Magistrate Judge Declines to Apply Spokeo to FCRA Case Against TransUnion

By: Louise Bowes Marencik

On January 18, 2017, a federal magistrate judge concluded that the ruling in Spokeo does not apply to a putative class action brought against TransUnion.

In Miller v. TransUnion, LLC, the plaintiff alleged that TransUnion violated Section 1681g(a) of the Fair Credit Reporting Act by providing misleading and confusing information to consumers which suggested that their names appear on the Office of Foreign Assets Control’s (OFAC) list of terrorists, money launderers, drug traffickers, and other enemies of the United States.  No. 3:12-CV-1715, 2017 U.S. Dist. LEXIS 7622 (M.D. Pa. Jan. 18, 2017).  On August 3, 2015, the United States District Court for the Middle District of Pennsylvania stayed the proceedings because the United States Supreme Court had granted certiorari in Spokeo Inc. v. Robins. On May 16, 2016, the Spokeo Court opined on the standard for the injury-in-fact requirement to establish standing under Article III of the United States Constitution, which requires that plaintiffs must show “concrete” and “particularized” injuries, as it relates to claims under the Fair Credit Reporting Act (FCRA). 136 S. Ct. 1540 (2016). The Court held that the appellate court’s standing analysis was incomplete because it failed to consider the distinction between concreteness and particularization, and it did not address whether the particular procedural violations alleged in the case caused sufficient risk to meet the concreteness requirement.

In the instant case, the Court lifted the stay on May 31, 2016, and allowed for briefing on the issue of whether the Spokeo decision had any impact on the plaintiff’s motion for class certification. TransUnion argued that Miller failed to argue a sufficiently “concrete” injury to support standing under Article III.  In his January 18, 2017 Report and Recommendation, Magistrate Judge Martin C. Carlson noted that, in Spokeo, the Court explained that a bare procedural violation does not satisfy this requirement, using the example of a credit report containing an incorrect zip code as a FCRA violation that would not constitute a concrete harm. However, the Spokeo Court clarified that an intangible harm may be sufficiently concrete to allow standing under Article III. The Judge chose to follow the United States District Court for the Northern District of California’s decision in a similar case involving OFAC disclosures, where the Court found that the confusing disclosure could cause concrete harm in the form of emotional distress about whether the recipient is listed in the OFAC database. Larson v. TransUnion, LLC, 2016 WL 4367253, *2 (N.D. Cal. Aug. 11, 2016).   Accordingly, the Judge recommended that the United States District Court for the Middle District of Pennsylvania decline to accept TransUnion’s interpretation of Spokeo, and find that Miller’s alleged injuries were sufficiently particularized and concrete to establish standing under Article III.  Assuming the Court follows this recommendation, the decision could suggest that Spokeo’s impact on a plaintiffs’ ability to show injuries caused by FCRA violations will be less substantial than originally thought.




Pa. Supreme Court Expands Act 6 Liability to Include Attorneys Representing Mortgage Lenders

By: Kevin McDonald

The Pennsylvania Supreme Court, in Glover v. Udren Law Offices, P.C., recently determined that a law firm, representing a residential mortgage lender in connection with foreclosure proceeding, can be liable to a borrower for three times the amount of attorneys’ fees charged by the mortgage lender if said fees are in violation of the Pennsylvania Loan Interest and Protection Law, commonly known as “Act 6”.  Section 406 of Act 6 limits the attorneys’ fees that a “residential mortgage lender” can contract for or receive from a borrower.  Section 502 of Act 6 provides for recovery of treble damages against a “person” who has collected such excess interest or charges.  “Person” is defined in Section 101 as “an individual, corporation, business trust, estate trust, partnership or association or any other legal entity, and shall include but not be limited to residential mortgage lenders.” Traditionally, law firms employed by residential mortgage lenders have been excluded from liability by the specific language of Section 406 as it applies only to “residential mortgage lenders.”  The Glover decision could expose such law firms to new claims by mortgage debtors because the Court has, for the first time, held that law firms are included for liability purposes under Section 502 if they have collected excessive attorneys’ fees in connection with the foreclosure in violation of Section 406. 

Mary E. Glover entered into a residential mortgage in 2002 with Washington Mutual Bank (later assigned to Wells Fargo Bank).  Following Glover’s unsuccessful attempts to obtain a loan modification due to financial difficulty, the bank initiated foreclosure proceedings by hiring Udren Law Offices, P.C. (“Udren”).  Udren took several actions on the bank’s behalf, including advising Glover of her unpaid debt and demanding missed payments and fees.  Eventually, the parties entered into a loan modification agreement that increased Glover’s principal balance, monthly payment and repayment period.  The increased principal included an amount of approximately $1,600 for escrow, attorney’s fees, and other charges.  Glover then filed a putative class action law suit against Udren in the Court of Common Pleas of Allegheny County, alleging that Udren had violated Act 6 by charging unearned and excessive attorney’s fees.  Because Udren was undisputedly not a residential mortgage lender under Act 6 (as the term is defined in Section 101), Udren filed preliminary objections asserting that Glover had failed to state an actionable claim and the Common Pleas Court agreed, finding that section 406 of Act 6 refers only to residential mortgage lenders and therefore, any violation of that provision did not give rise to a remedy against Udren under section 502. 

Glover’s appeal to the Superior Court argued that, because Act 6 permits a borrower to recover treble damages from a “person” who collects excess fees in connection with the mortgage foreclosure process, and defines “person” broadly to “include but not be limited to” residential mortgage lenders, the lower court had improperly narrowed the scope of the statute’s protections.  A divided panel of the Superior Court affirmed, holding that, because Section 406’s plain language regulates only the conduct of residential mortgage lenders, Section 502 does not authorize an action against a lender’s counsel for a Section 406 violation.  The majority rejected Glover’s contention that “person,” in Section 502, evidenced a legislative intent to make a broad set of actors liable for Section 406 violations, because the term was necessary to address, throughout Act 6’s various provisions, conduct by actors other than residential mortgage lenders.

The Supreme Court analyzed Act 6 with the objective purpose of ascertaining the Legislature’s intent in enacting the statute.  The Supreme Court read Sections 101, 406 and 502 together and determined that the plain and explicit terms permit a person who has paid charges prohibited or in excess of those allowed by Section 406 to recover treble damages in a suit at law against the person who has collected such excess charges.  The Supreme Court further reasoned that the Legislature expressly defined “person” to “include but not be limited to residential mortgage lenders” and under a straightforward application of the statute, Section 406 restricts the circumstances under which residential mortgage lenders may contract for or receive fees, while Section 502 provides a broad remedy against anyone who has collected such fees. 

The Supreme Court’s ruling focused solely on whether or not the term “person” as used in Section 502 of Act 6 provides for a remedy against any statutorily defined person collecting statutorily prohibited fees on behalf of residential mortgage lenders.  Having determined that it does, the Supreme Court remanded that matter for further proceedings without addressing the meaning of the term “collected” in Section 502.

This ruling is a significant development regarding Act 6 liability as the Supreme Court has issued a warning to mortgage foreclosure firms that they will be held liable to borrowers, with the potential of treble damages, if they are determined to be charging or collecting attorneys’ fees in excess of those allowed under Section 406.  Whether or not the remanded matter will address the law firm’s need to actually collect said fees before they can be found liable remains to be seen.




Pennsylvania Federal Court Holds that Envelope with Visible Bar Code That Could Be Scanned To Reveal Consumer’s Account Number May Violate the FDCPA

By Diana Eng and Joe Patry

In Kostik v. ARS National Services, 3:14-cv-02466, an opinion issued July 22, 2015, the United States District Court for the Middle District of Pennsylvania refused to enter judgment on the pleadings on a complaint where the sole allegation is that the debt collector violated the federal Fair Debt Collection Practices Act (“FDCPA”) because it had sent a letter with the consumer’s account number embedded in a bar code.

The court noted that the bar code was not physically printed on the envelope, but was visible through a clear plastic envelope window on the front of the envelope that exposed the letter’s return address.  When scanned, the bar code would reveal the borrower’s account number.  Because smart phones have apps to easily read “QR” (“quick response”) bar codes, the court reasoned that having the bar code visible by scanning made the account visible to the general public, which could make the consumer a victim of identity theft.

The debt collector argued that the bar code was a benign symbol, which would be exempt from FDCPA liability.  Further, it noted that anyone who scanned the consumer’s mail would be violating federal criminal statutes that prevent unauthorized access to items placed in the U.S. mail and that the FDCPA does not cover illegal actions by unrelated third parties.  In addition to federal criminal statutes, the debt collector noted that the Domestic Mail Manual specifically prohibits postal employees from reading or disclosing the contents of any items placed in the mail.

The court rejected these arguments, relying on prior cases that found that an envelope which had a printed account number on the outside of the envelope or an account number within the viewing area of clear plastic envelope windows violated the FDCPA.  (These cases are Douglass v. Convergent Outsourcing,765 F.3d 299 (3d Cir. 2014),  and Styer v. Prof’l Med. Mgmt., 2015 U.S. Dist. LEXIS 92349 (M.D. Pa. July 15, 2015).)

The Court reasoned that disclosing an account number raises privacy concerns for the consumer and is not benign because it could be used by a third party to harm the consumer.  Consequently, while leaving open the possibility that the barcode disclosure could ultimately be shown to be benign at a later stage in the case, the court found that the borrower’s complaint was sufficient to survive a motion for judgment on the pleadings.

In light of this decision, and as discussed in a prior post discussing the Douglass case, entities collecting consumer debt should avoid the use of QR codes on envelopes or within the viewing area of clear plastic envelope windows.  Revealing such information on envelopes or through clear plastic envelope windows may expose debt collectors to liability under the FDCPA.

Pennsylvania Federal Judge Strikes Class Allegations Pre-Certification and Discovery

By: Laura E. Vendzules

Too many times a defendant is forced to foot the bill for costly discovery and motion practice before being able to successfully challenge class allegations. The recent decision in Bell v. Cheswick Generating Station, et al., Civ. A. No. 12-929 (W.D. Pa., January 28, 2015), however, provides some optimism that defendants faced with ill-defined class action allegations may be able to avoid the expense of class-wide discovery and briefing a class certification opposition by filing a motion to strike class allegations pre-discovery.

In Bell, Plaintiffs alleged a class comprised of individuals that live or own property within one mile of the Cheswick Generating Station “who have suffered similar damages to their property by the invasion of particulates, chemicals, and gases from Defendant’s facility which thereby caused damages to their real property.” Defendant filed a motion to strike Plaintiffs’ class allegations, relying on Federal Rules of Civil Procedure 23(c)(1)(A) and 12(b). In an opinion by Judge Cathy Bissoon, the United States District Court for the Western District of Pennsylvania acknowledged that authority to strike class allegations stems from Federal Rules of Civil Procedure 12(f), 23(c)(1)(A) and 12(d)(1)(D) – not Rule 12(b). The Court also noted that Third Circuit decisions support striking class allegations, where “no amount of discovery will demonstrate that the class can be maintained.”

In deciding Defendant’s motion to strike, the Bell Court rejected Plaintiffs’ argument that Defendant’s pre-discovery motion to strike was subject to the standard of review for a Rule 12(b) motion. Rather than accepting the class certification allegations as true, the Court was persuaded by the reasoning of the Seventh Circuit and a majority of District Courts considering the issue, and required Plaintiffs to make a “prima facie showing that the class action requirements of Fed.R.Civ.P. 23 are satisfied or that discovery is likely to produce substantiation of the class allegations.”

After examining the class definition, the Court determined that the class, as alleged, was a “fail-safe” class and was unascertainable in that the Court would be required to conduct mini-hearings to determine who belonged within the class. The Court also rejected Plaintiffs’ attempt to “amend[] the Complaint in their briefing,” but indicated that an amended complaint that defines the class by “clear, objective criteria” may not be futile. Accordingly, the Court granted the motion to strike without prejudice to Plaintiffs filing a motion to amend, but cautioned that no further amendments would be permitted.

While it is too early to tell, Bell could signal a shift in this District requiring greater scrutiny of class allegations at the early stages of litigation.

Third Circuit Holds that Envelope Revealing Consumer’s Account Number Violates the FDCPA

By:      Daniel A. Cozzi and Diana M. Eng

The Third Circuit Court of Appeals recently held that an envelope revealing a consumer’s account number through a clear plastic window constitutes a violation of the Fair Debt Collection Practices Act (“FDCPA”). In doing so, the Third Circuit reversed the District Court of the Eastern District of Pennsylvania’s holding that the disclosure of a consumer’s account number is not a “benign” disclosure and thus constitutes a violation of § 1692f(8) of the FDCPA.

In Douglas v. Convergent, the Third Circuit addressed the issue of whether “the disclosure of a consumer’s account number on the face of a debt collector’s envelope violates § 1692f(8) of the Fair Debt Collection Practices Act.” Douglass v. Convergent Outsourcing, No. 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014); 15 U.S.C. § 1692 et seq.

The FDCPA prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f. Further, Section 1692f(8) specifically limits the language that debt collectors may place on envelopes sent to consumers:

Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business. (Emphasis added).

On May 16, 2011, Plaintiff/Appellant Courtney Douglass (“Plaintiff” or “Douglass”) received a debt collection letter from Convergent Outsourcing (“Convergent”) regarding the collection of a debt that Douglass allegedly owed to T-Mobile USA. The name Convergent, followed by Convergent’s account number for the alleged debt were visible on the letter, and through the clear plastic window of the envelope. In addition, the “quick response” (“QR”) code, which, when scanned, reveals the name Convergent, the account number and the monetary amount of Douglass’s alleged debt, was also visible through the envelope window.[1]

Douglass filed a lawsuit in the United Stated District Court for the Eastern District of Pennsylvania, alleging that Convergent violated the FDCPA by including a QR code and account number in a location visible through the clear plastic window of a collection letter sent to Douglass. Convergent moved for summary judgment, arguing that displaying such information in the window of the envelope was benign. The District Court granted summary judgment in favor of Defendant Convergent under a “benign language” exception. Douglass v. Convergent Outsourcing, 963 F. Supp. 2d 440 (E.D. Pa., 2013). The “benign language” exception to Section 1692f(8) is a judicially created exception to Section 1692f(8), which allows a court to forgive a technical violation of Section 1692f(8) if the violation is benign in nature. The District Court reasoned that although Convergent may have technically violated § 1692f(8), a strict interpretation of the statute would contradict Congress’ true intent.

To reach this conclusion, the District Court cited to Waldron v. Professional Medical Management, which held that a literal application of § 1692(8) “would produce absurd results.” No. 12-1863, 2013 WL 978933 (E.D. Pa., March 13, 2013). The District Court and the Waldron court relied on similar applications of the “benign language” exception to Section 1692f(8) in the Fifth Circuit, Eighth Circuit, District of Connecticut and the Central District of California.[2] Ultimately, the District Court held that “the mere presence of an account number does not show that the communication is related to a debt collection and “[i]t also could not reasonably be said to ‘humiliate, threaten, or manipulate’ the debtor.” Douglass v. Convergent Outsourcing, 963 F. Supp. 2d at 446. Further, the District Court found that “[s]ince the ‘random series of letters and numbers’ revealed through the QR code does not ‘clearly refer to a debt,’ or ‘tend to humiliate, threaten, or manipulate’” the consumer, Convergent did not violate the FDCPA. Id. at 448. Accordingly, the District Court granted summary judgment in favor of Convergent.

Douglass appealed the order granting summary judgment. On appeal, Douglass argued that an unambiguous reading of § 1692(8) explicitly bars the disclosure of account numbers. Douglass v. Convergent Outsourcing, 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014). Convergent maintained that a plain reading of § 1692(8) would lead to absurd results and thus its disclosure of Douglass’ account number is allowed under a “benign language” exception. Id. at *3. In response, Douglass argued that, even if a “benign language” exception applies, the disclosure of an account number is never benign. Id.

The Third Circuit found that “the plain language of § 1692f(8) does not permit Convergent’s envelope to display an account number” but declined to evaluate whether Section 1692f(8) allows for a “benign language” exception. Instead, the Third Circuit determined that a debt collector’s account number is never benign. Id. at *4. Specifically, the Third Circuit held that “[t]he account number is a core piece of information pertaining to Douglass’s status as a debtor and Convergent’s debt collection effort. Disclosed to the public, it could be used to expose her financial predicament. Because Convergent’s disclosure implicates core privacy concerns, it cannot be deemed benign.” Id. Based on these considerations, the Third Circuit found that “Douglass’s account number is impermissible language or symbols under § 1692f(8)” in violation of the FDCPA. Id. at *6.

On September 10, 2014, Convergent filed a Petition for Rehearing En Banc or Panel Rehearing.     

In light of this decision, entities collecting consumer debt should avoid the use of account numbers and/or QR codes on envelopes or within the viewing area of clear plastic envelope windows. Revealing such information on envelopes or through clear plastic envelope windows may expose debt collectors to liability under the FDCPA.

[1] A “QR” Code is a barcode like image which can be read from a Cell Phone.

[2] Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 318–19 (8th Cir. 2008); Goswami v. Am. Collections Enter., Inc., 377 F.3d 488, 494 (5th Cir. 2004); Lindbergh v. Transworld Sys., Inc., 846 F. Supp. 175, 180 & n. 27 (D. Conn. 1994); Masuda v. Thomas Richards & Co., 759 F. Supp. 1456, 1466 (C.D. Cal. 1991).