On August 17, 2017, the Eleventh Circuit issued an opinion in Steven Bivens v. Select Portfolio Servicing, Inc. (No. 16-15119), holding that a borrower must send requests for information to a mortgage servicer’s designated addressed before a servicer’s duty to respond under the Real Estate Settlement Procedures Act are triggered. Lenders should take note of this decision because it indicates that the Eleventh Circuit will require plaintiffs to strictly comply with the terms of that statute before holding banks or mortgage servicers liable under that statute.
Earlier this month, in Schweitzer v. Comenity Bank, the Eleventh Circuit held that a consumer can partially revoke consent to be called under the Telephone Consumer Protection Act (TCPA), This decision will only further complicate the already complex and treacherous net of liability cast by that statute.
Lenders who move to compel arbitration should always consider the complex interplay between the Federal Rules of Civil Procedure and the Federal Arbitration Act. In Ryan D. Burch v. P.J. Cheese, Inc., 861 F.3d 1338 (2017), the Eleventh Circuit held that a general jury demand in the plaintiff’s complaint was not enough to preserve his statutory right to a jury trial on questions of arbitrability. Specifically, the Court held that the FAA’s procedural requirements for demanding a jury trial on arbitrability trumped the normal requirements for a jury demand found in Federal Rule of Civil Procedure 38. While the case specifically concerns a jury demand, it also demonstrates that the FAA contains procedural requirements and that the Federal Rules only fill the gaps. Therefore, when arbitrability will be an issue, lenders should take care to consider the procedural requirements of the FAA in conjunction with those of the Federal Rules.
A recent Supreme Court decision may allow defendants to avoid lawsuits in distant courts that have little or no connection to the lawsuit, especially in cases (such as mass actions) where the claims of out-of-state plaintiffs are joined with those of in-state plaintiffs. In Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty., — U.S. —, 137 S. Ct. 1773, 1775 (2017), the Supreme Court held that a California state court did not have personal jurisdiction to adjudicate claims against a drug company, at least for the plaintiffs who were not California residents and who had not alleged a connection between the alleged injury and the state of California. While law school civil procedure professors spend weeks covering personal jurisdiction, the defense rarely appears in real-world practice because most plaintiffs’ attorneys are smart enough to avoid a fight over jurisdiction. Thus, defendants may give this defense only cursory consideration at the outset of a lawsuit. Following Bristol-Myers, defendants may want to more carefully consider the personal jurisdiction defense as a way to avoid litigation in a hostile forum.
Continue Reading Defendants should consider personal jurisdiction defense following Supreme Court decision, especially when the claims of out-of-state plaintiffs are joined with those of in-state plaintiffs.
What to do now about the new CFPB rule on arbitration? (1) begin planning now and (2) begin actual preparation after the 60 days runs.
Congress has 60 days after publication of the new CFPB rule to take action to stop the application of this rule. Publication occurred on Wednesday (July 19th). It is impossible to predict what Congress will do. However, we can be virtually certain that absent such Congressional action, this new rule will apply 180 days after those 60 days expire. While there are other possible hurdles for this rule (for instance, an expected lawsuit challenging the rule; a possible new CFPB Director in the future; a challenge to the CFPB’s structure, etc.), these other impacts are unlikely to prevent the rule from beginning to have application.
We suggest you use the next 60 days to plan but wait to make any substantial expenditures until it is certain what Congress will do. Here are some key questions which financial institutions should consider during those 60 days:
The Dodd Frank Act expressly provided that any CFPB rule on arbitration would not apply to existing contracts. 12 U.S.C. § 5518(d). Therefore, the CFPB rule released last week will only bar class action waivers for contracts “entered into after” the applicable date for the regulation (60 days after publication of the rule in the Federal Register and then 180 days after that date).
However, the CFPB has taken an aggressive position on what is an existing contract. Therefore, for existing customers, lenders and other “covered persons” will need to examine every change in any product or services they offer that is subject to the arbitration rule. If any “new product or service” is given to an existing customer, the new regulation applies to that product or service even if it is covered by the terms of an existing contract (assuming that the new product or service is within the scope of the rule). In such a case, the lender would need to amend the previous agreement or provide a new agreement for the new product and could not rely on the arbitration clause to avoid a class action.
The Consumer Financial Protection Bureau (CFPB) recently finalized various updates to its mortgage disclosure rule, often referred to as “Know Before You Owe” or the TILA-RESPA Integrated Disclosures (TRID). The updates were proposed approximately one year ago. They include technical corrections, formal guidance, and a few substantive changes. Some of the changes include:
- Adding tolerance provisions for total payments that track existing TILA requirements regarding finance charges
- Expanding the scope of certain exemptions for housing assistance loans
- Applying TRID to all cooperative units, regardless of whether the cooperative units are classified as real property under state law
- Providing guidance on sharing information with third parties
The new rule takes effect 60 days after publication in the Federal Register, but compliance is not mandatory until October 1, 2018. A copy of the final rule is available here.
Notably absent from the final rule is guidance on the “black hole”—the period of time between issuing the Closing Disclosure and the actual closing date when, in certain instances, lenders may be prevented from resetting tolerances (and passing on closing cost increases to the borrower). The amendments as originally proposed included a potential fix for this problem. However, the CFPB decided not to adopt the fix based on conflicting comments that it received. Instead, the CFPB issued a new proposed rule (with a new comment period) to address the “black hole” issue. A copy of the proposed rule is available here.
The Consumer Financial Protection Bureau (CFPB) issued a rule on Monday prohibiting class action waivers in arbitration provisions of certain consumer contracts. The rule—to be codified at 12 C.F.R. § 1040—also requires covered businesses to submit records to the CFPB regarding any arbitration filed by or against their customers regarding covered products and services. The provided records will be made public and hosted by the CFPB on a searchable database. The likely impact of this rule (should it be allowed to go into effect) will be significant for financial institutions and dramatically alter their relationships with their customers.
Last week, the Second Circuit Court of Appeals, in Reyes v. Lincoln Automotive Financial Services, held that contractual consent—once given—cannot be unilaterally revoked. The landmark Telephone Consumer Protection Act (TCPA) case gives a potent tool against the flood of TCPA cases based on the revocation of consent, at least for businesses with well documented relationships with their customers.
In reaching its ultimate conclusion, the Reyes court acknowledged the seemingly contrary case law from the Courts of Appeal for the Third and Eleventh Circuits. According to Reyes, Gager v. Dell Fin. Servs., LLC (Third Circuit) and Osorio v. State Farm Bank, F.S.B. (Eleventh), as well as the 2015 FCC Declaratory Ruling which relied on Gager and Osorio, “considered a narrow question: whether the TCPA allows a consumer who has freely and unilaterally given his or her informed consent to be contacted [to] later revoke that consent.” Reyes “present[ed] a different question . . . : whether the TCPA also permits a consumer to unilaterally revoke his or her consent to be contacted by telephone when that consent is given, not gratuitously, but as bargained-for consideration in a bilateral contract.”
The key to framing the question in this light comes from the distinction “between tort and contract law. In tort law, ‘consent’ is generally defined as a gratuitous action . . . .” On the other hand, “[i]t is black-letter law that one party may not alter a bilateral contract by revoking a term without the consent of a counterparty.” In addressing the policy arguments mounted by Reyes, the Court declined to step into a role it found more suited for Congress:
We are sensitive to the argument that businesses may undermine the effectiveness of the TCPA by inserting ‘consent’ clauses of the type signed by Reyes into standard sales contracts, thereby making revocation impossible in many instances. . . . But this hypothetical concern, if valid, is grounded in public policy considerations rather than legal ones; if the abuse came to pass, it would therefore be ‘for the Congress to resolve—not the courts.’
Reyes adds more weight to the already existing incentive for businesses to capture written consent. However, it is not panacea for TCPA liability. First, at present, it is confined to the Second Circuit. Second, it applies to those businesses who have a contractual relationship with the plaintiff. Third, plaintiffs may argue—like they would in fighting arbitration—that the call must relate to or fall within the scope of the contract and the consent provision under which a business seeks to invoke Reyes. Fourth, certain scenarios, like debt collection, may fall outside of Reyes. While consent already transfers from a business relationship to debt collection activities, that is a revocable form of consent. Reyes arguably makes that consent non-revocable if contracted. However, a plaintiff may argue that a contractual default and the subsequent election to pursue default remedies terminates the contract.
In light of the above, businesses may want to consider just how broad their consent language is in their contracts and just how they may seek to capture a written relationship in as many instances as possible. Undoubtedly, TCPA defendants will look to Reyes when able and plaintiffs will push back. Monitoring how and if the decision gains traction across the country will be one of the more important TCPA trends for the second half of 2017.
Alabama law permits the creation of public corporations known as “improvement districts,” which can then issue bonds that are similar to bonds issued by a municipal corporation. These bonds can be used to finance improvements within the district. In Aliant Bank v. Four Star Investments, Inc., the Alabama Supreme Court allowed claims against the directors of one of these improvement districts to go forward despite claims of immunity. The Court also allowed certain fraud claims to go forward against the directors as well as other related individuals and entities. In addition to authorizing lenders to bring suit, the opinion also serves as a strong reminder that lenders should monitor their collateral and promptly investigate any signs of misconduct.