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Financial Services Law Blog Legal updates, news, and commentary from the attorneys of Baker Sterchi Cowden & Rice LLC

Update: Supreme Court Holds No Concrete Injury in FCRA Class Action Case

July 20, 2021 | Megan Stumph-Turner

In an impactful and split Opinion, the United States Supreme Court has reversed a $40 million class action judgment award in light of its finding that thousands of class members had no standing for two of three Fair Credit Reporting Act (“FCRA”) claims, and that the majority of those class members lacked standing for the remaining claim.

As we advised in our December 2020 Financial Services Law Blog post, the Ramirez case, filed in the Northern District of California, arose when Mr. Ramirez faced an alarming situation at a car dealership: he was denied financing for a car loan due to an erroneous credit report alert indicating that he was listed on an OFAC advisor “terrorist list.” Although Mr. Ramirez’ wife was able to obtain approval to purchase the car, Mr. Ramirez later received a letter from TransUnion indicating that he was listed as a “prohibited Specially Designated National (SDN).” TransUnion removed the alert after Mr. Ramirez disputed the designation.

It was later learned that 8,185 other individuals had been falsely labeled as prohibited SDNs. Although only 1,853 of those individuals’ credit reports were furnished to potential creditors during the relevant time period, all 8,185 individuals were certified as class members and found by the lower courts to have Article III standing.

Mr. Ramirez filed suit on behalf of himself and the 8,185 class members, asserting that TransUnion failed to follow reasonable procedures to ensure the accuracy of credit files, and that it failed to provide consumers with complete credit files and a summary of rights upon request of the consumer. At trial, the jury awarded approximately $1,000 in statutory damages and $6,300 in punitive damages per class member. The Ninth Circuit Court of Appeals held that the class members all had standing but reduced the punitive damages award by roughly 50% on the basis that it was excessive. Now, the Supreme Court has reversed the judgment altogether.

The Supreme Court began its Opinion by citing the longstanding principle that, in order to have standing, claimants must have suffered a “concrete harm” that resulted from the defendant’s conduct and that is capable of being redressed by the Court.

Applying this standard to the “reasonable procedures” claim, the Court first found that the 1,853 plaintiffs whose credit reports were provided to third parties did suffer a concrete harm similar to the type of reputational harm that would be caused by a defamatory statement. The remaining 6,332 class members, on the other hand, suffered no such harm because the false information was not “published,” or furnished, to any third parties. The Court reasoned that the harm suffered from false information stored in a credit file would be similar to an insulting letter that sat in the author’s desk drawer – nonexistent.

The Court then considered whether any of the 8,185 unnamed class members had standing to assert their claims for failure to provide complete credit files and a summary of rights upon request. Plaintiffs did not demonstrate that TransUnion’s potentially faulty mailings caused any harm at all to plaintiffs. Therefore, the Court found there was no standing under Spokeo because these mere technical violations were “divorced from any concrete harm.” The Court rejected any argument by plaintiffs that there was a threat of future harm for any of the asserted claims.

The Opinion was bookended with this simple phrase, penned by Justice Kavanaugh: “No concrete harm, no standing.” And with that, the $40 million judgment out of the Ninth Circuit is reversed, and the case is remanded for proceedings consistent with the Supreme Court’s findings concerning standing.

The Court was split 5-4, and Justice Thomas authored the dissenting opinion.

The Ramirez case will, no doubt, have a reach far beyond FCRA claims. Baker Sterchi will continue to monitor for subsequent litigation interpreting the Ramirez decision.

FHFA Structure Declared Unconstitutional by SCOTUS

July 1, 2021 | Megan Stumph-Turner

In an action initiated by certain shareholders of Fannie Mae and Freddie Mac, the United States Supreme Court issued its Opinion holding that the single-director, terminable only-for-cause structure, violated the separation of powers clause of the United States Constitution.

The Federal Housing Finance Agency (FHFA) was created in 2008 and instilled with authority to oversee Fannie Mae and Freddie Mac under the 2008 Housing and Economy Recovery Act. The underlying action relates to a Purchasing Agreement wherein the Treasury provided billions of dollars in capital in exchange for shares of Fannie and Freddie, following the 2008 housing and financial crisis. The lawsuit originated in the United States District Court for the District of Texas, where certain shareholders of Fannie and Freddie brought an action seeking relief following recent action by the FHFA Director that the shareholders alleged exceeded the Director’s authority and caused them financial injury. Two of the shareholder claims were analyzed by the Supreme Court in its recent holding.

First, the Supreme Court dismissed the shareholders’ statutory claim seeking to reverse the FHFA Director’s third amendment to the Purchasing Agreement. The shareholders claimed the FHFA Director exceeded his authority in amending the Purchase Agreement, but the Supreme Court held this statutory claim must be dismissed, noting that the Recovery Act (12 U.S.C. § 4617(f)) prohibited any court from restraining or affecting the powers or functions of the FHFA as a conservator or receiver.

Second, with respect to the shareholders’ constitutional claim, the Supreme Court first addressed the issue of standing, finding that the Fannie and Freddie shareholders had standing because they had suffered an injury in fact where their property rights in Fannie and Freddie were transferred by the FHFA Director to the Treasury. Moving on to the merits, the Supreme Court cited to its year-old opinion in Seila Law concerning the unconstitutional structure of the CFPB in holding that the FHFA was likewise unconstitutional in its current form, particularly because the Recovery Act restricted the President’s removal powers as to the Director. More information regarding the Seila Law holding may be found in our July 2020 blog post.

In its Opinion, the Supreme Court rejected an argument that the CFPB was somehow distinguishable from the FHFA due to the relative breadth of each agency’s authority. The Court also soundly rejected the argument that the “for cause” removal restriction gave the President more removal authority than some other provisions reviewed by the Court; for instance, the CFPB director had been removable only for “inefficiency, neglect of duty, or malfeasance in office.” This distinction did not matter to the Supreme Court, which noted that it had already held that even “modest restrictions” on the President’s power to remove a single-director were unconstitutional. The case was affirmed in part, reversed in part, and remanded to the lower court to address whether the unconstitutional structure of the FHFA caused the shareholders’ alleged injury.

Just hours after the ink was dry on the Supreme Court’s Opinion, President Biden fired previous FHFA Director Calabria and named the new acting director, Sandra Thompson. Ms. Thompson has previously served as the FHFA deputy director of the Division of Housing and Mission Goals.

Kansas Merchants May Soon Impose Surcharges on Credit Card Transactions

April 22, 2021 | Megan Stumph-Turner

For the past 35 years, merchants in Kansas have been prohibited from charging a surcharge to customers on purchases made by credit card. With a recent court decision and pending legislation, that ban is almost surely to be lifted in the near future.

Passed in 1986, the Kansas “no-surcharge” statute provided that “no seller or lessor in any sales or lease transaction or any credit or debit card issuer may impose a surcharge on a card holder who elects to use a credit or debit card in lieu of payment by cash, check or similar means.” K.S.A. 16-a-2-403.

In February 2021, the United States District Court for the District of Kansas granted summary judgment in favor of CardX, LLC against the State of Kansas, declaring the state’s ban on credit card surcharges to be unconstitutional. In CardX, LLC v. Schmidt, the Court held that the no-surcharge statute was a violation of the plaintiff’s First Amendment right to commercial speech. In so doing, the Court applied United States Supreme Court precedent from Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557, 561 (1980). In Hudson, the Supreme Court set forth a three-factor test to determine the constitutionality of a statute that restricts commercial speech: (1) Does the State have a substantial interest in restricting commercial speech? (2) Does the challenged statute advance those interests in a direct and material way, and (3) Is the restriction of reasonable proportion to the interests served? Applying the Hudson test, the Court for the District of Kansas found the Kansas no-surcharge statute failed on all three bases.

The Court also cited to the need for surcharges to protect businesses with small profit margins from bearing the cost and burden of transaction fees imposed by credit card providers. The Court further reasoned that the restriction on surcharges placed an undue burden on merchants in light of the heightened demand for credit card transactions in the era of COVID, where consumers have insisted on contact-free transactions.

The CardX decision was limited to the plaintiff and transactions at issue in that case. However, during the time the CardX opinion was written, HB 2316 was introduced, which would statutorily lift the surcharge ban. The bill swiftly passed in the Kansas House of Representatives and has been referred to committee in the Senate. In the unlikely event that the bill does not pass, additional challenges to the existing no-surcharge statute can be expected.

About Financial Services Law Blog

The BSCR Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry.  This blog will inform readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph,  and our Financial Services practice.


The Financial Services Law Blog is made available by Baker Sterchi Cowden & Rice LLC for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. Your use of this blog site alone creates no attorney client relationship between you and the firm.


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