Texas Jury Awards $200 Million In Mobile Banking Patent Dispute

By: Benjamin J. Bradford IStock-1155413889

On November 6, a jury in the Eastern District of Texas awarded the United Services Automobile Association (USAA) a $200 million verdict finding that Wells Fargo willfully infringed two of USAA’s patents directed to the “auto-capture” process, which is used by banking customers to deposit checks using photographs taken from a mobile phone or other device.  (Civ. No. 2:18-cv-00245 (E.D. Tex.))  Based on the finding of willfulness, USAA may be entitled to enhanced damages beyond the $200 million verdict.

Despite the verdict, the fight between Wells Fargo and USAA is still ongoing.  Wells Fargo filed patent office challenges to the validity of USAA’s patents, which are still pending before the Patent Trial and Appeals Board, but may not be decided for another 15 months.  In addition, Wells Fargo will likely appeal the decision, including a recent denial of summary judgment that found the patents were not invalid under 35 U.S.C. 101.  Nevertheless, the verdict against Wells Fargo will likely embolden USAA to assert its patents against other banks and financial institutions that use an “auto-capture” process. 


The Intersection of the California Consumer Privacy Act and California’s Preexisting Consumer Protection Statutes

By Kate T. Spelman

CaliforniaWith the close of the California state legislative session on Sept. 14, 2019, the final shape of the California Consumer Privacy Act (CCPA)—which is set to take effect on Jan. 1, 2020—came into focus. The most recent amendments included carve-outs for business-to-business contracts and employee records, though both sunset after a year. While the statutory language is settled for now, many questions remain about how it will be enforced. The Attorney General has issued proposed regulations clarifying some of this uncertainty. However, one issue that may be left for future judicial interpretation is the interplay between the CCPA and California’s preexisting consumer protection statutes such as the Unfair Competition Law (UCL) and the Consumer Legal Remedies Act (CLRA). As discussed below, the CCPA contains an explicit prohibition, along with implicit safe harbors, likely to limit certain UCL and/or CLRA claims related to the use or disclosure of information subject to the CCPA.

The CCPA Likely Bars Derivative UCL Claims

The CCPA provides for enforcement by the Attorney General, but §1798.150(a) creates a private right of action for consumers whose personal information “is subject to an unauthorized access and exfiltration, theft, or disclosure as a result of the business’s violation of the duty to implement and maintain reasonable security procedures and practices.” Despite several legislative attempts to broaden the private right of action—which were supported by California’s Attorney general—it is currently limited to “violations as defined in subdivision (a),” precluding CCPA claims related to violations of other statutory provisions. (Notably, the CCPA contains no express provision permitting attorney fees for prosecution of claims under §1798.150, though plaintiffs’ attorneys may argue that such fees should be awarded as “other relief the court deems proper” (§1798.150(a)(1)(C)), or pursuant to the private attorney general attorney fee statute, CCP §1021.5.)

Continue reading "The Intersection of the California Consumer Privacy Act and California’s Preexisting Consumer Protection Statutes" »


California Attorney General Issues Proposed CCPA Guidelines

By: David P. Saunders

New-Update-IconOn October 10, 2019, the California Attorney General surprised many by issuing 24 pages of proposed regulations implementing the California Consumer Privacy Act of 2018 (CCPA).  After reviewing the proposed regulations, they have left many in the industry shaking their heads.  Absent from the proposed regulations is much of the clarity that industry participants were hoping for.  In its place are additional obligations that not only risk confusing consumers, but that likely will pose administrative and logistical challenges.

Public comment on the proposed regulations is open through 5:00 pm PST on December 6, 2019.  Interested parties can submit comments by e-mail to PrivacyRegulations@doj.ca.gov or by mailing comments to the Privacy Regulations Coordinator, California Office of the Attorney General, 300 South Spring Street, First Floor, Los Angeles, CA 90013.  Additionally, the Attorney General will be holding four public hearings on the new proposed regulations, the schedule of which is available here. 

In the meantime, let us examine the proposed regulations...

To read the full client alert, please click here


FinCEN Has Eye on Sports Betting, Crypto Money Laundering Risks

Casino1In an article published by Bloomberg, Partners Reid J. Schar and Wade A. Thomson and Associate E.K. McWilliams highlight a recent speech by the director of the Financial Crimes Enforcement Network (FinCEN), an arm of the Treasury Department.  Speaking at an anti-money laundering conference in Las Vegas, FinCEN Director Kenneth A. Blanco affirmed the Department’s commitment to enforcing the Bank Secrecy Act on casinos and other businesses that deal in cryptocurrency.  The authors give context to the speech and discuss its implications for brick-and-mortar and online gaming establishments.

To read the full article, please click here.


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]).     

Continue reading "A Brief History of the Consumer Financial Protection Bureau Payday Lending Rule" »


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.

Continue reading "DC Court Again Dismisses Challenge to OCC’s FinTech Charter, Splitting with SDNY" »


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.

Continue reading "Eleventh Circuit Rules: Receiving Text Message Was Not Injury Under the TCPA" »


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.

Continue reading "Regulators Continue to Focus on the Use of Alternative Data " »