Consumer Compliance Outlook: Second Issue 2016

On the Docket: Recent Federal Court Opinions


The 11th Circuit holds that an assignee of a residential mortgage loan is not liable for a servicer's alleged failure to provide a payoff balance. PDF Evanto v. Federal Nat. Morg. Ass'n., 814 F.3d 1295 (11th Cir. 2016). Pursuant to 15 U.S.C. §1641 (e)(1)(a), residential mortgage loan assignees are only liable for TILA violations apparent on the face of the disclosure statement (and, even then, not in instances involving involuntary assignment). In this case, the borrower obtained a residential mortgage loan that was later sold to Fannie Mae. The loan was serviced by a third party. After the borrower defaulted and foreclosure proceedings were initiated, he requested a payoff balance from the third-party servicer. The borrower alleged that the third-party servicer did not provide the payoff balance within seven business days of his request as required by TILA, 15 U.S.C. §1639g, and Regulation Z, 12 C.F.R. §1026.36(c)(3). Fannie Mae moved to dismiss the suit on the basis that the plaintiff failed to state a claim on which relief could be granted. The district court agreed, dismissing the suit because the failure to provide a payoff balance is not a violation apparent on the face of TILA disclosures. On appeal, the 11th Circuit affirmed, observing that disclosures are documents that set forth the terms of a loan and are provided before the extension of credit, but a payoff balance cannot be made available until after a loan has been made ("There is no way that the failure to provide a payoff balance can appear on the face of the disclosure statement."). Accordingly, the court affirmed the district court's dismissal of the suit.

The Ninth Circuit rules that a 2009 TILA amendment requiring notice to borrowers when a residential mortgage loan is transferred does not apply retroactively. PDF Talaie v. Wells Fargo Bank, N.A., 808 F.3d 410 (9th Cir. 2015). In 2009, Congress amended TILA to require that when a residential mortgage loan is sold, transferred, or assigned, the new owner or assignee of the loan must provide notice, in writing, to the borrower within 30 days. See 15 U.S.C. §1641(g). The statute allows borrowers to sue for up to $4,000 in statutory damages in individual claims and up to $1 million in statutory damages in a class-action lawsuit along with actual damages, costs, and attorney's fees. In this class-action lawsuit, the plaintiffs alleged that U.S. Bank violated this provision by not providing notice for mortgage loans Wells Fargo Bank transferred to U.S. Bank in 2006. The issue in the case was whether §1641(g) applied retroactively to loans transferred before the 2009 TILA amendment was enacted. The court explained that the Supreme Court has ruled that retroactive application of statutes is "disfavored" and that this presumption can only be overcome when Congress has expressed a clear and unambiguous intent to apply a law retroactively. The court examined the text of the amendment and its legislative history and found no evidence that Congress intended for it to apply to loans whose ownership was transferred before it was enacted. The court also noted that it would have been impossible for creditors to comply with §1641(g) in connection with loans transferred more than a month before the statute was enacted given that notice must be provided within 30 days of the transfer. Accordingly, noting that its holding was consistent with various other district court decisions interpreting §1641(g), the court affirmed the lower court's dismissal of the case.


Supreme Court equally divided regarding whether loan guarantors are applicants under the ECOA. PDF Hawkins v. Community Bank of Raymore, 136 S.Ct. 1072 (March 22, 2016). The scope of the ECOA is generally limited to credit applicants, except that implementation of Regulation B — as promulgated by the Federal Reserve Board and later republished by the CFPB — defines "applicant" in 12 C.F.R. §1002.2(e) to include "guarantors" solely for the purposes of Regulation B's spousal signature provisions, 12 C.F.R. §1002.7(d). In 2014, the Sixth and Eighth Circuit Courts issued conflicting decisions about whether spousal guarantors qualify as credit applicants covered by the ECOA. In each case, creditors argued that Regulation B's definition of applicant to include guarantors is contrary to Congress's definition in Section 702 of ECOA, 15 U.S.C. §1691a(b) and its intent when it enacted the statute and is therefore invalid. In Hawkins v. Community Bank of Raymore, 761 F.3d 937, 941 (8th Cir. 2014), the Eighth Circuit held that a "guarantor does not request credit and therefore cannot qualify as an applicant under the unambiguous text of the ECOA." The court therefore affirmed the district court's determination that guarantors are not applicants under the ECOA and its dismissal of the case involving spousal guarantors who sought to have their guaranties invalidated because they were allegedly obtained in violation of §1002.7(d).

However, in RL BB Acquisition, LLC v. Bridgemill Commons Development Group, LLC, 754 F.3d 380 (6th Cir. 2014), the Sixth Circuit reached the opposite conclusion, holding that §1002.7(d)'s protections for spousal guarantors was valid because the ECOA's definition of applicant was ambiguous and could "encompass all those who offer promises in support of an application — including guarantors, who make formal requests for aid in the form of credit for a third party." The court also examined the Board's rationale when it included guarantors in Regulation B's definition of applicant solely for purposes of §1002.7(d)(5) (which it referred to as the spouse-guarantor rule) and found that it was reasonable.

On March 22, 2016, the Supreme Court affirmed, by an equally divided court, the Eighth Circuit's decision in Hawkins. Under the court's procedures, a tie vote has the effect of affirming the decision below without creating a binding precedent.


Supreme Court holds that a "bare" procedural FCRA violation in the absence of concrete harm is insufficient to confer Article III standing. PDF Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (May 16, 2016). Under Article III of the Constitution, only persons suffering an actual or imminent concrete and particularized injury in fact that resulted from a defendant's conduct and that can likely be redressed by a favorable decision have standing to invoke the jurisdiction of the federal courts. Several federal appeals courts were divided on whether a plaintiff who cannot prove actual or imminent harm from a federal law violation satisfies this standing requirement when a federal law provides for statutory damages (predetermined damages that must be paid if the plaintiff establishes a violation). The Supreme Court accepted the review of the Ninth Circuit's decision in Robins v. Spokeo, Inc., 742 F.3d 409 (2014) to resolve the circuit split. 

The plaintiff alleged that Spokeo, an information-gathering website that offers various options for finding information about people, willfully violated the FCRA by including inaccurate personal information about him on its website that could potentially adversely affect his employment prospects as well as his ability to obtain credit and insurance. For willful violations, the FCRA allows statutory damages of up to $1,000 per violation, 15 U.S.C. §1681n(a); the plaintiff only sought such statutory damages. The district court dismissed the lawsuit for lack of standing on the grounds that the plaintiff did not allege an injury in fact and that any injuries that he did allege were not caused by the defendant's actions. On appeal, the Ninth Circuit reversed the district court's dismissal of the matter and remanded the case for further proceedings consistent with its decision. Specifically, the Ninth Circuit determined that it was not necessary for the plaintiff to prove any actual harm: "When, as here, the statutory cause of action does not require proof of actual damages, a plaintiff can suffer a violation of the statutory right without suffering actual damages."

Moreover, the court found that the plaintiff's alleged violation of his statutory rights created by the FCRA satisfied Article III's injury-in-fact requirement and that the plaintiff adequately pleaded causation and redressability. After the matter was appealed to the Supreme Court, it affirmed that the injury-in-fact requirement has both "concreteness" and "particularity" components and found that the Ninth Circuit had erroneously solely focused on particularity. Observing that particularity refers to an injury affecting a plaintiff in a "personal and individual way," the court further explained that "[a] 'concrete' injury must be ‘de facto'; that is, it must actually exist." The court added that "[a]lthough tangible injuries are perhaps easier to recognize, we have confirmed in many of our previous decisions that intangible injuries can nevertheless be concrete" and that the risk of real harm can satisfy the concreteness requirement. The court vacated the Ninth Circuit's judgment and remanded the matter to determine if the plaintiff had alleged an FCRA procedural violation involving a degree of risk of harm sufficient to meet Article III's concreteness requirement or had merely alleged a bare procedural violation without any material risk of harm ("An example that comes readily to mind is an incorrect zip code. It is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.").