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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.
DFPI annual report highlights consumer protection efforts and upcoming regulations
On April 25, the California DFPI released its Annual Report of Activity under the California Consumer Financial Protection Law (CCFPL), highlighting investigations, public actions, and consumer outreach efforts under the CCFPL. According to the report, the DFPI (i) experienced a 70 percent increase in CCFPL complaints, which predominantly involved crypto assets and debt collectors; (ii) opened 734 CCFPL-related investigations and issued 181 public CCFPL actions; (iii) launched the Crypto Scam Tracker and a new consumer complaints portal; and (iv) advanced two rules, including unlawful, unfair, deceptive, or abusive acts and practices (UUDAAP) protections for small businesses and new registration requirements (pending final approval by the Office of Administrative Law) for earned wage access, debt settlement services, debt relief services, and private postsecondary education financing products.
The report emphasized that the new regulations specified that optional payments, such as tips, collected by California Financing Law (CFL)-licensed lenders would be considered charges under the law. According to the DFPI, these updates will reinforce the CFL by blocking potential loopholes and ensuring compliance among CFL-licensed lenders. Once these regulations would be approved, DFPI will oversee these financial service providers. Upon adoption, DFPI says it will be a pioneer in defining “earned wage access” as loans and regulating income advance services and the treatment of tips as charges, all through regulatory measures rather than statutory enactment.
Tennessee amends caller ID law
On April 22, Tennessee enacted HB 2504 (the “Act”), which amends the Tennessee Consumer Protection Act of 1977 to specify that it is illegal for: (i) “[a] person, in connection with a telecommunications service or an interconnected VoIP service, to knowingly cause any caller identification service to transmit misleading or inaccurate caller identification information to a subscriber with the intent to defraud or cause harm to another person or to wrongfully obtain anything of value”; and (ii) “[a] person, on behalf of a debt collector or inbound telemarketer service, to knowingly cause any caller identification service to transmit misleading or inaccurate caller identification information, including caller identification information that does not match the area code of the person or the debt collector or inbound telemarketer service the person is calling on behalf of, or that is not a toll-free phone number, to a subscriber with the intent to induce the subscriber to answer.”
The Act is effective on July 1.
New York AG settles with bank over EIPA violations
On April 17, the New York attorney general (AG) announced a settlement with a bank (respondent) to resolve allegations that respondent improperly froze customer accounts and paid out consumer funds to debt collectors, and failed to properly oversee its service providers engaging in similar activity, in violation of the Exempt Income Protection Act (EIPA). The EIPA requires that banks, among other things, “not restrain consumers’ use of statutorily exempt funds, such as social security benefits, veterans benefits, and disability insurance… in consumers’ bank accounts up to an amount set every three years by New York’s Department of Financial Services.” New York law also bars debt collectors from acquiring funds that include certain government benefits.
According to the settlement, respondent typically employs the assistance of specific third-party servicer providers to market and deliver banking products like debit cards, prepaid cards, payroll cards, or gift cards to consumers while respondent holds the funds loaded onto those cards. Servicer providers administer the program and interact with consumers, including by clearing transactions through a network processor approved by respondent, and generally handling transaction disputes and preparing account statements, while respondent oversees and monitors the program and the service provider while retaining full control of the funds. The AG claimed that respondents failed to ensure its servicer providers complied with the EIPA, and that on numerous occasions, servicer providers allegedly froze accounts holding exempt funds or accounts with balances below legal thresholds, then paid debt collectors with the frozen funds under the instruction of respondent.
According to the AG, respondent’s servicer providers also engaged in deceptive acts and practices by allegedly falsely labeling legal processes as “court orders” instead of documents from debt collectors. Respondents also allegedly provided false information that account freezes could not be lifted even when account balances were below legal thresholds, and falsely claiming only debt collectors could release the freeze. Additionally, servicer providers allegedly directed consumers to debt collectors who often sought deals to release account freezes for a portion of the account balance, despite the freezes being void and subject to the protected wage threshold.
Under the terms of the settlement, respondent will refund $79,664 plus interest to approximately 88 New Yorkers whose funds were wrongfully turned over to debt collectors and amend its policies and procedures. Respondent must also pay a civil money penalty of $627,000, and comply with ongoing monitoring and compliance requirements.
CFPB’s Frotman speaks on medical debt collections and rental financial products
On April 11, the General Counsel of the CFPB, Seth Frotman, delivered a speech at the National Consumer Law Center/National Association of Consumer Advocates Spring Training, highlighting how the FDCPA and the FCRA cover often-overlooked sectors of consumer finance, including medical collections and landlord-tenant debts. As to medical billing, collections, and credit reporting, Frotman noted that the CFPB has received more than 15,000 complaints in the past two years, as explained previously in the CFPB’s most recent FDCPA annual report (covered by InfoBytes here). These complaints led to the CFPB initiating a rulemaking process to “remove medical bills from credit reports.” Frotman highlighted that many states have taken similar initiatives: Colorado and New York both enacted laws prohibiting the reporting of medical debt, and the CFPB encouraged more states to follow their lead; Connecticut recently introduced legislation banning medical debt in SB 395. Of interest, Frotman noted that when the CFPB contacted debt collectors about suspected bills, they often closed the account – suggesting that these collectors “do not have confidence that this money [was] actually owed,” indicating that collectors could be seeking to collect an invalid medical debt from consumers.
On rental collections and credit reporting, Frotman noted an increase in the “financialization” of the landlord and tenant relationship, such as products to finance security deposits or rent and offering rent-specific credit cards. Frotman also noted that corporate landlords, who have increased their share of the rental housing market, have increased the demand for “tenant screening” products that score prospective tenants. Frotman expressed concern that the algorithms relied on by these tenant screening products have been opaque and even discriminatory. The speech highlighted the CFPB’s focus on tenant screening as part of the Bureau’s increased attention toward debt collection and credit reporting companies generally in the rental industry. For instance, the CFPB noted that law firms that operate as “eviction mills” (i.e., firms that “rubber stamp” eviction actions without performing a meaningful review) could be held liable under the FDCPA.
Utah appellate court upholds ruling for defendant in FDCPA case
Recently, the Utah Court of Appeals affirmed a lower court’s decision granting summary judgment in favor of a defendant debt collector in an FDCPA case. According to the court, defendant’s registration as a debt collection agency had lapsed in Utah when it sent the plaintiff a debt collection letter. Later, when still not registered as a collection agency, defendant served plaintiff with a collection complaint and filed it with the district court. Plaintiff did not contest the complaint, leading to defendant moving for a default judgment, which the district court granted in 2020. Thereafter, plaintiff filed suit against defendant for illegally pursuing the prior collection action, and summary judgment was entered against plaintiff.
On appeal, the court turned to a recent similar case that supported the lower court’s decision that a registration violation was not actionable under the Utah Consumer Sales Practices Act (UCSPA). Regarding plaintiff’s FDCPA claim, the court found that plaintiff did not argue for a different resolution under the FDCPA compared to the Utah Code. Plaintiff contended that since both statutes prohibited the same practices in debt collection, her FDCPA claim should also be valid under the UCSPA. However, as plaintiff did not preserve any argument distinguishing her FDCPA claim from her UCSPA claim, the court affirmed the dismissal of both the FDCPA and UCSPA claims.
District Court grants MSJ in FCRA case in favor of defendant
Recently, a plaintiff sued under the FCRA, alleging that the defendant debt collector failed to conduct a reasonable investigation into a disputed credit report item. The plaintiff claimed to be a victim of identity theft and contended that an outstanding telephone debt should not have been listed on his credit report. The defendant maintained that it had performed its duties reasonably, relying on information from the phone company for which it acted as a debt collector. The defendant moved for summary judgment on the grounds that the plaintiff had not provided any evidence to support the claim of an unreasonable investigation by defendant. The U.S. District Court for the Southern District of Florida granted the motion for summary judgment, agreeing with the defendant that the plaintiff had failed to provide any substantial evidence regarding how the defendant’s investigation was conducted or why it was unreasonable.
Indiana appellate court finds debt company violated FDCPA and Indiana’s deceptive consumer sales act
Recently, the U.S. Court of Appeals of Indiana affirmed a state trial court’s decision concluding that the defendant was a debt collector under both the Indiana Deceptive Consumer Sales Act and the FDCPA when it purchased and collected defaulted debt. The Court of Appeals rejected the defendant’s argument in its motion for partial summary judgment arguing it was not a debt collector under both statutes because the plaintiff’s debt was owned by it and due to it, and it did not collect debts owed by another. The court reviewed the evidence that the defendant purchased defaulted debt and utilized agencies to contact consumers as its primary business pursuit. The court found the defendant was a “person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts” or a “debt collector” under 15 U.S.C. § 1692a(6). It likewise concluded that the defendant was a “debt collector under” the state statute because Ind. Code § 24-5-0.5-2(a)(13) incorporated the FDCPA’s definition of debt collector and “[t]he term includes a debt buyer (as defined in IC 24-5-15.5).”
Trusts are covered persons subject to the CFPA, 3rd Circuit upholds CFPB FDCPA case
On March 19, the U.S. Court of Appeals for the Third Circuit filed an opinion remanding a case between the CFPB and defendant statutory trusts to the District Court. After issuing a civil investigative demand in 2014, the CFPB initiated an enforcement action in September 2017 against a collection of 15 Delaware statutory trusts that furnished over 800,000 private loans and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or was outside the applicable statute of limitations (covered by InfoBytes here). Then, early last year, the parties settled and asked the court to enter a consent judgment, which was denied (covered by InfoBytes here).
The 3rd Circuit addressed two questions: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau. On the statutory issue, the court found that the trusts fell within the purview of the CFPA because trusts “engage” in offering or providing a consumer financial product or service, specifically student loan servicing and debt collection, as explicitly stated in the trust agreements each trust entered. Regarding the constitutional question, the defendants argued that the Bureau needed to ratify the underlying suit because it was initiated while the agency head was improperly insulated, and since the Bureau ratified it after the statute of limitations had run, the suit was untimely. The court disagreed and found that the defendants’ analysis of the here-and-now injury “doesn’t go far enough,” therefore the CFPB did not need to ratify this action before the statute of limitations had run because the impermissible insulation provision does not, on its own, cause harm.
CFPB publishes notice and requests comments on “Consumer Complaint Survey”
On March 6, the CFPB published a notice and request for comment in the Federal Register, proposing two new surveys to investigate the factors influencing whether consumers file complaints regarding financial products and services.
The initial pilot survey will target credit card users, comparing those who have lodged complaints with the CFPB to those who have not, to help identify the reasons behind their decision-making. This case-control study will aim to reveal key factors associated with the submission of regulatory complaints. Following the pilot, a second, broader survey will encompass a range of financial products, including mortgages, vehicle loans, bank accounts, and debts owed to third-party debt collectors. The surveys will gather data on consumers’ use of the products, the issues faced, their perceptions of the product and provider, and demographic details.
The CFPB was seeking public comments on the necessity and utility of the information collection, the accuracy of its burden estimates, methods for enhancing the quality of the information, and ways to reduce the burden on respondents. Comments must be received by May 6.