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3rd Circuit says IRS reporting language may violate FDCPA
On September 24, the U.S. Court of Appeals for the 3rd Circuit reversed the district court’s dismissal of a putative class action alleging a debt collector violated the FDCPA by including a statement noting that debt forgiveness may be reported to the IRS. The case was centered on the plaintiffs’ claim that letters sent to collect on debts that were less than $600, which contained the language “[w]e are not obligated to renew this offer. We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case,” were “false, deceptive and misleading” under the FDCPA because only discharged debts over $600 are required to be reported to the IRS. The district court dismissed the action, concluding the letters were not deceptive and the least sophisticated consumer would interpret the statement to mean in certain circumstances some discharges are reportable but not all are reportable.
Upon appeal, the 3rd Circuit disagreed with the district court, finding “the least sophisticated debtor could be left with the impression that reporting could occur,” notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled, and therefore, the language could signal a potential FDCPA violation. Recognizing the industry’s regular use of form letters, the appeals court noted, “we must reinforce that convenience does not excuse a potential violation of the FDCPA.”
9th Circuit ruling broadens the definition of automatic telephone dialing system under TCPA
On September 20, the U.S. Court of Appeals for the 9th Circuit vacated the district court’s order granting summary judgment in a TCPA action, in light of the recent D.C. Circuit opinion in ACA International v. FCC (covered by a Buckley Sandler Special Alert). The case arises from a plaintiff’s allegations that a California gym violated the TCPA by sending three text messages to the plaintiff’s cell phone. In October 2014, the district court granted summary judgment for the gym, holding that the automatic text messaging system used by the gym was not an “automatic telephone dialing system” (autodialer) under the TCPA because it lacked the capacity “to store or produce telephone numbers to be called, using a random or sequential number generator.” In 2016, the 9th Circuit stayed the appeal of the district court’s ruling pending the ACA International decision, which was issued in March of this year. In ACA International, the D.C. Circuit struck down the FCC’s definition of an autodialer, reasoning that the FCC’s definition “unreasonably, and impermissibly” included all smartphones while inadequately describing the functions that made a device an autodialer.
Because the ACA International decision set aside the FCC’s definition, the 9th Circuit performed its own review of the statutory definition of an autodialer in the TCPA. Through this review, the court concluded that the TCPA defined an autodialer as “equipment which has the capacity—(i) to store numbers to be called, or (ii) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers automatically (even if the system must be turned on or triggered by a person).” Because the text system used by the gym stores numbers and dials them automatically to send the messages to the stored list of phone numbers, the 9th Circuit held there is a genuine issue of material fact as to whether the system qualified as an “autodialer” and remanded the case to district court for further proceedings.
District Court dismisses NFL season ticket class action because plaintiff received the “reasonably expected fruits under the contract”
On August 30, the U.S. District Court for the District of New Jersey dismissed with prejudice a putative class action alleging that an NFL team’s season ticket sales practices had violated the implied covenant of good faith and fair dealing and the New Jersey Consumer Fraud Act (CFA). The case was centered on the named plaintiff’s claim that the team made representations to him that his purchase of a personal seat license (PSL) would give him an exclusive right to purchase season tickets in a particular seating area in the team’s stadium. The plaintiff alleged that the team ran afoul of the CFA when, counter to its alleged representations, it opened up sales for season tickets in that area to people who had not purchased a personal seat license, thus rendering worthless the license plaintiff had purchased.
The Court dismissed the plaintiff’s claims with prejudice because the plaintiff had received the “reasonably expected fruits under the contract.” The PSL agreement did not promise an exclusive right to purchase seats in a particular area of the team’s stadium, nor did it “purport to extend licensing or equity rights to [p]laintiff to control the ticketing policy for other” seats in that area. Rather, the PSL simply promised the plaintiff the right to purchase two seats in the area he chose, and that right had not been interfered with.
D.C. Circuit remands SEC case to be heard by new ALJ
On September 19, the U.S. Court of Appeals for the D.C. Circuit remanded an SEC case against an investment adviser and his company for a new hearing before another Administrative Law Judge (ALJ) or before the Commission in accordance with the U.S. Supreme Court decision in Lucia v. SEC. As previously covered by InfoBytes, in June, the Supreme Court held that SEC ALJs are “inferior officers” subject to the Appointments Clause of the Constitution. After the decision in Lucia, the SEC moved to remand the case for a new hearing. In response, the investment adviser moved to have the SEC’s previous orders, including those imposing penalties, set aside in whole, arguing that remand is not authorized in this circumstance; citing to Lucia, the investment adviser argued the penalties resulted from an unconstitutional hearing and the language concerning remand for a new hearing in Lucia was dicta and carried no weight. The D.C. Circuit rejected this argument and denied the motion to set aside in part, citing D.C. Circuit precedent in stating “carefully considered language of the Supreme Court, even if technically dictum, generally must be treated as authoritative.”
District Court partially dismisses student loan co-signer claims alleging violations of federal and D.C. debt-collection laws
On September 10, the U.S. District Court for the District of Columbia partially granted a student loan administrator’s and a law firm’s joint motion to dismiss, and granted a lender’s motion for judgment on the pleadings, in a case involving a student loan co-signer’s claims brought under the Fair Debt Collection Practices Act (FDCPA), D.C. debt collection statute, and state law. The court rejected the plaintiff’s argument that her claims were tolled and dismissed the FDCPA claims against the loan administrator and firm because they were time-barred. The court also dismissed the plaintiff’s claim that the firm and the lender violated several provisions of the D.C. debt collection statute, concluding that the plaintiff failed to allege sufficient facts to support an allegation that the defendants willfully violated the statute. However, the court found that the plaintiff included sufficient facts to support a claim under the D.C. statute against the loan administrator based on allegations that the administrator, among other things, (i) concealed its “lack of authorization to sue”; (ii) concealed the fact that it was acting as a collector without the authority to enforce the terms of the loan; and (iii) has a “long, well-documented history of filing debt collection lawsuits falsely claiming to be the lender and/or real party in interest.” Finally, the court held that plaintiff’s abuse of process and malicious prosecution actions failed to state a claim against any of the defendants.
Pennsylvania appeals court upholds broad standard for “deception” under state consumer protection law
On September 12, the Superior Court of Pennsylvania held that Pennsylvania’s Uniform Trade Practices and Consumer Protection Law (UTPCPL) imposes strict liability on businesses who deceive consumers and does not require proof of fraud or negligent misrepresentation to state a claim. The plaintiffs brought common law claims of fraudulent and negligent misrepresentation and a statutory claim under the UTPCPL against insurance companies related to the sale of various insurance products. The common law claims of fraudulent and negligent misrepresentation went to a jury, which returned verdicts on both counts in favor of the insurance companies. The trial judge, however, found that the insurance companies violated the “deceptive” provision of the UTPCPL and awarded damages to the consumers. The insurance companies appealed, arguing that (i) the jury verdict on the common law claims required the court to dismiss the UTPCPL claim, and (ii) challenging the judge’s damages award calculation.
The appellate court affirmed the trial court’s determination that the defendants acted deceptively under the UTPCPL. The insurance companies argued that the UTPCPL claim was barred by the doctrines of collateral estoppel and res judicata based on the jury’s determination that the defendants had not committed a negligent misrepresentation. The appellate court, however, explained that these doctrines do not apply because the UTPCPL raises distinct issues. The court rejected the argument that the consumer must prove common law negligent misrepresentation to bring a claim under the deceptive prong of the UTPCPL. The court concluded that “any deceptive conduct, ‘which creates a likelihood of confusion or of misunderstanding,’” is actionable under the UTPCPL “whether committed intentionally (as in a fraudulent misrepresentation), carelessly (as in a negligent misrepresentation), or with the upmost care (as in strict liability).” The court also upheld the trial court’s damages determination under the UTPCPL, finding that the judge’s calculation was appropriate and consistent with the statute.
Florida appeals court finds consumer is entitled to attorney’s fees following debt collection suit
On September 14, a Florida appeals court held that a consumer was entitled to attorney’s fees after a debt collector voluntarily dismissed its “account stated” collection lawsuit for an unpaid credit card balance. Following the debt collector’s voluntary dismissal, the consumer moved for attorney’s fees under a provision in the credit card account agreement that provides for fees to the creditor in any collection action and the reciprocity provision in Section 57.105(7), Florida Statutes (2015). The Florida reciprocity statute permits a court to grant reasonable attorney’s fees to a prevailing party, whether as plaintiff or defendant, with respect to an action to enforce the contract. The appellate court reversed the trial court’s order and found that the consumer was entitled to attorney’s fees. The court concluded that, because the consumer was the prevailing party and the collection action was to enforce the contract, the reciprocity provision in section 57.105(7) applied to the consumer’s request for attorney’s fees under the terms of the agreement. The court remanded the case to the trial court to determine the attorney’s fee award.
3rd Circuit: Failure to provide job applicants consumer reports has standing under Spokeo
On September 10, the U.S. Court of Appeals for the 3rd Circuit issued a precedential order reversing in part and affirming in part a lower court’s dismissal of claims brought by three individuals who claimed a company violated the Fair Credit Reporting Act (FCRA) when it failed to provide them with copies of their consumer reports. According to the opinion, the three plaintiffs applied for jobs with the company and were ultimately not hired due to information discovered in their background checks. The plaintiffs filed a putative class action asserting the company did not send them copies of their background checks before it took adverse action when deciding not to hire them, and also failed to provide them with notices of their rights under the FCRA. The district court dismissed the claims against the company, finding there was only a “bare procedural violation,” and not a concrete injury in fact as required under the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert). On appeal, the 3rd Circuit reversed the lower court’s decision, concluding that the plaintiffs had standing to assert that the company violated the FCRA by taking adverse action without first providing copies of their consumer reports. Additionally, the court noted that “taking an adverse employment action without providing the required consumer report is ‘the very harm that Congress sought to prevent, arising from prototypical conduct proscribed’ by the FCRA.” However, the appellate court affirmed the lower court’s dismissal of the plaintiffs’ claim alleging the company failed to provide them with a notice of their FCRA rights, finding that the claim was a “‘bare procedural violation, divorced from any concrete harm,’” and lacked Article III standing under Spokeo. The 3rd Circuit remanded the case for further proceedings consistent with their findings.
District of Columbia moves to dismiss lawsuit alleging city’s student loan servicer regulations are preempted by federal law
On September 7, the District of Columbia filed a memorandum in support of its motion to dismiss a lawsuit claiming that the city’s regulations and requirements for student loan servicers are preempted by federal law. The plaintiff, a D.C.-based trade group whose membership consists of national student loan servicers, argues in its complaint that various provisions of District of Columbia Law 21-214, and rules promulgated thereunder, are preempted by the Federal Higher Education Act (HEA). For example, the complaint alleges that the licensing, examination, and annual reporting requirements are expressly preempted by the HEA, and the requirement to provide records to the D.C. Commissioner of Securities and Banking, upon request, violates the requirement that third party requests for records be made directly to the Department of Education.
The city countered that the potential harm is “hypothetical” and the plaintiff’s preemption claims are insufficient to establish standing. Several nonprofit groups filed an amicus brief in support of the city, stating that the lawsuit “is part of a strenuous effort by the Department and loan servicers not to protect federal interests, but to reach an outcome whereby no government entity provides meaningful regulation.” Moreover, the amicus brief claims that the lawsuit was filed following the Department’s Interpretation issued last March (as previously covered in InfoBytes here), which took the position that state regulation of Direct Loan servicing is broadly preempted by the HEA because it “impedes uniquely Federal interests,” and state regulation of the servicing of Federal Family Education Program Loans “is preempted to the extent that it undermines uniform administration of the program.”
CFPB files lawsuit against pension advance company citing alleged CFPA and TILA violations
On September 13, the CFPB filed a complaint against a pension advance company, its owner, and related entities (defendants) based upon alleged violations of the Consumer Financial Protection Act (CFPA) and the Truth in Lending Act (TILA). In a complaint filed with the U.S. District Court for the Central District of California, the Bureau charged that the defendants engaged in deceptive practices in violation of the CFPA when they allegedly misrepresented to customers that “lump-sum” pension advances were not loans and carried no applicable interest rate, even though customers were required to pay back advances at amounts equivalent to a 183 percent interest rate and often incurred fees such as one-time $300 set up fees, monthly management fees, and 1.5 percent late fees. According to the Bureau, the defendants allowed customers to take out advance payments ranging from $100 to $60,000. The defendants then allegedly provided the income streams as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates. Moreover, the defendants allegedly failed to provide customers with TILA closed-end-credit disclosures. The complaint seeks civil penalties, monetary and injunctive relief.
As previously covered in InfoBytes, the pension advance company initiated a suit against the CFPB in January 2017 after the Bureau declined to set aside or keep confidential a civil investigative demand served against the company. The suit challenged the Bureau’s constitutionality and argued that the company was likely to suffer irreparable harm from being identified as being under investigation. However, in a split decision, the D.C. Circuit Court ultimately denied the company’s bid for an emergency injunction, citing the now-vacated majority opinion in PHH v. CFPB.