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9th Circuit affirms dismissal of SCRA private action, applies federal four-year catch-all statute of limitations
On July 26, the U.S. Court of Appeals for the 9th Circuit affirmed the dismissal of a private suit alleging a mortgage servicer violated the Servicemembers Civil Relief Act (SCRA) prohibition on foreclosure on the grounds that the claim was time-barred, holding that the federal catchall four-year statute of limitations applies to private suits under the SCRA. The decision results from a 2016 lawsuit filed by a United States Marine veteran (the plaintiff) alleging that the August 2010 foreclosure sale on his home violated section 303(c) of the SCRA as it occurred within nine months of the end of his active military service. While the SCRA does not provide a specific statute of limitations for a private right of action, the defendants moved to dismiss the case as time-barred, arguing that the court should apply the closest state-law analogue to the SCRA. The plaintiff argued that the court should look to the Uniformed Services Employment and Reemployment Rights Act (USERRA) as the most analogous statute, which does not limit the period for filing claims. In response to the plaintiff, the defendants added an alternative argument that the court should apply 28 U.S.C. § 1658(a), which establishes a four-year limitation period for any claims arising from a federal law enacted after 1990, which does not delineate a specific limitations period. The district court granted the motion to dismiss, rejecting the plaintiff’s arguments, and applied the four-year statute of limitations found in the Washington State Consumer Protection Act.
In affirming the dismissal of the plaintiff’s case on an alternate ground, the court noted that while the SCRA’s protection against foreclosure existed prior to 1990, Congress did not add a private right of action until 2010. The court rejected the plaintiff’s argument that the private right of action was “implied” prior to the 2010 because there was no evidence Congress intended to create one under the SCRA’s predecessor, the Soldiers’ and Sailors’ Civil Relief Act. The court held that because a private right of action was not provided until 2010, the four-year catch-all provision of 28 U.S.C. § 1658(a) applied, and the plaintiff’s claim under the SCRA was time-barred.
2nd Circuit reverses district court, holds fair debt collection claim can proceed when dispute notice is included
On July 27, the U.S. Court of Appeals for the 2nd Circuit held that a lower court erred when it concluded that a consumer was prevented from alleging violations of the Fair Debt Collection Practices Act where a debt collector sought payment on a previously settled debt because the debt collector had included a notice of the right to dispute the debt, which the consumer did not exercise. According to the 2nd Circuit panel, the consumer plausibly argued that consumers could be misled by collection notices that misstate debts whether or not there is an option to dispute the debt, especially because the debt collector told her it might report her account information to credit bureaus. “A least sophisticated consumer who was so advised might understand her right to dispute the misstated debt but, nevertheless, pay the debt out of fear that there was already an adverse effect on her credit that would continue as long as the obligation remained outstanding,” the panel opined. Moreover, a debt dispute notice does not preclude claims for misrepresenting the debt. The appellate court vacated the lower court’s judgment and remanded for further proceedings.
District court approves stipulated final judgment in favor of CFPB against one of the operators of online lending operation
On July 23, the U.S. District Court for the Western District of Missouri approved a stipulated final judgment and order against one of the two dozen defendants in the CFPB’s suit against an alleged online payday lending operation. In 2014, the Bureau filed a complaint against numerous entities and three individuals, accusing the defendants of violating the Consumer Financial Protection Act, Truth in Lending Act, and Electronic Fund Transfer Act by, among other things, purchasing information from online lead generators in order to access checking accounts to illegally deposit payday loans and withdraw fees without consumer consent, along with falsifying loan documents as evidence that the consumers had agreed to the loans. The stipulated final judgment and order resolved the Bureau’s claims against one of the individual defendants, an in-house accountant who monitored the bank accounts and the movement of funds between the entity and individual defendants. While the settling defendant neither admitted nor denied the Bureau’s allegations (except with respect to jurisdiction), he agreed to pay a civil money penalty of $1 (based, in part, on his inability to pay) and to fully cooperate with the Bureau.
District court dismisses CFPB suit against law firm over debt collection letters
On July 25, the U.S. District Court for the Northern District of Ohio entered judgment against the CFPB in its lawsuit against a law firm that had previously collected debts for the State of Ohio under the direction of former Ohio Attorney General and Bureau Director Richard Cordray. The Bureau’s claims focused on whether demand letters sent on firm letterhead were misleading if attorneys were not meaningfully involved in preparing those letters. As previously covered in InfoBytes, the CFPB sought a permanent injunction and fines against the law firm for violating the Fair Debt Collection Practices Act and the Consumer Financial Protection Act. However, according to the court’s memorandum opinion and order following a May 2018 trial, the Bureau did not meet its burden of supporting its claims by a preponderance of the evidence because, even if attorneys did not review every account before a demand letter was sent, attorneys were “meaningfully and substantially involved in the debt collection process both before and after the issuance of demand letters.” The court also concluded that the Bureau’s expert witness “did not present credible evidence from which the finder of fact could infer that any consumer’s [sic] were misled by [the firm’s] demand letter,” and therefore there was “no evidence that any consumer’s decision on when and whether to pay a debt was influenced by the inclusion of the attorney identifiers in [the firm’s] demand letters.” Instead, in the court’s words, “[t]he demand letters accurately describe the identity and legal description of the entity sending the letter. As such, it cannot be described as false or misleading simply for correctly identifying [itself] as a law firm.” The court entered judgment against the Bureau on all counts and assessed all the costs of the action to the Bureau.
2nd Circuit affirms no securities fraud in mortgage bundle sale
On July 24, the U.S. Court of Appeals for the 2nd Circuit affirmed a district court’s decision, holding that a group of securities investment firms (defendants-appellees) did not unlawfully hide concerns about a mortgage bundle it sold to a Luxemburg-based financial institution (plaintiff-appellant) when it marked down the value of certain junior securities within the bundle. The three judge panel affirmed the lower court’s decision to dismiss securities fraud and breach of contract claims, which alleged that the defendants-appellees’ undisclosed markdown concealed its view that the mortgage bundle would underperform. The defendants-appellees contended that the markdown was related to commonly-used accounting strategies designed to manage risk tied to the preference shares, to which the lower court agreed—ruling that the plaintiff-appellant had failed to show evidence proving its claims of fraud. The appellate court agreed, holding that the plaintiff-appellant “has thus failed to raise a material issue of fact as to [the defendants-appellees’] knowledge that there was anything wrong with the underlying assets, which is essential to establishing its theory of fraud.” The appellate court further upheld the breach of contract dismissal because the offering circular and marketing materials for the mortgage bundle did not specify the value of the preference shares.
FTC and New York Attorney General reach deal with debt collection firm
On July 20, the U.S. District Court for the Western District of New York issued a judgment to resolve a suit brought by the FTC and the New York Attorney General against a debt collection firm and an affiliated officer (defendants) accused of allegedly engaging in deceptive and abusive practices, including unlawfully threatening to arrest consumers if debts were not paid. (See previous InfoBytes coverage here.) Under the stipulated final order for permanent injunction and settlement of claims pursuant to the FTC Act and the Fair Debt Collection Practices Act, the defendants—who have not admitted to the allegations—are held jointly and severally liable for paying the more than $22.5 million under a suspended judgment should it ever be determined that the financial disclosures provided to the state and the FTC were not completely truthful, accurate, or complete. The defendants are also banned from the debt collection industry and required to file compliance reports with the FTC. The judgment further authorizes the receiver to liquidate the debt collection firm’s assets.
District Court holds TCPA covers direct-drop voicemails
On July 16, the U.S. District Court for the Western District of Michigan held in a matter of first impression that direct-to-voicemail or direct-drop voicemails are covered by the Telephone Consumer Protection Act (TCPA). In so holding, the court denied a debt collection agency’s (defendant) motion for summary judgment. According to the opinion, the defendant asserted that the prerecorded voicemails left on the plaintiff’s cell phone in an effort to collect a mortgage did not violate the TCPA because calls were not dialed to the cell phone but rather deposited directly on a voicemail service—an action the defendant claimed was not within the scope of the TCPA and unregulated. However, the court found that the defendant’s use of the voicemail product constituted as a “call” within TCPA’s broadly constructed purview. In addition, the court specifically stated that the direct drop voicemails left by the defendant were “arguably more of a nuisance” to the plaintiff than receiving text messages since she would have to take steps each time to review or delete the message. In denying the defendant’s motion, the court held that “[b]oth the FCC and the courts have recognized that the scope of the TCPA naturally evolves in parallel with telecommunications technology as it evolves, e.g., with the advent of text messages and email-to-text messages or, as we have here, new technology to get into a consumer’s voicemail box directly.”
6th Circuit affirms dismissal of certain TCPA class action claims, reverses decision on survivability issue
On July 20, in a matter of first impression for the Courts of Appeals, the U.S. Court of Appeals for the 6th Circuit held that claims under the Telephone Consumer Protection Act (TCPA) survive the death of a plaintiff and may be brought by a successor in interest. In so doing, the court reversed the lower court’s decision that held the opposite and remanded the case back to the lower court for further proceedings. The 6th Circuit opined that the lower court erred in holding that TCPA was penal rather than remedial in nature, and thus could not survive a plaintiff’s death. “The purpose of the TCPA [is] to redress individual wrongs felt by individual consumers . . . [and] recovery under the statute runs to the harmed individual and not the public,” both of which suggest that TCPA claims were remedial, and thus survive a party’s death. Separately, the court affirmed the district court’s order granting a motion to sever and motion to dismiss.
District court dismisses FDCPA suit, rules least sophisticated debtor would not be misled by placement of dispute language
On July 18, the U.S. District Court for the District of New Jersey dismissed a class action lawsuit alleging a debt collector failed to provide clear instructions that debt disputes must be submitted in writing in order to be valid as required under the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff claimed that the debt collection company misled her into believing she could orally dispute her debt by placing phrases such as “Should you have any questions regarding this account, please feel free to call us” on a debt collection notice she received. However, the debt collector argued that instructions in the notice, which provided the consumer with her rights under the FDCPA, could not be overshadowed or contradicted by including a phone number. The court agreed, referencing two 3rd Circuit cases as precedent, and stated that “merely providing contact information and encouraging a telephone call are insufficient standing alone to undermine an otherwise clear validation notice.” In this instance, the notice “only invites her to call if she has general questions regarding the account.” Furthermore, according to the judge, even the least sophisticated debtor would not be misled by a phone number listed separately from dispute instructions.
8th Circuit reverses district court’s decision, rules compound interest not contractually agreed upon violates FDCPA
On July 16, the U.S. Court of Appeals for the 8th Circuit reversed a district court’s decision, holding that under Minnesota law, compound interest cannot be collected unless specifically agreed to in a contract. The decision results from a suit filed by a consumer alleging that a law firm violated the Fair Debt Collection Practice Act (FDCPA) when it sent a debt collection letter seeking payment of credit card debt while asserting that the consumer owed compound interest. The consumer’s suit alleged that the debt’s owner, debt collector, and law firm (defendants) “used a false, deceptive, or misleading representation or means . . . and an unfair or unconscionable means” when attempting to collect the debt. Specifically, the consumer alleged the principal balance included interest on the contractual interest—which he claimed he did not agree to in the underlying credit card agreement—and that as a result, the defendants misrepresented the amount of debt and attempted to collect interest that was not permitted under Minnesota law. The district court dismissed the consumer’s claim, finding that he failed to state an FDCPA claim because he did not allege a materially false statement in the collection letter. The 8th Circuit reversed however, finding that the consumer stated a claim under the FDCPA because a demand to pay an amount of debt that is unauthorized under state law is actionable as a false statement or unfair collection attempt, and that a false representation of the amount of a debt that overstates what is owed under state law is a material violation of the FDCPA. The appellate court also rejected the law firm’s argument that there was no FDCPA violation because the agreement authorized the total amount of interest stated in the letter, further declining to calculate the interest under the credit-card terms provided by the law firm because the consumer had contested the terms as unauthenticated.