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9th Circuit: Administrator vicariously liable for debt collectors’ alleged TCPA violations
On March 22, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TCPA claims against a student loan administrator (defendant), finding that the administrator could be held vicariously liable for a contractor’s alleged debt collection attempts. The plaintiff claimed in her suit that the companies hired by the contracted student loan servicer violated the TCPA by using an autodialer when attempting to contact borrowers to collect payment. The plaintiff argued that the defendant was “vicariously liable” for the alleged TCPA violations of the companies that were hired to collect the plaintiff’s debts, and that the defendant was “similarly liable under the federal common law agency principles of ratification and implied actual authority.” The claims against the collectors and the servicer were dismissed for lack of personal jurisdiction, and the lower court ruled on summary judgment that a jury could not hold the defendant responsible for the actions of the servicer.
On appeal, the split three-judge panel held that a reasonable jury could find that the defendant knew of the alleged TCPA violations, and that because the defendant “ratified the debt collectors’ calling practices by remaining silent,” or alternatively, willfully ignored potential violations through its collections arrangement with the servicer, a jury could find a “principal-agent” relationship—even if one did not exist in the contract—and the court should hold it liable for the collectors’ TCPA violations. According to the panel, there was evidence in the record that the defendant “had actual knowledge” of the alleged violations through audit reports provided by the servicer and “did nothing” to ensure that the debt collectors complied with the law. However, the entire panel agreed that the defendant was not per se vicariously liable for the debt collectors’ alleged TCPA violations.
In dissent, Judge Bybee agreed with the panel that the defendant is not per se vicariously liable for the debt collectors’ practices, and noted in addition that there is not enough evidence to show that the defendant consented to practices that violate the TCPA or that it granted the debt collectors authority to violate the law. He wrote, “there is no evidence whatsoever that [the defendant] approved of such practices. In fact, the only evidence in the record is to the contrary: when [the defendant] learned of wrongful practices, it reported them to [the servicer] and asked [the servicer] to correct the problem.”
Law firms settle with CFPB over debt relief fee allegations
On March 27, the U.S. District Court for the Central District of California entered a consent judgment ending a CFPB lawsuit against a group of affiliated law firms and their managing attorneys. As previously covered by InfoBytes in 2017, the Bureau’s enforcement action alleged that the defendants violated the Telemarketing Sales Rule by, among other things, (i) collecting improper fees in advance of providing debt relief services; (ii) misrepresenting that advance fees would not be charged; and (iii) providing substantial assistance to another company it knew or should have known was engaged in acts or practices that violated the rule. Under the terms of the consent judgment, the defendants—who have neither admitted nor denied the Bureau’s allegations or the factual findings outlined in the judgment—agreed to pay approximately $35.3 million in redress to affected consumers and a $40 million civil money penalty. However, based on the defendants’ inability to pay this amount, full payment is suspended subject to the defendants paying $50,000 to affected consumers and $1.00 toward the CMP.
1st Circuit: “Sustained Overdraft Fees” are not interest under the National Bank Act
On March 26, the U.S. Court of Appeals for the 1st Circuit affirmed a district court’s decision to dismiss putative class action allegations that a bank charged usurious interest rates on its overdraft products, finding that the bank’s “Sustained Overdraft Fees” are not interest under the National Bank Act (NBA). The plaintiff filed a lawsuit against the bank in 2017, alleging that sustained overdraft fees should be considered interest charges subject to Rhode Island’s interest rate cap of 21 percent, and that because the alleged annual interest rates exceeded the cap, the fees violated the NBA. The district court, however, dismissed the case, ruling that the sustained overdraft fees were service charges, not interest charges.
On appeal, the split three-judge panel held that, because the sustained overdraft fees did not constitute interest payments under the NBA and the OCC’s regulations interpreting the NBA, the class challenges cannot move forward. The panel stated that the agency’s interpretation in its 2007 Interpretive Letter is due “a measure of deference.” The panel found the agency’s interpretation persuasive because “[f]lat excess overdraft fees (1) arise from the terms of a bank’s deposit account agreement with its customers, (2) are connected to deposit account services, (3) lack the hallmarks of an extension of credit, and (4) do not operate like conventional interest charges.”
In dissent, Judge Lipez noted that, while the OCC interpretive letter laid out a clear case for overdraft fees as service, not interest charges, it was silent on the question of “Sustained Overdraft Fees.” He wrote that “[s]ilence, however, is not guidance, and we would thus need to infer a ruling on a debated issue from between the lines of the Letter.” Furthermore, he could “not see how we can defer to an interpretation that the OCC never clearly made on an issue that it previously described as complex and fact-specific.”
District Court: Debt collector did not buy right to arbitrate with credit card account
On March 22, the U.S. District Court for the Eastern District of Pennsylvania ruled that a debt collector (defendant) who purchased a consumer’s credit card account failed to establish that the sale of the account included the sale of the right to arbitrate disputes relating to the account. According to the ruling, a bank sold a consumer’s credit card account to the defendant after the plaintiff defaulted on his payments. The agreement between the consumer and the bank included a mandatory arbitration clause, as well as a class action waiver. When the defendant sent a collection letter to the plaintiff, the plaintiff filed a lawsuit alleging the letter violated the FDCPA because, among other things, it included ambiguous language regarding discount payment options. The defendant moved to compel arbitration. The court denied the defendant’s motion, stating that the sale of the accounts does not axiomatically include the right to arbitrate disputes relating to them, and that the defendant had not provided adequate documentation to support the conclusion that it did in this case. The court found that “subject to further argument and possible evidence clarifying possible ambiguity in the use of the term ‘account’ in the assignment,” the court would not presume that the sale of the accounts included the bank’s rights to compel arbitration.
District Court partially grants summary judgment in favor of CFPB in debt collection action
On March 21, the U.S. District Court for the Northern District of Georgia partially granted the CFPB’s motion for summary judgment against a New York-based company and three individuals for allegedly violating the CFPA and the FDCPA in a debt collection operation, but denied the motion for the remaining defendants—a Georgia-based company and one individual—determining there was a genuine issue of material fact. As previously covered by InfoBytes, in March 2015, the CFPB filed a lawsuit against participants in the debt collection operation, alleging that the participants attempted to collect debt that consumers did not owe or that they were not authorized to collect. Further, the CFPB alleged that the participants used harassing and deceptive techniques, including placing robocalls through a telephone broadcast service provider to millions of consumers, stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. As a result, according to the CFPB’s allegations, the participants received millions of dollars in profits from the targeted consumers. The CFPB moved for summary judgment on all claims.
The court granted the motion on all claims against the New York-based company and three individuals, concluding that they committed multiple violations of the CFPA and the FDCPA through, among other things, the robocalls, false legal threats, and the processing of consumer payments. With respect to the CFPA claims against certain individuals, the court found that they provided “substantial assistance” to the other participants in the operation as they committed actions in violation of the CFPA, and therefore were liable themselves. With respect to the Georgia-based company and one individual, the court concluded that there was a genuine issue of material fact as to whether either qualified as a “debt collector” under the FDCPA and, therefore denied the CFPB’s motion as to those claims. Because there are remaining issues as to some of the participants’ liability, the court concluded that a ruling on damages would be premature.
District Court approves relief order in Spokeo
On March 11, the U.S. District Court for the Central District of California approved a stipulation for prospective relief, settling a consumer FCRA action against a purported credit reporting agency (defendant) for alleged procedural violations. In 2016, the case went to the U.S. Supreme Court (covered by a Buckley Special Alert), which remanded the case so the 9th Circuit could fully consider whether the plaintiff had standing under Article III of the Constitution. The approved stipulation lasts three years and, among other things, requires the defendant to (i) post a “clear and appropriately-titled” link to its opt-out privacy form; (ii) create a step requiring that its customers affirmatively agree not to use its information to determine eligibility for a FCRA-related purpose; and (iii) state on all of its webpages that it is not a consumer reporting agency. The order also prohibits the defendant from publishing “any numerical estimates or predictions of consumer credit scores” unless its terms and conditions specify that the information may not be used for FCRA purposes.
9th Circuit: Plaintiffs failed to show harm in FCRA action
On March 25, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of five plaintiffs’ allegations against two credit reporting agencies, concluding the plaintiffs failed to show they suffered or will suffer concrete injury from alleged information inaccuracies. According to the opinion, the court reviewed five related cases of individual plaintiffs who alleged that the credit reporting agencies violated the FCRA and the California Consumer Credit Report Agencies Act (CCRAA), by not properly reflecting their Chapter 13 bankruptcy plans across their affected accounts after they requested that the information be updated. The lower court dismissed the action, holding that the information in their credit reports was not inaccurate under the FCRA. On appeal, the 9th Circuit, citing to U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Special Alert), concluded that the plaintiffs failed to show how the alleged misstatements in their credit reports would affect any current or future financial transaction, stating “it is not obvious that they would, given that Plaintiffs’ bankruptcies themselves cause them to have lower credit scores with or without the alleged misstatements.” Because the plaintiffs failed to allege a concrete injury, the court affirmed the dismissal for lack of standing, but vacated the lower court’s dismissal with prejudice, noting that the information may indeed have been inaccurate and leaving the door open for the plaintiffs to refile the action.
District Court reduces jury’s $3 million award in FCRA action to $490,000
On March 21, the U.S. District Court for the Northern District of Alabama reduced a consumer’s punitive damages award from $3 million to $490,000 in an action against a credit reporting agency for the alleged misreporting of credit information. According to the opinion, after the consumer had a debt dismissed by small claims court, he requested that the credit reporting agencies remove the trade line from his credit report. When one credit reporting agency refused to initiate a dispute investigation because it suspected fraud, the consumer filed a complaint alleging violations of the FCRA. In May 2018, a jury awarded the consumer $5,000 in compensatory damages and $3 million in punitive damages. The credit reporting agency moved to have the court enter judgment as a matter of law and/or have the judgment amended or altered. The court reviewed the award, noting that the punitive to compensatory damages ratio of 600 to 1 “suspiciously cocked” the “court’s eyebrows.” The court emphasized that a single-digit multiplier would not be sufficient to deter the credit reporting agency from future wrongdoing and instead, applied the 98 to 1 ratio used by the U.S. Court of Appeals for the 4th Circuit, bringing the punitive damages down to $490,000. In addition, the court applied the “one satisfaction” rule, concluding the credit reporting agency did not have to pay the compensatory damages, as the consumer already received settlement proceeds that exceed the jury award from other defendants, and “the injuries the [consumer] described are indivisible between [the credit reporting agency] and the settling defendants.”
Supreme Court: Law firms conducting nonjudicial foreclosures are not debt collectors under FDCPA
On March 20, the U.S. Supreme Court unanimously affirmed a 2018 10th Circuit decision, holding that law firms performing nonjudicial foreclosures are not “debt collectors” under the FDCPA. Justice Breyer delivered the opinion, which resolves whether FDCPA protections apply to nonjudicial foreclosures conducted by law firms. (Covered by InfoBytes here.) Three considerations led to the Court’s conclusion. First, the Court held that a business pursuing nonjudicial foreclosures would be covered by the Act’s primary definition of a debt collector. However, the Act goes on to state that for the purpose of a specific section, the definition of debt collector “also includes” a business of which the principal purpose is the enforcement of security interests. The Court determined that this phrase only makes sense if such businesses were not covered by the primary definition. Second, the Court noted that Congress appeared to have chosen to differentiate between security-interest enforcers and ordinary debt collectors in order “to avoid conflicts with state nonjudicial foreclosure schemes.” Third, the Court noted that the legislative history of the FDCPA indicated that the final result was likely a compromise between two competing versions of the bill, one of which would have excluded security-interest enforcement entirely, and another that would have treated it as ordinary debt collection.
Justice Sotomayor, in a concurring opinion, wrote that the Court’s statutory interpretation was a “close case” and urged Congress to clarify the statute if the Court has “gotten it wrong.” She noted that making clear that the FDCPA fully encompasses entities pursuing nonjudicial foreclosures “would be consistent with the FDCPA’s broad, consumer-protective purposes.” Justice Sotomayor also stated that the Court’s ruling does not give license to those pursuing nonjudicial foreclosures “to engage in abusive debt collection practices like repetitive nighttime phone calls” and that enforcing a security interest does not grant an actor blanket immunity from the Act.”
CFPB and NYAG defend Bureau’s constitutionality in 2nd Circuit
On March 15, the CFPB and the New York Attorney General (NYAG) filed opening briefs in the U.S. Court of Appeals for the 2nd Circuit in their appeal of the Southern District of New York’s (i) June 2018 ruling that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional; and (ii) the September 2018 order dismissing the NYAG’s claims under the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the Bureau and the NYAG filed a lawsuit in February 2017, alleging that a New Jersey-based finance company and its affiliates (defendants) engaged in deceptive and abusive acts by misleading first responders to the World Trade Center attack and NFL retirees with high-cost loans by mischaracterizing loans as assignments of future payment rights, thereby causing the consumers to repay far more than they received. After the defendants moved to dismiss the actions, the district court allowed the NYAG’s claims to proceed under the CFPA, even though it had dismissed the Bureau’s claims, but then reversed course. Specifically, in September 2018, the court concluded that the remedy for Title X’s constitutional defect (referring to the Bureau’s single-director structure, with a for-cause removal provision) is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. (Covered by InfoBytes here.)
In its opening brief to the 2nd Circuit, the Bureau argues that the district court erred when it held that the for-cause removal provision of the single-director structure is unconstitutional. According to the Bureau, the single director “does not undermine the President’s oversight. If anything, the Bureau’s single-director structure enhances the President’s ‘ability to execute the laws…’” because the President can still remove the director for cause, which allows the director to be held responsible for her conduct. In the alternative, the CFPB argued that should the court find the for-cause removal provision unconstitutional, the proper remedy is to sever the provision from Title X in accordance with the statute’s severability clause and not hold the entire CFPA invalid.
In a separate brief, the NYAG makes similar constitutional and severability arguments as the Bureau, but also argues that even if the entirety of Title X were to be held invalid, the state law claims should survive under the federal Anti-Assignment Act.