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Debt Collection and Beyond in 2015
In 2015, the CFPB further expanded its reach into debt collection through a number of enforcement actions. The CFPB also continues to conduct research on a potential rulemaking regarding debt collection activities, which may address information accuracy concerns involving debt sales and other collection activity, as well as many other issues regarding how creditors collect their own debts and oversee collectors working on their behalf. In addition to CFPB activity, this year’s Madden v. Midland Funding, LLC decision has important implications beyond the debt collection industry. Finally, developments regarding the Telephone Consumer Protection Act (TCPA) and collections will likely be of interest to regulatory agencies in the new year.
Debt Sale Consent Orders and Regulatory Guidance
Among the CFPB enforcement actions relevant to debt collection in 2015 were two consent orders with large debt buyers. These orders resolved allegations that the debt buyers, among other things, engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other allegedly illegal collection practices. In particular, the CFPB criticized the practice of purchasing debts without obtaining supporting documentation or information, or taking sufficient steps to verify the accuracy of the amounts claimed due before commencing collection activities. Under the consent orders, one company agreed to provide up to $42 million in consumer refunds, pay a $10 million civil money penalty, and cease collecting on a portfolio of consumer debt with a face value of over $125 million. The second company agreed to provide $19 million in restitution, pay an $8 million civil money penalty, and cease collecting on a consumer debt portfolio with a face value of more than $3 million. In addition, both companies agreed to refrain from reselling consumer debt more generally.
The Office of the Comptroller of the Currency’s (OCC) has also been active in issues affecting debt sales, issuing Bulletin 2014-37. The Bulletin provides guidance requiring national banks to provide the consumer with notice that a debt has been sold, the dollar amount of the debt transferred, and the name and address of the debt buyer; perform due diligence on the debt buyer; provide the debt buyer with the signed debt contract and a detailed payment history; and take other measures designed to ensure that debt buyers fairly and appropriately collect debts that they purchase.
Madden v. Midland Funding, LLC
The Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC carries potentially far-reaching ramifications for the secondary market for credit. In this case, the court held that non- bank assignees of credit obligations originated by national banks are not entitled to rely on National Bank Act preemption from state-law usury claims. In reaching this conclusion, the Court appears to have not considered the “Valid-When-Made Doctrine”—a longstanding principle which provides a loan that is not usurious when made does not become usurious when assigned to another party. Since buyers of defaulted debt, securitization vehicles, hedge funds, and other purchasers of whole loans are often non-bank entities, this decision could create a heightened risk environment for those in the secondary credit market, particularly those who purchase loans originated by banks pursuant to private-label arrangements and other bank relationships, such as those common to the peer-to-peer and marketplace lending industries and various types of on-line consumer credit. The Second Circuit decided not to rehear Madden and the defendants have filed a writ of certiorari to the Supreme Court. Bank sellers of loans and related assets and non-bank assignees of bank-originated credit obligations would be prudent to consider the risks that Madden poses to their business, investments, and operations and whether there are risk mitigation measures that may be available.
Telephone Consumer Protection Act
Recent declaratory rulings by the Federal Communications Commission regarding the TCPA included clarifying the ability of consumers to revoke their consent to receive autodialed calls and requiring callers making autodialed calls to stop calling a number after one call when it has been reassigned to a new subscriber. Debt collectors and others should take note of these issues, as TCPA compliance will likely continue to be an area of interest for regulators moving forward.
Third Circuit Vacates New Jersey District Court's Dismissal of TCPA-related Case
On October 14, the Court of Appeals for the Third Circuit ruled the recipient – intended or not – of a prerecorded call has standing under the TCPA, so long as the recipient has sufficient ties to the number called. Leyse v. Bank of America NA, No. 14-4073 (3rd. Cir. Oct. 14, 2015). In 2011, a roommate of the intended recipient sued a financial institution after answering a prerecorded telemarketing call seeking to advertise credit cards on behalf of the financial institution. In 2014, the District Court of New Jersey dismissed the case on the grounds that the plaintiff was not the intended recipient of the call and, therefore, lacked standing. The Third Circuit vacated that ruling, holding that the TCPA’s “zone of interests encompasses more than just the intended recipients of the prerecorded telemarketing calls” and that “[l]imiting standing to the intended recipient would disserve the very purposes Congress articulated in the text of the Act.”
FCC Cites Two Companies over Unauthorized Telemarketing Allegations
On September 11, the FCC issued citations against a Pennsylvania-based financial institution and a transportation network company (TNC), alleging that both companies engaged in unlawful business practices by infringing consumers’ rights to be free of unauthorized telemarketing robocalls to residential and wireless phones. The financial institution’s citation alleges that the bank required customers to agree to receive autodialed telemarketing texts in order to use its online banking and Apple Pay services. The TNC’s citation alleges that, although it allows consumers who sign up for ride-sharing service to opt out of receiving autodialed or prerecorded telemarketing calls and texts, the TNC does not allow users to access the service if they exercise these opt out rights. Both citations allege that these practices violate the FCC’s rules implementing the Telephone Consumer Protection Act (TCPA), and direct the companies to take immediate steps to come into compliance with the FCC’s rules, orders, and the TCPA prohibition against unlawful marketing and advertising calls. The FCC also warned that future violations may result in monetary forfeitures.
District Court Finds that Texts Sent Via Mobile App Not Subject to TCPA Due to Users' "Affirmative Choices" to Send Messages
On August 24, a California district court ruled in favor of a rewards-based app company, rejecting plaintiffs’ arguments that the company violated the Telephone Consumer Protection Act (TCPA). Huricks v. Shopkick, Inc., No. c-14-2464-mmc (N.D. Cal. Aug. 24, 2015). In Huricks, plaintiffs brought a putative class action, arguing that the company’s mobile app sent spam text messages with links to the company’s website to mobile phones without consumers’ consent in violation of the TCPA and a derivative claim under the California Business and Professions Code. In rejecting plaintiffs’ claims and granting summary judgment on all counts, the court relied on a recent FCC Order where the FCC ruled, among other matters, that a company was not the maker or initiator of invitational text messages subject to the TCPA’s requirements when users of the app make a series of “affirmative choices” in order for the text messages to be sent. The court ruled that, even though the company controlled the text message’s content, the company’s evidence established that a user of its app “must [have] proceed[ed] through a multi-step invitation flow within the app” to cause text messages to be sent to the user’s contacts. The court noted that users of the app had to (i) tap a button to invite friends, (ii) choose which contacts to invite, and (iii) choose to send the text message by selecting another button. The court concluded the company was not the initiator of these texts under the TCPA and granted the company’s motion for summary judgment.
FCC Adopts Chairman Wheeler's Proposal to Strengthen Consumer Protection Under the TCPA
On June 18, the FCC held an Open Commission Meeting, during which the Commission adopted Chairman Wheeler’s proposal to strengthen consumer protection under the TCPA. The set of declaratory rulings included in the proposal affirms consumers’ rights to revoke their consent to receive robocalls or robotexts at any reasonable time an in any reasonable way, and gives carriers the ability to provide consumers with “Do Not Disturb” technology. The Commission’s June 18 Action by Declaratory Ruling and Order was described as an effort to close “loopholes and [strengthens] consumer protections already on the books.”
FCC Chairman Circulates Proposal to Strengthen Consumer Protection Under the TCPA; Open Meeting Scheduled For June 18
On May 27, the FCC released a fact sheet outlining Chairman Wheeler’s proposal for a series of rulings under the Telephone Consumer Protection Act (TCPA) that he asserts will better protect American consumers from unsolicited robocalls, spam text messages, and telemarketing calls. If adopted, the proposal would, among other things: (i) give consumers the right to revoke their consent to receive robocalls and robotexts at any reasonable time and in any reasonable way; (ii) authorize carriers to offer robocall-blocking or “Do Not Disturb” technologies to consumers; and (iii) require robocallers to stop calling a number when it has been reassigned to a new subscriber. Responding to multiple petitions that “sought clarity on how the Commission enforces” the TCPA, the proposal aims to “close loopholes and strengthen consumer protections already on the books.” The Chairman’s proposal is scheduled to be voted on at the Open Commission Meeting on June 18.
Supreme Court Grants Cert. to Decide if Offer of Complete Relief Moots Case
On May 18, the Supreme Court granted certiorari to resolve a circuit split as to whether an offer of complete relief to a plaintiff seeking to represent a putative class moots the case. Campbell-Ewald Co. v. Gomez, 2015 WL 246885 (U.S. May 18, 2015). According to the cert. petition, the plaintiff received an unsolicited text message in 2006 from the petitioner, a firm hired by the U.S. Navy to assist with its recruitment efforts. The plaintiff claimed that the text message violated the Telephone Consumer Protection Act, and sought to represent a class of all non-consenting recipients of the recruitment text. Before the plaintiff had moved for class certification, the petitioner tendered an offer of judgment pursuant to Fed. R. Civ. P. 68 and a separate informal settlement offer, both of which would have fully satisfied the plaintiff’s individual claim by offering more than the maximum statutory damages plus reasonable costs and injunctive relief. The plaintiff rejected the offers and moved for class certification. The district court rejected the petitioner’s claim that the claim was moot, but eventually granted the petitioner summary judgment on the merits on the ground that the petitioner was entitled to “derivative sovereign immunity.” The Ninth Circuit reversed, holding that the case was not moot and that the district court had improperly applied the derivative sovereign immunity doctrine. The Supreme Court granted cert. to consider both questions. As to the mootness issue, the Court will also consider whether the resolution depends on whether or not the class has been certified at the time of the offer.
District Court Awards Florida Couple Over $1 Million In Robocalls Suit
Recently, the U.S. District Court for the District of Florida denied a major bank’s motions to vacate and modify a judgment that awarded a Florida couple a total of $1,051,000 – approximately $1,500 per unauthorized call. Coniglio v. Bank of America, N.A., No. 8:14-CV-01628-EAK-MAP (M.D. Fla. December 4, 2014). In a complaint filed in July, the couple claimed the bank violated the Telephone Consumer Protection Act after they received over 700 calls in four years, including calls from an automated telephone dialing system, without their consent. The calls began as a result of the couple falling behind on their mortgage payments in 2009. In October, the Court agreed with the couple’s claims and ordered the bank to pay the awarded amount.
ABA Petitions FCC To Allow Security And Fraud Alerts To Customers Without Consent
On October 14, the ABA submitted a petition to the FCC requesting that it exercise its statutory authority to allow financial institutions to send consumers certain security and fraud alerts without the consumers’ prior consent. Specifically, the consumers would receive alerts regarding: (i) transactions suggesting a risk of identity theft or fraud; (ii) potential security breaches involving personal information; (iii) preventative steps consumers can take to decrease their chances of falling victim to security breaches, in addition to steps they can take to remedy harm already caused by a breach; and (iv) actions required to receive a receipt for money transfers. The petition notes that the most effective way to ensure that consumers receive these important messages is through automated texts and calls to mobile devices and accordingly requests that the FCC allow for an exemption to the Telephone Consumer Protection Act to ensure that customers receive security and fraud notifications in a timely manner.
Bank Agrees To Resolve TCPA Class Action Litigation
On July 14, a national bank, numerous related companies, and several of their third-party collection vendors agreed to pay $75 million to resolve class claims that the bank and other parties violated the TCPA by using an automatic telephone dialing system and/or an artificial prerecorded voice to call mobile telephones without prior express consent. The bank maintains that its customer agreement provided it with prior express consent to make automated calls to customers on their mobile telephones, and that the TCPA permits prior express consent to be obtained after the transaction that resulted in the debt owed. Although they agreed to resolve the matter through settlement to avoid further costs of litigation, the bank and other defendants deny all material allegations.
