9th Circuit Holds that FAA Preempts Broughton-Cruz Rule
In its first post-Concepcion case involving the enforceability of arbitration clauses, the U.S. Court of Appeals for the Ninth Circuit reversed the district court's denial of the plaintiffs' motion to compel arbitration, holding that the Federal Arbitration Act (FAA) preempts California's exemption of public injunctive relief for arbitration.
In Kilgore v. KeyBank, the plaintiffs brought a putative class action against KeyBank and other defendants for violations of California's Unfair Competition Law (UCL) in connection with private student loans extended to plaintiffs for flight instruction at Silver State Helicopters, LLC (SSH), a private helicopter vocational school. The Plaintiffs filed suit against KeyBank after SSH closed its doors and filed for bankruptcy, leaving plaintiffs without a diploma, certificate, or other accreditation for their training.
Plaintiffs and each putative class member borrowed between $50,000 and $60,000 from KeyBank and signed loan contracts which contained an arbitration clause informing plaintiffs that they could opt out of the clause and if they did not, that they would waive their rights to litigate any claim in court and proceed with any claim on a class basis. The Notes also contained several conspicuous statements warning plaintiffs of the consequences of signing the agreement and cautioning them to read it thoroughly.
Continue Reading..."No Conflict Exists" Approach to FCRA Preemption Continues in California
The "no conflict exists" approach to reconciling sections 15 U.S.C. § 1681t(b)(1)(F) and §1681h(e) of the Fair Credit Reporting Act adopted by the Seventh Circuit in Purcell v. Bank of America and the Second Circuit in Macpherson v. JP Morgan Chase Bank continues as the emerging trend in federal preemption analysis under the FCRA.
In El-Aheidab v. Citibank, the plaintiff filed suit in California Superior Court alleging causes of action for negligence and statutory violations of Section 17200 of the California Business & Professions Code and Section 1785.25 of the California Civil Code.
Specifically, plaintiff alleged that defendant Citibank wrongfully reported to credit reporting agencies that he owed an outstanding loan balance, even though no such balance was in fact owed, which ruined plaintiff's credit and prevented him from purchasing a home at favorable terms. Defendant Citibank removed the action to federal court and then moved to dismiss plaintiff's complaint on the basis that plaintiff's statutory and common law claims were preempted by the FCRA.
Continue Reading...California Courts Narrowly Construe Concepcion
Nine months now have passed since the U.S. Supreme Court’s landmark decision in AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, 179 L.Ed.2d 742. Concepcion held that section 2 of the Federal Arbitration Act (“FAA”) preempts California’s so-called “Discover Bank rule,” under which certain class arbitration waivers in consumer contracts were unenforceable as unconscionable. Since the decision, California courts have grappled with the scope of Concepcion’s holding. Several decisions considering trial court orders denying arbitration based on the unconscionability of a class action waiver have affirmed those decisions on other grounds, and thus avoided addressing the Concepcion issue.
Those decisions that have squarely addressed Concepcion have interpreted it narrowly. Not a single California appellate case decided since Concepcion has involved an application of Concepcion’s holding to find that an arbitration provision containing a class action waiver was valid and enforceable. Meanwhile, more than one federal district court has now held that an arbitration agreement with a class action waiver was enforceable under Concepcion. (See Blau v. AT&T Mobility (N.D. Cal. Jan. 3, 2012) No. C 11–00541 CRB, 2012 WL 10546; Estrella v. Freedom Financial (N.D. Cal. July 5, 2011) No. C 09–03156 SI, 2011 WL 2633643.)
Continue Reading...2nd Circuit Follows 7th Circuit on FCRA Preemption
The Second Circuit Court of Appeals is the latest court to weigh in on the issue of federal preemption under the Fair Credit Reporting Act. The Second Circuit’s decision in Macpherson v. JP Morgan Chase Bank comes on the heels of the Seventh Circuit’s opinion in Purcell v. Bank of America, which upheld significant federal preemption under the Fair Credit Reporting Act.
In Macpherson, the plaintiff filed suit in Connecticut state court alleging that defendant JP Morgan Chase furnished false information about his finances to a consumer credit reporting agency which caused a reduction of his credit score. Defendant removed the case to federal court and then moved to dismiss on the basis that the plaintiff’s claims were preempted by the FCRA. The district court agreed with defendant and found that the plaintiff’s claims were preempted by § 1681t(b)(1)(F). The plaintiff appealed.
Continue Reading...CFPB Proposes Simplified Card Agreement
The Consumer Financial Protection Bureau this week proposed a sample simplified credit card agreement template. CFPB's stated goal is to make credit card agreements short, clear, consumer-friendly, and consistent. The proposed template contains references to key terms, defined in a separate list. CFPB seeks public comment on the proposed template, and refers the public to its card agreement database for a comparison of current card agreements. CFPB is testing the proposed template with the Pentagon Federal Credit Union.
The proposed template credit card agreement is part of CFPB’s Know Before You Owe campaign, which has also included proposed reforms related to disclosures for mortgages and student loans.
Court Rejects Citi Settlement with S.E.C.
The U.S. district court for the Southern District of New York last week rejected a $285 million proposed settlement between the Securities & Exchange Commission and Citigroup Global Markets. The case involves a $1 billion mortgage debt deal that Citigroup sold in early 2007. The S.E.C. alleged that Citigroup’s marketing materials materially mislead investors by failing to disclose that Citigroup “exercised significant influence” over the selection of assets and retained short positions in the assets it helped to select.
In the proposed deal, the parties agreed to a consent judgment with no admissions of fact or liability, and included Citigroup’s payment of $285 million dollars to the S.E.C. The payment consisted of the return of the $160 million Citigroup profited from the 2007 deal, $30 million of interest, and a $95 million civil penalty. As part of the settlement, Citigroup also consented to injunctive relief enforced by the Court for the next three (3) years.
Continue Reading...CFPB Releases Its First Consumer Response Report
The Consumer Financial Protection Bureau this week released its first Consumer Response Report, detailing consumer complaints regarding credit cards over the first three months of the CFPB's system for Consumer Response.
The Report makes three observations related to the initial credit card complaint data:
- "Consumer Confusion: Many complaints show consumers struggling to understand the terms of credit cards and associated products like debt protection services. These complaints show a mismatch between consumer expectations and the way the product functions.
- Third-Party Fraud: The complaints show some alleged fraudulent credit card charges made by third parties. The CFPB has helped to obtain redress for defrauded consumers in these instances. In some cases, the Bureau has consulted with the appropriate criminal authorities.
- Factual Disputes: There are a large volume of complaints presenting factual disputes between consumer and issuer. The Bureau has generally found that issuers have been willing to resolve these complaints."
The CFPB also released its Proposed Policy Statement on the Disclosure of Certain Credit Card Complaint Data.
U.S. Supreme Court Admonishes Courts to Enforce Arbitration
In a pointed per curiam opinion, the United States Supreme Court recently reiterated that both state and federal courts must apply the "emphatic federal policy in favor of arbitral dispute resolution." State courts "have a prominent role to play as the enforcers of agreements to arbitrate."
In KPMG LLP v. Cocchi, the Court held that when a party moves to compel arbitration, "state and federal courts must examine with care the complaints seeking to invoke their jurisdiction in order to separate arbitrable from nonarbitrable claims. A court may not issue a blanket refusal to compel arbitration merely on the grounds that some of the claims could be resolved by the court without arbitration." In this respect, the FAA "leaves no place for the exercise of discretion.. ."
Continue Reading...Court of Appeal Rejects UCL Action Based on Alleged TISA Violation
In Rose v. Bank of America, N.A. (2nd App. Dist., No. B230859, Nov. 21, 2011), the California Court of Appeal held that California's Unfair Competition Law (Bus. & Prof. Code §§ 17200, et seq., “UCL”) cannot be used to redress violations of the federal Truth in Savings Act (12 U.S.C. §§ 4301, et seq., “TISA”). Although TISA originally included a “private attorney general” provision allowing private plaintiffs to sue banks for alleged TISA violations, a sunset clause repealed the private right of action in 2001.
The Rose plaintiffs alleged that Bank of America failed to properly notify them of increased fees on their deposit accounts, in violation of TISA. They brought a single cause of action under the UCL, alleging unlawful and unfair business practices arising out of the alleged TISA violations. The trial court sustained Bank of America’s demurrer to the complaint, holding that Congress intended to bar a TISA private action and that the UCL cannot be used to plead around an absolute bar to relief. Plaintiff appealed.
7th Circuit Weighs in on FCRA Preemption
The Seventh Circuit Court of Appeals issued an opinion this month upholding significant federal preemption under the Fair Credit Reporting Act. In Purcell v. Bank of America, the Court held that 15 U.S.C. 1681t(b)(1)(F) does not conflict with 15 U.S.C. 1681h(e) and therefore FCRA preempts all state law causes of action, whether based on statute or common law.
In Purcell, plaintiff filed a complaint in Indiana state court alleging that defendant Bank of America incorrectly reported that she was behind on loan payments. Defendant removed the case to federal court, then moved to dismiss. The district court held that plaintiff had no private right of action under 15 U.S.C. 1681s-2(a) and that plaintiff had not properly stated a cause of action under 15 U.S.C. 1681-2(b). Among other things, the district court rejected defendant's argument that 15 U.S.C. 1681t(b)(1)(F) preempts both statutory and common law claims arising out of credit reporting, and instead applied the statutory approach to FCRA preemption. Defendant appealed.
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