Court of Appeal Defines Limits of Demurrer for False Advertising Claims Under the UCL and CLRA

In Chapman v. Skype, Inc., the 2nd District California Court of Appeal revived a false advertising claim previously dismissed on demurrer, and defined the limited scope of demurrer for false advertising claims brought under California's Unfair Competition Law (Bus. & Prof. Code §§ 17200 and 17500, et seq., “UCL”) as well as California's Consumer Legal Remedies Act ("CLRA") (Civ. Code §1750 et seq.).

In Chapman, plaintiff alleged that defendant Skype falsely advertised "Unlimited Calling" plans that were actually limited, by terms linked through a footnote. Plaintiff filed a putative class action complaint, alleging six causes of action: (1) unjust enrichment; (2) negligent misrepresentation; (3) intentional misrepresentation; (4) violation of the UCL; (5) violation of the false advertising law; and (6) violation of the CLRA.  Defendant demurred to the complaint, and the trial court sustained the demurrer with leave to amend, holding that the term “Unlimited” was qualified by the footnote on the same Internet page and that Chapman had failed to allege justifiable reliance. Plaintiff filed an amended complaint, defendant again demurred, and the trial court sustained the demurrer, dismissing plaintiff's claims.  Plaintiff appealed.

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California Supreme Court Revives UCL Claims Based on TISA

In Rose v. Bank of America, the California Supreme Court revived plaintiff's claims of unlawful business practices under California's Unfair Competition Law (Bus. & Prof. Code §§ 17200, et seq., “UCL”) premised on alleged violations of the Truth in Savings Act (12 U.S.C. §§ 4301, et seq., “TISA”), even though Congress repealed the private right of action for TISA claims in 2001.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.  The Court of Appeal affirmed the trial court, stating that Congress’ express repeal of a private right of action to enforce TISA precludes an indirect suit through the UCL. 

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Court of Appeal Reverses Denial of Class Certification Based on Rees-Levering

 In Ramirez v. Balboa Thrift and Loan, the 4th District Court of Appeal reversed the trial court's denial of plaintiff's class certification motion, holding the trial court based its ruling on an inaccurate interpretation of Rees-Levering.

In Ramirez, plaintiff purchased a car with financing assigned to defendant Balboa, defaulted on payments and surrendered the car.  Balboa sent plaintiff a "Notice of Intention to Dispose of Motor Vehicle" (NOI).  Plaintiff did not seek to reinstate the loan, but later sent a $25 payment.  Balboa wrote off the loan and reported the account as charged off on plaintiff's credit report.  Plaintiff filed a putative class action alleging a 17200 cause of action based on alleged violations of Rees-Levering. Specifically, plaintiff alleged that Balboa's NOI violated section 2983.2(a)(2) of Rees-Levering because it did not contain the specific "conditions precedent" to reinstatement of the loan.

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Ninth Circuit Affirms Dismissal of Putative Class Action

In Davis v. HSBC Bank Nevada, N.A., et al., the Ninth Circuit Court of Appeals affirmed the trial court’s dismissal of plaintiff’s putative class action alleging that HSBC Bank and Best Buy Stores, L.P. defrauded California customers by failing to disclose an annual fee imposed on customer’s credit card accounts.

Plaintiff enrolled in a “Reward Zone Program” with Best Buy and applied for an accompanying “Reward Zone Program Mastercard” online, in response to a newspaper advertisement stating that applicants would receive $25 worth of reward certificates with their first purchase using the card.  In the process of applying for the card online, plaintiff read webpages entitled “Program Rules” and “FAQs,” neither of which mentioned an annual fee for using the card.  Plaintiff also clicked through but did not read other pages, which detailed important disclosures of credit terms and conditions, and checked a box indicating that he agreed to the important terms and conditions of the rewards card.  The trial court dismissed plaintiff’s complaint because the terms and conditions information disclosed the imposition of an annual fee for use of the card.

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Court of Appeal Interprets Knapp v. AT&T

 In Tucker v. Pacific Bell Mobile Services, the First District California Court of Appeal affirmed the trial court’s order sustaining defendants’ demurrer to name-plaintiff’s class action complaint.  Specifically, relying on Knapp v. AT&T Wireless Services, Inc., the Court held that the trial court properly found that the name plaintiff could not establish community of interest among class members, and it was not an error to effectively deny class certification at the pleading stage. 

However, the Court also concluded that plaintiff’s Business & Professions Code section 17200 (“UCL”) claims for equitable relief should have survived demurrer and remanded the UCL causes of action -- to the extent they sought injunctive relief – back to the trial court for determination of whether the UCL claims for equitable relief were appropriate for class treatment.

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California Supreme Court Holds NBA Preempts 1748.9

In Parks v. MBNA America Bank, N.A., the California Supreme Court held that the National Bank Act (NBA) preempts California Civil Code section 1748.9, which requires that credit card issuers make certain disclosures on so-called convenience checks.

In Parks, plaintiff sued MBNA in a putative class action alleging a violation of California's unfair competition law, Bus. and Prof. Code section 17200 et seq., because it had failed to make the disclosures required by section 1748.9 on convenience checks tied to his credit card.  MBNA renewed a Motion for Judgment on the Pleadings after the Ninth Circuit decided Rose v. Chase Bank USA, N.A., which held that the NBA and former regulation 12 C.F.R. 7.4008(d) preempt section 1748.9.  The Superior Court granted MBNA's renewed Motion for Judgment on the Pleadings.

The Court of Appeal reversed, holding that the NBA does not preempt section 1748.9 because it does not significantly impair the power of national banks.  The Court of Appeal also held that "national banks claiming preemption must make a factual showing that the disclosure requirement significantly impairs the exercise of the relevant power or powers."  The California Supreme Court granted review.

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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.

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CFPB Proposes Scope of Non-Bank Supervision

The new Consumer Financial Protection Bureau has issued a Notice and Request for Comment on the proposed scope of its Dodd-Frank supervisory authority for certain non-depository institutions. The CFPB's Notice outlines potential criteria for defining the scope of this supervisory authority and  identifies six potential other markets that CFPB may supervise: (1) debt collection; (2) consumer reporting; (3) consumer credit and related activities; (4) money transmitting; (5) check cashing and related activities; (6) prepaid cards; and (7) debt relief services.

Section 1024 of Dodd-Frank grants supervisory authority to the CFPB for "covered persons" in the residential mortgage, private education lending, and payday lending markets. In other markets, CFPB would have supervisory authority only over a "larger participant."  Dodd-Frank assigned CFPB the task of issuing a rule on or before July 21, 2012, to identify these other markets and to define "larger participant."

CFPB seeks public comment on the criteria and threshold to define a "larger participant" and on the data to be used in measuring these criteria. CFPB also seeks public comment on the consideration of whether the six "other markets" should be included in the initial rule and/or whether additional markets should be included. 

Here Comes the Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau has a new website, and is making significant personnel additions, creating its internal structure, and otherwise preparing for the commencement of its official authority in July.  The CFPB is also blogging, tweeting, facebooking, youtubing, and hiring.

Among many other things, the CFPB's website defines the scope of its "Core Functions" as follows:

* Conduct rule-making, supervision, and enforcement for Federal consumer financial protection laws;
* Restrict unfair, deceptive, or abusive acts or practices;
* Create a center to take consumer complaints;
* Promote financial education;
* Research consumer behavior;
* Monitor financial markets for new risks to consumers; and
* Enforce laws that outlaw discrimination and other unfair treatment in consumer finance.

In December, the U.S. Treasury announced the creation of a new Consumer Inquiry and Complaint database, to be maintained by the CFPB, to track, collect, analyze, and refer consumer inquiries and complaints about consumer financial products and services, scheduled to take effect today.  The CFPB has also announced the creation of a future Consumer Response Center to receive consumer complaints and inquiries related to consumer financial services.

(Still) Tracking Financial Regulatory Reform

As the scope and content of the Dodd-Frank Wall Street Reform and Consumer Protection Act is shaped in the regulatory process, follow the latest developments on the Federal Reserve's website tracking financial regulatory reform.  The Fed is publicly reporting on meetings will taking place between the Board and the public--representatives of bank organizations, consumer groups, trade associations, researchers and academics on regulatory reform issues, including systemic risk, derivatives trading, interchange fees, and consumer financial protection, and related proposals for comment.

The Fed is also reporting on current and future milestones in the regulatory process.  Among other significant events, the Fed, OTS, Office of the Comptroller of the Currency, and FDIC will issue a joint report to Congress and the Inspectors General of the participating agencies on the agencies' plans to implement the transfer of OTS authorities by March 2011.

"Wall Street Reform and Consumer Protection Act" Is Now Law

President Obama today signed the "Wall Street Reform and Consumer Protection Act," which will bring comprehensive changes to consumer financial services, and to consumer finance litigation, including mortgages, credit cards, retail credit, debt collection, arbitration, preemption, and auto finance.  See details about the changes coming, as seen by the White House, and the President's signing remarks.

Financial Regulatory Reform is (Almost) a Done Deal

The U.S. Senate voted 60-39 yesterday to pass the Wall Street Reform and Consumer Protection Act, which the White House says President Obama will sign into law next week.  While consumer finance attorneys digest the massive changes coming with this comprehensive bill (in mortgages, credit cards, retail credit, debt collection, arbitration, preemption, and auto finance), the scope of the changes will likely depend on the implementing regulations, and how these regulations are interpreted by Courts.

A few things are clear now.  First, the OTS is fading away.  Second, consumer arbitration may be too.  Third, federal preemption is likely to be more difficult to obtain in consumer finance litigation.

Conference Reaches Deal on Financial Regulatory Reform

The House-Senate Conference to reconcile financial regulatory reform reached a final agreement on the legislation on Friday.  The "Dodd-Frank Wall Street Reform and Consumer Protection Act" calls for the creation of the Consumer Financial Protection Bureau, an independent agency to be housed at the Federal Reserve, with a broad mandate to regulate consumer financial services of virtually all types.

The Consumer Financial Protection Bureau will have an independent director appointed by the President and confirmed by the Senate, with an independent budget and independent rule writing, examination, and enforcement authority.  The CFPB consolidates consumer protection responsibilities of the OCC, OTS, FDIC, Federal Reserve, NCUA, HUD, and the FTC.  Among other things, the legislation also creates a new Office of Financial Literacy to disseminate information to consumers and a new consumer hotline for consumer questions.

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Tracking the Conference on Financial Regulatory Reform

The House-Senate Conference to reconcile financial regulatory reform legislation begins today.  Track the conference with the House Financial Services Committee or the Senate Banking Committee.  The hearing also will be broadcast live on C-SPAN and webcast live at the House Financial Services Committee site.

Senate Banking Committee Unveils Financial Reform Plan

The Senate Banking Committee unveiled its version of financial regulatory reform yesterday, including issuing a summary of highlights of the bill as well as the proposed bill.  The 1336-page bill differs in substantial respects from the House version passed in December

Most significantly with regard to consumer finance regulation, the Senate version does not include an independent Consumer Financial Protection Agency, but would house that function at the Federal Reserve.  Specifically, Title X of the Senate Version calls for the creation of a "Consumer Financial Protection Bureau" to operate independently within the Federal Reserve.

House Passes Consumer Financial Protection Agency Act

On December 11, 2009, the U.S. House of Representatives passed the “Wall Street Reform and Consumer Protection Act of 2009,” H.R. 4173. This sweeping legislation—a combination of several bills, including a modified version of the Consumer Financial Protection Agency Act, formerly HR 3126—includes broad new regulation of derivatives, executive compensation, systemic risk, investor rights, mortgages, credit-rating agencies, hedge funds and private equity, insurance, and consumer financial protection.

Title IV of the Act (sections 4001 – 4901) provides for the creation of a Consumer Financial Protection Agency (section 4101 – 4703), a new, independent federal agency to oversee virtually every aspect of consumer financial services, including mortgages, credit cards, debit cards, car loans, gift cards, credit reporting agencies, debt collectors, and financial advisers. Certain merchants, such as auto dealers and pawnbrokers, would be exempted.

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Financial Regulatory Reform Moves Out of Committee

The House Financial Services Committee on Thursday voted to approve the Consumer Financial Protection Agency Act, HR 3126. 

The legislation is changing in significant ways as it moves through the legislative process.  Among the revisions from the administration's original plan, the Committee's approved version would vest authority over the proposed Consumer Financial Protection Agency in a single director, as opposed to a 5-member board.  The approved version of the legislation also includes a compromise on federal preemption, which permits the federal regulator to preempt state consumer financial protection laws only after a written finding that the state law “prevents or significantly interferes” with a federally regulated bank or thrift’s exercise of its powers.

Powers of the Proposed Consumer Financial Protection Agency

Subpart F, sections 161 through 166, of the Consumer Financial Protection Agency Act of 2009 (HR 3126, July 8, 2009) provides for the transfer of broad areas of power to regulate consumer financial protection functions from a variety of federal agencies and the Federal Reserve to the proposed Consumer Financial Protection Agency.

In general, the CFPA would have the authority and accountability to supervise, examine, and enforce consumer financial protection laws, including mortgages, credit cards, student loans, auto loans, payday loans, and more. The Act would transfer functions and personnel to the new CFPA and provide for interim powers for the Secretary of Treasury pending the establishment of the CFPA and the completion of the transfer of powers and people.

9th Circuit Details Corporate Citizenship Tests

In a significant case for credit card issuers and retailers, the Ninth Circuit has detailed the application of its tests of corporate citizenship for purposes of federal jurisdiction. In Davis v. HSBC Bank Nevada, N.A., et al., the Court held that retailer Best Buy is not a citizen of California merely because it has more presence in this state than in any other state.

In Davis, plaintiff sued credit card issuer HSBC and retailer Best Buy, asserting claims for violation of California's unfair competition statute, §17200, and false advertising statute, §17500, alleging the companies defrauded consumers by failing to adequately disclose the credit card's annual fee. Defendants removed the case to federal court based on the Class Action Fairness Act of 2005 ("CAFA").  Plaintiff moved to remand based on the local controversy exception to federal jurisdiction, 28 U.S.C. §1332(d)(4), which bars federal jurisdiction where, among other things, at least one defendant is a citizen of the original forum state.  The district court granted plaintiff's motion to remand.  Defendants appealed.

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Will California Courts Enforce Your Choice of Law?

In Brack v. Omni Loan Company, Ltd., the Fourth District California Court of Appeal last week held that a Nevada choice of law provision in defendant's loan agreement was not enforceable, because "the application of Nevada law would conflict with fundamental California policy" and because "California had a greater interest in the parties' transaction than Nevada."

Defendant Omni, a Nevada corporation with its principal place of business in Nevada, provided a personal loan to plaintiff borrower Joshua Brack, a nonresident member of the military stationed at California's Camp Pendleton.  Omni's loan agreement contained a choice of law provision in favor of Nevada law.  Brack repaid the loan in full in 2002.

In 2003, Brack filed a class action against Omni, alleging violations of the California Finance Lenders Law (Fin.Code §22000 et seq.), the Consumers Legal Remedies Act ("CLRA") (Civ. Code §1750 et seq.) and California's Unfair Competition Law (Bus. and Prof. Code §17200).  After a trial on Omni's Nevada choice of law defense, the trial court entered judgment in favor of Omni.  Brack moved to set aside the judgment.  The trial court denied the motion and Brack appealed.
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Issuance of Credit Card (Still) Not Subject to CLRA

The Fourth District California Court of Appeal reaffirmed in a published opinion that the issuance of a credit card is not subject to the California Consumers Legal Remedies Act ("CLRA") (Civ. Code § 1750 et seq.).  In Ball v. FleetBoston Financial Corporation, the Court of Appeal affirmed the Superior Court's denial of plaintiff's motion for leave to amend her complaint to allege violations of the CLRA and to seek declaratory relief against card issuer FleetBoston, citing prior cases that established "the CLRA does not apply to the issuance of a credit card."

In Ball, plaintiff sued FleetBoston (later Bank of America) for a violation of California's unfair competition law, Business and Professions Code § 17200 et seq., alleging that FleetBoston's cardholder agreement was procedurally and substantively unconscionable.  She later filed an amended complaint adding additional allegations of substantive unconscionability.  When Ball filed her complaint and first amended complaint, she did not have a credit card account with FleetBoston.  After Proposition 64 and subsequent cases confirmed that a non-cardholder had no standing to sue under 17200, Ball opened a credit card account and sought leave to amend her complaint for a second time to allege her new customer status, to allege violations of the CLRA, and to seek declaratory relief.  The Superior Court denied plaintiff's motion for leave to amend.  Plaintiff appealed.
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