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9th Circuit holds extraneous information violates FCRA standalone disclosure requirement
On March 20, the U.S. Court of Appeals for the Ninth Circuit partially reversed a district court’s dismissal of a Fair Credit Reporting Act (FCRA) action, concluding that a company’s disclosures contained “extraneous information” in violation of the FCRA’s standalone disclosure requirement. The plaintiff filed a putative class action lawsuit against his former employer (defendant) after his employment—which was contingent on passing a background check—was ultimately terminated based on the results of his credit report. According to the plaintiff, the defendant violated two sections of the FCRA: (i) that the disclosure form was not clear and conspicuous and was encumbered by extraneous information; and (ii) that the defendant failed to notify him in the pre-adverse action notice that he could discuss the consumer report directly with the defendant prior to his termination. The district court dismissed the allegations, concluding that the disclosure met the FCRA’s disclosure requirements because it was not overshadowed by extraneous information, and “that the FCRA does not require that pre-adverse action notices inform an employee how to contact and discuss a consumer report directly with the employer.”
On appeal, the 9th Circuit reversed the district court’s ruling on whether the signed disclosure form contained extraneous information, concluding that because the disclosure form also included information about plaintiff’s rights to obtain and inspect information gathered by the consumer reporting agency about the plaintiff, it went beyond the FCRA’s standalone disclosure requirement. Noting that the FRCA requires a standalone disclosure but does not define the term “disclosure,” the 9th Circuit stated that a company may “briefly describe what a ‘consumer report’ entails, how it will be ‘obtained,’ and for which type of ‘employment purposes’ it may be used.” Finding that the clear and conspicuous standard was established in a case decided after the district court had dismissed plaintiff’s case, the court remanded the case to the district court to determine whether the defendant’s disclosure form satisfied the clear and conspicuous standard. However, the appellate court affirmed the dismissal of the plaintiff’s other claim, agreeing with the district court that the FCRA only requires employers to provide “a description of the consumer’s right to dispute with a consumer reporting agency the completeness or accuracy of any item of information contained in the consumer’s file at the consumer reporting agency.”
11th Circuit reverses dismissal of “shotgun” FDCPA, FCRA, TCPA pleadings
On March 16, the U.S. Court of Appeals for the Eleventh Circuit partially reversed a district court’s dismissal of a lawsuit against several defendants for alleged violations of the FDCPA, the FCRA, and the TCPA, holding that the plaintiff’s third amended complaint was not filled with “shotgun pleadings.” The matter revolves around several statutory and common-law claims arising from the defendants’ allegedly-unlawful debt collection attempts, which were dismissed multiple times by the district court as “shotgun pleadings.” In her third amended complaint—which alleged 10 causes of action—the plaintiff contended, among other things, that the defendants failed to respond to letters she sent to dispute the alleged debt and failed to notify credit reporting agencies (CRA) of the dispute. The plaintiff also alleged that certain defendants called her cell phone multiple times using an automatic telephone dialing system. The district court entered final judgment in favor of all the defendants, minus the CRA defendant, stating, among other things, that the plaintiff continued to “‘lump the defendants together. . .and provide generic and general factual allegations as if they applied to all defendants.’”
On appeal, the 11th Circuit concluded that the district court erred in dismissing six of the 10 counts as shotgun pleadings. “While not at all times a model of clarity, [the third amended complaint] is reasonably concise, alleges concrete actions and omissions undertaken by specific defendants, and clarifies which defendants are responsible for those alleged acts or omissions,” the appellate court wrote. However, the appellate court agreed that the district court correctly dismissed two counts for failing to state a claim related to claims concerning one of the defendant’s alleged attempts to collect delinquent tax payments owed to the IRS. According to the appellate court, since “tax obligations do not arise from business dealings or other consumer transactions they are not ‘debts’ under the FDCPA.’”
5th Circuit will review CFPB constitutionality case en banc
On March 20, the U.S. Court of Appeals for the Fifth Circuit issued an opinion ordering that—“on the Court’s own motion”—it will conduct an en banc hearing on whether the CFPB’s single-director leadership structure is constitutional. The order vacates the appellate court’s March 3 opinion (covered by InfoBytes here), in which it previously determined that there was no constitutional issue with allowing the Bureau director to only be fired for cause. According to the now-vacated opinion, the majority concluded that the claim that the Bureau’s structure is unconstitutional “find[s] no support. . .in constitutional text or in Supreme Court decisions.” The 5th Circuit’s prior decision came the same day the U.S. Supreme Court heard oral arguments in Seila Law LLV v. CFPB on the same issue.
Appellate court affirms dismissal of RESPA kickback suit
On March 13, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action filed by two consumers (plaintiffs) against a real estate brokerage group (real estate defendant) and a title company (title defendant), (collectively defendants), alleging a kickback scheme in violation of RESPA. The plaintiffs bought a house in 2008 with the help of a real estate agent affiliated with the real estate defendant. The real estate agent told the plaintiffs that the title defendant would provide settlement services, after which the plaintiffs filed an acknowledgment that they understood they could use the title company of their choice for their closing, and that they were not first-time homebuyers. The plaintiffs indicated their approval to use the settlement company selected by the real estate agent. Five years later, the plaintiffs filed suit, claiming that the real estate agent’s referral to the title defendant violated RESPA. The consumers, as lead class members, alleged that a marketing agreement between the defendants provided for payments by the title defendant to the real estate defendant for settlement services referrals. The plaintiffs claimed that the illegal kickback arrangement denied class members of ‘“impartial and fair competition between settlement service[s] providers in violation of RESPA.’”
The district court granted the defendants’ motion for summary judgement, holding that the plaintiffs lacked Article III standing to file suit because they were not overcharged in the settlement of their real estate transaction and did not otherwise show an injury-in-fact. In addition, the court determined that the claim was time-barred under RESPA’s one-year statute of limitations.
On appeal, the 4th Circuit agreed with the district court that the plaintiffs lacked standing, noting that “a statutory violation is not necessarily synonymous with an intangible harm that constitutes injury-in-fact.” The appellate court pointed out that the plaintiffs did not claim to have been overcharged for settlement services, and indeed, the plaintiffs agreed that the settlement service fees were reasonable. The appellate court also rejected the plaintiffs’ assertion that they suffered a concrete injury due to the lack of competition between settlement service providers.
5th Circuit: Interest disclosure does not violate FDCPA
On March 12, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s decision that a debt collector (defendant) did not violate the FDCPA by mentioning that interest may accrue on an unpaid debt in a collection letter. In this case, the plaintiff alleged that the defendant violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with the collection of a debt when it sent him a letter that included line items detailing the amount owed, separate line items that showed interest and fees as $0, and a disclosure that stated “[i]n the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice.” The plaintiff contended that the defendant was not allowed to collect interest on debts placed by the original creditor and that the original agreement between the plaintiff and the creditor “‘does not allow’ for interest to accrue or for other charges to be added.” The district court granted summary judgment for the defendant, stating that the letter accurately conveyed what was possible under the Texas Finance Code—that interest could accrue—and was therefore not false, deceptive, or misleading.
On appeal, the 5th Circuit affirmed the district court’s ruling, holding that “[t]he challenged statement in the letter is not false, deceptive or misleading because it merely expresses a common-sense truism about borrowing—if interest is accruing on a debt, then the amount due may go up.” [Emphasis in the original.] According to the appellate court, the “simple statement would have been clear even to an unsophisticated borrower. . . .” Moreover, the appellate court concluded that it did not matter whether the plaintiff’s agreement with the creditor prohibited interest or other charges “because the language at issue does not state that [the defendant or the creditor] would—or even could—collect interest.”
Maryland Court of Appeals reverses trial court approval of settlement for interfering with CPD action
On March 3, the Maryland Court of Appeals reversed a trial court’s approval of a proposed settlement in a class action based on fraudulently induced assignments of annuity payments. The class members were recipients of structured settlement annuities from lead paint exposure claims who responded to ads by a structured settlement factoring company (company). The class members then transferred the rights to their settlement annuity contracts to the company, which paid the class members lump sums for the rights at a discount. The class filed a lawsuit against the company in 2016, alleging that it had engaged in fraud in procuring the annuity contract transfers. Around the same time, the Consumer Protection Division of the Maryland AG’s Office (CPD) had filed suit against the company alleging violations of the State Consumer Protection Act. Several months after both actions were filed, the CFPB filed a similar suit against the company based on the same alleged misconduct. All three actions sought similar kids of relief with respect to the same individuals, though the bases for seeking relief and the nature and amount of relief sought differed among the actions.
The class and the company proceeded towards a negotiated settlement, to which the trial court signed a proposed final order, certifying the class and approving the settlement, despite CPD’s opposition to both issues. Following the court’s approval, the company moved for summary judgment in its case against the CPD, which the court granted because it held CPD’s claim for restitution for the same individuals was barred by res judicata; CPD’s claim for injunctive relief and civil penalties is still currently awaiting trial.
Following an appeal, the Court of Appeals granted the company’s petition to consider whether “class members [may] lawfully release and assign to others their right to receive money or property sought for their benefit by [CPD] or [CFPB] through those agencies’ separate enforcement actions” under state and federal consumer protection laws, respectively.
The Court of Appeals held that the lower court erred in approving the settlement, stating that consumers “have no authority, through a private settlement, whether or not approved by a court, to preclude CPD from pursuing its own remedies against those who violate . . . [Maryland’s] Consumer Protection Act, including a general request for disgorgement/restitution.” In particular, the Court of Appeals held that the parties cannot preclude CPD from pursuing the remedies of disgorgement and restitution, as that would directly contravene CPD’s statutory authority to sanction the company for wrongful conduct. For this reason, the Court of Appeals concluded that the trial court’s approval of the settlement must be reversed and remanded the case for further proceedings.
Another appellate court holds that a debt buyer qualifies as a debt collector under the FDCPA
On March 9, the U.S. Court of Appeals for the Ninth Circuit held that an entity that purchases consumer debts, but outsources the collection activity to a third party still qualifies as a debt collector under the FDCPA. According to the opinion, the plaintiff sued the debt buyer (defendant) claiming it was “vicariously and jointly liable” for alleged FDCPA violations by the third party collector. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to state a claim because debt purchasing companies like the defendant “who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.” The district court reasoned that Congress intended the FDCPA to apply only to those who directly interact with customers, based on the court’s interpretation of the language used in the substantive provisions of the law.
On appeal, the 9th Circuit reversed the dismissal, determining that the FDCPA does not solely regulate entities that directly interact with consumers. As applied to the defendant, the court found that the purpose of the FDCPA would be “entirely circumvented” if the law’s restrictions did not apply to companies like the defendant. Accordingly, the appellate court concluded that an entity that otherwise meets the “principal purpose” definition of debt collector—“any business the principal purpose of which is the collection of any debts”—cannot avoid liability under the FDCPA merely by hiring a third party to perform debt collection activities on its behalf. The appellate court stressed that Congress’s intent in enacting the FDCPA was to eliminate abusive, deceptive, and unfair collection practices, and that its interpretation of the principal purpose prong of the debt collector definition furthers the FDCPA’s purpose. The 9th Circuit joined the 3rd Circuit, which issued an order last year (covered by InfoBytes here) concluding that “[a]s long as a business’s raison d’etre is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment.”
5th Circuit: Non-party plaintiff cannot bring action to enforce violation of CFPB consent order
On March 4, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment in favor of a debt collector (defendant) accused of violating the FDCPA and the terms of a CFPB consent order. According to the opinion, the defendant attempted to collect a credit card debt from the plaintiff that the plaintiff did not recognize. In December 2014, the defendant filed suit to collect the past due debt. In the meantime, the CFPB issued a consent order against the defendant for violations of the FDCPA (covered by InfoBytes here) while the parties awaited trial. Thereafter, the plaintiff filed a complaint with the CFPB regarding the validity of the debt, but the Bureau closed that complaint after verifying the defendant’s ownership of the plaintiff’s debt. The plaintiff responded by filing his own lawsuit in March 2017, claiming the defendant violated the FDCPA by (i) “lacking validation of his debt prior to his January 2016 trial”; (ii) failing to timely validate his debt in violation of provisions of its consent order with the CFPB; and (iii) “misrepresenting that it intended to prove ownership of his debt if contested.” The district court granted summary judgment for the defendant based on the plaintiff’s failure to prove actual damages.
On appeal, the appellate court determined that the district court erred in ruling that the plaintiff failed to plead actual damages, finding that “the FDCPA does not require proof of actual damages to ground statutory damages.” However, the appellate court did not reverse the district court’s decision. Instead, the appellate court affirmed, holding that the plaintiff’s debt validation claims were time-barred because he did not file suit within the FDCPA’s one-year statute of limitations. Regarding the other two claims, the appellate court stated that while the claims were not time-barred, the plaintiff lacked standing because “private persons may not bring actions to enforce violations of consent decrees to which they are not a party.” The CFPB’s consent order with the defendant specified that the CFPB was the enforcer of the order, and its text could not be read to invoke a private right of action permitting the plaintiff’s suit. Accordingly, the appellate court affirmed summary judgment against the plaintiff on these remaining two claims.
5th Circuit: CFPB structure is constitutional
On March 3, the same day the U.S. Supreme Court heard oral arguments in Seila Law LLC v. CFPB (covered by InfoBytes here), a divided U.S. Court of Appeals for the Fifth Circuit held that the CFPB’s single-director structure is constitutional, finding no constitutional defect with allowing the director of the Bureau to only be fired for cause. As previously covered by InfoBytes, the CFPB filed a complaint against two Mississippi-based payday loan and check cashing companies for allegedly violating the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices. In March 2018, a district court denied the payday lenders’ motion for judgment on the pleadings, rejecting the argument that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. The 5th Circuit agreed to hear an interlocutory appeal on the constitutionality question, and subsequently, the payday lenders filed an unchallenged petition requesting an initial hearing en banc. (Covered by InfoBytes here.)
On appeal, the majority upheld the district court’s decision that the Bureau is not unconstitutional based on its single-director structure. “The payday lenders argue that the structure of the CFPB denies the Executive Branch its due because the Bureau is led by a single director removable by the President only for cause,” the majority wrote. “We find no support for this argument in constitutional text or in Supreme Court decisions and uphold the constitutionality of the CFPB’s structure, as did the D.C. and Ninth [C]ircuits.” The majority compared the case to the D.C. Circuit’s en banc decision in PHH v. CFPB (covered by a Buckley Special Alert) and the 9th Circuit’s decision in CFPB v. Seila Law LLC (covered by InfoBytes here), both of which upheld the Bureau’s structure. The majority also distinguished a 2018 ruling from the 5th Circuit sitting en banc, which held the FHFA’s single-director structure unconstitutional (covered by InfoBytes here). This provoked a strong dissent charging that the majority had “suddenly discover[ed] that stare decisis is for suckers.”
7th Circuit rejects request to void $17.5 million TCPA settlement
On February 25, the U.S. Court of Appeals for the Seventh Circuit denied a request to overturn a $17.5 million settlement agreement arising out of a national bank’s alleged violations of the TCPA. Six different class actions had been filed against the bank in different federal courts, all alleging that the bank had violated the TCPA by making robocalls and autodialed calls and sending text messages to the class members even though they were not customers of the bank. The settlement resolved all six cases, involving roughly 440,000 total class members. An individual claiming to be a class member sought to object to the settlement, but the district court found that he lacked standing to object because he could not show that he had received a call or text, and the bank’s records indicated that he had not, and therefore he was not a member of the class.
Upon appeal, the 7th Circuit affirmed the lower court’s determination that the objector was not a class member in a brief, unsigned order. The panel corrected the objector’s misrepresentation of the lower court’s ruling that the objector’s own testimony could not prove that he was a class member, stating that “[t]he problem here is that [the objector’s] account was so vague—no dates, no subject matter, and not even whether the calls were ‘artificial or pre-recorded’”—that the court reasonably discounted it in comparison to the evidence from [the bank] that [the objector] never received one of the disputed types of calls.”