In a January 10, 2017 decision, United States District Judge Thomas M. Rose in the Southern District of Ohio ruled that plaintiffs, who claimed to be investors in a Ponzi scheme operated by customers of PNC Bank, failed to state a claim against PNC Bank, National Association and The PNC Financial Services Group, Inc. (collectively, “PNC”) for allegedly violating the Ohio Securities Act, Ohio Rev. Code § 1707.01, et seq. Cruz v. PNC Bank, N.A., No. 3:16-cv-292, slip op. (S.D. Ohio Jan. 10, 2017). Plaintiffs alleged that PNC was liable for their losses because the alleged ringleaders of the fraud, William and Connie Apostelos (who are currently awaiting trial on various federal criminal charges), deposited virtually all of the funds they raised from investors into a PNC business account and made interest payments to investors from the account. Plaintiffs claimed that by providing the Aposteloses with account services and allegedly allowing them to use PNC facilities, PNC participated in the sale of unregistered securities by the Aposteloses.
In Rasheed Al Rushaid v. Pictet & Cie, the New York Court of Appeals ruled in a November 22, 2016 decision that a foreign bank’s allegedly intentional and repeated use of correspondent bank accounts in New York was sufficient to subject the bank to personal jurisdiction. The Court concluded in a 4-3 decision that the bank’s use of correspondent accounts as part of an alleged conspiracy to launder looted funds was “purposeful” under the transacting business prong of New York’s long-arm statute. In reaching this conclusion, the Court rejected the Appellate Division’s finding that the bank and its client manager were not subject to jurisdiction because they “merely carried out their clients’ instructions.”
Plaintiff Rasheed Al Rushaid (“Rushaid” or “Plaintiff”) filed suit against Swiss bank Pictet & Cie (“Pictet”), its general partners, and one of its client relationship managers, Pierre-Alain Chambaz (“Chambaz”) in New York state court, alleging that they assisted three employees in concealing money in connection with a kickback scheme relating to an oil rig project operated by Al Rushaid Petroleum Investment Corporation (“ARPD”), a Saudi company owned by Plaintiff. The three ARPD employees allegedly received kickbacks and bribes from vendors located around the world in exchange for purchasing products at inflated prices and ignoring deficiencies in the vendors’ services.
Plaintiff alleged that Defendants aided the scheme by laundering and concealing the funds. Specifically, Plaintiff alleged that Chambaz, a Pictet client relationship manager, created a sham company in the British Virgin Islands – TSJ Engineering Consulting Co., Ltd. (“TSJ”) – and then opened and managed accounts for TSJ, as well as individual accounts for the ARPD employees. According to the amended complaint, the vendors wired bribes in favor of “Pictet and Co. Bankers Geneva” to Pictet’s New York correspondent bank accounts and then Pictet credited the funds to TSJ’s Geneva-based account. The money was later divided up and transferred in Geneva to the ARPD employees’ individual accounts at Pictet.
The Supreme Court granted Defendants’ motion to dismiss for lack of personal jurisdiction under CPLR 3211(a), concluding that Defendants’ alleged use of the correspondent accounts was passive not purposeful. The Appellate Division affirmed.
The California legislature has amended the existing requirements for debt collectors who receive consumer claims of identity theft with the Identity Theft Resolution Act (“Act”). See AB 1723; Cal. Civ. Code § 1785.16.2. The Act does not take effect until January 1, 2017, but creditors should immediately start implementing new policies and procedures for debt collectors to follow to ensure that the creditor’s interest is protected under the amendments.
Under the Act, the time frame for reviewing claims of identity theft has been dramatically reduced for debt collectors. Once the debt collector receives the police report, written statement, and other information required under the law, it will have 10 business days to start an investigation of the dispute. After concluding its review, the debt collector must send the results of its investigation to the consumer within 10 business days. The timeframe under the Act is in stark contrast to current law, which sets no time frame for when a debt collector must investigate a consumer’s claim of identity theft, or when the debt collector must notify the creditor associated with the account or any consumer reporting agency (“CRA”) to which the debt has been reported. Current law only requires a debt collector to cease collection of a debt upon receipt of a police report filed by a consumer and a written statement alleging identity theft regarding the debt at issue.
While investigating the debtor’s claim of identity theft, the debt collector must review and consider all of the information provided by the debtor as well as information available to the debt collector in its file or from the creditor. The debt collector may apply common sense. For example, if the debtor has previously affirmed the debt or acknowledged it, that fact can be considered in determining whether the claim of identity theft is valid or made in good faith. The debt collector should document all communications and provide a clear explanation if it is decided that the claim is not valid. As mentioned above, once the debt collector concludes its review, it must send its decision to the debtor within 10 business days, notifying the debtor in writing that he or she is still responsible for the debt, as well as the basis for that determination. The debt collector may recommence collection activities only after making a good faith determination that the evidence presented does not establish the debtor is not responsible for that specific debt.
Federal Communications Commission announced new rules on Thursday that imposes limitations on private collection agencies and servicers seeking to collect on behalf of federal debts. While the TCPA places limitations around many autodialed calls, it provides an exception to liability for federal debt collection calls, such for as some mortgages and student loans. Under the new rules, however, debt collectors can now only place three calls or texts per month to people with loans “owed to or guaranteed by the United States.” The new limitation applies regardless of how many separate accounts a single borrower has with the caller and only consumers at risk of delinquency can be called. The caller is required to inform the borrower that he or she has the right to stop calls at any point. In addition, the FCC clarified that a borrower’s do-not-call instruction remains in place even if an account is transferred to a new servicer. There are also new restrictions around contacting borrowers’ family or friends.
The FCC’s new requirements are likely to impact both large and small institution that act as servicers on federal debts. “The commission is establishing strong, pro-consumer limits on robocalls to collect federal debt,” FCC Chairman Tom Wheeler said in a statement. “These protections are particularly important following a January Supreme Court ruling that federal government entities conducting official business are not subject to robocall limits unless Congress says otherwise. Our decision implements Congress’ directive and responds to thousands of comments from consumers expressing frustration with robocalls and urging clear, strong limits on debt-collection calls.”
A recent Illinois Supreme Court opinion may expose banks to a flood of TILA rescission claims by anyone who claims an ownership interest in mortgaged property. The state supreme court ruled that the right to rescind includes “each consumer whose ownership interest is or will be subject to the security interest” or “is subject to the risk of loss.” Financial Freedom Acquisition v. Standard Bank & Trust Co. et al., 2015 IL 117950 (9/24/2015), rehearing denied, OneWest Bank N.A. v. Standard Bank & Trust Co., et al., (11/23/2015.
The Financial Freedom decision permitted the trustee for a reverse mortgage to rescind the loan signed by the deceased borrower after a foreclosure action had been filed. More recently, an appellate court relied upon the Financial Freedom decision to reverse the dismissal of a TILA claim by a co-mortgagor who did not sign the loan and remanded the case to the trial court. Lakeview Loan Servicing, LLC v. Pendleton, 2015 IL App (1st) 143114 (12/24/2015). It may now be possible for an heir of a mortgagor to demand TILA rescission since the heir would have an ownership interest in the property. Will this decision permit a creditor of a mortgagor, claiming an ownership interest in the property, to demand TILA rescission?
There are decisions from other jurisdictions that limit TILA rescission to the obligor who signed the loan. See, e.g., In re Smith-Pena, 484 B.R. 512 , 528 (Bankr. D. Mass. 2013) (“To the extent [Regulation Z] grants a right of rescission to a person who incurred no obligations on the transaction, it is an irrational construction of [TILA] that does not bind this Court.”). However, the Illinois supreme court rejected these cases (and the clear wording of the law) and relied upon the provisions of Regulation Z and commentary in the Code of Federal Regulations.
Andrew Soven, Dan Booker and Molly Campbell secured a precedential Third Circuit victory of a putative class action asserted against firm client M&T Bank Corp. and its subsidiaries claiming that, under the Real Estate Settlement Procedures Act (“RESPA”) and unjust enrichment, M&T operated an illegal captive reinsurance scheme. Originally filed in the U.S. District Court for the Middle District of Pennsylvania, plaintiffs alleged that M&T Bank and its reinsurer colluded with private mortgage insurers, referring customers to those insurers and receiving in return reinsurance agreements that required M&T Mortgage Reinsurance to take on little or no actual risk. Plaintiffs also alleged that M&T fraudulently concealed the reinsurance scheme such that plaintiffs were unable to bring their claims within the limitations period. After allowing discovery related to the timeliness of plaintiffs’ claims, the District Court granted summary judgment for M&T finding plaintiffs’ claims were untimely and not subject to equitable tolling.
The Third Circuit agreed, ruling that plaintiffs had not exercised reasonable diligence in investigating any potential claims such that the limitations period could be tolled. Specifically, the limitations period runs from the date of the occurrence of the violation, which in this case, began at the closing of plaintiffs’ mortgage loans. Because M&T specifically provided plaintiffs opt out forms concerning the captive reinsurance, thereby evidencing plaintiffs’ knowledge about the reinsurance arrangement, the court held that equitable tolling could not rescue the otherwise barred claims. Cunningham v. M & T Bank Corp., No. 15-1412, ___ F.3d___, 2016 WL 683372, at *3 (3d Cir. Feb. 19, 2016). The court also rejected plaintiffs’ argument that their inaction should be excused until they were put on notice by attorneys investigating the captive reinsurance claims in late 2011. The Third Circuit’s decision also may end actions pending against other banks represented Reed Smith in similar cases. Law360 covered this case, and that account can be found here. https://www.law360.com/articles/761476
The court’s enforcement of RESPA’s statute of limitations stands in contrast to the decision issued by the Consumer Financial Protection Bureau (“CFPB”) in In the Matter of PHH Corp., File No. 2014-CFPB-02, Decision of the Director, Doc. 226 at 10 (2015). In PHH, which is based on similar purported RESPA violations, the CFPB ruled that that the Consumer Financial Protection Act’s (“CFPA”) statute of limitations did not apply to administrative RESPA proceedings brought by the CFPB because “the CFPA gives the bureau a choice: it may enforce laws administratively or in court.” PHH has appealed the decision to the D.C. Circuit, and oral argument is scheduled for April 12, 2016. If the decision is affirmed in the D.C. Circuit, it is possible that financial institutions still might face potential liability through CFPB proceedings even though courts such as the Third Circuit have concluded that private plaintiffs’ claims are time-barred.
Reed Smith attorneys secured a decertification of a putative class action asserted against Bank of America, N.A. in the U.S. District Court for the Eastern District of Pennsylvania on February 3, 2016. The Honorable Petrese B. Tucker struck class allegations from a suit accusing Bank of America NA and co-defendant McCabe Weisberg & Conway, PC of charging unauthorized and illegal foreclosure-related attorneys’ fees. Specifically, Plaintiffs alleged that a foreclosure complaint filed in July 2012, which contained a flat fee for counsel fees was an improper demand for payment under their mortgage. Arguing that such fees may not have been incurred at the time the foreclosure complaint was filed, Plaintiffs sought to represent a class of similarly situated Pennsylvania borrowers.
On August 11, 2014, Judge Tucker granted partial dismissal of several of Plaintiffs’ claims, including those brought under the Racketeer Influenced and Corrupt Organizations Act (RICO) and Fair Debt Collection Practices Act (FDCPA), as well as Act 6. Although, the Judge did not dismiss Plaintiffs’ claims that Defendants violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL), the court’s most recent ruling held that applicable law precluded Plaintiffs from pursuing their UTPCPL claim on a class-wide basis.
Judge Tucker agreed with Defendants’ argument that the principle of justifiable reliance, which requires detailed consideration of a person’s reliance on an alleged misrepresentation, was too individualized and claim specific to allow class-wide certification:
[T]his court would need to know whether the payment was made after service of the foreclosure complaint, assume that putative plaintiff read the foreclosure complaint and believed it to be true, and further assume that any partial payment made by the putative plaintiff was meant to be applied to the attorneys’ fees listed and not to any other amounts. These are individual inquiries unsuitable for class adjudication. Allowing certification to proceed on the mere proof of payment would, in sum, amount to an outright presumption of justifiable reliance.
Davis v. Bank of Am., N.A., 2016 U.S. Dist. LEXIS 13333, *16 (E.D. Pa. Feb. 3, 2016). The court also held that a class certification was not practicable due to the highly individualized findings needed to determine ascertainable loss, another element of a prima facie case under the UTPCPL. As such, Plaintiffs were unable to satisfy the predominance requirement for class certification – although their UTPCPL claim was permitted to go forward on an individual basis.
Reed Smith has issued the first comprehensive white paper discussing the comments submitted in response to Treasury’s July 2015 Request for Information (RFI) on marketplace lending. The RFI, entitled “Public Input on Expanding Access to Credit through Online Marketplace Lending,” sought public comment on the FinTech business models applicable to online lending, the potential for marketplace lending to expand access to credit, and how the financial regulatory framework should evolve to support the safe growth of this industry. The RFI drew responses from FinTech companies, banks, industry and consumer groups, politicians, agencies, and other concerned parties. Reed Smith’s FinTech team reviewed and summarized the comments, and is proud to provide this FinTech Report on the key responses, and the themes, arguments and proposals contained in its pages.
Download full report here: FinTech Report – Summary of Responses to Treasury RFI on Marketplace Lending
On January 15, 2016, the CFPB Office of Enforcement asserted that claims pursued in administrative enforcement actions are not subject to the three-year statute of limitations set forth in the Consumer Financial Protection Act, signaling that the agency is willing to target long-ago violations when seeking restitution and penalties. The CFPA — also known as Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act — is the statute that empowers the CFPB to administratively enforce the federal consumer financial laws.
The Integrity Advance enforcement proceeding involves conduct that allegedly stopped in December 2012. The CFPB alleged that a payday lender misled consumers by disclosing that loans could be repaid in a single payment when, in fact, the loans would roll over automatically because payments were applied to finance charges instead of to principal. The CFPB also alleged violations of the Electronic Fund Transfer Act, the Truth in Lending Act, and the CFPA’s prohibition of unfair, deceptive, or abusive acts or practices against the lender.
The CFPB put forth its statute of limitations argument in a brief opposing a motion to dismiss filed in its administrative proceeding against Integrity Advance, LLC. In making this argument, the CFPB is breaking new legal ground. Previously, the agency had argued that the CFPA SOL does not apply to claims brought by the CFPB under its CFPA administrative action authority alleging violations of the Real Estate Settlement Procedures Act. Now, it is extending that argument to claims alleging violations of the CFPA’s prohibition of unfair, deceptive, or abusive acts or practices.
Read more at our client alert here.
In a 6-3 decision issued today, the Supreme Court ruled that defendants cannot rely on a strategic offer of judgment to the named plaintiff to moot the claims of the putative class.
After an unfavorable Ninth Circuit decision, U.S. Navy contractor Campbell-Ewald asked the high court to consider, inter alia, whether defendants can strategically offer individual plaintiffs full relief at the outset of the litigation to avoid a long court battle or a potential multi-million dollar class settlement.
The opinion, delivered by Justice Ginsburg, held “in accord with Rule 68 of the Federal Rules of Civil Procedure, that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.”
The Rule 68 strategy, which had been endorsed by the Seventh Circuit and certain district courts at various points in time, had been used by class action defendants to help combat the wave of TCPA litigation over the past few years. But the Court’s decision today is likely to have wide-reaching consequences in consumer class action cases, particularly cases that involve statutory penalties that can escalate quickly.