California Enacts AB 5, Gig Worker Bill

By: Amy Egerton-Wiley

New-Development-IconOn September 18, 2019, Governor Gavin Newsom signed Assembly Bill 5 (AB 5) into law, which is intended to reclassify many of the state’s independent contractors as employees.  Proponents of the bill claim that the bill rectifies misclassification of employees as independent contractors.  Opponents, which include both workers and companies, note the importance of the flexibility of independent contractors and worry about the increased costs to consumers.

This bill largely codifies the “ABC” test established by the California Supreme Court in Dynamex v. Superior Court, 4. Cal. 5th 903 (2018).  Under the ABC test, a worker must be classified as an employee (versus an independent contractor) unless the hiring entity can establish:

(A) that the worker is “free from the control and direction of the hiring entity in connection with the performance of the work,”

(B) that the worker “performs work that is outside the usual course of the hiring entity's business,” and

(C) that the worker is “customarily engaged in an independently established trade, occupation, or business.”

Dynamex, 4 Cal. 5th at 964.

AB 5 expands the ABC test to certain areas not explicitly subject to Dynamex, such as reimbursements for expenses incurred in the course of employment.  Of course, companies that rely on independent contractors will be impacted by this legislation.

While AB 5 will not take effect until January 1, 2020, it may impact ongoing litigation, such as the San Diego City Attorney’s recent lawsuit against the grocery delivery service Instacart, which alleges that the company misclassified workers as independent contractors.  And it remains to be seen whether the law will be subject to a challenge via referendum or in the courts.


A Brief History of the Consumer Financial Protection Bureau Payday Lending Rule

By: Alexander N. Ghantous

LendingBetween 2013 and 2016, the Consumer Financial Protection Bureau (CFPB) issued no fewer than six white papers or reports relating to payday loan protections.[1]  On the date of the last report, June 2, 2016, the CFPB issued a proposed rule[2], and on October 5, 2017, a final rule issued that addresses payday loans, auto title loans, and other loans that require the entire loan balance, or the majority of a loan balance, be repaid at once.[3]  The rule’s stated objective was to eliminate “payday debt traps” by, among other things, addressing underwriting through establishing “ability-to-repay” protections that vary by loan type.[4] 

Under the final rule, for payday loans, auto title loans, and other loans comprised of lengthier terms and balloon payments, the CFPB would require a “‘full-payment test” to establish that borrowers can afford to pay back the loan and also limits the quantity of loans taken “in quick succession” to only three.[5]  The rule also lays out two instances when the “full-payment test” is not required:  (1) borrowing up to $500 when the loan balance can be repaid at a more gradual pace; and (2) taking loans that are less risky, such as personal loans taken in smaller amounts.[6]  The rule would also establish a “debit attempt cutoff,” which requires lenders to obtain renewed authorization from a borrower after two consecutive unsuccessful debits on a borrower’s account.[7]  The rule was scheduled to become effective one year and 9 months after being published by the Federal Register, which was last month[8] (the rule was published on November 17, 2017[9]).     

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HUD’s FHA Lender Annual Certification Statements May Significantly Reduce FHA Lender Risk of False Claims Act Liability

By: Damon Y. Smith

New-Update-IconSeptember 13, 2019 is the deadline for comments on HUD’s proposed changes to FHA Lender Annual Certification Statements.  The most significant changes include elimination of, inter alia:

  • Broad certification language stating that the operations of the lender conformed to all HUD regulations and requirements;
  • Acknowledgements that lenders are responsible for the actions of their employees, including loan underwriters and originators;
  • General certifications that the lender is not under indictment for or convicted of offenses that reflect adversely on its integrity, competence or fitness;
  • Certifications involving criminal misconduct on the part of lender staff, including mortgage underwriters and originators; and
  • Certifications regarding compliance with the SAFE Act.

These changes represent a dramatic departure from the prior administration, which brought False Claims Act claims against lenders for submitting the certifications to be eligible for FHA programs while underwriting loans that they allegedly knew were not in compliance with FHA’s regulatory requirements.   See, e.g., https://www.housingwire.com/articles/49337-quicken-loans-agrees-to-pay-325-million-to-resolve-fha-loan-allegations-with-doj.  Because the False Claims Act liability allows for treble damages, some considered the risk of substantial liability to be too high for further participation in FHA’s single family programs.  See https://www.wsj.com/articles/banks-fled-the-fha-loan-program-the-government-wants-them-back-11557417600.

If adopted, the new certification may lead to additional interest in FHA programs from lenders who curtailed or ended their participation because of the potential risks associated with the prior certification. 

The Federal Register Notice can be found here.


DC Court Again Dismisses Challenge to OCC’s FinTech Charter, Splitting with SDNY

By: William S. C. Goldstein

FinTechOn September 3, 2019, a federal district court in the District of Columbia dismissed, for the second time, a lawsuit brought by the Conference of State Bank Supervisors (CSBS) seeking to block the Office of the Comptroller of the Currency (OCC) from issuing national bank charters to certain non-bank financial technology (FinTech) companies.  Conference of State Bank Supervisors v. Office of the Comptroller of the Currency, No. 18-cv-2449, slip op. at 1-6 (D.D.C. Sept. 3, 2019) (CSBS II).  CSBS’s earlier suit, brought in 2017, was previously dismissed by Judge Dabney Friedrich as premature:  Because OCC had not yet finalized its procedure for accepting FinTech charter applications, let alone received any applications, Judge Friedrich found that CSBS’s claims were unripe and alleged no injury sufficient for standing.  CSBS v. OCC, 313 F. Supp. 3d 285, 296-301 (D.D.C. 2018).  In October 2018, CSBS brought suit again—this time after OCC had finalized its procedures for accepting FinTech charter applications, albeit before OCC had actually received any applications.  CSBS II, slip op. at 2.  Judge Friedrich held that neither this change nor the Senate’s confirmation of Joseph Otting as Comptroller of the Currency, another change in the facts highlighted by CSBS, “cure[s] the original jurisdictional deficiency.” Id. (alteration in original; citation omitted).  The court pointedly explained that “it will lack jurisdiction over CSBS’s claims at least until a Fintech applies for a charter.” Id. at 5.

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Eleventh Circuit Rules: Receiving Text Message Was Not Injury Under the TCPA

By: Olivia Hoffman

Text MessageThe Eleventh Circuit recently decided a case that raised the bar for pleading injury under the Telephone Consumer Privacy Act (TCPA), 47 U.S.C. § 227, noting its disagreement with an earlier decision from the Ninth Circuit on the same issue and creating a possible roadblock for future plaintiff classes seeking to assert claims under the TCPA.

In Salcedo v. Hanna, the Eleventh Circuit held that “receiving a single unsolicited text message” in violation of the TCPA was not a “concrete injury” sufficient to confer standing on the plaintiff.[1]  The case arose out of a text message that plaintiff John Salcedo received from his former attorney, defendant Alex Hanna, offering Salcedo a discount on Hanna’s services.  According to Salcedo, receiving the text message “caused [him] to waste his time answering or otherwise addressing the message” and “resulted in an invasion of [his] privacy and right to enjoy the full utility of his cellular device.”[2]  Salcedo filed a class action complaint in the Southern District of Florida on behalf of a class of former clients of Hanna who had received similar unsolicited text messages.  Salcedo demanded statutory damages of $500 per text message and treble damages of $1,500 per text message for knowing or willful violations of the statute.

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Regulators Continue to Focus on the Use of Alternative Data

By: Michael W. Ross

Consumer Law Blog - August 2019In an article published last month in Law360 (and reprinted in our Consumer Finance Observer periodical), our lawyers highlighted the increasing focus of government enforcement authorities on how companies are using “alternative data” in making consumer credit decisions. For example, the article highlighted that – as stated in a June 2019 fair lending report from the CFPB – “[t]he use of alternative data and modeling techniques may expand access to credit or lower credit cost and, at the same time, present fair lending risks.” Regulators have continued to focus on this area, including on the benefits and risks of using alternative data in lending decisions.

Earlier this month, the CFPB posted a widely reported-on blog entry on the benefits of using alternative data in lending decisions. The CFPB blog post provided an update to the public on the agency’s first and only no-action letter, issued to Upstart Network, Inc. in 2017. In that letter, the CFPB stated it had no intention of taking action against Upstart under the Equal Credit Opportunity Act (ECOA), which prohibits discrimination in lending, for using certain alternative data sources – particularly information about a borrower’s education and employment history – to make credit decisions. To obtain that letter, Upstart committed to implementing a risk management and compliance plan that included a process for analyzing the potential risk that its use of alternative data could lead to impermissible discrimination against protected classes of consumers.

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5 Best Practices to Avoid TCPA Wrong-Number Claims

MobileIn an article published by Law360, Jenner & Block Partner Amy M. Gallegos provides five best practices to help businesses minimize Telephone Consumer Protection Act (TCPA) wrong-number claims in the wake of Wells Fargo’s recent $17.85 million TCPA settlement.  Penalties against companies that make wrong-number calls can be substantial, and the article highlights the importance of a strong and thorough TCPA compliance program. 

To read the full article, please click here.


Second Circuit Asks: Will New York Recognize Cross-Jurisdictional Class Action Tolling?

 

By: Gabriel K. Gillett and Katherine Rosoff

Banana plantationOn August 7, 2019 the Second Circuit certified two questions to the New York Court of Appeals with broad implications for multi-jurisdictional class actions.  First, “whether New York recognizes ‘cross-jurisdictional class action tolling,’ i.e., tolling of a New York statute of limitations by the pendency of a class action in another jurisdiction.”  Chavez v. Occidental Chem. Corp., -- F.3d. --, 2019 WL 3673190, *1 (2d Cir. Aug. 7, 2019).  Second, “whether non-merits dismissal of class certification can terminate class action tolling” when dismissal included a “return jurisdiction” clause allowing the plaintiffs to renew their claims if they were unable to find an adequate forum in their home countries.  Id. 

The case was brought by agricultural workers from Costa Rica, Ecuador and Panama, alleging they suffered adverse health effects from a pesticide used on banana plantations.  The parties agree that their claims accrued no later than August 1993 and are subject to New York’s 3-year statute of limitations in personal injury actions.  However, the parties dispute whether plaintiffs’ claims were tolled by related actions filed in other jurisdictions.

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New York SHIELD Act Expands Data Security and Breach Notification Requirements

By: Kara K. Trowell

ShieldOn July 25, 2019, New York enacted the Stop Hacks and Improve Electronic Data Security Act (SHIELD Act), which significantly amended the state’s data breach notification law to impose additional data security and data breach notification requirements on covered entities.

Expanded Definitions.

Under the new law, the definitions of “private information” and “breach of the security system” have been revised in ways that broaden the circumstances that qualify as a data “breach” and could trigger the notification requirements.  First, private information has been expanded to include:

  • (a) financial account numbers that can be used alone to access a financial account;
  • (b) biometric data used to authenticate an individual’s identity;
  • (c) standalone data such as a user name or email address in combination with a password or security question and answer that would permit access to an online account; and
  • (d) unsecured protected health information covered under HIPAA.

These changes effectively expand the types of situations covered by the law that could result in a breach of system security and trigger the notification requirements.

Second, the circumstances that qualify as a “breach” have been expanded to now include incidents that involve “access” to private information, regardless of whether they resulted in “acquisition” of that information.

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Second Circuit Creates Split on Investment Company Act Private Right of Action

 

By: Gabriel K. Gillett and Howard S. Suskin

New-Development-IconIn a decision issued on August 5, 2019, the US Court of Appeals for the Second Circuit created a split with other courts, including the Third Circuit, on the issue of whether there is a private right of action for rescission under the Investment Company Act (ICA).  The Second Circuit held that, based on the text of the statute and its legislative history, “ICA § 47(b)(2) creates an implied private right of action for a party to a contract that violates the ICA to seek rescission of that violative contract.”  Oxford University Bank v. Lansuppe Feeder Inc., No. 16-4061 (2d Cir. Aug. 5, 2019), Slip op. 23.  In so holding, the court acknowledged that it was creating a circuit split:

We note that the Third Circuit and several lower courts have reached the opposite result.  In Santomenno ex rel. John Hancock Trust v. John Hancock Life Ins. Co., 677 F.3d 178 (3d Cir. 2012), the Third Circuit found plaintiffs lacked a private right of action to seek rescission under § 47(b).  Plaintiffs in Santomenno alleged violations of ICA § 26(f), which makes it unlawful to pay ‘fees and charges’ on certain insurance contracts that exceed what is ‘reasonable,’ id. at 187, and sought rescission (in addition to monetary damages).  The court in Santomenno found that plaintiffs did not have a cause of action.  We do not find the reasoning in Santomenno persuasive. 

Slip op. 21-22.

Litigators should watch to see how other courts weigh in, and whether the Supreme Court ultimately takes up the issue to resolve the split.

Gabriel Gillett is an Associate in Jenner & Block’s Appellate & Supreme Court Practice in Chicago.   Howard Suskin is a Partner and Co-Chair of the Securities Litigation Practice Group at the firm.