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Financial Services Law Insights and Observations


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  • CFPB, FTC weigh in on consumer reporting obligations under the FCRA

    Federal Issues

    On May 5, the CFPB and FTC filed a joint amicus brief with the U.S. Court of Appeals for the Second Circuit, seeking the reversal of a district court’s decision which determined that a consumer reporting agency (CRA) was not liable under Section 1681e(b) of the FCRA for allegedly failing to investigate inaccurate information because the inaccuracy was “legal” and not “factual” in nature. The agencies countered that the FCRA, which requires credit reporting companies to follow reasonable procedures to assure maximum possible accuracy of the information included in consumer reports, “does not contain an exception for legal inaccuracies.”

    The plaintiff noticed that the CRA reported that she owed a balloon payment on an auto lease that she was not obligated to pay under the terms of the lease. After the plaintiff confirmed she did not owe a balloon payment, she filed a putative class action against the CRA contending that it violated the FCRA by inaccurately reporting the debt. The CRA countered that it could not be held liable because “it is not obligated to resolve a legal challenge to the validity of the balloon payment obligation reported by” the furnisher “and that it reasonably relied on [the furnisher] to report accurate information.” Moreover, the CRA argued that even if it did violate the FCRA, the plaintiff was not entitled to damages because the violation was neither willful nor negligent. The district court sided with the CRA, drawing a distinction between factual and legal inaccuracies and holding that whether the plaintiff actually owed the balloon payment was a “legal dispute” requiring “a legal interpretation of the loan’s terms.” According to the district court, “CRAs cannot be held liable when the accuracy at issue requires a legal determination as to the validity of the debt the agency reported.” The court further concluded that since the plaintiff had not met the “threshold showing” of inaccuracy, the information in the consumer report “was accurate,” and therefore the CRA was “entitled to summary judgment because ‘reporting accurate information absolves a CRA of liability.’”

    In urging the appellate court to overturn the decision, the agencies argued that the exemption for legal inaccuracies created by the district court is unsupported by statutory text and is not workable in practice. This invited defense, the FTC warned in its press release, “invites [CRAs] and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate.” The FTC further cautioned that a CRA might begin manufacturing “some supposed legal interpretation to insulate itself from liability,” thus increasing the number of inaccurate credit reports.

    Whether the plaintiff owed a balloon payment and how much she owed “are straightforward questions about the nature of her debt obligations,” the agencies stated, urging the appellate court to “clarify that any incorrect information in a consumer report, whether ‘legal’ or ‘factual’ in character, constitutes an inaccuracy that triggers reasonable-procedures liability under the FCRA.” The agencies also pressed the appellate court to “clarify that a CRA’s reliance on information provided by even a reputable furnisher does not categorically insulate the CRA from reasonable-procedures liability under the FCRA.”

    The Bureau noted that it also filed an amicus brief on April 7 in an action in the U.S. Court of Appeals for the Eleventh Circuit involving the responsibility of furnishers to reasonably investigate the accuracy of furnished information after it is disputed by a consumer. In this case, a district court found that the plaintiff, who reported several fraudulent credit card accounts, did not identify any particular procedural deficiencies in the bank’s investigation of her indirect disputes and granted summary judgment in favor of the bank on the grounds that the “investigation duties FCRA imposes on furnishers [are] ‘procedural’ and ‘far afield’ from legal ‘questions of liability under state-law principles of negligence, apparent authority, and related inquiries.’ Moreover, the district court concluded that there was no genuine dispute as to whether the bank conducted a reasonable investigation as statutorily required. The Bureau noted in its press release, however, that the bank “had the same duty to reasonably investigate the disputed information, regardless of whether the underlying dispute could be characterized as “legal” or “factual.” In its brief, the Bureau urged the appellate court to, among other things, reverse the district court’s ruling and clarify that the “FCRA does not categorically exempt disputes presenting legal questions from the investigation furnishers must conduct.” Importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.” The brief also argued that each time a furnisher fails to reasonably investigate a dispute results in a new statutory violation, with its own statute of limitations.

    Federal Issues Courts CFPB FTC FCRA Credit Report Consumer Reporting Agency Appellate Second Circuit Eleventh Circuit Credit Furnishing Consumer Finance

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  • 11th Circuit affirms $23 million judgment against founder of debt relief operation


    On March 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of the FTC and the Florida attorney general after finding that an individual defendant could be held liable for the actions of the entities he controlled. As previously covered by InfoBytes, the FTC and the Florida AG filed a complaint in 2016 against several interrelated companies and the individual defendant who founded the companies, alleging violations of the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The complaint alleged that the defendants engaged in a scheme that targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. Among other things, the defendants also claimed to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates and charged up-front payments for debt relief and rate-reduction services. In 2018, the court granted the FTC and the Florida AG’s motion for summary judgment, finding there was no genuine dispute that the individual defendant controlled the defendant entities, that he knew his employees were making false representations, and that he failed to stop them. The court entered a permanent injunction, which ordered the individual defendant to pay over $23 million in equitable monetary relief and permanently restrained and enjoined the individual defendant from participating—whether directly or indirectly—in telemarketing; advertising, marketing, selling, or promoting any debt relief products or services; or misrepresenting material facts.

    The individual defendant appealed, arguing that there were genuine disputes over whether: (i) he controlled the entities; (ii) he had knowledge that employees were making misrepresentations and failed to prevent them; (iii) employee affidavits “attesting that they had saved customers money created an issue of fact about whether his programs did what he said they would do”; and (iv) he had knowledge of “rogue employees” violating the “do not call” registry to solicit customers.

    On appeal, the 11th Circuit determined that the facts presented by the individual defendant did not create a genuine dispute about whether he controlled the entities, and further stated that the individual defendant is liable for the employees’ misrepresentations because of his control of the entities and his knowledge of those misrepresentations. The appellate court explained that while the individual defendant argued that he could not be liable because he did not participate in those representations, he failed to present any evidence in support of that argument and, even if he had, “it wouldn’t matter, because [the individual defendant’s] liability stems from his control of [the companies], not from his individual conduct.” Additionally, the appellate court held that whether the services were helpful to customers was immaterial and did not absolve him of liability, because liability for deceptive sales practices does not require worthlessness. As to the “do not call” registry violations, the appellate court disagreed with the individual defendant’s claim that an “outside dialer or lead generator”—not the company—placed the outbound calls, holding that this excuse also does not absolve him of liability.

    Courts Appellate Eleventh Circuit Telemarketing Enforcement Debt Relief State Issues State Attorney General Florida FTC Act TSR

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  • 11th Circuit affirms $7.5 million settlement on overdraft appeal


    On February 16, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s class certification and approval of a $7.5 million settlement, which resolved allegations that, after merging with another national bank, the former bank (defendant) improperly assessed and collected overdraft fees. According to the opinion, a customer accused the bank of “high-to-low” posting that restructured customers’ debit transactions so that high value debits posted before low value ones, increasing the chance of overdrafts. After the defendant merged with the national bank in 2012, the national bank agreed to the $7.5 million settlement to resolve the claims. A class member (interested party-appellant) appealed the order. The interested party-appellant claimed “that the court abused its discretion by finding that the settlement class’s representative … adequately represented her (and her proposed subclass’s) interests and that the settlement class’s claims were typical of hers (and her proposed subclass’s).”

    The 11th Circuit disagreed and found that the district court did not abuse its discretion because the plaintiff classes “suffered identical injuries” based on the defendant’s alleged high-to-low restructuring practices. Additionally, the appellate court found that “[t]he district court didn’t abuse its discretion by finding [the settlement class’s representative’s] claims were typical of those of the class.” The court also found that “[t]he district court could reasonably conclude that any difference in the value of the plaintiffs’ claims was too speculative or too small to create a fundamental conflict of interest.”

    Courts Appellate Eleventh Circuit Overdraft Class Action Settlement

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  • District Court rules transmitting debtor information to third-party violates FDCPA


    On February 2, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion for judgment on the pleadings, ruling that transmitting a debtor’s personal information to a third-party mail vendor for the purposes of sending a debt collection letter constitutes a communication “in connection with the collection of any debt” under the FDCPA. As previously covered by InfoBytes, in Hunstein v. Preferred Collection & Management Services, the U.S. Court of Appeals for the Eleventh Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” The district court found this reasoning “persuasive,” ruling that the plain text of the statute encompasses communications with a third party mail vendor. The district court also rejected the defendant’s arguments that the CFPB and FTC had tacitly endorsed third-party mailers by not pursuing enforcement actions against them: “[B]ecause the agencies tasked with regulating and enforcing the FDCPA have not addressed the use of letter vendors by debt collectors in any legally significant way, and because the statutory language is not subject to a different reading, the Court will afford no deference to the indeterminate actions of the CFPB and FTC.”

    Courts Data Breach Class Action FDCPA Appellate Eleventh Circuit Hunstein Debt Collection

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  • 11th Circuit affirms FCRA suit dismissal


    On December 23, the U.S. Court of Appeals for the Eleventh Circuit affirmed a lower court’s dismissal of an FCRA case where a furnisher (defendant) allegedly failed to conduct a reasonable investigation in response to materials that the plaintiff had sent to two credit reporting agencies (CRAs), which was then forwarded to the furnisher. According to the opinion, the plaintiff had submitted a letter to each CRA requesting they remove a dispute notation on her credit report with respect to her account with the furnisher because the account in question was no longer being disputed. The CRAs forwarded the plaintiff’s request to the furnisher, who then investigated and notified the CRAs that the account was still being disputed. The plaintiff did not otherwise directly tell the furnisher that she no longer disputed the tradeline. After discovering that the account was still reported as disputed, the plaintiff filed suit under the FCRA against the furnisher for failing to investigate the dispute and failing to direct the CRAs to remove the notation of account in dispute. The district court granted the defendant’s motion to dismiss for the plaintiff’s failure to state a claim.

    On appeal, the 11th Circuit found that the letter sent by the plaintiff to the CRAs failed “to make anything clear” to the furnisher. The appellate court explained that the plaintiff “could have written a better letter: one that made clear that she was attempting to revoke her dispute for the first time or, better yet, one addressed to the bank itself. But that is not the letter on which she premised her lawsuit.” The appellate court also noted that, although the furnisher could have contacted the plaintiff directly, the FCRA does not require the furnisher to do so. In effect, “[w]hat [the plaintiff] wants [the bank] to do — either (1) to intuit that she no longer disputed the tradeline from her report to the CRAs or (2) to reach out to her directly to clarify and confirm that she no longer wished to dispute the tradeline — goes beyond what FCRA reasonableness requires,” the appellate court explained in its ruling. The appellate court therefore found that it was reasonable for the furnisher to review its official records, which indicated that the tradeline was still in dispute, and retain the dispute notation on the plaintiff’s credit report.

    Courts Appellate Eleventh Circuit FCRA Credit Reporting Agency Consumer Finance

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  • 11th Circuit to rehear Hunstein v. Preferred Collection & Management Services


    On November 17, the U.S. Court of Appeals for the Eleventh Circuit vacated an opinion in Hunstein v. Preferred Collection & Management Services, ordering an en banc rehearing of the case. The order vacates an 11th Circuit decision to revive claims that the defendant’s use of a third-party mail vendor to write, print, and send requests for medical debt repayment violated privacy rights established in the FDCPA. As previously covered by InfoBytes, in April, the 11th Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” According to the order issued sua sponte by the 11th Circuit, an en banc panel of appellate judges will convene at a later date to rehear the case.

    Courts Debt Collection Third-Party Disclosures Appellate Eleventh Circuit Vendor Hunstein FDCPA Privacy/Cyber Risk & Data Security

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  • 11th Circuit lifts a receivership and asset freeze of $85 million


    On November 4, the U.S. Court of Appeals for the Eleventh Circuit affirmed in part and vacated in part a district court’s order, finding that portions of the district court’s decision could not stand under the U.S. Supreme Court’s April ruling in AMG Capital Management v. FTC. The Court held in that case that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.” (Covered by InfoBytes here). According to the 11th Circuit’s opinion, in 2019, the FTC alleged that individuals associated with multiple limited liability companies engaged in unfair or deceptive business practices in violation of 15 U.S.C. § 45(a). The FTC also filed a motion for a temporary restraining order the same day against the corporate defendants, seeking to freeze their assets, place the entities into a receivership, and enjoin all the parties from materially misrepresenting their services or from releasing consumer information obtained through the limited liability company. The district court granted the motion for a temporary restraining order in full in December 2019, and in January 2020, the district court granted a preliminary injunction against the limited liability company, extending the asset freeze, receivership, and injunction for the duration of the lawsuit.

    On appeal, the 11th Circuit affirmed those parts of the preliminary injunction enjoining the appellants from misrepresenting their services and releasing consumer information. The panel upheld the portion of the order that enjoined one of the investor entities and its principal, who was the former chairman of the corporate defendant’s board, from misrepresenting services on allegedly deceptive websites or releasing any customer information allegedly gathered through the websites. While the appeal was pending, however, the Court held in AMG Capital Management that 15 U.S.C. § 53(b) does not allow an award of “equitable monetary relief such as restitution or disgorgement,” leading the 11th Circuit to reverse the asset freeze and receivership aspects of the preliminary injunction. Additionally, the 11th Circuit noted that the principal from one of the entities “was individually responsible for the actions of [the corporate defendants],” and “likely knew that [the corporate defendants] made over eighty million dollars in two years selling 'guides' on government services, and it almost beggars belief that he would be completely unaware of how [the corporate defendants’] websites were raising that quantity of money.”

    Courts Eleventh Circuit FTC U.S. Supreme Court Enforcement Appellate UDAP

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  • 11th Circuit’s new opinion says plaintiff still has standing to sue in outsourced debt collection letter action


    On October 28, the U.S. Court of Appeals for the Eleventh Circuit issued a split opinion in Hunstein v. Preferred Collection & Management Services, vacating its April 21 decision but still finding that the plaintiff had standing to sue. As previously covered by InfoBytes, last April the 11th Circuit reviewed the district court’s dismissal of plaintiff’s claims that the disclosure of medical debt to a mail vendor violated the FDCPA’s third-party disclosure provisions. The 11th Circuit originally held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” At the time, the appellate court determined that communicating debt-related personal information with the third-party mail vendor is a concrete injury under Article III. Even though the plaintiff did not allege a tangible injury, the appellate court held, in a matter of first impression, that under the circumstances, the plaintiff alleged a communication “in connection with the collection of any debt” within the meaning of § 1692c(b). 

    In its most recent opinion, the majority wrote that it was vacating its prior opinion “[u]pon consideration of the petition for rehearing, the amicus curiae briefs submitted in support of that petition, and the Supreme Court’s intervening decision in TransUnion LLC v. Ramirez.” The appellate court first re-examined whether the plaintiff had standing to sue. Among other things, the majority held that while the plaintiff cannot demonstrate “a risk of real harm,” he was able to show standing “through an intangible injury resulting from a statutory violation.” Further, the majority determined that TransUnion reaffirmed its conclusion that the plaintiff “alleged a harm that bears a close relationship to a harm that has traditionally been recognized in American courts.” (In TransUnion, the Court concluded, among other things, that “[i]n looking to whether a plaintiff’s asserted harm has a ‘close relationship’ to a harm traditionally recognized as providing a basis for a lawsuit in American courts, we do not require an exact duplicate.”) The majority further concluded that Congress’s judgment also favors the plaintiff because Congress indicated that violations of § 1692c(b) constitute a concrete injury.

    The appellate court next considered the merits of the case, with the majority concluding that the plaintiff adequately stated a claim that the transmittal of personal debt-related information to the vendor constituted a communication within the meaning of § 1692c(b)’s phrase “in communication with the collection of the debt.”

    Judge Tjoflat dissented, arguing that the April decision was issued before TransUnion, and following the Supreme Court’s reasoning, the plaintiff did not have standing because he did not suffer a concrete injury, and that there is an important difference between a plaintiff’s statutory cause of action to sue over a violation of federal law and “a plaintiff’s suffering concrete harm because of the defendant’s violation of federal law.” Judge Tjoflat further added that a “simple transmission of information along a chain that involves one extra link because a company uses a mail vendor to send out the letters about debt is not a harm at which Congress was aiming.”

    Courts Eleventh Circuit Appellate Debt Collection Third-Party Disclosures Vendor Hunstein Privacy/Cyber Risk & Data Security

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  • District Court remands debt collection class action to state court for lack of standing


    On October 12, the U.S. District Court for the Northern District of Illinois granted plaintiff’s motion to remand a debt collection class action lawsuit back to state court. The plaintiff claimed the defendants violated the Illinois Collection Agency Act and FDCPA Section 1692c(b) by using a third-party mailing vendor to print and mail collection letters to class members. According to the plaintiff’s complaint filed in state court, conveying the information to the vendor—an allegedly unauthorized party—served as a communication under the FDCPA. The defendants removed the case to federal court, but on review, the court determined the plaintiff did not have Article III standing to sue because Congress did not intend to prevent debt collectors from using mail vendors when the FDCPA was enacted. Specifically, the court disagreed with the U.S. Court of Appeals for the Eleventh Circuit’s decision in Hunstein v. Preferred Collection & Management Services, which held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” (Covered by InfoBytes here.) In this case, the court stated it “is difficult to imagine Congress intended for the FDCPA to extend so far as to prevent debt collectors from enlisting the assistance of mailing vendors to perform ministerial duties, such as printing and stuffing the debt collectors’ letters, in effectuating the task entrusted to them by the creditors—especially when so much of the process is presumably automated in this day and age.” According to the court, “such a scenario runs afoul of the FDCPA’s intended purpose to prevent debt collectors from utilizing truly offensive means to collect a debt.”

    Courts Vendor Third-Party Hunstein Appellate Eleventh Circuit Debt Collection State Issues FDCPA Class Action

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  • Appellate Court affirms defendant waived right to arbitration


    On August 18, a Florida District Court of Appeals affirmed a district court’s decision that an auto dealer (defendant) waived its right to compel arbitration after failing to mention an arbitration provision until days before the hearing. The plaintiffs filed a class action complaint alleging that the defendant engaged in deceptive practices regarding fees on car sales. While the defendant raised seven affirmative defenses, it did not raise arbitration, even though an arbitration provision was included in the contract between the defendant and each vehicle purchaser. The defendant moved for judgment on the pleadings and argued “that the type of damages sought in the suit were unavailable under the Florida Deceptive and Unfair Trade Practices Act,” but the court denied the motion. According to the opinion, days before the hearing, the defendant “filed its motion to compel arbitration ‘in opposition to plaintiff’s motion for class certification,’ raising arbitration as an issue for the first time fourteen months after the class action complaint had been filed,” contending that it did not waive its right to arbitrate due to prior filings being defensive in nature. Later, the defendant argued that even if the court found a waiver as to the named plaintiffs, it could not have waived its right to arbitrate with the unnamed class members. The court ruled that the defendant “engaged in class discovery without objecting to it or preserving its right to compel arbitration with the unnamed class members.”

    In making its decision, the appellate court cited a 2018 decision by the U.S. Court of Appeals for the Eleventh Circuit, which ruled that a bank had not waived its arbitration rights regarding the unnamed class members because it expressly stated it wished to preserve arbitration rights against those class members when the matter became ripe (covered by InfoBytes here). The appellate court agreed with the court, finding that the defendant acted inconsistently with regard to arbitration in the dispute and therefore waived any right to force the plaintiffs into arbitration.

    Courts Appellate Arbitration Deceptive Eleventh Circuit Auto Finance

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