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Illinois amends Collection Agency Act provisions
On May 27, the Illinois governor signed HB 5220, which makes various amendments to provisions related to the state’s Collection Agency Act. Among other things, the amendments strike language repealing specified provisions and add, amend, and strike certain definitions, including amending “financial institution” to include “consumer installment lenders, payday lenders, sales finance agencies, and any other industry or business that offers services or products that are regulated under any Act administered by the [Director of the Division of Financial Institutions].” The amendments further provide that an adjudicated finding by the FTC or other federal or state agency that shows a licensee violated the FDCPA or its rules is grounds for disciplinary action. Also, at the discretion of the Secretary (after having first received the recommendation of the Collection Agency Licensing and Disciplinary Board), an “accused person’s license may be suspended or revoked, if the evidence constitutes sufficient grounds for such action.” Moreover, the amendments restore language providing that the Department of Financial and Professional Regulation may obtain written recommendations from the Collection Agency Licensing and Disciplinary Board “regarding standards of professional conduct, formal disciplinary actions, and the formulation of rules affecting these matters.” The Act takes effect January 1, 2023.
Judges disagree that “psychological states” can never support standing under FDCPA
On June 8, a majority of judges on the U.S. Court of Appeals for the Seventh Circuit denied a plaintiff-appellee’s petition for rehearing en banc in a case concerning the collection of time-barred debt. In April, the 7th Circuit vacated a $350,000 jury award against a debt collector in an FDCPA action, holding that the plaintiff lacked Article III standing. The defendant sent the plaintiff a letter offering to resolve her defaulted credit card debt at a discount. The letter included a disclosure stating that “because of the age of the debt” it would not sue or report the debt to a credit agency and that payment or nonpayment would not affect her credit score. The plaintiff sued, claiming the letter “surprised and confused” her and was in violation of Sections 1692e(2), 1692e(10), and 1692f of the FDCPA. The district court certified a class and granted summary judgment in favor of the plaintiff “reasoning that the misleading nature of the letter risked real harm to the interests that Congress sought to protect with the FDCPA.” A jury awarded the class $350,000 in damages. On appeal, the panel disagreed, explaining that the plaintiff never made a payment as a result of receiving the letter, nor did she “promise to do so or otherwise act to her detriment in response to anything in or omitted from the letter.” Calling the defendant to dispute the debt and contacting an attorney for legal advice “are not legally cognizable harms” and not enough to provide the “basis for a lawsuit,” the court wrote, adding that “[p]sychological states induced by a debt collector’s letter” are not enough to establish standing.
The majority of the 7th Circuit agreed with the panel’s ruling and voted not to hold an en banc rehearing. However, four judges dissented, arguing that the plaintiff’s claims “should easily satisfy” standing requirements established by the U.S. Supreme Court. “The emotional distress, confusion, and anxiety suffered by [plaintiff] in response to this zombie debt collection effort fit well within the harms that would be expected from many of the abusive practices,” the dissent said. “That’s true regardless of whether the debtor actually made a payment or took some other tangible action in response to them.” According to the dissent, the majority is “painting with too broad a brush” in finding that “[e]motional distress and other ‘psychological states’ can never support standing under the FDCPA.” This reasoning also overlooks close historical parallels in common and constitutional law that provide remedies for intangible injuries caused by many violations of the FDCPA and other consumer-protection statutes, the dissent added.
Colorado enacts medical debt collection bill
On June 9, the Colorado governor signed HB 1285, which prohibits hospitals from taking certain debt collection actions against a patient if the hospital is not in compliance with hospital price transparency laws. Specifically, the bill prohibits hospitals that are not in compliance with a price transparency rule that went into effect in January 2021 from placing debts with third-party collection agencies, filing lawsuits to collect on unpaid debts, and reporting debts to credit reporting agencies. The bill also establishes that a patient may file suit if they believe that a hospital was not in material compliance with price transparency laws.
District Court grants defendant’s summary judgment in TCPA case
On June 6, the U.S. District Court for the Northern District of Ohio granted a national bank’s (defendant) motion for summary judgment in a case alleging it violated the TCPA by placing unwanted telephone calls and text messages. According to the order, the plaintiff filed suit in April 2021, alleging the defendant called him 88 times without his consent regarding a debt using an automated dialing system in violation of the TCPA. The court found that the plaintiff had given his consent to be contacted when he signed a signature card for his account that included his number. The court noted that his consent permitted the defendant “to use text messaging, artificial or prerecorded voice messages and automatic dialing technology for informational and account service calls, but not for telemarketing or sales calls.” The court further concluded that “prior express consent permits a creditor to contact a debtor by any telephonic means,” and emphasized that the “TCPA is not intended to stop a bank from calling its customers, but rather to stop telemarketers from making random, sequentially generated ‘robocalls’ to consumers who do not wish to receive them.”
FTC bans MCA providers, returns $2.7 million to consumers
On June 6, the FTC obtained a stipulated court order permanently banning a company and owner from participating in the merchant cash advance and debt collection industries. As previously covered by InfoBytes, last June the FTC filed an amended complaint against two New York-based small-business financing companies and a related entity and individuals (including the settling defendants), claiming the defendants engaged in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, deceiving consumers about personal guarantees, forcing consumers and businesses to sign confessions of judgment, providing less funding than promised due to undisclosed fees, and making unauthorized withdrawals from consumers’ accounts. Under the terms of the stipulated order, the settling defendants are required to pay a more than $2.7 million monetary judgment to go towards refunds for harmed consumers and must vacate any judgments against former customers and release any liens against their customers’ property. The announcement notes that the settling defendants are also “prohibited from misleading consumers about any key facts about any good or service, including any fees, the total cost of the product, and other facts that reflect their deceptions in this case.”
Earlier in January, a stipulated order was entered against two other defendants (covered by InfoBytes here), which permanently banned them from participating in the merchant cash advance and debt collection industries and required the payment of a $675,000 monetary judgment.
District Court certifies TCPA class action against debt collector
On May 31, the U.S. District Court for the Western District of Washington granted a plaintiff’s motion for class certification in an action alleging a defendant debt collector placed unsolicited calls to borrowers’ cell phones when attempting to collect federal student loan debt. The plaintiff contended that the defendant violated the TCPA by calling her up to seven times a day without her consent using an automatic telephone dialing system (autodialer) and prerecorded calls or artificial voice calls. According to the plaintiff, in 2019, the defendant obtained her cell phone number through skip-tracing services performed by one of its vendors. The defendant allegedly had access to a call recording from a 2017 conversation between a Department of Education contractor and the plaintiff during which the plaintiff provided her phone number. The defendant, however, allegedly was not aware of the recording nor did it seek to access the file until after the plaintiff filed suit. The defendant also supposedly received a file from the contractor containing the plaintiff’s number but not until after it already acquired the number from the skip-tracing vendor. The defendant denied that it used an autodialer or made prerecorded calls or artificial voice calls. The defendant also claimed that “because it had constructive access to the recording of plaintiff’s 2017 phone conversation with [the contractor] and received the [] file with plaintiff’s number, it had plaintiff’s prior express consent to receiving calls.”
The court certified the class, ruling that the question of whether access to the files in question was sufficient to confer consent under the TCPA is “a closer legal question, but not one that overcomes predominance at this stage.” According to the court, “the issue of whether defendant can show that its right of access to [the contractor’s] files constituted prior express consent is one that is currently capable of classwide resolution. Accordingly, while the affirmative defenses defendant presses will no doubt be important to the outcome of the litigation, they presently do not undercut the central common issues in this case.”
District Court preliminarily approves $2 million debt collection settlement over garnishment issuance fees
On May 24, the U.S. District Court for the District of Oregon preliminarily approved a class action settlement resolving claims concerning a debt collection agency’s $45 garnishment “issuance fee.” According to the plaintiffs, the defendant issued garnishments to debtors’ employers and banks through its in-house attorneys to collect revenue for outstanding debts. While Oregon law allows debt collectors to charge fees as a means of compensating for the expense of hiring attorneys who issue such garnishments, the plaintiffs contended that the defendant’s “$45 fee is an abuse of the cost recovery statute because using in-house attorneys relieves defendant from ever incurring such an expense.” The plaintiffs alleged violations of the FDCPA, Oregon’s Unlawful Trade Practices Act, and Oregon’s Unlawful Debt Collection Practices Act. While the defendant denied any wrongdoing as part of the preliminarily approved settlement, it has agreed to pay $2 million to settle the claims. Class members, defined as more than 10,000 Oregonians allegedly injured by the $45 issuance fees between January 2018 and September 2019, will each receive “an amount three times greater than the actual damages caused originally by Defendant’s issuance fees.”
DFPI says debt collection licenses “unavoidably delayed”
On May 23, the California Department of Financial Protection and Innovation (DFPI) sent a notice to applicants and prospective applicants announcing unforeseen delays in the issuance of licenses under the Debt Collection Licensing Act. The FBI informed DFPI that new changes are needed to state agency protocols for requesting federal background checks. Prospective licensees are encouraged to continue submitting applications through the Nationwide Multistate Licensing System. DFPI stated that during this delay (which “is necessary to enable the Department to effectuate the licensing background check required under the Debt Collection Licensing Act”), “applicants may continue to engage in business, and the Department will not take action for unlicensed activity against applicants who filed their applications after December 31, 2021.” DFPI will reach out to applicants with instructions for submitting fingerprints for background checks when the process becomes available, and advised licensees that “[f]or purposes of including California debt collector license numbers when contacting or communicating with debtors as required under Civil Code section 1788.11, an applicant who has filed its application through NMLS may indicate “license number pending” or similar verbiage until a license is issued.” DFPI will notify applicants when it begins issuing licenses and encourages applicants to check the Department’s website for updates.
7th Circuit reverses dismissal of FDCPA case involving misleading letters
On May 20, the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s order dismissing a suit against a debt collection firm that allegedly sent misleading letters to a debtor. According to the order, the plaintiff defaulted on a credit card debt owed to a bank, which hired the defendant for collection services. The defendant filed a collection action on behalf of the bank and obtained a judgment against the plaintiff. The defendant then sent the plaintiff a letter, referencing the plaintiff’s credit card “account,” describing the amount of the judgment as the “balance due,” and offering to settle that debt for 40 cents on the dollar if the plaintiff made the payment within a specified time frame. The plaintiff did not pay the offered settlement amount by that deadline and ultimately learned that interest on the judgment was increasing daily. The plaintiff then filed suit against the debt collector, alleging that it violated the FDCPA by sending a misleading letter that: (i) described the debt as an “account” even though it was a judgment; (ii) listed two different amounts as the “balance due” (the amount of the judgment and the offered settlement amount); and (iii) did not disclose that the debt was increasing daily. The district court dismissed the case, finding that the plaintiff had failed to allege a concrete injury because he did not allege “that he had the ability to pay the debt owed, that he actually paid other debts instead, or that he took any detrimental step as a result of the alleged confusion.”
On the appeal, the 7th Circuit held that the plaintiff had sufficiently alleged an injury, finding that his allegation that he would have prioritized paying the judgment over other debts “supports the reasonable inference that he had the ability to pay the settlement and that he used his available funds on other debts.” The appellate court also rejected the defendant’s argument that the plaintiff lacked standing because he was insolvent at all relevant times and could not have paid his credit card debt, finding that this argument raised a factual dispute that should have been resolved with an evidentiary hearing.
5th Circuit reverses decision that a portion of a contract was indefinite and unenforceable
On May 18, the U.S. Court of Appeals for the 5th Circuit reversed a district court’s decision to dismiss a suit against a creditor that sold portfolios of delinquent and defaulted debt, ruling that the disputed portion of the contract between the two parties was enforceable.
According to the opinion, the defendant sold portfolios of delinquent accounts to the plaintiff. The plaintiff and the defendant entered a “forward flow” agreement, where the defendant agreed to continue to send the plaintiff accounts during a specific timeline. Under the agreement, the defendant agreed to deliver “additional accounts,” which would be the same quality as the other accounts that had been sold. The parties could not settle on an agreement regarding the pricing for accounts that were submitted under the forward flow agreement, and the defendant sued the plaintiff for breach of contract. A district court granted the defendant’s motion to dismiss, which the plaintiff appealed.
The appellate court found that the district court erred on its decision that the term “additional accounts” was indefinite and therefore unenforceable. The court stated that “[t]aken together, the plain meaning of the word ‘additional,’ the contract’s clear architecture, and various settled principles of interpretation reveal that ‘additional accounts’ refers to all qualifying accounts that accrue quarterly.” The appellate court also noted that it “cannot ignore that this argument was not presented to the district court,” and that it will not speculate on why [the defendant-appellee did not] reached for this low-hanging factual fruit.”