Federal Banking Agencies Increase Appraisal Threshold for Residential Real Estate Loans
By Lynette Hotchkiss, Mechanics Bank
The Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation, have adopted a final rule that increases the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000. An evaluation providing an estimate of the market value of real estate collateral still will be needed for transactions exempted from the appraisal requirement. For rural residential properties, the final rule incorporates the appraisal exemption provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act, but does require evaluations for these transactions. Institutions are required to review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice.
Eleventh Circuit Holds Single Unwanted Text Message Under TCPA Insufficient for Article III Standing
By Jeffrey Karek, Maurice Wutscher LLP
In Salcedo v. Hanna, the U.S. Court of Appeals for the Eleventh Circuit held that the receipt of one unwanted text message in violation of the federal Telephone Consumer Protection Act (“TCPA”) was not enough to allege a concrete harm that meets the injury-in-fact requirement of Article III. The Eleventh Circuit determined that although the Plaintiff’s complaint facially stated a cause of action under the TCPA, he failed to allege Article III standing. The Plaintiff alleged only that he received one multimedia text message from the defendant offering a 10% discount on services, which “caused Plaintiff to waste his time answering or otherwise addressing the message,” and “[w]hile doing so, both Plaintiff and his cellular phone were unavailable for otherwise legitimate purposes.” The Eleventh Circuit observed that the Ninth Circuit decision in Van Patten v. Vertical Fitness Group, involved a nearly identical issue, and that court held that the receipt of two unsolicited text messages constituted an injury in fact. However, the Eleventh Circuit was not persuaded, instead holding that Plaintiff’s “allegations do not state a concrete harm that meets the injury-in-fact requirement of Article III.”
California Legislature Passes Five Bills to Amend the California Consumer Privacy Act of 2018
By Patricia Covington, Webb McArthur, and Nora Udell, Hudson Cook, LLP
On September 13, 2019, the California legislature passed five bills to amend the California Consumer Privacy Act (“CCPA”). California Assembly Bills 1355, 25, 1564, 874, and 1146 clarify several issues under the sweeping data protection law, which becomes effective on January 1, 2020. The California Governor has not yet signed the bills; however, it is expected that he will do so. The CCPA will significantly alter data sharing and use practices not only in California but nationwide.
Not all of the amendments can be adequately described in this short format, however by way of example, the September 13th bills revise the definition of “personal information” and clarify how disclosures must be made and received by businesses. The bills further create two limited exemptions for employee information and for business-to-business information. The employee information exemption does not apply to the consumer’s right to be informed, at or before the point of collection, of the categories of personal information the business will collect and the purposes for which the personal information will be used. The business-to-business exemption does not apply to the right to opt out of having one's information sold or to the right to be free from discrimination. Neither limited exemption applies to the data breach private right of action. And both limited exemptions are effective only until January 1, 2021.
Supreme Court to Decide Whether the Discovery Rule Applies to the Fair Debt Collection Practices Act
By Jennifer Majewski, Pilgrim Christakis LLP
On October 16, 2019, the Supreme Court will hear arguments in Rotkiske v. Klemm, 890 F.3d 422, 425 (3d Cir. 2018). Plaintiff Rotkiske accumulated credit card debt between 2003 and 2005. In 2008, defendant Klemm & Associaties (“Klemm”) sued and attempted service at an address at which Rotiske no longer resided. In 2009, Klemm re-filed and attempted service again at the same address. Unbeknownst to Rotiske, an individual at that address accepted service. A default judgment for approximately $1,500 was entered against Rotiske. Rotiske did not discover the judgment until he applied for a mortgage in September 2014.
In June 2015, Rotiske sued for violation of the FDCPA. Defendants moved to dismiss the FDCPA claim as untimely. The U.S. District Court for the Eastern District of Pennsylvania granted the motion to dismiss and rejected Rotiske’s argument that the statute of limitations period under the FDCPA incorporated a “discovery rule which ‘delays the beginning of a limitations period until the plaintiff knew or should have known of his injury.’” Rotkiske v. Klemm, No. 15-3638, 2016 WL 1021140, at *3 (E.D. Pa. Mar. 15, 2016). The Third Circuit affirmed, contrarily to the Ninth Circuit’s decision in Mangum v. Action Collection Service, Inc., 575 F.3d 935 (9th Cir. 2009) and the Fourth Circuit’s decision in Lembach v. Bierman, 528 F. App’x 297 (4th Cir. 2013), both of which implied a discovery rule in the Act’s statute of limitations. If the Supreme Court agrees with the Ninth Circuit and Fourth Circuit, debt collectors may face substantial exposure for communications that have long been forgotten but are discovered during bankruptcies, foreclosures, or other collection actions.
Bureau Finalizes No-Action Letter, Trial Disclosure Program, and Compliance Assistance Sandbox Policies
By Eric Mogilnicki and Sam Adriance, Covington & Burling LLP
On September 10, 2019 the CFPB finalized three policies “designed to promote innovation and facilitate compliance”: the No Action Letter (“NAL”), Trial Disclosure Program (“TDP”), and Compliance Assistance Sandbox (“CAS”) Policies. These policies were originally proposed in 2018 and are now being finalized following the consideration of public comments.
Under the NAL Policy, consumer financial services companies will be able to request an NAL from the Bureau, which, if granted, will state that the Bureau will not bring a supervisory or enforcement action against the company for providing a consumer financial product under particular facts and circumstances. The Bureau also issued its first NAL under the new policy in response to a request from the Department of Housing and Urban Development on behalf of more than 1,600 housing counseling agencies that participate in HUD’s Housing Counseling Program. The NAL is intended to address concerns of housing counseling agencies regarding compliance with the Real Estate Settlement Procedures Act.
The TDP Policy allows consumer financial services companies, with permission of the Bureau, to conduct in-market testing of alternative disclosures for a limited time. The new policy is designed to make the application and review process more efficient.
Under the CAS Policy, companies may apply to the Bureau for a safe harbor from liability for specified conduct for a certain period of time. This policy is intended to allow companies to test financial products or services around which there is regulatory uncertainty under the Truth in Lending Act, Electronic Fund Transfer Act, or the Equal Credit Opportunity Act.
CFPB Director Kathleen Kraninger also made a speech at the Innovation Policies Launch event, accompanying the announcement of the NAL, TDP, and CAS programs.
Bureau Reverses Position on Constitutionality of For-Cause Removal Provision
Eric Mogilnicki and Lucy Bartholomew, Covington & Burling LLP
On September 17, 2019 the Department of Justice filed its brief on behalf of the CFPB in the case of Seila Law LLC v. CFPB, which is pending before the Supreme Court on a petition for certiorari. The case originated when the Bureau sought judicial enforcement of a civil investigative demand it issued against a debt-relief services law firm. The defendant responded by challenging the constitutionality of the Bureau—specifically the for-cause removal provision of the Dodd–Frank Act, which limits the President’s ability to remove the CFPB Director except for “inefficiency, neglect of duty, or malfeasance in office.” While the U.S. district court and the Court of Appeals for the Ninth Circuit both upheld the for-cause removal provision, the DOJ/CFPB brief argues that the for-cause removal provision violates the constitutional separation of powers. The brief represents a continuation of the DOJ's position on this issue, but a reversal of the Bureau’s prior litigation position.
On the same day that the brief was filed, CFPB Director Kraninger sent letters to Speaker of the House Nancy Pelosi and Senate Majority Leader Mitch McConnell, alerting the lawmakers of the change in the Bureau’s position. The letter states that the Bureau’s attorneys will not defend the for-cause removal provision (including in other cases in the lower federal courts), but notes that the Supreme Court may appoint an amicus curiae to litigate that position in the event it takes the case. Director Kraninger explains that her position on the constitutional question does not affect her commitment to fulfilling the Bureau’s statutory responsibilities. The letter notes that the Dodd–Frank Act contains a severability provision, meaning that the Court could allow the Bureau to continue to function by striking down only the for-cause removal provision.
The Court of Appeals for the Fifth Circuit held in a similar case last week that the Federal Housing Finance Agency is unconstitutionally structured because of the independence of its director. This created a split among the Circuit Courts regarding the issue, which may increase the Supreme Court's interest in resolving the issue.
Bureau to Upgrade Consumer Complaint Database
By Eric Mogilnicki and Lucy Bartholomew, Covington & Burling LLP
On September 18, the CFPB announced that it will soon be making changes to its Consumer Complaint Database, which publicizes complaints that the Bureau receives from consumers regarding financial products and services. According to the press release, the changes to the database were driven by the large number of comments that the Bureau received regarding the database in 2018. While the Bureau remains committed to publishing consumer complaints, the website will be changed to more prominently display disclosures regarding the nature of the complaints (e.g., to make it clear that the database is not a statistical sample of consumers’ experiences in the marketplace), and to highlight information and resources of interest to consumers (e.g., answers to common financial questions and information about how consumers can contact the financial company). Additionally, the Bureau is exploring enhancements, such as dynamic visualization tools with respect to recent consumer complaints.
Labor and Employment Law
DOL Released Final Rule on Overtime
By Meagan Bainbridge, Weintraub Tobin
The United States Department of Labor (“DOL”) released a final rule on overtime compensation, updating the earnings thresholds necessary to exempt executive, administrative, and professional employees. Effective January 1, 2020, the salary basis will be increases to $684 per week, which amounts to a yearly salary of $35,568. This means that, in addition to satisfying the “duties” portions of the various exemption tests, employees must earn at least $35,568 to be an exempt employee under the Fair Labor Standards Act. Employers can satisfy up to 10% of that $35,568 salary through nondiscretionary bonuses, incentives, and commissions that are paid annually or more frequently. The salary basis for exempt "highly compensated" employees also has been raised, from $100,000 per year to $107,432. Employers should review the wages of their exempt employees to ensure that the employees will still meet the exemption. If the employees currently earn less than $35,568, employers can chose to convert them to hourly, non-exempt employees, or raise their yearly salary.
NLRB Ruling on Misclassification of Employees as Independent Contractors
By Meagan Bainbridge, Weintraub Tobin
In another pro-employer ruling, the National Labor Relations Board (“NLRB”) ruled that misclassifying an employee as an independent contractor does not, in and of itself, violate the National Labor Relations Act (“NLRA”) In Velox Express, Inc. and Jeannie Edge, a driver for Velox Express complained that the company’s misclassification of her, and its other drivers, violated Section 8(a)(1) of that NLRA. Section (8)(a)(1) prohibits employers from exercising their rights to unionize. A majority of the Board determined that “[a}n employer’s mere communication to its workers that they are classified as independent contractors does not expressly invoke the Act.” Rather, the Board found that the employer must undertake additional acts, concluding that “if the employer responds with threats, promises, interrogations and so forth, then it will have violated Section 8(a)(1), but not before.” While employer’s face very real consequences when misclassifying employees as independent contractors, it appears (at least for now) that it will not also mean an automatic violation of the NLRA.
Concerns for E-Cigarette Industry
By Samuel R. Henninger
In a recent national survey, 27.5% of high school students reported using an e-cigarette in the previous 30 days. The survey is concerning in light of the recent warning by the CDC of an ongoing outbreak of lung injury associated with e-cigarette use. Results remain inconclusive, but public health officials report that they are continuing to see new cases of previously healthy individuals who have developed pneumonia-like symptoms after using e-cigarettes. So far, the CDC reports over 800 cases of lung injury from 46 states, and 12 deaths have been confirmed in 10 states. All reported cases have a history of e-cigarette use. To combat the crisis, HHS Secretary Azar announced that the Trump Administration will act to clear the market of unauthorized, non-tobacco-flavored e-cigarette products. America’s largest e-cigarette maker, Juul Labs, said that it will not fight the federal government’s plan. The company has also agreed to stop advertising in the United States. On top of that, Juul’s leadership has changed: CEO Kevin Burns was replaced by K.C. Crosthwaite. Crosthwaite had been chief growth officer of Altria, a major tobacco company that owns a 35% stake in Juul. The recent health crisis related to e-cigarette use—along with government pressure to reform—will present challenges for the $38 billion company. Juul’s path will continue to provide insight into the future viability of the e-cigarette industry in the United States.