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District Court rules cardholder agreement transferred arbitration rights to third party
On September 10, the U.S. District Court for the Eastern District of Arkansas granted a motion to compel arbitration in a putative class action alleging violations of the Arkansas Fair Debt Collection Practices Act (AFDCPA) and the FDCPA. According to the order, the plaintiffs contended that the defendants—a debt buyer and its law firm—attempted to collect charged-off credit card debts “through standardized, form debt collection complaints . . . that fraudulently and falsely averred that [the debt buyer] ‘holds in due course a claim . . . pursuant to a defaulted [bank] credit card account.” While the plaintiffs did not dispute that the arbitration provision contained within the cardholder agreement entered into with the bank was valid and that their state and federal claims fell within its scope, they argued that the debt buyer was not a “holder in due course” of the accounts in questions, and as such, the arbitration provision contained within the cardholder agreement was not assigned to the defendants. The court disagreed, ruling that the cardholder agreements specifically permitted the original creditors to assign their rights to a third party, which includes the right to arbitration and the right to enforce the class action prohibition.
District Court approves final Madden class action settlement
On September 10, the U.S. District Court for the Southern District of New York issued a final order and judgment to approve a class action settlement agreement, which ends litigation dating back to 2011 concerning alleged violations of state usury limitations. As previously covered by InfoBytes, the plaintiffs brought claims against a debt collection firm and its affiliate alleging violations of the FDCPA and New York state usury law when the defendants attempted to collect charged-off credit card debt with interest rates above the state’s 25 percent cap that was purchased from a national bank. In 2017, upon remand following the 2nd Circuit’s decision that a nonbank entity taking assignment of debts originated by a national bank is not entitled to protection under the National Bank Act from state-law usury claims (covered by a Buckley Special Alert here), the district court certified the class and allowed the FDCPA and related state unfair or deceptive acts or practices claims to proceed.
Following a fairness hearing, the court granted the parties’ joint motion for final approval, which divides the approximately 58,000 class members into two subclasses: claims alleging state-law violations, and claims alleging FDCPA violations. Under the terms of the settlement, the defendants are required to, among other things, (i) provide class members with $555,000 in monetary relief; (ii) provide $9.2 million in credit balance reductions; (iii) pay $550,000 in attorneys’ fees and costs; (iv) pay class representatives $5,000 each; and (v) agree to comply with all applicable laws, regulations, and case law regarding the collection of interest, including the collection of usurious interest.
CFPB settles with Illinois debt collector
On August 28, the CFPB announced a settlement with an Illinois-based debt collection company to resolve allegations that the company engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act and the FDCPA. Among other things, the company allegedly engaged in deceptive acts and practices by (i) threatening consumers with arrest, lawsuits, liens on their homes, and wage garnishment that the company did not plan on initiating; (ii) misrepresenting to consumers that company employees were attorneys; and (iii) informing consumers that their credit reports would be negatively affected if they failed to pay even though the company does not report consumer debts to credit-reporting agencies. While the company neither admitted nor denied the allegations, it has agreed to pay $36,878 in redress to harmed consumers and a $200,000 civil money penalty.
6th Circuit: Collection fee authorized under contractual agreement valid under FDCPA
On August 21, the U.S. Court of Appeals for the 6th Circuit affirmed a district court’s determination that a collection fee charged by a debt collector seeking to recover past due homeowner’s association fees was expressly authorized by a contractual agreement and did not violate the FDCPA. According to the opinion, after the plaintiffs fell behind on their homeownership association assessments and fees, the account was placed for collection with the defendant, who sought to collect both the past-due amount plus additional fees it charged the association for its collection services. The plaintiffs filed a lawsuit alleging that the debt collector violated the FDCPA by collecting the collection fees directly from the plaintiffs without authorization and attempting to collect an amount after agreeing to a settlement. The district court held a bench trial, which returned a verdict in favor of the defendant, finding that collecting the fees directly from the plaintiff was expressly authorized by the language in an agreement creating the debt (the Declaration). The plaintiffs appealed, arguing, among other things, that (i) the Declaration did not expressly authorize the collection of fees directly from them, and that moreover, because the association had not yet incurred the costs the additional fees should not have been collected until the original debt was paid; and (ii) the costs should have been limited to legal fees and costs.
On appeal, the 6th Circuit agreed with the district court, citing a provision in the Declaration providing that “‘[e]ach such assessment, together, with interest, costs, and reasonable attorney’s fees’. . . ‘shall also be the personal obligation’ of the property owner.” Additionally, the 6th Circuit noted that if the defendant waited to collect the additional fees, it would create an impractical, never-ending cycle of collections. Moreover, the appellate court was not persuaded by the plaintiffs’ argument that the Declaration limited the authorization of costs, noting that “[b]ecause collection often occurs outside of litigation, it makes little sense to read the Declaration to silently limit ‘costs’ to ‘legal costs’ associated only with litigation.”
District Court rejects law firm’s bona fide error defense in FDCPA action
On August 15, the U.S. District Court for the District of Connecticut held that a law firm violated the FDCPA, rejecting the law firm’s bona fide error defense, and awarded the consumer statutory damages. According to the opinion, the consumer alleged that the law firm violated the FDCPA in a 2016 debt collection letter sent to the consumer. Specifically, the consumer argued that the letter “‘ma[de] it impossible for a consumer to know how much is owed and if the debt will be considered paid if payment is made in full,’” because the letter contained two different balance amounts: (i) a “Charge-Off Balance” listed at $663.94 and (ii) a “Balance” or “Current Balance” listed as $565.46. The law firm acknowledged the existence of two different balance amounts, but asserted that the Current Balance was the correct amount and that the consumer “was not confused about what he owed.” The court rejected this argument, finding that under the “least sophisticated consumer standard,” a consumer would be confused by the two different balances, noting that the letter provided no explanation about the two different amounts. The law firm also argued that the inaccuracy was not material, and therefore it should not give rise to liability under the FDCPA. The court disagreed, finding that the difference between the two amounts was “more than trivial,” noting it almost exceeded one hundred dollars, and could induce a consumer to delay payment. Lastly, because the error in amounts was not a result of human judgment, but a failure in programming, the court rejected the law firm’s bona fide error defense. The court awarded the consumer statutory damages and authorized the consumer to seek reasonable costs and attorney’s fees.
3rd Circuit: QR code on debt collection letter violates FDCPA
On August 12, the U.S. Court of Appeals for the 3rd Circuit affirmed a district court ruling that an envelope containing an unencrypted “quick response” (QR) code that revealed a consumer’s account number when scanned violated the FDCPA. The plaintiff in this case received an envelope containing a collection letter with a printed QR code that, when scanned, revealed the internal reference number associated with the plaintiff’s account. The plaintiff filed a class action lawsuit, and the district court granted summary judgment for the plaintiff, finding that printing the QR code was no different than printing the account number on the envelope, which is a violation of the FDCPA. The defendant appealed, arguing, among other things, that (i) the plaintiff had not suffered a concrete injury; (ii) the QR code would have to be unlawfully scanned in order to obtain the account information; and (iii) the defendant’s conduct was covered under the FDCPA’s bona fide error defense, because it “erred by using industry standards for processing return mail.”
On appeal, the 3rd Circuit affirmed the district court’s ruling. Specifically, the appellate court found that, with respect to injury, the plaintiff was not required to demonstrate that anyone actually intercepted the letter or scanned the QR code to determine that the contents related to debt collection—disclosure of the account number is itself the harm. The appellate court also rejected the defendant’s argument that someone needed to unlawfully scan the barcode, finding that there is no material difference between printing a QR code or printing an account number directly on an envelope because protected information was made available to the public. The appellate court also rejected the defendant’s bona fide effort defense, stating that the defendant misunderstood its FDCPA obligations and the printing of the QR code had not been the result of a clerical mistake or accident.
7th Circuit: FDCPA claims fail due to insufficient evidence
On August 9, the U.S. Court of Appeals for the 7th Circuit affirmed a district court ruling that a consumer could not proceed on FDCPA or Wisconsin Consumer Act (WCA) claims because he failed to demonstrate that the incurred credit card debt in question was a “consumer debt” entitled to FDCPA and WCA protections. The consumer filed a lawsuit against a law firm acting on behalf of a debt collection agency claiming, among other things, that the firm had failed to provide written notice of his right to cure a defaulted debt before the firm commenced an action against him in Wisconsin state court. While the consumer maintained that the debt was not his, he argued that “to the extent” that he was liable for the debt, it was entered into for personal, family, or household purposes, and that by failing to provide written notice of his rights, the firm had violated the FDCPA and WCA. The district court granted summary judgment for the defendant, finding that the consumer failed to establish that the debt was a consumer debt.
On appeal, the 7th Circuit affirmed the district court’s ruling. The appellate court found that the evidence put forward by the plaintiff, which included account statements and his own representations regarding the purpose of the account, was insufficient to show that the debt was incurred for personal, family, or household purposes. Specifically, the court found that the plaintiff’s representations that the debt was a consumer debt could not be reconciled with his contention that the debt was not his and that the charges on his account statement did not provide sufficient information for the court to conclusively determine that they were made for personal, and not business, purposes.
7th Circuit: Debt collector’s email not a “communication” under the FDCPA
On August 8, the U.S. Court of Appeals for the 7th Circuit affirmed a summary judgment ruling in favor of a consumer, concluding that a debt collector’s emails did not constitute a “communication” under the FDCPA. According to the opinion, the debt collector sent a consumer two emails about separate medical debts containing hyperlinks to the debt collector’s website, which then required the user to click through various screens to access and download a document containing the disclosures required under Section 1692g(a) of the FDCPA. The consumer did not open the emails. After finding out about the debt collection effort from the hospital, the consumer called the debt collector for more information; however, the required disclosures were not provided over the phone or sent in a written notice within the next five days. The consumer filed suit against the debt collector alleging it violated Section 1692g(a) by not providing the disclosures during her phone call or within five days after the call as required by law. The company argued that the emails were the FDCPA’s “initial communications” and contained the mandatory disclosures. The lower court granted the consumer’s motion for summary judgment.
On appeal, the 7th Circuit rejected the debt collector’s arguments that the emails constituted a “communication” under the FDCPA, noting that other appellate courts have held the message “must at least imply the existence of a debt,” and the emails only contained the name and email address of the debt collector. Moreover, the appellate court took issue with the multistep process required to access the validation notice, concluding “[a]t best, the emails provided a digital pathway to access the required information. And we’ve already rejected the argument that a communication ‘contains’ the mandated disclosures when it merely provides a means to access them.”
Notably, the CFPB filed an amicus brief in the action, seeking affirmation of the lower court’s ruling on the separate theory that the debt collector allegedly failed to satisfy the conditions of the E-Sign Act. However, because the court affirmed the decision on other grounds, it chose not to address the E-Sign Act.
2nd Circuit: Consumer plausibly alleged discrepancies between collection letters and mortgage note
On July 22, the U.S. Court of Appeals for the 2nd Circuit affirmed in part and vacated in part a district court’s dismissal of a consumer’s FDCPA claims concerning communications received from a creditor and a collection firm (defendants) related to his defaulted mortgage. The consumer alleged that the letter he received in November 2015 listed an inaccurate amount of debt in violation of FDCPA section 1692g (concerning “initial communications”), and that subsequent letters received were inconsistent because they listed varying amounts of debt. Additionally, the consumer contended that the defendants violated sections 1692e (“false, deceptive, or misleading representations”) and 1692f (“unfair or unconscionable means to collect or attempt to collect any debt”). The district court ruled that the consumer failed to plausibly state a claim or provide factual support for his allegations.
On review, the appellate court agreed that the consumer failed to state a claim under section 1692g, explaining that “the least sophisticated consumer” would not be misled by the various debt collection letters concerning the amount of the debt. The appellate court emphasized that the consumer ignored the creditor’s acceleration of the underlying mortgage loan—which accounted for the core differences in the communications about the outstanding debt—and rejected the consumer’s allegations that the letters were inaccurate and inconsistent. However, the 2nd Circuit disagreed with the district court, holding that the consumer’s claims under sections 1692e and 1692f survived the defendants’ motion to dismiss because the consumer plausibly alleged discrepancies between the collection letters and mortgage note concerning late fees and charges.
CFPB, New York AG settle lawsuit against debt collection network
On July 25, the CFPB and New York attorney general announced (see here and here) proposed settlements with a network of New York-based debt collectors (defendants) to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act, the FDCPA, and various New York laws. As previously covered by InfoBytes, the CFPB and the New York AG filed a lawsuit in 2016, alleging the defendants established and operated a network of companies that harassed and/or deceived consumers into paying inflated debts or amounts they may not have owed. Among other things, the defendants allegedly (i) “misrepresented to consumers that they owed sums they did not owe, were not obligated to pay, or that the companies did not have a legal right to collect”; (ii) deceptively threatened consumers with lawsuits that the defendants did not plan on initiating; and (iii) impersonated law enforcement officials, government agencies, and court officers. Additionally, the New York AG claimed the defendants violated state laws related to the collection of consumer debt and the placement of consumer debt for collection.
The settlements were approved by the court on August 23 and permanently ban the defendants from acting as debt collectors and enjoin all defendants from engaging in the alleged unlawful conduct in the future and from making any misrepresentation or omission connected with any consumer financial product or service. The first stipulated final judgment and order for a group of the defendants imposes a $10 million civil money penalty (CMP) to both the CFPB and the New York AG, as well as $40 million in redress to harmed consumers. Under the terms of the second stipulated final judgment and order, the other group of defendants must pay CMPs of $1 million to both the CFPB and the New York AG and $4 million in consumer redress. However, based on the second group of defendants’ inability to pay, full payment is suspended subject to the defendants paying $10,000 in consumer redress and a $1 CMP to the Bureau.