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District Court finds that combination of litigation documents is misleading and violates FDCPA
On March 30, the U.S. District Court for the Southern District of Indiana found that serving a request for admission in connection with a complaint and a summons on a debtor in a debt collection case constituted misleading communications in violation of the Fair Debt Collection Practices Act (FDCPA). According to the order, an attorney served a debtor with a request for admission along with a summons to appear in court and a complaint seeking collection of an alleged debt. The request for admission sought acknowledgment that the allegations in the debt collector’s complaint were true. The court found that, as a matter of law, the combination of the documents would confuse an unsophisticated debtor because a debtor would conclude that filing an answer to the complaint was the necessary step to avoid judgment, and not realize that he or she had to do essentially the same thing separately by serving plaintiff’s counsel within thirty days or else admit the underlying allegations. While not at issue in this case, the court noted that it would be inclined to hold that “in order to avoid a violation of the FDCPA, requests for admission should always advise of the consequences of a failure to make a timely response.”
9th Circuit affirms dismissal of claims alleging survey provider violated TCPA
On March 29, the U.S. Court of Appeals for the 9th Circuit affirmed a district court’s decision to grant summary judgment in favor of a patient satisfaction survey provider (defendant), concluding that a plaintiff's signed enrollment form with her health insurance provider meant she granted “prior express consent” to receive calls from the defendant. According to the opinion, the plaintiff accused the defendant of allegedly violating the Telephone Consumer Protection Act (TCPA) when it used an automatic telephone dialing system to repeatedly call her to inquire about the quality of her experience with a network physician. She later challenged the dismissal of her suit, arguing that the calls fell outside the scope of consent. However, in agreeing with the district court’s decision, the three-judge panel held that by providing her phone number on an insurance enrollment form that permitted the insurer to share her information for “quality improvement” and other purposes, the plaintiff had provided the level of consent required by the TCPA to receive calls from the defendant. While the court acknowledged that the plaintiff “could not have known the identity of the specific entity that would ultimately call her,” by authorizing the insurance company “to disclose her phone number for certain purposes, she necessarily authorized someone other than [the insurance company] to make calls for those purposes. Specifically, she authorized calls from entities to which [the insurance company] disclosed her information.” According to the panel, the defendant fell within that category.” The panel also rejected the plaintiff’s argument that the calls violated the TCPA because the defendant failed to demonstrate that it called her on the insurance company’s behalf, finding that there is “no statutory or logical basis for imposing such a requirement.”
District Court finds government is not immune from private claims under the FCRA
On March 22, the U.S. District Court for the Western District of Louisiana denied the Defense Finance and Accounting Service’s (DFAS), a federal government agency within the Department of Defense, motion to dismiss a private action under the Fair Credit Reporting Act (FCRA) based on a lack of subject matter jurisdiction as a result of sovereign immunity. The court found that FCRA’s definition of person includes “government or governmental subdivision or agency,” and therefore, waives the United States’ sovereign immunity under FCRA. The court did not agree with DFAS’ position that the terms “government or governmental subdivision or agency” are too broad to constitute a wavier of sovereign immunity. In support of its position, the court cited a decision by the U.S. Court of Appeals for the 7th Circuit providing that the FCRA “unequivocally waives the United States’ sovereign immunity from damages for violations under the FCRA.”
2nd Circuit: debt collectors do not need to state interest is not accruing
On March 29, the U.S. Court of Appeals for the 2nd Circuit held that a debt collection letter, which does not disclose that the balance due is not accruing interest or fees is not misleading under the Fair Debt Collection Practices Act (FDCPA). The decision results from a 2016 lawsuit filed by two debtors who alleged that the debt collection notices they received from the defendants were “false, deceptive, or misleading” under Section 1692e of the FDCPA because the notices did not state whether the balances were accruing interest or fees. The district court awarded summary judgment in favor of the defendants after unrebutted evidence was produced to show that the debtor’s balances did not accrue interest or fees during the collection period. In affirming the district court’s decision, the 2nd Circuit applied the “least sophisticated consumer” standard and found that even if a consumer interpreted the debt collection notice to believe the balance due was accruing interest or fees, the only harm that would exist is “being led to think that there is a financial benefit to making repayment sooner rather than later.” The panel also noted that the notice was consistent with Section 1692g of the FDCPA because interest and fees were not accruing, the balance due stated the accurate amount of the debt.
CFPB appeals $10 million order in payday lender suit
On March 27, the CFPB filed a notice of appeal to the U.S. Court of Appeals for the 9th Circuit in response to a district court’s order that an online loan servicer and its affiliates pay a $10 million penalty for offering high-interest loans in states with usury laws barring the transactions—a penalty which fell far short of the $50 million the CFPB had requested. As previously covered in InfoBytes, the district court found that a lower statutory penalty was more appropriate than the CFPB’s requested amount because the CFPB failed to show the company “knowingly violated the CFPA.” It further rejected the Bureau’s request for restitution and denied a request for a permanent injunction. The notice of appeal seeks review of all parts of the final judgment as well as the parts of the findings of facts and conclusions of law that are adverse to its position.
7th Circuit rules bank cannot arbitrate debt claim with a minor in TCPA suit
On March 22, the U.S. Court of Appeals for the 7th Circuit reversed a district court’s decision that had granted a national bank’s motion to compel arbitration of a putative class action. In 2014, the plaintiff filed a lawsuit alleging the bank’s debt collection practices violated the Telephone Consumer Protection Act (TCPA), after the bank called the plaintiff’s phone number seeking payment on her mother’s overdue card payments. The three-judge panel held that the district court erred in ruling that the plaintiff—who made a one-time purchase with her mother’s credit card when she was a minor—became an authorized user under the account and was bound by her mother’s credit card agreement, including the arbitration provision, regardless of whether she received a direct benefit from the cardholder agreement. The panel opined that, “an individual does not become an [a]uthorized [u]ser simply by using the credit card to complete the cardholder’s transaction.” Specifically, a provision to add authorized users to an existing account “clearly foresees an [a]uthorized [u]ser as playing a far more durable role in the account,” and in fact, the panel noted, the plaintiff’s mother did not follow the required steps to add an authorized user to the account. Furthermore, the plaintiff did not have the legal capacity to enter into a contractual relationship with the bank, and therefore, could not be bound by the agreement. The 7th Circuit remanded the case back to the district court for review.
District Court grants Illinois county a chance to establish proximate cause in FHA lawsuit
On March 26, the U.S. District Court for the Northern District of Illinois issued a ruling that Cook County (the County) may move forward with a lawsuit against a national bank (the Bank) for allegedly violating the Fair Housing Act (FHA) by engaging in discriminatory lending practices, holding that the County “‘is entitled to a chance to prove its case’” and establish proximate cause. In 2015, the district court dismissed the County’s complaint against the Bank on the grounds that the alleged facts did not fall within the scope of the FHA, and that the County itself was not an “‘aggrieved person’ entitled to sue under the [FHA].” However, the County filed a second amended complaint after the Supreme Court issued a 2017 ruling (previously covered in a Buckley Sandler Special Alert), which held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, but that such injuries must be proximately caused by the alleged misconduct rather than simply a foreseeable result.
In granting in part and denying in part the Bank’s motion to dismiss the County’s second amended complaint, the district court ruled that the County may proceed on its FHA claims only “to the extent they allege that [the Bank’s] equity-stripping practice directly resulted in increased expenditures” by the County, “in connection with administering and processing an increased number of foreclosures.” According to the court, foreclosures in majority-minority neighborhoods were more likely to occur than in neighborhoods with fewer minority residents. “Statistical analysis could establish the likelihood that a loan modification denial would lead to foreclosure, and therefore could help a factfinder assess how many unnecessary foreclosures [the] County processed as a result of [the Bank’s] conduct,” the district court stated. Other claims such as “lost property tax revenue, increased demand for County services” including housing-related counseling, and “diminished racial balance and stability” were dismissed because they would require estimating too many variables. Additionally, in response to the Bank’s challenge that the County’s suit was barred by the FHA’s statute of limitations, the district court ruled that the challenge is premature because it is not apparent when the County “‘knew or should have known’” that the Bank’s equity-stripping practice was an actionable violation under the FHA.
7th Circuit affirms debt collector verification of debt satisfies FDCPA and FCRA
On March 21, the U.S. Court of Appeals for the 7th Circuit held that a debt collector does not need to contact an original creditor directly in order to satisfy the verification of debt requirement under the FDCPA. According to the opinion, a consumer filed a lawsuit against a debt collection company for, among other things, allegedly violating Section 1692 of the FDCPA, which requires that a debt collector obtain verification of a debt. The debt collector had sent multiple notices to the consumer regarding a telecommunications debt, but certain digits of the original account number were incorrect. The consumer argued that the debt collector was obligated to contact the telecommunications company to confirm the account number was accurate. The district court granted summary judgment in favor of the debt collector, agreeing that the debt collector’s responsibility under Section 1692 was satisfied when the notices sent to the consumer matched the telecommunications company’s description of the debt amount and debtor’s name. In affirming the lower court’s decision, the 7th Circuit stated “[i]t would be both burdensome and significantly beyond the [FDCPA]’s purpose” to “require[e] a debt collector to undertake an investigation into whether the creditor is actually entitled to the money it seeks.”
The 7th Circuit also affirmed summary judgment for the debt collector with respect to allegations that it violated the FCRA by inadequately investigating the disputed debt. The court, noting that the debt collector’s “investigation was unquestionably reasonable,” concluded that the debt collector satisfied the requirements of the FCRA when it (i) verified the consumer’s information with her debt collection file; and (ii) after learning that the consumer disputed the accuracy of the account number associated with the debt, asked the credit reporting agencies to delete the adverse credit report.
Colorado judge rules FDIA does not completely preempt state usury claims against a non-bank
On March 21, the U.S. District Court for the District of Colorado held that the Federal Deposit Insurance Act (FDIA) does not completely preempt a Colorado state regulator’s claims that a non-bank lender violated state law and remanded the case back to state court. The underlying action results from charges brought by the administrator of Colorado’s Uniform Consumer Credit Code against a non-bank lender – which the administrator argues is the “true lender” of loans issued by a New Jersey-chartered bank – for allegedly overcharging interest and other fees in violation of state law. In granting the motion to remand, the court noted that the administrator sufficiently alleged the non-bank was the “true lender” of the loans in question as the non-bank provided the website through which customers apply for the loans, determined the criteria for marketing the loans, decided which applications receive loans, and purchased the loans within two days after they were made by the New Jersey bank. The district court concluded that while courts are split as to banks, because the true lender of the loans was a non-bank, complete preemption by FDIA does not apply even though the non-bank lender has a “close relationship” with a state or national bank. The district court also stated that whether the non-bank is a “true lender” is “not relevant to the issues of complete preemption, which determine whether remand is warranted.”
Supreme Court rules state courts may hear certain securities class actions brought under federal law
On March 20, the U.S. Supreme Court unanimously affirmed a California state appeals court decision in 2011, which ruled that state courts are permitted to hear certain securities class actions brought under federal law. Justice Kagan delivered the opinion. The decision resolves a question concerning whether the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which made amendments to the Securities Act of 1933 (1933 Act), gave federal courts exclusive jurisdiction over covered class actions alleging only 1933 Act violations. SLUSA “does nothing to deprive state courts of their jurisdiction to decide class actions brought under the 1933 Act,” the Court stated when ruling that SLUSA allowed state courts concurrent jurisdiction over securities claims involving 50 or more plaintiffs. Rather, Section 77p of SLUSA “bars certain securities class actions based on state law,” but it “says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law.” And, the Court further opined, “Neither did SLUSA authorize removing such suits from state to federal court.”