On January 3, the Ninth Circuit Court of Appeals found that Section 1748.1 of the California Civil Code – which bars sellers from imposing surcharges for credit card payments, while still permitting discounts for payment by cash or other means – was an impermissible content-based restriction under the First Amendment of the United States Constitution as specifically applied to the plaintiffs.

The plaintiffs in Italian Colors Restaurant et al. v. Becerra, No. 15-15873, 2018 WL 266332 (9th Cir. Jan. 3, 2018) were five California businesses and their owners or managers that “pay thousands of dollars annually in credit card fees.” Although it is in their interest to collect cash payments to avoid credit card fees, Section 1748.1 prevented them from imposing credit card surcharges, which they contended would be more effective than discounts to encourage buyers to use cash. Despite there being no apparent measurable difference between consumers’ response to the two approaches, research indicates that surcharges may be more effective because “economic actors are more likely to change their behavior if they are presented with a potential loss than with a potential gain.”

The Ninth Circuit deferred to the recent Supreme Court decision in Expressions Hair Design v. Schneiderman, 137 S. Ct. 1144 (2017), in which the Court held that New York’s surcharge ban tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer, but does regulate how sellers may communicate their prices. The Ninth Circuit reasoned that Section 1748.1 regulates commercial speech because it regulates how sellers can communicate their prices rather than how much sellers can charge. As a result, the restriction implicated the First Amendment. The Court conducted a two-prong intermediate scrutiny test, finding that: (1) the regulated speech (namely, imposing credit card surcharges) was not misleading or related to unlawful activity; and (2) the law did not further the state’s interest in protecting consumers from deceptive price increases and was not narrowly tailored to achieve the state’s interest.

For these reasons, the Court found the law violated the First Amendment only as applied to the plaintiffs, with respect to the specific pricing practice that the plaintiffs wanted to use. This ruling is the latest in a series of other appellate decisions analyzing state law surcharge bans under the First Amendment, indicating that such restrictions may continue to be challenged in court.

On January 16, the Consumer Financial Protection Bureau announced its intention to reconsider a controversial rule affecting the short-term (payday) and auto-title lending industries.  This reconsideration could signal that a stripped down rule that omits a number of the rule’s more controversial provisions could be in the offing.

The original rule was finalized in October 2017, when Richard Cordray was still the head of the Bureau, and required lenders to determine whether a borrower could afford his or her loan payments while still meeting basic living expenses and other financial obligations.  For short-term or auto-title loans due in a lump sum, lenders must determine whether a borrower can make a full payment of the total loan amount, plus any fees and finance charges, within two weeks or a month.  For loans with a longer term and a balloon payment, lenders must determine whether a borrower can afford the highest total payments.  The rule also includes additional requirements, including a principal-payoff option for certain short-term loans, loan options, and debit attempt cutoff.  The rule officially took effect on January 16, yet the majority of key provisions are not scheduled for implementation until August 19, 2019.

The rule has proved controversial, as consumer advocates fully supported the measure while lenders contended that the rule’s restrictions would result in a number of lenders going out of business and reduced credit options for many borrowers.  Members of Congress have introduced measures to repeal the rule under the Congressional Review Act, a tactic that proved effective with the arbitration rule.

The CFPB’s announcement did not offer any details regarding the scope of its reconsideration or any timeline for changes to the rule.

On January 9, Georgia Attorney General Chris Carr announced a settlement with a debt collector that will wipe out $8.8 million in consumer debt.

“It is plain and simple, any debt collector that employs abusive, deceptive and illegal tactics in Georgia will be held accountable,” Carr said in announcing the settlement.

Carr alleged that the debt collector – Williamson and McKevie, LLC – violated the federal Fair Debt Collection Practices Act and the Georgia Fair Business Practices Act by:

  • threatening consumers with arrest or imprisonment if they did not pay a debt;
  • falsely representing that consumers had committed criminal acts and would be sued if they did not pay a debt;
  • falsely implying that its representatives were attorneys;
  • contacting third parties and divulging information about the debtors’ accounts; and
  • failing to disclose that they were attempting to collect a debt and that any information obtained would be used for that purpose.

Under the terms of the settlement, which was entered as an assurance of voluntary compliance, Williams and McKevie must stop collecting on 10,922 accounts that represent approximately $8.8 million in consumer debt and must also pay a $20,000 civil penalty.  In addition, Williams and McKevie agreed to a five-year monitoring period during which it will be subject to an additional $230,000 civil penalty if it violates any provision of the settlement.

Carr’s press release announcing the settlement is available here.

Earlier this month, the New York State Department of Financial Services fined The Western Union Company $60 million for allegedly violating the New York Bank Secrecy Act and anti-money laundering laws.

According to DFS, Western Union was aware of improper conduct involving its “NY-China Corridor” agents – small businesses that offered services for Western Union in Manhattan, Brooklyn, and Queens which, despite their size, had some of the largest volumes of transactions in the world, and were some of the most profitable locations for the company.  For instance, a small travel agency in Lower Manhattan which was a Western Union agent processed transactions totaling $1.14 billion from 2004 to 2011.  It is alleged that some of the money transfers from this business and other NY-China Corridor agents were actually intended to launder money and included payments that may have aided in human trafficking.

An investigation by DFS revealed that Western Union conducted compliance investigations of several agents and had evidence that indicated there appeared to be illegal and improper activities occurring at these locations.  However, when disciplinary actions against these agents were suggested, senior managers within the company allegedly intervened, going as far as to pay the owner of the Lower Manhattan location a bonus of $250,000 to renew his contract with the company, even though the agent had several compliance violations.

Maria T. Vullo, Superintendent of the DFS, said in a statement, “Western Union executives put profits ahead of the company’s responsibilities to detect and prevent money laundering and fraud by choosing to maintain relationships with, and failing to discipline, obviously suspect, but highly profitable, agents.”

As part of the consent order reached between DFS and Western Union, the company must pay the $60 million fine and must also submit to the DFS its plan to ensure that its anti-money laundering programs and anti-fraud programs are complied with in the future.

The United States District Court for the Central District of California recently granted summary judgment to Sirius XM Radio, Inc. in a putative class action under the Driver’s Privacy Protection Act (“DPPA”).

As background, plaintiff James Andrew alleged on behalf of himself and a putative class that Sirius sent solicitation letters using personal information obtained from motor vehicle records in violation of the DPPA’s limits on marketing uses.  Prior to the filing of Sirius’ motion for summary judgment, counsel for Sirius explained to Andrew’s counsel that the satellite radio broadcaster had not obtained the “personal information” of Andrew or any other class members from the state’s Department of Motor Vehicles but instead obtained Andrew’s name, address, telephone number, and vehicle information from a combination of Auto Source, the dealer from which Andrew purchased the vehicle, and the United States Postal Service’s change of address database.  Despite Sirius providing Andrew’s counsel with declarations supporting these facts, Andrew refused to dismiss the suit.

In his opposition brief to Sirius’ motion for summary judgment, Andrew argued that “the DPPA extends beyond information obtained from a state’s DMV and includes Defendant’s use of information obtained from the driver license Plaintiff provided to Auto Source and the information Auto Source input [into a computer program] to prepare and submit a DMV change of ownership form for the vehicle Plaintiff purchase[d].”

In granting Sirius’ motion, the Court held that “[l]ike the Supreme Court and the vast majority of other courts to have analyzed the issue, this Court interprets the DPPA’s definition of ‘motor vehicle record’ as requiring that the DMV be the source of the ‘record.’”  The Court further held that “[i]nterpreting the statute as Plaintiff suggests and construing a ‘motor vehicle record’ to include a driver license would render the definition’s use of both ‘record’ and ‘pertains to’ as surplusage because the driver license would be ‘pertaining’ to itself and ignore the requirement that it also be a ‘record.’”  Further, Andrew’s “reasoning would criminalize the conduct of, and create civil liability for, the Good Samaritan who finds a lost wallet and uses the name and address found on the driver license found in the wallet to return the wallet to its owner.  Acknowledging that a driver license is not itself a ‘motor vehicle record’ ‘contained in the records’ of the DMV avoids such absurd results.”

The Court ultimately concluded “that the undisputed facts establish that Defendant did not ‘use’ ‘personal information’ ‘from a motor vehicle record’ when it obtained Plaintiff’s name, address, phone number, and vehicle information from Auto Source’s [computer program] and the Postal Service’s change of address database.”  As such, the DPPA’s limits on marketing uses did not apply.

The case is Andrews v. Sirius XM Radio, Inc., No. 5:17-cv-01724 (C.D. Cal.).

2017 was a transformative year for the consumer financial services world. As we navigate an unprecedented volume of industry regulation and forthcoming changes from the Trump Administration, Troutman Sanders is uniquely positioned to help its clients find successful resolutions and stay ahead of the compliance curve.

In this report, we share developments on consumer class actions, background screening, bankruptcy, credit reporting and consumer reporting, debt collection, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and the Telephone Consumer Protection Act (“TCPA”).

We hope you find this helpful as you navigate the evolving consumer financial services landscape.

ACCESS THE REPORT HERE

On Tuesday, January 23rd, from 3-4 p.m. ET, Troutman Sanders attorneys David Anthony, Cindy Hanson and Tim St. George will present a webinar examining class actions under the Fair Credit Reporting Act. These class actions have surged, and they are a favorite vehicle for plaintiff’s counsel in both federal and state court.  Because of the outsized risk posed by such actions, effective planning and aggressive defense strategies can be the difference between an individual case and a truly bet-the-company class action.  Please join three highly-experienced FCRA class action litigators as they share their tips about how to defend against such class actions, as well as strategies on avoiding class actions in the first place.

One hour of CLE credit is pending.  

To register, click here.

 

On April 30th – May 1st, ACI will host its FinTech and Emerging Payment Systems conference at the Park Lane Hotel in New York City.

We are pleased to announce that Troutman Sanders Partner Keith Barnett will be speaking at a panel titled ” Examining the Evolving State Regulatory and Enforcement Paradigm Governing FinTech and Payments” at ACI’s Legal Regulatory and Compliance Forum on FinTech and Emerging Payment Systems conference on April 30th, 2018 at 11:15am.

FinTech and payment systems startups are burdened with a fractured and struggling regulatory system among the various states. As more and more FinTech startups and other “nonbanks” are entering into the market and aiming to provide financial services to consumers and businesses, they are faced with the reality that it can take several months and thousands of dollars in compliance fees to obtain regulatory approval to operate in just one state. Now, imagine the frustration that companies navigating our 50-state licensing regime are experiencing, as they are facing years and millions of dollars to launch a product nationwide, thus hindering their ability to get to market. During this session, a panel of state regulators will provide key insights on:

  • How states are reacting to new and emerging federal initiatives, including the OCC Fintech Charter to license FinTechs as special purpose banks
  • State-level initiatives aimed at modernizing and harmonizing financial regulation of non-banks and FinTech companies operating nationwide – The CSBS’ Vision 2020
  • State views on the Industrial Loan Charter option
  • Developments in state regulation of money transmitters, consumer lenders, bit licenses, payment processing, and beyond
  • Actions being taken to better align multi-state licensing, examination and supervision
  • Assessments and audits of state regulatory practices to better foster innovation without sacrificing safety, soundness or consumer protection

To register or obtain additional information, visit the ACI conference website.

For a 10% off speaker referral rate ($1,795), contact Nicole L. Pitti, Esq. directly and mention speaker Keith Barnett. Nicole can be reached via phone at 212.352.3220 ext 5534 or via email at n.pitti@americanconference.com.

On January 5, Troutman Sanders filed an amicus brief on behalf of the National Association of Professional Background Screeners (“NAPBS”) in support of Spokeo, Inc.’s second petition for certiorari to the United States Supreme Court in Spokeo, Inc. v. Robins (U.S. No. 17-806).  The new petition requests that the Court revisit its prior ruling and add clarity to the divergence in lower court rulings over the past two years.

The NAPBS’s amicus brief contends that the Ninth Circuit’s Spokeo decision on remand misapplied the Court’s instruction to limit federal court jurisdiction to actual cases and controversies under Article III by allowing plaintiffs to file technical, no-injury claims or claims based on bare procedural violations.  In the class action context, such technical claims led to in terrorem settlements under the FCRA’s statutory damages scheme which does not cap the damages multiplier in a class case.  The NAPBS and its members “face a practical reality in which ruinous potential liability and litigation expense grossly outweigh any harm actually caused to consumers – which oftentimes is no injury whatsoever.”  In turn, the divergence in interpretations of Spokeo I coupled with the ability to command in terrorem settlements has resulted in forum shopping by plaintiffs in favorable jurisdictions like the Ninth Circuit.  “Clarity is warranted,” according to the NAPBS.

The NAPBS is a trade association representing over 900 small and large background screening firms whose mission is to advance excellence in the screening profession and provide a unified voice in the development of national, state, and local regulation of professional screening services.

A copy of the amicus brief can be found here.

On December 20, New Jersey Governor Chris Christie signed a new bill amending the New Jersey Opportunity to Compete Act (“OTCA”) that went into effect in March 2015.  The amendment seeks to strengthen the “ban the box” legislation by adding express prohibitions as to expunged criminal records and providing clarity to the types of job applications at issue in the OTCA. It becomes effective immediately.

Under the amendment – Senate Bill 3306 – covered employers are barred from seeking information about the current and expunged criminal records of applicants during the early stages of the employment application process.  In addition to barring employers from making oral or written inquiries, the amendment also bars employers from doing online searches for an applicant’s criminal record or expunged criminal record.

The OTCA applies to employers with fifteen or more employees over twenty calendar weeks who do business, employ persons, or take applications for employment within New Jersey.  Those employers may ask about criminal records and any expungements after the initial employment application process, such as after the interview.  While New Jersey law does not prohibit employers from refusing to hire an individual because of his or her criminal history, under Senate Bill 3306, employers may not refuse to hire an applicant because of a criminal record that has been expunged or erased through executive pardon, unless the refusal is consistent with other applicable laws, rules and regulations.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.