InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
7th Circuit affirms dismissal of FCRA claims against subservicer
On July 5, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment in favor of a defendant data furnisher in an FCRA case, holding that the plaintiff failed to establish that the defendant provided “patently incorrect or materially misleading information” to a credit reporting agency (CRA). Defendant was the subservicer for plaintiff’s mortgage and was responsible for accepting and tracking payments and providing payment data to the CRAs. After plaintiff failed to make her monthly payments, she resolved the delinquency through a short sale of her home. Several years later, plaintiff noticed that the closed mortgage account appeared on her credit reports as delinquent. She disputed the information to several CRAs. To confirm the accuracy of its records on plaintiff’s mortgage, one of the CRAs sent the defendant data furnisher four automated consumer dispute verification (ACDV) forms. In the ACDV responses, the defendant amended or verified several contested data points, including the pay rate and account history. The CRA reported this amended data to indicate on plaintiff’s credit report that she was currently delinquent on the mortgage with missed payments in the months following the short sale. After plaintiff applied for and was denied a new mortgage based on the credit report, plaintiff sued the defendant data furnisher for alleged violations of the FCRA, alleging that the defendant failed to conduct a reasonable investigation of the disputed data and provided false and misleading information to CRAs. The district court granted summary judgment in favor of the defendant, finding that plaintiff failed to make a threshold showing that the defendant’s data was incomplete or inaccurate.
On appeal, the 7th Circuit disagreed with plaintiff that “completeness or accuracy” under the FCRA “must be judged based, not on the ACDV response the data furnisher provided, but on the credit report generated from it.” The court reasoned that the text of the statute “says nothing about a credit report, let alone a duty of a data furnisher with respect to credit reports produced using its amended data. To the contrary, the statute sets out the data furnisher’s duties to investigate disputes, correct incomplete or inaccurate information, and report results from an investigation” to the CRA. Holding that “context can play a large role in determining completeness or accuracy” in this situation, the appellate court agreed with the district court that the data provided by the defendant to the CRA was “not materially misleading” and that “no reasonable jury could find” that the data meant that plaintiff was currently delinquent on her debt, particularly because of strong “contextual evidence”—specifically, that the disputed data appeared directly beside a status code showing that the account was closed. The appeals court affirmed summary judgment for the data furnisher.
1st Circuit confirms standing for data breach victims
On June 30, the U.S. Court of Appeals for the First Circuit overruled a district court’s dismissal of a putative class action against a home delivery pharmacy service for allegedly failing to prevent a 2021 data breach that exposed the personally identifiable information (PII) of over 75,000 patients. The class action complaint alleged state law claims for negligence, breach of implied contract, unjust enrichment, invasion of privacy, and breach of fiduciary duty, and sought damages and injunctive relief. The putative class was comprised of U.S. residents whose PII was compromised in the data breach. The two named plaintiffs were former or current patients whose PII were compromised in the data breach, and one of the two named plaintiffs had her stolen PII used to file a fraudulent tax return. The district court dismissed the lawsuit for lack of Article III standing.
Affirming in part and reversing in part, the 1st Circuit held that the complaint “plausibly demonstrates” the plaintiffs’ standing to seek damages, applying the principles articulated by the Supreme Court in TransUnion LLC v. Ramirez, which clarified the type of concrete injury necessary to establish Article III standing (covered by InfoBytes here).
First, the court concluded that, with respect to the named plaintiff whose PII was used to file a fraudulent tax return, the complaint’s “plausible allegations of actual misuse” of the stolen PII constituted a “concrete injury in fact” for purposes of Article III standing. According to the 1st Circuit, there existed “an “obvious temporal connection” between the timing of the data breach and the filed return, among other facts. The appellate court also found that the fraudulent tax return could make it probable that more of the named plaintiff’s information could be further misused—changing the risk of future misuse from speculative to “imminent and substantial.”
Second, with respect to the named plaintiff for whom there was no allegation of actual misuse of PII, the court reasoned that “the complaint plausibly alleges a concrete injury in fact based on the material risk of future misuse of [plaintiff’s] PII and a concrete harm caused by exposure to this risk.” The appellate court also found that, because the data here was compromised in a “targeted attack,” then “it stands to reason that [such data] is more likely to be misused…and the risk of future misuse is heightened when the compromised data is particularly sensitive.”
Third, the court concluded that the complaint plausibly alleged a “separate concrete, present harm” caused by exposure to the risk of future harm, “based on the allegations of the plaintiffs’ lost time spent taking protective measures [against further identity theft] that would otherwise have been put to some productive use.” “The loss of this time is equivalent to a monetary injury, which is indisputably a concrete injury,” the appellate court wrote, adding that it joins other circuits in holding that time spent responding to a data breach is sufficient to establish standing.
Finally, the court held that plaintiffs lacked standing to pursue injunctive relief “because their desired injunctions would not likely redress their alleged injuries” as any such relief would only safeguard against future breaches and would not protect “plaintiffs from future misuse of their PII by the individuals they allege now possess it.”
CFSA says CFPB funding violates Constitution
On July 3, the Community Financial Services Association of America (CFSA) and the Consumer Service Alliance of Texas filed their brief with the U.S. Supreme Court, urging the high court that the CFPB’s independent funding structure is “unprecedented and must be stopped before it spreads without limit.” Respondents asked the Court to affirm the U.S. Court of Appeals for the Fifth Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, where the appellate court found that the Bureau’s “perpetual self-directed, double-insulated funding structure” violated the Constitution’s Appropriations Clause (covered by InfoBytes here and a firm article here). The 5th Circuit’s decision also vacated the agency’s Payday Lending Rule on the premise that it was promulgated at a time when the Bureau was receiving unconstitutional funding.
The Bureau expanded on why it believes the 5th Circuit erred in its holding in its opening brief filed with the Court in May (covered by InfoBytes here), and explained that even if there were some constitutional flaw in the statute creating the agency’s funding mechanism, the 5th Circuit should have looked for some cure to allow the remainder of the funding mechanism to stand independently instead of presuming the funding mechanism created under Section 5497(a)-(c) was entirely invalid. Vacatur of the agency’s past actions was not an appropriate remedy and is inconsistent with historical practice, the Bureau stressed.
In their brief, the respondents challenged the Bureau’s arguments, writing that the “unconstitutionality of the CFPB’s funding scheme is confirmed by both its unprecedented nature and lack of any limiting principle. Whether viewed with an eye toward the past or the future, the threat to separated powers and individual liberty is easy to see.” Disagreeing with the Bureau’s position that the Constitution gives Congress wide discretion to exempt agencies from annual appropriations and that independent funding is not uncommon for a financial regulator, the respondents stated that Congress gave up its appropriations power to the Bureau “without any temporal limit.” The respondents further took the position that the Bureau “can continue to set its own funding ‘forever’” unless both chambers agree and can persuade or override the president. Moreover, because the Federal Reserve Board is required to transfer “the amount determined by the Director to be reasonably necessary to carry out the [CFPB’s] authorities, . . . it ‘foreclose[s] the application of any meaningful judicial standard of review.’”
The respondents also argued that the Bureau’s funding structure is clearly distinguishable from other assessment-funded agencies in that these financial regulators are held to “some level of political accountability” since “they must consider the risk of losing funding if entities exit their regulatory sphere due to imprudent regulation.” Additionally, the respondents claimed that the fundamental flaws in the funding statute cannot be severed, reasoning, among other things, that courts “cannot ‘re-write Congress’s work’” and are not able to replace the Bureau’s self-funding discretion with either a specific sum or assessments from regulated parties.
With respect to the vacatur of the Payday Lending Rule and the potential for unintended consequences, the respondents urged the Court to affirm the 5th Circuit’s rejection of the rule, claiming it was unlawfully promulgated since a valid appropriation was a necessary condition to its rulemaking. “Lacking any viable legal argument, the Bureau resorts to fear-mongering about ‘significant disruption’ if all ‘the CFPB’s past actions’ are vacated,” the respondents wrote, claiming the Bureau “grossly exaggerates the effects and implications of setting aside this Rule.” According to the respondents, the Bureau does not claim that any harm would result from setting aside the rule, especially since no one has “reasonably relied” on the rule as it has been stayed and never went into effect. As to other rules issued by the agency, the respondents countered that Congress could “legislatively ratify” some or all of the agency’s existing rules and that only “‘timely’ claims can lead to relief” in past adjudications. Additionally, the respondents noted that many of the Bureau’s rules were issued outside the six-year limitations period prescribed in 28 U.S.C. § 2401(a). This includes a substantial portion of its rules related to mortgage-related disclosure. Even for challenges filed within the time limit, courts can apply equitable defenses such as “laches” to deny retrospective relief and prevent disruption or inequity, the respondents said.
Supreme Court blocks student debt relief program
On June 30, the U.S. Supreme Court issued a 6-3 decision in Biden v. Nebraska, striking down the Department of Education’s (DOE) student loan debt relief program (announced in August and covered by InfoBytes here) that would have provided between $10,000 and $20,000 in debt cancellation to certain qualifying federal student loan borrowers making under $125,000 a year.
The Biden administration appealed an injunction entered by the U.S. Court of Appeals for the Eighth Circuit that temporarily prohibited the Secretary of Education from discharging any federal loans under the agency’s program. (Covered by InfoBytes here.) Arguing that the universal injunction was overbroad, the administration contended that the six states lack standing because the debt relief plan “does not require respondents to do anything, forbid them from doing anything, or harm them in any other way.” Moreover, the secretary was acting within the bounds of the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) when he put together the debt relief plan, the administration claimed.
In considering whether the secretary has authority under the HEROES Act “to depart from the existing provisions of the Education Act and establish a student loan forgiveness program that will cancel about $430 billion in debt principal and affect nearly all borrowers,” the Court majority (opinion delivered by Chief Justice Roberts, in which Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joined) held that at least one state, Missouri, had Article III standing to challenge the program because it would cost the Missouri Higher Education Loan Authority (MOHELA), a nonprofit government corporation created by the state to participate in the student loan market, roughly $44 million a year in fees. “The harm to MOHELA in the performance of its public function is necessarily a direct injury to Missouri itself,” the Court wrote.
The Court also ruled in favor of the respondents on the merits, noting that the text of the HEROES Act does not authorize the secretary’s loan forgiveness plan. While the statute allows the Secretary to “waive or modify” existing statutory or regulatory provisions applicable to student financial assistance programs under the Education Act in connection with a war or other military operation or national emergency, it does not permit the Secretary to rewrite that statute, the Court explained, adding that the “modifications” challenged in this case create a “novel and fundamentally different loan forgiveness program.” As such, the Court concluded that “the HEROES Act provides no authorization for the [s]ecretary’s plan when examined using the ordinary tools of statutory interpretation—let alone ‘clear congressional authorization’ for such a program.”
In dissent, three of the justices argued that the majority’s overreach applies to standing as well as to the merits. The states have no personal stake in the loan forgiveness program, the justices argued, calling them “classic ideological plaintiffs.” While the HEROES Act bounds the secretary’s authority, “within that bounded area, Congress gave discretion to the [s]ecretary” by providing that he “could ‘waive or modify any statutory or regulatory provision’ applying to federal student-loan programs, including provisions relating to loan repayment and forgiveness. And in so doing, he could replace the old provisions with new ‘terms and conditions,”’ the justices wrote, adding that the secretary could provide whatever relief needed that he deemed most appropriate.
The Court also handed down a decision in Department of Education v. Brown, ruling that the Court lacks jurisdiction to address the merits of the case as the respondents lacked Article III standing because they failed to establish that any injury they may have suffered from not having their loans forgiven is fairly traceable to the program. Respondents in this case are individuals whose loans are ineligible for debt forgiveness under the plan. The respondents challenged whether the student debt relief program violated the Administrative Procedure Act’s notice-and-comment rulemaking procedures as they were not given the opportunity to provide feedback. (Covered by InfoBytes here.)
President Biden expressed his disappointment following the rulings, but announced new actions are forthcoming to provide debt relief to student borrowers. (See DOE fact sheet here.) The first is a rulemaking initiative “aimed at opening an alternative path to debt relief for as many working and middle-class borrowers as possible, using the Secretary’s authority under the Higher Education Act.” The administration also announced an income-driven repayment plan—the Saving on a Valuable Education (SAVE) plan—which will, among other things, cut borrowers’ monthly payments in half (from 10 to 5 percent of discretionary income) and forgive loan balances after 10 years of payments rather than 20 years for borrowers with original loan balances of $12,000 or less.
4th Circuit upholds sanctions against debt relief operation
On June 23, the U.S Court of Appeals for the Fourth Circuit upheld a default judgment entered against a debt relief operation and related individuals accused of violating the TCPA and the West Virginia Consumer Credit and Protection Act (WVCCPA). Plaintiff-appellee alleged she received multiple telemarketing phone calls regarding debt relief offered through lower interest rates on credit cards from the defendants (including the appellants). During discovery, defendants allegedly engaged in “evasive discovery tactics” and “relentless sandbagging,” which resulted in a magistrate judge entering multiple orders to compel. Defendants allegedly continued to call the plaintiff-appellee for more than a year after she filed her initial complaint. Additional defendants (including some of the appellants) were added via amended complaints as she discovered defendants had allegedly “formed a vast and complex web of corporate entities.”
The district court eventually sanctioned the appellants and struck their defenses for, among other things, engaging in a “pattern of concealing discoverable material” and failing to obey court orders. Appellants filed a motion for reconsideration, claiming the sanctions were too harsh and came as a surprise, the discovery abuses were “inadvertent,” and the plaintiff-appellee had not been prejudiced. Plaintiff-appellee then filed a renewed motion for sanctions outlining continued violations by appellants. Eventually, the district court entered a default judgment against the appellants for failing “to respond fulsomely and accurately to discovery requests and to comply with court orders pertaining to those requests.” The sanctions imposed an $828,801.36 judgment plus costs.
On appeal, the 4th Circuit concluded the district court did not abuse its discretion in finding appellants acted in bad faith and entered default judgment against them. The appellate court explained that there are certain circumstances, including this action, “where the entry of default judgment against a defendant for systemic discovery violations is the natural next step in the litigation, even without an explicit prior warning from the district court.” The appellate court further concluded the record contradicted each of the appellants’ arguments and held appellants “had fair ‘indication that sanctions might be imposed against [them]’ for their continued discovery and scheduling order violations.” With respect to appellants’ arguments that the district court awarded damages for the same purported calls pursuant to both the TCPA and the WVCCPA, the 4th Circuit found that penalties under these statutes are not exclusive and that they separately penalize different violative conduct. “[D]amages under the WVCCPA may be awarded in addition to those under the TCPA for a single communication that violates both statutes,” the appellate court wrote, adding that a plaintiff can also “recover separate penalties under separate sections of the TCPA even if the violations occurred in the same telephone call.”
Split 9th Circuit: Nevada’s medical debt collection law is not preempted
The U.S. Court of Appeals for the Ninth Circuit recently issued a split decision upholding a Nevada medical debt collection law after concluding the statute was neither preempted by the FDCPA or the FCRA, nor a violation of the First Amendment. SB 248 took effect July 1, 2021, in the wake of the Covid-19 pandemic, and requires debt collection agencies to provide written notification to consumers 60 days “before taking any action to collect a medical debt.” Debt collection agencies are also barred from taking any action to collect a medical debt during the 60-day period, including reporting a debt to a consumer reporting agency.
Plaintiffs, a group of debt collectors, sued the Commissioner of the Financial Institutions Division of Nevada’s Department of Business and Industry after the bill was enacted, seeking a temporary restraining order and a preliminary injunction. In addition to claiming alleged preemption by the FDCPA and the FCRA, plaintiffs maintained that SB 248 is unconstitutionally vague and violates the First Amendment. The district court denied the motion, ruling that none of the arguments were likely to succeed on the merits.
In agreeing with the district court’s decision, the majority concluded that SB 248 is not unconstitutionally vague with respect to the term “before taking any action to collect a medical debt” and that any questions about what constitute actions to collect a medical debt were addressed by the statute’s implementing regulations. With respect to whether SB 248 violates the First Amendment, the majority held that debt collection communications are commercial speech and thus not subject to strict scrutiny. As to questions of preemption, the majority determined that SB 248 is not preempted by either the FDCPA or the FCRA. The majority explained that furnishers’ reporting obligations under the FCRA do not include a deadline for when furnishers must report a debt to a CRA and that the 60-day notice is not an attempt to collect a debt and therefore does not trigger the “mini-Miranda warning” required in a debt collector’s initial communication stating that “the debt collector is attempting to collect a debt.”
The third judge disagreed, arguing, among other things, that the majority’s “position requires setting aside common sense” in believing that the FDCPA does not preempt SB 248 because the 60-day notice is not an action in connection with the collection of a debt. “The only reason that a debt collector sends a Section 7 Notice is so that he can later start collecting a debt,” the dissenting judge wrote. “It is impossible to imagine a situation where a debt collector would send such a notice except in pursuit of his goal of ultimately obtaining payment for (i.e., collecting) the debt.” The dissenting judge further argued that by delaying the reporting of unpaid debts, SB 248 conflicts with the FCRA’s intention of ensuring credit information is accurately reported.
CFPB, FTC, and consumer advocates ask 7th Circuit to review redlining dismissal
The CFPB recently filed its opening brief in the agency’s appeal of a district court’s decision to dismiss the Bureau’s claims that a Chicago-based nonbank mortgage company and its owner violated ECOA by engaging in discriminatory marketing and consumer outreach practices. As previously covered by InfoBytes, the Bureau sued the defendants in 2020 alleging fair lending violations predicated, in part, on statements made by the company’s owner and other employees during radio shows and podcasts. The agency claimed that the defendants discouraged African Americans from applying for mortgage loans and redlined African American neighborhoods in the Chicago area. The defendants countered that the Bureau improperly attempted to expand ECOA’s reach and argued that ECOA “does not regulate any behavior relating to prospective applicants who have not yet applied for credit.”
In dismissing the action with prejudice, the district court applied step one of the Chevron framework (which is to determine “whether Congress has directly spoken to the precise question at issue”) when reviewing whether the Bureau’s interpretation of ECOA in Regulation B is permissible. The court concluded, among other things, that Congress’s directive does not apply to prospective applicants.
In its appellate brief, the Bureau argued that the long history of Regulation B supports the Bureau’s interpretation of ECOA, and specifically provides “that ‘[a] creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.” While Congress has reviewed ECOA on numerous occasions, the Bureau noted that it has never challenged the understanding that this type of conduct is unlawful, and Congress instead “created a mandatory referral obligation [to the DOJ] for cases in which a creditor has unlawfully ‘engaged in a pattern or practice of discouraging or denying applications for credit.’”
Regardless, “even if ECOA’s text does not unambiguously authorize Regulation B’s prohibition on discouraging prospective applicants, it certainly does not foreclose it,” the Bureau wrote, pointing to two perceived flaws in the district court’s ruling: (i) that the district court failed to recognize that Congress’s referral provision makes clear that “discouraging . . . applications for credit” violates ECOA; and (ii) that the district court incorrectly concluded that ECOA’s reference to applicants “demonstrated that Congress foreclosed prohibiting discouragement as to prospective applicants.” The Bureau emphasized that several courts have recognized that the term “applicant” can include individuals who have not yet submitted an application for credit and stressed that its interpretation of ECOA, as reflected in Regulation B’s discouragement prohibition, is not “arbitrary, capricious, or manifestly contrary to the statute.” The Bureau argued that under Chevron step two (which the district court did not address), Regulation B’s prohibition on discouraging prospective applicants from applying in the first place is reasonable because it furthers Congress’ efforts to prohibit discrimination and ensure equal access to credit.
Additionally, the FTC filed a separate amicus brief in support of the Bureau. In its brief, the FTC argued that Regulation B prohibits creditors from discouraging applicants on a prohibited basis, and that by outlawing this type of behavior, it furthers ECOA’s purpose and prevents its evasion. In disagreeing with the district court’s position that ECOA only applies to “applicants” and that the Bureau cannot proscribe any misconduct occurring before an application is filed, the FTC argued that the ruling violates “the most basic principles of statutory construction.” If affirmed, the FTC warned, the ruling would enable creditor misconduct and “greenlight egregious forms of discrimination so long as they occurred ‘prior to the filing of an application.’”
Several consumer advocacy groups, including the National Fair Housing Alliance and the American Civil Liberties Union, also filed an amicus brief in support of the Bureau. The consumer advocates warned that “[i]nvalidating ECOA’s longstanding prohibitions against pre-application discouragement would severely limit the Act’s effectiveness, with significant consequences for communities affected by redlining and other forms of credit discrimination that have fueled a racial wealth gap and disproportionately low rates of homeownership among Black and Latino households.” The district court’s position would also affect non-housing credit markets, such as small business, auto, and personal loans, as well as credit cards, the consumer advocates said, arguing that such limitations “come at a moment when targeted digital marketing technologies increasingly allow lenders to screen and discourage consumers on the basis of their protected characteristics, before they can apply.”
7th Circuit: Insurer required to cover BIPA defense
On June 15, the U.S. Court of Appeals for the Seventh Circuit upheld a district court’s ruling requiring an insurance company to defend an Illinois-based IT company against two putative class actions alleging violations of the Illinois Biometric Information Privacy Act (BIPA). The insurance company sued for a declaration that, under its business liability insurance policy, it has no obligation to indemnify or defend the IT company in the two class actions. Class members alleged the IT company acted as a vendor for a company that “scraped” more than 3 billion facial scans and converted them into biometric facial recognition identifiers, which were then paired to images on the internet and sold via a database to the Chicago Police Department, in violation of BIPA.
The insurance company’s policy bars coverage for any distribution of material in violation of certain specific statutes or in violation of “[a]ny other laws, statutes, ordinances, or regulations” and asserted that this catch-all provision includes BIPA. The district court disagreed, ruling that the language of the policy’s statutory violations exclusion was “intractably ambiguous” and did not explicitly bar coverage of the underlying suits.
On appeal, the 7th Circuit agreed that the district court was correct in determining that a plain-text reading of the insurance policy’s “broad” and ambiguous catch-all coverage exclusion for “personal or advertising injury” would “swallow a substantial portion of the coverage that the policy otherwise explicitly purports to provide.” The 7th Circuit held that “the broad language of the catch-all exclusion purports to take away with one hand what the policy purports to give with the other in defining covered personal and advertising injuries.”
Although the 7th Circuit considered whether there was a “common element” related to privacy in the enumerated statutes that could be read to include BIPA, ultimately the appellate court determined that nothing in the exclusion language “points to privacy as the focus of the exclusion.”
7th Circuit: No causation in FCA claims against mortgage servicer
On June 14, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s grant of summary judgment in favor of a defendant mortgage servicer, holding that while the plaintiff had sufficient proof of materiality with respect to alleged violations of the False Claims Act (FCA), plaintiff failed to meet her burden of proof on the element of causation. Plaintiff (formerly employed by the defendant as an underwriter) alleged the defendant made false representations to HUD in the course of certifying residential mortgage loans for federal insurance coverage. She maintained that HUD would not have endorsed the loans for federal insurance if it had known defendant was not satisfying the agency’s minimum underwriting guidelines. Defendant moved for summary judgment after the district court excluded the bulk of plaintiff’s “expert opinion,” arguing that plaintiff could not meet her evidentiary burden on the available record. The district court sided with defendant, ruling that as a matter of law, plaintiff could not prove either materiality (due to the lack of evidence that would allow “a reasonable factfinder to conclude that HUD viewed the alleged underwriting deficiencies as important”) or causation (the false statement caused the government’s loss).
On appeal, the 7th Circuit explained that to show proximate causation, plaintiff was required to identify evidence indicating that the alleged false certifications in reviewed loans were the foreseeable cause of later defaults, as defaults trigger HUD’s payment obligations. The appellate court noted that “it is not clear how a factfinder would even spot the alleged false statement in each loan file, let alone evaluate its seriousness and scope.” Without further evidence indicating how defendant’s alleged misrepresentations caused subsequent defaults, the plaintiff’s claims could not survive summary judgment.
However, the 7th Circuit disagreed with the district court’s reasoning with respect to materiality under the FCA. Although the district court held that plaintiff had failed to establish materiality, the appellate court determined that because HUD’s regulations “provide some guidance, in HUD’s own voice, about the false certifications that improperly induce the issuance of federal insurance, and those are precisely the false certifications present here” there was enough evidence to “clear the summary judgment hurdle” on this issue.
7th Circuit: Time and money in responding to second verification request confers standing under FDCPA
On June 7, the U.S. Court of Appeals for the Seventh Circuit held that spending time and money to send a second verification request is enough to confer standing under the FDCPA. Plaintiff’s defaulted credit card debt was purchased by one of the defendants and placed with a collection agency. A letter providing details about the debt, including the original creditor, current creditor, and a validation notice, was sent to the plaintiff. Within the required 30-day timeframe, plaintiff sent a letter to the collection agency requesting validation of the debt. However, instead of receiving a response from the agency, plaintiff received another letter from one of the defendants that provided information on the debt and informed her that it had initiated a review of the inquiry it had received. The second letter also included a validation notice, which confused the plaintiff and resulted in her spending time and money ($3.95) to request validation again. Plaintiff filed suit accusing the defendants of violating the FDCPA and asserting that the second letter would lead a consumer to believe that they must re-dispute the debt. According to the plaintiff, the letter, among other things, used false, deceptive, misleading, and unfair or unconscionable means to collect or attempt to collect a debt. The defendants moved to dismiss for lack of standing, arguing that while the letter may have confused and alarmed the plaintiff, it did not cause her to initiate “any action to her detriment on account of her confusion.” The district court granted defendants’ motion to dismiss, ruling that the time and money spent on sending the second validation request did not rise to the level of detriment required for standing under the FDCPA, and that, moreover, it provided plaintiff with another opportunity to dispute the debt if she failed to properly do so the first time.
Disagreeing with the dismissal, the 7th Circuit wrote that the second postage fee (albeit modest in size) is the type of harm that Congress intended to protect consumers from when it enacted the FDCPA. “Money damages caused by misleading communications from the debt collector are certainly included in the sphere of interests that Congress sought to protect,” the appellate court stated, explaining that the second letter caused the plaintiff “to suffer a concrete detriment to her debt-management choices in the form of the expenditure of additional money to preserve rights she had already preserved.”