By Charles A. Menke, J.D.
Following the denial of her request for a temporary restraining order that would have prevented President Donald Trump’s designee, Mick Mulvaney, from becoming acting director of the Consumer Financial Protection Bureau, Leandra English has filed an amended complaint and motion for preliminary injunction. Former CFPB Director Richard Cordray appointed English as Deputy Director, intending that she would become acting director upon his resignation. Trump, however, appointed Mulvaney to the position pursuant to the Federal Vacancies Reform Act. U.S. District Judge Timothy J. Kelley ruled that English failed to demonstrate a substantial likelihood that she would prevail on her claim that, as deputy director, she automatically succeeded Cordray pursuant to the Dodd-Frank Act.
Relief sought. In her amended complaint and motion, which are supported by a memorandum and affidavit, English generally seeks the same relief as previously demanded in her request for temporary restraining order. According to English, Mulvaney’s appointment by Trump violates the Dodd-Frank Act’s mandatory succession plan and independence requirement, as well as the Separation of Powers and the Appointments clause of the U.S. Constitution. English asserts that any actions undertaken by Mulvaney as Acting Director are therefore unlawful, and seeks to set aside these actions and compel action unlawfully withheld or unreasonably delayed pursuant to the Administrative Procedure Act. English also asserts she is entitled to declaratory and equitable relief.
Appointments Clause. While renewing the arguments proffered when seeking the temporary restraining order, English argues that under the Appointments Clause, the President has only two means of appointing officers—with the advice and consent of the Senate, or pursuant to a statute. English contends that “there is no clear statement in the FVRA that supplants the Dodd-Frank Act’s rule of succession.” Further, “the FVRA’s appointment provision does not apply by its own terms” but, even if it did apply, “it is overridden by mandatory language in Dodd-Frank.” As a result, there is no statutory basis for Mulvaney’s appointment and the appointment therefore violates the Appointments Clause.
Independence requirements. English additionally argues that even if the FVRA would apply to the CFPB Acting Director appointment, Mulvaney’s appointment is invalid because as CFPB Acting Director, Mulvaney would also be a member of the Federal Deposit Insurance Corporation Board pursuant to the Dodd-Frank Act. As a result, Mulvaney’s appointment not only undermines the CFPB’s independence from the Office of Management and Budget, but also defeats the intent of Congress to make the Federal Deposit Insurance Corporation independent from the OMB.
Briefing schedule, hearing. Defendants have until Dec. 18, 2017, to file their opposition to English’s motion. English must file a reply in support of her motion by Dec. 20, 2017. A hearing on the motion is scheduled for Dec. 22, 2017.
For more information about the Consumer Financial Protection Bureau, subscribe to the Banking and Finance Law Daily.
Monday, December 11, 2017
Friday, December 8, 2017
Credit Union sues to block Mulvaney from acting as CFPB director
By Katalina M. Bianco, J.D.
In response to President Trump’s designation of Mick Mulvaney as acting director of the Consumer Financial Protection Bureau, the Lower East Side People’s Federal Credit Union has filed a complaint seeking declaratory and injunctive relief barring this appointment and any other CFPB acting director appointment by the president absent Senate approval. The credit union filed its suit in the federal district court for the Southern District of New York, alleging violations of the Dodd-Frank Act and the U.S. Constitution, naming the President and Mulvaney as defendants.
The complaint alleges that "President Trump has attempted an illegal hostile takeover of the CFPB, throwing the Credit Union and other credit unions and banks into a state of regulatory chaos. Even worse, defendant Trump has purported to appoint an Acting Director whose mission is to destroy a Bureau that protects thousands of the Credit Union’s members."
The credit union contends that the Dodd-Frank Act calls for the deputy director of the CFPB to serve as acting director until the president appoints and the Senate confirms a new director, and this law, rather than the Federal Vacancies Reform Act (FVRA), under which Mulvaney was appointed, applies. According to the complaint, Leandra English, who was named deputy director by former CFPB director Richard Cordray, became the Bureau’s acting director when Cordray’s resignation took effect.
Violation of Dodd-Frank. The complaint cites Dodd-Frank as providing that the Bureau’s deputy director, who is "appointed by the Director," "shall serve as acting Director in the absence or unavailability of the Director" (12 U.S.C. § 5491(b)(5)). According to the credit union, this designation of the deputy director as the "acting Director" reflects Congress’s deliberate choice to depart from the default procedure for naming an acting official under the FVRA. The credit union points out that an early version of Dodd-Frank that passed the House of Representatives in December 2009 did not provide for a deputy drector, and instead explicitly stated that a temporary replacement for a director would be chosen "in the manner provided by" the FVRA. But the Senate bill, introduced and passed months later, contained the present statutory language.
In addition, the complaint continues, the president’s Vacancies Reform Act appointment powers "shall not apply" to any members of an independent multi-member board or commission (U.S.C. § 3349c(1)). The acting director of the CFPB is an automatic member of an independent multi-member board or commission—the Federal Deposit Insurance Corporation board (12 U.S.C. §§ 1812(a)(1)(B), 1812(d)(2)). Therefore, the credit union argues, the FVRA does not apply to the appointment of the Acting Director of the CFPB
The credit union further argues that, even if President Trump could appoint someone as CFPB acting director, he cannot appoint a White House employee "who serves at his whim and pleasure to run this independent agency. A major purpose of the Dodd-Frank Act was to create a CFPB independent of the President and insulated from political pressure. The purported Mulvaney appointment destroys CFPB independence altogether."
Violation of Constitution. The complaint also alleges a violation of Article II, Section 2, of the Constitution, which provides that the president must appoint all "officers of the United States" with "the advice and consent of the Senate." By appointing Mulvaney in the absence of any Congressional statute so authorizing, the credit union contends, President Trump violated constitutional principles of Separation of Powers and the Appointments Clause.
For more information about the battle over the CFPB acting director, subscribe to the Banking and Finance Law Daily.
In response to President Trump’s designation of Mick Mulvaney as acting director of the Consumer Financial Protection Bureau, the Lower East Side People’s Federal Credit Union has filed a complaint seeking declaratory and injunctive relief barring this appointment and any other CFPB acting director appointment by the president absent Senate approval. The credit union filed its suit in the federal district court for the Southern District of New York, alleging violations of the Dodd-Frank Act and the U.S. Constitution, naming the President and Mulvaney as defendants.
The complaint alleges that "President Trump has attempted an illegal hostile takeover of the CFPB, throwing the Credit Union and other credit unions and banks into a state of regulatory chaos. Even worse, defendant Trump has purported to appoint an Acting Director whose mission is to destroy a Bureau that protects thousands of the Credit Union’s members."
The credit union contends that the Dodd-Frank Act calls for the deputy director of the CFPB to serve as acting director until the president appoints and the Senate confirms a new director, and this law, rather than the Federal Vacancies Reform Act (FVRA), under which Mulvaney was appointed, applies. According to the complaint, Leandra English, who was named deputy director by former CFPB director Richard Cordray, became the Bureau’s acting director when Cordray’s resignation took effect.
Violation of Dodd-Frank. The complaint cites Dodd-Frank as providing that the Bureau’s deputy director, who is "appointed by the Director," "shall serve as acting Director in the absence or unavailability of the Director" (12 U.S.C. § 5491(b)(5)). According to the credit union, this designation of the deputy director as the "acting Director" reflects Congress’s deliberate choice to depart from the default procedure for naming an acting official under the FVRA. The credit union points out that an early version of Dodd-Frank that passed the House of Representatives in December 2009 did not provide for a deputy drector, and instead explicitly stated that a temporary replacement for a director would be chosen "in the manner provided by" the FVRA. But the Senate bill, introduced and passed months later, contained the present statutory language.
In addition, the complaint continues, the president’s Vacancies Reform Act appointment powers "shall not apply" to any members of an independent multi-member board or commission (U.S.C. § 3349c(1)). The acting director of the CFPB is an automatic member of an independent multi-member board or commission—the Federal Deposit Insurance Corporation board (12 U.S.C. §§ 1812(a)(1)(B), 1812(d)(2)). Therefore, the credit union argues, the FVRA does not apply to the appointment of the Acting Director of the CFPB
The credit union further argues that, even if President Trump could appoint someone as CFPB acting director, he cannot appoint a White House employee "who serves at his whim and pleasure to run this independent agency. A major purpose of the Dodd-Frank Act was to create a CFPB independent of the President and insulated from political pressure. The purported Mulvaney appointment destroys CFPB independence altogether."
Violation of Constitution. The complaint also alleges a violation of Article II, Section 2, of the Constitution, which provides that the president must appoint all "officers of the United States" with "the advice and consent of the Senate." By appointing Mulvaney in the absence of any Congressional statute so authorizing, the credit union contends, President Trump violated constitutional principles of Separation of Powers and the Appointments Clause.
For more information about the battle over the CFPB acting director, subscribe to the Banking and Finance Law Daily.
Tuesday, December 5, 2017
Joseph Otting comments on becoming 31st Comptroller of the Currency
By Thomas G. Wolfe, J.D.
Joseph Otting became the 31st Comptroller of the Currency, after being sworn into office by Treasury Secretary Steven T. Mnuchin on Nov. 27, 2017. Otting takes the helm at the Office of the Comptroller of the Currency in place of Keith Noreika, who had been serving as Acting Comptroller since May 2017 when Thomas J. Curry stepped down after completing his term as Comptroller. Commenting that it was an honor to have been nominated by President Donald Trump and confirmed by the Senate, Otting stated that he looks forward “to enhancing the value of national bank and federal savings association charters, reducing unnecessary burden, and promoting economic opportunity while maintaining the safety and soundness of the federal banking system.”
In his remarks after being sworn into office, Otting noted that “[j]ob creation and economic growth are part of the President’s agenda, and banks can support those goals by providing capital and financial services to the consumers, business, and communities they serve.” Otting commented that, based on his personal experience in the banking industry, he knows of “the challenges bankers face as they work to meet customer needs while coping with unnecessary regulatory burden that makes it more difficult and complicated than necessary.” Further, Otting said that “bankers support regulation, but effective regulation evolves with the changing needs of the nation and should be reviewed and modified as those needs change.”
Otting’s background. Otting, who worked for a number of regional banks during his career, most recently was managing partner of Ocean Blvd LLC and Lake Blvd LLC. While the White House observed that Otting previously served as President and CEO of OneWest Bank N.A. and as Vice Chairman of U.S. Bancorp., Otting’s nomination had been opposed by some Democrats, and some consumer groups, because One West Bank was the subject of a 2011 Office of Thrift Supervision enforcement order arising from its mortgage foreclosure practices. Further, according to Congresswoman Maxine Waters (D-Calif), when Otting was nominated as Comptroller of the Currency, One West Bank still was under investigation—stemming from the bank’s dealings with the Federal Housing Administration.
Otting holds a B.A. from the University of Northern Iowa and is a graduate of the School of Credit and Financial Management at Dartmouth College.
For more information about individuals in leadership positions at federal and state regulatory agencies monitoring the banking and financial services industry, subscribe to the Banking and Finance Law Daily.
Joseph Otting became the 31st Comptroller of the Currency, after being sworn into office by Treasury Secretary Steven T. Mnuchin on Nov. 27, 2017. Otting takes the helm at the Office of the Comptroller of the Currency in place of Keith Noreika, who had been serving as Acting Comptroller since May 2017 when Thomas J. Curry stepped down after completing his term as Comptroller. Commenting that it was an honor to have been nominated by President Donald Trump and confirmed by the Senate, Otting stated that he looks forward “to enhancing the value of national bank and federal savings association charters, reducing unnecessary burden, and promoting economic opportunity while maintaining the safety and soundness of the federal banking system.”
In his remarks after being sworn into office, Otting noted that “[j]ob creation and economic growth are part of the President’s agenda, and banks can support those goals by providing capital and financial services to the consumers, business, and communities they serve.” Otting commented that, based on his personal experience in the banking industry, he knows of “the challenges bankers face as they work to meet customer needs while coping with unnecessary regulatory burden that makes it more difficult and complicated than necessary.” Further, Otting said that “bankers support regulation, but effective regulation evolves with the changing needs of the nation and should be reviewed and modified as those needs change.”
Otting’s background. Otting, who worked for a number of regional banks during his career, most recently was managing partner of Ocean Blvd LLC and Lake Blvd LLC. While the White House observed that Otting previously served as President and CEO of OneWest Bank N.A. and as Vice Chairman of U.S. Bancorp., Otting’s nomination had been opposed by some Democrats, and some consumer groups, because One West Bank was the subject of a 2011 Office of Thrift Supervision enforcement order arising from its mortgage foreclosure practices. Further, according to Congresswoman Maxine Waters (D-Calif), when Otting was nominated as Comptroller of the Currency, One West Bank still was under investigation—stemming from the bank’s dealings with the Federal Housing Administration.
Otting holds a B.A. from the University of Northern Iowa and is a graduate of the School of Credit and Financial Management at Dartmouth College.
For more information about individuals in leadership positions at federal and state regulatory agencies monitoring the banking and financial services industry, subscribe to the Banking and Finance Law Daily.
Thursday, November 30, 2017
Noreika questions value of bank holding companies
By Andrew A. Turner, J.D.
“Bank holding companies may have outlived their practical business value in our financial system and may, in fact, be obsolete,” according to First Deputy Comptroller of the Currency Keith Noreika. While bank holding companies may continue to serve a purpose for large companies that conduct complex activities, he sees less value for more traditional banking firms.
Speaking before the American Enterprise Institute on the day of his resignation from government service after serving as Acting Comptroller until a permanent agency head was in place, Noreika said that the holding company structure is not necessary as a tool to manage systemic risk. Evolving regulatory changes have diminished the value of bank holding companies, while costs have increased with duplicative regulation, in his opinion.
Noreika gave the case of the Bank of the Ozarks as an example of why smaller banking companies are eliminating their holding companies. Bank of the Ozarks, a state non-member bank, merged its holding company into the bank citing benefits through consolidated governance and organizational structure.
Noting that for most bank holding companies, the bank usually makes up the vast majority of the company’s assets and activities, Noreika observed that “many community and regional banking organizations are realizing that the extra and duplicative costs of maintaining a holding company make little business and economic sense.” In addition to the trend limiting bank holding companies to activities that are financial in nature, he also pointed to costly prudential requirements under the Dodd-Frank Act as impediments to bank holding company flexibility.
Noreika contended that Congress could reduce regulatory redundancy by giving the regulator of the depository institution sole examination and enforcement authority when a depository institution constitutes a substantial portion of its holding company’s assets. Another suggested approach to the problem of multiple regulators would be to eliminate statutory impediments for firms that want to operate without a holding company, such as modernizing corporate governance requirements for national banks.
For more information about the regulation of bank holding companies, subscribe to the Banking and Finance Law Daily.
“Bank holding companies may have outlived their practical business value in our financial system and may, in fact, be obsolete,” according to First Deputy Comptroller of the Currency Keith Noreika. While bank holding companies may continue to serve a purpose for large companies that conduct complex activities, he sees less value for more traditional banking firms.
Speaking before the American Enterprise Institute on the day of his resignation from government service after serving as Acting Comptroller until a permanent agency head was in place, Noreika said that the holding company structure is not necessary as a tool to manage systemic risk. Evolving regulatory changes have diminished the value of bank holding companies, while costs have increased with duplicative regulation, in his opinion.
Noreika gave the case of the Bank of the Ozarks as an example of why smaller banking companies are eliminating their holding companies. Bank of the Ozarks, a state non-member bank, merged its holding company into the bank citing benefits through consolidated governance and organizational structure.
Noting that for most bank holding companies, the bank usually makes up the vast majority of the company’s assets and activities, Noreika observed that “many community and regional banking organizations are realizing that the extra and duplicative costs of maintaining a holding company make little business and economic sense.” In addition to the trend limiting bank holding companies to activities that are financial in nature, he also pointed to costly prudential requirements under the Dodd-Frank Act as impediments to bank holding company flexibility.
Noreika contended that Congress could reduce regulatory redundancy by giving the regulator of the depository institution sole examination and enforcement authority when a depository institution constitutes a substantial portion of its holding company’s assets. Another suggested approach to the problem of multiple regulators would be to eliminate statutory impediments for firms that want to operate without a holding company, such as modernizing corporate governance requirements for national banks.
For more information about the regulation of bank holding companies, subscribe to the Banking and Finance Law Daily.
Tuesday, November 28, 2017
Debt collectors can’t take over consumer’s fair debt collection suit
By Richard Roth, J.D.
The Fair Debt Collection Practices Act preempted debt collectors’ use of state execution procedures to eliminate their potential liability for FDCPA violations by levying on and selling the consumer’s cause of action, the U.S. Court of Appeals for the Ninth Circuit has determined. Using state execution laws in that way would frustrate the purposes of the FDCPA, the court said (Arellano v. Clark County Collection Service, LLC).
Clark County Collection Service and its law firm, Borg Law Group, secured a $793.39 state court default judgment against a consumer for an unpaid medical treatment bill. The consumer counterattacked by filing a federal court FDCPA suit, claiming that they had misled her by deadlines included in the complaint and summons. The complaint included the required FDCPA notice that the debt would be assumed to be valid if it was not disputed within 30 days, but the summons allowed only 20 days to file an answer to the suit, she said.
Clark County Collection and the Borg Law Group responded with what the court termed “a bold gambit.” They obtained a writ of execution from the state court that gave them the authority to levy on the consumer’s personal property to satisfy the default judgment. Using that authority, they levied on the FDCPA claim and, at a sheriff’s sale, bought the suit for $250. Then, claiming they now owned the suit, they convinced the federal judge to dismiss it.
Preemption. Federal law preempts state law if the state law erects an obstacle to the federal law’s ability to accomplish its purpose, the court pointed out. This is referred to as “conflict preemption.”
The purpose of the FDCPA is to protect consumers from abuse, harassment, and deceptive debt collection practices. The Act includes an express preemption section that says state debt collection practices that are inconsistent with the FDCPA are preempted to the extent of the inconsistency (15 U.S.C. §1692n).
It was irrelevant that the FDCPA includes no explicit provisions that address state execution laws, the court then said. Conflict preemption relies on the existence of an actual conflict, not an express claim of preemption. Using the state law execution procedure in this manner not only would eliminate the liability of the law firm and the debt collector, it actually would allow them to use the FDCPA to collect the debt. That clearly would thwart the purposes of the Act.
“[F]ederal law preempts a private party’s use of state execution procedures to acquire and destroy a debtor’s FDCPA claims against it,” the court explicitly said. As a result, Clark County Collection Service and Borg Law Group cannot assimilate the consumer’s FDCPA claim.
For more information about fair debt collection, subscribe to the Banking and Finance Law Daily.
The Fair Debt Collection Practices Act preempted debt collectors’ use of state execution procedures to eliminate their potential liability for FDCPA violations by levying on and selling the consumer’s cause of action, the U.S. Court of Appeals for the Ninth Circuit has determined. Using state execution laws in that way would frustrate the purposes of the FDCPA, the court said (Arellano v. Clark County Collection Service, LLC).
Clark County Collection Service and its law firm, Borg Law Group, secured a $793.39 state court default judgment against a consumer for an unpaid medical treatment bill. The consumer counterattacked by filing a federal court FDCPA suit, claiming that they had misled her by deadlines included in the complaint and summons. The complaint included the required FDCPA notice that the debt would be assumed to be valid if it was not disputed within 30 days, but the summons allowed only 20 days to file an answer to the suit, she said.
Clark County Collection and the Borg Law Group responded with what the court termed “a bold gambit.” They obtained a writ of execution from the state court that gave them the authority to levy on the consumer’s personal property to satisfy the default judgment. Using that authority, they levied on the FDCPA claim and, at a sheriff’s sale, bought the suit for $250. Then, claiming they now owned the suit, they convinced the federal judge to dismiss it.
Preemption. Federal law preempts state law if the state law erects an obstacle to the federal law’s ability to accomplish its purpose, the court pointed out. This is referred to as “conflict preemption.”
The purpose of the FDCPA is to protect consumers from abuse, harassment, and deceptive debt collection practices. The Act includes an express preemption section that says state debt collection practices that are inconsistent with the FDCPA are preempted to the extent of the inconsistency (15 U.S.C. §1692n).
It was irrelevant that the FDCPA includes no explicit provisions that address state execution laws, the court then said. Conflict preemption relies on the existence of an actual conflict, not an express claim of preemption. Using the state law execution procedure in this manner not only would eliminate the liability of the law firm and the debt collector, it actually would allow them to use the FDCPA to collect the debt. That clearly would thwart the purposes of the Act.
“[F]ederal law preempts a private party’s use of state execution procedures to acquire and destroy a debtor’s FDCPA claims against it,” the court explicitly said. As a result, Clark County Collection Service and Borg Law Group cannot assimilate the consumer’s FDCPA claim.
For more information about fair debt collection, subscribe to the Banking and Finance Law Daily.
Monday, November 27, 2017
CFPB orders Citibank to pay $6.5M for alleged student loan servicing failures
By J. Preston Carter, J.D., LL.M.
Charging Citibank, N.A., with deceiving student borrowers about tax benefits, incorrectly charging late fees and interest, and sending misleading monthly bills and incomplete notices, the Consumer Financial Protection Bureau has ordered the bank to end its allegedly illegal servicing practices and pay $3.75 million in redress to consumers and a $2.75 million civil money penalty. Citibank consented to the order without admitting or denying the Bureau’s findings.
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” said CFPB Director Richard Cordray. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Loan servicing. For years, Citibank, based in Sioux Falls, S.D., has made private student loans to consumers and also serviced the loans. As a loan servicer, Citibank manages and collects payments and provides customer service for borrowers. The bank also provides borrowers with periodic account statements and supplies year-end tax information. It also keeps track of the borrower’s in-school enrollment status and is responsible for granting and maintaining deferments when appropriate.
For the student loan accounts that Citibank was servicing, the Bureau found that Citibank misrepresented important information on borrowers’ eligibility for a valuable tax deduction, failed to refund interest and late fees it erroneously charged, overstated monthly minimum payment amounts in monthly bills, and sent faulty notices after denying borrowers’ requests to release a loan cosigner.
The Dodd-Frank Act grants authority to the CFPB to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices.
Restitution. The CFPB’s order requires Citibank to:
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” said CFPB Director Richard Cordray. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Loan servicing. For years, Citibank, based in Sioux Falls, S.D., has made private student loans to consumers and also serviced the loans. As a loan servicer, Citibank manages and collects payments and provides customer service for borrowers. The bank also provides borrowers with periodic account statements and supplies year-end tax information. It also keeps track of the borrower’s in-school enrollment status and is responsible for granting and maintaining deferments when appropriate.
For the student loan accounts that Citibank was servicing, the Bureau found that Citibank misrepresented important information on borrowers’ eligibility for a valuable tax deduction, failed to refund interest and late fees it erroneously charged, overstated monthly minimum payment amounts in monthly bills, and sent faulty notices after denying borrowers’ requests to release a loan cosigner.
The Dodd-Frank Act grants authority to the CFPB to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices.
Restitution. The CFPB’s order requires Citibank to:
Charging Citibank, N.A., with deceiving student borrowers about tax benefits, incorrectly charging late fees and interest, and sending misleading monthly bills and incomplete notices, the Consumer Financial Protection Bureau has ordered the bank to end its allegedly illegal servicing practices and pay $3.75 million in redress to consumers and a $2.75 million civil money penalty. Citibank consented to the order without admitting or denying the Bureau’s findings.
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” said CFPB Director Richard Cordray. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Loan servicing. For years, Citibank, based in Sioux Falls, S.D., has made private student loans to consumers and also serviced the loans. As a loan servicer, Citibank manages and collects payments and provides customer service for borrowers. The bank also provides borrowers with periodic account statements and supplies year-end tax information. It also keeps track of the borrower’s in-school enrollment status and is responsible for granting and maintaining deferments when appropriate.
For the student loan accounts that Citibank was servicing, the Bureau found that Citibank misrepresented important information on borrowers’ eligibility for a valuable tax deduction, failed to refund interest and late fees it erroneously charged, overstated monthly minimum payment amounts in monthly bills, and sent faulty notices after denying borrowers’ requests to release a loan cosigner.
The Dodd-Frank Act grants authority to the CFPB to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices.
Restitution. The CFPB’s order requires Citibank to:
- pay $3.75 million in restitution to harmed consumers who were charged erroneous interest or late fees, paid an overstated minimum monthly payment, or received inadequate notices as a result of Citibank’s faulty servicing;
- provide accurate information regarding student loan interest paid, implement a policy to reverse erroneously assessed interest or late fees, and provide borrowers who were denied a cosigner release with their credit scores, the phone number of the credit reporting agency that generated the credit report, and disclosure language confirming that the credit reporting agency did not make the decline decision; and
- pay a $2.75 million penalty to the CFPB’s Civil Penalty Fund.
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” said CFPB Director Richard Cordray. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Loan servicing. For years, Citibank, based in Sioux Falls, S.D., has made private student loans to consumers and also serviced the loans. As a loan servicer, Citibank manages and collects payments and provides customer service for borrowers. The bank also provides borrowers with periodic account statements and supplies year-end tax information. It also keeps track of the borrower’s in-school enrollment status and is responsible for granting and maintaining deferments when appropriate.
For the student loan accounts that Citibank was servicing, the Bureau found that Citibank misrepresented important information on borrowers’ eligibility for a valuable tax deduction, failed to refund interest and late fees it erroneously charged, overstated monthly minimum payment amounts in monthly bills, and sent faulty notices after denying borrowers’ requests to release a loan cosigner.
The Dodd-Frank Act grants authority to the CFPB to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices.
Restitution. The CFPB’s order requires Citibank to:
- pay $3.75 million in restitution to harmed consumers who were charged erroneous interest or late fees, paid an overstated minimum monthly payment, or received inadequate notices as a result of Citibank’s faulty servicing;
- provide accurate information regarding student loan interest paid, implement a policy to reverse erroneously assessed interest or late fees, and provide borrowers who were denied a cosigner release with their credit scores, the phone number of the credit reporting agency that generated the credit report, and disclosure language confirming that the credit reporting agency did not make the decline decision; and
- pay a $2.75 million penalty to the CFPB’s Civil Penalty Fund.
Tuesday, November 21, 2017
Court rejects bank's, bankers association's 'FAST Act' lawsuit challenging reduced dividends
By Thomas G. Wolfe, J.D.
The U.S. Court of Federal Claims recently dismissed the proposed class-action lawsuit brought by a national bank, Washington Federal, N.A., and the American Bankers Association (ABA) against the United States government challenging the funding of the 2015 Fixing America’s Surface Transportation (FAST) Act. As part of legislation to fund the FAST Act, the Federal Reserve Act was amended, bringing about a reduction of the historic, statutory 6-percent dividend paid to certain member banks on their Federal Reserve stock.
In American Bankers Association v. United States, the federal court first determined that, as a threshold matter, the ABA lacked jurisdictional standing in the case. Next, the court determined that Washington Federal and other similarly situated national banks had no contractual or statutory entitlement to a dividend at any specific rate nor a property interest in which to assert a “Taking Clause” claim under the Fifth Amendment to the U.S. Constitution. According to the court, “the remedy for the understandable grievances alleged in this case lies within the exclusive jurisdiction of the Congress.”
In 2015, Congress enacted the FAST Act to provide $2.7 billion over five years for “national transportation infrastructure,” and the funding efforts included the Federal Reserve Act amendment. The ABA and Washington Federal contended that the 6-percent annual dividend had been guaranteed to member bank stockholders “since the Federal Reserve Act was enacted in 1913, and it is memorialized in contracts between the Federal Reserve Banks and their member bank stockholders.” Among other things, the ABA’s and Washington Federal’s amended complaint alleged that a valid contract existed between the federal government and member banks for the banks to receive the expected 6-percent dividends.
In response, in May 2017, the government asked the U.S. Court of Federal Claims to dismiss the amended complaint, maintaining that there was no express or implied contract between the parties and that there was no “compensable taking” of any cognizable property right in a specified dividend rate.
ABA lacks standing. Noting its jurisdiction in the case under the Tucker Act, the Court of Federal Claims outlined the necessary showing by the plaintiffs to demonstrate that the source of substantive law on which they relied could be fairly interpreted as “mandating compensation by the Federal Government.” While Washington Federal met the standard for establishing standing in the case, the ABA did not, the court decided.
Although the ABA had alleged that 66 member banks had a contract with the Federal Reserve Bank, the court noted that each “owns a different amount of Federal Reserve Bank stock and experienced different amounts of monetary loss, as a result of the implementation of the FAST Act.” The ABA argued that individualized proof was not needed because each member bank “had an equal reduction in dividend receipts.” While the court recognized that the net decrease in dividend receipts differed because each ABA member purchased a different amount of stock when it joined the Federal Reserve System, the court emphasized that the amended complaint did not allege the ABA suffered individual monetary injury nor did it allege that any member bank assigned to the ABA a right to recover damages on its behalf.
Court’s decision. The court observed that the parties to the litigation spent much of their time arguing about whether Washington Federal had a contractual relationship with the Federal Reserve Bank and, if so, whether Congress could change the terms of that contract by legislation. However, from the court’s perspective, the parties “overlooked the dispositive fact” that a particular section of the Federal Reserve Act provides that “the right to amend, alter, or repeal this act is hereby expressly reserved.” According to the court, the Federal Reserve Act “conferred no right to Washington Federal or any other holder of Federal Reserve Bank stock to receive a dividend at any rate certain that Congress could not amend, change, or even eliminate.”
Moreover, the Federal Reserve Act did not convey a contractual or statutory right to a 6-percent dividend, the court stressed. If Washington Federal did not have a right to a 6-percent dividend, then the bank could not be viewed as having a “property interest” in a 6-percent dividend rate as well. At most, Washington Federal had “only a mere unilateral expectation” of a 6-percent dividend, the court determined. Further, the court pointed out that Federal Reserve Bank stock could not be sold or transferred and that the U.S. Court of Appeals for the Federal Circuit has considered that facet as an important factor in determining whether a property right is present.
Further, based on its analysis of Washington Federal’s lack of a contractual right, statutory right, or property interest in an annual 6-percent dividend, the court had little trouble also determining that the bank did not have any recognizable interest in the dividend that could form a viable claim under the “Taking Clause” of the Fifth Amendment to the Constitution.
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The U.S. Court of Federal Claims recently dismissed the proposed class-action lawsuit brought by a national bank, Washington Federal, N.A., and the American Bankers Association (ABA) against the United States government challenging the funding of the 2015 Fixing America’s Surface Transportation (FAST) Act. As part of legislation to fund the FAST Act, the Federal Reserve Act was amended, bringing about a reduction of the historic, statutory 6-percent dividend paid to certain member banks on their Federal Reserve stock.
In American Bankers Association v. United States, the federal court first determined that, as a threshold matter, the ABA lacked jurisdictional standing in the case. Next, the court determined that Washington Federal and other similarly situated national banks had no contractual or statutory entitlement to a dividend at any specific rate nor a property interest in which to assert a “Taking Clause” claim under the Fifth Amendment to the U.S. Constitution. According to the court, “the remedy for the understandable grievances alleged in this case lies within the exclusive jurisdiction of the Congress.”
In 2015, Congress enacted the FAST Act to provide $2.7 billion over five years for “national transportation infrastructure,” and the funding efforts included the Federal Reserve Act amendment. The ABA and Washington Federal contended that the 6-percent annual dividend had been guaranteed to member bank stockholders “since the Federal Reserve Act was enacted in 1913, and it is memorialized in contracts between the Federal Reserve Banks and their member bank stockholders.” Among other things, the ABA’s and Washington Federal’s amended complaint alleged that a valid contract existed between the federal government and member banks for the banks to receive the expected 6-percent dividends.
In response, in May 2017, the government asked the U.S. Court of Federal Claims to dismiss the amended complaint, maintaining that there was no express or implied contract between the parties and that there was no “compensable taking” of any cognizable property right in a specified dividend rate.
ABA lacks standing. Noting its jurisdiction in the case under the Tucker Act, the Court of Federal Claims outlined the necessary showing by the plaintiffs to demonstrate that the source of substantive law on which they relied could be fairly interpreted as “mandating compensation by the Federal Government.” While Washington Federal met the standard for establishing standing in the case, the ABA did not, the court decided.
Although the ABA had alleged that 66 member banks had a contract with the Federal Reserve Bank, the court noted that each “owns a different amount of Federal Reserve Bank stock and experienced different amounts of monetary loss, as a result of the implementation of the FAST Act.” The ABA argued that individualized proof was not needed because each member bank “had an equal reduction in dividend receipts.” While the court recognized that the net decrease in dividend receipts differed because each ABA member purchased a different amount of stock when it joined the Federal Reserve System, the court emphasized that the amended complaint did not allege the ABA suffered individual monetary injury nor did it allege that any member bank assigned to the ABA a right to recover damages on its behalf.
Court’s decision. The court observed that the parties to the litigation spent much of their time arguing about whether Washington Federal had a contractual relationship with the Federal Reserve Bank and, if so, whether Congress could change the terms of that contract by legislation. However, from the court’s perspective, the parties “overlooked the dispositive fact” that a particular section of the Federal Reserve Act provides that “the right to amend, alter, or repeal this act is hereby expressly reserved.” According to the court, the Federal Reserve Act “conferred no right to Washington Federal or any other holder of Federal Reserve Bank stock to receive a dividend at any rate certain that Congress could not amend, change, or even eliminate.”
Moreover, the Federal Reserve Act did not convey a contractual or statutory right to a 6-percent dividend, the court stressed. If Washington Federal did not have a right to a 6-percent dividend, then the bank could not be viewed as having a “property interest” in a 6-percent dividend rate as well. At most, Washington Federal had “only a mere unilateral expectation” of a 6-percent dividend, the court determined. Further, the court pointed out that Federal Reserve Bank stock could not be sold or transferred and that the U.S. Court of Appeals for the Federal Circuit has considered that facet as an important factor in determining whether a property right is present.
Further, based on its analysis of Washington Federal’s lack of a contractual right, statutory right, or property interest in an annual 6-percent dividend, the court had little trouble also determining that the bank did not have any recognizable interest in the dividend that could form a viable claim under the “Taking Clause” of the Fifth Amendment to the Constitution.
For more information about litigation affecting the banking industry, subscribe to the Banking and Finance Law Daily.
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