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District court says $267 million robocall verdict is not unconstitutionally excessive
On April 17, the U.S. District Court for the Northern District of California issued an order granting in part and denying in part several motions pertaining to a class action lawsuit, which accused a debt collection agency (defendant) of violating the TCPA, FDCPA, and the California Rosenthal Fair Debt Collection Practices Act by using repeated robocalls and pre-recorded voices messages to collect debt. As previously covered by InfoBytes, last September the court entered a $267 million final judgment against the defendant, consistent with a jury’s verdict that found the defendant liable for violating the TCPA by making more than 500,000 unsolicited robocalls using autodialers. Under the terms of the judgment each class member was awarded $500 per call. The defendant argued that the award was unconstitutionally excessive and violated due process, and requested that the court reduce the per violation amount. The court was unpersuaded and upheld the judgment, stating that the defendant failed to identify (and the court could not find) any “Ninth Circuit authority on how a district court should reduce damages that are found to be unconstitutionally excessive.” While acknowledging that the award was “significant,” the court stated that it also “evidences the fervor with which the United States Congress was attempting to regulate the use of autodialers for non-consensual calls” and that “the unilateral slashing of an award does not only ignore the plain words of the statute, the task is devoid of objectivity.” Among other actions, the court granted the defendant’s request to amend the final judgment to reflect that allegations concerning “willful and/or knowing violations of the TCPA” were dismissed with prejudice and that the defendant succeeded at summary judgment on the FDCPA and state law claims. However, the court denied the defendant’s request to release any surplus or residue amounts not distributed to a class member back to the company. The court also approved the class counsel’s motion for more than $89 million in attorneys’ fees and non-taxable costs of $277,416.28, and awarded the named plaintiff a $25,000 service award.
Vermont attorney general declares CARES stimulus checks exempt from garnishment/collection
On April 21, Vermont’s attorney general issued a directive to debt collectors, creditors, and financial institutions declaring that CARES Act stimulus payments are exempt from garnishment or collection under Vermont law. In addition, the directive asks banking institutions to voluntarily suspend any set-offs or other collection activity for overdrafts and fees that could impact the stimulus payments.
New York attorney general: CARES Act payments are exempt from setoff, garnishment
On April 21, New York Attorney General Letitia James issued guidance clarifying that New York law exempts emergency stimulus payments made under the CARES Act from garnishment. Additionally, although New York law may, in certain circumstances, permit a bank to seize funds in a consumer’s account to pay a debt owed to the bank, the Office of the Attorney General views such a setoff against a CARES Act payment as unfair and abusive. James warned that the Office of the Attorney General would aggressively pursue any creditor or debt collector that garnishes or exercises a right of setoff against a CARES Act payment in violation of New York law.
11th Circuit: Borrowers’ state-law claims not preempted by Higher Education Act
On April 10, the U.S. Court of Appeals for the Eleventh Circuit vacated a district court’s dismissal of borrowers’ state law claims against a student loan servicer, holding that the claims were not preempted by the federal Higher Education Act (HEA). The decision results from a lawsuit filed by two federal student loan borrowers who alleged the servicer violated the Florida Consumer Collection Practices Act (FCCPA) and other state laws by making “affirmative misrepresentations to them and to other borrowers that they were on track to have their student loans forgiven based on their public-service employment when, in fact, their loans were ineligible for the forgiveness program.” The borrowers claimed that, after making years of payments, they discovered they were not eligible for the Public Service Loan Forgiveness (PSLF) Program because most of their loans were not federal direct loans. Both borrowers contended that had they not been misinformed, they would have taken the necessary steps to ensure eligibility. The district court dismissed the borrowers’ claims on the grounds that they were expressly preempted under section 1098g of the HEA, which prohibits the application of state-law disclosure requirements to federal student loans.
On appeal, the 11th Circuit determined that the borrowers’ claims were not expressly preempted by the HEA, concluding that the precise language in section 1098g “preempts only state law that imposes disclosure requirements; state law causes of action arising out of affirmative misrepresentations a servicer voluntarily made that did not concern the subject matter of required disclosures imposes no ‘disclosure requirements.’” Among other things, the appellate court noted that the borrowers did not allege that the servicer failed to provide information it was legally obligated to disclose, but rather that the information provided to the borrowers concerning their eligibility for the PSLF program was false. “Holding [the servicer] liable for offering false information would therefore neither impose nor equate to imposing on servicers a duty to disclose information,” the appellate court wrote. In addition to dismissing the servicer’s field preemption argument, the appellate court reasoned that its decision “does no harm to standardization of disclosures for federal student loan programs.” The court vacated the district court’s dismissal, and remanded the case for further proceedings.
Indiana Supreme Court issues order protecting stimulus payments from attachment or garnishment from creditors
On April 20, the Indiana Supreme Court issued an order in response to a petition for emergency rulemaking to protect stimulus payments under the CARES Act from attempts by private creditors to attach or garnish those payments during the Covid-19 emergency. Pursuant to the order, courts are prohibited from issuing new orders placing a hold on, attaching, or garnishing funds in a judgment-debtor’s account in a depository institution if those funds are attributable to a stimulus payment, with certain exceptions. With respect to previously issued court orders placing a hold on a judgment-debtor’s account in a depository institution, the judgement-debtor is entitled to a hearing, upon request, to determine what funds in the account are attributable to a stimulus payment and for the judgement-debtor to assert any exemption(s) under state or federal law. These measures are effective until the expiration of the Covid-19 public health emergency or until the Indiana Supreme Court suspends the order.
Debt collection trade association claims Massachusetts emergency regulation is unconstitutional
On April 20, a debt collection trade association filed a complaint in the U.S. District Court for the District of Massachusetts against the Massachusetts attorney general, challenging the state’s emergency regulation issued in March, which makes numerous standard debt collection actions an unfair and deceptive act or practice during the Covid-19 pandemic. As previously covered by InfoBytes, the emergency regulation includes provisions that prohibit both creditors and debt collectors from (i) initiating, filing, or threatening to file debt collection lawsuits; (ii) garnishing wages and repossessing vehicles; and (iii) initiating phone calls with debtors, unless necessary to discuss a rescheduled court appearance or at the request of the debtor. Alleging violations of both state and federal law, including the First Amendment, Fourteenth Amendment, and the separation of powers, the trade association argues that the emergency regulations are a content-based restriction on free speech and unconstitutional because they, among other things, exclude six classes of collectors from the prohibition on placing collection calls, and do not treat all “communications” equally by excluding certain types of collections communications. The trade association also contends that the restrictions block members from providing consumers with possible resolutions, such as “temporary hardship repayment plans that may provide a variety of options for deferring payments or determining longer-term payment plans tailored to individual consumer situations where income has been interrupted for any reason.” The complaint also cites examples from debt collectors in the state that detail the negative impact the emergency regulation has had on their businesses. The trade association filed an emergency motion seeking a temporary restraining order and preliminary injunction enjoining enforcement of the regulation.
Connecticut regulator urges institutions not to use CARES Act checks to satisfy debt
On April 16, the Connecticut Department of Banking issued a letter to all Connecticut financial institutions, “strongly” urging them not to use stimulus payments to satisfy overdrafts and not to exercise any right of offset against other debts for 30 days after the payment is received without express consumer consent. If an institution’s systems automatically use the payment to satisfy an overdraft, the department urged reversing the transaction as soon as possible.
Nebraska attorney general issues warning about garnishing stimulus payments
On April 15, Nebraska Attorney General Doug Peterson warned that Nebraska law exempts certain income and property of low-income consumers from execution and attachment by creditors and debt collectors. The attorney general also warned that any attempt or threat to garnish or attach CARES Act stimulus funds that are exempt under Nebraska law will be considered an unfair trade practice under Nebraska’s Consumer Protection Act. Finally, the attorney general stated that his office is diligently monitoring consumer complaints, and encouraged consumers to file complaints if they experience aggressive debt collection during the Covid-19 crisis.
Illinois regulator issues Covid-19 best practices for consumer credit licensees
On April 14, the Illinois Department of Financial and Professional Regulation issued guidance for consumer credit licensees, noting that it expects them to work with consumers during the crisis and be flexible with repayment of debt. The department recommended following a number of best practices, including increasing communication with consumers, waiving late charges and insufficient fund fees, suspending debt collection efforts, recommending that the creditor utilize the natural disaster code when reporting a consumer’s credit wherever permissible, and ensuring sufficient staffing of customer service phone lines, among other things.
2nd Circuit: Interest disclosure in collection letter did not violate FDCPA
On April 9, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s dismissal of an FDCPA action, holding that a debt collection letter that stated interest, late charges, and other charges “may” vary from day to day is not deceptive or misleading. According to the opinion, the plaintiff co-signed a student loan that fell into default and was charged-off. The creditor purchased the debt and placed the account with a collection agency (collectively, defendants), and a letter was sent to the plaintiff that included a “‘time sensitive’ offer” to pay a slightly reduced amount, as well as the following language: “Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.” The plaintiff filed a class action complaint against the defendants, claiming the letter violated the FDCPA because it suggested that late fees and other charges could accrue, even though “such charges are not legally or contractually available.” After the defendants filed a motion to dismiss, the plaintiff filed an amended complaint adding more allegations. However, the amended complaint was marked as “deficient,” and because the 21-day window had closed, the plaintiff was required to request leave from either the defendants or the district court to re-file. The defendants did not consent to re-filing, and the district court denied the plaintiff’s motion for leave and granted the defendants’ motion to dismiss.
On appeal, the 2nd Circuit first examined whether the plaintiff had timely filed her amended complaint. In concluding that the amended complaint was timely filed (notwithstanding the deficiency notice), the appellate court stated that “when a plaintiff properly amends her complaint after a defendant has filed a motion to dismiss that is still pending, the district court has the option of either denying the pending motion as moot or evaluating the motion in light of the facts alleged in the amended complaint.” However, the appellate court nevertheless concluded that the district court properly dismissed the plaintiff’s amended complaint on the merits because she failed to sufficiently state a plausible claim for relief. Furthermore, because the initial letter said that interest and late charges “may” be applied to the balance, the appellate court concluded that the letter was not inaccurate and therefore not deceptive or misleading under the FDCPA even though the debt collector had not previously charged interest and did not intend to do so in the future. Moreover, acknowledging that interest may accrue is not “threatening” language under the FDCPA, the appellate court wrote.