Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
3rd Circuit reverses district court’s collateral estoppel ruling preventing plaintiff from pursuing debt collection claims
On November 29, the U.S. Court of Appeals for the 3rd Circuit reversed a district court’s decision to grant summary judgment to a university and its debt collection firm (appellees) on the grounds that the issue had already been decided in state court, ordering the district court to reconsider the plaintiff/appellant’s discovery motions and whether it can “exercise supplemental jurisdiction” over the appellees’ alleged violation of Pennsylvania law.
The plaintiff/appellant, a former university student, provided the appellees with a new address in Philadelphia after being contacted about unpaid tuition. When the debt remained unpaid, the appellees filed suit against him in Philadelphia municipal court but sent notices to a New Jersey address on file in the university’s system. The plaintiff/appellant did not appear in court and a default judgment was entered against him. The plaintiff/appellant petitioned to reopen the default judgment, arguing that the appellees had intentionally served his old address to avoid the personal service requirement in Philadelphia County. The municipal court dismissed the default judgment, despite finding that the appellees had not engaged in any intentional misconduct. Following a trial on the merits, the Philadelphia municipal court judge again ruled against the plaintiff/appellant for the full amount. Subsequently, the plaintiff/appellant filed a lawsuit in federal court alleging violations of the FDCPA and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law; however, the federal court barred the deceptive service of process claim, finding that the municipal court had already ruled that the debt collectors’ actions were unintentional.
On appeal, the 3rd Circuit found that the district court had erred in ruling that collateral estoppel prevented the plaintiff/appellant from pursuing claims against the appellees simply because the municipal court judge said that he did not think the notices were intentionally served to the old address so a default judgment could be obtained. “Although the [m]unicipal [c]ourt’s finding may meet the first four elements of collateral estoppel, its determination that [a]ppellees did not intentionally serve [the plaintiff/appellant] at the wrong address was not essential to its judgment at that hearing, i.e., vacating the default judgment. In fact, its finding was contrary to this ultimate judgment,” the appellate court concluded. The appellate court also reversed the grant of summary judgment to the appellees on the plaintiff/appellant’s remaining FDCPA claims and remanded them to the district court to determine whether there had been “false and deceptive service of process; misconduct in opposing the opening of default judgment; and misstatements of the case caption, case number and court in the [c]ollection [l]etter.”
On September 24, the U.S. Court of Appeals for the 3rd Circuit reversed the district court’s dismissal of a putative class action alleging a debt collector violated the FDCPA by including a statement noting that debt forgiveness may be reported to the IRS. The case was centered on the plaintiffs’ claim that letters sent to collect on debts that were less than $600, which contained the language “[w]e are not obligated to renew this offer. We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case,” were “false, deceptive and misleading” under the FDCPA because only discharged debts over $600 are required to be reported to the IRS. The district court dismissed the action, concluding the letters were not deceptive and the least sophisticated consumer would interpret the statement to mean in certain circumstances some discharges are reportable but not all are reportable.
Upon appeal, the 3rd Circuit disagreed with the district court, finding “the least sophisticated debtor could be left with the impression that reporting could occur,” notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled, and therefore, the language could signal a potential FDCPA violation. Recognizing the industry’s regular use of form letters, the appeals court noted, “we must reinforce that convenience does not excuse a potential violation of the FDCPA.”
On September 10, the U.S. Court of Appeals for the 3rd Circuit issued a precedential order reversing in part and affirming in part a lower court’s dismissal of claims brought by three individuals who claimed a company violated the Fair Credit Reporting Act (FCRA) when it failed to provide them with copies of their consumer reports. According to the opinion, the three plaintiffs applied for jobs with the company and were ultimately not hired due to information discovered in their background checks. The plaintiffs filed a putative class action asserting the company did not send them copies of their background checks before it took adverse action when deciding not to hire them, and also failed to provide them with notices of their rights under the FCRA. The district court dismissed the claims against the company, finding there was only a “bare procedural violation,” and not a concrete injury in fact as required under the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert). On appeal, the 3rd Circuit reversed the lower court’s decision, concluding that the plaintiffs had standing to assert that the company violated the FCRA by taking adverse action without first providing copies of their consumer reports. Additionally, the court noted that “taking an adverse employment action without providing the required consumer report is ‘the very harm that Congress sought to prevent, arising from prototypical conduct proscribed’ by the FCRA.” However, the appellate court affirmed the lower court’s dismissal of the plaintiffs’ claim alleging the company failed to provide them with a notice of their FCRA rights, finding that the claim was a “‘bare procedural violation, divorced from any concrete harm,’” and lacked Article III standing under Spokeo. The 3rd Circuit remanded the case for further proceedings consistent with their findings.
On August 22, the U.S. Court of Appeals for the 3rd Circuit reversed the dismissal of a putative class action claim alleging a debt collector violated the FDCPA when it used an “alternative business name” in a voicemail. According to the opinion, the consumers allege the debt collector violated three sections of the FDCPA by leaving voicemail messages identifying itself by a different business name than the company’s corporate name. The lower court dismissed all three FDCPA claims for failure to state a claim. The panel affirmed the dismissal as to two counts of the amendment complaint, but reversed as to the third, finding that the consumers stated a plausible claim that the debt collector violated the FDCPA’s “true name” provision. The panel cited to FTC interpretive guidance, which notes a company may use a name other than its registered name so long as “it consistently uses the same name when dealing with a particular consumer.” The court found that the alternative name used in the voicemails is “neither [the company]’s full business name, the name under which it usually transacts business, nor a commonly used acronym of its registered name” and the name used is actually associated with other debt collection companies. Therefore, the consumers stated a plausible claim under the “true name” provision of the FDCPA.
On August 13, in a divided opinion that is not precedential, the U.S. Court of Appeals for the 3rd Circuit affirmed a lower court’s decision to grant a petition filed by the CFPB to enforce a civil investigative demand (CID) issued to a student loan servicer, rejecting arguments that the scope of the Bureau’s investigation was too broadly defined. The Notification of Purpose in the CID at issue named the entirety of the servicer’s business operations, without identifying any specific conduct, when the CFPB sought records to determine whether the servicer’s practices violated federal consumer financial laws. The servicer objected to the Notification of Purpose and petitioned the Bureau to set aside or modify the CID because it did not adequately “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.” The appellate court held that the servicer’s “contention rests on the flawed assumption that the CFPB could not investigate all of [the servicer’s] conduct,” and that, moreover, “[n]othing prohibits the CFPB from investigating the totality of [the servicer’s] business activities, and courts have previously enforced administrative subpoenas regarding conduct that is coextensive with the recipient’s business activity.”
On August 7, the U.S. Court of Appeals for the 3rd Circuit held that unpaid highway tolls are not “debts” under the FDCPA because they are not transactions primarily for a “personal, family, or household” purpose. According to the amended class action complaint at issue in the case, after a consumer’s electronic toll payment system account became delinquent, a debt collection agency sent notices containing the consumer’s account information in the viewable display of the notice envelope. The consumer filed suit alleging the collection agency violated the FDCPA. While the lower court held that the consumer had standing to bring the claim, it dismissed the action on the ground that the unpaid highway tolls fell outside the FDCPA’s definition of a debt. The 3rd Circuit affirmed the lower court’s decision. On the issue of standing, citing the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert), the panel reasoned that the exposed account number “implicates a core concern animating the FDCPA—the invasion of privacy” and is a legally cognizable injury that confers standing. The panel agreed with the consumer that the obligation to pay the highway tolls arose out of a “transaction” for purposes of the FDCPA because he voluntarily chose to drive on the toll roads, but found the purpose of the transaction was “public benefit of highway maintenance and repair”—not the private benefit of a “personal, family, or household” service or good as required by the FDCPA. Moreover, the court concluded that while the consumer chose to drive on the roads for personal purposes, the money being rendered was primarily for public services, as required by the statute to collect tolls “to acquire, construct, maintain, improve, manage, repair and operate transportation projects.”
On August 7, the U.S. Court of Appeals for the 3rd Circuit held that a company using the mail and wires to collect “any debts” meets the “principal purpose” definition under the FDCPA. According to the opinion, after homeowners defaulted on a home equity line of credit, the debt was sold and the mortgage assigned to a company whose sole business is the purchase of debts entered into by third parties and collecting on those debts. After several attempts to collect the debt, the company filed a foreclosure action in Pennsylvania. The homeowners contacted the company requesting loan statements to resolve the debt but the company refused to provide statements. The homeowners later received a collection email with an even higher amount than previously communicated and filed an action alleging the company violated the FDCPA. The lower court rejected the company’s arguments that it was not a debt collector under the FDCPA’s “principal purpose” definition—any person “who uses any instrumentality of interstate commerce or the mails in any business, the principal purpose of which is the collection of any debts”—and held that the company violated the act.
The company appealed, challenging the lower court’s determination that it met the definition of debt collector, instead arguing it was a “creditor.” The 3rd Circuit, following the plain text of the FDCPA, held that “an entity whose principal purpose of business is the collection of any debts is a debt collector regardless whether the entity owns the debts it collects.” Affirming the lower court’s determination, the appellate panel disagreed with the company, reasoning that the company admitted its sole business is collecting purchased debts and it uses “mails and wires for its business,” such that it could be “no plainer” that the company fits the “principal purpose” definition under the FDCPA.
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.
3rd Circuit reverses district court’s decision, rules TILA provisions misapplied to unauthorized-charge suit
On May 16, the U.S. Court of Appeals for the 3rd Circuit reversed a district court’s decision, holding that the lower court, among other things, misapplied a TILA provision under Regulation Z that requires cardholders to dispute charges within 60 days of the “first periodic statement that reflects the alleged billing error.” According to the opinion, the plaintiff-appellant filed a suit against the bank after he was allegedly rebilled for a $657 fraudulent money transfer charge that originally appeared on his statement in July 2015. The charge was originally removed from his account but reappeared in mid-September of that year after the bank claimed the charge was valid after verifying transaction details. The plaintiff-appellant challenged the decision in writing, and later filed a complaint against the bank, alleging he had “timely submitted a written notice of billing error,” and that the bank “had neither credited the charge nor conducted a reasonable investigation” and imposed liability of more than $50. The district court dismissed the complaint with prejudice for failure to state a claim, which the plaintiff appealed.
At issue, the three-judge panel determined, were two provisions under TILA: (i) the “Fair Credit Billing Act” (FCBA), which stipulates that creditors must “comply with particular obligations when a consumer has asserted that his billing statement contains an error,” and (ii) the “unauthorized-use provision,” which requires certain conditions to be met before a credit card issuer can hold the cardholder liable, up to a limit of $50, for any unauthorized use. The panel first addressed the district court’s finding that the bank’s obligations under FCBA were “never triggered” because his written notice came 63 days after the July statement first included the charge. The panel held that, because the plaintiff-appellant’s August billing statement showed a credit to his account for the charge and that “there was no longer anything to dispute” and no reason to believe his statement contained a billing error, the 60-day time limit should have started when the bank rebilled him in September. In addressing the second issue, the district court held that plaintiff-appellant was not entitled to “reimbursement” under the unauthorized-use claim. However, the panel opined that he was not seeking reimbursement but rather “actual damages,” for which the statute does provide relief. “We conclude that a cardholder incurs ‘liability’ for an allegedly unauthorized charge when the issuer, having reason to know the charge may be unauthorized, bills or rebills the cardholder for that charge,” the panel wrote.
3rd Circuit holds FDCPA statute of limitations begins to run on occurrence, not discovery, of violations, splitting from 4th and 9th Circuits
On May 15, the U.S. Court of Appeals for the 3rd Circuit issued an en banc ruling that the statute of limitations on the ability to sue for a violation of the Fair Debt Collection Practices Act (FDCPA) is one year from the date the Act is violated. The ruling is a departure from contrary decisions issued by the 4th and 9th Circuits, which both held that the statute of limitations begins to run when a violation is discovered, not when it occurs.
Citing the FDCPA’s provision that claims must be filed “within one year from the date on which a violation occurs,” the court found that intent of the FDCPA is that the statute of limitations should begin to run at the moment the alleged wrongdoing happens, and not when the cause of action is discovered. The Court found that the 4th and 9th Circuits’ decisions to the contrary failed to analyze the “violation occurs” language of the statute.
However, the court noted that its holding does not serve to undermine the doctrine of equitable tolling, and “should not be read to foreclose the possibility that equitable tolling might apply to FDCPA violations that involve fraudulent, misleading, or self-concealing conduct.” This question was not addressed, the court noted, because the plaintiff-appellant failed to preserve the issue on appeal.
- Jonice Gray Tucker to discuss "Trends in regulatory enforcement" at the American Bar Association Banking Law Committee Meeting
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo