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Illinois appellate court affirms dismissal of consumer counterclaims in credit card action
On April 12, the Appellate Court of Illinois published an opinion affirming the dismissal of a consumer’s counterclaims against a lender in a lawsuit seeking to collect the consumer’s alleged debt from a store credit card. According to the opinion, in January 2017, the lender filed a small claims action seeking to collect credit card debt on which the consumer allegedly defaulted in July 2012. The consumer filed a putative class action counterclaim against the lender alleging, among other things, that the lender’s collection action violated the FDCPA and various Illinois laws because it was time-barred under the four-year statute of limitations period provided to enforce a sale of goods under Section 2-725 of the UCC. The lender moved to dismiss the counterclaims, alleging that its complaint was timely filed within the five-year statute of limitations period applicable to credit card agreements under Section 13-205 of the Illinois Code of Civil Procedure. The lower court granted the lender’s motion to dismiss, holding that the credit card agreement was governed by the five-year statute of limitations applicable to credit card agreements under Section 13-205 of the Illinois Code of Civil Procedure, rather than the four-year statute of limitations under the UCC’s sale of goods provisions. On appeal, the appellate court affirmed the lower court’s decision, rejecting the consumer’s argument that the UCC should apply to the agreement because the consumer could only use the credit card to purchase goods at a single retailer. Specifically, the appellate court held that the type of credit card was immaterial to the analysis and that Section 13-205 of the Illinois Code of Civil Procedure clearly controlled in this case because a tripartite relationship existed among the bank, the cardholder, and the merchant, and the payments made by the bank to the merchant pursuant to the cardholder agreement constituted a loan to the cardholder. As a result, the lender’s complaint was timely filed.
Kraninger’s focus is preventing consumer harm, clarifying “abusive”
On April 17, Kathy Kraninger, Director of the CFPB, spoke before the Bipartisan Policy Center where she reiterated the Bureau’s focus on prevention of harm and announced a symposium that will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act. In her remarks, Kraninger touched on the four “tools” the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. The Bureau wants to help consumers protect their own interests and choose the right products and service to help themselves. Specifically, the Bureau is focusing on ensuring that American consumers learn to save to be able to absorb a financial shock.
- Rulemaking. The Bureau will comply with Congressional mandates to promulgate rules or address specific issues through rulemaking, but when the Bureau has discretion, it will focus on “preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices which undermine the ability of consumers to choose the products and services that are best for them.” In the coming weeks, the Bureau will release its proposed rules to implement the FDCPA, which will include (i) bright line limits on the number of calls consumers can receive from debt collectors on a weekly basis; (ii) clarity on how collectors may communicate through new technology such as, email and text messages; and (iii) requiring more information at the outset of collection to help consumers better identify debts and understand payment and dispute options. Kraninger stated, “the CFPB must acknowledge that the costs imposed on regulated entities absolutely affect access to, and the availability of, credit to consumers.”
- Supervision. This tool is the “heart of the agency,” according to Kraninger, as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau will keep in mind that it is not the only regulator examining most entities and will focus on coordination and collaboration with the other regulators so as not to impose unmanageable burdens in examinations.
- Enforcement. The Bureau will continue to enforce against bad actors that do not comply with the law, as enforcement is “an essential tool that Congress gave the Bureau.” The Bureau will have a “purposeful enforcement regime” to foster compliance and help prevent consumer wrongs. Kraninger is “committed to ensuring that enforcement investigations proceed carefully and purposefully to ensure a fair and thorough evaluation of the facts and law… [and ensuring they] move as expeditiously as possible to resolve enforcement matters, whether through public action or a determination that a particular investigation should be closed.”
Kraninger also touched on how the Bureau plans to measure success going forward. Kraninger noted that in the past, the Bureau touted its outgoing statistics as a measurement, such as amount of consumer redress and number of complaints handled. However, according to Kraninger, if the Bureau succeeds in fostering a goal of prevention of harm, certain outputs like meritorious complaints would actually be lower. Therefore, the Bureau’s success should be based on how it uses all of its tools. Lastly, Kraninger announced a symposia series that would convene to discuss consumer protections in “today’s dynamic financial services marketplace.” The first will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act, specifically, to address issues with the “reasonableness” standard. There are no additional details on the date for the symposium but Kraninger noted that this would be the next step in exploring future rulemaking on the issue. The series will also have future events discussing behavioral law and economics, small business loan data collection, disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.
Additionally, on April 9, acting Deputy Director, Brian Johnson, spoke at the George Mason University Law & Economics Center's Ninth Annual Financial Services Symposium. In his prepared remarks, Johnson emphasized that regulatory rules should be “as simple as possible” when dealing with complex markets as they are easier for a greater portion of actors to understand and adapt to and also promote compliance, “which has the ancillary benefit of making it easier for consumers (not to mention regulators) to distinguish between good and bad actors.” Johnson argued that regulators should not try and dictate specific outcomes in rulemaking. Instead, Johnson stated that “financial regulators should recognize that complex market systems are not a means to accomplish their specific goals” and should “narrowly-tailor rules to address a discrete market failure.” Johnson also touched on the Bureau’s new Office of Innovation, noting that the Bureau’s proposed No Action Letter Program and Product Sandbox will offer firms “the opportunity to expand credit while still preserving important consumer protections,” while assisting the Bureau in learning about new technologies and potential consumer risks. As for the Bureau’s cost-benefit analysis, Johnson said that this activity will not be limited to future actions, but will also be used for “periodic retrospective analysis” because financial markets are “constantly changing, requiring constant reappraisal and verification of the rules that govern the system.”
11th Circuit: An implicit threat of litigation is enough to assert a FDCPA claim
On April 5, the U.S. Court of Appeals for the 11th Circuit reversed in part and affirmed in part a district court’s order dismissing a plaintiff’s action alleging a debt collector violated the FDCPA when attempting to collect on a time-barred debt. According to the opinion, the plaintiff brought a lawsuit asserting a debt collector (i) violated the FDCPA’s prohibition on “false, deceptive or misleading” practices under section 1692e; (ii) violated the FDCPA’s prohibition on “unfair or unconscionable” practices under section 1692f by attempting to collect on a time-barred debt; and (iii) violated Florida state collection laws. The district court dismissed the FDCPA claims, concluding that the law allows for collectors to seek “voluntary repayment of…time-barred debt so long as the debt collector does not initiate or threaten legal action,” and declined to exercise jurisdiction over the state law claims once it dismissed the FDCPA claims.
On appeal, the 11th Circuit affirmed the dismissal of the section 1692f claim, rejecting the argument that attempts to collect on time-barred debt are generally unconscionable or unfair under the law. As for the claim under section 1692e, the 11th Circuit concluded the collection letter could plausibly be misleading or deceptive to the “least sophisticated consumer.” Specifically, the 11th Circuit noted that, “as a general matter, a creditor can seek voluntary payment of a time-barred debt,” but the “right to seek repayment does not confer a right to mislead” and one must only “reasonably infer an implicit threat” of litigation to state a claim under section 1692e. The 11th Circuit concluded that the letter’s offer to “resolve” the debt at a discount—“combined with a deadline” to accept the offer—is a “warning” that the offer may not be renewed, and that a lack of disclosure that the debt is time barred could “plausibly deceive or mislead an unsophisticated consumer as to the legal status of the debt, even in the absence of an express threat of litigation.” In reversing the dismissal of the claim under section 1692e, the appellate court also reinstated the state law claim and remanded the case back to district court.
District Court: Using department store name as creditor is not prohibited under the FDCPA
On March 21, the U.S. District Court for the Southern District of Florida granted a debt collector’s motion for summary judgment in an action alleging that the debt collector violated the FDCPA by failing to name the creditor to whom the debt was owed. According to the opinion, the debt collector sent a consumer an initial demand letter stating it was attempting to collect a debt and named the department store associated with the credit card as the current and original creditor. The consumer initiated an action against the debt collector alleging violations of the FDCPA for failing to specifically name the creditor associated with the department store credit card. Both parties moved for summary judgment. Because the department store’s name was on the credit card, the application, and the billing statements, and consumers are directed to make payments to the department store by mail or online, the court determined that using the creditor’s name “could very well cause confusion and influence a consumer’s decision to pay or challenge the debt.” Using the department store’s name, while potentially a technical misrepresentation, is not a material misrepresentation under the FDCPA because it “would not mislead the least sophisticated consumer or influence a decision about whether to pay or challenge the debt,” as it named the entity the consumer had conducted business with in connection with the debt.
11th Circuit: SOL begins on date of mortgage loan acceleration
On March 11, the U.S. Court of Appeals for the 11th Circuit affirmed a lower court’s dismissal of a consumer’s FDCPA action. The consumer alleged that his mortgage servicer violated the FDCPA by attempting to collect overdue payments beyond Florida’s five-year statute of limitations for foreclosure actions. According to the opinion, the consumer “stopped paying his mortgage in 2008 and has not made payments since then.” In 2009, the servicer invoked an acceleration clause and attempted to foreclose on the property, but the foreclosure action was dismissed in 2011. In 2015, the servicer sent another notice of default, accelerated the debt once again, and filed a second foreclosure action seeking the entire debt, including all delinquent payments since 2008. The consumer filed suit, arguing that the servicer, by seeking pre-2010 debt in 2015, violated the FDCPA’s prohibition on the collection of time-barred debts. The lower court dismissed the action.
On appeal, the 11th Circuit held that the pre-2010 debt sought in the 2015 foreclosure action “was not time-barred as a matter of law” and therefore did not violate the FDCPA. The 11th Circuit found that Florida’s five-year statute of limitations does not necessarily bar the recovery of payments that were originally due more than five years prior to the filing of the foreclosure action. Instead, any time a consumer defaults and the servicer invokes an acceleration clause, the entire debt “comes due” and the five-year clock starts to run.
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.
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 FTC release 2018 FDCPA report
On March 20, the CFPB and the FTC released (here and here) their annual report to Congress on the administration of the FDCPA, which highlights the 2018 efforts of the agencies. The agencies coordinate in enforcement; share supervisory and consumer complaint information; and collaborate on education under a memorandum of understanding that was reauthorized in February. (Covered by InfoBytes here.) In the report, the Bureau acknowledges its intent to release a Notice of Proposed Rulemaking on debt collection covering issues such as “communication practices and consumer disclosures” in spring 2019. In addition to highlighting the Bureau’s debt collection education efforts, the report also states that in 2018 the Bureau (i) received approximately 81,500 debt collection complaints related to first-party and third-party collections; (ii) initiated six public enforcement actions alleging violations of the FDCPA, one resulting in an $800,000 civil money penalty; and (iii) identified one or more violations of the FDCPA through supervisory examinations.
As for the FTC, in addition to education efforts, the report states that in 2018 the agency (i) initiated or resolved seven enforcement actions, three of which were related to phantom debt collection, obtaining more than $58.9 million in judgments; (ii) returned money to thousands of consumers who were targeted by phantom debt collection operations; and (iii) banned 32 companies and individuals from working in the debt collection market.
2nd Circuit affirms dismissal of FDCPA action
On March 12, the U.S. Court of Appeals for the 2nd Circuit affirmed dismissal of a consumer’s action against a debt collector, holding that the collection letter complied with the FDCPA. According to the opinion, the consumer filed a putative class action alleging the letter he received from the debt collection company violated Sections 1692e and 1692g of the FDCPA because it failed to inform him of details about his debt, such as what portion is principal and if there is interest. Additionally, the consumer alleged the letter conveyed the “mistaken impression ‘that the debt could be satisfied by remitting the listed amount as of the date of the letter, at any time after receipt of the letter.’” The lower court dismissed the action, noting that the letter stated the debt owed as of its date and stated that the amount may increase because of interest and fees, as required by the FDCPA.
On appeal, the 2nd Circuit agreed with the lower court. The appellate court rejected the consumer’s arguments that the letter failed under Section 1692g because it didn’t specify what portion of the debt is principal and if interest applied when it stated, “[a]s of the date of this letter, you owe $5918.69.” The appellate court found that the letter adequately informed the consumer of the total quantity of his debt and emphasized that nothing in Section 1692g requires the debt collector to explain the components of the debt or “precise rates by which it might later increase.” Moreover, the appellate court concluded that nothing about the debt collection letter “could be fairly characterized as ‘false, deceptive, or misleading’” under Section 1692e, as the letter explicitly stated the consumer’s balance may increase based on the day he remitted payment.
District Court dismisses FDCPA and TCPA claims against online retailer
On March 5, the U.S. District Court for the Southern District of New York granted an online retailer’s motion to dismiss an action alleging the retailer violated the FDCPA and the TCPA. According to the opinion, the plaintiff received a $300 credit line with the retailer for a laptop computer, which the plaintiff alleges he never received. The plaintiff alleges that the retailer continued to seek payment for the laptop and repeatedly contacted the plaintiff by phone after the plaintiff disputed the payment and informed the retailer to only communicate in writing. The retailor subsequently sent the plaintiff a letter acknowledging his request to only be contacted in writing, revoking prior consent to be contacted by phone. The plaintiff then filed the FDCPA and TCPA claims against the retailer after the plaintiff sought to collect $150,000 from the retailer for expenses defending against the retailer’s collection attempts, which the plaintiff argued the retailer “tacitly agreed” to pay. The retailer moved to dismiss the claims arguing the plaintiff failed to allege the retailer was a “debt collector” under the FDCPA and that the plaintiff failed to establish the retailer called the plaintiff without his prior consent under the TCPA. The court agreed, noting that the retailer had serviced the plaintiff’s account “well before” the plaintiff owed an actual debt and therefore, is not a debt collector under the FDCPA. As for the TCPA claim, the court found that the plaintiff failed to show the retailer called him after the parties agreed to revoke the prior consent. The court rejected the plaintiff’s argument that he had revoked consent prior to the retailer’s acknowledgment of the revocation, noting that a party cannot unilaterally revoke consent under the TCPA. Because the plaintiff failed to state plausible claims under the FDCPA and the TCPA, the court dismissed the action and denied the plaintiff leave to amend his complaint.