Donald J. Querio

No, the Consumer Financial Protection Bureau (“CFPB”) is not meddling—at least not yet—in the fraught area of reproductive rights. “Concepcion” in this instance refers to the landmark decision of the United States Supreme Court in AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S. Ct. 1740 (2011), that held that traditional one-on-one arbitration as envisioned by the Federal Arbitration Act (“FAA”) trumps the class action procedure recognized under Rule 23 of the Federal Rules of Civil Procedure, or its various state analogs. The self-anointed consumer advocates across the country, especially the class action bar whose gargantuan fee awards are being threatened, howled their disapproval. Unsuccessful in the courts and in their efforts to get Congress to exempt consumer finance contracts from the FAA, they have turned to the CFPB and asked it to do by regulation what those traditional branches of government would not: reopen the great class action motherlode.

So where does the CFPB get the authority to rewrite federal law? In response to the 2008 financial crisis, Congress passed the Dodd-Frank Act, which delegated the real decision making on many policy issues affecting financial services to the CFPB. Section 1028 of the Dodd-Frank Act authorized the CFPB to “prohibit or impose conditions or limitations on the use of an agreement” to arbitrate by consumer financial service providers if it finds that such regulatory action “is in the public interest and for the protection of consumers.” But Congress placed a roadblock before the CFPB—a requirement that it conduct an investigation prior to proposing regulations concerning consumer arbitration. On March 15, 2015, the CFPB issued its 728-page final report on arbitration, and any doubt about its lack of objectivity was confirmed by the title of the CFPB’s official press release: “CFPB Study Finds That Arbitration Agreements Limit Relief for Consumers.” The report might as well have been drafted by the class action bar itself.

The CFPB Report condemns consumer arbitration on two grounds: (1) the small amount of relief awarded to consumers through arbitration verses the collective relief achieved through class actions; and (2) the alleged lack of awareness by consumers of the arbitration clauses contained in the form finance contracts that they regularly sign.

Most of the report is dedicated to creating the illusion that the first point is based on a serious statistical analysis. For example, the CFPB claims to have reviewed 1,060 cases filed with the American Arbitration Association in 2010-2011 concerning such consumer contracts, only 341 of which resulted in decisions by the arbitrators, the net result of which was consumers recovered $400,000 in damages and debt forgiveness while companies recovered $2.8 million against consumers. By comparison, 32 million consumers were “eligible” annually for relief through class actions, most of which resulted in court-approved settlements. Of course, this is a false dichotomy because all the figures were garnered in a period of time when the consumer bar was interested only in pursuing class actions and arbitration of individual claims was routinely denied. To put it bluntly, the plaintiff’s bar had grown fat and happy pursuing class claims without having to deal with the troubling details of individual consumers’ cases.

In making such a comparison between individual arbitration and class actions—assuming such a comparison was really within the Dodd-Frank mandate for an investigation—the better approach would have been to study the results of class actions on individual consumers. The real danger of class actions is that they homogenize class members’ claims, delivering meaningless or token relief both to those who have suffered real harm and those who are perfectly satisfied with their treatment by the defendant. Those consumers who have suffered at the hands of a retailer or creditor want, above all, their “day in court.” Win or lose, the chance to describe their claim to a retired judge or other arbitrator means more in the end than receiving a lengthy notice of class settlement, a complicated claim form and token relief in the form of the forgiveness of a debt the company had long ago ceased trying to collect. As anyone who has practiced in the … (read more…)

Joseph W. Guzzetta

The United States Supreme Court will decide this term whether a strategy used by some class action defendants to minimize class action liability—including some banks in recent class actions—will continue to be a viable strategy to eliminate class action lawsuits. So-called “pick-off” settlements have long been controversial, and that controversy has now reached the high court.

Because class actions bring with them the prospect of business-crushing liability, along with large attorneys’ fee awards, some defendants have managed that liability by “picking off” the named plaintiff. That is—offering full recovery to the named plaintiff under Rule 68 of the Federal Rules of Civil Procedure in federal cases or, in state cases, providing the named plaintiff with all the relief they claim they should receive in the lawsuit. The defendant will then bring a motion to dismiss the lawsuit, arguing that the named plaintiff no longer has claims that are typical of the class he or she seeks to represent, and without a named plaintiff, the lawsuit cannot continue. These so-called … (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…)

Banking Update


Mark I. Wraight

The 1970 Bank Secrecy Act (the “BSA”), as amended from time to time by laws such as the Annunzio-Wylie Anti-Money Laundering Act and the USA PATRIOT Act, was designed to require financial institutions to assist the government in detecting and preventing criminal activity such as money laundering, drug trafficking and terrorist financing. To accomplish its purpose, the BSA requires banks “to report any suspicious transaction relevant to a possible violation of law or regulation.” 31 U.S.C. § 5318(g). More specifically, regulations implemented by the Office of the Comptroller of the Currency (“OCC”) and the United States Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”), for example, require banks to complete a Suspicious Activity Report (“SAR”) “when they detect a known or suspected violation of Federal law or a suspicious transaction related to a money laundering activity or a … (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…)

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…)

Severson News

David Berkley (OC) and Eric J. Troutman (OC) represented a major automobile finance institution in an AAA arbitration brought by a claimant alleging that Severson’s client had violated the Telephone Consumer Protection Act and the Fair Debt Collection Practices Act and for common law violation of privacy. After hearing the evidence, the arbitrator found in favor of Severson’s client on all causes of action. In addition, the arbitrator awarded Severson’s client the balance owed on the vehicle and also awarded the client its attorneys’ fees incurred in pursuing the counterclaim.

In March 2015, Severson’s Andrew W. Noble (SF) represented a lender in a three-day bench trial in federal court in the Western District of Washington of claims brought by a mortgage borrower for violation of Washington’s Deed of Trust Act and Consumer Protection Act, alleging that the lender had failed to perfect its ownership of the loan and failed to provide pre-foreclosure notices required under Washington law. The trial court rejected the plaintiff’s claims and entered judgment in favor of Severson’s client.

In July 2015, Severson attorneys Joseph W. Guzzetta (SF) and Jarlath M. Curran, II (OC) represented a major national lender in a jury trial in Los Angeles County Superior Court of claims for unfair competition, fraud, breach of fiduciary duty, wrongful … (read more…)

TCPA Update

Genevieve R Walser-Jolly

Genevieve R Walser-Jolly

On February 9, 2017, the Fairness in Class Action Litigation Act of 2017, H.R. 985 (“FCALA”), was introduced in the United States House of Representatives by Rep. Robert Goodlatte (R-Va.). On March 9, 2017, the bill passed 220 to 201 and now proceeds to the Senate. The FCALA, if passed through Congress, will be the most extensive class action reform since the 2005 Class Action Fairness Act, which was also authored by Rep. Goodlatte. The FCALA will transform class actions as each stage of litigation will be impacted.

Class Member Typicality Regarding Injuries.  Under Rule 23(a) of the Federal Rules of Civil Procedure, class representatives must show that their claims are “typical” of the class members. The FCALA clarifies and arguably heightens the typicality requirement. Representatives would be required to show that they … (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…)