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3rd Circuit affirms summary judgment for internet company in TCPA action
On June 26, the U.S. Court of Appeals for the 3rd Circuit affirmed summary judgment for a global internet media company holding that the plaintiff failed to show the equipment the company used fell within the definition of “automatic telephone dialing system” (autodialer) based the recent holding by the D.C. Circuit in ACA International v. FCC. (Covered by a Buckley Sandler Special Alert.) The decision results from a lawsuit filed by a consumer alleging the company’s email SMS service, which sent a text message every time a user received an email, was an “autodialer” and violated the TCPA. The consumer had not signed up for the service, but had purchased a cellphone with a reassigned number and the previous owner had elected to use the SMS service. Ultimately, the consumer received almost 28,000 text messages over 17 months. In 2014, the district court granted summary judgment for the company concluding that the email service did not qualify as an autodialer. In light of the FCC’s 2015 Declaratory Ruling—which concluded that an autodialer is not limited to its current functions but also its potential functions—the 3rd Circuit vacated the lower court’s judgment. On remand, the lower court again granted summary judgment in favor of the company.
In reaching the latest decision, the 3rd Circuit interpreted the definition of an autodialer as it would prior to the 2015 Declaratory Ruling in light of the D.C. Circuit’s recent holding, which struck down the part of the FCC’s 2015 Ruling expanding the definition to potential capacity. The appellate court held that the consumer failed to show that the email SMS service had the present capacity to function as an autodialer.
Supreme Court upholds credit card company’s anti-steering provisions
On June 25, the U.S. Supreme Court in a 5-4 vote held that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by preventing merchants from steering customers to other credit cards. As previously covered by InfoBytes, in September 2016, the U.S. Court of Appeals for the 2nd Circuit considered the non-steering protections included in the credit card company’s agreements with merchants and concluded that such provisions protect the card company’s rewards program and prestige and preserve the company’s market share based on cardholder satisfaction. Accordingly, the 2nd Circuit concluded that “there is no reason to intervene and disturb the present functioning of the payment‐card industry.” In June 2017, a coalition of states, led by Ohio, petitioned the Supreme Court to review the 2nd Circuit decision, arguing the credit card industry’s services to merchants and cardholders are not interchangeable and therefore, the credit card market should be viewed as a two-sided market, not a single market. The Supreme Court disagreed with the petitioners’ arguments, finding that the credit card industry is best viewed as one market. The court reasoned that while there are two sides to the credit card transaction, credit card platforms “cannot make a sale unless both sides of the platform simultaneously agree to use their services,” resulting in “more pronounced indirect network effects and interconnected pricing and demand.” Accordingly, the two-sided transaction should be viewed as a whole for purposes of assessing competition. The court further concluded that the higher merchant fees the credit card company charges result in a “robust rewards program” for cardholders, causing the company’s anti-steering provisions to not be inherently anticompetitive, but in fact to have “spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions.”
FTC and New York Attorney General announce action against phantom debt operation
On June 27, the FTC and the New York Attorney General’s Office announced charges against two New York-based phantom debt operations and their principals. The complaint alleges they ran a deceptive and abusive debt collection scheme involving the marketing and selling of fictitious loan debt portfolios and collecting on debts consumers did not owe. The charges brought against the operations allege violations of the FTC Act, the Fair Debt Collection Practices Act, and New York state law. According to the complaint, the debt broker knowingly purchased fabricated debt from a phantom debt collection operation previously charged by the FTC and the Illinois Attorney General in a separate action for selling fabricated debt. (As previously covered by InfoBytes, the Illinois-based operation was banned from the debt collection business and prohibited from selling debt portfolios.) The debt broker then engaged a debt collection agency and its owner to collect on the fabricated debt using illegal collection tactics, while continuing to purchase debts and place them for collection despite having knowledge that consumers disputed the debts. The complaint seeks, among other things, injunctive relief, restitution, and disgorgement.
Native American tribes to forfeit $3 million in profits made from payday lending scheme
On June 26, the Department of Justice (DOJ) filed two forfeiture complaints, which cover agreements with two Native American tribes to forfeit a combined $3 million in profits made from their involvement in an allegedly fraudulent payday lending scheme (see here and here). As previously covered by InfoBytes, in October 2016, the FTC required a Kansas-based operation and its owner to pay more than $1.3 billion for allegedly violating Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. The business owner and his attorney were subsequently found guilty in October 2017 of operating a criminal payday loan empire. As part of the agreements, the two tribes admit that representatives filed affidavits containing false statements in the legal actions against the payday loan scheme. If the tribes comply with agreement requirements, the DOJ will not pursue criminal action for the specified violations.
In February, multiple federal agencies entered into a $613 million deferred prosecution agreement over Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program deficiencies with a national bank, which included allegations that the bank was on notice of the owner’s use of the bank to launder proceeds from his fraudulent payday lending scheme. (Previously covered by InfoBytes here.)
House Financial Services Committee examines implications of “de-risking”
On June 26, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing titled, “Examining the International and Domestic Implications of De-Risking,” which examined financial institutions terminating “high risk” relationships to minimize compliance exposure. The press release notes that high-risk entities can also include legitimate businesses such as firearms sellers and payday lenders. Subcommittee Chairman, Blaine Luetkemeyer (R-MO), stated that the termination of these relationships has “resulted in the elimination of consumer and small business access to financial products and services, a decrease in the availability of money remittances, and reduced flow of humanitarian aid globally.” Agreeing with the Chairman, many witnesses emphasized the impact de-risking has on the international financial system, including access to banking in the U.S. southwest border region and in the Caribbean and Central America. While recognizing the importance of anti-money laundering regulations and financial sanctions policies, the witnesses encouraged Congress to consider opportunities to ensure equal access to the financial system for legitimate businesses.
Aruban telecom official sentenced for money laundering conspiracy involving FCPA violations
On June 27, Judge Frederico Moreno of the United States District Court of the Southern District of Florida sentenced an Aruban telecom official to 36 months in prison following his guilty plea for money laundering charges in connection with a scheme to arrange and receive corrupt payments to influence the awarding of contracts in Aruba. According to the DOJ’s press release, the official, between 2005 and 2016, used his position as the company’s product manager to influence the awarding of lucrative mobile phone and accessory contracts with the Aruban state-owned telecommunications company. He also admitted to providing favored vendors with confidential company information in exchange for more than $1.3 million in corrupt payments. The official was ordered to pay over $1.3 million in restitution and to serve three years of supervised release following his prison term.
Previous Scorecard coverage of this matter can be found here.
Rhode Island and New Hampshire prohibit security freeze fees
On June 14, the governor of Rhode Island signed S2562, which prohibits consumer reporting agencies from charging a fee for security freeze services, including the placement, removal, or temporary lifting of a security freeze for a consumer. The law also prohibits the charging of a fee in connection with issuing or reissuing a personal identification number that is used by a consumer to authorize the use of his or her credit or to remove the freeze. Previously, Rhode Island allowed credit reporting agencies to charge a fee up to $10 dollars for security freeze services and $5 for reissuances of personal identification numbers, although customers were entitled to a free initial reissuance of their personal identification numbers. The law is effective September 1.
Similarly, on June 8, the governor of New Hampshire signed HB1700, which prohibits a consumer reporting agency from charging a fee to place, remove, or temporarily lift a security freeze. The law also prohibits a consumer reporting agency from charging a fee to issue or replace a consumer’s personal identification number used in connection with the security freeze. The law requires the consumer reporting agencies to place the freeze within three business days after receiving a consumer request, if the consumer makes the request via mail and within 24 hours after receiving a consumer request, if made electronically or by telephone. The law is effective January 1, 2019.
Plaintiffs must arbitrate with telecom provider over TCPA claims
On June 20, the U.S. District Court for the Northern District of Illinois granted a telecommunication company’s motion to compel arbitration and dismissed a putative class action alleging the company violated the Telephone Consumer Protection Act (TCPA). Specifically, the plaintiff brought an action against the telecommunications company for allegedly making unauthorized phone calls using prerecorded messages in an effort to reach account holders to collect unpaid bills. The company moved to compel arbitration because the plaintiff had entered into a “subscriber agreement,” which was provided to him via mail after he agreed to self-install his services, and the agreement requires arbitration of disputes. The court agreed with the company, holding that the arbitration provision of the subscriber agreement covered the dispute because the “Federal Arbitration Act does not require agreements to be signed, only written” and the plaintiff installed and used the telecommunication services, which constituted acceptance of the subscriber agreement.
Supreme Court rejects review of $806 million RMBS judgment
On June 25, the Supreme Court denied without comment an international bank’s petition for writ of certiorari to challenge the $806 million in damages awarded by the Federal Housing Finance Agency (FHFA) for selling allegedly faulty mortgage-backed securities to Fannie Mae and Freddie Mac. As previously covered by InfoBytes, in September 2017, the U.S. Court of Appeals for the 2nd Circuit affirmed the New York District Court’s ruling requiring the $806 million payment. Both lower courts concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact,” including false statements regarding the underlying loans’ compliance with underwriting standards related to the creditworthiness of borrowers and appraisal value of the properties.
Massachusetts high court finds retailer violated state law with robocall collection efforts
On June 25, the Massachusetts Supreme Judicial Court held that a national retailer’s use of an automated dialing service to contact debtors without leaving voicemail messages constitutes a violation of the state’s debt collection regulation. According to the opinion, after a consumer defaulted on the retailer’s branded debit card, the retailer began contacting the consumer more than twice a week using an automated dialing service. The retailer did not leave voice messages. In July 2015, the consumer filed suit against the retailer for violating the state debt collection regulation for calling more than two times in a seven-day period in order to collect a debt. The lower court granted summary judgment in favor of the retailer, holding that the automated phone calls were not “communications” under the state regulations and there was no indication the consumer answered and heard the prerecorded message more than twice a week. In reversing the lower court’s decision, the state supreme court rejected the retailer’s argument that it did not “initiate” communications because it was using an automated dialing system and also rejected the argument that the calls did not constitute “communications” because they did not convey any information if the consumer did not answer. The court unanimously held that the retailer’s arguments are contrary to the purpose of the regulation and that the “regulation applies to any attempted telephonic communication. . .in an effort to collect a debt, so long as, as here, the creditor is able to reach the debtor or to leave a voicemail message for the debtor.”