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7th Circuit dismisses FDCPA action over interest accrued post-write off
On June 19, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an action alleging a debt collector violated the FDCPA by attempting to collect interest that accrued on a debt after the creditor wrote off the debt but before the collector acquired it. According to the opinion, the plaintiffs’ original unpaid debt was $3,226.35 before the original creditor ceased collection efforts and stopped sending monthly statements. Approximately two years later, the creditor sold the debt to the collection agency, and approximately two years after that, the debt collector sent a demand letter seeking payment of $5,800, which included around $1,600 in interest for the months after the original creditor ceased collection efforts. The debt collector sent a second letter two months later, and a third letter the following year to their attorney in response to the attorney’s request to verify the debt, but the third letter did not explain how much of the debt was interest. The plaintiffs filed the action against the debt collector, alleging the collector violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with collection of a debt by demanding interest that accrued between charge-off and sale. The district court dismissed the action as untimely.
On appeal, the 7th Circuit affirmed dismissal, but determined the suit was filed timely. Specifically, the appellate court concluded that the one year statute of limitations applied to the third letter the debt collector sent to the plaintiffs’ lawyer in response to a demand for debt verification. However, the appellate court concluded that the third collection letter did not violate the FDCPA, arguing the plaintiffs “promised to pay interest, and [the debt collector]’s computer used the correct rate.” Moreover, the appellate court stated that “[a] statement is false, or not, when made; there is no falsity by hindsight,” and previous instances in the circuit “in which a letter was deemed to have falsely stated the amount of the debt dealt with errors known or readily knowable when the letter was sent.” Lastly, the appellate court rejected the plaintiffs’ post-argument submission that the debt collector “must openly state the legal position behind its calculation” in order to avoid having the letter be misleading, noting that the third letter was sent to their lawyer, and it “would not have misled a competent lawyer.”
Consumer advocacy groups claim CFPB taskforce is illegally chartered
On June 16, several consumer advocacy groups filed a lawsuit in the U.S. District Court for the District of Massachusetts against the CFPB claiming that the Bureau’s Taskforce on Federal Consumer Financial Law was “illegally chartered” and violates the Federal Advisory Committee Act (FACA). As previously covered by InfoBytes, the taskforce was established last year to examine the existing legal and regulatory environment facing consumers and financial services providers. As also covered by InfoBytes, the taskforce recently outlined its future plans, which include analyzing comments received from a March request for information, holding a public hearing, and participating in public listening sessions with the Bureau’s four advisory committees. The complaint argues, however, that the taskforce’s membership lacks balance, and that the appointed members who “uniformly represent industry views” have worked on behalf of several large financial institutions or work as industry consultants or lawyers. This composition, the consumer advocacy groups argue, undermines the purpose of the taskforce and is a violation of FACA and the Administrative Procedure Act. The complaint also states that while FACA requires advisory committee meetings to be open to the public and that records be disclosed, the taskforce has held closed-session meetings without providing public notice and has failed to make available any of the records related to these meetings or its other work.
The complaint seeks declaratory and injunctive relief and asks the court to (i) set aside the taskforce’s charter, all orders and decisions, and the appointments of the taskforce members; (ii) enjoin the taskforce from meeting, or otherwise conducting taskforce business; (iii) order the Bureau to immediately release all materials prepared for the taskforce; and (iv) enjoin the Bureau from relying upon taskforce recommendations or advice. The complaint also seeks costs and attorneys’ fees.
District court holds text system is not an autodialer under 7th Circuit definition
On June 15, the U.S. District Court for the Southern District of Indiana granted a motion for summary judgment in favor of a collection agency and another company (collectively, “defendants”) with respect to the plaintiff’s TCPA allegations, holding that the system used to send text messages to class members’ cell phones is not an automatic telephone dialing system (autodialer). According to the opinion, the plaintiff filed the class action alleging, among other things, that the defendants violated the TCPA by sending unsolicited text messages using an autodialer to cell phones after the recipients replied with “stop.” The parties submitted cross-motions for summary judgment, which were stayed pending the outcome of the U.S. Court of Appeals for the Seventh Circuit decision in Gadelhak v. AT&T Servs., Inc. As previously covered by InfoBytes, the 7th Circuit held in February that to be an autodialer under the TCPA, the system must both store and produce phone numbers “using a random or sequential number generator.” After reviewing the cross-motions in light of the 7th Circuit decision, the court concluded that the system used by the defendants is not an autodialer under the controlling definition because the defendants’ system sends text messages to cell phone numbers from stored customer lists. Notwithstanding the fact that neither party disputes that the text messages sent to the class members post-“stop” message were without their consent, the court granted summary judgment in favor of the defendants because the text messages were not sent using an autodialer.
California Court of Appeal: FTC Holder Rule preempts state law authorizing recovery of certain attorney fees
On June 9, the California Court of Appeal for the First Appellate District affirmed a trial court’s judgment in favor of a bank (defendant), holding that the FTC’s Holder Rule preempts California Civil Code section 1459.5, which authorizes a plaintiff to recover attorney fees on a Holder Rule claim even if it results in a total recovery that exceeds the amount the plaintiff paid under the contract. According to the court, the plaintiff sued the defendant (who was assigned the vehicle credit sale contract) after he discovered that the seller failed to disclose that the vehicle had been in a major collision, thus reducing its value. The parties settled for a sum equal to the vehicle’s purchase price, and the plaintiff filed a motion for attorney fees. The trial court denied the motion, determining that the plaintiff was not entitled to fees under a holding in Lafferty v. Wells Fargo Bank, which stated that a debtor cannot recover damages and attorney fees for a Holder Rule claim that collectively exceed the amount paid by the debtor under the contract. The plaintiff appealed.
The Court of Appeal agreed with the trial court, determining that it did not need to resolve the parties’ dispute as to whether Lafferty correctly construed the Holder Rule’s limitation on recovery because the FTC’s construction of the Holder Rule is entitled to deference. The Court of Appeal referenced the FTC’s 2019 confirmation of the Holder Rule (Rule Confirmation), after Lafferty issued, which addressed, among other things, several comments related to whether the Holder Rule’s “limitation on recovery to ‘amounts paid by the debtor’ allows or should allow consumers to recover attorneys’ fees above that cap.” The FTC provided the following statement within the Rule Confirmation: “We conclude that if a federal or state law separately provides for recovery of attorneys’ fees independent of claims or defenses arising from the seller’s misconduct, nothing in the Rule limits such recovery. Conversely, if the holder’s liability for fees is based on claims against the seller that are persevered by the Holder Rule Notice, the payment that the consumer may recover from the holder—including any recovery based on attorneys’ fees—cannot exceed the amount the consumer paid under the contract.”
9th Circuit: Payday arbitration remanded because of new California interest rate law
On June 9, the U.S. Court of Appeals for the Ninth Circuit remanded a case against a payday lender back to district court because a newly issued California amendment took effect—which prohibits lenders from issuing loans between $2,500 and $10,000 with charges over 36 percent calculated as an annual simple interest rate (covered by InfoBytes here)—which may impact the court’s analysis. As also previously covered by InfoBytes, plaintiffs filed a putative class action suit against the payday lender alleging the lender sells loans with usurious interest rates, which are prohibited under California’s Unfair Competition Law and Consumer Legal Remedies Act. The lender moved to compel arbitration, but the district court concluded the arbitration provision was unenforceable. In addition to finding the arbitration provisions procedurally unconscionable, the court found that the provision contained a waiver of public injunctive relief, which was substantively unconscionable based on the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here).
On appeal, the 9th Circuit remanded the case back to the district court to reconsider whether the consumer’s requested injunction enjoining the payday lender from issuing loans above $10,000 would actually prevent a threat of future harm in light of the new California law and considering the operative complaint does not allege the lender issued or continues to issue loans above $10,000. Additionally, the appellate court rejected the lender’s arguments that McGill was preempted under the Federal Arbitration Act (FAA) and agreed with the district court’s application of California law, because “Kansas law is contrary to California policy and [] California holds a materially greater interest in this litigation.”
D.C. Circuit says consumer failed to show injury in FDCPA action
On June 9, the U.S. Court of Appeals for the D.C. Circuit vacated the district court’s judgment in favor of a consumer, concluding that the consumer failed to demonstrate a concrete injury-in-fact traceable to the FDCPA violations she alleged. According to the opinion, the consumer brought the putative class action against the debt collector after the collector sued the consumer to collect an outstanding auto loan debt. The collector allegedly used affidavits in its lawsuit against the consumer that were signed by an agent of the collector, not by an employee as attested. As requested by the debt collector, the action was then dismissed with prejudice. Subsequently, the consumer filed the putative class action against the debt collector and its agent alleging various violations of the FDCPA. The defendants moved to dismiss the action, which the district court denied. Subsequently, the district court granted their motion for summary judgment, concluding that any “any falsehoods in the [] affidavits were immaterial—and thus not actionable—because they ‘had no effect on [the consumer]’s ability to respond or to dispute the debt.’”
On appeal, the D.C. Circuit disagreed with the district court, concluding that the consumer lacked standing to sue the defendants altogether. Specifically, the appellate court held that the consumer failed to identify a traceable injury to the “false representations” made in the affidavits, citing to the fact that the consumer “testified unequivocally that she neither took nor failed to take any action because of these statements.” Moreover, citing to the U.S. Supreme Court decision in Spokeo, Inc. v. Robins, the appellate court emphasized that “[n]othing in the FDCPA suggests that every violation of the provisions implicated here…create[] a cognizable injury.” The appellate court vacated the district court’s judgment and remanded the case with instructions to dismiss the complaint.
7th Circuit upholds summary judgment in favor of debt collector
On June 9, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment in favor of a third-party debt collector in a class action asserting violations of the FDCPA. According to the opinion, a consumer filed a putative class action alleging the debt collector sent a misleading letter in violation of the FDCPA because the letter stated that her debt “may be reported to the national credit bureaus.” The consumer argued that the use of the word “may” was deceptive, as it implied “future reporting” even though the debt had already been reported at the time she received the letter. The debt collector moved to dismiss the action, which the district court denied, concluding that whether a communication is misleading is a question of fact and therefore, “dismissal would be premature.” After class certification, the consumer and the debt collector submitted cross-motions for summary judgment, and the district affirmed in favor of the debt collector.
On cross-appeals, the 7th Circuit agreed with the district court’s denial of the debt collector’s motion to dismiss, stating that “[w]hether a significant fraction of debtors would be misled as [the consumer] describes is questionable, but it is not so implausible….” As for summary judgment, the appellate court also agreed with the district court, concluding that the consumer “failed to present any evidence beyond her own opinion” that the collection letter was misleading. The appellate court rejected the consumer’s assertion that her own opinion was evidence enough and noted that the consumer cited to cases using the “least sophisticated consumer standard,” which the 7th Circuit has rejected. Moreover, the appellate court emphasized that the consumer failed “to provide any outside evidence as to the likelihood that a hypothetical unsophisticated debtor (or even the least sophisticated debtor) would in fact be confused by the language in [the debt collector]’s letter.”
3rd Circuit: Credit card customers’ claims against retailer and national bank fail
On June 9, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s order granting summary judgment in favor of a retailer and a national bank (collectively, “defendants”), holding that the proposed class failed to assert their claims for implied covenant of good faith and fair dealing and unjust enrichment. The class, comprised of customers who applied for private-label credit cards offered and serviced by the retailer, argued they were prompted to purchase a debt-cancellation product, which would “cancel the balance on the customer’s account up to $10,000 when a covered person experienced a qualifying involuntary unemployment, disability, hospitalization, or loss of life.” The class’s first claim—that the debt cancellation product provided “‘little or no value,” and that they did not voluntarily enroll in the product because the retailer allegedly unilaterally enrolled card holders in the product—was no longer viable after discovery showed that customers voluntarily enrolled. The class posed a second claim asserting breach of the implied covenant of good faith and fair dealing, arguing, among other things, that any legal authorization they gave was to the retailer and to the original issuing bank who sold the cards to the defendant bank. However, the district court rejected this second theory and granted summary judgement in favor of the defendants, ruling that the debt cancellation product was assigned to the defendant bank and stating the class failed to show that the retailer did not honor the terms of the debt cancellation product because they received exactly what was described in their contracts. Nor were the defendants unjustly enriched “because their collection of [] fees was ‘legally justified.’”
On appeal, the 3rd Circuit, among other things, reviewed and rejected a third theory presented by the class, which blamed the district court for fundamentally misinterpreting their claims and asserted that the retailer failed to notify customers that it had stopped enforcing certain terms of the debt cancellation product and implemented a new refund policy, holding that this theory was not grounds for reversal because it was not argued in court. Moreover, the appellate court agreed with the district court that the retailer stopped enforcing its rights under amendments made to the debt cancellation product, but did not change the formal terms.
7th Circuit holds recoverable costs under FDCPA do not include damages or compensation for expenses
On June 5, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s holding that the costs recoverable under the FDCPA and Rule 54(d) of the Federal Rules of Civil Procedure do not include damages or compensation for the plaintiff’s time and mailing expenses related to litigation. According to the opinion, the plaintiff filed suit against a debt collector alleging various violations of the FDCPA for failing to verify that the plaintiff owned the debt after it was disputed and for sending a demand letter with the plaintiff’s personal information in an envelope viewing screen. The debt collector made an offer of judgment to the plaintiff for “$1,101, ‘plus costs to be awarded by the Court.’” The plaintiff sought costs that included damages under the FDCPA while the debt collector argued that the offer was only for “taxable costs as a prevailing party.” After the district court concluded that the plaintiff had accepted the offer of judgment, it entered judgment for the award of $1,101 and instructed the plaintiff to file a bill of costs “‘limited to those contemplated by [Federal Rule of Civil Procedure] 54(d).’” The plaintiff demanded over $24,000 for “hundreds of hours” spent litigating the action, over $150 in “mailing costs,” $1,000 in “additional damage costs,” and over $47,000 in punitive damages. The district court denied the costs under Rule 54(d) and awarded final judgment for the $1,101 in statutory damages.
On appeal, the 7th Circuit disagreed with the plaintiff’s assertion that the costs he submitted were recoverable under Section 1692k(a) of the FDCPA, concluding that “damages are not part of the costs ‘properly awardable under’ § 1692k(a),” which contains both provisions for damages and for costs; therefore, if costs included damages, “the damages provisions would be superfluous.” The appellate court went on to state that “[w]ithout a special definition in the [FDCPA], the ‘costs’ it contemplates are simply those awardable under Federal Rule of Civil Procedure 54(d),” which do not include the damages or compensation sought by the plaintiff.
District court: Plaintiffs whose search terms were disclosed to third parties have standing under Spokeo
On June 5, the U.S. District Court for the Northern District of California issued an order denying a global search engine’s (defendant) motion to dismiss class action claims, ruling that the plaintiffs’ claims met the standing requirement under Spokeo, Inc. v. Robins. The court determined that the plaintiffs pled a concrete injury by claiming that the defendant violated the Electronic Stored Communications Act (ESCA) and their contractual privacy rights by disclosing their search terms to third party servers without their authorization. The court rejected the defendant’s arguments that (i) the “plaintiffs cannot show the search terms can or will be linked to a searcher’s identity,” and (ii) “anonymized search terms could ‘rarely if ever result in harm or certainly impending harm.’” According to the court, this argument assumes that harm must take the form of “‘individuals’ discovered identities’ being ‘exploit[ed]. . .to their detriment,” which is “[n]ot so.” The court stressed that the ESCA “protects users’ privacy rights against the mere disclosure of their communications,” and that “the statute makes such disclosure actionable regardless whether those communications reveal the user’s identity.” Among other things, the court also noted that Congress has “identified a concrete privacy interest in communications stored with electronic communication service providers—even if those communications cannot be linked to the user.” “Because plaintiffs ‘need not allege any additional harm beyond the one Congress has identified,’ their standing in no way depends on whether the search terms may be used to discover their identities,” the court wrote.