While the rest of the country was waiting for the Supreme Court's health care decision earlier this summer, bank lawyers were anticipating the release of a second decision with important implications for the industry.
As it turned out, the former ruling was a bombshell, and the latter was a dud.
The case that the bank lawyers were watching, First American Financial v. Edwards, involved the Real Estate Settlement Procedures Act. It reached the highest court in the land with a central question: could the plaintiff sue over alleged title insurance kickbacks if she did not suffer any actual harm?
But the court essentially refrained from issuing a ruling-an unusual move given that the justices already had heard oral arguments in the case. "The court was basically just saying, 'We shouldn't have taken this case in the first instance,'" says Eric Magnuson, a lawyer at Nutter McLellen & Fish LLP in Boston.
The plaintiff had argued that the mere fact that there was a violation of the law was enough to allow her lawsuit to go forward, and the lower courts agreed with her. But the defendant countered that the plaintiff would have paid the same price for title insurance whether the alleged kickback took place or not, and that the lawsuit should be thrown out because the plaintiff did not suffer any harm.
The potential implications of the suit went well beyond RESPA. According to briefs filed in the case, other laws that might have been impacted by the Supreme Court's ruling included the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Truth in Lending Act and the Electronic Fund Transfer Act. That last law is the statute under which a slew of recent lawsuits related to the disclosure of automated teller machine fees have been filed.
The plaintiffs in the ATM cases allege that various banks and credit unions were in violation of a legal requirement that ATMs have a physical placard notifying users of any fees, in addition to an on-screen notification of the fees.
But because the plaintiffs would have seen the on-screen notices that they would be charged $3 or so, they would have a hard time convincing a court that they suffered any harm from the fact that the physical placard was missing. Instead, they're arguing that it doesn't matter if they suffered harm; it's enough that the financial institution violated the law.
In a two-sentence ruling issued on June 28, the same day as its landmark decision on the healthcare legislation championed by the Obama administration, the Supreme Court did not explain why it erred when it decided to hear the title-insurance case in the first place. The "lower courts are left without any additional guidance," Magnuson says.
In the context of the ATM lawsuits, banks and credit unions have not been waiting on the courts to clarify the legal issues. They have asked Congress to repeal the legal requirement for physical placards, and they got a boost on June 27 when the House Financial Services Committee voted unanimously on a measure that would do just that.