Eighth Circuit Deems ‘Informational Injury’ Sufficient To Confer Standing



The U.S. Court of Appeals for the Eighth Circuit recently addressed an issue that the U.S. Supreme Court avoided last year concerning whether a consumer must suffer actual economic harm to have standing to sue for statutory damages. Significantly, this issue has arisen in cases involving consumer protection statutes that are applicable to mortgage lenders and servicers.

Last year, in First American Financial Corp. v. Edwards, the Supreme Court had agreed to decide whether Article III standing exists where a consumer alleges a violation of a federal consumer protection statute—in that case, the Real Estate Settlement Procedures Act (RESPA)— but does not allege any economic injury. After extensive briefing and oral argument, however, the Court ultimately avoided the issue by dismissing the writ of certiorari as improvidently granted.

Just days ago, in Charvat v. Mutual First Federal Credit Union, the Eighth Circuit held that being denied a statutory right is a sufficient injury to confer standing, even if the injury is only "informational" and does not include "an additional economic or other injury."

Charvat involved two consolidated putative class actions alleging violations of the Electronic Fund Transfer Act (EFTA). The allegations in Charvat were that the plaintiff made withdrawals from the financial institutions’ ATMs; he was charged a transaction fee each time; the ATM screen provided notice of the fee, which the plaintiff accepted; but there were no exterior, physical notices of the fee on or near the ATMs as was then required under the EFTA. The district court concluded that the plaintiff lacked standing, reasoning that he had not alleged an injury in fact resulting from the alleged lack of an exterior fee notice, but rather only an "injury in law."

On appeal, the Eighth Circuit reversed. The court reasoned that, since "Congress may … create legal rights via statute, the invasion of which can create standing to sue," the alleged charging of ATM transaction fees without the statutorily required exterior fee notice was, even if only an "informational injury," still an injury that "alone [was] sufficient to confer standing … ." The Eighth Circuit observed that the district court‘s dismissal "was based largely on the determination that a statutory violation, standing alone, was not a sufficient injury in fact." But that determination, the Eighth Circuit stated, ignored several "instances where the denial of a statutory right to receive information [was held] sufficient to establish standing." The court also observed that the EFTA provided statutory damages for an EFTA-based injury and that a "claim of statutory damages [under the EFTA] is sufficiently related to [the alleged informational injury under the EFTA] to confer standing."

Plaintiffs’ counsel around the country will undoubtedly seek to extend the Charvat holding outside the EFTA context. Consumer statutes that require notice to consumers—including those applicable to mortgage lenders and servicers, such as the Truth in Lending Act and RESPA—would seem to be fertile grounds for the same sort of "informational injury" claims that the Charvat court deemed sufficient to confer standing. As noted above, the Edwards case before the Supreme Court involved a RESPA claim.

- Burt M. Rublin and Joel E. Tasca

CFPB Issues Response Guidance for Compliant System’s Company Portal 



The CFPB recently posted new "Response Guidance," which outlines what the CFPB deems "best practices" for financial institutions to follow in responding to consumer complaints, on its company portal. The guidance supplements the CFPB’s Company Portal Manual concerning the operation of the online portal used by companies to view consumer complaints submitted to the CFPB. The CFPB also maintains a consumer portal for consumers to check the status of their complaints and view companies’ responses. After communicating with a consumer regarding a complaint, a company is expected to complete a form on the company portal that describes its response and attaches relevant documents.

The guidance states that it contains "recommendations for documenting and responding to your consumers’ complaints based on our best practice observations." The guidance contains "general response guidance as well as product-specific guidance." As a caveat, the guidance says that it is for "you, the Portal User" to determine "how best to respond to your consumers and what information is needed to respond to their concerns."

The product-specific response guidance lists specific information to be included in a company’s response and documents to be attached to the response, depending on the issue involved in the complaint. Noteworthy is the extremely detailed nature of the information and documentation the CFPB apparently expects companies to provide. For example, for complaints involving "fees or late charges" on consumer loans, the CFPB expects a company to provide copies of "any contract or agreement" on which the company relies for its response, the applicable fee schedule, related notices and/or disclosures provided to the consumer, and account statements for the period of time in question.

In addition, the information the CFPB expects companies to provide may not be legally required. For example, for credit card account closings, the CFPB expects to see an adverse action notice that includes the reason for the adverse action, the date the notice was sent to the consumer, and whether the notice was sent by regular mail or electronically. Under Regulation B, however, a company would not be required to send an adverse action notice where the account closing is due to the consumer’s default.

We believe that companies responding to complaints on the CFPB complaint portal should attach relevant documents when necessary to explain responses to consumer complaints, but may not need to provide the documents specified in the guidance document in all instances.

- Christopher J. Willis

ABA and MBA Ask CFPB To Reconsider Coverage of Business Credit in ECOA Appraisal Rule



The American Bankers Association and the Mortgage Bankers Association have sent a letter to the CFPB asking it to reconsider the applicability of the final Equal Credit Opportunity Act (ECOA) appraisal rule to business credit. The rule applies to loan applications received on or after January 18, 2014. It implements a Dodd-Frank amendment to the ECOA that requires creditors to provide to an applicant a copy of all written appraisals and valuations in situations where the applicant seeks a loan secured by a first lien on a residential structure containing one to four units.

The reasons offered by the ABA and MBA for their request include the following:

  • The rule will significantly affect lenders that provide financing to developers and home builders. Such lenders would be providing appraisals to commercial customers and not consumers, with hundreds of thousands of appraisals going to single business customers.

  • The rule’s timing requirements are unsuited to business credit. The rule requires lenders to provide a written disclosure within three business days of receiving an application. Because virtually all such loans are exempt from the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), lenders’ platforms for such loans are not designed to trigger TILA and RESPA disclosures based on the date the application is received. As a result, such platforms are not designed to establish the trigger date for mailing the appraisal rule disclosure. In addition, because a dwelling is typically offered as collateral for a business loan during the course of negotiations rather than at the time of application, it is difficult for lenders to establish a readily identifiable trigger date for mailing the disclosure.

  • The applicant in a business loan is typically a business entity, but the dwelling that serves as collateral is typically owned by an individual who is guaranteeing the loan. The consumer protections underlying the rule are not served by providing a copy of an appraisal to a business entity.

  • The CFPB’s burden estimation methodology used in the final rule may be based on invalid assumptions for business credit. 

In their letter, the ABA and MBA also assert that Dodd-Frank’s plain language does not specifically require the appraisal rule to cover business credit. They argue that, if necessary, the CFPB can exempt business credit from the appraisal rule by relying on its authority under Dodd-Frank Section 1022 to establish exemptions from provisions of Dodd-Frank or implementing rules for “any class of covered persons, service providers, or consumer financial products or services.”

- Barbara S. Mishkin

New York Proposes Far-Reaching Debt Collection Regulations



The New York Department of Financial Services (DFS) has proposed new regulations that would impose significant disclosure and other requirements on persons engaged in the collection of consumer debts. The proposed regulations are far-reaching and substantially more burdensome than the requirements of the federal Fair Debt Collection Practices Act (FDCPA).

Under the definition of "debt collector," the regulations would include debt buyers and any person "engaged in a business with the principal purpose of collecting or attempting to collect debts" or "who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." As a result, the regulations would apply not only to third-party debt collectors and debt buyers, but also to servicers collecting current debts owed to others who generally are not subject to the FDCPA.

The covered entities would include both banks and nonbanks that qualify as "debt collectors." The DFS has indicated that in issuing the proposal, it relied on its authority in the New York Financial Services Law (FSL) to prescribe regulations "involving financial products and services." Under the FSL, the DFS may not regulate financial products or services if its rules would be preempted by federal law. Accordingly, if the proposed regulations were deemed to be state debt collection laws that are saved from preemption under Office of the Comptroller of the Currency regulations, the proposal would apply to national banks and federal savings banks.

The scope of the regulations does not appear to be limited to debt collectors located in New York. Nothing in the FSL expressly provides that DSF regulations "involving financial products and services" can only apply to entities located in New York. As a result, if the proposal is adopted, the DFS could take the position that the regulations apply to debt collectors collecting debts from New York residents without regard to the debt collector’s location.

The only apparent limitation in the proposal’s scope is that it defines the term "debt" to only include obligations that involve an extension of credit. As a result, it appears most medical debts would not be covered since they typically do not involve an extension of credit. The proposal also provides that the term "debt" does not include an obligation that "arises out of credit extended directly to a consumer exclusively for the purpose of enabling that consumer to purchase consumer goods or services directly from the seller." It appears this language is intended to exclude retail installment sales contracts or other financing directly provided by sellers.

If adopted, the proposal would add a layer of new requirements that are not part of the FDCPA. See our website for a detailed description of the proposed requirements.

The proposal will be subject to a 45-day comment period following its publication in the New York State Register. Companies collecting debts from New York consumers should consult with legal counsel to review the proposal’s requirements and for assistance in commenting on the proposal.

- Alan S. Kaplinsky, John L. Culhane, Jr.Scott M. Himes, Heather S. Klein, James A. Mitchell, Marjorie J. Peerce, and Christopher J. Willis


Pennsylvania To Expand Application of Bank Shares Tax to Out-of-State Banks



Pennsylvania Act 52 (Act 52), signed into law on July 9, 2013, expands the reach of the Pennsylvania bank shares tax and allows the Commonwealth to impose the bank shares tax on a bank with no offices or branches in Pennsylvania if the bank transacts business with Pennsylvania customers.

Under current law, the bank shares tax is imposed on the apportionable share of equity capital of "banks," defined as banks operating as such and having capital stock, operating companies having capital stock and having the powers of companies commonly known as trust companies, companies organized as bank and trust companies under the laws of any jurisdiction that have capital stock owned by a company subject to the bank shares tax, corporations organized under 12 U.S.C. Ch. 6 (relating to organization of corporations to do foreign banking), and agencies or branches of a foreign depository as defined in 12 U.S.C. Section 3101. Banks that are subject to the bank shares tax are not subject to the Pennsylvania corporate net income tax or capital stock tax.

Until Act 52, the bank shares tax was imposed only on banks that had a physical presence in Pennsylvania. Effective January 1, 2014, Pennsylvania law will impose the bank shares tax on all banks that are "doing business" in Pennsylvania, without regard to whether such banks have capital stock or offices or branches in Pennsylvania.

For additional information on Act 52, read our detailed analysis.

Wendi L. Kotzen


Third Circuit Vacates Class Certification, Reaffirms Plaintiff’s Burden To Prove Readily Ascertainable Class



A recent decision by the U.S. Court of Appeals for the Third Circuit reaffirmed the importance of requiring a plaintiff in a class action to show there is a reliable and administratively feasible method for ascertaining who is in the proposed class. The Third Circuit vacated a district court’s grant of class certification in a class action against Wal-Mart.

In Hayes v. Wal-Mart Stores, Inc., plaintiff alleged that Wal-Mart, through its retail warehouse Sam’s Club, violated the New Jersey Consumer Fraud Act, breached its contracts with consumers, and was unjustly enriched by selling extended warranty plans on "as-is" items, even though the warranty terms excluded "as-is" items. The district court certified a class of New Jersey purchasers who purchased an extended warranty to cover an "as-is" product. Excluded from the class were purchasers of "as-is" products still covered by a full manufacturer’s warranty—as those products would be covered by the extended warranty—and consumers who had been reimbursed for the cost of the extended warranty.

For more information on the decision, read our detailed analysis.

- Neal Walters, Burt M. Rublin, and Michael R. Carroll

Welcome to Marc Patterson



We are pleased to welcome Marc D. Patterson, an experienced consumer financial services and mortgage banking attorney, as the newest member of our Mortgage Banking Group. Marc is an associate in the firm’s Washington, D.C., office and advises financial services industry clients on a wide range of regulatory issues.

Marc regularly assists clients with meeting state and federal licensing and approval requirements, including those related to stock and asset acquisitions. He also counsels clients in responding to government enforcement actions and implementing compliance and quality control procedures to meet state and federal requirements. In addition, Marc reviews and assesses loan repurchase demands on behalf of mortgage originators and servicers, performs risk assessment of loan portfolios, and handles loan-repurchase litigation.

Marc holds a B.A. from The College of Wooster; a J.D. from American University, Washington College of Law; and an LL.M. in taxation from New York University School of Law.

Mississippi Revises Loan Originator License Eligibility Requirements

Mississippi recently amended its SAFE Mortgage Act to limit the type of employees who can serve as loan originators. Under the new amendment, loan originators must be W-2 employees of the licensee. Previously, both 1099 employees and W-2 employees could become licensed as loan originators. The new amendment became effective July 1, 2013.

North Carolina Enacts Transitional MLO Licensing Law for Out-of-State MLOs

North Carolina recently became the second state to enact a transitional MLO licensing scheme. A temporary MLO license is available for an out-of-state MLO to allow the individual to act as a mortgage loan originator while satisfying all the requirements necessary to obtain a North Carolina MLO license. The temporary license will be valid for up to 120 days and will not be renewable.

To qualify for the temporary MLO license, an individual must have been employed as a mortgage loan originator for at least two years. The individual must not have shown a lack of financial responsibility, character, or general fitness. In addition, the individual must be registered and fingerprinted with the NMLS. Any applicant for a temporary MLO license must pay a fee of $125 and costs for obtaining a credit report, criminal history record checks, and processing fees for licensure.

Interestingly, North Carolina also left open the possibility for transitional licensing to apply to federally registered MLOs should federal guidance be issued that such applicability is consistent with the federal SAFE Act.

Ohio was the first state in the country to create a transitional MLO license. North Carolina’s law goes into effect September 1, 2013.

- Marc D. Patterson

Copyright © 2013 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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