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From Banking and Finance Law Daily, June 21, 2017

States can’t have money left over from Sprint billing settlement

By Richard A. Roth, J.D.

An effort by attorneys general from four states to claim $15 million left over after consumer redress payments required by the Consumer Financial Protection Bureau’s settlement with Sprint Corporation has been rejected by a U.S. district judge. The judge allowed the officials to intervene in the suit, but he said there was no basis to modify the settlement and redirect the money from the U.S. Treasury to the AGs’ proposed uses (CFPB v. Sprint Corp., June 20, 2017, Pauley III, W.).

The CFPB sued Sprint in 2014, claiming that the company knowingly allowed unauthorized third-party charges to be billed to its wireless telephone customers. The 2015 settlement required the company to pay up to $50 million in consumer redress; a settlement with state authorities required a payment of an additional $12 million, the judge observed. In the end, Sprint needed to pay only about $35 million to consumers, leaving $15 million on the table.

A residual clause in the settlement order required any of the $50 million not paid to consumers to be paid to the CFPB through the Treasury. However, the state AGs had a different idea. They asked the judge to modify the settlement agreement to allow $14 million to be used to complete the National Attorneys General Training and Research Institute. The rest would go to an organization that provides electronic devices and services to schools and non-profit organizations to benefit high school students from low-income families.

The bureau and the company both initially took no position on the AGs’ request. Later, after prodding by the judge, the bureau filed "a gossamer two-page memorandum" objecting to the change. The Justice Department, on behalf of the Treasury, filed a more extensive objection (see Banking and Finance Law Daily, May 25, 2017).

Intervention. Preliminarily, the judge allowed the state AGs to intervene in the suit. Their request was timely, he said, and neither Sprint nor the bureau would be prejudiced by allowing the AGs to ask for the modification.

However, deciding the AGs could ask for the modification of the settlement agreement did not mean that the modification would be allowed, the judge said.

Modification denied. The Federal Rules of Civil Procedure offered two possibilities for modifying a final judgment, and neither of them applied, the judge then said.

One avenue was the rule allowing a judgment to be modified to correct clerical errors or inadvertent errors that resulted from oversight or omission. The AGs wanted the judge to accept that the parties intended all of the $50 million to be used for consumer protection purposes and to modify the order to accomplish that goal. The problem, the judge said, was that the order clearly intended the money to be used for remedies that were related to the improper billing practices that were alleged in the bureau’s complaint. That said nothing about a broader consumer protection purpose; rather, it left the use of unexpended money to the CFPB’s judgment.

The other avenue allowed a modification to rectify extraordinary purposes or extreme hardship. Neither of those was present, the judge said. In fact, allowing the remaining money to be redirected "would be tantamount to misappropriating funds that otherwise should be in the public fisc," he asserted.

The case is No. 14cv9931.

Attorneys: Genessa Stout for the Consumer Financial Protection Bureau. Jeffrey James Chapman (McGuireWoods LLP) for Sprint Corp.

Companies: Sprint Corporation

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