Articles Posted in Banking

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In 2007, Fendon borrowed money from Bank of America, secured by a home mortgage. A borrower may rescind such a transaction for any reason within three days and for some reasons within three years, 15 U.S.C. 1635. Fendon alleges that he notified BOA on August 15, 2008; April 16, 2009; and June 17, 2010, that he was rescinding the loan, and that BOA ignored the first two notices and rejected the third. In 2011, BOA filed a foreclosure action. In 2016, a state court entered a final judgment confirming the foreclosure sale. Fendon filed suit under the Truth in Lending Act after the sale. The Seventh Circuit affirmed dismissal. Federal district courts lack authority to revise the judgments of state courts. Even damages relief, which would not disturb the state judgment, is untimely under the Act. If Fendon had filed suit before the foreclosure action, he might have had a strong argument that rescission could be enforced at any time but he did not. After BOA ignored his notices of rescission, he ignored BOA. By 2016, when he filed suit, the only possible relief was damages. BOA did not say or do anything after September 2008 that established either equitable tolling or estoppel. View "Fendon v. Bank of America, N.A." on Justia Law

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In 2009, Bancorp, which provides checking and savings accounts to individuals, purchased a bankers’ professional liability insurance policy from Federal. The policy stated: [Federal] shall pay, on behalf of an Insured, Loss on account of any Claim first made against such Insured during the Policy Period … for a Wrongful Act committed by an Insured or any person for whose acts the Insured is legally liable while performing Professional Services, including failure to perform Professional Services" but that Federal “shall not be liable for Loss on account of any Claim … based upon, arising from, or in consequence of any fees or charges” (Exclusion 3(n)). The 2010 Swift Complaint sought damages for Bancorp's "unfair and unconscionable assessment and collection of excessive overdraft fees.” Swift sought to represent a class of all U.S. BancorpSouth customers who "incurred an overdraft fee as a result of BancorpSouth’s practice of re-sequencing debit card transactions from highest to lowest.” In 2016, Bancorp agreed to pay $24 million to resolve all the claims, $8.4 million of which was for attorney’s fees, plus $500,000 in class administrative costs. Federal denied coverage. The Seventh Circuit agreed that Exclusion 3(n) excluded from coverage losses arising from fees and affirmed the dismissal of breach of contract claims and a bad faith claim. View "BancorpSouth Inc. v. Federal Insurance Co." on Justia Law

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Portfolio alleges that in 1993, Pantoja incurred a debt for annual fees, an activation fee, and late fees for a Capital One credit card that he applied for but never actually used. In 2013, long after the statute of limitations had run, Portfolio, having purchased bought Capital One’s rights to this old debt, sent Pantoja a dunning letter trying to collect. The letter claimed that Patoja owed $1903 and offered several “settlement options.” The Fair Debt Collection Practices Act, 15 U.S.C. 1692e, prohibits collectors of consumer debts from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” The district court granted summary judgment in favor of Pantoja on his claim under section 1692e. The Seventh Circuit affirmed, agreeing that the dunning letter was deceptive or misleading because it did not tell the consumer that Portfolio could not sue on the time‐barred debt and it did not tell the consumer that if he made, or even just agreed to make, a partial payment on the debt, he could restart the clock on the long‐expired statute of limitations, bringing a long‐dead debt back to life. View "Pantoja v. Portfolio Recovery Associates, LLC" on Justia Law

Posted in: Banking, Consumer Law

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In consolidated cases, the debtors obtained Federal Housing Administration-insured residential mortgage loans and subsequently defaulted due to financial hardship. The law firms represented the loan servicing agents in filing Illinois foreclosure complaints, using the statutory complaint template (Illinois’ Mortgage Foreclosure Law, 735 Ill. Comp. Stat. 5/15-1504(a)), which includes the language: “Names of defendants claimed to be personally liable for deficiency, if any[,]” and, “[a] personal judgment for a deficiency, if sought.” The firms included both allegations, and identified debtors to be personally liable for any deficiency. The debtors filed suit under the Fair Debt Collection Practices Act, 15 U.S.C. 1692, alleging that the FHA does not authorize deficiency judgments where borrowers suffered a financial hardship. They submitted a letter from the FHA responding to a Freedom of Information Act request, stating: There have been zero foreclosed FHA loans in Illinois in which the pursuit of a deficiency judgment was authorized. FHA is not currently pursuing deficiency judgments.” The district court dismissed. The Seventh Circuit affirmed. Debtors did not identify any law, regulation, or FHA policy requiring a mortgagee to obtain authorization from the FHA prior to including the two allegations at issue in their state-foreclosure complaint. View "Zuniga v. Pierce & Associates" on Justia Law

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The defendants were indicted for committing and conspiring to commit wire fraud, 18 U.S.C. 1343 & 1349, by extracting money from lenders (including Bank of America) that had financed the sale of defendants' Gary, Indiana properties. The defendants had represented that buyers of the properties were the source of the down payments; the defendants had actually given the buyers the money to enable them to make the down payments. They had also helped the buyers provide, in loan applications, false claims of creditworthiness. The judge ordered restitution of $893,015 to Bank of America. The Seventh Circuit remanded, directing the court to consider an alternative remedy. Restitution is questionable because Bank of America, though not a coconspirator, did not have clean hands. It ignored clear signs that the loans were “phony.” The court referred to a history of “shady” practices and characterized the Bank as “reckless.” The court acknowledged that the Mandatory Victim Restitution Act requires “mandatory restitution to victims,” 18 U.S.C. 3663A, for “an offense resulting in damage to or loss or destruction of property of a victim of the offense,” but stated that Bank of America was deliberately indifferent to the risk of losing its own money, because it intended to sell the mortgages and transfer the risk of loss to Fannie Mae for a profit. View "United States v. Tartareanu" on Justia Law

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BMS provides administrative services to bankruptcy trustees. It uses Rabobank as the depositary for banking services that BMS provides through its software. Crane, the trustee in the Integrated bankruptcy, hired BMS; the contract required Crane to hire Rabobank for banking services in the proceeding. In a separate contract, Crane authorized Rabobank to withdraw its monthly fee. The plaintiff, a law firm, was a creditor of Integrated and filed a bankruptcy claim, ultimately receiving a distribution of $12,472.55. It would have received $12,666.90, but for its part of Rabobank’s fee, and more had Rabobank paid interest on the estate’s deposits. Plaintiff sued under the Bank Holding Company Act, 12 U.S.C. 1972(1)(E), which states that a bank shall not "extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition … that the customer shall not obtain some other credit, property, or service from a competitor of such bank … other than a condition … to assure the soundness of the credit.” The Seventh Circuit affirmed dismissal. Had Rabobank conditioned its provision of services on the trustee never hiring any other bank in any bankruptcy proceeding, it would constitute exclusive dealing. No one forced Crane to deal with BMS and Rabobank and there was no argument that the fee was exorbitant, or would have been lower with a different bank. View "McGarry & McGarry, LLC v. Rabobank, N.A." on Justia Law

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JPMorgan offers to manage clients’ securities portfolios. Its affiliates sponsor mutual funds in which the funds can be placed. Plaintiffs in a putative class action under the Class Action Fairness Act, 28 U.S.C. 1332(d)(2), alleged that customers invested in these mutual funds believing that, when recommending them as suitable vehicles, JPMorgan acts in clients’ best interests (as its website proclaims), while JPMorgan actually gives employees incentives to place clients’ money in its own mutual funds, even when those funds have higher fees or lower returns than third-party funds. The Seventh Circuit affirmed dismissal under the Securities Litigation Uniform Standards Act, 15 U.S.C. 78bb(f), which requires the district court to dismiss any “covered class action” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” Under SLUSA, securities claims that depend on the nondisclosure of material facts must proceed under the federal securities laws exclusively. The claims were framed entirely under state contract and fiduciary principles, but necessarily rest on the “omission of a material fact,” the assertion that JPMorgan concealed the incentives it gave its employees. View "Holtz v. J.P. Morgan Chase Bank, N.A." on Justia Law

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If a LaSalle Bank custodial account had a cash balance at the end of a day, the cash would be invested in (swept into) a mutual fund chosen by the client. The Trust had a custodial account with a sweeps feature. After LaSalle was acquired by Bank of America, clients were notified that a particular fee was being eliminated. The trustee, who had not known about the fee, brought a putative class action in state court, claiming breach of the contract (which did not mention this fee) and violation of fiduciary duties. The bank removed the suit to federal court, relying on the Securities Litigation Uniform Standards Act, 15 U.S.C. 78bb(f), which authorizes removal of any “covered class action” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” The statute requires that such state‑law claims be dismissed. The district court held that the suit fit the standards for removal and dismissal. The Seventh Circuit affirmed. The complaint alleged a material omission in connection with sweeps to mutual funds that are covered securities; no more is needed. The Trust may have had a good claim under federal securities law, but chose not to pursue it; the Act prohibits use of a state-law theory. View "Goldberg v. Bank of America, N.A." on Justia Law

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Builders Bank is insured and regulated by the Federal Deposit Insurance Corporation (FDIC), which conducts a “full‐scope, on‐site examination” every 12-18 months, 12 U.S.C. 1820(d). After a 2015 examination, the FDIC assigned the Bank a rating of four under the Uniform Financial Institutions Rating System, which has six components: capital, asset quality, management, earnings, liquidity, and sensitivity (CAMELS). The highest rating is one, the lowest five. The Bank claims that its rating should have been three and that the lower rating was arbitrary and capricious. The Seventh Circuit vacated the district court’s dismissal. The presence of capital as one of the CAMELS components does not necessarily mean that the rating as a whole is committed to agency discretion for the purposes of 5 U.S.C. 701(a)(2). The FDIC has discretion to set appropriate levels of capital for each institution, 12 U.S.C. 3907(a)(2), but the Bank argued that it takes the FDIC’s capital requirements as given and challenged only its application of the “asset quality, management, earnings, liquidity, and sensitivity” factors. The court did not determine whether other components of a CAMELS rating may be committed to agency discretion. View "Builders Bank v. Federal Deposit Insurance Corp." on Justia Law

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Plaintiffs’ Indianapolis home had a mortgage serviced by J.P. Morgan Chase. In 2011 plaintiffs accused Chase of paying the wrong homeowner’s insurer using $1,422 from their escrow account. They had switched insurers without telling Chase. When Chase learned of the change, it promptly paid the new insurer and informed plaintiffs that their old insurer would send a refund. Chase told them to forward the refund to replenish the depleted escrow. When the refund came, plaintiffs kept the money. Chase adjusted their mortgage payment to make up the shortfall. When plaintiffs refused to pay the higher amount, the mortgage went into default. Instead of curing, they requested information under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2601–2617, which requires the bank to correct account errors and disclose account information. They demanded that Chase reimburse their escrow. Chase sent a complete account history. Plaintiffs divorced, ending their 25-year marriage. They sued Chase, claiming that its response was inadequate under RESPA and caused more than $300,000 in damages—including the loss of their marriage— and claiming breach of the implied covenant of good faith and fair dealing. The Seventh Circuit affirmed summary judgment for Chase. Chase’s response complied with its RESPA duties. To the extent that any requested information was missing, plaintiffs suffered no actual damages. Nor did Chase breach the duty of good faith and fair dealing, assuming that Indiana would recognize the implied covenant in this context. View "Perron v. J.P. Morgan Chase Bank, N.A." on Justia Law