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District court allows class autodialer claims to proceed against mortgage lender
On May 18, the U.S. District Court for the Eastern District of Michigan denied a request to dismiss a putative class action concerning alleged violations of the TCPA, ruling that the plaintiff plausibly alleged the mortgage lender (defendant) sent unsolicited texts through the use of an automatic telephone dialing system (autodialer). The plaintiff claimed, among other things, that (i) the texts came by way of SMS short codes, which are “reserved for automatically made text messages”; (ii) the messages were generic and non-personal; (iii) the messages followed a similar calling pattern; and (iv) the plaintiff continued to receive them after opting out. The defendant countered that the claims should be dismissed because the plaintiff’s argument is “devoid of plausible allegations” under the TCPA that it used an autodialer that has the capacity to produce telephone numbers using a random or sequential number generator. However, the court determined that, in the absence of direction from the U.S. Court of Appeals for the Sixth Circuit “as to the kind of supporting factual allegations that must be included to sufficiently allege the [autodialer] element of a TCPA case,” the court will follow other district courts that have allowed TCPA suits to continue if the plaintiff sufficiently alleges facts to plausibly support a finding that an autodialer was used.
Financial institutions, CRA reach settlement over 2017 data breach
On May 15, a putative class of financial institutions filed an unopposed motion for preliminary approval of a settlement in a multidistrict litigation stemming from a credit reporting agency’s (CRA) 2017 data breach. The class, comprised of financial institutions that issued credit or debit cards whose information was believed to have been breached, argued that the data breach was the result of the CRA’s alleged failure to implement the necessary precautions to safeguard consumers’ personally identifiable information (PII). The class further contended that financial institutions suffer the primary harm caused by identity theft, because they “bear the risk of loss when identity thieves use a customer’s PII to open accounts, transfer funds, take out loans, make fraudulent transactions, or obtain credit or debit cards in the customer’s name.”
The proposed settlement—pending approval from the U.S. District Court for the Northern District of Georgia—will require the CRA to pay $5.5 million to class members that submit valid claims, spend at least $25 million over a two-year period on “data security measures pertinent to the [financial intuitions] and their claims,” and cover settlement administration and notice costs, as well as agreed-upon attorney fees, expenses, and named-plaintiff service awards. The motion for preliminary approval states that the CRA will also, among other things, (i) adopt and/or maintain certain measures in order to identify “reasonably foreseeable threats” to PII; (ii) respond to identified vulnerabilities that may impact the confidentiality of PII; (iii) design safeguards to manage risks identified though data security risk assessments; (iv) implement a security control framework consistent with requirements for systems that “store, process, or transmit [p]ayment [c]ard [d]ata in connection with U.S. payment card transactions”; and (v) maintain a compliance program and submit annual certifications to class counsel.
District court compels arbitration of biometric privacy suit
On May 15, the U.S. District Court for the Northern District of Illinois granted an online photography company’s motion to compel arbitration in a biometric privacy lawsuit, notwithstanding the company’s unilateral modification of arbitration terms after the lawsuit was filed. According to the opinion, the plaintiffs created an account on the company’s website in August 2014. In May 2015, the company added an arbitration provision to its Terms of Use. In June 2019, the plaintiffs filed the proposed class action alleging the company violated the Illinois Biometric Information Privacy Act (BIPA) “by using facial-recognition technology to extract biometric identifiers for ‘tagging’ individuals and by ‘selling, leasing, trading, or otherwise profiting from Plaintiffs’…biometric information.’” In September 2019, the company sent an email to all of its users that its account Terms of Use were updated, including provisions regarding arbitration. The email stated that if users continued to use the website or did not close their account by October 1, 2019, they were deemed to have accepted the updated terms. The plaintiffs’ account remained open as of October 2, 2019. The company moved to compel arbitration of the plaintiffs’ claims. The plaintiffs argued that the September 2019 email did not create a binding agreement to arbitrate and that it should not apply retroactively to the June 2019 claim.
The court rejected the plaintiffs’ arguments, concluding that they were already bound to arbitration by the 2015 update to the company’s terms of use, because the terms accepted in 2014 included a “change-in-terms” provision, allowing the company to revise terms from time to time by posting revisions. Moreover, the court disagreed with the plaintiffs that the September 2019 email was “an attempt by [the company] to ‘surreptitiously’ bind unwitting putative class members to arbitration agreements,” noting that the 2019 modifications did not significantly alter users’ rights under the arbitration agreement and the court would “not rely on the 2019 email to find that any putative class members agreed to arbitrate.”
7th Circuit: CRAs not required to determine legal validity of disputed debt
On May 11, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a putative class action, holding that the FCRA does not compel a consumer reporting agency (defendant) to determine the legal validity of a debt when investigating a dispute. The plaintiffs alleged that they obtained payday loans with allegedly usurious interest rates from online entities affiliated with Native American tribes. After both plaintiffs stopped making monthly payments, the lenders reported the delinquent amounts to the defendant. One of the plaintiffs disputed the accuracy of his credit report, arguing that because the loan was “illegally issued” he was not obligated to make payments. The defendant conducted an investigation and verified the furnished information was accurate. However, the defendant did not investigate whether the debt was legal. The plaintiffs filed suit, alleging two FCRA violations: (i) Section 1681e(b) which requires consumer reporting agencies “to assure maximum possible accuracy of the information” contained in credit reports; and (ii) Section 1681i(a) which “requires consumer reporting agencies to reinvestigate disputed items.” According to the plaintiffs, the defendant’s credit reports “contained ‘legally inaccurate’ information because they posted ‘legally invalid debts.’” The district court granted judgment on the pleadings to the defendant, ruling that the plaintiffs’ FCRA claims fell short because they never alleged that the information that was reported was factually inaccurate and, “until a formal adjudication invalidates the plaintiffs’ loans,” the reported information would not be factually inaccurate.
On appeal, the 7th Circuit held, among other things, that only furnishers—“such as banks, credit lenders, and collection agencies”—are required under the FCRA to correctly report liability, stating it is not the defendant’s responsibility to determine the enforceability of the debt because the “power to resolve these legal issues exceeds the competencies of consumer reporting agencies.” Moreover, the appellate court determined that the defendant cannot be liable under either of the plaintiffs’ FCRA claims if it did not report inaccurate information.
6th Circuit denies stay of injunction against PPP Ineligibility Rule
On May 15, the U.S. Court of Appeals for the Sixth Circuit denied the SBA’s emergency motion for a stay of the district court’s injunction against the agency’s Paycheck Protection Program (PPP) Ineligibility Rule. As previously covered by InfoBytes, the district court granted a preliminary injunction against the SBA’s PPP Ineligibility Rule—which, in relevant part, excludes from PPP loan eligibility “sexually oriented businesses that present entertainment or sell products of a ‘prurient’ (but not unlawful) nature.” The district court concluded that the Rule was in conflict with the Congressional purpose of the CARES Act, which houses the PPP, to protect workers in need during the Covid-19 pandemic, including workers for businesses that have been historically excluded from SBA financial assistance.
The 6th Circuit agreed with the district court, denying the motion for a stay. The court noted that the CARES Act specifies that eligibility “is conferred on ‘any business concern,’” which “encompasses sexually oriented businesses.” It went on to state that “the public interest is served in guaranteeing that any business, including plaintiffs, receive loans to protect and support their employees during the pandemic.”
In dissent, one judge argued that it is “unclear whether Congress meant that any business concern was eligible for a PPP loan regardless of SBA restrictions,” and therefore, the injunction should be stayed pending a decision on the merits.
CFPB reaches $18 million settlement in credit-report scheme
On May 14, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
If approved by the Court, the Bureau’s proposed settlement would (i) impose an $18 million redress judgment against the mortgage lender, of which all but $200,000 would be suspended due to the lender’s limited ability to pay; (ii) require one of the individuals and his company to disgorge $403,750 in profits to provide redress; (iii) impose a $406,150 judgement against a second individual and his company, which will be suspended due to the defendants’ inability to pay; (iv) impose a total $450,001 civil money penalty against the defendants; (v) permanently ban the defendants from the debt-relief industry and from using or obtaining prescreened consumer reports; and (vi) prohibit the defendants from on using or obtaining consumer reports for “any business purpose other than underwriting or otherwise evaluating mortgage loans.”
District court grants debt collector’s arbitration request
On May 11, the U.S. District Court for the District of New Jersey granted a debt collector’s renewed motion to compel arbitration, concluding that the previously-ordered discovery demonstrated that the plaintiff’s FDCPA claim fell within the bounds of the arbitration clause in the underlying credit card agreement. As previously covered by InfoBytes, the plaintiffs filed a proposed class action alleging that the debt collection company’s collection letters violated the FDCPA because they did not “properly identify the name of the current creditor to whom the debt is owed.” The debt collectors filed an initial motion to compel arbitration, arguing that the debts described in the plaintiffs’ amended complaint arose pursuant to credit card agreements that include an arbitration clause. In February 2019, the court denied the motion concluding that discovery was needed in order to determine whether an arbitration clause applied to the plaintiffs’ claims regarding FDCPA violations. After the parties engaged in discovery, the plaintiff argued that only the card issuer has a right to compel arbitration under the agreement. The court rejected this argument, concluding that the collection agency was an agent of the creditor and as an agent, the collector may enforce the arbitration agreement. Moreover, the court determined that the debt collection letter relates to the consumer’s credit account as the debt is a result of the credit card use and the FDCPA claim “is statuary, as explicitly provided for in the card agreement.”
$550 million preliminary settlement reached in biometric privacy class action
On May 8, plaintiffs in a biometric privacy class action in the U.S. District Court for the Northern District of California filed a motion requesting preliminary approval of a $550 million settlement deal. The preliminary settlement, reached between a global social media company and a class of Illinois users, would resolve consolidated class claims that alleged the social media company’s face scanning practices violated the Illinois Biometric Information Privacy Act (BIPA). As previously covered by InfoBytes, last August the U.S. Court of Appeals for the 9th Circuit affirmed class certification and held that the class’s claims met the standing requirement described in Spokeo, Inc. v. Robins because the social media company’s alleged development of a face template that used facial-recognition technology without users’ consent constituted an invasion of an individual’s private affairs and concrete interests. According to the motion for preliminary approval, the settlement would be the largest BIPA class action settlement ever and would provide “cash relief that far outstrips what class members typically receive in privacy settlements, even in cases in which substantial statutory damages are involved.” If approved, the social media company must also provide “forward-looking relief” to ensure it secures users’ informed, written consent as required under BIPA.
District court grants preliminary injunction against PPP Ineligibility Rule
On May 11, the U.S. District Court for the Eastern District of Michigan granted a preliminary injunction against the enforcement of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) Ineligibility Rule, concluding that the rule—which excludes “banks, political lobbying firms, certain private clubs with restrictive admissions practices, and sexually oriented businesses that present entertainment or sell products of a ‘prurient’ (but not unlawful) nature” from PPP loan eligibility—contravenes the purpose of the PPP. According to the opinion, a group of businesses that “provide lawful ‘clothed, semi-nude, and/or nude performance entertainment’” filed suit against the SBA seeking a preliminary injunction against the enforcement of the PPP Ineligibility Rule, after they were prevented from obtaining the loans and/or participating in the PPP because their businesses were deemed to be “of a ‘prurient sexual nature.’” The SBA argued that Congress could not have intended to support businesses that the SBA has historically denied financing, saying it would lead to “absurd results.” The court rejected this argument, stating, “these are no ordinary times, and the PPP is no ordinary legislation.” The court reasoned that because the intent of the CARES Act, which houses the PPP, is to protect workers in need, it is “not absurd to conclude” that in order to support workers from all businesses, Congress would temporarily permit SBA financial assistance to previously excluded business types. Finding that the Rule is in conflict with the Congressional purpose of the PPP, the court granted the preliminary injunction barring the SBA from enforcing the Rule.
California Supreme Court: No jury trial for UCL and FAL claims seeking civil penalties in addition to injunctive or other equitable relief
On April 30, the California Supreme Court issued an opinion holding that under the state’s Unfair Competition Law (UCL) and the False Advertising Law (FAL), government enforcement actions seeking civil penalties in addition to injunctive or other equitable relief should be decided by a judge instead of by a jury. The decision overturns a Court of Appeal decision holding that a jury must weigh in when civil penalties are involved. The decision stems from a suit filed in 2015 by the California Department of Business Oversight and several district attorneys (collectively, “People”) against a national debt payment service operation for alleged violations of the UCL and FAL. While the debt payment service operation demanded a jury trial, the People filed a motion to strike, which the trial court granted. The Court of Appeal overturned the trial court decision, holding that under certain provisions of the California Constitution the debt payment service operation had a right to a jury trial.
The California Supreme Court disagreed with the Court of Appeal concluding that, among other things, (i) the causes of action established by the UCL and FAL at issue in this case are equitable rather than legal actions, which should be tried by a court rather than by a jury; and (ii) the U.S. Supreme Court’s decision in Tull v. United States, relied upon by the Court of Appeal, does not govern this case for various reasons, including that the U.S. Supreme Court’s interpretation of the civil jury trial provision of the Seventh Amendment of the U.S. Constitution applies only to federal court proceedings—not state court proceedings—and that the “constitution right to a jury trial in state court civil proceedings is governed only by the civil jury trial provisions of each individual state’s own state constitution.” (Emphasis in the original.)