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From Banking and Finance Law Daily, August 6, 2018

CFPB claims against online provider Think Finance go forward

By J. Preston Carter, J.D., LL.M. and Nicole D. Prysby, J.D.

Because the fact that state law may form the basis of a Consumer Financial Protection Act violation does not relieve a service provider of its obligation to comply with the CFPA, claims against online provider Think Finance, LLC, could go forward, held the U.S. District Court for the District of Montana. In addition, common enterprise liability is a plausible means to state a claim alleging a violation of the CFPA, so claims against Think Finance subsidiaries could also go forward, even though the Consumer Financial Protection Bureau had not identified which subsidiaries engaged in which conduct. The court also declined to hold that the structure of the CFPB is unconstitutional. And the court declined to dismiss claims for failure to join an indispensable party, holding that although Think Finance provided critical services to three separate lending business owned by Native American tribes, the tribal lenders were not indispensable parties because the remedies sought by the CFPB would not impede the tribal lenders’ ability to collect on their contracts. The court found that personal jurisdiction existed over a Think Finance subsidiary where the CFPB alleged that the subsidiary was an alter ego of Think Finance. Finally, the state of limitations did not bar claims from conduct arising more than three years before the filing of the complaint, only conduct that was discovered more than three years prior to the complaint (Consumer Financial Protection Bureau v. Think Finance, LLC, August 3, 2018, Morris, B.).

Background. The CFPB filed a lawsuit against Think Finance, LLC, for allegedly deceiving consumers into repaying loans that were void under state laws governing interest rate caps or the licensing of lenders (see Banking and Finance Law Daily, Nov. 16, 2017). Think Finance offered and serviced lines of credit and installment loans over the Internet to consumers throughout the United States. From 2011 through at least 2015, Think Finance provided critical functions with the tribal lenders. The CFPB also named several Think Finance subsidiaries as defendants.

Think Finance moved to dismiss the claims on multiple grounds, including that the structure of the CFPB is unconstitutional; that the Bureau’s claims are not permitted by the CFPA; that the complaint fails to join indispensable parties; that the court lacks personal jurisdiction; that the complaint fails to state cognizable claims under the CFPA; and that certain claims are time-barred.

CFPB structure. Think Finance argued that the structure of the CFPB violates the Constitution because the President may remove the Director of the Bureau only for cause and that the Bureau’s ability to control its own budget unconstitutionally interferes with Congress’s power to direct federal spending pursuant to the Appropriations Clause. The court noted that nine district courts and an en banc panel of the D.C. Circuit have found that Congress did not violate the Constitution in structuring the CFPB, and deemed it appropriate to follow those precedents.

CFPA issues. Think Finance argued that the claims were not permitted by the CFPA because the CFPA does not allow the CFPB to bring claims regarding unfair, deceptive, and abusive practices based on state law or to declare violations of federal law without prior rulemaking and that Congress has explicitly prohibited the Bureau from imposing interest rate limits. The court rejected these arguments, finding that other courts have held that enforcing a prohibition on amounts that consumers do not owe is different from establishing a usury limit. Other courts have also held that the CFPA imposes no requirement that the CFPB engage in rulemaking before bringing an enforcement action. And the fact that state law may form the basis of the CFPA violation does not relieve a service provider of its obligation to comply with the CFPA.

The defendants argued that the CFPB’s pleadings were insufficient because they did not identify which subsidiaries were involved with which conduct and that the Bureau could not state a claim based on common enterprise liability. But the court concluded that common enterprise liability is a plausible means to state a claim alleging a violation of the CFPA because the Ninth Circuit has found common enterprise liability to exist under similar laws. The defendants also argued that the deceptive practices claim should fail because the CFPB failed to plead that the defendants made specific statements or omissions that were deceptive. But the court rejected that argument, siding with the CFPB’s position that the heightened pleading standard does not apply to the CFPA. The court also rejected a claim from the defendants that the unfair conduct claims should fail because the consumers could have avoided the harm alleged by not accepting the terms of the loans—the consumers had already entered into the loans at the time that the collections began. The claims based on abusive conduct were also allowed to go forward because the CFPB had adequately alleged that the consumers lacked an understanding of the laws applicable to the loans.

Indispensable parties. Think Finance argued that the tribal lenders constitute indispensable parties that cannot be joined due to principles of tribal sovereign immunity and immunity under the CFPA. The CFPB argued that the tribal lenders were not necessary parties because they had not actually claimed a legally protected interest in the litigation. And even if they had, they would not be necessary parties because the CFPB was not seeking rescission of the contracts or any relief from the tribes. In addition, the Bureau argued that the tribal lenders could be joined if necessary and that tribal sovereign immunity does not apply in suits brought by a federal agency. The court agreed, finding that the remedies sought by the CFPB would not impede the tribal lenders’ ability to collect on their contracts or enforce their choice of law provisions directly. Because the tribes failed to claim an interest in the litigation, the court would not allow Think Finance to avoid regulation by hiding behind the tribes’ sovereign immunity.

Personal jurisdiction. The defendants argued that claims against one of Think Finance’s subsidiaries should be dismissed for lack of personal jurisdiction. The CFPB argued that because the subsidiary is an alter ego of Think Finance, personal jurisdiction was imputed to it. The court agreed, finding that the CFPB had alleged that the subsidiary was completely controlled and managed by Think Finance and that those allegations satisfied the alter ego test at this stage of the litigation.

Statute of limitations. The defendants argued that the statute of limitations barred claims for conduct arising before March 28, 2015, because the amended complaint was filed on March 28, 2018. But the court rejected that argument, because the defendants did not identify when the CFPB discovered the alleged violations and because the complaint could encompass any violations discovered on or after March 28, 2015, regardless of the date of the underlying conduct. Also, the tolling agreement between the CFPB and Think Finance would, for now, be imputed to the Think Finance subsidiaries.

The case is No. No. 4:17-cv-00127-BMM.

Attorneys: Vanessa Buchko for the CFPB. David Rosenberg (Goodwin Procter LLP) for Think Finance, LLC, Financial U, LLC, Think Finance SPV, LLC and TC Loan Service, LLC.

Companies: Think Finance, LLC; Financial U, LLC; Think Finance SPV, LLC; TC Loan Service, LLC

MainStory: TopStory CFPB DebtCollection DoddFrankAct EnforcementActions MontanaNews UDAAP

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