Justia Government & Administrative Law Opinion Summaries

Articles Posted in Banking
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In the case before the United States Court of Appeals for the Fourth Circuit, Yagoub Mohamed, a self-employed mechanic, sued Bank of America, alleging that the bank's conduct and error-claim procedures violated the federal Electronic Fund Transfer Act (EFTA) and various state laws. Mohamed had applied for unemployment benefits during the COVID-19 pandemic and was found eligible to receive $14,644, which he elected to receive via a Bank of America-issued debit card. However, by the time he received and activated his card, the entire benefit amount had been spent on transactions he did not recognize. The bank opened an error claim and later froze his account due to possible fraud.The district court granted Bank of America's motion to dismiss Mohamed's federal claim, stating that the unemployment benefits he was to receive via a prepaid debit card were not protected by the EFTA. The court did not exercise jurisdiction over the state-law claims.On appeal, the Fourth Circuit vacated the judgment and remanded the case for further proceedings. The court held that the account in which Mohamed's benefits were held qualified as a "government benefit account" under the EFTA and its implementing regulations. As such, the court concluded that Mohamed had stated a claim under the Act. The court rejected the bank's arguments that it had established the account in question, asserting that the account was established by the state of Maryland, and the bank acted solely under its contract with the state.The court's holding is significant because it clarifies the scope of protection offered by the EFTA for government benefits distributed via prepaid debit cards, and it underlines the responsibilities of banks in managing such accounts. View "Mohamed v. Bank of America, N.A." on Justia Law

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In this case, the defendant, Patrick Thompson, was convicted of making false statements about his loans to financial institutions. Thompson took out three loans from a bank totaling $219,000. After the bank failed, its receiver, the Federal Deposit Insurance Corporation (FDIC), and a loan servicer, Planet Home, attempted to recoup the money owed by Thompson. However, Thompson disputed the loan balance, insisting that he had only borrowed $110,000. He was subsequently charged with and convicted of making false statements to influence the FDIC and a mortgage lending business, in violation of 18 U.S.C. § 1014.On appeal, Thompson argued that his statements were not “false” under § 1014 because they were literally true, and that the jury lacked sufficient evidence to convict him. He also claimed that the government constructively amended the indictment and that the district court lacked the authority to order him to pay restitution to the FDIC.The U.S. Court of Appeals for the Seventh Circuit rejected Thompson's arguments and affirmed the lower court's judgment. The court held that under its precedent, § 1014 criminalizes misleading representations, and Thompson's statements were misleading. The court also found that there was sufficient evidence to support Thompson's conviction and that the indictment was not constructively amended. Finally, the court held that the district court properly awarded restitution to the FDIC, as the FDIC had suffered a financial loss as a direct and proximate result of Thompson's false statements. View "USA v. Thompson" on Justia Law

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In a suit filed in 2014 under the Fair Housing Act, 42 U.S.C. 3601–19, Cook County claimed that the banks made credit too readily available to some borrowers, who defaulted, and then foreclosed on the loans in a way that injured the County. The County alleged the banks targeted potential minority borrowers for unchecked or improper credit approval decisions, which allowed them to receive loans they could not afford; discretionary application of surcharge of additional points, fees, and other credit and servicing costs above otherwise objective risk-based financing rates; higher cost loan products; and undisclosed inflation of appraisal values to support inflated loan amounts. When many of the borrowers could not repay, the County asserts, it had to deal with vacant properties and lost tax revenue and transfer fees.The Seventh Circuit affirmed summary judgment for the defendants. Entertaining suits to recover damages for any foreseeable result of an FHA violation would risk “massive and complex damages litigation.” Proximate cause under the FHA requires “some direct relation between the injury asserted and the injurious conduct alleged.” Cook County seeks a remedy for effects far beyond “the first step.” The directly injured parties are the borrowers, who lost both housing and money. The banks are secondary losers. The County is at best a tertiary loser; its injury derives from the injuries to the borrowers and banks. View "County of Cook v. Bank of America Corp." on Justia Law

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The Board of Governors of the Federal Reserve System brought an enforcement action against Petitioners Frank Smith and Mark Kiolbasa, who were employees at Farmers State Bank at the time, after finding they committed misconduct at Central Bank & Trust where they had previously worked. This resulted in their removal as officers and directors of Farmers Bank and the imposition of restrictions on their abilities to serve as officers, directors, or employees of other banks in the future. Petitioners sought review from the Tenth Circuit Court of Appeals, arguing that the Board did not have authority to bring this enforcement action against them because the Board was not the “appropriate Federal banking agency,” as defined by 12 U.S.C. § 1813(q)(3), with authority over the bank where the misconduct took place. After review, the Tenth Circuit concluded that, because the Board had authority over Petitioners at the time the action commenced, the Board was an appropriate federal banking agency and had authority to initiate the proceeding. The appellate court also declined to review Petitioners’ Appointments Clause challenge because they did not raise it at trial. View "Smith, et al. v. FRS" on Justia Law

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Following the 2007-2009 “Great Recession,” the Federal Deposit Insurance Corporation (FDIC) brought an enforcement action against Calcutt, the former CEO of a Michigan-based community bank, for mismanaging one of the bank’s loan relationships. The FDIC ultimately ordered Calcutt removed from office, prohibited him from further banking activities, and assessed $125,000 in civil penalties.The Sixth Circuit agreed that Calcutt had proximately caused the $30,000 charge-off on one loan because he had “participated extensively in negotiating and approving” the transaction. The court concluded that $6.4 million in losses on other loans were a different matter and that none of the investigative, auditing, and legal expenses could qualify as harm to the bank, because those expenses occurred as part of its “normal business.” Despite identifying these legal errors in the FDIC analysis, the Sixth Circuit affirmed the FDIC decision, finding that substantial evidence supported the sanctions determination, even though the FDIC never applied the proximate cause standard itself or considered whether the sanctions against Calcutt were warranted on the narrower set of harms that it identified.The Supreme Court reversed. It is a fundamental rule of administrative law that reviewing courts must judge the propriety of agency action solely by the grounds invoked by the agency. An agency’s discretionary order may be upheld only on the same basis articulated in the order by the agency itself. By affirming the FDIC’s sanctions against Calcutt based on a legal rationale different from that adopted by the FDIC, the Sixth Circuit violated these commands. View "Calcutt v. Federal Deposit Insurance Corporation" on Justia Law

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The Disputed Instruments, prepaid financial instruments used to transfer funds to a named payee, are sold by banks on behalf of MoneyGram and others. When these instruments are not presented for payment within a certain period of time, they are deemed abandoned. MoneyGram applies the common-law escheatment practices outlined in 1965 by the Supreme Court: The proceeds of abandoned financial products should escheat to the state of the creditor’s last known address, or where such records are not kept, to the state in which the company holding the funds is incorporated. MoneyGram does not keep records of creditor addresses but transmits the abandoned proceeds to its state of incorporation. States invoked the Supreme Court’s original jurisdiction to determine whether the abandoned proceeds of the Disputed Instruments are governed by the Disposition of Abandoned Money Orders and Traveler’s Checks Act (FDA), which provides that a money order or “similar written instrument (other than a third-party bank check)” should generally escheat to the state in which the instrument was purchased, 12 U.S.C. 2503.The Court held that the Disputed Instruments are sufficiently similar to money orders to fall within the FDA’s “similar written instrument” category. Being prepaid makes them likely to escheat. The FDA was passed to abrogate common law because, for instruments like money orders, the entities selling such products often did not keep records of creditor addresses, resulting in a “windfall” to the state of incorporation. Bank liability is not a trigger for exclusion, given that banks can be liable on money orders, which are expressly covered. Whatever the intended meaning of “third-party bank check,” it cannot be read broadly to exclude prepaid instruments that escheat inequitably due to the business practices of the company holding the funds. View "Delaware v. Pennsylvania" on Justia Law

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The Bank Secrecy Act requires U.S. persons with financial interests in foreign accounts to file an “FBAR” annual Report of Foreign Bank and Financial Accounts; 31 U.S.C. 5314 delineates legal duties while section 5321 outlines the penalties, with a maximum $10,000 penalty for non-willful violations. Bittner—a dual citizen of Romania and the U.S.—learned of his reporting obligations in 2011 and subsequently submitted reports covering 2007-2011. The government deemed Bittner’s late reports deficient because they did not address all accounts as to which Bittner had either signatory authority or a qualifying interest. Bittner filed corrected FBARs providing information for 61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. The government asserted that non-willful penalties apply to each account not accurately or timely reported. Bittner’s reports collectively involved 272 accounts; the government calculated a $2.72 million penalty. The Fifth Circuit affirmed.The Supreme Court reversed. The $10,000 maximum penalty for non-willful failure to file a compliant report accrues on a per-report, not a per-account, basis. Section 5314 does not address accounts or their number. An individual files a compliant report or does not. For cases involving willful violations, the statute tailors penalties to accounts. When one section of a statute includes language omitted from a neighboring section, the difference normally conveys a different meaning. The Act's implementing regulations require individuals with fewer than 25 accounts to provide details about each account while individuals with 25 or more accounts do not need to list each account or provide account-specific details unless requested by the Secretary. View "Bittner v. United States" on Justia Law

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Congress passed the American Recovery and Reinvestment Act ARRA) to stabilize the U.S. economy following the 2008 financial crisis, 123 Stat. 115, creating two types of government-subsidized Build America Bonds (BABs). “Direct Payment BABs,” entitled bond issuers to a tax refund from the Treasury Department equal to 35 percent of the interest paid on their BABs. Treasury pays issuers of BABs annually. The payments are funded by the permanent, indefinite appropriation for refunds of internal revenue collections. 31 U.S.C. 1324. Local power agencies (Appellants) collectively issued over four billion dollars in qualifying Direct Payment BABs before 2011. Through 2012, Treasury paid the full 35 percent.In 2011 and 2013, Congress passed legislation reviving sequestration: “[T]he cancellation of budgetary resources provided by discretionary appropriations or direct spending law,” 2 U.S.C. 900(c)(2), 901(a). Treasury stopped making payments to Appellants at 35 percent. Since 2013, Appellants have been paid reduced rates as determined by the Office of Management and Budget’s calculations; for example, 2013 payments were reduced to 8.7 percent.Appellants sued, arguing a statutory theory that the government violates ARRA section 1531 by not making the full 35 percent payments and that the government breached a contract that arises out of section 1531. The Federal Circuit affirmed the Claims Court’s dismissal of the suit. No statutory claim existed because sequestration applied to these payments. No contractual claim existed because the ARRA did not create a contract between the government and Appellants. View "Indiana Municipal Power Agency v. United States" on Justia Law

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A qui tam plaintiff alleged that two banks violated the California False Claims Act (CFCA) by failing to report and deliver millions of dollars owing on unclaimed cashier’s checks to the State of California as escheated property. The trial court denied the banks’ motions to dismiss. The banks sought writ relief.The court of appeal denied relief, upholding the denial of the motions to dismiss. The court rejected the banks’ argument that a qui tam plaintiff may not pursue a CFCA action predicated on a failure to report and deliver escheated property unless the California State Controller first provides appropriate notice to the banks under Code of Civil Procedure section 1576. For pleading purposes, the complaints adequately allege the existence of an obligation as required under the CFCA: the plaintiff adequately alleged that the banks were obligated to report and deliver to California the money owed on unredeemed cashier’s checks, Allowing this action to proceed does not violate the banks’ due process rights. View "JPMorgan Chase Bank, N.A. v. Superior Court" on Justia Law

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Fannie Mae purchases mortgage loans from commercial banks, which enables the lenders to make additional loans, finances those purchases by packaging the mortgage loans into mortgage-backed securities, then sells those securities to investors. In 1968, Fannie Mae became a publicly-traded, stockholder-owned corporation. Freddie Mac also buys mortgage loans and securities and sells those mortgage-backed securities to investors. In 1989, Freddie Mac became a publicly traded, stockholder-owned corporation. In the 2008 recession, both entities suffered precipitous drops in the value of their mortgage portfolios. The Federal Housing Finance Agency (FHFA) was established and authorized to undertake extraordinary measures to resuscitate the companies, 12 U.S.C. 4511(b)(1).Fannie Mae and Freddie Mac shareholders sought to nullify an agreement (the “third amendment”) between FHFA and the Treasury Department that “secured unlimited funding" from Treasury in exchange for "almost all of Fannie’s and Freddie’s future profits.” The third amendment was authorized by FHFA’s Acting Director, who was serving in violation of the Appointments Clause. Shareholders also claimed that they are entitled to retrospective relief because the Supreme Court held in 2021 that FHFA’s enabling statute contained an unconstitutional removal restriction. The district court dismissed the complaint. The Sixth Circuit reversed, holding that the Acting Director was not serving in violation of the Constitution when he signed the third amendment. The court remanded for determination of whether the unconstitutional removal restriction inflicted harm on shareholders. View "Rop v. Federal Housing Finance Agency" on Justia Law