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U.S. Supreme Court rules CFPB funding structure is constitutional
On May 16, the U.S. Supreme Court ruled 7-2 that the funding structure of the CFPB was consistent with the Constitution’s appropriations clause, reversing a decision of the U.S. Court of Appeals for the Fifth Circuit that had called the Bureau’s ability to continue operating without Congressional action into question. The Supreme Court recognized that the CFPB’s funding structure was unique: Congress authorized the Bureau to draw from the Federal Reserve System instead of appropriating funds through the annual appropriations process. However, the Supreme Court found that this unique feature did have constitutional significance. The only question presented was whether the Bureau’s funding mechanism was an “Appropriatio[n] made by Law.” The Supreme Court found that the answer was yes.
Specifically, The Supreme Court held that Congress’s statutory authorization to allow the Federal Reserve System to fund the CFPB satisfied the appropriations clause since “appropriations need only identify a source of public funds and authorize the expenditure of those funds for designated purposes to satisfy the Appropriations Clause,” and both criteria were met. The Supreme Court found the trade associations’ arguments as to why the Bureau’s funding mechanism violated the appropriations clause were unpersuasive.
The CFPB’s constitutionality was challenged following the Bureau’s promulgation of a 2017 regulation on payday lending. In response to a challenge to that regulation, the District Court for the Western District of Texas granted summary judgment to the CFPB; however, the U.S. Court of Appeals for the Fifth Circuit agreed with the trade associations’ arguments and reversed the lower court’s decision, holding that the CFPB’s funding mechanism violated the appropriations clause. The Supreme Court has now reversed this decision and remanded the case back to the court of appeals.
11th Circuit rejects a proposed TCPA class action settlement
On May 13, the U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a proposed TCPA class action settlement agreement. The class, consolidated from three class actions, accused the defendant, the “world’s largest services platform for entrepreneurs,” of violating the TCPA by using an automatic telephone dialing system to send unwanted calls and text messages to promote its products. The $35 million settlement and attorney’s fees, up to $10.5 million, was approved preliminarily in 2020.
According to the appellate court’s opinion, the district court abused its discretion in approving a proposed $35 million settlement because it: (i) did not consider the 2018 amendments to Rule 23(e)(2); (ii) overlooked possible collusion in the settlement agreement; and (iii) inadequately informed class members about the case. Additionally, the court incorrectly calculated the attorneys’ fees and wrongly treated the settlement as a common fund rather than a claims settlement. The class’s counsel was criticized for appearing to represent their own interests over those of the class since they were supposed to receive $10.5 million in fees. The court also found issues with the opt-out process, which was deemed overly complex and likely to discourage class members from opting out. As a result, the judgment was vacated.
Arizona court upholds debt collection act from industry challenge
On May 3, the Arizona Court of Appeals affirmed the state superior court’s decision to uphold Arizona’s Predatory Debt Collection Act (the “Act”) after being challenged by judgment creditors. The Act lowered the interest rate cap on medical debt, increased the amount of the homestead exemption, increased the dollar value of personal property and assets exempt from creditor claims, and increased the amount of exempt earnings in garnishment actions. The plaintiffs alleged that the “Saving Clause” of the Act was unconstitutionally vague and unintelligible due to its failure to directly state whether the Act would apply when a judgment pre-dates the Act but a wage garnishment proceeding post-dates the Act. The appellate court found that the Saving Clause was not vague or unintelligible as the language “provides a framework and examples consistent with how Arizona courts have long ensured prospective application of the law[.]” As such, the appellate court upheld the superior court’s decision and could not rule the Act as unconstitutional.
3rd Circuit finds appellant does not have FDCPA standing where only injury was confusion
On April 26, the U.S. Court of Appeals for the Third Circuit held that an appellant who sued a debt collector for allegedly violating the FDCPA did not have standing to bring her claim because she “failed to plead a concrete injury” under Article III. The appellant received a debt collection letter that failed to explicitly state if the money was owed to the original creditor or the current creditor and then filed a putative class action alleging a violation of the FDCPA. The appellant asserted that the uncertainty caused her confusion, but failed to allege that she suffered any other harm as a result of the confusion and uncertainty. Relying on precedent, the Third Circuit found that while an intangible harm such as confusion or uncertainty could qualify as a cognizable injury, it must still “bear a ‘close relationship’ to an injury ‘traditionally recognized as providing a basis for a lawsuit in American courts[.]’” Failing to do so, the court ruled that the appellant did not reach the threshold for establishing Article III injury. Therefore, the Third Circuit vacated the judgment of the district court (a dismissal for failure to state a claim) and remanded the case with instructions to dismiss the complaint.
11th Circuit finds plaintiffs failed to show FCRA information is “objectively” available
On April 24, the U.S. Court of Appeals for the Eleventh Circuit found a defendant, a hotel timeshare company, not liable to two former clients for inaccurately reporting their unpaid debts to a consumer reporting agency (CRA) in violation of the FCRA, as alleged.
The plaintiffs stopped making monthly payments and, citing the terms of their timeshare agreements, considered their obligations to the company canceled. The hotel timeshare company disagreed and reported the plaintiffs’ debts to a CRA, prompting the plaintiffs to sue for an alleged inaccurate furnishing of data. The hotel timeshare company moved for summary judgment and the district court granted it after finding the alleged inaccuracies related to legal, not factual, disputes and therefore not actionable under Section 1692s-2 of the FCRA. The district court reasoned that “a plaintiff asserting a claim against a furnisher for failure to conduct a reasonable investigation cannot prevail… without demonstrating that had the furnisher conducted a reasonable investigation, the result would have been different.”
On appeal, the 11th Circuit held that furnishers were not required to resolve “contractual dispute[s] without a straightforward answer” when furnishing information, even if they could be required “to accurately report information derived from the readily verifiable and straightforward application of law to facts.” Because the underlying contract dispute in this case was subject to reasonable dispute, the court found that the information was not “inaccurate” and thus the plaintiffs did not have actionable claims against the defendant under the FCRA. The court pointed out that the consumers could sue for a declaratory judgment that they did not owe the debt and, if successful, use that as a “cudgel” to persuade a furnisher to stop reporting a debt. But the plaintiffs here had not done that yet. For these reasons the 11th Circuit affirmed the lower court’s judgment. As previously covered by InfoBytes, the CFPB and FTC filed an amicus brief while the case had been appealed in favor of the plaintiffs arguing that a furnisher’s duty under the FCRA would apply not only to factual disputes but also to disputes that are legal in nature.
CFPB petitions 5th Circuit to keep credit card late fee case in D.C.
On April 18, the CFPB asked a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit to reconsider its earlier decision to grant a petition for a writ of mandamus requiring the U.S. District Court for the Northern District of Texas to claw back its earlier transfer of industry’s challenge to the CFPB’s credit card late fee rule to Washington D.C. (covered by InfoBytes here). The CFPB urges the 5th Circuit to grant a panel rehearing, suggesting that the panel’s earlier decision rested on “flawed factual premises” and would be “unworkable for courts.”
According to the CFPB, the panel relied on the incorrect assumption that “credit card issuers needed to have printed and distributed disclosure materials about the late fees to customers by March 29” to comply with the final rule. The Bureau asserted this was a “manufactured” deadline. The CFPB also stressed that TILA does not require the Bureau to provide advance notice for a reduction in the maximum late fee. Further, the Bureau’s petition expanded into four misconstrued facts, such as that it was not true that the panel needed to grant the plaintiffs’ alleged claim for “urgent relief,” that the plaintiffs’ preliminary injunction motion needed to be decided quickly, that the plaintiffs were “entitled” to a quick resolution, and that the panel erred again in deciding that the final late fee rule did not require compliance until May 14 (thus leaving six more weeks for a decision).
Second, the CFPB argued that the panel’s new standard for assessing whether a preliminary injunction was denied would be “unworkable” for courts in practice and would improperly interfere with the district courts’ authority to manage their dockets when plaintiffs seek preliminary injunctive relief. The Fifth Circuit has asked the plaintiffs to respond to the petition for rehearing by April 29, 2024.
Separately, the Fifth Circuit has set a schedule for “expedited briefing” on the appeal of the district court’s “effective denial” of plaintiffs’ motion for a preliminary injunction. The briefing, however, will not conclude until May 17, 2024, days after the CFPB’s credit card late fees rule goes into effect. The Fifth Circuit has not yet ruled on plaintiffs’ pending motion for a stay pending appeal, raising the prospect that the credit card late fees will go into effect only to be enjoined soon thereafter.
DOJ appeals District Court's ruling on the Corporate Transparency Act’s constitutionality
On April 15, the DOJ submitted a brief to the U.S. Court of Appeals for the Eleventh Circuit in support of an appeal of a summary judgment from the Northern District of Alabama that found the Corporate Transparency Act (CTA) unconstitutional, specifically its reporting provision (covered by InfoBytes here). On appeal, the government emphasized that the District Court misunderstood the scope and purpose of the CTA and made two key errors in invalidating it. The first error, according to the DOJ, is that the court mistakenly viewed the CTA as merely regulating the act of filing the incorporation papers, which generally falls under State domain, as opposed to regulating commerce, which Congress has the power to regulate. As to the second error, the DOJ noted that the District Court mischaracterized the CTA as a “single-subject statute” that is unrelated to the federal government’s broader efforts to combat financial crimes, such as money laundering and terrorism financing. The DOJ pointed out that, ownership records often do not exist, which makes the CTA necessary in order to help investigators trace illicit funds by creating easily accessible ownership records. The DOJ also stressed that the determination by Congress that the CTA’s reporting requirements are necessary to detect and prosecute financial crimes should be subject only to “rational basis” review, a standard that the CTA satisfies.
7th Circuit says plaintiffs should have produced evidence to prove concrete injury
On February 29, the U.S. Court of Appeals for the Seventh Circuit decided that while an interruption of self-employment can cause a concrete loss for a plaintiff to sue, that loss must be established by evidence at summary judgment. The loss in question involved a consumer debt in arrears sold by a bank to a debt collection agency. Two individual plaintiffs owing the underlying debt sued the debt collection agency under 15 U.S.C. §1692e of the FDCPA when the debt collection agency attempted to collect on the debt owed without relaying that the bank had not verified the balance of the debt. The judge opined that rather than claiming they had incurred any concrete loss (e.g., a loss of income, payment of funds, etc.), plaintiffs instead filed an affidavit to state that the debt had “interrupted my self-employment” because they were focused on thinking about the debt and spent time working through records to confirm the debt owed. The judge agreed with the plaintiffs’ claim that debt collection efforts can very well cause a delay in receiving self-employment income, which is a “form of loss”; however, the judge also held that plaintiffs must show evidence of injury at the summary judgment stage, as this is the “put up or shut up” stage in litigation. Ultimately, the plaintiffs failed to show any evidence that debt collection efforts caused them concrete harm, other than interrupting a productive day of work.
Third Circuit finds Pennsylvania lending law does not regulate collection of charged-off debt
On February 7, the U.S. Court of Appeals for the Third Circuit affirmed a lower court’s decision to grant a debt collector’s (the defendant) motion for judgment. The defendant argued that its efforts to collect plaintiff’s charged-off debt via a proof of claim in a bankruptcy proceeding was not limited by, or in violation of, the Pennsylvania Consumer Discount Company Act (CDCA). The plaintiff, who obtained a loan from a third-party small-dollar lender licensed under the CDCA, defaulted on the loan and the licensed lender subsequently charged off and sold plaintiff’s debt to a company that was not licensed under the CDCA.
After filing for bankruptcy, the plaintiff sued the defendant and alleged a FDCPA violation when the defendant filed a proof of claim during the bankruptcy proceeding to collect the outstanding balance on the charged-off loan. The plaintiff’s argument was premised on claims that the defendant could not lawfully collect the debt because the CDCA dictates that a licensee may not sell CDCA-authorized contracts to an unlicensed person or entity. As such, the plaintiff argued the proof of claim violated the FDCPA’s prohibition against “false, deceptive, or misleading” representations in connection with the collection of a debt. The 3rd Circuit disagreed.
Relying in part on a letter from the Pennsylvania Department of Banking and Securities confirming that the CDCA does not apply to an unlicensed entity that purchases or attempts to collect on charged-off consumer loan accounts of debtors in bankruptcy, the appellate court held that “[t]he CDCA is a loan statute, not a debt collection statute,” and that “entities in the business of purchasing and collecting charged-off consumer debt are not subject to the CDCA’s regulatory scheme.” The 3rd Circuit held that selling charged-off obligations is not the same as selling the defaulted loan contract. Rather, it is selling unsecured debt, which falls outside of the CDCA’s scope. The court concluded that the CDCA’s prohibitions were inapplicable and could not be the basis for the FDCPA violation.
California appeals court vacates a ruling on enjoining enforcement of CPRA regulations
On February 9, California’s Third District Court of Appeal vacated a lower court’s decision to enjoin the California Privacy Protection Agency (CPPA) from enforcing regulations implementing the California Privacy Rights Act (CPRA). The decision reverses the trial court’s ruling delaying enforcement of the regulations until March 2024, which would have given businesses a one-year implementation period from the date final regulations were promulgated (covered by InfoBytes here).
The CPRA mandated the CPPA to finalize regulations on specific elements of the act by July 1, 2022, and provided that “the Agency’s enforcement authority would take effect on July 1, 2023,” a one-year gap between promulgation and enforcement. The CPPA did not issue final regulations until March of 2023, but sought to enforce the rules starting on the July 1, 2023, statutory date. In response, in March 2023, the Chamber of Commerce filed a lawsuit in state court seeking a one-year delay of enforcement for the new regulations. The trial court held that a delay was warranted because “voters intended there to be a gap between the passing of final regulations and enforcement of those regulations.” On appeal, the court emphasized that there is no explicit and unambiguous language in the law prohibiting the agency from enforcing the CPRA until at least one year after final regulations are approved, and that and found that while the mandatory dates included in the CPRA “amounts to a one-year delay,” such a delay was not mandated by the statutory language. The court further found that there is no indication from the ballot materials available to voters in passing the statute that the voters intended such a one-year delay. The court explained that the one-year gap between regulations could have been interpreted to give businesses time to comply, or as a period for the agency to prepare for enforcing the new rules, or there may also be other reasons for the gap.
Accordingly, the appellate court held that Chamber of Commerce “was simply not entitled to the relief granted by the trial court.” As a result of the court’s decision, businesses are now required to commence implementing the privacy regulations established by the agency.