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Financial Services Law Insights and Observations


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  • 3rd Circuit affirms no actual harm in FACTA suit


    On March 8, the U.S. Court of Appeals for the 3rd Circuit issued a precedential opinion holding that, without concrete evidence of harm, a consumer lacks standing under the Fair and Accurate Credit Transactions Act (FACTA) to sue a merchant for including too many digits of his credit card account number on a receipt. According to the opinion, the plaintiff claimed that he received receipts from three different stores owned by the defendant, all of which included both the final four digits and the first six digits of his account number. The plaintiff filed a class action lawsuit alleging the defendant willfully violated FACTA, which prohibits printing more than the last five digits of credit card number on a receipt. The plaintiff alleged that this violation, which he also claimed increased the risk of identity theft, constituted an injury-in-fact sufficient to confer Article III standing as required under the U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Special Alert). The district court dismissed the suit.

    On appeal, the 3rd Circuit agreed with the lower court, holding that the plaintiff failed to allege actual harm from the defendant’s practice. The appellate court held that the defendant’s technical violation of FACTA did not give the plaintiff standing to sue. Moreover, in the absence of actual harm, or a material risk of actual harm (the plaintiff did not allege that anyone—aside from the cashier—saw the receipt, that his credit card number had been misappropriated, or that his identity was stolen), the plaintiff would not have suffered the injury-in-fact that created federal court jurisdiction.

    Courts Third Circuit Appellate FACTA Credit Cards Consumer Finance Spokeo

  • 3rd Circuit: Debt buyer qualifies as debt collector under FDCPA


    On February 22, the U.S. Court of Appeals for the 3rd Circuit issued a precedential order affirming a district court’s ruling that an entity that purchases charged-off receivables and outsources the collection activity to a third party still qualifies as a debt collector and, therefore, may be bound by the dictates of the FDCPA. According to the opinion, a consumer filed a lawsuit against the debt-buying company alleging voicemail messages she received from the company’s contractor failed to identify the contractor as a collection agency. The consumer further alleged that a letter the contractor sent did not inform her how to exercise her validation rights, in violation of the FDCPA. The district court ruled that the defendant, which identifies itself as a creditor, meets the “principal purpose” definition of a debt collection under the FDCPA and therefore must comply with its provisions. On appeal, the defendant argued that debt collection and purchasing are “mutually exclusive,” and that the district court's ruling should be reversed under the U.S. Supreme Court’s decision in Henson v. Santander Consumer USA, which held that the FDCPA does not necessarily apply to a company collecting debts in default that it purchased for its own account. (See previous Buckley Special Alert on the decision here.)

    However, the 3rd Circuit agreed with the district court’s decision, and rejected the defendant’s arguments that the Henson decision renders it a creditor rather than a debt collector. “The Supreme Court went out of its way in Henson to say that it was not opining on whether debt buyers could also qualify as debt collectors” under certain provisions of the FDCPA, and moreover, “[a]n entity qualifies under the definition if the ‘principal purpose’ of its ‘business’ is the ‘collection of any debts,’” the panel wrote. “As long as a business’s raison d’etre is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment,” the 3rd Circuit wrote.

    The appellate court’s opinion, however, did not address the actual question of liability asserted against the defendant, but rather remanded the case for consideration as to whether the defendant is vicariously liable for claims related to the contractor’s actions.

    Courts Third Circuit Appellate Debt Collection FDCPA

  • 3rd Circuit: Enrollment packet e-signature requires student to arbitrate claims


    On January 10, the U.S. Court of Appeals for the 3rd Circuit held that a student (plaintiff) attending an online school (defendant) consented to an arbitration agreement and waiver of jury trial when she electronically signed an enrollment packet. According to the opinion, when the defendant moved to dismiss the plaintiff’s lawsuit and compel arbitration, the plaintiff argued that she did not realize the enrollment packet contained an arbitration agreement. She maintained that her e-signature was applied to the agreement without her permission. The lower court, however, granted the defendant’s motion to dismiss and entered an order to compel arbitration.

    On appeal, the 3rd Circuit agreed with the lower court in a non-precedential decision that her contentions that she was never presented with the agreement and that the defendant had applied an e-signature on file were insufficient to create an issue of material fact. It observed, “[t]he most reasonable inference we can draw from the evidence presented is that [the plaintiff] simply did not read or review the [e]nrollment [p]acket PDF closely before she e-signed it, which will not save her from her obligation to arbitrate.” The 3rd Circuit further noted that Pennsylvania allows electronic signatures as a valid way to register assent, and that a “physical pen and ink signature” is not required.

    Courts Third Circuit Appellate E-Signature Arbitration

  • District Court concludes company’s dialing system is not an autodialer under TCPA


    On December 20, the U.S. District Court for the District of New Jersey granted a student loan company’s motion for summary judgment, holding that the plaintiff failed to establish the company’s phone system qualified as an automated telephone dialing system (autodialer) under the TCPA. The plaintiff alleged the company violated the TCPA by using an autodialer to call his cell phone without his prior express consent. Each party filed cross-motions for summary judgment with the plaintiff arguing that the company’s system “had the present capacity without modification to place calls from a stored list without human intervention.” The company disagreed with the plaintiff’s assertions, arguing that it used separate systems for land lines and cell phones, and that the system which dialed the cell phone “contains no features that can be activated, deactivated, or added to the system to enable autodialing.” Citing to the opinion of the U.S. Court of Appeals for the 3rd Circuit in Dominguez v. Yahoo (previously covered by InfoByres here), which held that it would interpret the definition of an autodialer as it would prior to the FCC’s 2015 Declaratory Ruling, the court noted that the term “capacity” in the TCPA’s autodialer definition refers to the system’s current functions, not its potential capacity. Because the plaintiff failed to establish that the system used to dial his cell phone had the “present capacity” to initiate autodialed calls without modifications, the court concluded the claim failed as a matter of law.

    Courts TCPA Autodialer Student Lending Appellate Third Circuit

  • District Court holds “dead air” is indicative of a predictive dialer, denies TCPA dismissal bid


    On December 10, the U.S. District Court for the District of New Jersey denied a medical laboratory’s motion to dismiss a putative TCPA class action against the company, holding the plaintiff sufficiently alleged the equipment used to make unsolicited calls qualified as an “autodialer.” According to the opinion, the plaintiff filed the class action against the company after receiving an unsolicited call to her cell phone and hearing a “momentary pause” before a representative started speaking, allegedly indicating the company was using an automatic telephone dialing system (autodialer). The plaintiff argues the company violated the TCPA by placing non-emergency calls using an autodialer without having her express consent. The company moved to dismiss the action, arguing the plaintiff did not sufficiently allege the company called her using an autodialer. The court disagreed, stating that “[d]ead air after answering the phone is indicative that the caller used a predictive dialer.” The court noted that a predictive dialer is a device considered an autodialer under binding precedent, citing to the opinion of the U.S. Court of Appeals for the 3rd Circuit in Dominguez v. Yahoo, which held that it would interpret the definition of an autodialer as it would prior to the FCC’s 2015 Declaratory Ruling, which was invalidated by the D.C. Circuit. (Previously covered by InfoBytes here.) The court acknowledged that the actual configuration of the dialing equipment should be explored in discovery, but at this stage, the plaintiff sufficiently alleged the use of an autodialer for purposes of the TCPA.  

    Courts TCPA Autodialer Class Action Third Circuit Appellate

  • 3rd Circuit reverses district court’s collateral estoppel ruling preventing plaintiff from pursuing debt collection claims


    On November 29, the U.S. Court of Appeals for the 3rd Circuit reversed a district court’s decision to grant summary judgment to a university and its debt collection firm (appellees) on the grounds that the issue had already been decided in state court, ordering the district court to reconsider the plaintiff/appellant’s discovery motions and whether it can “exercise supplemental jurisdiction” over the appellees’ alleged violation of Pennsylvania law.

    The plaintiff/appellant, a former university student, provided the appellees with a new address in Philadelphia after being contacted about unpaid tuition. When the debt remained unpaid, the appellees filed suit against him in Philadelphia municipal court but sent notices to a New Jersey address on file in the university’s system. The plaintiff/appellant did not appear in court and a default judgment was entered against him. The plaintiff/appellant petitioned to reopen the default judgment, arguing that the appellees had intentionally served his old address to avoid the personal service requirement in Philadelphia County. The municipal court dismissed the default judgment, despite finding that the appellees had not engaged in any intentional misconduct. Following a trial on the merits, the Philadelphia municipal court judge again ruled against the plaintiff/appellant for the full amount. Subsequently, the plaintiff/appellant filed a lawsuit in federal court alleging violations of the FDCPA and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law; however, the federal court barred the deceptive service of process claim, finding that the municipal court had already ruled that the debt collectors’ actions were unintentional.

    On appeal, the 3rd Circuit found that the district court had erred in ruling that collateral estoppel prevented the plaintiff/appellant from pursuing claims against the appellees simply because the municipal court judge said that he did not think the notices were intentionally served to the old address so a default judgment could be obtained. “Although the [m]unicipal [c]ourt’s finding may meet the first four elements of collateral estoppel, its determination that [a]ppellees did not intentionally serve [the plaintiff/appellant] at the wrong address was not essential to its judgment at that hearing, i.e., vacating the default judgment. In fact, its finding was contrary to this ultimate judgment,” the appellate court concluded. The appellate court also reversed the grant of summary judgment to the appellees on the plaintiff/appellant’s remaining FDCPA claims and remanded them to the district court to determine whether there had been “false and deceptive service of process; misconduct in opposing the opening of default judgment; and misstatements of the case caption, case number and court in the [c]ollection [l]etter.”

    Courts Third Circuit Appellate Debt Collection FDCPA Collateral Estoppel

  • 3rd Circuit says IRS reporting language may violate FDCPA


    On September 24, the U.S. Court of Appeals for the 3rd Circuit reversed the district court’s dismissal of a putative class action alleging a debt collector violated the FDCPA by including a statement noting that debt forgiveness may be reported to the IRS. The case was centered on the plaintiffs’ claim that letters sent to collect on debts that were less than $600, which contained the language “[w]e are not obligated to renew this offer. We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case,” were “false, deceptive and misleading” under the FDCPA because only discharged debts over $600 are required to be reported to the IRS. The district court dismissed the action, concluding the letters were not deceptive and the least sophisticated consumer would interpret the statement to mean in certain circumstances some discharges are reportable but not all are reportable.

    Upon appeal, the 3rd Circuit disagreed with the district court, finding “the least sophisticated debtor could be left with the impression that reporting could occur,” notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled, and therefore, the language could signal a potential FDCPA violation. Recognizing the industry’s regular use of form letters, the appeals court noted, “we must reinforce that convenience does not excuse a potential violation of the FDCPA.”

    Courts Third Circuit Appellate IRS FDCPA Debt Collection Class Action

  • 3rd Circuit: Failure to provide job applicants consumer reports has standing under Spokeo


    On September 10, the U.S. Court of Appeals for the 3rd Circuit issued a precedential order reversing in part and affirming in part a lower court’s dismissal of claims brought by three individuals who claimed a company violated the Fair Credit Reporting Act (FCRA) when it failed to provide them with copies of their consumer reports. According to the opinion, the three plaintiffs applied for jobs with the company and were ultimately not hired due to information discovered in their background checks. The plaintiffs filed a putative class action asserting the company did not send them copies of their background checks before it took adverse action when deciding not to hire them, and also failed to provide them with notices of their rights under the FCRA. The district court dismissed the claims against the company, finding there was only a “bare procedural violation,” and not a concrete injury in fact as required under the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert). On appeal, the 3rd Circuit reversed the lower court’s decision, concluding that the plaintiffs had standing to assert that the company violated the FCRA by taking adverse action without first providing copies of their consumer reports. Additionally, the court noted that “taking an adverse employment action without providing the required consumer report is ‘the very harm that Congress sought to prevent, arising from prototypical conduct proscribed’ by the FCRA.” However, the appellate court affirmed the lower court’s dismissal of the plaintiffs’ claim alleging the company failed to provide them with a notice of their FCRA rights, finding that the claim was a “‘bare procedural violation, divorced from any concrete harm,’” and lacked Article III standing under Spokeo. The 3rd Circuit remanded the case for further proceedings consistent with their findings.

    Courts Third Circuit Appellate Consumer Reporting FCRA Spokeo

  • 3rd Circuit reverses dismissal of FDCPA action over voicemail


    On August 22, the U.S. Court of Appeals for the 3rd Circuit reversed the dismissal of a putative class action claim alleging a debt collector violated the FDCPA when it used an “alternative business name” in a voicemail. According to the opinion, the consumers allege the debt collector violated three sections of the FDCPA by leaving voicemail messages identifying itself by a different business name than the company’s corporate name. The lower court dismissed all three FDCPA claims for failure to state a claim. The panel affirmed the dismissal as to two counts of the amendment complaint, but reversed as to the third, finding that the consumers stated a plausible claim that the debt collector violated the FDCPA’s “true name” provision. The panel cited to FTC interpretive guidance, which notes a company may use a name other than its registered name so long as “it consistently uses the same name when dealing with a particular consumer.” The court found that the alternative name used in the voicemails is “neither [the company]’s full business name, the name under which it usually transacts business, nor a commonly used acronym of its registered name” and the name used is actually associated with other debt collection companies. Therefore, the consumers stated a plausible claim under the “true name” provision of the FDCPA. 

    Courts Third Circuit FDCPA Debt Collection

  • 3rd Circuit rules student loan servicer must comply with CID


    On August 13, in a divided opinion that is not precedential, the U.S. Court of Appeals for the 3rd Circuit affirmed a lower court’s decision to grant a petition filed by the CFPB to enforce a civil investigative demand (CID) issued to a student loan servicer, rejecting arguments that the scope of the Bureau’s investigation was too broadly defined. The Notification of Purpose in the CID at issue named the entirety of the servicer’s business operations, without identifying any specific conduct, when the CFPB sought records to determine whether the servicer’s practices violated federal consumer financial laws. The servicer objected to the Notification of Purpose and petitioned the Bureau to set aside or modify the CID because it did not adequately “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.” The appellate court held that the servicer’s “contention rests on the flawed assumption that the CFPB could not investigate all of [the servicer’s] conduct,” and that, moreover, “[n]othing prohibits the CFPB from investigating the totality of [the servicer’s] business activities, and courts have previously enforced administrative subpoenas regarding conduct that is coextensive with the recipient’s business activity.”

    Courts Third Circuit Appellate CFPB Student Lending CIDs


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