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7th Circuit denies CFPB’s request to reconsider attorney exemption in foreclosures
On November 29, the U.S. Court of Appeals for the Seventh Circuit denied the CFPB’s petition for panel or en banc rehearing of its earlier decision in an action taken against several foreclosure relief companies and associated individuals accused of violating Regulation O. As previously covered by InfoBytes, the Bureau asked the appellate court to reconsider its determination “that practicing attorneys are categorically exempt from Regulation O,” claiming that the court’s holding strips the Bureau “of the authority given it by Congress to hold attorneys to account for violations not just of Regulation O, but of a host of other federal laws as well.” In July, the 7th Circuit vacated a 2019 district court ruling that ordered $59 million in restitution and disgorgement, civil penalties, and permanent injunctive relief against defendants accused of collecting fees before obtaining loan modifications, and inflating success rates and the likelihood of obtaining a modification, among other allegations (covered by InfoBytes here). The appellate court based its decision on the application of the U.S. Supreme Court’s ruling in Liu v. SEC, which held that a disgorgement award cannot exceed a firm’s net profits—a ruling that is “applicable to all categories of equitable relief, including restitution.” The appellate court also concluded that attorneys who are subject to liability for violating consumer laws “cannot escape liability simply by virtue of being an attorney.” However, the appellate court vacated the recklessness finding in the civil penalty calculation pertaining to certain defendants, writing that “[a]lthough we have found that they were not engaged in the practice of law, the question was a legitimate one. We consider it a step too far to say that they were reckless—that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O.” (Covered by InfoBytes here.) In its appeal, the Bureau did not challenge the vacated restitution award, but rather argued that a rehearing was necessary to ensure that the agency can bring enforcement actions against attorneys who violate federal consumer laws, including Regulation O.
CFPB petitions 7th Circuit to reconsider Regulation O attorney exemption
On October 7, the CFPB filed a petition for panel or en banc rehearing with the U.S. Court of Appeals for the Seventh Circuit, asking the appellate court to reconsider its recent determination “that practicing attorneys are categorically exempt from Regulation O,” as it strips the CFPB “of the authority given it by Congress to hold attorneys to account for violations not just of Regulation O, but of a host of other federal laws as well.” (Covered by InfoBytes here.) In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, alleging that they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). A ruling issued by the district court in 2019 (covered by InfoBytes here) ordered nearly $59 million in penalties and restitution against several of the defendants for violations of Regulation O, but was later vacated by the 7th Circuit based on the application of the U.S. Supreme Court’s ruling in Liu v. SEC, which held that a disgorgement award cannot exceed a firm’s net profits—a ruling that is “applicable to all categories of equitable relief, including restitution.” (Covered by InfoBytes here.)
In its appeal, the Bureau did not challenge the vacated restitution award, but rather argued that a rehearing is necessary to ensure that the agency can bring enforcement actions against attorneys who violate federal consumer laws, including Regulation O. “The panel’s conclusion. . .threatens to disrupt the existing federal regulatory scheme for multiple consumer laws and expose ordinary people across the country to an increased risk of harm from illegal practices,” the Bureau stated, adding that 12 U.S.C. § 5517(e) does not limit the Bureau’s ability to pursue a civil enforcement action against practicing attorneys who are subject to Regulation O. According to the Bureau, Paragraph 3 of § 5517(e) states that the limitation on the Bureau’s authority “‘shall not be construed’ to limit the Bureau’s authority with respect to an attorney ‘to the extent that such attorney is otherwise subject’ to an enumerated consumer law or transferred authority.” The Bureau asked the 7th Circuit to reconsider its decision on this issue or, in the alternative, withdraw that portion as unnecessary to the outcome.
District Court reimposes $5 million restitution award in FTC action
On September 13, the U.S. District Court for the Northern District of Illinois reimposed a more than $5 million restitution award in an action dating back to 2018, this time under Section 19 of the FTC Act. The court originally granted the FTC’s motion for summary judgment against a credit monitoring service and its sole owner in an action filed under Section 13(b) of the FTC Act, after concluding that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge could occur without engaging in unfair or deceptive practices (covered by InfoBytes here). However, as previously covered by InfoBytes, in 2019, the U.S. Court of Appeals for the Seventh Circuit held that Section 13(b) does not grant the FTC authority to order restitution—a position that the U.S. Supreme Court ultimately agreed with when issuing its decision in AMG Capital Management, LLC v. FTC (which unanimously held 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).
In its current ruling, the court agreed to reimpose the damages under the Restore Online Shopper Confidence Act (ROSCA) and Section 19. The court noted that because ROSCA incorporates all the enforcement tools of the FTC Act, the FTC could seek remedies using Section 19 of the FTC Act instead of relying on Section 18. Further, the court noted that the FTC indicated that the FTC may seek remedies under Section 19 when it brought the action under Section 5(a) of ROSCA, which the court ultimately agreed was correct. “The FTC has the better of this dispute,” the court wrote, adding, among other things, that “the court is unmoved by [the defendant’s] claims of unfair prejudice. Aside from the particular route to an award of restitution, nothing will materially change. The FTC seeks the same remedy, for the same reasons, and for the same victims under section 5(a) via section 19 as it did under section 13(b).”
7th Circuit vacates $59 million CFPB penalty against mortgage-assistance relief companies
On July 23, the U.S. Court of Appeals for the Seventh 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. As previously covered by InfoBytes, 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. 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 same 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.
In 2021, the principals urged the 7th Circuit to vacate the judgment, arguing, among other things, that the restitution order used the company’s net revenues instead of net profits in determining restitution and that they were exempt from liability because Regulation O exempts properly licensed attorneys engaged in providing mortgage-assistance relief services as part of the practice of law, provided they comply with state law and regulations. The principals also disagreed with the district court’s finding that they acted recklessly in calculating the civil penalty amount, contending that “they were not aware of a risk that their conduct was illegal.”
The 7th Circuit reviewed the application of the U.S. Supreme Court’s ruling in Liu v. SEC, which held that a disgorgement award cannot exceed a firm’s net profits (covered by InfoBytes here). While the Bureau argued that Liu focused on disgorgement and not restitution, the appellate court held that the Bureau’s interpretation was “too narrow a reading of Liu.” According to the appellate court, “Liu’s reasoning is not limited to disgorgement; instead, the opinion purports to set forth a rule applicable to all categories of equitable relief, including restitution.” The appellate court vacated the restitution award and remanded the suit for recalculation based on net profits.
With respect to the alleged violations of Regulation O, the appellate court affirmed the district court’s ruling, concluding that attorneys who are subject to liability for violating consumer laws “cannot escape liability simply by virtue of being an attorney.” However, the appellate court vacated the recklessness finding in the civil penalty calculation pertaining to certain of the defendants, writing that “[a]lthough we have found that they were not engaged in the practice of law, the question was a legitimate one. We consider it a step too far to say that they were reckless—that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O.” The appellate court ordered the district court to apply the penalty structure for strict-liability violations. Additionally, the 7th Circuit remanded an injunction which permanently banned the principals from providing “debt relief services,” finding that the injunction requires “some tailoring” as the violations at issue involved mortgage-relief services and not debt-relief services.
7th Circuit: CRAs not required to make legal determinations under FCRA
On July 15, the U.S. Court of Appeals for the Seventh Circuit affirmed the rulings from a district court in a consolidated appeal finding that it is up to the court, not a consumer reporting agency, to decide if a creditor possesses the proper legal relationship to a debt. In each case, the plaintiff allegedly had a debt that was purchased by a debt buyer, who reported the unpaid debts to the credit reporting agencies. The plaintiffs contacted the debt buyers and disputed the information being furnished on the basis that the creditors did not actually own the debts. The plaintiffs also contacted the consumer reporting agencies to request that they reinvestigate the accuracy of their credit reports. The reporting agencies contacted the creditors, confirming that they were the legitimate owners of the debts but did not provide additional information. The plaintiffs sued, alleging that the defendants violated the FCRA by not fully investigating the disputes. The district court, relying on a 2020 decision in Denan v. TransUnion LLC (previously covered by Infobytes), held that determining ownership of a debt is a legal question, not a duty imposed on the furnishers under the FCRA.
On appeal, the 7th Circuit affirmed the district courts’ decisions, establishing that the key inquiry is “whether the alleged inaccuracy turns on applying law to facts or simply examining the facts alone.” because “consumer reporting agencies are competent to make factual determinations, but they do not make legal conclusion like courts and other tribunals do.” The appellate court further noted that “[b]ecause the plaintiffs in these cases asked the consumer reporting agencies to make primarily legal determinations, they have not stated claims under the [FCRA].”
District Court says “state of confusion” not an injury under the FDCPA
On April 26, the U.S. District Court for the Northern District of Illinois granted a defendant debt collector’s request for summary judgment and vacated a class certification order following recent decisions issued by the U.S. Court of Appeals for the Seventh Circuit, in which the appellate court held that “the state of confusion is not itself an injury.” The court’s order reversed an earlier ruling that granted class certification and partial summary judgment in favor of a class of Illinois consumers who alleged that the defendant sent misleading or confusing dunning letters that violated the FDCPA by incorrectly identifying the name of the creditor. However, after reconsidering several 7th Circuit holdings (see InfoBytes coverage of Pennell v. Global Trust Management, LLC here), the court concluded that in the absence of any evidence showing that the plaintiff suffered a concrete injury, the plaintiff lacked standing to bring his FDCPA claims. Specifically, the court held that the plaintiff failed to claim that his confusion led him to take any actions to his detriment. Being merely confused is not a concrete injury, the court ruled, emphasizing that the plaintiff “needed to do more than demonstrate a threat that he would fail to exercise his rights because he deemed the letter a scam—he must have actually failed to exercise those rights and suffered some tangible adverse consequence as a result.”
7th Circuit: “Stress and confusion” not an injury under the FDCPA
On March 11, the U.S. Court of Appeals for the Seventh Circuit held that a consumer’s alleged “stress and confusion” did not constitute a concrete and particularized injury under the FDCPA. The plaintiff alleged that the defendant debt collector violated the FDCPA when it directly communicated with her by sending a dunning letter related to unpaid debt even though she had previously notified the original lender that she was represented by counsel and requested that all debt communications cease. The district court granted the defendant’s summary judgment motion on the grounds that the debt collector could not have violated the FDCPA “without having actual knowledge of [the consumer’s] cease-communication request.”
On appeal, the 7th Circuit concluded that the complaint should be dismissed for lack of subject-matter jurisdiction because the plaintiff lacked standing. The 7th Circuit held that the consumer’s allegations—that the dunning letter caused her “stress and confusion” and “made her think that ‘her demand had been futile’”—did not amount to a concrete and particularized “injury in fact” necessary to establish Article III standing under the FDCPA. The court further noted that “the state of confusion is not itself an injury”—rather, for the alleged confusion to be concrete, “a plaintiff must have acted ‘to her detriment, on that confusion.’” Here, the consumer pointed only to a statutory violation and “failed to show that receiving [the debt collector’s] dunning letter led her to change her course of action or put her in harm’s way.” Additionally, the appellate court found the consumer’s argument that the dunning letter also “invaded her privacy,” raised for the first time on appeal, unpersuasive because she did not allege that injury in the complaint.
7th Circuit affirms dismissal of FDCPA claims for lack of standing
On January 21, the U.S. Court of Appeals for the Seventh Circuit affirmed a lower court’s ruling dismissing a plaintiff’s FDCPA lawsuit for lack of standing. According to the opinion, the plaintiff claimed a debt collector violated the FDCPA when it sent her a collection letter including the following statement: “If you dispute this balance or the validity of this debt, please let us know in writing. If you do not dispute this debt in writing within 30 days after you receive this letter, we will assume this debt is valid.” The plaintiff argued that section 1692g(a)(3) of FDCPA does not specify how a consumer may dispute the validity of a debt, claiming that consumers should be allowed to dispute debts in whatever manner they choose. Instead of determining whether the debt collector violated section 1692g(a)(3) by requiring consumers to dispute debts in writing, the 7th Circuit determined that the plaintiff lacked standing to sue in the first place. The appellate court referenced an observation made by the district court that the plaintiff “‘did not allege she had any doubt that she owed the creditor the stated amount of money,” and that “she failed to allege any injury that flowed from her failure to dispute the debt.” Noting, however, that not all alleged section 1692g(a)(3) violations lack standing, the appellate court stated that in this case, the plaintiff “did not allege injury, because she did not try to show what good a dispute would have done her. She is no worse off than if the letter had told her that she could dispute the debt orally.”
Satellite company to pay over $200 million for telemarketing violations
On December 7, the DOJ announced a settlement with a satellite service provider totaling over $210 million in penalties to be paid to the United States and four states for alleged violations of the TCPA, the FTC Act, and similar state laws. The settlement stems from an action brought by the United States against the satellite company in 2009 asserting that the company initiated millions of unlawful telemarketing calls to consumers and was responsible for millions of calls made by marketers of the company’s products and services. In 2017, a district court awarded the U.S. and the states of California, Illinois, North Carolina, and Ohio $280 million in civil penalties, with a record $168 million going to the federal government (covered by InfoBytes here). On appeal, the U.S. Court of Appeals for the Seventh Circuit affirmed liability but vacated and remanded the monetary award for recalculation.
The stipulated judgment requires the satellite company to pay over $200 million in civil penalties, with $126 million going to the U.S. government, nearly $40 million to California, over $6.5 million to Illinois, nearly $14 million to North Carolina, and $17 million to Ohio.
7th Circuit: No FDCPA liability when collection letter leaves future ambiguity
On October 8, the U.S. Court of Appeals for the Seventh Circuit affirmed dismissal of an FDCPA action, concluding that itemized breakdowns in collection letters that include zero balances for interest and other charges would not confuse or mislead the reasonable “unsophisticated consumer” to believe that future interest or other charges would be incurred if the debt is not settled. A creditor charged-off a consumer’s credit card debt and informed the consumer that it would no longer charge interest or fees on the account. The debt was reassigned to a collection agency. Consistent with the original creditor’s communication with the consumer, the collection agency sent a collection letter to the consumer that included an itemized breakdown reflecting a zero balance for “interest” and “other charges.” The “balance due at charge-off” and “current balance” were both listed as $425.86. The letter offered to resolve the debt and stated that no interest would be added to the account balance through the course of collection efforts. The consumer filed a putative class action alleging that the collection letter implied that the original creditor would begin to add interest and fees to the charged-off debt if the collection agency stopped its collection efforts in the future and, therefore, the debt collector violated the FDCPA by using false, deceptive and misleading representations to collect a debt, and failed to disclose the amount of the debt in a clear and unambiguous fashion. The district court dismissed the action, concluding that the collection letter accurately disclosed the amount of the debt.
On appeal, the 7th Circuit agreed with the district court. Specifically, according to the opinion, the appellate court concluded that the breakdown of charges in the letter “cannot be construed as forward looking,” rejecting the consumer’s argument that including zero balances implies that future interest or charges could be incurred if he did not accept the collector’s offer. Moreover, the appellate court noted that when a collection letter “only makes explicit representations about the present that are true, a plaintiff may not establish liability on the basis that it leaves ambiguity about the future.” The statement in the letter that no interest would accrue while the collector pursued the debt is not misleading because it “makes no suggestion regarding the possibility that interest will or will not be assessed in the future if [the debt collector] ends its collection efforts.”