We'll take a break from our straight, somewhat academic digest of the issues to report something that was just too funny to pass up.
Facts: Auto borrower defaults. Debt collector tracks down defaulted borrower through MySpace. Lawsuit ensues. The suit isn't that funny, but LOLfed's summary of the case is hilarious.
Wednesday, April 22, 2009
Tuesday, April 21, 2009
A Borrower's Receipt of a Billing Statement Can Start the Statute of Limitations Running
A borrower's suit against a lender might allege fraud or some other form of misrepresentation in addition to claims under the various consumer protection statutes. We also frequently see pleadings with only common-law misrepresentation claims when statutory claims become stale. But how do we know when a common-law misrepresentation claim accrues for the purpose of the statutes of limitations?
In some cases, the cause of action might accrue when the borrower gets the first billing statement. The North Carolina Court of Appeals issued an unpublished opinion today in Cascadden v. Household Realty Corp., reasoning that because the plaintiffs had discovered irregularities in their first billing statement, they were on notice of potential fraud.
North Carolina, like many states, follows the "discovery rule" for determining when a misrepresentation claim accrues. A plaintiff's claim does not accrue until the plaintiff discovers the misrepresentation. However, if the plaintiff has information that would give rise to a reasonable belief that misrepresentation has occurred, then the misrepresentation has been "discovered" for statute of limitations purposes. In other words, constructive knowledge counts, and in this particular case the irregularities in the first bill in part provided that constructive knowledge.
This opinion could help in any case in which a cause of action accrues pursuant to the "discovery rule" and constructive knowledge. Although the case's authority is limited (North Carolina restricts citation of unpublished opinions), the court's reasoning is sound, and lenders should explore this theory in appropriate circumstances.
In some cases, the cause of action might accrue when the borrower gets the first billing statement. The North Carolina Court of Appeals issued an unpublished opinion today in Cascadden v. Household Realty Corp., reasoning that because the plaintiffs had discovered irregularities in their first billing statement, they were on notice of potential fraud.
North Carolina, like many states, follows the "discovery rule" for determining when a misrepresentation claim accrues. A plaintiff's claim does not accrue until the plaintiff discovers the misrepresentation. However, if the plaintiff has information that would give rise to a reasonable belief that misrepresentation has occurred, then the misrepresentation has been "discovered" for statute of limitations purposes. In other words, constructive knowledge counts, and in this particular case the irregularities in the first bill in part provided that constructive knowledge.
This opinion could help in any case in which a cause of action accrues pursuant to the "discovery rule" and constructive knowledge. Although the case's authority is limited (North Carolina restricts citation of unpublished opinions), the court's reasoning is sound, and lenders should explore this theory in appropriate circumstances.
Monday, April 13, 2009
Eleventh Circuit Rejects Constitutional Challenge to FACTA Amendments
The Eleventh Circuit reversed the district court's dismissal of an action under the FACTA amendments to the FCRA, holding that the statutory damages provisions imposed by the FACTA amendments are not unconstitutionally vague and excessive. Harris v. Mexican Specialty Foods, Inc., 2009 U.S. App. LEXIS 7681 (11th Cir., April 9, 2009).
The case arose out of a putative class action on behalf of consumers. The class representatives alleged that the defendants-merchants violated the law by printing the expiration dates and more than the last 5 digits of credit card numbers on receipts, practices that the FACTA amendments outlawed. Among other things, the class representatives sought statutory damages, which range from $100 to $1,000 per violation.
The key holding of the opinion was that the FACTA amendments passed the “facial vagueness” test – the statute, on its face, is not impermissibly vague. The core argument in favor of unconstitutional vagueness was that the FACTA amendments, by providing a range of statutory damages from $100 to $1,000 per violation without any standards of where in this range to fix damages, made the statute so vague that a potential defendant would have no way of knowing the potential consequences of a violation. The Eleventh Circuit rejected this argument, in part citing other federal statutes that contained ranges of statutory damages higher than imposed by the FACTA amendments.
The court also rejected an argument that the statute was impermissibly excessive, chiefly because the district court had reached this conclusion by equating the statutory damages provision to a punitive damages provision. The Eleventh Circuit rejected this approach and held that the statute was not excessive.
The court held that an “as-applied” vagueness challenge was not ripe because the factual record was not fully developed. The district court had granted summary judgment, and the Eleventh Circuit reasoned that a trial would be required to develop the factual record fully enough to render a decision on the “as-applied” challenge.
The practical effects of this ruling are probably minimal. Most merchants have long since changed their practices to comply with the FACTA amendments. However, the opinion contains some fairly strong dicta in support of statutes that regulate economic activity. Overall, the opinion will likely make challenges to regulatory statutes that much more difficult.
As for potential of review by the Supreme Corut, nothing thus far indicates that this case would distinguish itself from the thousands of cases for which certiorari is denied each year.
The case arose out of a putative class action on behalf of consumers. The class representatives alleged that the defendants-merchants violated the law by printing the expiration dates and more than the last 5 digits of credit card numbers on receipts, practices that the FACTA amendments outlawed. Among other things, the class representatives sought statutory damages, which range from $100 to $1,000 per violation.
The key holding of the opinion was that the FACTA amendments passed the “facial vagueness” test – the statute, on its face, is not impermissibly vague. The core argument in favor of unconstitutional vagueness was that the FACTA amendments, by providing a range of statutory damages from $100 to $1,000 per violation without any standards of where in this range to fix damages, made the statute so vague that a potential defendant would have no way of knowing the potential consequences of a violation. The Eleventh Circuit rejected this argument, in part citing other federal statutes that contained ranges of statutory damages higher than imposed by the FACTA amendments.
The court also rejected an argument that the statute was impermissibly excessive, chiefly because the district court had reached this conclusion by equating the statutory damages provision to a punitive damages provision. The Eleventh Circuit rejected this approach and held that the statute was not excessive.
The court held that an “as-applied” vagueness challenge was not ripe because the factual record was not fully developed. The district court had granted summary judgment, and the Eleventh Circuit reasoned that a trial would be required to develop the factual record fully enough to render a decision on the “as-applied” challenge.
The practical effects of this ruling are probably minimal. Most merchants have long since changed their practices to comply with the FACTA amendments. However, the opinion contains some fairly strong dicta in support of statutes that regulate economic activity. Overall, the opinion will likely make challenges to regulatory statutes that much more difficult.
As for potential of review by the Supreme Corut, nothing thus far indicates that this case would distinguish itself from the thousands of cases for which certiorari is denied each year.
Study by the New York Fed Finds No Evidence of Adverse Pricing by Race, Ethnicity, or Gender
The New York Fed released a study this week concluding there is no evidence of adverse pricing based on borrowers' race, ethnicity, or gender. While the study notes a couple of important caveats (including the inability to study points and fees), the core conclusion is remarkable in light of the "reverse redlining" and similar suits that have been filed.
Here is the complete text of the abstract from the study:
Some observers have argued that minority borrowers and neighborhoods were targeted for expensive credit in 2004-06, the peak period for subprime lending. To investigate this claim, we take advantage of a new data set that merges demographic information on subprime borrowers with information on the mortgages they took out. In a sample of more than 75,000 adjustable-rate mortgages, we find no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin. Indeed, if any pricing differential exists, minority borrowers appear to pay slightly lower rates, as do those borrowers in Zip codes with a larger percentage of black or Hispanic residents or a higher unemployment rate. Mortgage rates are also lower in locations that previously had higher rates of house price appreciation. These results suggest some economies of scale in subprime lending. Yet there are important caveats: we are unable to measure points and fees at loan origination, and the data do not indicate whether borrowers might have qualified for less expensive conforming mortgages.
A pdf of the entire study can be found here.
Here is the complete text of the abstract from the study:
Some observers have argued that minority borrowers and neighborhoods were targeted for expensive credit in 2004-06, the peak period for subprime lending. To investigate this claim, we take advantage of a new data set that merges demographic information on subprime borrowers with information on the mortgages they took out. In a sample of more than 75,000 adjustable-rate mortgages, we find no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin. Indeed, if any pricing differential exists, minority borrowers appear to pay slightly lower rates, as do those borrowers in Zip codes with a larger percentage of black or Hispanic residents or a higher unemployment rate. Mortgage rates are also lower in locations that previously had higher rates of house price appreciation. These results suggest some economies of scale in subprime lending. Yet there are important caveats: we are unable to measure points and fees at loan origination, and the data do not indicate whether borrowers might have qualified for less expensive conforming mortgages.
A pdf of the entire study can be found here.
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