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District Court enjoins Massachusetts AG from enforcing emergency debt collection regulation
On May 6, the U.S. District Court for the District of Massachusetts entered a temporary restraining order (TRO) enjoining the Massachusetts attorney general from enforcing an emergency regulation that made numerous standard debt collection actions an unfair or deceptive act or practice during the Covid-19 pandemic. As previously covered by InfoBytes, a debt collection trade association filed a complaint last month contending that the emergency regulation is a content-based restriction on free speech and unconstitutional because it, among other things, excludes six classes of collectors from the prohibition on placing collection calls, and does not treat all “communications” equally by excluding certain types of collections communications. The trade association argued that the emergency regulation, among other things, bars debt collectors from being able to initiate phone conversations with individuals who have unpaid debts. In granting the TRO, the court wrote that the measure violates debt collection agencies’ First Amendment rights without adding meaningful consumer protections, and that, “[w]hile the [r]egulation promises some relief from unwanted telephone calls, it does not pretend to offer any relief from the debt itself or the obligation to repay it in full.” The court also noted that the emergency regulation “singles out one group debt collectors and imposes a blanket suppression order on their ability to use what they believe is their most effective means of communication, the telephone. If what the Attorney General meant to accomplish by way of the [r]egulation was a strict liability ban on all deceptive and misleading debt collection calls, the [r]egulation is redundant as that is already the law, both state and federally.”
11th Circuit affirms no unilateral revocation under TCPA
On May 1, the U.S. Court of Appeals for the Eleventh Circuit held that the TCPA does not permit a consumer (plaintiff) to later revoke her consent to be contacted by telephone when the consent was given in a bargained-for contract. The plaintiff entered into an agreement with the defendant that provided express authorization to be contacted by the defendant through the use of an automated telephone dialing system to recover unpaid obligations. The plaintiff’s attorneys later sent the defendant faxes to, among other things, revoke the plaintiff’s consent to be contacted. Notwithstanding those faxes, the defendant continued to place calls to collect debt, and the plaintiff filed suit alleging violations of the TCPA, among other allegations. The district court granted summary judgment to the defendant, ruling that the automated calls did not violate the TCPA because consent cannot be unilaterally revoked when provided as part of a bargained-for contract.
On appeal, the 11th Circuit affirmed the district court’s summary judgment order on the plaintiff’s TCPA claims because “common law contract principles do not allow unilateral revocation of consent when given as consideration in a bargained-for agreement.” Referencing a decision issued in 2017 concerning the same situation (covered by InfoBytes here), the appellate court wrote, “[w]e, like the Second Circuit, are also unpersuaded by the argument that unilateral revocation of consent given in a legally binding agreement is permissible because it comports with the consumer-protection purposes of the TCPA.”
Minnesota issues executive order regarding garnishment during Covid-19
On May 4, the Minnesota governor issued an executive order that classifies recovery rebates under the CARES Act as “government assistance based on need” under Minnesota Statutes 2019, section 550.37, subdivision 14. As a result, such recovery rebates are exempt from all claims by creditors, except claims for domestic support obligations. Additionally, for purposes other than domestic support obligations, state, local, and tribal government payments issued to relieve consumers of the adverse economic impact caused by Covid-19 are also considered government aid and, thus, exempt from claims by creditors. The order also suspends the provisions that permit: (i) service of a garnishment summons on a consumer debtor of consumer garnishee; (ii) prejudgment garnishment on a consumer debtor, and (iii) a judgment creditor to obtain information about a consumer debtor’s assets, liabilities, and personal earnings. The order will remain in effect until the peacetime emergency declared in Executive Order 20-01 is terminated or until the order is rescinded.
5th Circuit: Collection letters misrepresenting legal enforceability of underlying debt violate FDCPA
On April 29, the U.S. Court of Appeals for the Fifth Circuit held that letters seeking the collection of time-barred debt that include ambiguous offers and contain threats misrepresenting the legal enforceability of the underlying debt violate section 1692e of the FDCPA. In 2011, a creditor placed the plaintiff’s debt with the defendant for collection. Six collection letters were initially sent to the plaintiff for which there was no response, and in 2017, the defendant sent four more letters to the plaintiff. While it was undisputed that the four-year statute of limitations to sue to collect the debt had expired, none of the letters mentioned that the debt was time-barred or that a partial payment may restart the statute of limitations clock. The plaintiff filed suit claiming the 2017 letters violated the Texas Debt Collection Act and were false or misleading and unfair or unconscionable in violation of FDCPA §§ 1692e and 1692f respectively. The district court granted summary judgment for the plaintiff on the 1692e claim, but ruled that “‘there is a growing consensus’ that a claim under § 1692f is a ‘backstop’ to catch conduct outside that barred by § 1692e and other provisions,” and granted summary judgment to the defendant on the 1692f claim. The defendant appealed the 1692e decision.
On appeal, the 5th Circuit affirmed and held that, read as a whole, the letters misrepresented the legal enforceability and character of the debt in violation of § 1692e. The appellate court found that the 2017 letters were ambiguous and failed to even mention when the debt was incurred, which may have provided some insight to the plaintiff as to whether the debt might be legally enforceable. The appellate court also took issue with the 2017 letters’ use of unexplained “urgent” language and vague collection threats, and stated that “the complete silence in these letters works in conjunction with their vague language to mislead the unsophisticated consumer that the debt is enforceable.”
Oregon regulator issues guidance for debt buyers and collectors
On April 30, the Oregon Department of Consumer and Business Services, Division of Financial Regulations issued Bulletin No. DFR 2020-14 to provide guidance to state-regulated debt buyers and collection agencies on reasonable measures they could take consistent with the governor’s April 17 executive order preventing garnishment of CARES Act stimulus checks (covered here). The guidance encourages entities to take active measures to help debtors affected by Covid-19, including: (i) offering payment accommodations like deferrals; (ii) waiving certain fees; (iii) temporarily suspending collection activities for debtors with significant hardships; and (iv) stopping collection activity for debts whose only income source is exempt.
Nevada governor temporarily stays garnishment and executions on funds
On April 30, Nevada Governor Steve Sisolak issued an executive order temporarily staying garnishment on all funds. The order also applies to property garnishment and executions on funds, and specifically protects against garnishment of stimulus paychecks. The order is valid for the duration of the state of emergency declared on March 12.
D.C. attorney general alerts residents about debt collection protection
On April 30, D.C. Attorney General Karl Racine issued an alert informing district residents about debt collection protection during the Covid-19 crisis. According to Racine, residents are protected from the majority of debt collection activities during the state of emergency in place for the district. The consumer protections are a result of a proposal passed by D.C. Council on April 10, and are valid throughout the state of emergency plus an additional 60 days afterwards.
Maryland regulator issues guidance for non-depository institutions on CARES Act relief payments
On April 30, the Maryland commissioner of financial regulation issued guidance for non-depository financial services providers in light of the April 29 executive order prohibiting garnishment or setoff of CARES Act recovery rebates. The guidance notes that all entities licensed by the commissioner must comply with the executive order, and that if an institution inadvertently receives proceeds of a CARES Act recovery rebate, it should try to permit those funds to be used by the intended recipient. Finally, the guidance notes that institutions found to be willfully or negligently violating the executive order may be subject to regulatory action. Any entity that seeks to engage in collection efforts against CARES Act rebate payments would be in violation of the Maryland Debt Collection Practices Act.
Maryland regulator: Banks and credit unions should lift automated holds imposed on CARES Act recovery rebates
On April 30, the Maryland commissioner of financial regulation issued guidance to banks and credit unions in light of the April 29 executive order prohibiting garnishment or setoff of CARES Act recovery rebates. The guidance “strongly” urges Maryland-chartered depository institutions to “immediately” review their automated systems to ensure that they do not intercept, hold, or set-off against CARES Act recovery rebate payments made through direct deposit. The guidance also urges depository institutions to cash CARES Act recovery rebates issued as checks for customers and non-customers alike, and to do so without charging any fees to consumers. Any entity that seeks to engage in collection efforts against CARES Act rebate payments would be in violation of the Maryland Debt Collection Practices Act.
New York guidance excludes debt collection from essential businesses or entities
On April 28, New York updated its guidance on Executive Order 202.6 relating to determining whether a business enterprise is subject to a workforce reduction under recent executive orders addressing Covid-19. The updated guidance provides that essential financial institutions include banks or lending institutions, insurance, payroll, accounting, and services related to financial markets, with the exception of debt collection services.