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Financial Services Law Insights and Observations


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  • District Court approves $35 million settlement in student debt-relief action


    On July 14, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against the named defendant in a 2019 action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney. which had alleged a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint asserted that the defendants violated the CFPA, the Telemarketing Sales Rule, and various state laws. A second amended complaint also included claims for avoidance of fraudulent transfers under the FDCPA and California’s Uniform Voidable Transactions Act.

    In 2019, the named defendant filed a voluntary petition for Chapter 11 relief, which was later converted to a Chapter 7 case. As the defendant is a Chapter 7 debtor and no longer conducting business, the Bureau did not seek its standard compliance and reporting requirements. Instead, the finalized settlement prohibits the defendant from resuming operations, disclosing or using customer information obtained during the course of offering or providing debt relief services, or attempting “to collect, sell, assign, or otherwise transfer any right to collect payment” from any consumers who purchased or agreed to purchase debt relief services. The defendant is also required to pay more than $35 million in redress to affected consumers, a $1 civil money penalty to the Bureau, and $5,000 in civil money penalties to each of the three states.

    The court previously entered final judgments against several of the defendants, as well as a default judgment and order against two other defendants (covered by InfoBytes here, here, here, and here).

    Courts CFPB Enforcement State Attorney General State Issues CFPA UDAAP Telemarketing Sales Rule FDCPA Student Lending Debt Relief Consumer Finance Settlement

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  • 8th Circuit affirms summary judgment for mortgage servicer


    On July 9, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment in favor of a mortgage loan servicer (defendant), concluding that the defendant’s communications were not in connection with an attempt to collect a debt. The plaintiff had alleged that the defendant violated the FDCPA by engaging in misrepresentations and unfair conduct when processing the plaintiff’s application for loss mitigation assistance and selling the plaintiff’s home through a foreclosure sale. According to the 8th Circuit, “the district court applied the ‘animating purpose’ test, which considers the content of each communication individually, and determined that they were not made in connection with the collection of a debt.”

    In affirming the district court’s recent order, the 8th Circuit agreed with the district court’s decision that the defendant did not violate the FDCPA because the substance of each of the communications indicates that none were made in connection with an attempt to collect on the underlying mortgage debt.

    Courts Eighth Circuit Mortgages FDCPA Appellate

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  • 3rd Circuit overturns FDCPA ruling in plaintiff’s favor


    On July 6, the U.S. Court of Appeals for the Third Circuit overturned a district court’s decision, holding that a debt collector that sent an envelope with a quick reference (QR) code that when scanned, revealed an Internal Reference Number (IRN) with the first 10 characters of the plaintiff’s street address violated the FDCPA’s prohibition in 15 U.S.C. § 1692f(8) on “[u]sing any language or symbol, other than the debt collector’s address, on any envelope.” The district court, relying on the 3rd Circuit’s 2019 decision in DiNaples v. MRS BPO, dismissed the case, holding the plaintiff lacked standing under the FDCPA because the barcode on the envelope did not reveal enough protected information to rise to the level of a concrete injury, since numerous individuals could have an identical IRN.

    The 3rd Circuit reversed and remanded, explaining that the plaintiff had standing to bring a claim because the envelope’s QR code made protected information available to the public. The court rejected the defendant’s arguments that the envelope did not violate the FDCPA because it did not reveal the account number, the plaintiff did not know how to use the bar code to unlock the private information, and that there was no material risk of harm. The appellate court explained that “[a]ccount numbers are but one type of protected information” and that the plaintiff “did not need to know how to use IRNs to access accounts” nor “did he need to show an increased risk of harm.”

    Courts Appellate Third Circuit FDCPA Debt Collection

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  • District Court grants CFPB’s motion to strike affirmative defenses in FCRA, FDCPA action


    On June 30, the U.S. District Court for the District of Maryland issued a memorandum opinion granting the CFPB’s motion to strike four out of five affirmative defenses presented by defendants in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants (a debt collection entity, its subsidiaries, and their owner) for allegedly violating the FCRA, FDCPA, and the CFPA. The alleged violations include, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies, failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to consumer-reporting agencies. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.

    After the court denied the defendants’ motion to dismiss on the basis that the CFPB was unconstitutional and therefore lacked standing, the defendants filed an amended affirmative defense asserting the following: (i) the alleged FDCPA violation was a bona fide error; (ii) the Bureau was “barred from seeking equitable relief by the doctrine of unclean hands”; (iii) the Bureau’s leadership structure was unconstitutional under Article II at the time the complaint was filed, thus the actions taken at the time were invalid; (iv) the Bureau structure is unconstitutional under Article I and therefore the Bureau lacked standing because “it is not accountable to Congress through the appropriations process”; and (v) the statute of limitations on the alleged violations had expired. The Bureau asked the court to strike all but the statute of limitations defense. Concerning the bona fide error defense, the defendants contended the alleged violations were not intentional and resulted from a bona fide error notwithstanding the maintenance of “detail[ed] policies and procedures for furnishing accurate information to the consumer reporting agencies,” but the court ruled this defense insufficient because the defendants failed to identify “specific errors [and] specific policies that were maintained to avoid such errors” and failed to explain their procedures. With respect to the unclean hands defense, the court ruled to strike the defense because it found that the defendants had not “alleged ‘egregious’ conduct or shown how the prejudice from that conduct ‘rose to a constitutional level’” when claiming the Bureau engaged in “duplicitous conduct” by allegedly disregarding its own NORA process or by serving multiple civil investigative demands. Finally, the court further decided to strike the two constitutional defenses because it found that allowing those defenses to proceed “could ‘unnecessarily consume the Court’s resources.’” The court granted the defendants 14 days to file an amended affirmative defense curing the identified defects.

    Courts CFPB Enforcement FCRA FDCPA Consumer Reporting Agency Credit Report Debt Collection CFPA Bona Fide Error

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  • District Court grants summary judgment for defendant in identity theft case


    On June 30, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment in favor of a debt collection agency (defendant) with respect to a plaintiff’s FCRA and FDCPA allegations. The plaintiff alleged that the defendant, among other things, violated the FCRA and the FDCPA by failing to fulfill a reasonable investigation upon receipt of a dispute over an account that was allegedly opened in his name without his consent. According to the opinion, the plaintiff filed a suit against the defendant and three other companies, but “following various settlements,” the debt collection agency remained the sole defendant. The plaintiff was notified by the defendant that additional information was required to further investigate his claim, including a fraud and identity theft affidavit, proof of residence, a police report, and a valid government-issued ID, which was not allegedly provided to the defendant until after the plaintiff had filed the suit. The court dismissed the FCRA claim, finding that there was not enough evidence that the plaintiff submitted the necessary information to make his reported dispute a bona fide dispute, which is necessary to establish an FCRA violation. The court also dismissed the FDCPA claims stating that the plaintiff failed to identify false representation or deceptive means by the defendant in connection with the collection of the relevant debt.

    Courts FDCPA FCRA Identity Theft

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  • District Court partially grants a defendant’s MTD in FCRA, FDCPA case


    On June 29, the U.S. District Court for the Eastern District of Missouri granted in part and denied in part a Wisconsin-based debt collection agency’s (defendant) motion for judgment in an FCRA and FDCPA case where the plaintiff alleged the defendant failed to update the information it was furnishing to credit bureaus after the plaintiff notified a credit bureau that she was no longer disputing the debt. Prior to February 2020, the plaintiff disputed the accuracy of a tradeline by the defendant appearing on her credit report with an unspecified party and then notified a credit reporting agency that she was no longer disputing the debt. The credit reporting agency forwarded the plaintiff’s notice to the defendant. After the plaintiff saw that the tradeline was still reported as disputed on her credit report, she filed suit alleging the defendant violated the FCRA by failing to conduct a proper investigation after being notified that the plaintiff was no longer disputing the debt and the FDCPA for reporting information it had knowledge of being false. The defendant argued “that it cannot be liable under the FCRA based on [the plaintiff’s] allegations because it had no new information to ‘reasonably investigate.’” However, the court denied the defendant’s motion for judgment on the pleadings as to the plaintiff’s FCRA claims stating that, “at this stage of the case, the Court cannot determine whether it would have been reasonable for [the defendant] to rely solely on its own files when performing its investigation after receiving [the plaintiff’s] letter stating that she no longer disputed her tradeline.” With respect to the FDCPA claim, the court cited the 8th Circuit’s ruling in Wilhelm v. Credico, Inc., which held that “whether ‘the consumer has disputed a particular debt’ is ‘always material’ and thus a debt collector must disclose that an account is disputed when it ‘elects to communicate ‘credit information[,]’ the fact that an account is no longer disputed would also be material.” In addition, the court found that the plaintiff failed to state a claim pursuant to the alleged FDCPA violation because she did “not allege any facts demonstrating that [the defendant] continued to report false credit information after it received notice from [a reporting agency] that she no longer disputed her [debt].” However, the court granted the plaintiff leave to file an amended complaint.

    Courts FCRA FDCPA Consumer Finance

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  • CFPB, Georgia AG allege debt-relief violations

    Federal Issues

    On June 29, the CFPB announced a stipulated final judgment and order against a financial services company and its owners for allegedly deceiving consumers into hiring the company. According to the complaint filed in the U.S. District Court for the Northern District of Georgia with the Georgia attorney general, the defendants violated the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Consumer Financial Protection Act, and Georgia’s Fair Business Practices Act by using telemarketing practices to deceptively induce consumers to hire the company, by, among other things, falsely promising to help them: (i) reduce their credit card debts by advertising to potential customers through direct mailers; and (ii) improve consumers’ credit scores by claiming they could restore their credit scores and that they had a “credit restoration team.” In addition, the defendants “collected millions of dollars in advance fees, claiming that it provided a ‘debt validation’ program that used the debt-verification process set forth in the [FDCPA] to invalidate and eliminate debt and improve consumers’ credit record, history, or rating.” Under the terms of the order, the defendants are banned from the telemarketing of any consumer financial product and selling financial advisory, debt relief, or credit repair services. The defendants must also pay a fine of $150,001, $15,000 of which will be remitted to the state of Georgia, and a penalty of approximately $30 million in consumer redress (full payment of which may be suspended if certain conditions are met).

    Federal Issues CFPB State Issues State Attorney General TSR Georgia CFPA FDCPA TCPA Enforcement

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  • District Court rules date on credit monitoring app report insufficient to prove FDCPA violation


    On June 24, the U.S. District Court for the Middle District of Tennessee granted a defendant debt collector’s motion for summary judgment in an FDCPA action, holding that the plaintiff did not have enough evidence to prove her claim that the defendant violated FDCPA Section 1692e(8) by failing to communicate that her debts were disputed. According to the order, the plaintiff obtained a copy of her credit report and noticed that the defendant was reporting five debts that she allegedly owed to a healthcare provider. The plaintiff’s counsel sent the defendant a letter disputing the debts. While the defendant did not report to the credit bureaus that the debts were disputed, the defendant received instructions from the healthcare provider to remove all of its consumer debts from the national credit bureaus. The defendant subsequently instructed the credit bureaus to remove all of the accounts from their services. However, the defendant did not verify that the debts were removed, claiming that it did not recall ever having “‘an issue raised as a result of one of the credit bureaus not removing a debt as requested,’” and as such “had ‘no reason to confirm that its instructions to [the credit bureau] had been carried out.’” When the plaintiff checked her credit report nearly three months later using a credit monitoring app, she saw that the debts were still being reported and were not marked as being disputed. The app showed the information to be reported as of a date that was three weeks after the defendant asked to have the debts marked as disputed. The plaintiff alleged that the defendant failed to mark the debts as disputed and alleged that it communicated information to the credit bureaus without identifying the debts as being disputed. The defendant countered, arguing among other things, that it “‘has no control over when or how [the credit bureau] inputs data from [the defendant] or how [the credit bureau] describes the report date of the data that [the defendant] submits to it.’”

    In granting the defendant’s motion for summary judgment, the court determined that simply because the app used a date to indicate how current the information was does not mean that information was communicated to the credit bureaus by the defendant on that date. The app report relied upon by the plaintiff “does not indicate that [the defendant] communicated with [the credit bureau] on that date,” the court wrote. “It is simply silent on that question. It certainly gives rise to the possibility that [the defendant] communicated with [the credit bureau] on that date, but a possibility is not the same as probability.” As a result, the court found there was insufficient evidence in the record to support the plaintiff’s claims and it granted summary judgment in the defendant’s favor.

    Courts FDCPA Consumer Finance Credit Report Credit Bureau

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  • District Court grants motions to compel and dismiss in FDCPA, TCPA class action


    On June 16, the U.S. District Court for the Southern District of California granted a Delaware-based debt collector’s (defendant) motions to dismiss with prejudice and compel arbitration in an FDCPA, TCPA class-action case, while denying as moot the defendant’s motion to strike or stay. The plaintiff’s unpaid credit card debt was sold to the defendant, who sought to collect the debt by calling the plaintiff’s cell phone two dozen times in a span of two weeks using an automated telephone dialing system. The plaintiff filed a lawsuit originally alleging TCPA violations. He later amended the complaint to include FDCPA violations after he claimed he never received notice as required by the FDCPA. Under the FDCPA, debt collectors are required to provide a consumer with written notice containing various required information within five days after the initial communication in connection with the collection of any debt, “unless the. . .information is contained in the initial communication or the consumer has paid the debt.” The defendant initially moved to dismiss, but after the plaintiff opposed, filed an instant motion to compel arbitration based on an arbitration provision contained in a set of terms and conditions in the plaintiff’s credit card agreement with the original creditor. The plaintiff countered, among other things, that the debt collector cannot enforce the arbitration provision because the plaintiff never signed it, and further argued that the card agreement is unconscionable.

    The court disagreed, ruling that the defendant did not waive its right to arbitrate the plaintiff’s claims, pointing out that the arbitration provision between the plaintiff and the defendant is part of the card agreement, which the plaintiff accepted once he began using the credit card. According to the court, the arbitration provision “states that it covers ‘any claim, dispute or controversy between you and us arising out of or related to your [a]ccount, a previous related [a]ccount, or our relationship,’ including but not limited to those ‘based on. . .statutory or regulatory provisions, or any other sources of law.’” According to the court, the plaintiff’s dispute with the defendant relates to violations of the TCPA and FDCPA and exists between the plaintiff and the original creditor’s assignee (the defendant). Thus, because the claims relate to a creditor-debtor relationship arising out of the card agreement, the court determined that the arbitration provision “constitutes a valid agreement to arbitrate” and was unpersuaded by the plaintiff’s arguments that the arbitration provision is unconscionable. With respect to the plaintiff’s TCPA claims, the court found that it “disregards as unreasonable and implausible Plaintiff’s allegation that any calls he received related to amounts unpaid arising out of his [credit card] were unlawful in light of the [c]ard [a]greement,” which expressly authorizes the original creditor or its assignees to call the plaintiff once the plaintiff accepted the card agreement. The court found that as the plaintiff did not plead sufficient facts to show that the calls were inconsistent with the FDCPA, the defendant had every right to call him.

    Courts Class Action TCPA FDCPA Credit Cards Debt Collection Autodialer

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  • District Court grants emotional damages award in FDCPA Case


    On June 17, the U.S. District Court for the Western District of Washington awarded plaintiffs approximately $62,000 in damages, including $60,000 for emotional distress, after suing a debt collector for alleged Washington Collection Agency Act and FDCPA violations when the defendant allegedly attempted to collect more than what was owed and allegedly made false and misleading statements when attempting to collect. According to the amended findings of fact and conclusions of law, the court previously granted the plaintiffs’ motion for summary judgment, finding that the defendant’s actions had violated Sections 1692e, 1692e(2), 1692e(8), and 1692f of the FDCPA, in addition to a provision of the Washington Collection Agency Act entitling them to damages under the Washington Consumer Protection Act. These actions included attempts to collect amounts not owed in three separate phone calls with one of the plaintiffs, one letter that was sent to both plaintiffs, and repeated and ongoing credit reporting of an inflated balance. The defendant allegedly made false and misleading statements, including that a judgment had been entered for the alleged debt, claiming that “Plaintiffs’ wages would be garnished, that plaintiffs had been evicted, and that various charges and fees were legitimate.” Though the defendant admitted the statements were made in error, the court ruled that the plaintiffs “did not need to meet the intentional infliction of emotional distress standard to recover” in this case under the FDCPA. The defendant’s actions caused the plaintiffs “stress, anxiety, feelings of helplessness and hopelessness, and other forms of general emotional distress … at a particularly vulnerable time for both plaintiffs, as they were experiencing the joy and challenges of raising a new baby.” The court awarded each of the two plaintiffs $30,000 in emotional distress damages.

    Courts FDCPA Debt Collection Settlement State Issues

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