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7th Circuit rules bank cannot arbitrate debt claim with a minor in TCPA suit

On March 22, the U.S. Court of Appeals for the 7th Circuit reversed a district court’s decision that had granted a national bank’s motion to compel arbitration of a putative class action. In 2014, the plaintiff filed a lawsuit alleging the bank’s debt collection practices violated the Telephone Consumer Protection Act (TCPA), after the bank called the plaintiff’s phone number seeking payment on her mother’s overdue card payments. The three-judge panel held that the district court erred in ruling that the plaintiff—who made a one-time purchase with her mother’s credit card when she was a minor—became an authorized user under the account and was bound by her mother’s credit card agreement, including the arbitration provision, regardless of whether she received a direct benefit from the cardholder agreement. The panel opined that, “an individual does not become an [a]uthorized [u]ser simply by using the credit card to complete the cardholder’s transaction.” Specifically, a provision to add authorized users to an existing account “clearly foresees an [a]uthorized [u]ser as playing a far more durable role in the account,” and in fact, the panel noted, the plaintiff’s mother did not follow the required steps to add an authorized user to the account. Furthermore, the plaintiff did not have the legal capacity to enter into a contractual relationship with the bank, and therefore, could not be bound by the agreement. The 7th Circuit remanded the case back to the district court for review.

Courts Seventh Circuit Appellate Debt Collection TCPA

7th Circuit affirms debt collector verification of debt satisfies FDCPA and FCRA

On March 21, the U.S. Court of Appeals for the 7th Circuit held that a debt collector does not need to contact an original creditor directly in order to satisfy the verification of debt requirement under the FDCPA. According to the opinion, a consumer filed a lawsuit against a debt collection company for, among other things, allegedly violating Section 1692 of the FDCPA, which requires that a debt collector obtain verification of a debt. The debt collector had sent multiple notices to the consumer regarding a telecommunications debt, but certain digits of the original account number were incorrect. The consumer argued that the debt collector was obligated to contact the telecommunications company to confirm the account number was accurate. The district court granted summary judgment in favor of the debt collector, agreeing that the debt collector’s responsibility under Section 1692 was satisfied when the notices sent to the consumer matched the telecommunications company’s description of the debt amount and debtor’s name. In affirming the lower court’s decision, the 7th Circuit stated “[i]t would be both burdensome and significantly beyond the [FDCPA]’s purpose” to “require[e] a debt collector to undertake an investigation into whether the creditor is actually entitled to the money it seeks.”

The 7th Circuit also affirmed summary judgment for the debt collector with respect to allegations that it violated the FCRA by inadequately investigating the disputed debt. The court, noting that the debt collector’s “investigation was unquestionably reasonable,” concluded that the debt collector satisfied the requirements of the FCRA when it (i) verified the consumer’s information with her debt collection file; and (ii) after learning that the consumer disputed the accuracy of the account number associated with the debt, asked the credit reporting agencies to delete the adverse credit report.

Courts Appellate Seventh Circuit FDCPA FCRA

7th Circuit says debt collectors cannot simply copy and paste safe harbor language

On January 17, the U.S. Court of Appeals for the 7th Circuit reversed a decision by the U.S. District Court for the Eastern District of Wisconsin dismissing the plaintiffs’ claims that the defendant debt collection agency violated the Fair Debt Collection Practices Act (FDCPA) by falsely stating balances owed might increase “due to interest, late charges and other charges” in its dunning letters to the plaintiffs. In 2016, the defendant sent collection letters for overdue medical bills; according to the plaintiffs, the collection letters falsely suggested that the debt would continue to increase every day due to “late charges and other charges” that the defendant could not legally impose. In granting the motion to dismiss, the District Court had agreed with the defendant that the language used in their dunning letters was nearly identical to the safe harbor language upheld by the 7th Circuit in 2000, and that the letters were not “false, deceptive, or misleading.” By reversing the District Court’s decision, the 7th Circuit determined that the defendant’s use of the safe harbor language in their letters was inaccurate, because the defendant could not lawfully impose “late charges and other charges.” In doing so, the 7th Circuit rejected the defendant’s attempt to copy and paste the safe harbor language, and instead concluded that debt collectors are required to tailor boilerplate language to avoid ambiguity and ensure their statements are accurate under the circumstances.

Courts Seventh Circuit Appellate Debt Collection FDCPA

Seventh Circuit Upholds Ruling That Excludes Insurance Coverage for Overdraft Fees

On October 12, the U.S. Court of Appeals for the Seventh Circuit affirmed an Indiana District Court’s 2016 ruling, agreeing that an insurance company does not bear the responsibility for covering a bank’s $24 million class action settlement under a policy provision that excludes coverage for any case involving fees. In upholding the lower court’s decision, the three judge panel concluded that the insurance company had no duty to defend or indemnify the bank on the basis that the underlying overdraft fee claims fall under “Exclusion 3(n)” in the bank's professional liability insurance policy, which states that the insurance company “shall not be liable for [l]oss on account of any [c]laim . . . based upon, arising from, or in consequence of any fees or charges.” Class claims alleging that the bank manipulated its debit processing to “maximize overdraft revenue” by charging purportedly excessive fees to consumers who overdraw their checking and savings accounts triggered the exclusion. The panel also noted that an insurance company’s decision to include fee exclusions in banking liability policies is designed to prevent the “moral hazard” of allowing banks to “freely create other customer fee schemes” knowing they could easily secure coverage.

Courts Appellate Seventh Circuit Overdraft Class Action Settlement Litigation

Seventh Circuit Holds TCPA Does Not Preempt State Law Banning Robocalls

On November 21, the U.S. Court of Appeals for the Seventh Circuit held that the federal Telephone Consumer Protection Act (TCPA) does not preempt an Indiana statute that bans most robocalls without exempting calls that are not made for a commercial purpose. Patriotic Veterans, Inc. v. State of Indiana, No. 11-3265, 2013 WL 6114836 (7th Cir. Nov. 21, 2013). A not-for-profit Illinois corporation seeking to use automatically dialed interstate phone calls to deliver political messages to Indiana residents sought a declaration that the Indiana Automated Dialing Machine Statute (IADMS) violates the First Amendment, at least as it applies to political messages, and also is preempted by the TCPA, which expressly exempts non-commercial calls such as political calls from the TCPA’s regulation of autodialers. Overturning the district court’s decision, the Seventh Circuit found that the Indiana statute is not expressly preempted by the TCPA because the plain language of the TCPA’s savings clause states that the federal law does not preempt any state law that prohibits the use of automatic telephone dialing systems and, even if the IADMS is considered a regulation of, rather than a prohibition on, the use of autodialers, the savings clause does not at all address state laws that impose interstate regulations on their use. The court further found that the IADMS is not impliedly preempted by the TCPA because it is possible to comply with the state statute without violating the TCPA, the state statute furthers the TCPA’s purpose of protecting the privacy interests of residential telephone subscribers, and Congress did not intend to create field preemption when it enacted the TCPA. The court, however, remanded the case to the district court to consider whether the statute violates the First Amendment.

TCPA Privacy/Cyber Risk & Data Security Appellate Seventh Circuit Autodialer