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Washington reaches $1.6 million settlement with debt collector
On September 8, the Washington attorney general announced that a Renton-based debt collector (defendant) will pay over $1.6 million in a settlement to resolve allegations that it violated the Washington Consumer Protection Act by misleading consumers with offers for “settlements” of debts. According to the AG, the defendant sent letters titled “settlement offers,” but failed to disclose that because the debt was older than the six year statute of limitations for filing a suit to collect, it could not enforce the debt in court. The term “settlement offer” allegedly deceptively suggested the defendant could potentially litigate to collect the debt. Under the terms of the settlement, the defendant is required to: (i) pay full restitution to 1,400 Washingtonians, a total of nearly $710,000; (ii) pay $1,675,000 to the attorney general’s office, including payment to cover the costs of the case and fund future investigations and enforcement of the Consumer Protection Act; (iii) cease using the words “settle” or “settlement” when attempting to collect on time-barred debts; and (iv) disclose that the statute of limitations to sue on the debt has passed.
Massachusetts announces consent judgment against debt-collection company
On August 31, the Massachusetts attorney general announced a “first-of-its-kind” consent judgment against a Massachusetts-based debt-settlement company and its chief operating officer for allegedly violating the Massachusetts Consumer Protection Act, among other things. The consent judgment settled a lawsuit in which the AG alleged that the company charged inflated and premature fees, knowingly and regularly enrolled consumers who were not able to benefit from its program, and failed to communicate the harms that consumers could encounter after enrolling in its program. According to the AG, the company “directed consumers to stop paying their debts and to stop communicating with creditors, and to instead make payments into a dedicated ‘savings’ account administered by [a] payment processor.” The AG also alleged the company “engaged in the unauthorized practice of law by continuing to represent consumers after they were sued in relation to an enrolled debt.” Under the terms of the AG’s consent order, the company is required to pay $1 million to the Commonwealth.
As previously covered by InfoBytes, in May, the CFPB announced a settlement with the same company for allegedly violating the Telemarketing Sales Rule and the Consumer Financial Protection Act.
New Mexico sues gaming app maker for COPPA violations
On August 25, the New Mexico attorney general filed a lawsuit against an entertainment corporation for allegedly violating the Children’s Online Privacy Protection Act Rule (COPPA) and New Mexico’s Unfair Practices Act by knowingly collecting and selling personal information from children under the age of 13 without verifiable parental consent. According to the AG, the company purportedly collects data from children who play one of its gaming apps and sells it to third-party marketing companies, who in turn, analyze and repackage the data to sell targeted advertisements to those same children. The complaint stated that, “[t]his conduct endangers the children of New Mexico, undermines the ability of their parents to protect children and their privacy, and violates state and federal law,” adding that the “surreptitious and intentional monitoring, tracking, and profiling of children—in direct violation not only of federal law but of longstanding societal norms—is egregious and highly offensive conduct.” The AG further emphasized that even if a game is targeted towards a broad audience, developers must still ensure that data is not collected from users under the age of 13 without parental consent. The complaint seeks an injunction to prohibit the company’s data collection practices as well as civil penalties and restitution.
OCC cites preemption decision in valid-when-made rule challenge
On August 24, the OCC filed a statement of recent decision in support of its motion for summary judgment in an action brought against the agency by several state attorneys general challenging the OCC’s final rule on “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred” (known also as the valid-when-made rule). The final rule was designed to effectively reverse the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision and provide that “[i]nterest on a loan that is permissible under [12 U.S.C. § 85 for national bank or 12 U.S.C. § 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” (Covered by a Buckley Special Alert.) The states’ challenge argued that the rule “impermissibly preempts state law,” is “contrary to the plain language” of section 85 (and section 1463(g)(1)), and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the states contended that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule, essentially enabling “‘rent-a-bank’ schemes.” (Covered by InfoBytes here.) Both parties sought summary judgment, with the OCC arguing that the final rule validly interprets the National Bank Act (NBA) and that not only does the final rule reasonably interpret the “gap” in section 85, it is consistent with section 85’s “purpose of facilitating national banks’ ability to operate their nationwide lending programs.” Moreover, the OCC asserted that 12 U.S.C. § 25b’s preemption standards do not apply to the final rule, because, among other things, the OCC “has not concluded that a state consumer financial law is being preempted.” (Covered by InfoBytes here.)
In its August 24 filing, the OCC brought to the court’s attention a recent order issued by the U.S. District Court for the Western District of Wisconsin. As previously covered by InfoBytes, the Wisconsin court reviewed claims under the FDCPA and the Wisconsin Consumer Act (WCA) against a debt-purchasing company and a law firm hired by the company to recover outstanding debt and purported late fees on the plaintiff’s account in a separate state-court action. Among other things, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the NBA, as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. The court ultimately concluded that the WCA provisions “are inapplicable to national banks by reason of federal preemption,” and, as such, the court found “that a debt collector assigned a debt from a national bank is likewise exempt from those requirements” and was not required to send the plaintiff a right-to-cure letter “as a precondition to accelerating his debt or filing suit against him.”
Virginia announces consent judgment against investment firm
On August 24, the Virginia attorney general announced a consent judgment entered on August 16 against a Virginia-based investment company and its managing member (collectively, "defendants") to resolve allegations that they violated Virginia’s consumer finance statutes. The consent judgment settled a lawsuit in which the AG alleged that defendants “made loans to distressed homeowners and charged interest or other compensation greatly exceeding an effective annual interest rate of 12 percent, without being licensed as a consumer finance company or coming within another exemption to Virginia’s usury laws.” According to the AG, the complaint alleged that a representative of the defendant investment company approached a Virginia Beach homeowner facing foreclosure and presented her with an agreement in which the defendants would provide the amount needed to stop the foreclosure in exchange for permission to list and sell the homeowner’s separate Virginia Beach property at an above-market commission rate or, if the sale did not occur, to purchase that property at a significantly below market price. Under the terms of the consent judgment, the defendants, among other things are: (i) permanently enjoined from violating specific consumer finance statutes, including by “making any loan requiring a collateral sale and/or purchase to Virginia consumers”; (ii) required to pay $11,000 in attorneys’ fees and costs; and (iii) required to provide certain restitution and/or forbearance relief to consumers identified by the defendants pursuant to the consent judgment as well as “to any Virginia consumer who comes forward within two (2) years after entry of the Consent Judgment with evidence establishing that he or she received a loan requiring a collateral sale and/or purchase from [defendants]” during the period from January 1, 2018 to the present.
Maryland affirms penalties of over $3 million against auto lender
On August 11, the Maryland attorney general announced that a circuit court in Maryland affirmed that an auto-lending company’s transactions were illegal loans, not pawn transactions, and upheld the Consumer Protection Division’s imposition of $2.2 million in restitution and a $1.2 million penalty. In its press release, the AG alleged that the company “made predatory loans at outrageous interest rates, illegally repossessed cars, and preyed on Maryland consumers,” in violation of the Maryland Consumer Loan Law, the Maryland Interest and Usury Law, and the Installment Loan-Licensing Provision. According to the memorandum of the court, the loans issued by the company were not considered to be title pawn transactions, but were instead illegal consumer loans which “violated the consumer protection statutes as respondents were not licensed to make loans in Maryland, failed to make the required disclosures to the consumer, engaged in unfair trade practices, exceeded the statutory interest rate caps, took unpermitted security interests for loans of less than $700.00 and engaged in illegal repossession activities.”
Georgia settles with debt collection company
On August 12, the Georgia Attorney General announced that it entered an assurance of voluntary compliance with a debt collection company resolving allegations that the company committed multiple violations of the FDCPA and the Georgia Fair Business Practices Act. According to the AG, the company deceived consumers by, among other things: (i) threatening consumers with jailtime if a debt was not paid; (ii) failing to disclose that they were debt collectors; and (iii) failing to provide consumers, within five days after the initial communication, a written notice containing certain information required by law. Under the settlement, the company must cease collections on all Georgia consumer accounts it owns and turn those accounts over to the AG, which represents over $19.8 million in purported consumer debt. In addition, the company must pay $41,500 in penalties and fees, and fully comply with the FDCPA and the Georgia Fair Business Practices Act. Finally, if the company violates any provisions of the settlement during a three-year monitoring period, it must immediately pay an additional $41,500 payment to the state.
District Court allows CFPB, Massachusetts AG’s telemarketing suit to proceed
On August 10, the U.S. District Court for the District of Massachusetts denied a motion to dismiss filed by a credit repair organization and the company’s president and owner (collectively, “defendants”) in a joint action taken by the CFPB and the Massachusetts attorney general, which alleged the defendants committed deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA), the Massachusetts Consumer Protection Law, and the FTC’s Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, the complaint alleges the defendants, among other things, claimed their credit-repair services could help consumers substantially improve their credit scores and promised to fix “unlimited” amounts of negative items from consumers’ credit reports, but, in “numerous instances,” the defendants failed to achieve these results. The defendants also allegedly violated the TSR by engaging in abusive acts and by requesting and collecting fees before achieving any results related to repairing a consumer’s credit. The defendants moved to dismiss, arguing that they were governed by the Credit Repair Organizations Act (CROA), which cannot be reconciled with the TSR, the TSR definition of “telemarketing” is vague and violates the Due Process Clause, and that applying the TSR’s definition of telemarketing would place an unfair content-based restriction on speech that restricts when they can collect payments for their services. Moreover, the defendants claimed, among other things, that the FTC “exceeded its authority in promulgating rules targeting their conduct because Congress intended that only unsolicited telemarketing calls would be addressed by the FTC’s regulations.”
The court disagreed, holding first that that the CROA and the TSR do not conflict. “[C]ompliance with the TSR’s payment requirement would not cause defendants to violate the CROA,” the court stated. “The TSR simply adds a precondition to requesting payment…” Additionally, the court noted that the TSR’s “restriction is on conduct—the timing of the payment—not on speech,” adding that while “Congress directed the FTC to create rules regarding specific telemarketing activities. . ., Congress also authorized the FTC to create additional rules addressing ‘deceptive telemarketing acts or practices’ at its discretion.” As such, the court held that defendants did not show that “Congress intended the FTC to exclusively address unsolicited telemarketing calls.” Furthermore, the court held that the plaintiffs adequately defined the defendants’ allegedly deceptive conduct and that the alleged violations of state law are plausible.
State AGs ask for faster implementation of STIR/SHAKEN
On August 9, state attorneys general from all 50 states and the District of Columbia, through the National Association of Attorneys General, sent a letter to the FCC urging the Commission to confront illegal robocalls by moving the deadline for smaller telephone companies to implement caller ID technology, STIR/SHAKEN, by June 30, 2022 at the latest. The TRACED Act (the Act), which became law in 2019 (covered by InfoBytes here), requires phone companies to implement STIR/SHAKEN technology on their networks to ensure that telephone calls are originating from verified numbers, not spoofed sources. As previously covered by InfoBytes, the STIR/SHAKEN caller ID authentication framework is an “industry-developed system to authenticate Caller ID and address unlawful spoofing by confirming that a call actually comes from the number indicated in the Caller ID, or at least that the call entered the US network through a particular voice service provider or gateway.” Currently under the Act, large companies are required to implement the technology by June 2021, and smaller voice service providers have until June 2023. According to the letter, the state attorney generals’ advocate that “[r]emoving — or, at least, curtailing — the Commission's blanket extension for small voice service providers that flout the commission's largess by perpetrating this high-volume traffic would truly serve the purpose of the TRACED Act: ‘to deter criminal robocall violations and improve enforcement’ of the TCPA.”
State AGs filed amicus brief in support of federal student loan borrowers
On July 29, a coalition of attorneys general from 20 states and the District of Columbia filed an amicus brief in the U.S. Court of Appeals for the Second Circuit against Secretary of Education Miguel Cardona and the Department of Education in support of an appeal challenging the Department’s 2019 rule governing student loan relief for defrauded borrowers (“2019 Rule”). As summarized in the brief, Congress created a statutory entitlement to loan relief for borrowers who are defrauded by their school—a process known as “borrower defense”—to “ensure that victimized students are not unfairly saddled with federal student loans.” The amici brief argues that the 2019 Rule “reject[ed] longstanding agency practice and positions going back 25 years to the first borrower defense rule” and “makes it all but impossible for defrauded borrowers to successfully obtain loan relief.” The states argue that the Department’s 2019 Rule is thus arbitrary and capricious under the Administrative Procedure Act and request that the Second Circuit reverse the district court’s holding to the contrary.
As previously covered by InfoBytes, in July 2020, state attorneys general from 22 states and the District of Columbia filed a complaint in U.S. District Court for the Northern District of California against Secretary of Education Betsy DeVos and the Department of Education, also asking the court to vacate the Department’s 2019 final rule.