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Financial Services Law Insights and Observations


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  • Maryland court of appeals: state consumer protection act covers HOA collections


    On January 27, the Court of Appeals of Maryland affirmed the dismissal of a homeowners association’s (HOA) confessed judgment complaint against a consumer, and stated that the HOA could not file an amended complaint. According to the opinion, the consumer owned a home that is part of an HOA, which makes annual assessments to cover the costs of general upkeep of the common areas. When she fell behind in paying her HOA assessments, the HOA drafted and the consumer signed, a promissory note (note) that contained a confessed judgment clause. The consumer defaulted on the note and the HOA filed a complaint for judgment by confession along with the note and an affidavit that stated the note did not involve a consumer transaction. The district court entered judgment for the HOA. The consumer filed a motion to vacate the judgment, claiming that the note arose from a consumer transaction, and the confessed judgment clause was prohibited under the Maryland Consumer Protection Act (MCPA). The district court agreed that the note evidenced a consumer transaction and vacated the confessed judgment and set the matter for trial. After the consumer received a notice regarding the trial on the issue, she filed a motion to dismiss, which was denied, and she appealed to the circuit court. The circuit court held that the confessed judgment was prohibited and that the complaint was required to be dismissed. The HOA filed a petition for writ of certiorari, which the Court of Appeals granted.

    Upon review, the Court of Appeals found that under the MCPA (i) the HOA assessments are consumer debt; (ii) the HOA’s note was an extension of consumer credit; and (iii) confessed judgment clauses in contracts involving consumer transactions are prohibited. Further, the Court of Appeals determined that the HOA could not “circumvent the protections afforded to a debtor under the [M]CPA by inserting language into a confessed judgment clause which purports to preserve a debtor’s legal defenses.” The Court of Appeals also rejected the consumer’s assertion that the note was void as a result of the confessed judgment clause, finding instead that though the HOA should not be allowed to file an amended complaint in the current action, the HOA could file a separate action for breach of contract if the unlawful clause was severed from the note. Accordingly, the Court of Appeals stated that the current action should be dismissed without prejudice.

    Courts State Issues State Regulation Consumer Protection Debt Collection HOA Appellate Consumer Lending | Consumer Finance Consumer Finance

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  • States urge Supreme Court to review FTC’s restitution authority


    On January 30, a coalition of attorneys general from 22 states, the District of Columbia, and the Commonwealth of Puerto Rico filed an amicus brief in support of the FTC in a U.S. Supreme Court action that is currently awaiting the Court’s decision to grant certiorari. Last December, the FTC filed a petition for a writ of certiorari asking the Court to reverse an opinion issued by the U.S. Court of Appeals for the Seventh Circuit last August, which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution when enforcing consumer protections under the FTC Act. (Covered by InfoBytes here.) The AGs assert, however, that restitution is a critical FTC enforcement tool that provides direct benefits to the amici states and their residents. Arguing that the 7th Circuit’s decision will impede federal-state collaborations to combat unfair and deceptive practices—citing recent FTC restitution amounts that directly benefited consumers in Illinois, Indiana, and Wisconsin—the AGs stress that without the authority to seek restitution, the states “may be forced to redirect resources to compensate for work that would have previously been performed by the FTC.” The AGs also discuss the states’ interest in the “uniform application of federal law.” The 7th Circuit’s decision “upends decades of settled practice and precedent,” the AGs contend, and may provide the opportunity for defendants to “forum shop” as they seek to transfer their cases to take advantage of a decision that may work in their favor. As a result, the decision has created confusion where none previously existed, the AGs claim.

    As previously covered by InfoBytes, the FTC filed a brief in a separate action also pending the Court’s decision to grant certiorari that similarly addresses the question of whether the FTC is empowered by Section 13(b) to demand equitable monetary relief in civil enforcement actions. In this case, the petitioners are appealing a 9th Circuit decision, which upheld a $1.3 billion judgment against them for allegedly operating a deceptive payday lending scheme. The 9th Circuit rejected the petitioners’ argument that the FTC Act only allows the court to issue injunctions, concluding that a district court may grant any ancillary relief under the FTC Act, including restitution.

    Courts State Issues FTC Act Appellate Seventh Circuit Ninth Circuit Enforcement Restitution State Attorney General U.S. Supreme Court

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  • 7th Circuit holds both parties lack standing in FCRA suit


    On January 28, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of claims and counterclaims in a privacy lawsuit, holding that neither party had standing under the Fair Credit Reporting Act (FCRA). In 2016, the consumer filed a lawsuit against the credit reporting agency claiming privacy violations and emotional distress after the agency released his credit information without authorization. According to the consumer, his credit information appeared on a “prescreen list” given to a prospective lender that was no longer under contract with the agency to make loan offers to pre-screened consumers. The agency filed an FCRA counterclaim arguing that the plaintiff violated the FCRA when he obtained a copy of the prescreen list without authorization in order to file the lawsuit. The district court dismissed both claims, ruling that neither party had standing to sue because they had not suffered a concrete injury.

    On appeal, the 7th Circuit agreed with the decision, concluding the plaintiff failed to meet the injury-in-fact requirements under Article III and that any harm he may have suffered when the prescreen list was shared was “exceedingly remote and speculative.” According to the appellate court, “[i]dentifying a violation of a statutory right does not automatically equate to showing injury-in-fact for standing purposes.” Moreover, the plaintiff “had to come forward with something showing that he did not receive a firm offer, that [the prospective lender] would not have honored a firm offer, that he was affected by the lack of a firm offer, or that he suffered any actual emotional damages,” the 7th Circuit wrote, which he failed to do. The 7th Circuit also agreed with the district court that the company’s alleged reputational harm was insufficient to confer standing. The appellate court further rejected the agency’s second argument that defending the suit counted as a concrete injury, holding that the agency was attempting to “shoehorn itself into another cause of action,” and that the FCRA does not create an independent cause of action for which the agency can recover its costs.

    Courts Appellate Seventh Circuit FCRA Credit Reporting Agency Standing

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  • 11th Circuit offers new autodialer definition under TCPA


    On January 27, the U.S. Court of Appeals for the Eleventh Circuit issued a split opinion on the definition of an automatic telephone dialing system (autodialer) within the context of the TCPA. The TCPA defines an autodialer as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” According to the 11th Circuit, “to be an auto-dialer, the equipment must (1) store telephone numbers using a random or sequential number generator and dial them or (2) produce such numbers using a random or sequential number generator and dial them.”

    In the first case, a Florida plaintiff filed the putative class action complaint alleging a hotel chain used an autodialer to call her cell phone without her consent. (Previously covered by InfoBytes here.) The hotel moved for summary judgment, arguing that the system did not qualify as an autodialer under the TCPA because it required a hotel agent to click “Make Call” before the system dialed the number. The court agreed, concluding that the defining characteristic of an autodialer is “the capacity to dial numbers without human intervention,” which the court noted remains unchanged even in light of the D.C. Circuit decision in ACA International v. FCC (covered by a Buckley Special Alert here). In the second case, a plaintiff contended a loan servicer placed 35 calls to her cell phone about unpaid student loans. However, in this instance, the district court ruled that the company used an autodialer because the system did not require human intervention and had the capacity to automatically dial a stored list of numbers. Additionally, the court ruled that 13 of the 35 calls were willful violations of the TCPA.

    On appeal, the appellate court affirmed the district court’s ruling in the first case, concluding that the hotel calling system, which required human intervention before a call was placed and “used randomly or sequentially generated numbers,” did not qualify as an autodialer under the TCPA. The appellate court, however, partially affirmed and partially reversed the district court’s ruling in the second case, holding that while 13 of the calls received by the plaintiff were placed using an artificial or prerecorded voice (a separate violation of the TCPA), the phone system used in this case did not qualify as an autodialer because it did not use random or sequentially generated numbers. One of the judges stated in a partial dissent, however, that she read the TCPA to cover equipment that only has the capacity to dial and not produce random numbers, similar to the phone system used by the loan servicer. The 11th Circuit’s opinion is consistent with the D.C. Circuit’s holding in ACA International, which struck down the FCC’s definition of an autodialer; however it conflicts with the 9th Circuit’s holding in Marks v. Crunch San Diego, LLC (InfoBytes coverage here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list.

    Courts Appellate Eleventh Circuit Autodialer TCPA Debt Collection

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  • 1st Circuit: Statute of limitations starts on loan closing


    On January 17, the U.S. Court of Appeals for the First Circuit affirmed the dismissal of claims against a mortgage holder and a loan servicer (defendants), concluding the allegations were barred on statute-of-limitations grounds. In 2018, ten years after the borrower defaulted on her loan, she filed a suit against the defendants “alleging that the loan was predatory because at its inception the lender knew or should have known that she would not be able to repay it.” The borrower alleged first that the defendants violated the Massachusetts Consumer Protection Act (MCPA) by committing unfair and deceptive practices when trying to enforce a “predatory mortgage loan,” and second that the defendants violated the Massachusetts Fair Debt Collection Practices Act (MFDCPA) by collecting or attempting to collect on the loan in an unfair, deceptive, or unreasonable manner. The district court dismissed the first claim as time-barred, stating that the four-year statute of limitations period began when the borrower closed on the loan in 2005. The district court also ruled that Chapter 93, Section 49 of the MDFCPA does not provide a private right of action for the second claim.

    The 1st Circuit affirmed on appeal, determining that, with respect to the borrower’s MCPA claim, the four-year limitations period “began to run on the signing date when interest began to accrue,” and that the borrower failed to show that any of the defendants’ later collection actions triggered a new limitations period. Concerning the borrower’s MFDCPA claim that the collection efforts were “unfair because they constituted enforcement of inherently unfair and deceptive loan terms,” the appellate court concluded it was unnecessary to decide the issue of whether the borrower held a private right of action under the MFDCPA because the borrower’s claim is time-barred.

    Courts State Issues Appellate First Circuit FDCPA Debt Collection Mortgages

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  • Appellate Court reverses and remands FACTA action


    On January 22, the Illinois Appellate Court, Second District, reversed the dismissal for lack of standing of a FACTA class action brought on behalf of the class by two individuals (consumers) who claimed that an entertainment company (defendant) violated the act when it printed more than the last five digits of the consumers’ payment card number on their receipts. According to the opinion, the complaint alleged that the consumers made a number of purchases from the defendant, each time receiving sales receipts with the first six digits and the last four digits of the consumers’ debit card printed on each receipt. The consumers then filed a class action suit accusing the defendant of willful violation of FACTA, and further, of knowingly or recklessly failing to adhere to the acts’ prohibition against ‘“print[ing] more than the last 5 digits of the card or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.”’ The defendants first removed the action to federal district court, which granted the consumers’ motion to remand back to state court. The defendants then argued that: (i) the consumers lacked standing because they failed to allege an injury; and (ii) the consumers failed to allege facts showing a willful violation of FACTA. The lower court granted the defendant’s motion to dismiss as to standing on the first allegation, but did not consider the second allegation of willfulness, after which the consumers appealed.

    Upon appeal, the court reversed the lower court’s dismissal for lack of standing noting that unlike federal courts, Illinois circuit courts are vested with “jurisdiction to adjudicate all controversies,” and determined that the consumers did have standing to sue even without pleading actual injury, as an allegation of the violation was sufficient. The court stated that “when a person willfully fails to comply with FACTA’s truncation requirements, the statute provides a private cause of action for statutory damages and does not require a consumer to suffer actual damages before seeking recourse.” Additionally, the court decided that the consumers had alleged “sufficient facts” to show that defendant willfully violated FACTA. The panel remanded the case to the lower court to further consider the issues.

    Courts State Issues FACTA Enforcement Class Action Consumer Protection Appellate

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  • 7th Circuit says “time sensitive document” on envelope violates FDCPA


    On January 21, the U.S. Court of Appeals for the Seventh Circuit partially reversed a district court’s dismissal of an action concerning a debt collector’s use of language or symbols other than the collector’s address on an envelope sent to a consumer. According to the opinion, the consumer received a debt collection letter enclosed in an envelope stamped with the words “TIME SENSITIVE DOCUMENT” in bold font. The consumer filed a complaint against the defendant asserting various claims under the FDCPA, including that inclusion of “TIME SENSITIVE DOCUMENT” on the envelope was a violation of section 1692f(8). The defendant had argued that an exception should be carved out for “benign” language in this instance, and the district court agreed.

    As previously covered by InfoBytes, the 7th Circuit invited the CFPB to file an amicus brief on whether there is a benign language exception to section 1692f(8)’s prohibition, and, if so, whether the phrase “TIME SENSITIVE DOCUMENT” falls within that exception. The Bureau asserted that there is no benign language exception, and stressed that while section 1692f(8) recognizes that debt collectors may be permitted to include language and symbols on an envelope that facilitate the mailing of an envelope, section 1692f(8), by its own terms, does not allow for benign language. Additionally, the Bureau commented that section 1692f’s prefatory text does not “provide a basis for reading a ‘benign language’ exception into section 1692f(8),” nor does the prefatory text suggest that the prohibition applies only in instances where it may be “‘unfair or unconscionable’” in a general sense. 

    The 7th Circuit concluded that section 1692f(8) is clear. Because the language at issue does not fall within the list of exceptions—it is not the debt collector’s name or its address—the inclusion of the phrase “TIME SENSITIVE DOCUMENT” is a violation of  section 1692f(8), and the district court erred in dismissing this claim. However, the appellate court agreed with the district court’s dismissal of the consumer’s section 1692e claims that the language used on the envelope and in the body of the letter were false and deceptive.

    Courts Appellate Seventh Circuit FDCPA CFPB Debt Collection

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  • FDCPA class action garnishments award overturned


    On January 16, the U.S. Court of Appeals for the Sixth Circuit overturned a district court’s class action award to the plaintiffs in an FDCPA action. According to the opinion, the credit card company hired the defendant, a law firm, to collect an unpaid credit card debt from the plaintiff. The defendant filed suit against the plaintiff and secured a judgment against her. The defendant then filed several writ of garnishment requests attempting to satisfy the judgment and, in addition, seeking the costs of the current writ request. In later garnishment requests, the defendant also added the costs of prior failed garnishments. The plaintiff then filed a class action in district court against the defendant alleging the requests for writ of garnishment from the defendant contained false statements in violation of the FDCPA. The court found for the plaintiff and awarded class members a total of $3,662, and attorney’s fees of $186,680 and the defendant appealed.

    After rejecting a jurisdictional argument by the defendant, the appellate court addressed whether the defendant’s writ of garnishment requests seeking all total costs to date, including the cost of the current garnishment,” were false, deceptive, or misleading. The appellate court concluded that it was reasonable to request the costs of the current garnishment request, as Michigan law at the time allowed creditors to include “the total amount of the post-judgment costs accrued to date” in their garnishment requests. Additionally, the opinion pointed to the recently revised Michigan rule that explicitly allows debt collectors to “include the costs associated with filing the current writ of garnishment” as clarification that the prior version of the rule was intended to cover current costs.

    Regarding the costs of prior failed garnishment requests, the opinion stated that Michigan law did not allow a creditor to seek these costs and that including them was therefore a false representation under the FDCPA. The appellate court remanded the case, however, to provide the defendants an opportunity to prove the violation was a “bona fide” mistake of fact and that its procedure for preventing such mistakes were sufficient. In addition to vacating the award and attorney’s fees, and remanding the case, the court vacated the class certification order.

    Courts Appellate Sixth Circuit FDCPA Debt Collection Class Action Class Certification

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  • Supreme Court to review TCPA debt collection exemption


    On January 10, the U.S. Supreme Court announced it had granted a petition for a writ of certiorari filed by the U.S. government in Barr v. American Association of Political Consultants Inc.—a Telephone Consumer Protection Act (TCPA) case concerning an exemption that allows debt collectors to use an autodialer to contact individuals on their cell phones without obtaining prior consent to do so when collecting debts guaranteed by the federal government. As previously covered by InfoBytes, the 4th Circuit agreed with the plaintiffs (a group of several political consultants) that the government-debt exemption contravenes the First Amendment’s Free Speech Clause, and found that the challenged exemption was a content-based restriction on free speech that did not hold up to strict scrutiny review. “Under the debt-collection exemption, the relationship between the federal government and the debtor is only relevant to the subject matter of the call. In other words, the debt-collection exemption applies to a phone call made to the debtor because the call is about the debt, not because of any relationship between the federal government and the debtor,” the appellate court opined. However, the panel sided with the FCC to sever the debt collection exemption from the automated call ban instead of rendering the entire ban unconstitutional, as requested by the plaintiffs. “First and foremost, the explicit directives of the Supreme Court and Congress strongly support a severance of the debt-collection exemption from the automated call ban,” the panel stated. “Furthermore, the ban can operate effectively in the absence of the debt-collection exemption, which is clearly an outlier among the statutory exemptions.” The petitioners—Attorney General William Barr and the FCC—now ask the Court to review whether the government-debt exception to the TCPA’s automated-call restriction is a violation of the First Amendment. Oral arguments are set for April 22.

    Courts Appellate Fourth Circuit Debt Collection TCPA Constitution U.S. Supreme Court FCC DOJ Autodialer

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  • 6th Circuit affirms dismissal of FDCPA action for lack of standing


    On January 3, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal for lack of standing of an FDCPA suit brought by a consumer who claimed that because collection letters sent to him by a law firm caused him anxiety, the firm had violated the FDCPA. According to the opinion, the consumer had two delinquent accounts with a bank, which the law firm attempted to recover by sending collection letters to the consumer. The consumer asserted that the letters the law firm sent caused him “an undue sense of anxiety” that he would be sued by the firm, and he subsequently filed a lawsuit against the firm for violating the FDCPA. The court held that the consumer did not have standing to sue under Article III of the U.S. Constitution, for three main reasons: (i) the debtor’s anxiety about a potential lawsuit amounted to a fear of future harm that was not “certainly impending” because the consumer had not alleged that the law firm had threatened to sue him or that he refused to pay, and, therefore, his anxiety did not satisfy the injury-in-fact element for Article III standing; (ii) the consumer was “anxious about the consequences of his decision to not pay the debts that he does not dispute he owes,” and such a “self-inflicted injury” is not a basis for standing because it was not “fairly traceable” to the law firm’s conduct, but instead reflected the consumer’s own behavior; and (iii) “even assuming [the law firm” violated the statute by misrepresenting that an attorney had reviewed [the consumer’s] debts,” that violation did not cause any injury to the consumer because the consumer gave the court “no reason to believe he did not owe the debts,” and, therefore, he could not show that the law firm’s alleged procedural violation of the FDCPA, by itself, was an “injury in fact.” Because the court held that the consumer did not have standing, it affirmed the lower court’s dismissal of the action.

    Courts Appellate FDCPA Debt Collection Credit Reporting Agency Sixth Circuit Standing

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