law Center (“NCLC”) was allowed to file amicus briefs in support of plaintiffs in both Peterson and Cohen. NCLC asked the courts not to make broad rulings and presented Professor Levitan’s arguments against VWM arguments.

The Peterson case is notable for a few reasons. First, the case should further insulate receivable sales and nonbanks involved in such sales from adverse Madden rulings especially given that Madden was potentially binding precedent in the Peterson case. Second, the federal court gave deference to the OCC’s “Madden-fix” (VWM) rule in the court’s implicit preemption analysis. The rule became effective on August 3, 2020. Few courts have had the opportunity to analyze the OCC’s rule and determine whether to defer to the OCC’s position regarding the permissible interest rates on transferred loans. Over the summer, the Federal Deposit Insurance Corporation (“FDIC”) finalized a similar rule for the permissible interest rates on transferred loans originated by insured state banks.

State Attorneys General Challenge OCC/FDIC VWM Rules

The Attorneys General (“AGs”) of California, Illinois and New York have joined to sue the OCC, and the AGs of California, Illinois, New York, North Carolina, Massachusetts, Minnesota, New Jersey, and the District of Columbia have sued the FDIC, over the federal banking agencies’ recently finalized VWM rules. See California v. OCC, No. 4:20-cv-05200 (N.D. Cal. filed July 29, 2020), and California v. FDIC, No. 4:20-cv-05860 (N.D. Cal. filed Aug. 20, 2020). The AGs ask the courts to declare the rules unlawful and to set them aside, arguing that the agencies have exceeded their authority in violation of the Administrative Procedure Act. The AGs assert that the new OCC and FDIC VWM rules would enable predatory lenders to circumvent the state caps through “rent-a-bank” schemes, in which banks act as lenders in name only, enabling non-bank payday lenders to evade state usury regulations. In the OCC’s case, the AGs assert that Congress has “clearly” rejected legislation to expand National Bank Act preemption to non-banks, further undermining the OCC’s attempt to rewrite federal law to suit its “extreme” policy preferences.

Peterson Follows Other Notable Summer Developments

The Peterson decision is a welcome result for many industry participants and comes after the decision of another federal court in Rent-Rite Superkegs West LTD v. World Business Lenders, LLC, 1:19-cv-01552 (D. Colo., filed Aug. 12, 2020); see our ALERT of
Aug. 18, 2020. There, the court cited the OCC’s new “Madden-fix” (VWM) rule when it determined that a promissory note with an
interest rate that was valid when made by a federally insured state bank under Section 523 of the Depository Institutions Deregulation and Monetary Control Act of 1980, codified at 12 U.S.C. § 1831d (“Section 1831d”), remains valid upon assignment to a non-bank. The district court noted that the OCC’s VWM rule does not address which entity, in the case of assignment, is the “true lender”, a material factual dispute that was touched upon briefly in argument during the lower court proceedings but not specifically addressed by the bankruptcy court. The district court noted that Section 1831d could not apply to the promissory note when a non-bank is the “true lender” and returned the case to the bankruptcy court for further consideration of the “true lender” issue.

On August 18, 2020, Colorado Attorney General Phil Weiser announced the settlement of two pieces of related litigation through Assurance of Discontinuance (“AOD”) in the matters of Avant of Colorado, LLC and Marlette Funding, LLC (dated as of Aug. 7, 2020). See Fulford v. Avant of Colorado, LLC, No. 17CV30377, and Fulford v. Marlette Funding, LLC, No. 17CV30376 (both filed in Colo. Dist. Ct. Denver County); see our ALERT of Aug. 20, 2020. The comprehensive settlement addressed not only the specific programs at issue, but established a “safe harbor” for all future loans made through any programs operated by the banks involved in the AOD (the “banks”), provided that such a program complies with the terms of the safe harbor. The AOD followed a recent decision in the Marlette litigation in which the court ruled that even if the bank was the “true lender”, a nonbank assignee of the loan could not take advantage of the federal usury preemption enjoyed by the bank, nor could an assignee fully stand in the shoes of the bank with respect to the loan’s other terms. See Order Regarding Plaintiff’s Motion for Determination of Law, Marlette, supra (filed June 9, 20202).

Peterson involved a national bank, the OCC’s rule and the NBA. The case did not discuss the FDIC’s “Madden-fix” VWM rule, and was decided under different facts than those in Rent-Rite, Marlette and Avant. We are happy to discuss the affects of the Peterson decision (and others) on insured state banks and various fact patterns.

• Mike Tomkies and Susan Seaman

On September 25, 2020, the Governor of California signed into law SB 908, the Debt Collection Licensing Act, and AB 1864, the “Mini-CFPB” and California Consumer Financial Protection Law (“CCFPL”). See our prior ALERT dated Sept. 3, 2020, for more information.

Beginning January 1, 2022, the Debt Collection Licensing Act will require any person engaged in the business of debt collection in California to obtain a license, making California the 35th state to require collectors to obtain a license. The Debt Collection Licensing Act also amends the Rosenthal Fair Debt Collection Practices Act, as detailed in our prior ALERT.

The “Mini-CFPB” bill expands the current Department of Business Oversight’s authority to regulate and enforce various provisions regarding consumer financial products and services, California consumer financial laws and, to the extent permissible, federal consumer financial laws. The “Mini-CFPB” bill also enacts the CCFPL, a law meant to strengthen consumer protections by promoting nondiscriminatory access to consumer financial products and protecting consumers from discrimination and unfair, deceptive and abusive acts and practices in connection with financial practices and services.

Please let us know if you have any questions or would like more information.

• Mike Tomkies and Lindsay Valentine

In a recent opinion, the Eleventh Circuit joined the Sixth Circuit in holding that verifying the identity of a consumer is a “legitimate business need” under the Fair Credit Reporting Act (“FCRA”). Domante v. Dish Networks, LLC, 8:17-cv-00472 (11th Cir. Sept. 9, 2020).

The consumer had alleged that a television service provider negligently and willfully violated the FCRA by requesting and obtaining the consumer’s consumer report without a permissible purpose. According to the television service provider, it requested and obtained the consumer’s consumer report from a credit reporting agency (“CRA”) pursuant to its normal business practice after receiving a request for service submitted in the consumer’s name in connection with an event of identity theft that used some of the consumer’s personal information to submit the request for service. Online applicants are only asked to provide the last four digits of his or her social security number. To verify the online applicant’s identity and eligibility for servicing, the television service provider’s system automatically sends the applicant’s information to a CRA. If the CRA determines the submitted information matches, it provides a consumer report to the television service provider. After the television service provider learned that the request submitted in the consumer’s name was fraudulent, it requested that the CRA remove the inquiry.

In determining whether the television service provider violated the FCRA, the court reviewed the permissible purposes in for which a person may obtain a consumer report. The court determined that the exhaustive list of permissible purposes includes where a person has a legitimate business need for the information in connection with a business transaction that is initiated by the consumer.

The court noted that the Eleventh Circuit had not previously weighed in on what constitutes a “legitimate business need” in connection with a business transaction for FCRA purposes and turned to the Sixth Circuit for guidance. In Bickley v. Dish Network, LLC, 751 F.3d 724 (6th Cir. 2014), the Sixth Circuit held that the term “legitimate business need” includes verifying the identity of a consumer and assessing his or her eligibility for service. The Eleventh Circuit agreed with the Sixth Circuit and determined that the television service provider had a permissible purpose in obtaining the consumer’s consumer report and did not violate the FCRA.

In response to the consumer’s argument that the television service provider should have done more to verify the consumer’s identity before requesting a consumer report, the court stated that the FCRA does not explicitly require a user of consumer reports to confirm beyond doubt the identity of potential consumers before requesting a report.

The full text of the FCRA, as well as state fair credit reporting statutes, can be found in our Marketing and Privacy Digest https://www.dltlaw.com/multistate-digests/. Let us know if you have any questions.

• Mike Tomkies and Lindsay Valentine