CURRENT MONTH (April 2019)

Banking Law

U.S. Supreme Court Holds that Clear Consent is Required for Classwide Arbitration

By Nora Udell, Hudson Cook, LLP

On April 24, 2019, in Lamps Plus v. Varela, the United States Supreme Court held in a 5-4 decision reversing the Court of Appeals for the Ninth Circuit, that courts may no longer infer from an ambiguous arbitration agreement that parties have consented to classwide arbitration.  Rather, there must be an “affirmative contractual basis for concluding that the parties agreed to class arbitration.”  The Court explained that consent is the touchstone of an agreement to arbitrate.  For this reason, California’s default rule that ambiguity in a contract must be construed against the drafter, could not be applied to impose classwide arbitration.  The Court explained that the general applicability of the contra proferentem rule could not save it from preemption under the Federal Arbitration Act because the rule’s effect was to force a party into classwide arbitration, without the party’s consent. The holding in Lamps Plus follows Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., in which the Court held that courts cannot compel classwide arbitration when an agreement is silent on its availability.

Consumer Finance

11th Circuit: Offering to “Resolve” a Time-Barred Debt Can Violate FDCPA Absent Disclosures

By Eric Rosenkoetter, Maurice Wutscher LLP

The U.S. Court of Appeals for the Eleventh Circuit recently ruled in Holzman v. Malcolm S. Gerald & Assocs., Inc., that an offer to “resolve” a debt without disclosing its time-barred status may be deceptive or misleading under the federal Fair Debt Collection Practices Act even in the absence of an express threat of litigation.  Decisions from the Fifth, Sixth and Seventh Circuit Courts of Appeal have held that using the word “settle” could imply an impermissible threat of litigation when used with respect to a time-barred debt.  The Eleventh Circuit was persuaded by those cases and concluded that “an express threat of litigation is not required to state a claim for relief under § 1692e so long as one can reasonably infer an implicit threat.”  The Court was not convinced that the word “resolve” was “materially distinguishable” from the word “settle.”

Third Circuit Finds FACTA Class Plaintiff Lacked Concrete Injury Required for Standing Under Spokeo

By Alan S. Kaplinsky and Burt M. Rublin, Ballard Spahr LLP

The U.S. Court of Appeals for the Third Circuit recently concluded in Kamal v. J. Crew Group, Inc., a precedential opinion, that because the named plaintiff in a class action complaint failed to allege a concrete injury, he lacked standing under Article III of the U.S. Constitution to bring an action against a retailer for a violation of the Fair and Accurate Credit Transactions Act (FACTA). The plaintiff claimed that the receipts he received from the retailer included the first six digits of his credit card number, thereby violating the FACTA provision that limits the digits of a credit card number that can be printed on a receipt to no more than the last five.

The framework established by the U.S. Supreme Court in Spokeo, Inc. v. Robbins, as explained by the Third Circuit, allows a court to find a concrete injury based on a technical violation “if the violation actually harms or presents a material risk of harm to the underlying concrete interest” identified by Congress. A technical violation can constitute concrete injury under Spokeo where it has a “close relationship” to a harm that traditionally has been regarded as providing a basis for an action under common law. Kamal, the named plaintiff, pleaded two alleged concrete injuries: the failure to truncate sufficient digits in violation of FACTA’s plain text, and the resulting increased risk of identity theft. The Third Circuit rejected Kamal’s contention that his injury resulting from the FACTA violation was analogous to common law privacy torts and an action for breach of confidence and, with regard to his “material risk of harm” contention, found that he did not “plausibly aver how printing of the six digits” created a real risk of identity theft.

While affirming the district court’s judgment that Kamal lacked standing, the Third Circuit vacated the district court’s order dismissing the case with prejudice and remanded to dismiss without prejudice. According to the Third Circuit, a dismissal without prejudice was required because the district court lacked jurisdiction. Such a dismissal creates the potential for class claims involving injuries caused by technical violations of statutes such as FACTA, the Telephone Consumer Protection Act, or the Fair Credit Reporting Act to be refiled in state court, where judges are not bound by Spokeo in making standing determinations.

Director Kraninger Outlines Her Approach to the CFPB’s Mission in First Major Speech as Bureau’s Director

By Eric Mogilnicki and Lucy Bartholomew

On April 17, 2019, in a speech to the Bipartisan Policy Center, CFPB Director Kathleen Kraninger outlined her approach to executing the Bureau’s statutory mission.  The speech was Kraninger’s first major speech since taking the helm at the Bureau.  The Director’s remarks were organized by the various tools that the Bureau can use to advance its core mission of preventing consumer harm—education, rulemaking, supervision, and enforcement—and provided a sense of the Bureau’s priorities, including:

  • Education programming relating to consumer savings, especially emergency savings.
  • A debt collection rulemaking, which will include efforts to update rules to account for modern communications technology.
  • A review of the Bureau’s approach to examinations of financial institutions, including strengthening the Bureau’s coordination and collaboration with other federal regulators. 
  • An evaluation of the Bureau’s approach to enforcement investigations, including partnerships between the Bureau and state attorneys general and bank supervisors.
  • A series of symposia intended to promote transparency and inform the Bureau’s rulemaking.

Kraninger’s speech was closely watched, and consumer groups have already voiced concerns about any modernization of debt collection rules.  Other commentators expressed concern with the new Director’s emphasis on consumer education rather than enforcement.  

A full transcript of the speech is available here

CFPB Announces Series of Symposia on Consumer Protections in Financial Services

By Eric Mogilnicki and Lucy Bartholomew

As previewed in Director Kraninger’s April 17 speech, on April 18 the CFPB announced a symposia series to discuss consumer protections in the financial services marketplace.  The intent of the series is to initiate dialogue with stakeholders that will inform the Bureau’s future rulemakings.  The first symposium will explore the meaning of “abusive acts or practices” under section 1031 of the Dodd–Frank Act, a topic which has been on Bureau’s rulemaking agenda for some time.  Future symposium topics may include behavioral law and economics, disparate impact and the Equal Credit Opportunity Act, and other topics.  Information about the dates and panelists of the symposia will be released in the near future.

HDMA LAR’s Released

By Natasha Sim

On March 29, 2019, the Consumer Financial Protection Bureau released its Home Mortgage Disclosure Act modified loan application registers for approximately 4,500 financial institutions. The modified LARs contain loan level information for 2018 on individual HDMA filers, modified to protect privacy. For the first time, the modified LARs include additional information reported by certain firms in the 2015 HDMA. Later this year, the CFPB will publish a complete loan level dataset, HMDA aggregate and disclosure reports, and a Data Point article highlighting key trends. This release follows the policy guidance of the CFPB last December that outlined the HDMA data it would make publicly available beginning in 2019.

Tax Law

California Sets New Economic Nexus Threshold

Michelle E. Espey, Esq., Moritt Hock & Hamroff LLP

On April 25, 2019, acting on the authority of South Dakota v. Wayfair, 585 U.S. ___ (2018), California Governor Gavin Newsom signed into law Assembly Bill (AB) No. 147.  The legislation requires remote sellers (sellers located outside of California) to register with the California Department of Tax and Fee Administration (CDTFA) and collect California use tax if, during the preceding or current calendar year, total combined sales of tangible personal property for delivery in California exceed $500,000.  In calculating total combined sales, a retailer must include its sales into California and the sales of all persons related to the retailer into California. 

The new collection requirement imposed by AB 147 is operative April 1, 2019 and will not be applied retroactively.  AB 147 supersedes the direction provided in Special Notice L-565, which previously provided that, beginning April 1, 2019, a retailer located outside of California is required to collect use tax if, during the preceding or current calendar year, the retailer’s sales into California exceed $100,000, or the retailer made sales into California in two hundred (200) or more separate transactions.

Retailers that exceed the $500,000 sales threshold are required to register with the CDTFA to collect the California use tax even if they were not previously required to register.  These retailers include retailers that sell tangible goods for delivery into California through the Internet, mail-order catalogs, telephone, or any other means.  In sum, the legislation allows the state to “impose a use tax collection duty on retailers who have specified levels of economic activity in the state, even though they do not have physical presence in [the] state.”  AB 147, sec. 1(f). 


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