Key cases will also be ongoing in the Second Circuit, the D.C. Circuit and the D.C. district court that could help define the battle lines between banks and other financial firms and the regulators that oversee them.
Here are five cases to watch in 2016:
Midland Funding LLC et al. v. Saliha Madden
One of the biggest banking cases of 2016 could either end with a swift bang or last awhile. The banking world is waiting to see if the Supreme Court agrees to hear an appeal of the Second Circuit’s ruling in Manning v. Midland Funding, a decision that subjected all debt and consumer loans issued by a national bank and sold to a third party to state usury claims.
The Second Circuit revived a class action that accuses Midland Funding LLC and Midland Credit Management Inc., both units of Encore Capital Group Inc., of violating New York’s usury law because the interest rates on credit card debt Midland was seeking to collect were higher than the state’s 16 percent limit.
The Second Circuit’s decision, announced in May, has had a chilling effect throughout the financial services world, from banks that sell debt and are not subject to state usury claims because of the preemptive powers of the National Bank Act to debt collectors and the burgeoning marketplace lending industry.
“It has an impact in a lot of areas, particularly marketplace lending where a lot of lenders rely upon a model that could be affected by the Madden case,” Ballard Spahr LLP partner Alan Kaplinsky said.
Because those lenders base their business model on being able to sell off their loans after issuing them through a national bank, making them subject to usury caps would disrupt their business models in states covered by the Second Circuit, including New York.
The Madden case’s reach could be far broader than just the three states of the Second Circuit. Consumers seeking to file a suit against any national bank, marketplace lender or debt collector could find a way to link their cases to Vermont, Connecticut or, more likely, New York and file a case.
That would force banks to make guesses about the potential risks when they make loans, said Michael Johnson, a partner with Arnold & Porter LLP.
“And that’s not predictable in the best circumstances,” he said.
Midland is represented by Kannon K. Shanmugam, Allison B. Jones, Masha G. Hansford and Katherine A. Petti of Williams & Connolly LLP and Thomas A. Leghorn and Joseph L. Francoeur of Wilson Elser Moskowitz Edelman & Dicker LLP.
Madden is represented by Daniel Schlanger and Peter T. Lane of Schlanger & Schlanger LLP and Owen Randolph Bragg of Horwitz Horwitz & Associates.
The case is Midland Funding LLC et al. v. Saliha Madden, case number 15-610, in the Supreme Court of the United States.
Spokeo Inc. v. Thomas Robins et al. and Campbell-Ewald Co. v. Gomez
The Spokeo case is another in a string of cases before the Supreme Court that could limit the size and scope of class action lawsuits.
The case could limit the ability of consumers to bring class action claims when they cannot point to any concrete harm meted out by the defendant. In turn, a ruling in favor of the company could limit the number of plaintiffs that can be included in a class action and even entirely shut off some claims under the Fair Credit Reporting Act and other statues.
Coupled with a second case, Campbell-Ewald v. Gomez, which could allow companies to cut off class actions by merely making an offer to settle to the lead plaintiff, the Supreme Court could make it that much harder for large class actions to survive motions to dismiss if the high court makes a sweeping ruling.
“What both decisions would teach, if there was a broad holding in both, is that going broad probably limits your ability to certify a class,” Paul Hastings LLP partner Sean Unger said.
Spokeo is represented by John Nadolenco, Andrew J. Pincus, Archis A. Parasharami, Stephen Lilley and Donald M. Falk of Mayer Brown LLP.
Robins is represented by Jay Edelson, Rafey S. Balabanian, Ryan Andrews and Roger Perlstadt of Edelson PC and Will Consovoy, J. Michael Connolly, Michael Park and Patrick Strawbridge of Consovoy McCarthy Park PLLC.
The cases are Spokeo Inc. v. Thomas Robins et al., case number 13-1339, and Campbell-Ewald Co. v. Gomez, case number 14-857, in the Supreme Court of the United States.
FDIC v. Chase Mortgage Finance Inc.
While the financial crisis continues to fade into the distance, litigation related to that tumult rolls on at least somewhat.
But the Second Circuit could move to limit the ability of regulators to continue to bring those actions if it rules in favor of JPMorgan Chase & Co.’s Chase Mortgage Finance unit in a case brought by the Federal Deposit Insurance Corp.
The FDIC, acting as receiver for a failed bank, is seeking to overturn a lower court ruling that a lawsuit against Chase was time-barred. Essentially, the battle lines fall on whether the bank regulator can rely on federal law to defeat state statutes of repose to continue to bring financial crisis cases.
The FDIC argues that the Supreme Court’s June 2014 ruling in CTS v. Waldburger, which said that federal law does not preempt state statutes of repose, does not limit its ability to bring cases related to the failure of a bank during the financial crisis.
If the Second Circuit does uphold that lower court ruling, cases from the FDIC, the National Credit Union Administration and other regulators related to the financial crisis could all go away, at least in the Second Circuit, said Chuck Smith, a partner with Skadden Arps Slate Meagher & Flom LLP.
“This is a huge issue for the banks because civil litigation that’s coming now, that’s been brought in the last couple of years, generally is brought after the statute of repose has passed,” he said. “So if those claims are not extended, they die.”
The banks are represented before the Second Circuit by Robert J. Giuffra Jr. of Sullivan & Cromwell LLP.
The FDIC is represented by its counsel James S. Watson. The FHFA is represented by Kathleen M. Sullivan of Quinn Emanuel Urquhart & Sullivan LLP.
The appeal is FDIC v. Chase Mortgage Finance Inc. et al, case number 14-3648, in the U.S. Court of Appeals for the Second Circuit.
PHH Corp. et al. v. Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau has a well-earned reputation as a vigorous enforcement agency. PHH’s challenge in the D.C. Circuit of the agency’s $109 million penalty against the company for an alleged mortgage insurance kickback scheme could at least put a small crimp in its stride.
PHH is challenging the CFPB’s internal appeals process, which turned a $6.4 million penalty for a violation of the Real Estate Settlement Procedures Act into a $109 million penalty.
The New Jersey based company is challenging CFPB Director Richard Cordray’s reading of RESPA, which resulted in the steep penalty spike, as well as the process under which Cordray is the sole party to hear a review of administrative rulings.
A victory for PHH could rein in the CFPB’s enforcement tactics, and is serving as a bellwether for other firms under the CFPB’s sprawling purview, Arnold & Porter’s Johnson said.
“The CFPB is active and aggressive in other areas as well, so in a way the PHH case is a proxy for other cases that might arise,” he said.
In addition, the PHH appeal comes as the U.S. Securities and Exchange Commission has seen its use of administrative judges challenged and falls within that spectrum of cases as well.
“We really don’t have that body of law yet with the CFPB,” Unger said.
PHH is represented by Theodore B. Olson, Helgi C. Walker and Scott P. Martin of Gibson Dunn, Mitchel H. Kider, David M. Souders, Sandra B. Vipond and Michael S. Trabon of Weiner Brodsky Kider PC, and Thomas M. Hefferon and William M. Jay of Goodwin Procter LLP.
The CFPB is represented by Lawrence DeMille-Wagman.
The case is PHH Corp. et al. v. Consumer Financial Protection Bureau, case number 15-1177, in the U.S. Court of Appeals for the District of Columbia Circuit.
Consumer Financial Services Association of America et al. v. Federal Deposit Insurance Corp.
Operation Choke Point has become a hot topic in Congress and among banks and payday lenders. The U.S. Department of Justice’s program that sought to cut off illegal, or in some eyes politically unpopular, businesses from the banking system is also the subject of a lawsuit in the D.C. District Court.
Except the Justice Department isn’t the defendant there. Instead, a payday lender industry group has taken up a case against the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency, alleging that they abused their supervisory power by pressuring banks to cut off business relationships with payday lenders.
The suit, which survived in part a motion to dismiss from the regulators, could serve to pull back some of the post-crisis oversight that banks have complained about.
“There’s an impression that there were some instances where each side might have been pushing legal limits,” Johnson said. “If payday lenders were pushing the law, that should be addressed. By the same token, if regulators are pushing the limits of their authority that should be addressed as well.”
The CFSA is represented by Chuck Cooper, David H. Thompson and Howard C. Nielson Jr. of Cooper & Kirk PLLC.
The FDIC is represented by agency attorneys Duncan N. Stevens and Erik B. Bond. The OCC is represented by agency attorneys Amy S. Friend, Daniel P. Stipano, Horace G. Sneed, Gregory F. Taylor and Peter C. Koch. The Fed is represented by Katherine H. Wheatley, Yvonne F. Mizusawa and Joshua P. Chadwick.
The case is Consumer Financial Services Association of America et al. v. Federal Deposit Insurance Corp. et al., case number 1:14-cv-00953, in the U.S. District Court for the District of Columbia.
--Additional reporting by Allison Grande, Cara Salvatore and Pete Brush. Editing by Jeremy Barker and Emily Kokoll.
