Justia U.S. 3rd Circuit Court of Appeals Opinion Summaries

The U.S. Court of Appeals for the Third Circuit ruled on a case involving the Consumer Financial Protection Bureau (CFPB) and a group of trusts associated with the National Collegiate Student Loan Trust. The central questions in the case were whether the trusts were "covered persons" under the Consumer Financial Protection Act (CFPA), and whether the CFPB was required to ratify the underlying action.The CFPB had initiated enforcement proceedings against the trusts for alleged violations related to servicing and collecting student loans, which the trusts had contracted out to third parties. The trusts argued that they were not "covered persons" under the CFPA and that the CFPB's action was untimely because it was initiated when the CFPB director was unconstitutionally insulated from presidential removal and ratified after the statute of limitations had expired.The Third Circuit held that the trusts were indeed "covered persons" under the CFPA because they were engaged in offering or providing a consumer financial product or service. The court also held that the CFPB was not required to ratify the action before the statute of limitations had run, following the Supreme Court's decision in Collins v. Yellen. The court concluded that there was no indication that the unconstitutional limitation on the President's authority to remove the CFPB Director harmed the Trusts, and thus no need for ratification. Therefore, the case was affirmed and remanded to the lower court for further proceedings with these determinations in mind. View "Consumer Financial Protection Bureau v. National Collegiate Master Student Loan Trust" on Justia Law

Weichsel's Chase credit card member agreement discloses an “Annual Membership Fee” to be added to his billing statement and that Weichsel may request an additional card for an authorized user. A “Rates and Fees Table” discloses the annual membership fee as $450 plus $75 for each additional card. Weichsel included one additional user. Weichsel alleges that his December 2019 billing statement included a renewal notice, stating that Weichsel’s annual $525.00 membership fee would be billed on 02/01/2020, how the fee would be charged, and how Weichsel could avoid it. The notice did not specify the breakdown: $450 for the primary cardholder and $75 for the additional user. The fee appeared as separate items on Weichsel’s February 2020 billing statement: a $450 charge and another for $75. Weichsel paid $525 but claims that “[h]ad [he] been aware” he could retain his credit card for $450, he would have paid only that amount. Weichsel filed a putative class action, alleging that Chase’s failure to itemize each component of the renewal fee in the December 2019 renewal notice violated the Truth in Lending Act (TILA), 15 U.S.C. 1601, and Regulation Z.The Third Circuit affirmed the dismissal of the suit. Weichsel had standing; he suffered an economic injury based on his assertion that he would not have paid the full $525 if he had known it included the additional card fee. However, neither TILA nor Regulation Z expressly mandates disclosure of each individual component of the total annual fee in a renewal notice. Regulation Z requires itemization of fees on other disclosures but lacks such a requirement for renewal notices. View "Weichsel v. JP Morgan Chase Bank NA" on Justia Law

NJBA, a non-profit trade association representing 88 New Jersey banks, sought to make independent expenditures and contributions to political parties and campaigns for state and local offices. NJBA has not made these payments because of N.J. Stats. 19:34-45, which provides that, “[n]o corporation carrying on the business of a bank . . . shall pay or contribute money or thing of value in order to aid or promote the nomination or election of any person, or in order to aid or promote the interests, success or defeat of any political party.” NJBA brought a facial challenge on its own behalf and on behalf of third-party banks.The district court held that section 19:34-45’s prohibition on independent expenditures violates the First Amendment but that the ban on political contributions by certain corporations does not violate the First Amendment and passes intermediate scrutiny. The Third Circuit reversed, declining to address the First Amendment issues. The statute does not apply to trade associations of banks. NJBA is not “carrying on the business of a bank.” With respect to the facial challenge, NJBA does not satisfy the narrow exception to the general rule against third-party standing. View "New Jersey Bankers Association v. Attorney General New Jersey" on Justia Law

Lutz received a Capital One credit card, made purchases, and obtained cash advances with the card. Under the credit card agreement, Lutz could make minimum installment payments with interest at an annual rate of up to 22.90% on any unpaid monthly balance. His account balance rose to $2,343.76, including at least $341.67 in interest that had accrued at an annual rate of 22.90%. When Lutz failed to pay, Capital One sold the charged-off account to PRA, which is not a bank and cannot issue credit cards. PRA holds a license from the Pennsylvania Department of Banking and Securities to make motor vehicle loans and to charge interest at 18-21% on those loans but PRA’s sole business involves purchasing defaulted consumer debt at a discount and then attempting to collect the debt. PRA obtained a default judgment against Lutz.Lutz filed a putative class action against PRA under the Fair Debt Collection Practices Act, 15 U.S.C. 1692e, 1692f, alleging that PRA made false statements about debt and attempted to collect a debt not permitted by law, citing alleged violations of Pennsylvania’s Consumer Discount Company Act. The Third Circuit affirmed the dismissal of the suit. Lutz did not plausibly allege that Pennsylvania law prohibited PRA from collecting interest that had previously accrued at greater than 6% annually. PRA is not in the business of negotiating loans or advances and is not subject to the CDCA and its limitations on collecting interest. View "Lutz v. Portfolio Recovery Associates LLC" on Justia Law

OneMain, a non-bank finance company, loaned Zirpoli $6,200.08, to be repaid at a rate of 26.91% (total $11,364.35). The loan was issued under the Consumer Discount Company Act (CDCA), a consumer protection statute, which creates an exception to Pennsylvania’s usury law. The loan is governed by a disclosure statement, a security agreement, and an arbitration agreement. Later, OneMain sold delinquent accounts to Midland, including Zirpoli’s loan. Midland sued Zirpoli but later dismissed the suit and undertook collection efforts.Zirpoli filed a class action, alleging that Midland’s collection activities constituted an unlawful attempt to collect the loan because Midland does not have a CDCA license and never obtained nor requested approval from the Department of Banking. Midland was, therefore, not lawfully permitted to purchase the loan. Midland moved to compel arbitration. The court denied the motion, focusing on the validity of the assignment from OneMain and Midland. The Third Circuit vacated. The ultimate illegality of a contract does not automatically negate the parties’ agreement that an arbitrator should resolve disputes arising from the contract. The parties to the loan clearly agreed to arbitrate the issue of arbitrability. The arbitration agreement provides that an arbitrator shall resolve the arbitrability of defenses to enforcement, including alleged violations of state usury laws. View "Zirpoli v. Midland Funding LLC" on Justia Law

The Bank Secrecy Act, 31 U.S.C. 5311, and its implementing regulations require certain individuals with foreign financial interests to file annual disclosures, subject to penalties. In 2008, Bedrosian filed an inaccurate Report of Foreign Bank and Financial Accounts (FBAR), omitting from the report the larger of his two Swiss bank accounts. If this omission was accidental, the IRS could fine Bedrosian up to $10,000; if he willfully filed an inaccurate FBAR, the penalty was the greater of $100,000 or half the balance of the undisclosed account at the time of the violation. Believing Bedrosian’s omission was willful, the IRS imposed a $975,789.17 penalty—by its calculation, half the balance of Bedrosian’s undisclosed account. Following Bedrosian’s refusal to pay the full penalty, the IRS filed a claim in federal court.The Third Circuit affirmed the district court in finding Bedrosian’s omission willful and ordering him to pay the IRS penalty in full. While the IRS failed to provide sufficient evidence at trial showing its $975,789.17 penalty was no greater than half his account balance, Bedrosian admitted this fact during opening statements and thus relieved the government of its burden of proof. View "Bedrosian v. United States Department of the Treasury" on Justia Law

TitleMax provides vehicle loans at interest rates as high as 180%. The entire process occurs at a TitleMax brick-and-mortar location. The borrower receives “a check drawn on a bank outside of Pennsylvania,” The borrower grants TitleMax a security interest in the vehicle. TitleMax records its lien with the appropriate state authority. Borrowers can make payments from their home states. TitleMax does not have any offices, employees, agents, or brick-and-mortar stores and is not licensed as a lender in Pennsylvania. TitleMax claims that it never solicited Pennsylvania business and does not run television ads within Pennsylvania.Pursuant to the Consumer Discount Company Act and the Loan Interest and Protection Law, Pennsylvania’s Department of Banking and Securities issued a subpoena requesting documents regarding TitleMax’s interactions with Pennsylvania residents. TitleMax then stopped making loans to Pennsylvania residents and asserts that it has lost revenue.The district court held that Younger abstention did not apply and that the Department’s subpoena’s effect was to apply Pennsylvania’s usury laws extraterritorially in violation of the Commerce Clause.The Third Circuit reversed. Applying the Pennsylvania statutes to TitleMax does not violate the extraterritoriality principle. TitleMax receives payments from within Pennsylvania and maintains an actionable security interest in vehicles located in Pennsylvania; its conduct is not “wholly outside” of Pennsylvania. The laws do not discriminate between in-staters and out-of-staters. Pennsylvania has a strong interest in prohibiting usury. Applying Pennsylvania’s usury laws to TitleMax’s loans furthers that interest and any resulting burden on interstate commerce is, at most, incidental. View "TitleMax of Delaware Inc v. Weissmann" on Justia Law

Wilmington Trust financed construction projects. Extensions were commonplace. Wilmington’s loan documents reserved its right to “renew or extend (repeatedly and for any length of time) this loan . . . without the consent of or notice to anyone.” Wilmington’s internal policy did not classify all mature loans with unpaid principals as past due if the loans were in the process of renewal and interest payments were current, Following the 2008 "Great Recession," Wilmington excluded some of the loans from those it reported as “past due” to the Securities and Exchange Commission and the Federal Reserve. Wilmington’s executives maintained that, under a reasonable interpretation of the reporting requirements, the exclusion of the loans from the “past due” classification was proper. The district court denied their requests to introduce evidence concerning or instruct the jury about that alternative interpretation. The jury found the reporting constituted “false statements” under 18 U.S.C. 1001 and 15 U.S.C. 78m, and convicted the executives.The Third Circuit reversed in part. To prove falsity beyond a reasonable doubt in this situation, the government must prove either that its interpretation of the reporting requirement is the only objectively reasonable interpretation or that the defendant’s statement was also false under the alternative, objectively reasonable interpretation. The court vacated and remanded the conspiracy and securities fraud convictions, which were charged in the alternative on an independent theory of liability, View "United States v. Harra" on Justia Law

DLJ brought a debt and foreclosure action against the Sheridans and the IRS. At the close of DLJ’s case-in-chief, the district court granted judgment in favor of DLJ under FRCP 52(c), concluding that DLJ satisfied all elements of its claim. The Third Circuit affirmed. Sheridan was “fully heard” prior to judgment. At the close of its case-in-chief, DLJ moved for judgment based on partial findings. Sheridan did not object to the consideration of the motion. The parties made their respective arguments as to whether DLJ met its burden of providing evidence sufficient to establish its debt and foreclosure claims and whether DLJ had standing. Sheridan could have only challenged the validity of the loan documents through cross-examination of DLJ’s witness, Holmes, which he was given the opportunity to do, or through his own testimony, to the extent he had any personal knowledge. Sheridan has not indicated what additional admissible evidence he intended to present to contest DLJ’s standing. The court heard and considered Sheridan’s arguments concerning the transfer of the note and the validity of the assignment. He was fully heard with regard to DLJ’s standing to foreclose. Sheridan’s original answer asserted boilerplate affirmative defenses, none of which contained any allegations of fraud or violations of the Truth in Lending Act; Sheridan’s motion to amend was untimely, and the late assertion of fraud would have prejudiced DLJ. View "DLJ Mortgage Capital, Inc. v. Sheridan" on Justia Law

Six Delaware statutory Trusts acquired student loans, issued notes for the acquisitions, and pledged the student loans as collateral for the notes. This “securitization” works well when the students do not default. The Trusts initially did not provide for servicing delinquent loans; under a subsequent “Special Servicing Agreement,” U.S. Bank became the Indenture Trustee and the “Special Servicer” but allegedly failed to collect hundreds of millions of dollars in delinquent loans. The holders of the Trusts’ equity ownership interests hired an additional loan servicer, Odyssey, and submitted invoices from Odyssey for payment from the trust estate.The district court held that the Trust documents were not violated by hiring Odyssey and Odyssey’s invoices were payable. The Third Circuit reversed in part. Several provisions of the Odyssey Agreement violate the Trust documents by impermissibly transferring to the Owners of the Trusts rights reserved for the Indenture Trustee. The Odyssey Agreement supplements and modifies several provisions of the Trust documents, requiring consent not obtained from the Indenture Trustee. The court remanded for a determination of whether the Odyssey invoices are nonetheless payable, which may include reconsideration os a self-dealing issue. View "In re: National Collegiate Student Loan Trusts" on Justia Law