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On July 9, the U.S. Supreme Court agreed to review the following cases:
- FHFA Constitutionality. The Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s en banc decision in Collins. v. Mnuchin (covered by InfoBytes here), which concluded that the FHFA’s structure—which provides the director with “for cause” removal protection—violates the Constitution’s separation of powers requirements. As previously covered by a Buckley Special Alert last month, the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. The Court further held that the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute.
- FTC Restitution Authority. The Court granted review in two cases: (i) the 9th Circuit’s decision in FTC V. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
- TCPA Autodialer Definition. The Court agreed to review the U.S. Court of Appeals for the Ninth Circuit’s decision in Duguid v. Facebook, Inc. (covered by InfoBytes here), which concluded the plaintiff plausibly alleged the social media company’s text message system fell within the definition of autodialer under the TCPA. The 9th Circuit applied the definition from their 2018 decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes 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. The 2nd Circuit has since agreed with the 9th Circuit’s holding in Marks. However, these two opinions conflict with holdings by the 3rd, 7th, and 11th Circuits, which have held that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of an autodialer in ACA International v. FCC (covered by a Buckley Special Alert).
On June 19, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an action alleging a debt collector violated the FDCPA by attempting to collect interest that accrued on a debt after the creditor wrote off the debt but before the collector acquired it. According to the opinion, the plaintiffs’ original unpaid debt was $3,226.35 before the original creditor ceased collection efforts and stopped sending monthly statements. Approximately two years later, the creditor sold the debt to the collection agency, and approximately two years after that, the debt collector sent a demand letter seeking payment of $5,800, which included around $1,600 in interest for the months after the original creditor ceased collection efforts. The debt collector sent a second letter two months later, and a third letter the following year to their attorney in response to the attorney’s request to verify the debt, but the third letter did not explain how much of the debt was interest. The plaintiffs filed the action against the debt collector, alleging the collector violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with collection of a debt by demanding interest that accrued between charge-off and sale. The district court dismissed the action as untimely.
On appeal, the 7th Circuit affirmed dismissal, but determined the suit was filed timely. Specifically, the appellate court concluded that the one year statute of limitations applied to the third letter the debt collector sent to the plaintiffs’ lawyer in response to a demand for debt verification. However, the appellate court concluded that the third collection letter did not violate the FDCPA, arguing the plaintiffs “promised to pay interest, and [the debt collector]’s computer used the correct rate.” Moreover, the appellate court stated that “[a] statement is false, or not, when made; there is no falsity by hindsight,” and previous instances in the circuit “in which a letter was deemed to have falsely stated the amount of the debt dealt with errors known or readily knowable when the letter was sent.” Lastly, the appellate court rejected the plaintiffs’ post-argument submission that the debt collector “must openly state the legal position behind its calculation” in order to avoid having the letter be misleading, noting that the third letter was sent to their lawyer, and it “would not have misled a competent lawyer.”
On June 15, the U.S. District Court for the Southern District of Indiana granted a motion for summary judgment in favor of a collection agency and another company (collectively, “defendants”) with respect to the plaintiff’s TCPA allegations, holding that the system used to send text messages to class members’ cell phones is not an automatic telephone dialing system (autodialer). According to the opinion, the plaintiff filed the class action alleging, among other things, that the defendants violated the TCPA by sending unsolicited text messages using an autodialer to cell phones after the recipients replied with “stop.” The parties submitted cross-motions for summary judgment, which were stayed pending the outcome of the U.S. Court of Appeals for the Seventh Circuit decision in Gadelhak v. AT&T Servs., Inc. As previously covered by InfoBytes, the 7th Circuit held in February that to be an autodialer under the TCPA, the system must both store and produce phone numbers “using a random or sequential number generator.” After reviewing the cross-motions in light of the 7th Circuit decision, the court concluded that the system used by the defendants is not an autodialer under the controlling definition because the defendants’ system sends text messages to cell phone numbers from stored customer lists. Notwithstanding the fact that neither party disputes that the text messages sent to the class members post-“stop” message were without their consent, the court granted summary judgment in favor of the defendants because the text messages were not sent using an autodialer.
On June 9, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment in favor of a third-party debt collector in a class action asserting violations of the FDCPA. According to the opinion, a consumer filed a putative class action alleging the debt collector sent a misleading letter in violation of the FDCPA because the letter stated that her debt “may be reported to the national credit bureaus.” The consumer argued that the use of the word “may” was deceptive, as it implied “future reporting” even though the debt had already been reported at the time she received the letter. The debt collector moved to dismiss the action, which the district court denied, concluding that whether a communication is misleading is a question of fact and therefore, “dismissal would be premature.” After class certification, the consumer and the debt collector submitted cross-motions for summary judgment, and the district affirmed in favor of the debt collector.
On cross-appeals, the 7th Circuit agreed with the district court’s denial of the debt collector’s motion to dismiss, stating that “[w]hether a significant fraction of debtors would be misled as [the consumer] describes is questionable, but it is not so implausible….” As for summary judgment, the appellate court also agreed with the district court, concluding that the consumer “failed to present any evidence beyond her own opinion” that the collection letter was misleading. The appellate court rejected the consumer’s assertion that her own opinion was evidence enough and noted that the consumer cited to cases using the “least sophisticated consumer standard,” which the 7th Circuit has rejected. Moreover, the appellate court emphasized that the consumer failed “to provide any outside evidence as to the likelihood that a hypothetical unsophisticated debtor (or even the least sophisticated debtor) would in fact be confused by the language in [the debt collector]’s letter.”
On June 5, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s holding that the costs recoverable under the FDCPA and Rule 54(d) of the Federal Rules of Civil Procedure do not include damages or compensation for the plaintiff’s time and mailing expenses related to litigation. According to the opinion, the plaintiff filed suit against a debt collector alleging various violations of the FDCPA for failing to verify that the plaintiff owned the debt after it was disputed and for sending a demand letter with the plaintiff’s personal information in an envelope viewing screen. The debt collector made an offer of judgment to the plaintiff for “$1,101, ‘plus costs to be awarded by the Court.’” The plaintiff sought costs that included damages under the FDCPA while the debt collector argued that the offer was only for “taxable costs as a prevailing party.” After the district court concluded that the plaintiff had accepted the offer of judgment, it entered judgment for the award of $1,101 and instructed the plaintiff to file a bill of costs “‘limited to those contemplated by [Federal Rule of Civil Procedure] 54(d).’” The plaintiff demanded over $24,000 for “hundreds of hours” spent litigating the action, over $150 in “mailing costs,” $1,000 in “additional damage costs,” and over $47,000 in punitive damages. The district court denied the costs under Rule 54(d) and awarded final judgment for the $1,101 in statutory damages.
On appeal, the 7th Circuit disagreed with the plaintiff’s assertion that the costs he submitted were recoverable under Section 1692k(a) of the FDCPA, concluding that “damages are not part of the costs ‘properly awardable under’ § 1692k(a),” which contains both provisions for damages and for costs; therefore, if costs included damages, “the damages provisions would be superfluous.” The appellate court went on to state that “[w]ithout a special definition in the [FDCPA], the ‘costs’ it contemplates are simply those awardable under Federal Rule of Civil Procedure 54(d),” which do not include the damages or compensation sought by the plaintiff.
On May 11, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a putative class action, holding that the FCRA does not compel a consumer reporting agency (defendant) to determine the legal validity of a debt when investigating a dispute. The plaintiffs alleged that they obtained payday loans with allegedly usurious interest rates from online entities affiliated with Native American tribes. After both plaintiffs stopped making monthly payments, the lenders reported the delinquent amounts to the defendant. One of the plaintiffs disputed the accuracy of his credit report, arguing that because the loan was “illegally issued” he was not obligated to make payments. The defendant conducted an investigation and verified the furnished information was accurate. However, the defendant did not investigate whether the debt was legal. The plaintiffs filed suit, alleging two FCRA violations: (i) Section 1681e(b) which requires consumer reporting agencies “to assure maximum possible accuracy of the information” contained in credit reports; and (ii) Section 1681i(a) which “requires consumer reporting agencies to reinvestigate disputed items.” According to the plaintiffs, the defendant’s credit reports “contained ‘legally inaccurate’ information because they posted ‘legally invalid debts.’” The district court granted judgment on the pleadings to the defendant, ruling that the plaintiffs’ FCRA claims fell short because they never alleged that the information that was reported was factually inaccurate and, “until a formal adjudication invalidates the plaintiffs’ loans,” the reported information would not be factually inaccurate.
On appeal, the 7th Circuit held, among other things, that only furnishers—“such as banks, credit lenders, and collection agencies”—are required under the FCRA to correctly report liability, stating it is not the defendant’s responsibility to determine the enforceability of the debt because the “power to resolve these legal issues exceeds the competencies of consumer reporting agencies.” Moreover, the appellate court determined that the defendant cannot be liable under either of the plaintiffs’ FCRA claims if it did not report inaccurate information.
On April 30, in a split opinion, the U.S. Court of Appeals for the Seventh Circuit issued a decision affirming a district court order holding that a consumer’s claims against a bank failed because the bank never counter-signed the Trial Period Plan (TPP) it offered the consumer in connection with the Home Affordable Mortgage Program (HAMP). According to the opinion, the consumer signed his name to the TPP and returned the TPP to the bank along with what the consumer believed to be the other required documents and the first of this three payments. However, the bank never returned a fully executed copy of the TPP to the consumer. Instead, it sent the consumer multiple notices stating that necessary documentation was still missing. Ultimately, the consumer made all three payments required by the TPP, but never received a permanent modification of his loan. On that basis, the consumer filed suit, alleging breach of contract, fraud, and intentional infliction of emotional distress due to the bank’s alleged failure to honor its loan-modification offer. The district court granted judgment on the pleadings for the bank and denied the plaintiff’s request to amend the complaint, concluding, among other things, that the consumer failed to state a plausible claim for relief.
On appeal, the majority agreed with the district court, holding, among other things, that the bank never actually agreed to modify the consumer’s mortgage under HAMP. Specifically, the majority stated that “[i]f an offer contains a conditional precedent, a contract does not form until the condition is satisfied,” referencing language in which the bank reserved the right not to send the consumer a counter-signed copy of the Trial Period Plan (TPP) if the borrower did not qualify for HAMP relief. Because the TPP never went into effect, it imposed no contractual obligations on the bank.
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.”
7th Circuit: Dialing system that cannot generate random or sequential numbers is not an autodialer under the TCPA
On February 19, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s ruling that a dialing system that lacks the capacity to generate random or sequential numbers does not meet the definition of an automatic telephone dialing system (autodialer) under the TCPA. According to the 7th Circuit, an autodialer must both store and produce phone numbers “using a random or sequential number generator.” The decision results from a lawsuit filed by a consumer alleging a company sent text messages without first receiving his prior consent as required by the TCPA. However, according to the 7th Circuit, the company’s system—the autodialer in this case—failed to meet the TCPA’s statutory definition of an autodialer because it “exclusively dials numbers stored in a customer database” and not numbers obtained from a number generator. As such, the company did not violate the TCPA when it sent unwanted text messages to the consumer, the appellate court wrote.
Though the appellate court admitted that the wording of the provision “is enough to make a grammarian throw down her pen” as there are at least four possible ways to read the definition of an autodialer in the TCPA, the court concluded that while its adopted interpretation—that “using a random or sequential number generator” describes how the numbers are “stored” or “produced”—is “admittedly imperfect,” it “lacks the more significant problems” of other interpretations and is thus the “best reading of a thorny statutory provision.”
The 7th Circuit’s opinion is consistent with similar holdings by the 11th and 3rd Circuits (covered by InfoBytes here and here), which have held that autodialers require the use of randomly or sequentially generated phone numbers, as well as the D.C. Circuit’s holding in ACA International v. FCC, which struck down the FCC’s definition of an autodialer (covered by a Buckley Special Alert here). However, these opinions conflict with the 9th Circuit’s holding in Marks v. Crunch San Diego, LLC, (covered by InfoBytes 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.
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.
- Daniel P. Stipano to discuss "Making customers whole: Trends in remediation and restitution expectations" at the American Bar Association Business Law Virtual Section Meeting
- Jonice Gray Tucker to discuss "Fairness gone viral: Fair lending considerations for financial institutions amid Covid-19" at the American Bar Association Business Law Virtual Section Meeting
- Daniel P. Stipano to discuss "High standards: Best practices for banking marijuana-related businesses" at the ACAMS AML & Anti-Financial Crime Conference
- Daniel P. Stipano to discuss "Wait wait ... do tell me! Where the panelists answer to you" at the ACAMS AML & Anti-Financial Crime Conference
- Matthew P. Previn and Walter E. Zalenski to discuss "Is valid when made ... valid?" at the Women in Housing & Finance Partner Series webinar
- Warren W. Traiger and Caroline K. Eisner to discuss "CRA modernization and the OCC final rule" at CBA Live
- Daniel R. Alonso to discuss "Transnational corruption: A chat with former U.S. federal prosecutors in New York" at Marval Live Talks
- Sherry-Maria Safchuk and Lauren Frank to discuss "New CFPB interpretation on UDAAP" at a California Mortgage Bankers Association Mortgage Quality and Compliance Committee webinar
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute