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District Court approves $2.8 million settlement in FDCPA convenience fee class action
On December 22, the U.S. District Court for the Southern District of Florida granted preliminary approval of a $2.8 million settlement in an FDCPA class-action suit resolving allegations that convenience fees were charged when consumers made payments on their mortgages over the phone or online. According to the suit, the plaintiffs claimed the defendant did not charge processing fees if borrowers made payments by check or signed up for automatic monthly debits from their bank accounts. The plaintiffs further argued that the processing fees were “illegal and improper because neither the mortgages themselves nor applicable statutes authorize such fees.” The parties agreed to mediation in April 2022, and a motion for preliminary approval of a settlement was filed in August. A coalition of state attorneys general from 32 states and the District of Columbia, led by the New York AG filed an amicus brief in the district court opposing the original proposed $13 million settlement in the suit (covered previously by InfoBytes here). The AGs outlined concerns with the proposed settlement, including that (i) the relief provided to class members violates various state laws, and that the defendant seeks to ratify fees in an “unwritten, mass amendment” that violates state laws and regulations; (ii) class members only receive an “inadequate” one-time payment, while the defendant may continue to charge excessive fees for the life of the loan; and (iii) low- and moderate-income borrowers are not treated equitably under the proposed settlement. Under the terms of the new settlement, members of the class who do not opt out of the settlement will receive a share of the $2.8 million. The settlement also reduces the fees class members will have to pay when making payments online or via the telephone for the next two years. The defendant also agreed to add additional disclosures to its website to increase borrower awareness of alternative payment methods that could have lower fees or no fees. Defendant’s representatives will also receive additional training to ensure they provide additional information and disclosures about convenience fees when speaking with customers.
On June 16, the court granted final approval of the settlement.
CFPB, FTC say furnishers’ investigative duties extend to legal disputes
On December 16, the CFPB and FTC filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Eleventh Circuit concerning two related FCRA cases in support of plaintiffs-appellants and reversal of their suits involving a defendant hotel chain’s summary judgments. Both cases involve the same defendant company. In one case, the plaintiff entered into a timeshare agreement with the defendant for a property and made monthly payments for approximately three years. When the plaintiff stopped making payments, the plaintiff mailed the defendant letters that disputed the validity of, and purported to rescind, the agreement, while permitting the defendant to retain all prior payments as liquidated damages. The plaintiff obtained a copy of his credit report from a credit reporting agency (CRA), which stated that he had an open account with the defendant with a past-due balance. In three letters to the CRA, the plaintiff disputed the credit reporting. The letters stated that the plaintiff had terminated his agreement with the defendant and that he did not owe a balance. After the CRA communicated each dispute to the defendant, the defendant certified that the information for the defendant’s account was accurate. The plaintiff sued alleging the defendant violated the FCRA when it verified the accuracy of his credit report without conducting reasonable investigations following receipt of his indirect disputes. The defendant moved for summary judgment, alleging, among other things, that the plaintiff’s claim that he was not contractually obligated to make the payments to the defendant that are reported on his credit report as being due “is inherently a legal dispute and is not actionable under the FCRA.” The district court granted the defendant’s motion for summary judgment, which the plaintiff appealed.
In the other case, the plaintiff entered into a timeshare agreement with the defendant. She made a down payment and the first three installment payments, but did not make any additional payments. The plaintiff sent letters to the defendant disputing the validity of, and attempted to cancel, the agreement. The defendant reported the plaintiff’s delinquency to the CRA. In three letters to the CRA, the plaintiff disputed the credit reporting. After the CRA communicated the disputes to the defendant, the defendant determined there was no inaccuracy in the reporting. The plaintiff sued alleging the defendant violated the FCRA when it verified the accuracy of her credit report without conducting reasonable investigations following receipt of her indirect disputes about credit reporting inaccuracies. The district court granted the defendant’s motion for summary judgment, which the plaintiff appealed.
The CFPB and FTC argued in favor of the plaintiffs-appellants. According to the agencies, furnishers’ duty under the FCRA to reasonably investigate applies not only to factual disputes, but also to disputes that can be labeled as legal in nature. The agencies made three arguments to support their contention. First, a reasonable investigation is required under the FCRA to comport with its goal to “protect consumers from the transmission of inaccurate information about them.” The agencies argued that reasonableness is case specific, but it can “be evaluated by how thoroughly the furnisher investigated the dispute (e.g., how well its conclusion is supported by the information it considered or reasonably could have considered).”
Second, the agencies argued that Congress did not intend to exclude disputes that involve legal questions. The FCRA describes the types of indirect disputes that furnishers need to investigate, which are “those that dispute ‘the completeness or accuracy of any item of information contained in a consumer’s file.’” The agencies said nothing suggests that Congress intended to exclude information that is inaccurate on account of legal issues. Furthermore, the agencies noted that a lot of “inaccuracies in consumer reports could be characterized as legal, which would create an exception that would swallow the rule.” Consumer reports generally include information regarding an individual’s debt obligations, which are generally creatures of contract. Therefore, “many inaccurate representations pertaining to an individual’s debt obligations arguably could be characterized as legal inaccuracies, given that determining the truth or falsity of the representation could require the reading of a contract.”
Lastly, the agencies argued that an “atextual exception for legal inaccuracies would create a loophole that could swallow the reasonable investigation rule.” The agencies urged that “[g]iven the difficulty in distinguishing ‘legal’ from ‘factual’ disputes,” the court “should hold that there is no exemption in the FCRA’s reasonable investigation requirement for legal questions” because it would “curtail the reach of the FCRA’s investigation requirement in a way that runs counter to the purpose of the provision to require meaningful investigation to ensure accuracy on credit reports.”
Bank to pay $2 million in collection call suit
On December 14, a Superior Court of California granted a stipulated final judgment resolving claims that a national bank (defendant) violated the Rosenthal Fair Debt Collection Practices Act (RDCPA) and the FDCPA by making “harassing and annoying” debt collection calls to its customers. According to the stipulated final judgment, since at least March 2015, the defendant allegedly violated California and federal law by making phone calls with “unreasonably excessive frequency,” while also persisting in calling wrong numbers in attempts to collect on unpaid debts. The defendant, which did not admit any liability or wrongdoing, agreed to, among other things: (i) adopt or maintain policies and procedures to avoid such harassing calls; (ii) limit the number of calls it will make as part of its future debt collection efforts; and (iii) cease calling those who ask orally or in writing that they not be contacted. Under the terms of the stipulated final judgment, the defendant must pay $1.45 million in civil penalties, $300,000 in investigative costs, and $250,000 in restitution.
District Court vacates DOE order on student loan servicer’s $22 million repayment
On December 16, the U.S. District Court for Eastern District of Virginia vacated and remanded the Department of Education’s (DOE) decision that a student loan servicer (plaintiff) had improperly collected $22 million in student loan-related subsidies from 2002 to 2005. According to the opinion, the plaintiff alleged that the DOE acted arbitrarily and capriciously in violation of the Administrative Procedure Act when it determined that the plaintiff erroneously claimed over $22 million in student loan-related subsidies. The plaintiff contended that in claiming those subsidies, it reasonably relied on two 1993 “Dear Colleague Letters” (DCL) from the DOE authorizing it to collect subsidies for student loans funded in whole or in part by tax-exempt obligations. According to the plaintiff, the DOE issued a new DCL in 2007 which disavowed the guidance in the DOE’s two 1993 DCLs, but nonetheless stated that the DOE would not collect past erroneous subsidies if the plaintiff prospectively followed the DOE’s revised interpretation set forth in the 2007 DCL. Nevertheless, the DOE initiated administrative proceedings seeking over $22 million in past subsidies collected by the plaintiff pursuant to the 1993 DCLs. The DOE’s acting secretary ruled in January 2021 that the plaintiff erred when it claimed those subsidies and must pay it back.
The plaintiff appealed, arguing that the DOE’s decision in 2021 failed to consider its reliance on the previous policy statements in the 1993 and 2007 letters. However, the DOE argued it was “unreasonable” for the plaintiff to rely on the DCLs, saying that the loan company should have known that the 1993 letters contradicted the Higher Education Act. Siding with the plaintiff, the court relied on the U.S. Supreme Court’s decision in Department of Homeland Security v. Regents of the University of California, which found that when an agency alters existing policy, it must assess “whether there were reliance interests, determine whether they were significant, and weigh any such interests against competing policy concerns.” The court further held that it is DOE's job to “weigh the strength of those reliance interests,” and it failed to do so.
District Court preliminarily approves lending discrimination settlement
On December 15, the U.S. District Court for the Northern District of California preliminarily approved a $480,000 class action settlement concerning whether an online lender allegedly denied consumers’ applications based on their immigration status. Plaintiffs filed a putative class action against the defendants, alleging the lender denied their loan applications based on one of the plaintiff’s Deferred Action for Childhood Arrivals (DACA) status and the other plaintiff’s status as a conditional permanent resident (CPR). Plaintiffs claimed that these practices constituted unlawful discrimination and “alienage discrimination” in violation of federal law and California state law. Plaintiffs also alleged that the defendants violated the FCRA by accessing their credit reports without a permissible purpose. (Covered by InfoBytes here.) Under the terms of the preliminarily approved settlement, the defendants would be required to pay $155,000 into a settlement fund, as well as up to $300,000 in attorneys’ fees and $25,000 in administrative costs. The defendants have also agreed to change their lending policies to ensure DACA and CPR applicants are evaluated for loan eligibility based on the same terms as U.S. citizens.
The district court noted, however, that the proposed settlement includes a “clear sailing arrangement,” which provides that the defendants will not oppose plaintiffs’ motion for attorneys’ fees and costs provided the requested amount does not exceed $300,000. Referring to an opinion issued by the U.S. Court of Appeals for the Ninth Circuit in which the appellate court warned that clear sailing arrangements are “important warning signs of collusion” because they show an increased “likelihood that class counsel will have bargained away something of value to the class,” the district court explained that it intends to “carefully scrutinize the circumstances and determine what attorneys’ fee awards is appropriate in this case.”
District Court says debtor bears the burden of asserting a garnishment exemption
On December 15, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant’s motion for judgment on the pleadings in a debt collection garnishment suit. One of the plaintiffs was referred to collections after he defaulted on his credit card debt, and a judgment was entered against him by the original creditor. The defendant filed for a writ of execution, seeking to garnish funds that were in a joint bank account maintained by both plaintiffs. The writ outlined major exemptions under Pennsylvania and federal law, noting that the plaintiff may also be able to rely on other exemptions, and instructed him to complete a claim for exemption. Plaintiffs sued for violations of the FDCPA, claiming, among other things, that the defendant should have known that the account was a joint account, and therefore exempt, before seeking the writ of execution. According to the plaintiffs, the defendant should have known or reasonably known “that the funds in the joint account were immune from execution because it ‘performed its own private asset search to discover’ the account.” The court disagreed, holding, that under Pennsylvania’s garnishment procedures, the debtor bears the burden of asserting an exemption. This assertion, the court said, must be more than a “self-serving statement that an exemption applies.”
The court cited a ruling issued by the U.S. District Court for the Southern District of California, in which the court determined that “[t]he bottom line here is that, right or wrong, a judgment creditor has no duty under either California or federal law to investigate, much less confirm, that a judgment debtor’s bank accounts contain only non-exempt funds prior to authorizing a levy on those accounts. It is unreasonable to conclude that a judgment creditor’s failure to conduct a pre-levy debtor’s exam, when there is no legal obligation or requirement to do so, constitutes unfair or unconscionable action.”
States have their say on CFPB funding
Recently, a coalition of state attorneys general from 22 states, including the District of Columbia, filed an amicus brief supporting the CFPB’s petition for a writ of certiorari, which asked the U.S. Supreme Court to review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. A separate coalition of 16 state attorneys general filed an amicus brief opposing the Bureau’s position and supporting the 5th Circuit’s decision, however these states also urged the Supreme Court to grant the Bureau’s petition to address whether the 5th Circuit’s conclusion was correct.
As previously covered by a Buckley Special Alert, the 5th Circuit’s October 19 holding found that although the Bureau spends money pursuant to a validly enacted statute, the structure violates the Appropriations Clause because (i) the Bureau obtains its funds from the Federal Reserve (not the Treasury); (ii) the agency maintains funds in a separate account; (iii) the Appropriations Committees do not have authority to review the agency’s expenditures; and (iv) the Bureau exercises broad authority over the economy. The case involves a challenge to the Bureau’s Payday Lending Rule, which prohibits lenders from attempting to withdraw payments for covered loans from consumers’ accounts after two consecutive withdrawal attempts have failed due to insufficient funds. As a result of the 5th Circuit’s decision, lenders’ obligation to comply with the rule (originally set for August 19, 2019, but repeatedly delayed) will be further delayed while the constitutional issue winds its way through the courts. The Bureau’s petition also asked the court to consider the 5th Circuit’s decision to vacate the Payday Lending Rule on the premise that it was promulgated at a time when the Bureau was receiving unconstitutional funding. (Covered by InfoBytes here.)
- Amicus brief supporting CFPB’s position. The 22 states urged the Supreme Court to review the 5th Circuit’s decision, arguing that the Bureau’s funding is lawful and that even if the Supreme Court were to find a constitutional defect in the funding scheme, vacating otherwise lawfully-promulgated regulations is neither justified nor compelled by law. “Left undisturbed, the court of appeals’ reasoning could jeopardize many of the CFPB’s actions from across its decade-long existence, to the detriment of both consumers protected by those actions and financial-services providers that rely on them to guide their conduct,” the states said. In their brief, the states argued, among other things, that the Supreme Court should grant the petition “to review at least the question of whether the court of appeals erred in vacating a regulation promulgated during a time when the CFPB received allegedly unconstitutional funding.” The states asserted that the decision “threatens substantial harm” to the states because the states and their residents “could stand to lose the benefits of the CFPB’s critical enforcement, regulatory, and informational functions if the decision [] stands and is interpreted to impair the CFPB’s ongoing operations.” With respect to questions related to the Bureau’s funding structure, the states claimed that it is altogether speculative as to whether the Bureau would have behaved differently if its funding had come from the Treasury rather than the Federal Reserve. Former Director Kraninger’s ratification and reissuance of the Payday Lending Rule “is strong evidence that the CFPB would have issued the same regulation once again, after any constitutional defect was corrected,” the states said.
- Amicus brief opposing CFPB’s position. The 16 opposing states argued, however, that the Supreme Court should grant the Bureau’s petition to provide states with “certainty over their role” in regulating the financial system, and should affirm the 5th Circuit’s decision to “restore the CFPB’s accountability to the states.” In their brief, the states asked the Supreme Court “to resolve this issue quickly” and to “reinvigorate the protections of the Appropriations Clause, not weaken them.” The states maintained that if the Supreme Court does not quickly resolve the dispute, states “will have to litigate the same issue in other districts and circuits over and over,” and “[a]ny continuing confusion could seriously impede the growth of the consumer-financial services market at a time when the economy is already strained.” According to the brief, congressional oversight “ensures a level of state participation that ordinary administrative processes don’t allow.” In summary, the states’ position is that the 5th Circuit’s decision on the funding question is correct and that the court “was right to vacate a rule enacted without constitutional funding.”
10th Circuit: Vendor knowledge of consumer debt is not a public disclosure
On December 16, the U.S. Court of Appeals for the Tenth Circuit affirmed a lower court’s dismissal of an FDCPA suit. According to the opinion, the plaintiff, who had student loan debt, received a collection letter from the defendant that listed the assigned balance as $184,580.73 and the debt balance as $217,657.60 without explaining the difference or that the debt could increase due to interest, fees, and other charges. The defendant, who used an outside mailer to compose and send the letters, sent her two more letters without providing an explanation for the balances. The plaintiff sued, alleging the defendant violated the FDCPA by communicating information about the debt to a vendor that printed and mailed the letters. According to the plaintiff, communicating this information violated FDCPA provisions that prohibit debt collectors from communicating with, in connection with the collection of any debt, any person without the consumer’s consent or court permission. The plaintiff also claimed that the defendant violated the FDCPA by misrepresenting the amount of the debt because it did not indicate that the amount of the debt may increase.
On the appeal, the appellate court affirmed dismissal after it found that the plaintiff lacked standing since neither of the plaintiff’s claims caused a concrete injury. First, the appellate court found that one private entity knowing about the plaintiff’s debt is not a public disclosure of private facts, which does not rise to the level of sustaining a concrete injury needed to sue in federal court. Second, regarding the substance of the letters, the appellate court noted that the plaintiff simply claimed that the letters she received caused her to be confused and to believe the debt was not accruing interest. However, the appellate court found that “confusion and misunderstanding are insufficient to confer standing.”
FTC proposes to permanently ban credit repair operation
On December 15, the FTC announced proposed court orders to permanently ban a group of companies and their owners (collectively, “defendants”) from offering or providing credit repair services. In May the FTC filed a complaint against the defendants for allegedly violating the FTC Act, the Credit Repair Organizations Act, and the TSR, among other statutes, by making deceptive misrepresentations about their credit repair services and charging illegal advance fees (covered by InfoBytes here). At the time, the U.S. District Court for the Middle District of Florida granted a temporary restraining order against the defendants. The proposed court orders (see here and here) were agreed to by the defendants, and contain several requirements: (i) a permanent ban against the defendants from operating or assisting any credit repair service of any kind; (ii) a prohibition against making unsubstantiated claims “about the benefits, performance, or efficacy of any good or service without sufficient supporting evidence”; and (iii) the release of numerous possessions that will be liquidated by a court-appointed receiver and used by the FTC to provide refunds to impacted consumers. The proposed court orders also include a total monetary judgment of more than $18.8 million, which is partially suspended due to the defendants’ inability to pay.
District Court approves $4.24 million overdraft settlement
On December 9, the U.S. District Court for the Southern District of Florida granted final approval to a $4.24 million class action settlement resolving allegations related to a defendant bank’s overdraft fee practices. Plaintiff alleged breach of contract claims related to the defendant’s practice of charging overdraft fees on checks and automated clearing house transactions that were paid by the defendant despite customer accounts having insufficient funds. The overdraft fees were allegedly charged after the transaction was resubmitted by a merchant or third party after having previously been returned unpaid by the defendant for insufficient funds. The parties reached a settlement in which the defendant will pay $4.24 million into a settlement fund to provide relief to class members (defined as all current and former consumer checking account holders who were charged at least one retry overdraft fee). The settlement also include $1.4 million in attorneys’ fees. A service award for the class representative was denied, however, with the court explaining that the law in its circuit makes “clear that incentive awards ‘that compensate a class representative for [her] time and rewards her for bringing a lawsuit’ are prohibited.”