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Supreme Court to review TCPA debt collection exemption
On January 10, the U.S. Supreme Court announced it had granted a petition for a writ of certiorari filed by the U.S. government in Barr v. American Association of Political Consultants Inc.—a Telephone Consumer Protection Act (TCPA) case concerning an exemption that allows debt collectors to use an autodialer to contact individuals on their cell phones without obtaining prior consent to do so when collecting debts guaranteed by the federal government. As previously covered by InfoBytes, the 4th Circuit agreed with the plaintiffs (a group of several political consultants) that the government-debt exemption contravenes the First Amendment’s Free Speech Clause, and found that the challenged exemption was a content-based restriction on free speech that did not hold up to strict scrutiny review. “Under the debt-collection exemption, the relationship between the federal government and the debtor is only relevant to the subject matter of the call. In other words, the debt-collection exemption applies to a phone call made to the debtor because the call is about the debt, not because of any relationship between the federal government and the debtor,” the appellate court opined. However, the panel sided with the FCC to sever the debt collection exemption from the automated call ban instead of rendering the entire ban unconstitutional, as requested by the plaintiffs. “First and foremost, the explicit directives of the Supreme Court and Congress strongly support a severance of the debt-collection exemption from the automated call ban,” the panel stated. “Furthermore, the ban can operate effectively in the absence of the debt-collection exemption, which is clearly an outlier among the statutory exemptions.” The petitioners—Attorney General William Barr and the FCC—now ask the Court to review whether the government-debt exception to the TCPA’s automated-call restriction is a violation of the First Amendment. Oral arguments are set for April 22.
ISP pays $15 million to settle with two more states on hidden fees and false advertising
On January 9, the Minnesota attorney general announced that an internet service provider (ISP) agreed to pay nearly $9 million in order to resolve allegations that it overcharged customers for phone, internet and cable services. In a separate action, on December 10, the Washington attorney general’s office announced that it entered into a $6.1 million consent decree with the same ISP to resolve similar claims of deceptive acts and practices. As previously covered by InfoBytes, the ISP entered into settlements over the same alleged actions with the states of Colorado on December 19, and Oregon on December 31.
6th Circuit affirms dismissal of FDCPA action for lack of standing
On January 3, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal for lack of standing of an FDCPA suit brought by a consumer who claimed that because collection letters sent to him by a law firm caused him anxiety, the firm had violated the FDCPA. According to the opinion, the consumer had two delinquent accounts with a bank, which the law firm attempted to recover by sending collection letters to the consumer. The consumer asserted that the letters the law firm sent caused him “an undue sense of anxiety” that he would be sued by the firm, and he subsequently filed a lawsuit against the firm for violating the FDCPA. The court held that the consumer did not have standing to sue under Article III of the U.S. Constitution, for three main reasons: (i) the debtor’s anxiety about a potential lawsuit amounted to a fear of future harm that was not “certainly impending” because the consumer had not alleged that the law firm had threatened to sue him or that he refused to pay, and, therefore, his anxiety did not satisfy the injury-in-fact element for Article III standing; (ii) the consumer was “anxious about the consequences of his decision to not pay the debts that he does not dispute he owes,” and such a “self-inflicted injury” is not a basis for standing because it was not “fairly traceable” to the law firm’s conduct, but instead reflected the consumer’s own behavior; and (iii) “even assuming [the law firm” violated the statute by misrepresenting that an attorney had reviewed [the consumer’s] debts,” that violation did not cause any injury to the consumer because the consumer gave the court “no reason to believe he did not owe the debts,” and, therefore, he could not show that the law firm’s alleged procedural violation of the FDCPA, by itself, was an “injury in fact.” Because the court held that the consumer did not have standing, it affirmed the lower court’s dismissal of the action.
CFPB files claims against debt relief companies
On January 9, the CFPB announced that it filed a complaint in the U.S. District Court for the Central District of California against a mortgage lender, a mortgage brokerage, and several student loan debt relief companies (collectively, “the defendants”), for allegedly violating the FCRA, TSR, and FDCPA. In the complaint, the CFPB alleges that 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. The Bureau asserts that the reports of more than 7 million student loan borrowers were actually resold or provided to companies engaged in marketing student loan debt relief services.
According to the complaint, “using or obtaining prescreened lists to send solicitations marketing debt-relief services is not a permissible purpose under FCRA.” The complaint alleges that the defendants violated the TSR by charging and collecting advance fees before first “renegotiat[ing], settl[ing], reduc[ing], or otherwise alter[ing] the terms of at least one debt pursuant to a settlement agreement, debt-management plan, or other such valid contractual agreement executed by the customer,” and prior to “the customer ma[king] at least one payment pursuant to that settlement agreement, debt management plan, or other valid contractual agreement between the customer and the creditor or debt collector.” The CFPB further alleges that the defendants violated the TSR and the 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.
The Bureau is seeking a permanent injunction to prevent the defendants from committing future violations of the FCRA, TSR, and CFPA, as well as an award of damages and other monetary relief, civil money penalties, and “disgorgement of ill-gotten funds.”
District Court voids OFAC fine of $2 million
On December 31, the U.S. District Court for the Northern District of Texas vacated a $2 million civil penalty imposed on a global petroleum company (company) by OFAC for the company’s purported violation of sanctions, ruling that the OFAC regulations did not provide “fair notice” to the company that its actions were prohibited. In May of 2014, OFAC issued sanctions regulations relating to Ukraine. Shortly afterwards, the company and a Russian oil company, with which it had a long-established business relationship, executed several contracts. Although the Russian company was not a blocked entity, its president, who signed the contracts, had been named a specially designated national (SDN). In July of 2014, OFAC issued a penalty notice with a $2 million penalty to the company, alleging that the contracts the company executed with the Russian company violated the Ukraine-related sanctions. The company immediately challenged the penalty notice and fine, asserting that at the time it entered into the subject transactions, the OFAC regulations on Ukraine were not clear, and it interpreted them to allow the transactions. The court agreed with the company, holding that the “text of the regulations does not provide fair notice of its interpretation” in accordance with the Due Process Clause, because “the text [of the regulation] does not ‘fairly address’ whether a U.S. entity receives a service from a SDN when that SDN performs a service enabling the U.S. person to contract with a non-blocked entity. Therefore, the court granted the company’s motion for summary judgment and vacated OFAC’s Penalty Notice.
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.
Missouri AG alleges housing nonprofit trust deceived members
On January 2, the Missouri attorney general filed a petition for preliminary and permanent injunction in Missouri Circuit Court against a nonprofit trust and its registered agent (the defendants) alleging the defendants deceived thousands of state residents by marketing memberships in the trust with the promise that the pooled resources would fund “to-be-completed homes.” The AG alleges that the defendants solicited consumers to attend meetings, purchase memberships, and pay monthly dues, and also asked members to provide additional funds to go towards appliances and other fixtures for the homes. However, the agent defendant allegedly admitted that none of the promised homes were constructed or otherwise provided to the members.
The AG further contends that “none of the solicited funds were ever used or invested towards providing a home to any of the members,” and were instead used to cover the trust’s operating expenses. According to the AG, the defendants’ actions violate state law and constitute false promises, omissions of material fact, and deception. The AG seeks injunctive relief “up to and including prohibiting and enjoining [d]efendants . . . from owning or operating organizations that sell or manage real estate that solicit upfront payments for goods or services, or that solicit charitable contributions.” The AG also seeks restitution for member losses, a fine equal to 10 percent of the restitution amount, a $1,000 fine per violation, and compensation for the state’s costs in pursuing the case.
9th Circuit affirms FDCPA decision in favor of debt collector
On December 18, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision of the trial court in favor of a debt collector in an FDCPA action brought by a consumer claiming that the debt collector used false, deceptive, or misleading means in attempting to collect a debt. The consumer, in 2006, opened a credit card account with a bank, but stopped sending payments in December of 2008, without paying off the balance. The bank later sold the consumer’s unpaid account to a debt collector in 2009, after which the debt collector sent a letter to the consumer in 2017 in an effort to collect the past due balance. The consumer filed a complaint against the debt collector, claiming that the debt was “time-barred” as the six-year statute of limitations had run and that the debt collector violated the FDCPA by not disclosing this in the letter to him. The district court granted the debt collector’s summary judgment motion.
On appeal, the consumer again claimed that the debt collector’s language is “deceptive or misleading,” specifically in the debt collector’s disclosure in the letter that read, “[t]he law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau.” The court disagreed. According to the opinion, even though the six-year statute to sue in order to collect had expired, “nothing in the letter falsely implies that [the debt collector] could bring a legal action against [the consumer] to collect the debt.” Further, the court determined that the “least sophisticated debtor would [not] likely be misled” by the debt collector’s disclosure, because the “natural conclusion” that could be drawn from the collector’s language was that the debt was time-barred. Additionally, the court rejected the consumer’s contention that the debt collector’s letter was “deceptive or misleading” because it failed to warn the consumer that in some states, the statute of limitations to sue on a debt may be revived if the debtor promises to pay or makes a partial payment on the debt. The court stated that the FDCPA does not require a debt collector to “provide legal advice” about specific issues such as a revival provision in a state statute of limitations. The panel also pointed out that although the statute may have run for the debt collector to take legal action in order to recover the outstanding debt, as long as it complies with the law and does not use misleading, false, or deceptive means, the FDCPA allows it to continue its efforts to collect on a lawful debt.
9th Circuit affirms no jurisdiction without exhaustion of administrative remedies
On December 27, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a TILA case brought by a consumer against his mortgage lender, citing lack of subject matter jurisdiction under the provisions of FIRREA that require claims involving a bank that is in receivership to be presented to the FDIC before the borrower files suit. In 2009 the consumer filed an adversary proceeding in bankruptcy court against his lender for rescission of his mortgage loan under TILA. The consumer claimed that the lender’s notice of right to cancel was defective when the loan was signed, resulting in an extended rescission period under TILA, but his suit was dismissed for lack of jurisdiction. Once again, in 2012, the district court dismissed the consumer’s TILA suit after finding that the consumer had not exhausted his administrative remedies with the FDIC before filing suit.
On appeal, the three-judge panel rejected the consumer’s claim that his lender was not placed into receivership until after his loan was sold, and therefore he did not have to exhaust his administrative remedies before filing suit. The panel subscribed to the Fourth Circuit’s interpretation of the exhaustion requirement, stating that “even where an asset never passes through the FDIC’s receivership estate, the FDIC should assess the claim first.” According to the opinion, the FIRREA requirement that the consumer exhaust his remedies with the FDIC applied to this action because the panel determined that (i) the consumer’s claim was “susceptible of resolution under the FIRREA claims process”; (ii) the consumer’s claim was related to an act or omission of the lender; and (iii) the FDIC, which “was not required to have possessed the loan before determining a claim” had been appointed as receiver for that lender, stripping the appellate court of subject matter jurisdiction until after the FDIC determined his claim.
Mortgage broker allegedly violated federal laws by posting customers’ personal information on website
On January 7, the FTC announced a proposed settlement with a California mortgage broker and his company to resolve alleged violations of the FTC Act, FCRA, Regulation P, and the Safeguards Rule. According to a complaint filed by the DOJ on behalf of the FTC, the defendants published the personal information of customers who posted negative reviews on a public website, including customers’ “sources of income, debt-to-income ratios, credit history, taxes, family relationships, and health.” The alleged posts containing negative financial information violated the defendants’ responsibilities under Regulation P (Privacy of Consumer Financial Information) as the required privacy disclosure provided to the customers stated that the defendants would not share personal information with any third party. Regulation P also “prohibits financial institutions from disclosing to any nonaffiliated third party any nonpublic personal information about a customer unless it has provided the customer with an opt-out notice, . . . a reasonable opportunity to opt out of the disclosure, and the customer has not opted out.” In this instance, customers were not given the opportunity to opt out of disclosure of their personal financial information in response to online consumer reviews, the complaint asserts. In addition, the complaint alleges that the defendants also violated the FTC Act by causing unfair or deceptive acts or practices that “deprived consumers of the ability to control whether and to whom they disclosed sensitive information.” The defendants also allegedly violated the FCRA by using consumer reports for impermissible purposes, and the FTC’s Safeguards Rule by failing to implement or maintain an adequate information security program. Under the terms of the proposed settlement, the defendants will pay a $120,000 civil penalty and are prohibited from (i) misrepresenting their privacy and data security practices; (ii) using consumer reports for anything other than a permissible purpose; (iii) not providing required privacy notices; and (iv) improperly disclosing nonpublic personal information to third parties. Among other things, the company is also prohibited from transferring, selling, sharing, collecting, maintaining, or storing nonpublic personal information unless it implements a comprehensive information security program; and must obtain independent third-party assessments of its information security program every two years.