Donald J. Querio

How could anyone forget the original Star Wars Trilogy (later renumbered by George Lucas as Episodes 4 through 6)? In the original hit, the galaxy was under the spell of the Dark Side of the Force as personified by the Evil Emperor and his henchman, Darth Vader. Against all odds and thanks to their daring-do, the Jedi Knights and their compatriots leveled the playing field and set off a rebellion, bringing hope to the Galaxy. Then, in the sequel, the Emperor and Lord Vader made their comeback, leaving the audience hanging as to whether truth and justice would ever prevail. It was aptly named “The Empire Strikes Back.”

The same script could be easily adapted to the battle pitting the Federal Arbitration Act (“FAA”) against the ever-expanding empire of class actions. For years, the class action bar has expanded its reach into virtually every aspect of American life, from finance to foodstuffs. At its high-water mark, this growing cadre of self-proclaimed consumer advocates threatened to turn our judicial system into a regulatory powerhouse, displacing traditional legislatures and agencies as slow and inefficient. What better way to effect social policy than through the threat of annihilating damages? Judge Easterbrook was one of the first jurists to recognize the threat. He wrote, “[e]fficiency is a vital goal in any legal system–but the vision of ‘efficiency’ underlying this class certification is the model of the central planner.” In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1020 (7th Cir. 2002).

Against a well-funded and politically connected class action bar, the chances of restoring the legal system to its traditional role of adjudicating individual disputes on a case-by-case basis seemed slim. That is until a few brave souls found hope in a nearly century-old federal statute that guaranteed parties a simple, expeditious forum for resolving disputes: the FAA. For almost a decade, the advocates of arbitration as an alternative to impersonal and lawyer-driven class actions were derided as dreamers, cranks or worse. In fact, most courts, especially in states like California, created multiple doctrines that forestalled this mini-rebellion. Of course, the effect of these decisions was to upset the traditional order of precedent such that court-created procedural rules–Federal Rules of Civil Procedure Rule 23 and its state analogs–were held to trump a federal statute mandating the enforcement of private arbitration agreements.

All seemed lost, that is until the U.S. Supreme Court halted the class action stormtroopers in their tracks. In AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740 (2011), which has, for good reason, been discussed heavily in these pages, the High Court held that with rare exception (for example, unconscionability), arbitration agreements affecting interstate commerce are enforceable according to their terms. Class action advocates were stunned and worried, especially for their pocketbooks. As the curtain came down, the class action juggernaut was in disarray, and the proponents of arbitration were jubilant about the possible restoration of the traditional Anglo-American method … (read more…)


Michael J. Steiner

Granting certiorari in Spokeo, Inc. v. Robins, the United States Supreme Court will consider whether Congress can confer standing to sue upon consumers who allege violations of federal statutory rights, without any actual injury, in order to seek awards of statutory penalties. 135 S. Ct. 1892 (Apr. 27, 2015). This is an issue of potentially far-reaching significance to consumer lenders, as these types of high-exposure class actions have proliferated in federal courts over the past decade.

To establish standing and federal jurisdiction under Article III of the United States Constitution, a plaintiff must show that he (1) “has suffered an ‘injury in fact’ that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical,” (2) caused by the defendant, and (3) that it is likely that “the injury will be redressed by a favorable decision.” Friends of the Earth, Inc. v. Laidlaw Envt’l. Servs. Inc., 528 U.S. 167, … (read more…)


Auto Finance Update

Scott J. Hyman

Introduction. According to the Terminator movies, Skynet, the nefarious defense computer system that turned on and later waged war against humans, was to become self-aware at 2:14 a.m. on August 29, 1997. We all assumed we were safe when that date passed, and nothing happened. But perhaps Sarah and John Conner managed only to delay Skynet’s progress.

The “Google Car” drives itself autonomously around Silicon Valley. Audi’s RS7 piloted driving concept hits 140 mph—driverless. Mercedes-Benz’s Distronic Plus’ Steering Assist and Stop and Go handles the driver’s job. How will state governments (and the federal government) regulate this new frontier of self-driving automobiles?

In a rare moment of regulatory foresight, the State of California enacted a pilot regulatory program in 2014 for autonomous vehicles. Cal. Veh. Code § 38750(c). Distinguishing between “autonomous vehicles” … (read more…)

Bankruptcy Update


Donald H. Cram III

In overturning an Eleventh Circuit decision that put collectors on the hook for filing bad faith claims against a debtor, the United States Supreme Court in Midland Funding, LLC v. Johnson, 137 S. Ct. 1407 (U.S. May 15, 2017) held that filing of a proof of claim that is obviously time-barred is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the Fair Debt Collection Practices Act (“FDCPA”).

Facts and History. Midland filed a proof of claim for a $1,879.71 credit card debt in Johnson’s Chapter 13 bankruptcy case. The statement attached to Midland’s claim asserted that the last time any charge appeared on the account was more than 10 years before Johnson’s bankruptcy filing. The relevant state statute of limitations for collecting on the account was six years. Johnson objected to the proof of claim. The bankruptcy court … (read more…)

Emerging Trends


Kerry W. Franich

On October 11, 2016, the D.C. Circuit Court of Appeals issued its bombshell opinion in PHH Corp. v. CFPB, 839 F.3d 1 (D.C. Cir. 2016).  Media reports have primarily covered the Constitutional issue the decision resolved—that the structure of the Consumer Financial Protection Bureau (“CFPB”) violates Article II’s delegation of all executive powers to the President.  But the decision also contains two practical holdings that will benefit financial institutions subject to the CFPB’s regulation.  Those holdings, while unquestionably good, are not enough to warrant celebration just yet.  The decision may invite a spike in future CFPB enforcement actions, and it is uncertain whether the decision will remain good law in any event.  The CFPB has petitioned the D.C. Circuit for hearing en banc, and if the en banc panel upholds the decision, it could possibly petition the United States Supreme Court for … (read more…)

Employment Update


Rhonda L. Nelson

Here are some of the new employment laws that went into effect in California on January 1, 2016. It is probably no surprise that most of the laws continue to favor employees:

Minimum Wage Increase. As of January 1, 2016, the California state minimum wage increased from $9 to $10. This accordingly increased the minimum salary for many exempt classifications from $37,440 to $41,600.

California Fair Pay Act (SB 358). The new Fair Pay Act amended California’s existing pay law, and became one of the strongest equal pay laws in the nation. It is now more difficult for an employer to defend against an equal pay claim. The Act lowers the burden of proof for plaintiffs claiming gender-discrimination pay practices. The employee need only show that he or she is not being paid at the same rate for “substantially similar” work, rather than “equal” work as used in prior law. The Fair Pay Act also … (read more…)

FCRA Update

Alisa A. Givental

It does not matter whether the lawsuit asserts claims under the Fair Credit Reporting Act (“FCRA”), California’s Consumer Credit Reporting Agencies Act (“CCRAA”), or the myriad of consumer protection laws applicable to consumer finance litigation––consumers regularly request in settlement that the creditor delete the tradeline associated with the account in dispute. Deletion of a tradeline is a remedy that consumers usually cannot obtain in court, because a private litigant cannot obtain injunctive relief under the FCRA. See, e.g., Kaplan v. Experian, Inc., 2010 WL 2163824, at *4 (E.D. Mich. May 26, 2010) (“In response to Plaintiff’s assertion that he is seeking injunctive relief (i.e., an order requiring Experian to delete certain tradelines from his credit report), Experian contends that a private litigant cannot obtain injunctive relief under the FCRA. The Court agrees.”). … (read more…)

FDCPA Update


Elizabeth Holt Andrews

On October 19, 2016, the Ninth Circuit Court of Appeals waded into California’s heavily litigated foreclosure arena with a 2-1 opinion in the hotly contested case of Ho v. ReconTrust Company, N.A., 840 F.3d 618 (2016).

In a resounding victory for the mortgage banking industry, former Chief Judge Alex Kozinski authored a majority opinion interpreting the federal Fair Debt Collection Practices Act to exclude foreclosure trustees from the statutory definition of “debt collector.”  The financial services bar had long been waiting for the Ninth Circuit to choose a side in the nationwide debate over the scope of this statute, and the court’s decision may represent a turning of the tide in favor of mortgage servicers, foreclosure trustees, and their agents.

Debt Collection: A Quagmire Of Federal And State … (read more…)

About the Firm

Since its founding over 70 years ago, Severson & Werson has gained a reputation for providing specialized advice, legal services, and expertise to financial institution clients. The services we provide run the gamut, from litigation to regulatory matters, legislative affairs and formulating and implementing nationwide strategies for such things as defending consumer class action cases. The scope of our practice is national, and today the Firm’s clients include many of the nation’s premier banks, savings associations, commercial and consumer finance companies, mortgage companies and loan servicers, and insurance concerns.

In 2001, the Consumer Finance Report was awarded “best newsletter” by the Legal Marketing Association, Bay Area Chapter. It is edited by Joseph W. Guzzetta, with the assistance of Evelina Manukyan and Elizabeth Holt Andrews, and is published three times each year for the benefit of our clients and others with concerns requiring current information focusing on California developments in the areas of consumer finance and litigation. Joseph Guzzetta is an associate of the Firm who specializes in defending financial institution clients against single-plaintiff lawsuits and class action cases. He can be reached in the San Francisco office or by email at jwg@severson.com. The contents of this publication are for informational purposes only. No responsibility is assumed for errors in the publishing process. © 2014 Severson & Werson, … (read more…)