Southern District of New York Holds the CFPB Is Unconstitutionally Structured

By: Louise Bowes Marencik, Diana M. Eng, and Jonathan K. Moore

On June 21, 2018, the United States District Court for the Southern District of New York (“Southern District”) held that Title X of the Dodd Frank Act, which established the Consumer Financial Protection Bureau (“CFPB”) as an “independent bureau” within the Federal Reserve System, is unconstitutional.

In Consumer Financial Protection Bureau v. RD Legal Funding, LLC, et al., the CFPB and The People of the State of New York, by Eric T. Schneiderman, Attorney General for the State of New York (collectively, “Plaintiffs”) alleged that the defendant entities violated the Consumer Financial Protection Act (“CFPA”) by offering cash advances to consumers awaiting payouts on settlement agreements or judgments entered in their favor, which Plaintiffs argued were actually usurious loans prohibited by state law. 2018 U.S. Dist. LEXIS 104132 (S.D.N.Y. June 21, 2018). The consumers at issue were class members in the National Football League Concussion Litigation class action, and individuals eligible for compensation from the September 11th Victim Compensation Fund of 2001. Continue reading

Second Circuit Confirms Interest Disclaimer Not Required on Collection Notices Not Accruing Interest

By: Edward W. Chang, Jonathan M. Robbin, Scott E. Wortman, Diana M. Eng, Hilary F. Korman

In a win for the collection industry, the Second Circuit Court of Appeals confirmed an “interest disclaimer” is only necessary on collection notices if the debt is accruing interest. While this much-needed clarification may reduce the volume of “reverse-Avila” FDCPA litigation, questions still remain about the best method to accurately characterize balances in collection notices.

Background

In Taylor v. Fin. Recovery Servs., Inc., No. 17-1650-cv (“Taylor”), the Second Circuit confirmed that the appellants (and many other members of the consumer bar) were misapplying its decision in Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016) (“Avila”).1 In Avila, the Second Circuit ruled that a debt collector violates 15 U.S.C. § 1692e of the Fair Debt Collection Practices Act (“FDCPA”) if it identifies the “current balance” of a debt without disclosing that such balance could increase due to the accrual of interest or fees. In that case, interest was actually accruing on the subject debt. Continue reading

D.C. Circuit Sets Aside FCC’s Expansive Interpretation of the Telephone Consumer Protection Act

By: Wayne StreibichEdward W. ChangJonathan M. RobbinScott E. WortmanDiana M. Eng, and Hilary F. Korman

In a significant ruling for businesses, technological progress, and the economy at large, the D.C. Circuit Court of Appeals unanimously granted in part, and denied in part, various petitions for review of the Federal Communications Commission’s (“FCC”) adoption of its 2015 Declaratory Ruling and Order (the “2015 Order”) on the Telephone Consumer Protection Act (“TCPA”). The 2015 Order significantly changed the legal landscape of the TCPA, and had serious global consequences for numerous markets and businesses. In ACA Int’l v. FCC, (D.C. Cir. Mar. 16, 2018), the D.C. Circuit provided guidance on a number of issues, including the FCC’s “unreasonably expansive interpretation” of what constitutes an “Automatic Telephone Dialing System” or “ATDS” under the TCPA.

Background

Congress enacted the TCPA in 1991 to curb abusive telemarketing practices and encroachments on business and consumer privacy. The TCPA contains a private right of action permitting aggrieved parties to recover $500 for each call made (or text message sent) in violation of the statute, and up to $1,500 for each “willful or knowing” violation. See 47 U.S.C. § 227(b)(3). However, with the evolution of technology, statutory damages that may have seemed reasonable in 1991 have since morphed into a mammoth threat against any company employing automated dialing equipment. The FCC (the agency vested with the authority to promulgate regulations implementing the TCPA’s requirements) has further compounded the issue by propounding a litany of rulemakings and declaratory rulings that have expanded the scope and reach of the TCPA. Continue reading

Eastern District of New York Court Holds Debt Collection Letter Stating Settlement May Have Tax Consequences Does Not Violate the Fair Debt Collection Practices Act

By: Jonathan M. Robbin, Diana M. Eng, and Andrea Roberts

In Ceban v. Capital Management Services, L.P., Case No. 17-cv-4554 (E.D.N.Y. Jan. 17, 2018), the District Court held that the statement “[t]his settlement may have tax consequences” in a debt collection letter does not violate the Fair Debt Collection Practices Act (“FDCPA”).

On or about August 6, 2016, Plaintiff, Julian Ceban (“Plaintiff”) received a collection letter from defendant Capital Management Services, L.P. (“Defendant”) concerning his outstanding debt (the “Letter”). The letter stated, in relevant part, that Defendant was “authorized to accept less than the full balance due as settlement” and that Plaintiff could “contact [Defendant] to discuss a potential settlement.” Further, the letter indicated: “This settlement may have tax consequences. If you are uncertain of the tax consequences, consult a tax advisor.” Continue reading

Eleventh Circuit Holds that Voicemails Are “Communications” and Clarifies “Meaningful Disclosure” Under the FDCPA

By:  Diana M. Eng and Paul Messina, Jr.

In Stacey Hart v. Credit Control, LLC, No. 16-17126 (11th Cir. Sept. 22, 2017), the United States Court of Appeals for the Eleventh Circuit clarified two significant definitions under the Fair Debt Collection Practices Act (“FDCPA”), one of which was a novel issue for the Court.  First, the Eleventh Circuit ruled that the first voicemail that Credit Control LLC (“Credit Control”) left for Stacey Hart (“Hart”) qualified as a “communication” within the meaning of 15 U.S.C. § 1692a(2).  Because the voicemail was the initial communication between the parties, Credit Control had to provide the required disclosures under 15 U.S.C. § 1692e(11), commonly known as the “mini Miranda” warning.

Second, the Eleventh Circuit determined the novel issue of what constitutes a “meaningful disclosure” under the FDCPA by ruling that an individual caller is not required to disclose his/her identity as long the caller discloses that the call is being made on behalf of a debt collection company and the debtor collection company’s name.

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Ninth Circuit Holds that Consumer Alleging FCRA Claim Against Spokeo Sufficiently Pled a Concrete Harm to Article III Standing

By: Wayne Streibich,Francis X. CrowleyCheryl S. Chang, Diana M. Eng and Nadia D. Adams

In Thomas Robins v. Spokeo, Inc., No. 11-56843 (9th Cir. Aug. 15, 2017) (“Spokeo III”), the United States Court of Appeals for the Ninth Circuit unanimously ruled that Thomas Robins (“Robins”), who accused Spokeo, Inc. (“Spokeo”) of violating the Fair Credit Reporting Act (the “FCRA”) by allegedly reporting inaccurate information about him on its website, claimed a sufficiently concrete injury to confer standing under Article III of the U.S. Constitution.

Background

Spokeo operates a website that compiles consumer data and builds individual consumer profiles containing details about a person’s life, including age, contact information, level of education, marital status, employment status and wealth. Spokeo also markets its services to businesses as a way to learn about prospective employees. Robins sued Spokeo for willful violations of the FCRA, which, among other things, requires credit reporting agencies to take steps to ensure the information they provide to potential employers is accurate. 15 U.S.C. § 1681 et seq. Robins alleged Spokeo published an inaccurate report about him on its website, including that he was wealthy and had a graduate degree when in fact, he was struggling to find work.

Initially, the district court dismissed Robins’s suit based on its determination that Robins lacked standing to sue under Article III of the U.S. Constitution because Robins had not adequately pled that the alleged violation caused him an injury-in-fact. Id. at p.6. Robins appealed and the Ninth Circuit reversed on the basis that Robins established a sufficient injury-in-fact because he alleged that Spokeo violated specifically his statutory rights, which Congress established to protect against individual rather than collective harms. Robins v. Spokeo, Inc. (Spokeo I), 742 F.3d 409, 413-14 (9th Cir. 2014) (emphasis added).

The United States Supreme Court Decision

On Certiorari review, the United States Supreme Court vacated the Spokeo I opinion, because although it agreed with the Ninth Circuit’s analysis and determination that Robins established an alleged injury sufficiently particularized to him, the Ninth Circuit’s standing analysis was incomplete. Spokeo, Inc. v. Robins (Spokeo II), 136 S. Ct. 1540 (2016). The Supreme Court held that a bare procedural statutory violation is insufficient to establish a concrete injury-in-fact to confer standing. Id. at 1548-49 (internal citations omitted). In Spokeo II, the Supreme Court reasoned that the reporting of an incorrect zip code, absent another misrepresentation, was unlikely to present any material risk of real harm. Id. at 1550. Thus, the Supreme Court remanded the case to the Ninth Circuit with instructions for it to consider whether, in addition to a particularized injury, Robins also sufficiently pled a concrete injury. Spokeo III at p.7.

The Ninth Circuit’s Decision on Remand

On remand, the Ninth Circuit held that Robins had alleged injuries that were sufficiently concrete for purposes of Article III, and because the alleged injuries were previously determined to be sufficiently particularized, Robins adequately alleged all of the elements necessary to establish Article III standing. Id. at p.2. In reaching its conclusion, the Ninth Circuit conducted a two-fold analysis.

First, it considered whether Congress established the FCRA to protect consumers’ concrete interest in accurate credit reporting about themselves, and held that it did. The Ninth Circuit further noted the “ubiquity and importance of consumer reports in modern life” and held that the “real-world implications of material inaccuracies in those reports seem patent on their face.” Id. at p.12.

Second, the Ninth Circuit considered whether the FCRA violations that Robins alleged actually harmed or created a “material risk of harm” to his concrete interest in accurate crediting reporting about himself. Id. at p.15. (Internal citations omitted). The Court noted that Robins’s allegations were not minor and could be deemed a real harm because Robins specifically alleged that Spokeo falsely reported—and published—several inaccurate facts including his marital status, age, employment status, educational background and level of wealth. Id. at p.16. Further, even though some of the inaccuracies could be considered flattering and the likelihood to harm could be debated, the inaccuracies alleged did not strike the Court as mere “technical violations” outside the scope of what Congress sought to protect with the FCRA. Id. (Internal citations omitted).

Importantly, however, the Ninth Circuit reiterated that Spokeo II “requires some examination of the nature of the specific alleged reporting inaccuracies to ensure that they raise a real risk of harm to the concrete interests that [the] FCRA protects.” Id. at p.17. The Ninth Circuit cautioned that not every minor inaccuracy would cause real harm. Id. at p.16. Thus, not every FCRA violation premised on some inaccurate disclosure of Robins’s information is sufficient. Id. at pp.16-17.

Conclusion

The Ninth Circuit’s decision is significant for several reasons. First, while declining to express an opinion on the circumstances in which alleged inaccuracies of the kind pled by Robins would or would not cause concrete harm, the Court held that the allegations of Robins’s FCRA class action complaint, which are premised on a “material risk of harm” to his employment opportunities, should proceed past the initial pleading stage. Second, because the Ninth Circuit did not set a bright-line rule for what information necessarily establishes a “concrete injury” and declined to comment on whether Robins would have alleged a concrete injury had Spokeo merely produced, but not published the information, businesses will operate (and litigate) in a gray area until a case law framework for “concrete injury” is established.

Mr. Streibich would like to thank Cheryl Chang, Diana Eng, and Nadia Adams for their assistance in developing this Alert.

CFPB Eliminates Class Action Waivers with New Arbitration Rule

By: Jonathan K. Moore, Edward W. Chang, Diana M. Eng, and Andrew Williamson

On July 10, 2017, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule (“Arbitration Rule”) prohibiting banks, debt servicers, credit card companies, and a wide range of other businesses from using arbitration clauses to bar a consumer from filing a class action lawsuit to resolve any future dispute between the consumer and the consumer financial service provider. The full version of the final rule is available on the CFPB’s website:  CFPB Arbitration Agreements Final Rule.

Summary of the New Arbitration Rule

The Arbitration Rule is extremely broad and encompasses virtually any type of consumer financial services provider, including entities that do not lend money or service consumer debt. Notably, in addition to creditors, debt buyers, and other entities that directly lend, purchase, or service debt, the new rule applies to entities “participating in consumer credit decisions,” entities “providing services to assist with debt management or debt settlement . . . and [entities] providing products or services represented to remove derogatory information from, or to improve, a person’s credit history, credit record, or credit rating . . . .”

The Arbitration Rule will take effect 60 days after it is published in the Federal Register (“Effective Date”). In addition, the Arbitration Rule will only apply to agreements entered into more than 180 days after the Effective Date, which provides a short grace period for impacted businesses to comply.

Further, Congress may use the Congressional Review Act to invalidate the Arbitration Rule by voting to disapprove the regulation within “60 legislative days” of the Effective Date. Nonetheless, there is no guarantee that Congress will act.

Conclusion

Because the Arbitration Rule will apply prospectively to agreements entered into more than 180 days after the Effective Date, it would be prudent for consumer financial services providers to take steps to comply with the new rule and explore other ways to reduce litigation risks and costs. If the Arbitration Rule goes unchallenged by Congress, it will begin to apply to consumer financial service providers in early 2018.