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7th Circuit affirms dismissal of NSF fees action
On October 25, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s ruling dismissing a putative class action alleging an internet credit union improperly charged account holders non-sufficient funds (NSF) fees. Plaintiff claimed she signed an account agreement with the credit union, which required the use of a ledger-balance method when assessing NSF fees, and that only one NSF fee is permitted per transaction. According to the plaintiff, the credit union breached its contract by charging her a $25 NSF fee when she attempted to pay a $6,000 bill, even though her account’s ledger balance was $6,670.94 at the time. She further claimed the credit union charged multiple NSF fees for the same item. The credit union maintained, however, that the contract allowed it to use the “available-balance method” to assess such fees instead. The opinion explained that the ledger-balance method calculates a balance based on posted debits and deposits (and does not incorporate transactions until they are settled), whereas the available-balance method considers holds on deposits and transactions that have been authorized but not yet settled when calculating a customer’s balance. The district court granted the credit union’s motion to dismiss, rejecting the plaintiff's account balance theory by “explaining that ‘the plain, unambiguous language states that a member needs sufficient available funds’ and reasoning that [plaintiff’s] proposed reading would render [the contract’s] use of the word ‘available’ meaningless.” The district court also maintained that the plural use of the word “fees” permitted the credit union to charge multiple fees when a merchant presented the same transaction more than once.
On appeal, the 7th Circuit agreed with the district court that the agreement did not prohibit the credit union from “charging multiple NSF fees for a transaction that is presented and rejected several times.” While recognizing that the credit union “could have drafted the [a]greement more clearly than it did,” the appellate court determined that the credit union never promised “not to use the available-balance method to assess NSF fees or not to charge multiple fees when a transaction is presented to it multiple times,” and upheld the dismissal of plaintiff’s breach-of-contract claim.
7th Circuit: Plaintiff lacks standing to bring FCRA claim on credit report disputes
On October 18, the U.S. Court of Appeals for the Seventh Circuit affirmed dismissal of an FCRA action in favor of a defendant bank. According to the opinion, the plaintiff real estate investor obtained a loan secured by a mortgage from the defendant bank. The mortgage required the plaintiff to maintain a certain level of hazard insurance or the defendant bank could lender-place such insurance, with the cost of the lender-placed insurance amounts becoming additional debt secured by the mortgage. After the plaintiff underpaid on his flood insurance premiums, the defendant bank obtained lender-placed insurance. When the plaintiff did not pay the increased monthly payment associated with the lender-placed insurance amounts in full, the defendant bank informed the plaintiff that he was in default and that the entire amount of the loan would be accelerated if the default was not cured. While the plaintiff continued to submit partial payments, the defendant began reporting certain 2011 payments as 60 days or more late to the credit reporting agencies (CRAs). In 2012, the plaintiff disputed these purportedly late payments with the CRAs.
The plaintiff sued claiming, among other things, that the defendant violated the FCRA by failing to responsibly investigate the 2012 disputes. On appeal, after determining that the district court did not abuse its discretion by failing to rely on unsupported statements in the plaintiff's affidavit, the 7th Circuit found that the district court erred in requiring the plaintiff to prove damages as an element of his FCRA claim. However, the appellate court held that the plaintiff ultimately lacked standing to bring a claim under the FCRA because, as the appellate court highlighted, the injury that the plaintiff alleged—a decrease in his credit score in November 2011—could not be fairly traced to the defendant’s alleged action—a failure to reasonably investigate credit reporting disputes in January 2012.
CFPB gets $29.2 million judgment in mortgage relief suit
On August 1, the U.S District Court for the Western District of Wisconsin granted over $29.2 million to the CFPB, revising a $59 million judgment that was thrown out by the U.S. Court of Appeals for the Seventh Circuit last year. As previously covered by InfoBytes, in July 2021, the 7th Circuit vacated a 2019 restitution award in an action brought by the CFPB against two former mortgage-assistance relief companies and their principals (collectively, “defendants”) for violations of Regulation O. In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, including the defendants, alleging they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). The district court’s 2019 order (covered by InfoBytes here) held one company and its principals jointly and severally liable for over $18 million in restitution, while another company and its principals were held jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
According to the recent opinion and order, the district court concluded that it would be “appropriate” to characterize the redress as legal restitution because the “plaintiff’s claim is against defendants generally and not one, identifiable fund or asset,” calling it “valid and necessary” for consumers to be compensated for the advance fees they paid. Instead of ordering “complete restitution,” the district court noted it would require the defendants to “refund 50% of the moneys paid, which plaintiff shall return directly to the injured parties to the extent practical,” because the 7th Circuit “found that defendants' conduct was not the product of reckless disregard of the CFPA, but rather a failure to fit themselves under an exception for the delivery of legal services.”
4th Circuit says foreign debit fee contract language is ambiguous
On July 7, the U.S. Court of Appeals for the Fourth Circuit held that a class action breach of contract suit related to foreign debit card fees charged by a credit union may proceed. Class members claimed that the credit union’s contract allows fees only when customers make debit card purchases in a foreign country—not when customers make a purchase while they are physically in the U.S. even if the merchant is abroad. According to the contract’s disclosure agreement and fee schedule, debit card transactions “made in a foreign country” and non-credit union “Point-of-sale and ATM transactions made in a foreign country” will incur a one percent fee.
In vacating the district court’s ruling that the card contracts clearly prohibited these fees, the 4th Circuit concluded that the contract’s language is ambiguous and subject to different interpretations. While class members and the credit union both cited dictionary definitions in support of their arguments, the appellate court said the contract’s language “simply does not clarify whether the location of the account holder or the seller determines whether the transactions are made in foreign countries.” In an online context, the 4th Circuit pointed to questions posed by the 7th Circuit: “Where is the point of sale for such a purchase—the consumer’s computer? the vendor’s headquarters? the vendor’s server? cyberspace generally?” The 4th Circuit further noted that the contracts could have been clearly drafted to explain whether online transactions were “made in foreign countries” if they were between account holders physically in the U.S. and foreign sellers but “were not.”
Judges disagree that “psychological states” can never support standing under FDCPA
On June 8, a majority of judges on the U.S. Court of Appeals for the Seventh Circuit denied a plaintiff-appellee’s petition for rehearing en banc in a case concerning the collection of time-barred debt. In April, the 7th Circuit vacated a $350,000 jury award against a debt collector in an FDCPA action, holding that the plaintiff lacked Article III standing. The defendant sent the plaintiff a letter offering to resolve her defaulted credit card debt at a discount. The letter included a disclosure stating that “because of the age of the debt” it would not sue or report the debt to a credit agency and that payment or nonpayment would not affect her credit score. The plaintiff sued, claiming the letter “surprised and confused” her and was in violation of Sections 1692e(2), 1692e(10), and 1692f of the FDCPA. The district court certified a class and granted summary judgment in favor of the plaintiff “reasoning that the misleading nature of the letter risked real harm to the interests that Congress sought to protect with the FDCPA.” A jury awarded the class $350,000 in damages. On appeal, the panel disagreed, explaining that the plaintiff never made a payment as a result of receiving the letter, nor did she “promise to do so or otherwise act to her detriment in response to anything in or omitted from the letter.” Calling the defendant to dispute the debt and contacting an attorney for legal advice “are not legally cognizable harms” and not enough to provide the “basis for a lawsuit,” the court wrote, adding that “[p]sychological states induced by a debt collector’s letter” are not enough to establish standing.
The majority of the 7th Circuit agreed with the panel’s ruling and voted not to hold an en banc rehearing. However, four judges dissented, arguing that the plaintiff’s claims “should easily satisfy” standing requirements established by the U.S. Supreme Court. “The emotional distress, confusion, and anxiety suffered by [plaintiff] in response to this zombie debt collection effort fit well within the harms that would be expected from many of the abusive practices,” the dissent said. “That’s true regardless of whether the debtor actually made a payment or took some other tangible action in response to them.” According to the dissent, the majority is “painting with too broad a brush” in finding that “[e]motional distress and other ‘psychological states’ can never support standing under the FDCPA.” This reasoning also overlooks close historical parallels in common and constitutional law that provide remedies for intangible injuries caused by many violations of the FDCPA and other consumer-protection statutes, the dissent added.
7th Circuit reverses dismissal of FDCPA case involving misleading letters
On May 20, the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s order dismissing a suit against a debt collection firm that allegedly sent misleading letters to a debtor. According to the order, the plaintiff defaulted on a credit card debt owed to a bank, which hired the defendant for collection services. The defendant filed a collection action on behalf of the bank and obtained a judgment against the plaintiff. The defendant then sent the plaintiff a letter, referencing the plaintiff’s credit card “account,” describing the amount of the judgment as the “balance due,” and offering to settle that debt for 40 cents on the dollar if the plaintiff made the payment within a specified time frame. The plaintiff did not pay the offered settlement amount by that deadline and ultimately learned that interest on the judgment was increasing daily. The plaintiff then filed suit against the debt collector, alleging that it violated the FDCPA by sending a misleading letter that: (i) described the debt as an “account” even though it was a judgment; (ii) listed two different amounts as the “balance due” (the amount of the judgment and the offered settlement amount); and (iii) did not disclose that the debt was increasing daily. The district court dismissed the case, finding that the plaintiff had failed to allege a concrete injury because he did not allege “that he had the ability to pay the debt owed, that he actually paid other debts instead, or that he took any detrimental step as a result of the alleged confusion.”
On the appeal, the 7th Circuit held that the plaintiff had sufficiently alleged an injury, finding that his allegation that he would have prioritized paying the judgment over other debts “supports the reasonable inference that he had the ability to pay the settlement and that he used his available funds on other debts.” The appellate court also rejected the defendant’s argument that the plaintiff lacked standing because he was insolvent at all relevant times and could not have paid his credit card debt, finding that this argument raised a factual dispute that should have been resolved with an evidentiary hearing.
District Court denies defendant’s motion to certify an interlocutory appeal in BIPA case
On March 18, the U.S. District Court for the Northern District of Illinois denied a retailer’s motion to certify for interlocutory appeal the court’s earlier ruling denying, in part, the retailer’s motion to dismiss. This multi-district litigation involves allegations that the retailer used a database containing photographs of individuals and other information to identify people whose images appeared in its surveillance cameras, in violation of the Illinois Biometric Information Privacy Act (BIPA), and California and New York laws. In denying the request for interlocutory appeal, the district court held that its earlier ruling had faithfully applied U.S. Court of Appeals for the Seventh Circuit precedent regarding standing of those who allege invasions of their personal privacy, and that the Supreme Court’s decision in TransUnion v. Ramirez (covered by InfoBytes here) did not undermine that precedent. It also held that the retailer’s disagreement with its prior application of the alleged facts to BIPA and its prior ruling that the plaintiffs had stated claims under California and New York laws did not warrant interlocutory review.
7th Circuit affirms ruling in one case, overturns ruling in bona fide error case
On February 2, the U.S. Court of Appeals for the Seventh Circuit, in a consolidated case, affirmed summary judgment for one defendant’s FDCPA bona fide error defense and overturned summary judgment on the same defense for another. According to the opinion, the plaintiffs in each case disputed debts that appeared on their credit reports by notifying the defendants via fax. In the first case, an employee sent the fax dispute to the wrong department, and thus the dispute was never recorded on the account. In the second case, the defendant stopped monitoring the fax machine but had not disconnected it, and therefore did not even realize it received the dispute. The plaintiffs filed separate lawsuits, and the district courts in each case granted summary judgment for the defendants on the grounds that each was entitled to the FDCPA’s bona fide error defense.
The 7th Circuit consolidated the cases on appeal. The appellate court affirmed the first case, holding that the defendant’s procedures were “reasonably adapted” to avoid errors when receiving faxes because there were step-by-step instructions on which department to send faxes to. The court determined that the employee sent the fax to the wrong department by mistake. The plaintiff argued that the defendant nevertheless needed to have a policy in place for what to do when a fax ended up in the wrong department, but the 7th Circuit agreed with the district court that “[t]he absence of such a policy, however, does not mean that the defendant failed to maintain reasonably adapted procedures.” By contrast, the court found the procedures in the second case were not reasonably adapted and did not qualify for the bona fide error defense. While the defendant did remove its fax number from its website, it did not remove the number from the National Registry and did not announce that it would completely stop checking the machine, leaving it no way to prevent the relevant errors.
7th Circuit: Collector did not violate FCRA by obtaining a “propensity-to-pay score”
On December 22, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment in favor of a defendant debt collector in an FCRA action alleging a plaintiff’s credit information was acquired without a permissible purpose. The plaintiff and her husband jointly filed for bankruptcy protection. The bankruptcy court ordered a discharge of their debts, which included a debt incurred by the plaintiff’s husband that was being serviced by the defendant. The defendant was notified of the discharge (which included each of the four former last names used by the plaintiff) and scanned its system for affected accounts; however, by the time it received notice of the bankruptcy, it had already closed the account it had been servicing. Later, another account bearing one of the plaintiff’s former names was placed with the defendant. The defendant sent the account to a third-party vendor to see if the individual had filed for bankruptcy protection and did not received any bankruptcy results. It then ordered a “propensity-to-pay-score” from a credit reporting agency. The plaintiff’s records were eventually updated by the third-party vendor with information about the bankruptcy, and the defendant closed the account. However, the plaintiff noted the soft inquiry on her credit report and sued, alleging the defendant did not have a permissible purpose to make such an inquiry. The district court granted summary judgment to the defendant.
On appeal, the 7th Circuit determined that the plaintiff had suffered a concrete injury, concluding that an “unauthorized inquiry into a consumer’s propensity‐to‐pay score is analogous to the unlawful inspection of one’s mail, wallet, or bank account.” However, after reviewing the merits of the case, the appellate court held that an alleged invasion of privacy was not enough for it to overturn the district court’s ruling. There was no negligent violation of the FCRA “because no reasonable juror could conclude that the inquiry into [the plaintiff’s] propensity‐to‐pay score resulted in actual damages,” the appellate court wrote. Additionally, while the 7th Circuit acknowledged that the plaintiff’s debt was discharged by the time the defendant obtained her propensity-to-pay score, there was no willful violation of the FCRA because the defendant “lacked actual knowledge of the bankruptcy” and “did not recklessly disregard the possibility that debt had been discharged.” The appellate court added that the evidence showed that the defendant “had a reasonable basis for relying on its procedures.”
Agencies file amicus brief on use of term “applicant” in ECOA
On December 16, the CFPB filed a joint amicus brief with the DOJ, Federal Reserve Board, and the FTC arguing that the term “applicant” as used in ECOA and its implementing rule, Regulation B, includes both those seeking credit as well as persons who have sought and have received credit (i.e., current borrowers). (See also a Bureau blog post discussing the brief.) The amicus brief is in support of a plaintiff in an action where the plaintiff consumer sued a national bank for closing his credit card account without providing an explanation for the adverse action as required by ECOA. The case is currently on appeal before the U.S. Court of Appeals for the Seventh Circuit after a district court determined that ECOA protections only apply “during the process of requesting credit and do not protect those with existing credit accounts.”
The central issue identified in the brief revolves around whether ECOA applies beyond persons seeking credit to persons who have already received credit. The brief focused on this issue by analyzing (i) ECOA’s text, history and purpose; (ii) the application of Regulation B; and (iii) alleged incorrect interpretations in the underlying defendant’s arguments. In looking at the text of ECOA, the brief asserted that ECOA applies to “applicants” without regard to how their credit is resolved because ECOA defines “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” In further analyzing the statutory text, the brief further explained that ECOA also gives consumers the right to adverse action notices, which include the “revocation of credit” as well as a “change in the terms of an existing credit arrangement”—actions, the brief stated, “that can be taken only with respect to persons who have already received credit.” The brief also stated that legislative history shows it was Congress’s intent to reach discrimination “in any aspect of a credit transaction.”
In looking at the context of Regulation B, the brief asserted, among other things, that ECOA’s protections continue to apply after an applicant receives credit, explaining that Regulation B “did so by defining ‘applicant’ to include, ‘[w]ith respect to any creditor[,] … any person to whom credit is or has been extended by that creditor.’” Moreover, the brief asserted, ECOA provides a private right of action, which allows aggrieved applicants to file suits for alleged ECOA/Regulation B violations. In this instance, the term “applicant” cannot be meant to refer only to consumers with pending credit applications because otherwise a consumer whose application was denied on a prohibited basis would have no private right of action recourse. These references, the brief emphasized, “further confirm that the term “applicant” is not limited to those currently applying for credit.”