The CFPB has filed an amicus brief in the Maryland Court of Appeals urging the court to affirm the decision of the Court of Special Appeals reversing the trial court’s approval of a settlement agreement in a class action lawsuit.  The defendants in the lawsuit include a company and individuals who are also defendants in a pending CFPB enforcement action.  In its brief, the CFPB argues that the Court of Special Appeals correctly ruled that the settlement agreement should not be approved because it threatens to interfere with the CFPB’s authority under the Consumer Financial Protection Act (CFPA).

The CFPB’s lawsuit was filed in November 2016 in a Maryland federal district court against Access Funding, LLC (Access), a limited liability company that purchases structured settlements from consumers, and several other defendants, including three individual principals of Access and an attorney who allegedly provided advisory services to consumers who sold structured settlements to Access.  The Bureau’s complaint alleges violations of the CFPA’s UDAAP prohibition.

The class action lawsuit was filed in Maryland circuit court against Access and the other defendants alleging negligence, misrepresentation, and other common-law claims based on the same conduct that is at issue in the CFPB’s lawsuit.  The circuit court approved a settlement agreement that, based on the defendants’ claims of insolvency or lack of funds, required Access to pay $1.1 million into a settlement fund and released from liability all named defendants in the class action as well as the principals and owners of Access who were not named as defendants.  (According to the CFPB, despite releasing these individuals, the circuit court declined to consider whether the owners and principals might have assets to supplement the settlement fund.)

The CFPB asserts that the agreement also contained provisions “purporting to release all class members’ claims for relief obtained by [the Maryland Attorney General which filed a state lawsuit against Access] and the Bureau in their respective state and federal actions.”  In addition, the agreement “purports to enjoin class members from ‘receiving any benefits’ from the Bureau’s or [Maryland AG’s] lawsuits, and purports to have class members assign to Access all ‘benefits or recoveries’ in those actions for the benefit of class members, including any recovery based on restitution or other relief.”

The circuit court approved the settlement over the Maryland AG’s objections in February 2018.  In April 2018, Access and the other defendants in the CFPB’s federal lawsuit filed a motion for partial summary judgment arguing that the release and assignment of claims in the settlement agreement precluded the Bureau’s claims for restitution and other consumer relief.  Since the Maryland AG’s appeal of the settlement approval was still pending, the district court did not rule on Access’s preclusion argument and denied the motion without prejudice.

The Maryland Court of Appeals thereafter reversed the circuit court’s approval of the settlement agreement, ruling that it should not be approved because it threatens to interfere with the Bureau’s CFPA authority by purporting to: release the Bureau’s claims in its pending federal lawsuit, enjoin class members from receiving benefits from the Bureau’s lawsuit, and assign any benefits the Bureau might obtain for class members to the class action defendants.

In its amicus brief filed in support of the Maryland AG’s appeal, the Bureau argues that the settlement agreement’s provisions threaten to interfere with the Bureau’s CFPA authority in the following ways:

  • They could interfere with the Bureau’s ability to carry out its statutory function of remediating harm through its Civil Penalty Fund because Access could argue that the settlement provisions that purport to enjoin class members from receiving any benefits from the Bureau’s lawsuit and assign to Access any benefits obtained by the Bureau for the class members either bar Access’s victims from receiving payments from the Fund or require the members to give any payments to Access.  The Bureau asserts that this argument, if successful, “would pervert the purposes of the Fund by diverting payments Congress intended the Bureau to provide to the victims of unlawful conduct to the very entities whose unlawful conduct caused their victims’ harm.”  According to the Bureau, it would be unable to compensate Access’s victims either because the payments would be assigned to Access or, to avoid giving Access a windfall, the Bureau would exercise its discretion to not make the payments.
  • They would interfere with the Bureau’s authority to remediate consumer harm through restitution.  According to the Bureau, because restitution is a public remedy sought to vindicate the public interest in effective law enforcement and the remediation of consumer harm, approval of a settlement agreement purporting to release and assign such remedies would interfere with the Bureau’s federal law authority to enforce federal consumer financial laws and remediate victims harmed by violations.

The Maryland Court of Appeals has scheduled oral argument on the Maryland AG’s appeal on January 6, 2020.