InfoBytes Blog

District Court agrees with FTC, enters $5 million judgment against credit monitoring scheme

On June 26, the U.S. District Court for the Northern District of Illinois granted the FTC’s motion for summary judgment, concluding that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge did not involve unfair or deceptive practices. The FTC argued that the defendants’ scheme, which used the promise of a free credit report to enroll the consumers into a monthly credit monitoring program, violated the FTC Act’s ban on deceptive practices. The court agreed, holding that the ad campaign was “rife with material misrepresentations that were likely to deceive a reasonable consumer.” Additionally the court agreed with the FTC that the defendants’ website was materially misrepresentative because it did not give “the net impression that consumers were enrolling in a monthly credit monitoring service” for $29.94 a month, as opposed to defendants’ claim that consumers were obtaining a free credit report.

The court entered a judgment ordering the defendants to pay over $5 million in equitable monetary relief to the FTC and prohibiting defendants from, among other things, charging consumers for any credit monitoring services and disclosing or using any collected consumer information. The defendants must also submit to compliance reporting and monitoring by the FTC.

Courts FTC Act Credit Report Credit Monitoring FTC

District Court grants preliminary approval of TCPA class action settlement

On June 25, the U.S. District Court for the Northern District of California issued an order preliminarily approving a class action settlement between class members and a student loan management enterprise (defendants) accused of violating the Telephone Consumer Protection Act (TCPA) by using an automatic telephone dialing system (ATDS) to place calls to cellular telephones without receiving prior express written consent. Specifically, the plaintiff alleged that the defendants used a phone number previously used by the Department of Education (Department) to contact borrowers and which was listed on the Department’s forms, website, and billing statements, so that when class members returned calls under the impression that they were contacting the Department, the defendants collected and stored the phone numbers. The plaintiff further alleged that the stored numbers were used by the defendants to place calls using an ATDS for the purpose of “mislead[ing] class members into paying for student loan forgiveness and payment programs that were otherwise offered for free by the federal government.” According to the order, preliminarily approval of the settlement prevents possible further litigation and, given the current “‘wind-down’ mode” of one of the defendants, prevents a risk that class members seeking relief would be unable to collect on a large judgment. Under the terms of the settlement, the defendants have agreed to establish a $1.1 million settlement fund, as well as to injunctive relief that prohibits the defendants from using an ATDS to contact individuals without first receiving prior written consent.

Courts Student Lending Settlement TCPA Class Action

9th Circuit holds that judicial foreclosure proceedings to collect unpaid HOA fees is debt collection under FDCPA

On June 25, the U.S. Court of Appeals for the 9th Circuit held that judicial foreclosure proceedings to collect delinquent assessments and other charges that were owed to a homeowners association (HOA) represented by a law firm that was also a defendant in the case constitute “debt collection” under the Fair Debt Collection Practices Act (FDCPA). The decision results from unpaid assessments owed to the HOA that had previously been settled in two prior suits. However, the homeowner (plaintiff-appellant) defaulted on both settlement agreements, and foreclosure proceedings commenced due to an acknowledgment contained within the second agreement, which recognized the HOA’s right to collect the debt by foreclosing on and selling her property. According to the order, the 9th Circuit first drew a distinction between judicial foreclosures and nonjudicial foreclosures. Nonjudicial foreclosures, the 9th Circuit opined, are not debt collections under the FDCPA because, under California law, they present no possibility of a deficiency judgment against the homeowner and recover nothing from the homeowner. However, the Court held that in this case, the judicial foreclosure created the possibility for a deficiency judgment against the homeowner and subsequent collection of money. Furthermore, since the law firm regularly collected debts owed to others, it was a debt collector, and the lower court’s contrary decision “cannot be reconciled with the language of the FDCPA.” The 9th Circuit reversed the lower court’s ruling that the defendants were not engaged in “debt collection” as defined by the FDCPA.

However, because the lower court granted summary judgment to the defendants, it did not assess whether the plaintiff-appellant had suffered any damages from her claim that the defendants “misrepresented the amount of her debt and sought attorneys’ fees to which they were not entitled” during judicial proceedings. The 9th Circuit held that the law firm’s application for a writ of special execution included “accruing attorney fees,” implying that the fees had been approved by a court, as required by state law, when they had not. The 9th Circuit noted that the state trial court’s subsequent approval of the fee request did not mean the representation was accurate when it was made. The 9th Circuit remanded to allow the lower court to determine what damages, if any, were due the homeowner due to this violation.

In a separate memorandum disposition, the 9th Circuit, however, affirmed in part the lower court’s order granting the defendants’ motion for summary judgment concerning the plaintiff-appellant’s time-barred claims, holding that “even the ‘least sophisticated debtor’ would not likely be misled by the communication—and lack of communication—at issue here, as Plaintiff cannot have reasonably believed that she had paid off the debt in question.”

Courts Appellate Ninth Circuit Debt Collection Foreclosure FDCPA

3rd Circuit affirms summary judgment for internet company in TCPA action

On June 26, the U.S. Court of Appeals for the 3rd Circuit affirmed summary judgment for a global internet media company holding that the plaintiff failed to show the equipment the company used fell within the definition of “automatic telephone dialing system” (autodialer) based the recent holding by the D.C. Circuit in ACA International v. FCC. (Covered by a Buckley Sandler Special Alert.) The decision results from a lawsuit filed by a consumer alleging the company’s email SMS service, which sent a text message every time a user received an email, was an “autodialer” and violated the TCPA. The consumer had not signed up for the service, but had purchased a cellphone with a reassigned number and the previous owner had elected to use the SMS service. Ultimately, the consumer received almost 28,000 text messages over 17 months. In 2014, the district court granted summary judgment for the company concluding that the email service did not qualify as an autodialer. In light of the FCC’s 2015 Declaratory Ruling—which concluded that an autodialer is not limited to its current functions but also its potential functions—the 3rd Circuit vacated the lower court’s judgment. On remand, the lower court again granted summary judgment in favor of the company.

In reaching the latest decision, the 3rd Circuit interpreted the definition of an autodialer as it would prior to the 2015 Declaratory Ruling in light of the D.C. Circuit’s recent holding, which struck down the part of the FCC’s 2015 Ruling expanding the definition to potential capacity. The appellate court held that the consumer failed to show that the email SMS service had the present capacity to function as an autodialer.

Courts TCPA Autodialer FCC Third Circuit Appellate ACA International

Supreme Court upholds credit card company’s anti-steering provisions

On June 25, the U.S. Supreme Court in a 5-4 vote held that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by preventing merchants from steering customers to other credit cards. As previously covered by InfoBytes, in September 2016, the U.S. Court of Appeals for the 2nd Circuit considered the non-steering protections included in the credit card company’s agreements with merchants and concluded that such provisions protect the card company’s rewards program and prestige and preserve the company’s market share based on cardholder satisfaction. Accordingly, the 2nd Circuit concluded that “there is no reason to intervene and disturb the present functioning of the payment‐card industry.” In June 2017, a coalition of states, led by Ohio, petitioned the Supreme Court to review the 2nd Circuit decision, arguing the credit card industry’s services to merchants and cardholders are not interchangeable and therefore, the credit card market should be viewed as a two-sided market, not a single market. The Supreme Court disagreed with the petitioners’ arguments, finding that the credit card industry is best viewed as one market. The court reasoned that while there are two sides to the credit card transaction, credit card platforms “cannot make a sale unless both sides of the platform simultaneously agree to use their services,” resulting in “more pronounced indirect network effects and interconnected pricing and demand.” Accordingly, the two-sided transaction should be viewed as a whole for purposes of assessing competition. The court further concluded that the higher merchant fees the credit card company charges result in a “robust rewards program” for cardholders, causing the company’s anti-steering provisions to not be inherently anticompetitive, but in fact to have “spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions.”

Courts U.S. Supreme Court Credit Cards Antitrust Appellate Second Circuit

Plaintiffs must arbitrate with telecom provider over TCPA claims

On June 20, the U.S. District Court for the Northern District of Illinois granted a telecommunication company’s motion to compel arbitration and dismissed a putative class action alleging the company violated the Telephone Consumer Protection Act (TCPA). Specifically, the plaintiff brought an action against the telecommunications company for allegedly making unauthorized phone calls using prerecorded messages in an effort to reach account holders to collect unpaid bills. The company moved to compel arbitration because the plaintiff had entered into a “subscriber agreement,” which was provided to him via mail after he agreed to self-install his services, and the agreement requires arbitration of disputes. The court agreed with the company, holding that the arbitration provision of the subscriber agreement covered the dispute because the “Federal Arbitration Act does not require agreements to be signed, only written” and the plaintiff installed and used the telecommunication services, which constituted acceptance of the subscriber agreement.

Courts Arbitration TCPA Robocalls Debt Collection

Supreme Court rejects review of $806 million RMBS judgment

On June 25, the Supreme Court denied without comment an international bank’s petition for writ of certiorari to challenge the $806 million in damages awarded by the Federal Housing Finance Agency (FHFA) for selling allegedly faulty mortgage-backed securities to Fannie Mae and Freddie Mac. As previously covered by InfoBytes, in September 2017, the U.S. Court of Appeals for the 2nd Circuit affirmed the New York District Court’s ruling requiring the $806 million payment. Both lower courts concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact,” including false statements regarding the underlying loans’ compliance with underwriting standards related to the creditworthiness of borrowers and appraisal value of the properties.  

Courts U.S. Supreme Court Writ of Certiorari RMBS FHFA Appellate Second Circuit Fannie Mae Freddie Mac

Massachusetts high court finds retailer violated state law with robocall collection efforts

On June 25, the Massachusetts Supreme Judicial Court held that a national retailer’s use of an automated dialing service to contact debtors without leaving voicemail messages constitutes a violation of the state’s debt collection regulation. According to the opinion, after a consumer defaulted on the retailer’s branded debit card, the retailer began contacting the consumer more than twice a week using an automated dialing service. The retailer did not leave voice messages. In July 2015, the consumer filed suit against the retailer for violating the state debt collection regulation for calling more than two times in a seven-day period in order to collect a debt. The lower court granted summary judgment in favor of the retailer, holding that the automated phone calls were not “communications” under the state regulations and there was no indication the consumer answered and heard the prerecorded message more than twice a week. In reversing the lower court’s decision, the state supreme court rejected the retailer’s argument that it did not “initiate” communications because it was using an automated dialing system and also rejected the argument that the calls did not constitute “communications” because they did not convey any information if the consumer did not answer. The court unanimously held that the retailer’s arguments are contrary to the purpose of the regulation and that the “regulation applies to any attempted telephonic communication. . .in an effort to collect a debt, so long as, as here, the creditor is able to reach the debtor or to leave a voicemail message for the debtor.”

Courts State Issues Automated Telephone Dialing Debt Collection Robocalls

NY District Court holds CFPB structure is unconstitutional

On June 21, the U.S. District Court for the Southern District of New York terminated the CFPB as a party to an action against a New Jersey-based finance company and its affiliates (defendants), concluding that the CFPB’s organizational structure is unconstitutional and therefore, the agency lacks authority to bring claims under the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the Bureau and the New York Attorney General’s office (NYAG) filed a lawsuit in in February 2017, claiming the 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. The defendants sought dismissal of the case, arguing that, among other things, “the CFPB’s unprecedented structure violates fundamental constitutional principles of separation of powers, and the CFPB should be struck down as an unconstitutional administrative agency.”

The court denied the defendants’ motion as to the NYAG, finding that it had plausibly alleged claims under the CFPA and New York law and had the independent authority to pursue those claims.  But the court concluded that the CFPB lacked such authority, noting that it was not bound by the recent decision of the D.C. Circuit upholding the Bureau’s constitutionality in PHH v. CFPB (covered by a Buckley Sandler Special Alert).  The court instead adopted portions of two separate dissents from that decision to conclude that the Bureau’s single director structure is unconstitutional and that the defect cannot be remedied by striking the limitations on the president’s authority to remove the Bureau director because the “removal for cause” provision is “at the heart of Title X” of Dodd-Frank.  Quoting one of the PHH dissents, the court stated, “I would strike Title X in its entirety.” 

The court also rejected an attempt by acting Director Mulvaney to salvage the Bureau’s claims.  Although the action was initiated by Director Cordray, the Bureau filed a notice in May ratifying that decision and arguing that, because the Bureau is currently led by an acting director who can be removed by the president at will, defendants’ motion to dismiss the Bureau’s claims should be denied.  The court disagreed, concluding that the constitutional issues presented in the case “are not cured by the appointment of Mr. Mulvaney” because “the relevant provisions of the Dodd-Frank Act that render the CFPB’s structure unconstitutional remain intact.”

Courts PHH v. CFPB State Attorney General CFPB CFPB Succession Consumer Finance CFPA Single-Director Structure

11th Circuit holds ADA action against restaurant chain’s website is not moot

On June 19, the U.S. Court of Appeals for the 11th Circuit held that a plaintiff’s claims against a national restaurant chain for allegedly operating a website that was not compliant with the Americans with Disabilities Act (ADA) are not moot despite a previous settlement with a separate plaintiff. The plaintiff sued the restaurant chain seeking declaratory and injunctive relief, requesting that the court (i) order the restaurant to alter its website and make it accessible to individuals with disabilities as required by Title III of the ADA; and (ii) order the restaurant chain to continually update and maintain that accessibility. Prior to the plaintiff’s filing, the restaurant chain reached a settlement in an earlier case with similar claims. The district court held that the plaintiff’s claims were moot because the restaurant chain had already agreed to the remedy the plaintiff sought in the previous settlement and had begun the process of its remediation plan by placing an accessibility notice on its website. On appeal, the 11th Circuit disagreed with the lower court, holding that the plaintiff’s claims are not moot, finding that the restaurant chain has not yet successfully remediated its website and the plaintiff’s request for an injunction against the restaurant chain if the website is not brought into compliance is still viable. The appellate court also noted that the current plaintiff would have no way of enforcing the settlement’s remediation plan because he was not a party to that action.

Courts Appellate Eleventh Circuit Americans with Disabilities Act