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States urge Supreme Court to review FTC’s restitution authority
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.
7th Circuit holds both parties lack standing in FCRA suit
On January 28, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of claims and counterclaims in a privacy lawsuit, holding that neither party had standing under the Fair Credit Reporting Act (FCRA). In 2016, the consumer filed a lawsuit against the credit reporting agency claiming privacy violations and emotional distress after the agency released his credit information without authorization. According to the consumer, his credit information appeared on a “prescreen list” given to a prospective lender that was no longer under contract with the agency to make loan offers to pre-screened consumers. The agency filed an FCRA counterclaim arguing that the plaintiff violated the FCRA when he obtained a copy of the prescreen list without authorization in order to file the lawsuit. The district court dismissed both claims, ruling that neither party had standing to sue because they had not suffered a concrete injury.
On appeal, the 7th Circuit agreed with the decision, concluding the plaintiff failed to meet the injury-in-fact requirements under Article III and that any harm he may have suffered when the prescreen list was shared was “exceedingly remote and speculative.” According to the appellate court, “[i]dentifying a violation of a statutory right does not automatically equate to showing injury-in-fact for standing purposes.” Moreover, the plaintiff “had to come forward with something showing that he did not receive a firm offer, that [the prospective lender] would not have honored a firm offer, that he was affected by the lack of a firm offer, or that he suffered any actual emotional damages,” the 7th Circuit wrote, which he failed to do. The 7th Circuit also agreed with the district court that the company’s alleged reputational harm was insufficient to confer standing. The appellate court further rejected the agency’s second argument that defending the suit counted as a concrete injury, holding that the agency was attempting to “shoehorn itself into another cause of action,” and that the FCRA does not create an independent cause of action for which the agency can recover its costs.
7th Circuit says “time sensitive document” on envelope violates FDCPA
On January 21, the U.S. Court of Appeals for the Seventh Circuit partially reversed a district court’s dismissal of an action concerning a debt collector’s use of language or symbols other than the collector’s address on an envelope sent to a consumer. According to the opinion, the consumer received a debt collection letter enclosed in an envelope stamped with the words “TIME SENSITIVE DOCUMENT” in bold font. The consumer filed a complaint against the defendant asserting various claims under the FDCPA, including that inclusion of “TIME SENSITIVE DOCUMENT” on the envelope was a violation of section 1692f(8). The defendant had argued that an exception should be carved out for “benign” language in this instance, and the district court agreed.
As previously covered by InfoBytes, the 7th Circuit invited the CFPB to file an amicus brief on whether there is a benign language exception to section 1692f(8)’s prohibition, and, if so, whether the phrase “TIME SENSITIVE DOCUMENT” falls within that exception. The Bureau asserted that there is no benign language exception, and stressed that while section 1692f(8) recognizes that debt collectors may be permitted to include language and symbols on an envelope that facilitate the mailing of an envelope, section 1692f(8), by its own terms, does not allow for benign language. Additionally, the Bureau commented that section 1692f’s prefatory text does not “provide a basis for reading a ‘benign language’ exception into section 1692f(8),” nor does the prefatory text suggest that the prohibition applies only in instances where it may be “‘unfair or unconscionable’” in a general sense.
The 7th Circuit concluded that section 1692f(8) is clear. Because the language at issue does not fall within the list of exceptions—it is not the debt collector’s name or its address—the inclusion of the phrase “TIME SENSITIVE DOCUMENT” is a violation of section 1692f(8), and the district court erred in dismissing this claim. However, the appellate court agreed with the district court’s dismissal of the consumer’s section 1692e claims that the language used on the envelope and in the body of the letter were false and deceptive.
7th Circuit: Debt collector accurately disclosed creditor to be paid
On December 30, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s decision that a collection agency was not required to explain the difference between “original creditor” and “current creditor.” After the consumer fell behind on payments owed to a bank, the debt was sold to a company that hired the agency to collect the debt. The agency sent a letter to the consumer identifying the bank as the “original creditor” and the debt buyer as the “current creditor,” listing the principal and interest balances of the debt along with the last four digits of the account number. The consumer alleged that identifying both the bank and the debt buyer without clearly explaining the difference between the companies violated the FDCPA’s requirement that a debt collector state in a written notice “the name of the creditor to whom the debt is owed.” The district court disagreed and held that the letter clearly and accurately disclosed the name of the creditor to whom the consumer owed the debt.
The 7th Circuit affirmed on appeal, calling the consumer’s claim “meritless” and holding that including the names of both companies without a detailed explanation would not be confusing even to an unsophisticated consumer, who would understand that the debt had been purchased by the current creditor. The appellate court concluded that the FDCPA required no further explanation.
7th Circuit: Collection letter tax filing language may violate the FDCPA
On November 8, the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s dismissal of an action against a debt collector, concluding that tax consequence language in a debt collection letter may violate the FDCPA. According to the opinion, the debt collector sent a consumer four collection letters with at least one letter stating in part that “[s]ettling a debt for less than the balance owed may have tax consequences and [the creditor] may file a 1099C form.” The consumer filed an action against the debt collector alleging that the language violated the FDCPA because the creditor is not obligated to file a 1099C with the IRS unless it has forgiven at least $600 in principal. The consumer also claimed that the creditor at issue would never file a 1099C unless it was legally obligated to do so, and as applied to the consumer’s debt at issue, none of the settlement options offered in the dunning letter would have reached the $600 threshold. The district court granted the debt collector’s motion to dismiss the action and the consumer appealed.
On appeal, the 7th Circuit focused on the letter’s reference to the possible 1099C filing. The court noted that “it is impermissible for a creditor to make a ‘may’ statement about something that is illegal or impossible,” and while it is not technically illegal or impossible for the creditor to file a 1099C form for amounts less than $600, the debt collector did not dispute that the creditor “would never file a 1099C form with the IRS unless required to do so by law.” The court observed that the “language of a collection letter can be literally true and still be misleading in a way that violates the Act.” Thus, the consumer plausibly alleged that “it is, in fact, misleading to state that [the creditor] may file a Form 1099C, when it never would.” And because questions as to whether specific statements are deceptive or misleading are “almost always questions of fact,” the appellate court reversed the dismissal and remanded the case back to district court for further proceedings.
Seventh Circuit affirms dismissal of FDCPA suit concerning “current balance” reference
On September 25, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an action against a debt collection agency for allegedly violating the FDCPA by referring to the amount owed as a “current balance” in a letter—even though it was static and not going to change. According to the opinion, the plaintiff contended that “current balance” falsely implied that the balance might increase in the future, which, she argued, was a violation of the FDCPA’s prohibition on false, deceptive, or misleading representations connected to the collection of a debt. By implying that the amount owed might increase if not paid, the plaintiff argued, the debt collector allegedly misled debtors into giving static debts greater priority. The district court granted the debt collector’s motion to dismiss for failure to state a claim, ruling “that no significant fraction of the population would be misled” by the letter’s use of the “current balance” phrase. The plaintiff appealed, arguing that the phrase would confuse an unsophisticated consumer.
On appeal, the 7th Circuit determined that there is nothing inherently misleading about the reference and stated that, not only did the debt collector’s letter not contain a directive for a debtor to call for a current balance, it also failed to include language implying that a “current balance” means anything other than the balance owed. “It takes an ingenious misreading of this letter to find it misleading,” the appellate court concluded. “Dunning letters can comply with the [FDCPA] without answering all possible questions about the future. A lawyer’s ability to identify a question that a dunning letter does not expressly answer (‘Is it possible the balance might increase?’) does not show the letter is misleading, even if a speculative guess to answer the question might be wrong.”
CFPB argues no “benign language” exception under FDCPA
On September 5, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Seventh Circuit concerning a debt collector’s use of language or symbols other than the collector’s address on an envelope sent to a consumer. Under section 1692f(8) of the FDCPA, debt collectors are barred from using any language or symbol other than the collector’s address on any envelope sent to the consumer, “except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.” In the case at issue, a consumer received a debt collection letter enclosed in an envelope stamped with the words “TIME SENSITIVE DOCUMENT” in bold font. The consumer filed a complaint against the defendant asserting various claims under the FDCPA, including that inclusion of “TIME SENSITIVE DOCUMENT” on the envelope was a violation of section 1692f(8). The defendant argued that an exception should be carved out for “benign” language in this instance, and the district court agreed, ruling that the language “‘does not create any privacy concerns for [the consumer] or expose potentially embarrassing information by giving away the fact that the letter is from a debt collector.’”
On appeal, the 7th Circuit invited the Bureau to file an amicus brief on whether there is a benign language exception to section 1692f(8)’s prohibition, and, if so, whether the phrase “TIME SENSITIVE DOCUMENT” falls within that exception. The Bureau asserted that there is no benign language exception, and stressed that while section 1692f(8) recognizes that debt collectors may be permitted to include language and symbols on an envelope that facilitate the mailing of an envelope, section 1692f(8), by its own terms, does not allow for benign language. Additionally, the Bureau commented that section 1692f’s prefatory text does not “provide a basis for reading a ‘benign language’ exception into section 1692f(8),” nor does the prefatory text suggest that the prohibition applies only in instances where it may be “‘unfair or unconscionable’” in a general sense. Moreover, if Congress wanted to allow for markings on envelopes provided they did not reveal the debt-collection purpose, then it would have done so, the Bureau argued, concluding that if the court did adopt a benign language exception, then whether “TIME SENSITIVE DOCUMENT” would fall within that exception would be a question of fact.
7th Circuit overturns precedent, rejects restitution under Section 13(b) of FTC Act
On August 21, the U.S. Court of Appeals for the 7th Circuit held that Section 13(b) of the FTC Act does not give the FTC power to order restitution, overruling that court’s 1989 decision in FTC v. Amy Travel Service, Inc. As previously covered by InfoBytes, in June 2018, the U.S. District Court for the Northern District of Illinois 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. The court concluded 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. The FTC argued that the defendants’ scheme, which used the promise of a free credit report to enroll the consumers into a monthly credit monitoring program, violated the FTC Act’s ban on deceptive practices. The court agreed, holding that the ad campaign was “rife with material misrepresentations that were likely to deceive a reasonable consumer.” Additionally the court agreed with the FTC that the defendants’ website was materially misrepresentative because it did not give “the net impression that consumers were enrolling in a monthly credit monitoring service” for $29.94 a month, as opposed to defendants’ claim that consumers were obtaining a free credit report. The court also found that the defendants’ websites failed to meet certain disclosure requirements imposed by the Restore Online Shopper Confidence Act. The court entered a permanent injunction and ordered the defendants to pay over $5 million in “equitable monetary relief” to the FTC.
On appeal, the 7th Circuit affirmed the district court’s liability determination, and affirmed the issuance of the permanent injunction. However, the appellate court took issue with the restitution award ordered pursuant to Section 13(b) of the FTC Act. The appellate court noted that the FTC has long viewed Section 13(b) as authorizing awards of restitution, and even acknowledged that the 7th Circuit agreed with the FTC’s position in its decision in Amy Travel. However, subsequent to the Amy Travel decision, the Supreme Court, in Meghrig v. KFC W., Inc., clarified that “courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme.” Applying Meghrig, the 7th Circuit noted that “nothing in the text or structure of the [FTC Act] supports an implied right to restitution in section 13(b), which by its terms authorizes only injunctions.” The panel emphasized that the FTC Act has two other provisions that expressly authorize restitution if the FTC follows certain procedures, but the current reading of Section 13(b), based on Amy Travel, allows the FTC “to circumvent these elaborate enforcement provisions and seek restitution directly through an implied remedy.” Therefore, based on the Supreme Court precedent in Meghrig, the panel concluded that Section 13(b)’s grant of authority to order injunctive relief does not implicitly authorize an award of restitution, overturning its previous decision in Amy Travel and vacating the district court’s award of restitution.
7th Circuit: FDCPA claims fail due to insufficient evidence
On August 9, the U.S. Court of Appeals for the 7th Circuit affirmed a district court ruling that a consumer could not proceed on FDCPA or Wisconsin Consumer Act (WCA) claims because he failed to demonstrate that the incurred credit card debt in question was a “consumer debt” entitled to FDCPA and WCA protections. The consumer filed a lawsuit against a law firm acting on behalf of a debt collection agency claiming, among other things, that the firm had failed to provide written notice of his right to cure a defaulted debt before the firm commenced an action against him in Wisconsin state court. While the consumer maintained that the debt was not his, he argued that “to the extent” that he was liable for the debt, it was entered into for personal, family, or household purposes, and that by failing to provide written notice of his rights, the firm had violated the FDCPA and WCA. The district court granted summary judgment for the defendant, finding that the consumer failed to establish that the debt was a consumer debt.
On appeal, the 7th Circuit affirmed the district court’s ruling. The appellate court found that the evidence put forward by the plaintiff, which included account statements and his own representations regarding the purpose of the account, was insufficient to show that the debt was incurred for personal, family, or household purposes. Specifically, the court found that the plaintiff’s representations that the debt was a consumer debt could not be reconciled with his contention that the debt was not his and that the charges on his account statement did not provide sufficient information for the court to conclusively determine that they were made for personal, and not business, purposes.
7th Circuit: Debt collector’s email not a “communication” under the FDCPA
On August 8, the U.S. Court of Appeals for the 7th Circuit affirmed a summary judgment ruling in favor of a consumer, concluding that a debt collector’s emails did not constitute a “communication” under the FDCPA. According to the opinion, the debt collector sent a consumer two emails about separate medical debts containing hyperlinks to the debt collector’s website, which then required the user to click through various screens to access and download a document containing the disclosures required under Section 1692g(a) of the FDCPA. The consumer did not open the emails. After finding out about the debt collection effort from the hospital, the consumer called the debt collector for more information; however, the required disclosures were not provided over the phone or sent in a written notice within the next five days. The consumer filed suit against the debt collector alleging it violated Section 1692g(a) by not providing the disclosures during her phone call or within five days after the call as required by law. The company argued that the emails were the FDCPA’s “initial communications” and contained the mandatory disclosures. The lower court granted the consumer’s motion for summary judgment.
On appeal, the 7th Circuit rejected the debt collector’s arguments that the emails constituted a “communication” under the FDCPA, noting that other appellate courts have held the message “must at least imply the existence of a debt,” and the emails only contained the name and email address of the debt collector. Moreover, the appellate court took issue with the multistep process required to access the validation notice, concluding “[a]t best, the emails provided a digital pathway to access the required information. And we’ve already rejected the argument that a communication ‘contains’ the mandated disclosures when it merely provides a means to access them.”
Notably, the CFPB filed an amicus brief in the action, seeking affirmation of the lower court’s ruling on the separate theory that the debt collector allegedly failed to satisfy the conditions of the E-Sign Act. However, because the court affirmed the decision on other grounds, it chose not to address the E-Sign Act.