March 2016 – Consumer Financial Services Watch

The Supreme Court Charts a Narrow Course in the Use of Statistical Evidence at Class Certification

Mar 30 2016

By April Boyer, Andrew C. Glass, Gregory N. Blase, Yamilet Hurtado and Eric W. Lee

The United States Supreme Court recently ruled in Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, — S. Ct. —, 2016 WL 1092414 (U.S. Mar. 22, 2016), as to when a plaintiff may use statistical sampling in seeking to certify a class. The decision was narrowly tailored to the specific facts and cause of action at issue in the matter. Thus, the Court declined to adopt a categorical rule, cautioning that the admissibility of such evidence must be made on a case-by-case basis. Nonetheless, business entities should carefully examine the Court’s guidance in Bouaphakeo, including the admonitions discussed herein.

To read the full alert, click here.

Heard at the 2016 SIFMA Conference

Mar 30 2016

By Stephen G. Topetzes, Jon Eisenberg, Stavroula E. Lambrakopoulos, Shanda N. Hastings, Erin Ardale Koeppel, Nicole A. Baker, Andrew Edwin Porter and Ted Kornobis

Recently, attorneys from K&L Gates’ Government Enforcement practice group attended the Securities Industry and Financial Markets Association’s (“SIFMA”) Compliance and Legal Society Annual Seminar. We wanted to share with you a summary of the highlights of what we “heard at the SIFMA conference” from various regulators about key enforcement issues.

To read the full alert, click here.

Divided Supreme Court Affirms Dismissal of “Spousal Guarantor” ECOA Discrimination Lawsuit

Mar 24 2016

By Andrew C. Glass, Roger L. Smerage and Olivia Kelman

On March 22, 2016, the United States Supreme Court issued its first 4-4 split decision since the passing of Justice Antonin Scalia. In Hawkins v. Community Bank of Raymore, No. 14-520 (U.S. Mar. 22, 2016), the Court reviewed whether the Federal Reserve Board (“FRB”) exceeded its authority when it amended Regulation B, implementing the Equal Credit Opportunity Act (“ECOA”), to cover loan “guarantors” as loan “applicants.” In a per curiam opinion, the Court affirmed the determination of the United States Court of Appeals for the Eighth Circuit that (1) the plain language of ECOA excludes loan guarantors from the definition of loan applicants authorized to bring an antidiscrimination suit under the statute, and thus (2) the FRB’s conflicting amendment was not entitled to deference to be afforded to regulations that interpret silent or ambiguous statutory provisions. Yet, the Court’s even split means that Hawkins will be binding precedent only in the Eighth Circuit and not nationwide.

PREPAID ACCESS GARNERS REGULATORY ATTENTION

Mar 24 2016

By: Sean P. Mahoney

Bank regulators are paying more attention to the role of banks in the prepaid card industry as evidenced by their new guidance on the applicability of know your customer requirements and proposed regulations on record-keeping with respect to master deposit accounts for prepaid cards and other products utilizing “pass-through” deposit insurance.

Increased Scrutiny On “Auto-Defaults”— Road To Enforcement Or Impetus For Change?

Mar 16 2016

By: David E. Fialkow and Hollee M. Watson

Private student loan companies are at the center of increased scrutiny by the Consumer Financial Protection Bureau (the “CFPB”). Speaking at a recent conference, the CFPB student loan ombudsman Seth Frotman warned attendees that student loan companies are at risk of violating the law for placing borrowers in default when the co-signer of the loan dies or declares bankruptcy. See Danielle Douglas-Gabriel, Federal agency warns student loan companies about automatic defaults, The Washington Post (Mar. 8, 2016). This “auto-default” practice occurs when banks and other financial companies provide student borrowers with education loans that grant lenders or servicers the right to trigger a default upon a co-signer’s death or declaration of bankruptcy, even if the loan is paid on time.

Proactive Protection of Consumers or Premature Penalty? Consumer Financial Protection Bureau Bucks the Trend in Data Security Breach Cases

Mar 15 2016

By: R. Bruce Allensworth, Ryan M. Tosi, Lindsay S. Bishop

Data breaches and cybersecurity attacks appear to be growing in frequency. Despite the increase in the number of such attacks, plaintiffs have found it difficult to establish a legal foothold for data breach claims, as federal courts across the country have routinely dismissed data breach claims brought by private litigants where no cognizable harm has been alleged. The Consumer Financial Protection Bureau (“CFPB”), however, now appears poised to enforce regulations regarding the protection of private consumer information, including holding companies accountable — even without any data breach or misuse of private consumer information.

To read the full alert, click here.

A Guaranty Is Only As Good As The Person Who Signs It: Enforcing Commercial Lending Guaranties In Massachusetts

Mar 14 2016

By: Robert W. Sparkes, III and David A. Mawhinney

Guaranties are common practice in the commercial lending industry. Typically, the borrower is a small corporation, limited liability company, or similar entity that is thinly capitalized with few (likely encumbered) assets. Under these circumstances, the borrower’s promise to pay a debt is cold comfort to a commercial lender in the event of a default, where its only source of recovery is likely to be the collateral it holds. For this reason, commercial lenders often condition loans not only on a security interest in the borrower’s property, but also on a separate, individual guaranty agreement executed by a third party, usually the principals of the corporate borrower. Such guaranties provide another avenue through which commercial lenders may recover loan amounts and damages due to the borrower’s default.

To read the full alert, click here.

Federal Court of Appeals Holds That Fannie Mae and Freddie Mac Are Not Agents of the United States, But Open Questions Remain

Mar 14 2016

By: Amy Pritchard Williams, Roger L. Smerage

Affirming the dismissal of a qui tam lawsuit based on certifications made to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the U.S. Court of Appeals for the Ninth Circuit recently held that neither entity is an officer, employee, or agent of the United States. Therefore, demands or requests for payment made to these entities are not claims under 31 U.S.C. § 3729(b)(2)(A)(i) of the False Claims Act. United States ex rel. Adams v. Aurora Loan Services, Inc., — F.3d —-, 2016 WL 697771 (9th Cir. Feb. 22, 2016).

Sixth Circuit Finds “Prior Express Consent” in Affirming Dismissal of TCPA Class Action against Healthcare Provider’s Debt Collector

Mar 10 2016

By: Andrew C. Glass, Gregory N. Blase, Roger L. Smerage, Eric W. Lee

The Sixth Circuit (the “Court”) recently sided with a defendant-debt collector in a putative class action in which the plaintiffs claimed that the defendant’s calls to their cell phones violated the Telephone Consumer Protection Act (“TCPA”). In Baisden v. Credit Adjustments, Inc., the Court held that “prior express consent” can be “obtained and conveyed via intermediaries.” In reaching this conclusion, the Court applied binding guidance from the Federal Communications Commission (“FCC”) and followed the holding of the Eleventh Circuit in Mais v. Gulf Coast Collection Bureau, Inc.

To read the full alert, click here.

A New Cyber Regulator on the Beat: The CFPB Issues its First Cybersecurity Order and Fine

Mar 08 2016

By: Ted Kornobis

On March 2, 2016, the Consumer Financial Protection Bureau (“CFPB”) instituted its first data security enforcement action, in the form of a consent order against online payment platform Dwolla, Inc. The CFPB joins several other regulators that have recently issued statements or instituted enforcement actions in this space, including the Securities and Exchange Commission (“SEC”), Commodities Futures Trading Commission (“CFTC”), the Financial Industry Regulatory Authority (“FINRA”), the National Futures Association (“NFA”), the Department of Justice (“DOJ”), state attorneys general, and the Federal Trade Commission (“FTC”), which has been active in this area for several years.

To read the full alert, click here.

Archive:March 2016