OCC and FDIC Propose “Madden Fix” Rules to Codify “Valid-When-Made” Principle
By: William S. C. Goldstein
The long-running saga of Madden v. Midland Funding is entering a new phase. Last week, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) proposed rules that would codify the concept that the validity of the interest rate on national and state-chartered bank loans is not affected by the subsequent “sale, assignment, or other transfer of the loan.” See Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred, 84 Fed. Reg. 64229, (proposed Nov. 18, 2019); FDIC Notice of Proposed Rulemaking, Federal Interest Rate Authority, FDIC (proposed Nov. 19, 2019). Under these rules, an interest rate that is validly within any usury limit for such a bank when it is made would not become usurious if the loan is later transferred to a non-bank party that could not have charged that rate in the first instance.
The proposed rules are a long-awaited response to the Second Circuit’s decision in Madden, which held that a non-bank purchaser of bank-originated credit card debt was subject to New York State’s usury laws. 786 F.3d 246, 250-51 (2d Cir. 2015). In so holding, the Second Circuit cast doubt on the scope of National Bank Act (NBA) preemption, which exempts national banks from most state and local regulation, allowing them to “export” their home state interest rates without running afoul of less favorable usury caps in other states (FDIC-insured state banks are afforded similar protections). Before Madden, it was widely assumed that “a bank’s well-established authority [under the NBA] to assign a loan” included the power to transfer that loan’s interest rate. See Permissible Interest on Loans That Are Sold, 84 Fed. Reg. at 64231. The Madden decision also did not analyze the “valid-when-made” rule, a common law principle providing that a loan that is non-usurious at inception cannot become usurious when it is sold or transferred to a third party. See, e.g., Nichols v. Fearson, 32 U.S. (7 Pet.) 103, 109 (1833) (“[A] contract, which, in its inception, is unaffected by usury, can never be invalidated by any subsequent usurious transaction.”). Madden has been widely criticized by a host of commentators, including the Office of the Solicitor General.
The OCC and FDIC rules aim to remedy the confusion caused by Madden. OCC’s rule “would expressly codify what the OCC and the banking industry have always believed and address recent confusion about the impact of an assignment on the permissible interest.” Permissible Interest on Loans That Are Sold, 84 Fed. Reg. at 64231-64232. Likewise, the FDIC rule would rectify “uncertainty about the ongoing validity of interest-rate terms after a State bank sells, assigns, or otherwise transfers a loan.” Notice of Proposed Rulemaking at 2-3. Both proposals cite Madden as the source of the confusion.
Notably, neither proposal purports to address the emerging “true lender” doctrine, which some courts have used to apply state usury or consumer protection laws to non-bank entities that have partnered with banks in issuing loans and that retain a “predominant economic interest” in the loan. See, e.g., People ex rel. Spitzer v. Cty. Bank of Rehoboth Beach, Del., 846 N.Y.S.2d 436 (N.Y. App. Div. 2007). Under that doctrine, courts look at whether the bank or the third-party was the “true lender” in the first place, taking loans facing a true lender challenge outside the ambit of Madden and the OCC and FDIC fixes. In that regard, the OCC proposal notes simply that “[t]he true lender issue . . . is outside the scope of this rulemaking.” See Permissible Interest on Loans That Are Sold, Fed. Reg. at 64232. The FDIC proposal likewise notes that the new rules do not address true lender issues, but goes on to express support for the concern animating the true lender doctrine: “the FDIC supports the position that it will view unfavorably entities that partner with a State bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing State(s).” Notice of Proposed Rulemaking at 4.
Comments are due on the OCC rule by January 21, 2020, and on the FDIC rule shortly thereafter.
NIST Releases Final Version of the Big Data Interoperability Framework
By: Alexander N. Ghantous
The National Institute of Standards and Technology (NIST) announced on October 29, 2019, that the final, nine-volume version of the “NIST Big Data Interoperability Framework” (Framework) has been published. The Framework, which was developed by NIST in collaboration with hundreds of experts from an array of industries, provides ways developers can utilize the same data-analyzing software tools on any computing platform. Under the Framework, analysts can transfer their work to different platforms and use more sophisticated algorithms without revamping their environment. This interoperability provides a solution to data scientists who are tasked with analyzing increasingly diverse data sets from a multitude of platforms. Consequently, it could also play a role in solving modern day difficulties that include, but are not limited to, detecting health-care fraud and issues that arise during weather forecasting.
Nat’l Inst. of Standards and Tech., https://www.nist.gov/news-events/news/2019/10/nist-final-big-data-framework-will-help-make-sense-our-data-drenched-age (Oct. 29, 2019).
Big Data, Hedge Funds, Securities Regulation, and Privacy: Mitigating Liability in a Changing Legal Landscape
Consumer Finance Observer – Fall 2019
In an article published by Westlaw Journal Securities Litigation & Regulation, Partners Charles D. Riely and Keisha N. Stanford and Associate Logan J. Gowdey explain that the use of big data to analyze market activity is on the rise. But with the opportunities that big data presents comes a complex regulatory landscape. The authors introduce these issues and offer a starting point for general counsel and chief compliance officers to mitigate risks.
To read the full article, please click here.
Jenner & Block has published its second issue of Consumer Finance Observer or CFO, a newsletter providing analysis of key consumer finance issues and updates on important developments to watch. As thought leaders, our lawyers write about the consumer finance sector on topics ranging from artificial intelligence, compliance, data security, FinTech, lending and securities litigation.
In the Fall 2019 issue of the CFO, our consumer finance lawyers discuss the use of alternative data; best practices to avoid TCPA wrong-number claims; the OCC’s FinTech Charter; the FTC monitoring of class action settlements; an Eleventh Circuit ruling in a TCPA case; a quick look at HUD’s FHA Lender Annual Certification Statements; FinCen's report on business email scams; and a brief history of the CFPB payday lending rule. Contributors are Amy M. Gallegos, Joseph L. Noga, Michael W. Ross, David P. Saunders and Damon Y. Smith; Associates Gabriel K. Gillett, William S.C. Goldstein, Olivia Hoffman and Katherine Rosoff; and Staff Attorney Alexander N. Ghantous.
To read the full issue, please click here.
FTC Releases Guidance for Social Media Influencers
By: David D. Heckman and Kristen M. Iglesias
On November 5, 2019 the Federal Trade Commission (FTC) released Disclosures 101 for Social Media Influencers, to provide guidance to social media users that recommend or endorse products in their posts, videos or other content (often called ‘influencers’). Influencers have become big business, with millions of followers and payments of tens or even hundreds of thousands of dollars per post. The FTC took action in 2017, sending educational warning letters to influencers and settling charges with two influencers popular in the online gaming community for failing to disclose that they jointly owned a gambling service they endorsed. While the new guidance does not carry the force of law, it provides helpful insight into how the FTC views the issue and will approach enforcement.
The FTC cites the need for disclosure of any “material connections” between the influencer and the brand or product being endorsed. A material connection includes any financial, employment, personal, or family relationship with a brand or product. The guidance specifies that a material connection should be disclosed by an influencer if they are being provided with any free or discounted products or other perks, even if the influencer is reviewing or endorsing a different product made by the same brand. Additionally, the FTC guidance clarifies that influencers should disclose a material connection even if they believe their review of the product is unbiased. Endorsement is similarly broadly defined, to include “tags, likes, pins, and similar ways of showing [the influencer likes] a brand or product.”
When disclosing, influencers are urged to “make sure people will see and understand the disclosure.” The FTC recommends “simple and clear” language such as thanking the company for the free product or using terms like “advertisement,” “ad,” and “sponsored” and recommends avoiding vague terms such as “thanks” and “ambassador” or abbreviated terms such as “sp,” “spon,” or “collab.” During live streams, disclosures should be repeated throughout the video or stream. Disclosures should be made in endorsement videos themselves (ideally both audio and superimposed words), not simply included in the description or post.
Perhaps the most noteworthy items in the guidance were the disclosures likely to be insufficient. The guidance states a disclosure should be placed in a way that is “hard to miss” and notes they are likely to be missed “if they appear only on an ABOUT ME or profile page, at the end of posts or videos, or anywhere that requires a person to click MORE.” Many influencers currently disclose sponsored posts by adding “#ad” or “sponsored” at the end of a post, but the FTC’s new guidance suggests clearer disclosure is required; at minimum, influencers should consider moving “#ad” or “#sponsored” to the beginning of their posts so they are clear and hard to miss.
For more information, see FTC.gov/influencers.
NY Action Against UnitedHealth Algorithm
By: Isabel F. Farhi
On October 25, 2019, the New York State Department of Financial Services (DFS) and Department of Health (DOH) jointly sent a letter to UnitedHealth Group, Inc. (UnitedHealth) calling for the company to address its use of an algorithm it uses to make health care decisions, which a recent study had shown may have a racially discriminatory impact.
Specifically, researchers Ziad Obermeyer, Brian Powers, Christine Vogeli and Sendhil Mullainathan published an article in the periodical Science concerning “Impact Pro,” an algorithm UnitedHealth has used to identify patients who should receive the benefit of “high risk care management,” a service for patients with complex health care needs. According to one source, UnitedHealth licenses this algorithm to hospitals. The Science article describes how one metric the algorithm uses to determine eligibility for the program is the cost of patients’ previous health care. Yet, as the article explains, black patients typically spend less money on health care, in part because of historic barriers to access due to poverty and in part because of historic distrust of doctors. The article concludes that because of these systemic problems with the reliance on historic cost expenditures as an eligibility metric, two patients, one white and one black, with the same illness and complexity of care, could be treated differently when being considered for enrollment in the high risk care management program.
In the wake of this article, DFS and DOH sent a letter to UnitedHealth, calling on the company to act. The letter stated that the New York Insurance Law, the New York Human Rights Law, the New York General Business Law, and the federal Civil Rights Act all protect against discrimination for protected classes of individuals. As described in the letter, that prohibition against discrimination by insurers holds true “irrespective of whether they themselves are collecting data and directly underwriting consumers, or using and developing algorithms or predictive models that are intended to be partial or full substitutes for direct underwriting.” Therefore, it stated, neither UnitedHealth nor any other insurance company may “produce, rely on, or promote an algorithm that has a discriminatory effect.” The letter went on to say that the bias against black patients in the health care system makes such discrimination particularly troubling, such that the algorithm “effectively codif[ies] racial discrimination.” Such an outcome, the letter stated, “has no place in New York or elsewhere.” Therefore the state agencies called on UnitedHealth to immediately investigate the racial impact of the algorithm, and cease using it (or any other algorithm) “if [the company] cannot demonstrate that it does not rely on racial biases or perpetuate racially disparate impacts.”
In a statement to Forbes.com in connection with a story about the algorithm, UnitedHealth said that the algorithm “was highly predictive of cost, which is what it was designed to do” and that gaps in the algorithm, “often caused by social determinants of care and other socio-economic factors, can then be addressed by the health systems and doctor to ensure people, especially in underserved populations, get effective, individualized care.”
As this letter demonstrates, regulators continue to focus their attention on the use of algorithms in making consumer-facing decisions, and may expect companies to affirmatively justify that the algorithms they are using are non-discriminatory.
 Obermeyer et al., Dissecting racial bias in an algorithm used to manage the health of populations, 366 Science 447 (2019), available at https://science.sciencemag.org/content/366/6464/447.
 Erik Sherman, AI Enables Some Massive Healthcare Inequality According To A New Study, Forbes.com (Oct. 30, 2019), https://www.forbes.com/sites/eriksherman/2019/10/30/ai-enables-some-massive-healthcare-inequality-according-to-a-new-study/#70a9b90e3eec.
 Letter from Linda Lacewell, Superintendent, N.Y. State Dep’t of Fin. Servs., & Howard Zucker, M.D., J.D., Comm’r, N.Y. State Dep’t of Health, to David Wichmann, Chief Exec. Officer, UnitedHealth Grp. Inc. (Oct. 25, 2019) (available at https://www.dfs.ny.gov/system/files/documents/2019/10/20191025160637.pdf ).
 Sherman, supra at 2.
 David Bitkower et al., Data-Misuse Enforcement Is Focusing on 3 Key Areas, Law360 (July 23, 2019), https://www.law360.com/articles/1180800/data-misuse-enforcement-is-focusing-on-3-key-areas.
Texas Jury Awards $200 Million In Mobile Banking Patent Dispute
By: Benjamin J. Bradford
On November 6, a jury in the Eastern District of Texas awarded the United Services Automobile Association (USAA) a $200 million verdict finding that Wells Fargo willfully infringed two of USAA’s patents directed to the “auto-capture” process, which is used by banking customers to deposit checks using photographs taken from a mobile phone or other device. (Civ. No. 2:18-cv-00245 (E.D. Tex.)) Based on the finding of willfulness, USAA may be entitled to enhanced damages beyond the $200 million verdict.
Despite the verdict, the fight between Wells Fargo and USAA is still ongoing. Wells Fargo filed patent office challenges to the validity of USAA’s patents, which are still pending before the Patent Trial and Appeals Board, but may not be decided for another 15 months. In addition, Wells Fargo will likely appeal the decision, including a recent denial of summary judgment that found the patents were not invalid under 35 U.S.C. 101. Nevertheless, the verdict against Wells Fargo will likely embolden USAA to assert its patents against other banks and financial institutions that use an “auto-capture” process.
The Intersection of the California Consumer Privacy Act and California’s Preexisting Consumer Protection Statutes
By Kate T. Spelman
With the close of the California state legislative session on Sept. 14, 2019, the final shape of the California Consumer Privacy Act (CCPA)—which is set to take effect on Jan. 1, 2020—came into focus. The most recent amendments included carve-outs for business-to-business contracts and employee records, though both sunset after a year. While the statutory language is settled for now, many questions remain about how it will be enforced. The Attorney General has issued proposed regulations clarifying some of this uncertainty. However, one issue that may be left for future judicial interpretation is the interplay between the CCPA and California’s preexisting consumer protection statutes such as the Unfair Competition Law (UCL) and the Consumer Legal Remedies Act (CLRA). As discussed below, the CCPA contains an explicit prohibition, along with implicit safe harbors, likely to limit certain UCL and/or CLRA claims related to the use or disclosure of information subject to the CCPA.
The CCPA Likely Bars Derivative UCL Claims
The CCPA provides for enforcement by the Attorney General, but §1798.150(a) creates a private right of action for consumers whose personal information “is subject to an unauthorized access and exfiltration, theft, or disclosure as a result of the business’s violation of the duty to implement and maintain reasonable security procedures and practices.” Despite several legislative attempts to broaden the private right of action—which were supported by California’s Attorney general—it is currently limited to “violations as defined in subdivision (a),” precluding CCPA claims related to violations of other statutory provisions. (Notably, the CCPA contains no express provision permitting attorney fees for prosecution of claims under §1798.150, though plaintiffs’ attorneys may argue that such fees should be awarded as “other relief the court deems proper” (§1798.150(a)(1)(C)), or pursuant to the private attorney general attorney fee statute, CCP §1021.5.)
Given the narrow private right of action in the CCPA, consumers may seek an indirect route to CCPA liability under the “unlawful” prong of the UCL, which prohibits business practices that violate another law. However, §1798.150(c) of the CCPA states that “[n]othing in this title shall be interpreted to serve as the basis for a private right of action under any other law.” While California courts have held that the absence of a statutory private right of action does not preclude derivative UCL liability, a plaintiff may not “plead around an absolute bar to relief simply by recasting the cause of action as one for unfair competition.” Cel-Tech Commc’ns v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 182 (1999) (emphasis added). In other words, statutes that explicitly preclude private rights of action cannot be enforced through the UCL. For this reason, courts have rejected UCL “unlawful” claims where, for example, the predicate statute expressly exempted the defendants from liability for the alleged violation at issue, or stated that it was “not intended to create new civil causes of action.” Hobby Indus. Assn. of Am. v. Younger, 101 Cal. App. 3d 358, 370 (1980); LegalForce RAPC Worldwide P.C. v. UpCounsel, No. 18-02573, 2019 WL 160335, at *16 (N.D. Cal. Jan. 10, 2019). The CCPA’s admonition that the statute not be interpreted to “serve as the basis for a private right of action under any other law” is a strong basis on which a court could preclude UCL claims based on the same rationale.
Separate and apart from the statutory bar, consumers may lack standing to seek redress under the UCL for violations of the CCPA. This is because the UCL requires proof that a plaintiff “has lost money or property as a result of the unfair competition” (Cal. Bus. & Prof. Code §17204), and a plaintiff may need to allege something more than, for example, the unlawful collection or sale of her personal information to satisfy this requirement.
The CCPA May Provide ‘Safe Harbor’ Protections Against Other Consumer Protection Claims
Even assuming a bar against UCL “unlawful” claims based on express CCPA violations, consumers may assert UCL or CLRA claims based on allegedly unfair or deceptive conduct related to the collection, sale, or disclosure of personal information when such conduct does not directly violate the CCPA. In those cases, compliance with the CCPA could defeat UCL or CLRA claims that implicate conduct permitted by the CCPA or its implementing regulations, since the California Supreme Court has held that “[w]hen specific legislation provides a ‘safe harbor,’ plaintiffs may not use the general unfair competition law to assault that harbor.” Cel-Tech Commc’ns, 20 Cal. 4th at 182; see also Alvarez v. Chevron, 656 F.3d 925, 934 (9th Cir. 2011) (safe harbor provisions of California regulations prohibited CLRA claim). For example, a UCL or CLRA claim related to a business’ allegedly deceptive sale of consumers’ personal information to third parties may be barred by the business’s provision of a “clear and conspicuous” opt-out link on its Internet homepage in compliance with CCPA §1798.135(a). Additionally, a UCL or CLRA claim related to a business’ practice of charging more to consumers who prohibit that business from selling their personal information may be precluded if the difference is “reasonably related to the value provided to the business by the consumer’s data,” as permitted by CCPA §1798.125.
Thus, while the CCPA imposes new and arguably stringent requirements for businesses handling personal information, compliance with those requirements could provide protection against UCL and CLRA lawsuits regarding the allegedly deceptive treatment of consumers’ personal information.
Reprinted with permission from the November 5 issue of The Recorder. ©  ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. The original article can be viewed here.
California Attorney General Issues Proposed CCPA Guidelines
By: David P. Saunders
On October 10, 2019, the California Attorney General surprised many by issuing 24 pages of proposed regulations implementing the California Consumer Privacy Act of 2018 (CCPA). After reviewing the proposed regulations, they have left many in the industry shaking their heads. Absent from the proposed regulations is much of the clarity that industry participants were hoping for. In its place are additional obligations that not only risk confusing consumers, but that likely will pose administrative and logistical challenges.
Public comment on the proposed regulations is open through 5:00 pm PST on December 6, 2019. Interested parties can submit comments by e-mail to PrivacyRegulations@doj.ca.gov or by mailing comments to the Privacy Regulations Coordinator, California Office of the Attorney General, 300 South Spring Street, First Floor, Los Angeles, CA 90013. Additionally, the Attorney General will be holding four public hearings on the new proposed regulations, the schedule of which is available here.
In the meantime, let us examine the proposed regulations...
To read the full client alert, please click here.
FinCEN Has Eye on Sports Betting, Crypto Money Laundering Risks
In an article published by Bloomberg, Partners Reid J. Schar and Wade A. Thomson and Associate E.K. McWilliams highlight a recent speech by the director of the Financial Crimes Enforcement Network (FinCEN), an arm of the Treasury Department. Speaking at an anti-money laundering conference in Las Vegas, FinCEN Director Kenneth A. Blanco affirmed the Department’s commitment to enforcing the Bank Secrecy Act on casinos and other businesses that deal in cryptocurrency. The authors give context to the speech and discuss its implications for brick-and-mortar and online gaming establishments.
To read the full article, please click here.
California Enacts AB 5, Gig Worker Bill
By: Amy Egerton-Wiley
On September 18, 2019, Governor Gavin Newsom signed Assembly Bill 5 (AB 5) into law, which is intended to reclassify many of the state’s independent contractors as employees. Proponents of the bill claim that the bill rectifies misclassification of employees as independent contractors. Opponents, which include both workers and companies, note the importance of the flexibility of independent contractors and worry about the increased costs to consumers.
This bill largely codifies the “ABC” test established by the California Supreme Court in Dynamex v. Superior Court, 4. Cal. 5th 903 (2018). Under the ABC test, a worker must be classified as an employee (versus an independent contractor) unless the hiring entity can establish:
(A) that the worker is “free from the control and direction of the hiring entity in connection with the performance of the work,”
(B) that the worker “performs work that is outside the usual course of the hiring entity's business,” and
(C) that the worker is “customarily engaged in an independently established trade, occupation, or business.”
Dynamex, 4 Cal. 5th at 964.
AB 5 expands the ABC test to certain areas not explicitly subject to Dynamex, such as reimbursements for expenses incurred in the course of employment. Of course, companies that rely on independent contractors will be impacted by this legislation.
While AB 5 will not take effect until January 1, 2020, it may impact ongoing litigation, such as the San Diego City Attorney’s recent lawsuit against the grocery delivery service Instacart, which alleges that the company misclassified workers as independent contractors. And it remains to be seen whether the law will be subject to a challenge via referendum or in the courts.
A Brief History of the Consumer Financial Protection Bureau Payday Lending Rule
By: Alexander N. Ghantous
Between 2013 and 2016, the Consumer Financial Protection Bureau (CFPB) issued no fewer than six white papers or reports relating to payday loan protections. On the date of the last report, June 2, 2016, the CFPB issued a proposed rule, and on October 5, 2017, a final rule issued that addresses payday loans, auto title loans, and other loans that require the entire loan balance, or the majority of a loan balance, be repaid at once. The rule’s stated objective was to eliminate “payday debt traps” by, among other things, addressing underwriting through establishing “ability-to-repay” protections that vary by loan type.
Under the final rule, for payday loans, auto title loans, and other loans comprised of lengthier terms and balloon payments, the CFPB would require a “‘full-payment’ test” to establish that borrowers can afford to pay back the loan and also limits the quantity of loans taken “in quick succession” to only three. The rule also lays out two instances when the “full-payment” test is not required: (1) borrowing up to $500 when the loan balance can be repaid at a more gradual pace; and (2) taking loans that are less risky, such as personal loans taken in smaller amounts. The rule would also establish a “debit attempt cutoff,” which requires lenders to obtain renewed authorization from a borrower after two consecutive unsuccessful debits on a borrower’s account. The rule was scheduled to become effective one year and 9 months after being published by the Federal Register, which was last month (the rule was published on November 17, 2017).
However, on February 6, 2019, the CFPB announced that it was proposing to issue a new rule to rescind the underwriting provisions of the prior rule, namely, the requirements for payday loans, auto title loans, and other loans comprised of lengthier terms and balloon payments. According to the CFPB’s preliminary findings, overturning the requirements would make credit more readily available to consumers. That same day, the CFPB also proposed pushing the rule’s compliance date from August 19, 2019 to November 19, 2020.
On June 6, 2019, the CFPB issued a final rule to delay the compliance date for the mandatory underwriting provisions of the 2017 final rule to November 19, 2020 in order to provide additional time to permit an orderly conclusion to its separate rulemaking process to reconsider the mandatory underwriting provisions. Note that the payment provisions of the final rule, which address withdrawing payments from accounts, have not been delayed by rulemaking, and the CFPB has made no move to rescind those provisions. However, the CFPB also has not opposed the compliance date for those provisions being stayed through at least December 6, 2019, in connection with a lawsuit in the Western District of Texas that challenges the rulemaking.
Thus, the earliest that any part of the rule will go into effect is December 2019.
 Consumer Fin. Prot. Bureau, https://www.consumerfinance.gov/payday-rule/. (last visited Sept. 18, 2019).
 Consumer Fin. Prot. Bureau, https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-proposes-rule-end-payday-debt-traps/. (June 2, 2016).
 Consumer Fin. Prot. Bureau, https://www.consumerfinance.gov/about-us/newsroom/cfpb-finalizes-rule-stop-payday-debt-traps/ (Oct. 5, 2017).
 Payday, Vehicle Title, and Certain High-Cost Installment Loans, 82 FR 54472-01
 Consumer Fin. Prot. Bureau, https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-releases-notices-proposed-rulemaking-payday-lending/ (Feb. 6, 2019).
 Consumer Fin. Prot. Bureau, https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/payday-vehicle-title-and-certain-high-cost-installment-loans-delay-compliance-date-correcting-amendments/ (last visited Sept. 18, 2019).
 Consumer Fin. Prot. Bureau, https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-releases-notices-proposed-rulemaking-payday-lending/ (Feb. 6, 2019).
 Cmty. Fin. Servs. Ass’n of Am., Ltd. v. Consumer Fin. Prot. Bureau, No. 1:18-cv-00295-LY (Tex. Dist. Aug. 6, 2019) (order staying litigation and compliance date).
HUD’s FHA Lender Annual Certification Statements May Significantly Reduce FHA Lender Risk of False Claims Act Liability
By: Damon Y. Smith
September 13, 2019 is the deadline for comments on HUD’s proposed changes to FHA Lender Annual Certification Statements. The most significant changes include elimination of, inter alia:
Broad certification language stating that the operations of the lender conformed to all HUD regulations and requirements;
Acknowledgements that lenders are responsible for the actions of their employees, including loan underwriters and originators;
General certifications that the lender is not under indictment for or convicted of offenses that reflect adversely on its integrity, competence or fitness;
Certifications involving criminal misconduct on the part of lender staff, including mortgage underwriters and originators; and
Certifications regarding compliance with the SAFE Act.
These changes represent a dramatic departure from the prior administration, which brought False Claims Act claims against lenders for submitting the certifications to be eligible for FHA programs while underwriting loans that they allegedly knew were not in compliance with FHA’s regulatory requirements. See, e.g., https://www.housingwire.com/articles/49337-quicken-loans-agrees-to-pay-325-million-to-resolve-fha-loan-allegations-with-doj. Because the False Claims Act liability allows for treble damages, some considered the risk of substantial liability to be too high for further participation in FHA’s single family programs. See https://www.wsj.com/articles/banks-fled-the-fha-loan-program-the-government-wants-them-back-11557417600.
If adopted, the new certification may lead to additional interest in FHA programs from lenders who curtailed or ended their participation because of the potential risks associated with the prior certification.
The Federal Register Notice can be found here.
DC Court Again Dismisses Challenge to OCC’s FinTech Charter, Splitting with SDNY
By: William S. C. Goldstein
On September 3, 2019, a federal district court in the District of Columbia dismissed, for the second time, a lawsuit brought by the Conference of State Bank Supervisors (CSBS) seeking to block the Office of the Comptroller of the Currency (OCC) from issuing national bank charters to certain non-bank financial technology (FinTech) companies. Conference of State Bank Supervisors v. Office of the Comptroller of the Currency, No. 18-cv-2449, slip op. at 1-6 (D.D.C. Sept. 3, 2019) (CSBS II). CSBS’s earlier suit, brought in 2017, was previously dismissed by Judge Dabney Friedrich as premature: Because OCC had not yet finalized its procedure for accepting FinTech charter applications, let alone received any applications, Judge Friedrich found that CSBS’s claims were unripe and alleged no injury sufficient for standing. CSBS v. OCC, 313 F. Supp. 3d 285, 296-301 (D.D.C. 2018). In October 2018, CSBS brought suit again—this time after OCC had finalized its procedures for accepting FinTech charter applications, albeit before OCC had actually received any applications. CSBS II, slip op. at 2. Judge Friedrich held that neither this change nor the Senate’s confirmation of Joseph Otting as Comptroller of the Currency, another change in the facts highlighted by CSBS, “cure[s] the original jurisdictional deficiency.” Id. (alteration in original; citation omitted). The court pointedly explained that “it will lack jurisdiction over CSBS’s claims at least until a Fintech applies for a charter.” Id. at 5.
In dismissing CSBS’s suit for lack of standing, Judge Friedrich found herself in disagreement with Judge Victor Marrero of the Southern District of New York. Judge Marrero held in May of this year, on a very similar record, that the New York State Department of Financial Services (DFS) had standing to challenge OCC’s FinTech plans—and that DFS was right on the merits, essentially blocking OCC from issuing FinTech charters. See Vullo v. OCC, 378 F. Supp. 3d 271 (S.D.N.Y. 2019). Judge Friedrich “respectfully disagree[d] with Vullo, to the extent that its reasoning conflicts with either this opinion or CSBS I.” CSBS II, slip op. at 2 n.2. The heart of the divergence seems to be Judge Friedrich’s conclusion that there could be no jurisdiction at least until OCC received a charter application. Id. at 5. Judge Marrero, by contrast, found that OCC “has the clear expectation of issuing [FinTech] charters” and thus that “DFS has demonstrated a ‘substantial risk that harm will occur.’” Vullo, 378 F. Supp. 3d at 288 (citation omitted). Due to that difference of opinions, CSBS will have to wait at least until a FinTech company applies for a charter before filing again. Such an application may not be forthcoming, as the SDNY’s ruling may keep any FinTech companies from applying for a charter in the near future, given the legal uncertainty. The parties in Vullo are in the process of negotiating the language of a proposed final judgment to submit to the court, presumably to allow for OCC to take an appeal to the Second Circuit. See Endorsed Letter, Lacewell v. OCC, No. 18-cv-8377 (S.D.N.Y. Aug. 28, 2019), ECF No. 38.
Eleventh Circuit Rules: Receiving Text Message Was Not Injury Under the TCPA
By: Olivia Hoffman
The Eleventh Circuit recently decided a case that raised the bar for pleading injury under the Telephone Consumer Privacy Act (TCPA), 47 U.S.C. § 227, noting its disagreement with an earlier decision from the Ninth Circuit on the same issue and creating a possible roadblock for future plaintiff classes seeking to assert claims under the TCPA.
In Salcedo v. Hanna, the Eleventh Circuit held that “receiving a single unsolicited text message” in violation of the TCPA was not a “concrete injury” sufficient to confer standing on the plaintiff. The case arose out of a text message that plaintiff John Salcedo received from his former attorney, defendant Alex Hanna, offering Salcedo a discount on Hanna’s services. According to Salcedo, receiving the text message “caused [him] to waste his time answering or otherwise addressing the message” and “resulted in an invasion of [his] privacy and right to enjoy the full utility of his cellular device.” Salcedo filed a class action complaint in the Southern District of Florida on behalf of a class of former clients of Hanna who had received similar unsolicited text messages. Salcedo demanded statutory damages of $500 per text message and treble damages of $1,500 per text message for knowing or willful violations of the statute.
The case went up to the Eleventh Circuit on interlocutory appeal. The court held that Salcedo’s receipt of a single unwanted text message from his former lawyer was not a concrete injury for the purpose of Article III. It distinguished other unsolicited, one-off communications that have sufficed to confer standing, such as a junk fax—which, the court noted, rendered the plaintiff’s fax machine “unavailable for legitimate business messages” for “a full minute” and also used the plaintiff’s paper and ink. Here, by contrast, Salcedo had failed to allege that the text message cost him any money or interfered with his use of his cellular phone for a specific amount of time. The court also observed that not only is the TCPA silent on text messages, but “the receipt of a single text message is qualitatively different from the kinds of things Congress was concerned about when it enacted the TCPA,” which involved more serious privacy and nuisance issues. Ultimately, the court concluded that the receipt of a single text message, while perhaps “[a]nnoying,” was “not a basis for invoking the jurisdiction of the federal courts.”
In reaching this conclusion, the Eleventh Circuit explicitly rejected the reasoning of the Ninth Circuit—the only other Circuit to directly address the issue of whether receipt of a text message, on its own, constitutes injury under the TCPA—in a similar case. Indeed, in Van Patten v. Vertical Fitness Group, LLC, the Ninth Circuit held that unwanted text messages implicate the same kinds of concerns as unsolicited calls, reasoning that the receipt of unwanted telemarketing text messages “present[s] the precise harm and infringe[s] the same privacy interests Congress sought to protect in enacting the TCPA.”
The Eleventh Circuit’s opinion in Salcedo does not impose a per se bar on TCPA claims based on the receipt of unsolicited text messages. Rather, it requires plaintiffs pleading claims under the TCPA to allege a “particular loss of opportunity,” or to allege “specifically” that the defendant’s text message cost them money or deprived them of the use of their device for a period of time. Under this framework, the question of whether an individual has suffered a concrete injury sufficient to confer standing is a highly individualized and fact-specific inquiry. As a result, as some commentators have noted, plaintiffs seeking to assert claims under the TCPA on behalf of a class may struggle to establish, for example, that the questions of law or fact common to the class members predominate, or that a class action is a superior vehicle for resolving the dispute.
 Salcedo v. Hanna, No. 17-14077, 2019 WL 4050424, at *1 (11th Cir. Aug. 28, 2019).
 Id. at *3.
 Id. at *3-*4.
 Id. at *4.
 Id. at *7.
 847 F.3d 1037, 1043 (9th Cir. 2017).
 2019 WL 4050424, at *3-*4.
 See Fed. R. Civ. P. 23.