Maryland Legal Alert for Financial Services

IN THIS ISSUE:

IS YOUR INSTITUTION HANDLING DRIVER’S LICENSE COPIES CORRECTLY?

ELEVENTH CIRCUIT ORDERS EN BANC REHEARING FOR CONTROVERSIAL DEBT COLLECTION RULING

REGULATORS ISSUE JOINT STATEMENT ON DISCONTINUATION OF LIBOR

BANKRUPTCY APPELLATE PANEL: POST-PETITION RETENTION OF PRE-PETITION ACCOUNT GARNISHMENT DOES NOT VIOLATE THE AUTOMATIC STAY

Is Your Institution Handling Driver’s License Copies Correctly?

A little-known federal law imposes restrictions on federally insured financial institutions in connection with copying and retaining copies of state-issued driver’s licenses and similar identification cards when accounts, products or services are requested through online applications.

The statute, part of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, applies to situations involving online requests by an individual to open an account or obtain any other financial product or service from a federally insured financial institution. The law (titled, “Making online banking initiation legal and easy”) permits a financial institution to copy and temporarily store an individual’s state ID card in an electronic format only for certain purposes.

Under the law, financial institutions may use the information obtained from copying and storing a state ID card to:

• Verify the authenticity of the identification card;
• Verify the identity of the individual; and
• Comply with legal requirements related to opening an account or obtaining a financial product or service, such as the requirements of the federal Bank Secrecy Act.

The law further provides that upon copying and storing a state ID card for the permitted account opening or related product or service request, a financial institution must permanently delete any image of the ID card and any copies of the image. The law preempts any state law that conflicts with the above federal provisions.

Practice Point: The law does not specify how quickly a financial institution must delete state ID card images and copies. It is also important to point out that because federal customer ID requirements only permit retaining copies of customer ID cards but do not require financial institutions to do so, financial institutions should review their online account opening procedures to verify that state ID cards are being destroyed within a reasonable period after an online account or product or service request has been completed.

Please contact Christopher R. Rahl with questions about this or other deposit account topics.

Contact Christopher R. Rahl | 410-576-4222

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Eleventh Circuit Orders En Banc Rehearing for Controversial Debt Collection Ruling

The U.S. Court of Appeals for the 11th Circuit’s position on the transmission of consumer data for debt collection purposes that had earlier sent shockwaves through the debt collection industry is being reevaluated.

In April 2021, the 11th Circuit ruled that a debt collector’s electronic transmission of data concerning a consumer’s debt to a third-party mailing vendor violated Section 1692c(b) of the Fair Debt Collection Practices Act (FDCPA), which prohibits communicating a consumer’s personal information to a third party “in connection with the collection of any debt.”

That debt collector sought a rehearing from which the 11th Circuit issued a substitute opinion in October 2021 which addressed the intervening U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez.

However, a few short weeks later, the 11th Circuit issued an ordersua sponte vacating the substitute opinion and directing that the case be reheard this time before the full panel.

In the vacated substitute opinion, the 11th Circuit addressed an intervening ruling in TransUnion, which clarified that if a plaintiff has not suffered real harm and the risk of future harm has not materialized into actual harm, the plaintiff lacks standing to pursue a claim in federal court. The panel ruled by a 2-1 majority that, notwithstanding the TransUnion holding, the consumer had federal standing to pursue his FDCPA claim against the debt collector, because he had suffered an injury, albeit an intangible one, resulting from an FDCPA violation. The majority ruled that the alleged harm was akin to an invasion of privacy, a recognized tort claim and one of the stated harms that Congress sought to address with the FDCPA. The dissenting judge argued that the majority’s interpretation of standing was overly broad considering the TransUnion ruling

After the Court vacated the substitute opinion, the Court directed the parties to submit en banc briefs focused on the question of the consumer’s standing to bring this suit in federal court.

Practice Point: The decision to order an en banc hearing was determined based upon a majority vote of the active judges in the 11th Circuit. We will continue to monitor this case for further developments.

Please contact Bryan M. Mull with questions concerning this topic.

Contact Bryan M. Mull | 410-576-4227

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Regulators Issue Joint Statement on Discontinuation of LIBOR

The Consumer Financial Protection Bureau, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Association, the Office of the Comptroller of the Currency and certain state financial regulators recently issued a Joint Statement on Managing the LIBOR Transition.

In this guidance, the regulators clarified that contracts using the London Interbank Offered Rate (LIBOR) as a reference rate after December 31, 2021, would create safety and soundness risks, including litigation, operational and consumer protection risks. The guidance further clarifies that a new LIBOR contract includes agreements that create additional LIBOR exposure or extends the term of an existing LIBOR contract. Moreover, the guidance provides that new contracts entered into before the end of the year should use a reference rate other than LIBOR or contain robust fallback language providing for an alternative reference rate.

Please contact Bryan M. Mull with questions concerning this topic.

Contact Bryan M. Mull | 410-576-4227

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Bankruptcy Appellate Panel: Post-Petition Retention of Prepetition Account Garnishment Does Not Violate the Automatic Stay

The 9th Circuit Bankruptcy Appellate Panel recently reinforced a Pennsylvania bankruptcy court case that was among the first to extend the U.S. Supreme Court’s City of Chicago v. Fulton ruling (which held that mere retention of vehicles repossessed pre-petition would not violate the automatic stay) to the context of account garnishments.

In October, U.S. Bankruptcy Court for the Middle District of Pennsylvania held that a creditor’s refusal to dismiss a prepetition account garnishment did not violate the automatic stay since the creditor did not pursue the garnishment proceeding post-petition.

Recently, the 9th Circuit Bankruptcy Appellate Panel similarly held that a judgment creditor did not violate the automatic stay by staying, but not dismissing, a prepetition account garnishment proceeding. In this case, a creditor served a garnishment on a debtor’s bank accounts and the debtor later filed a Chapter 13 bankruptcy petition. The creditor swiftly notified the state court that the garnishment proceeding should be stayed. Thereafter, the debtor demanded that the garnished funds be returned to him. The creditor did not direct that the funds be released but responded that it would not oppose a motion to vacate the garnishment. The state court later granted such a motion and the funds were released. The debtor then sought sanctions against the creditor for violating the automatic stay.

Before the Supreme Court issued its Fulton ruling, the Bankruptcy Court ruled in favor of the debtor, relying on a prior unreported 9th Circuit opinion, which held that a creditor owes an affirmative duty to return a debtor’s funds that were attached prepetition. After the Fulton ruling, the creditor sought reconsideration and the Bankruptcy Court ruled in favor of the creditor.

The Bankruptcy Appellate Panel ruled that because the creditor promptly took action to stay the state court garnishment proceeding after the bankruptcy filing, the creditor did not violate the automatic stay and affirmed the Bankruptcy Court’s ruling on reconsideration.

Practice Point: Creditors and garnishee depository institutions should take comfort in these recent rulings extending the Fulton decision to the account garnishment context. Nonetheless, creditors and garnishees should take prompt action to ensure that a garnishment is stayed post-petition so as not to be perceived as taking any action other than mainitaining the prepetition status quo.

Please contact Bryan M. Mull with any questions concerning bank account garnishments.

Contact Bryan M. Mull | 410-576-4227

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