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District Court rules use of “obligation” in collection letter carries “litigious connotations”
On August 11, the U.S. District Court for the District of New Jersey denied a defendant debt collector’s motion for judgment on the pleadings, ruling that using the word “obligation” in a letter suggested that a time-barred debt was legally enforceable. The plaintiff received a letter in 2022 seeking to recover unpaid debt that had been in default since August 2017 (the statute of limitations for collecting the debt had expired in August 2021). The letter included language stating: “We recognize that a possible hardship or pitfall may have prevented you from satisfying your obligation. We are presenting three options to resolve your balance. We are not obligated to renew this offer.” The letter also stated that it was an attempt to collect a debt and that “any information obtained will be used for that purpose.” The plaintiff sued for violations of Sections 1692e(2)(A), 1692e(5), and 1692e(10) of the FDCPA, claiming the defendant’s letter offered payment options for time-barred debt. The defendant moved for judgment on the pleadings, arguing that that the claims fail because the letter did not include language that could lead the plaintiff to believe that the time-barred debt could be legally enforced.
The court reviewed whether the phrase “satisfying your obligation” would confuse the least sophisticated debtor, and eventually determined that the word “obligation” carried “litigious connotations” and therefore was “closer to ‘settlement’ and other impermissible language than it is to permissible language such as ‘satisfy.’” According to the court, “[i]t is more than plausible, and even likely, that the least sophisticated debtor would understand that their ‘obligation’ is a duty to pay that a creditor could enforce in court through the commencement of litigation.” The court also explained that Congress intended “obligation” as used in the FDCPA to mean “a legal duty arising from mutual promises to pay on the one hand and to perform services or provide goods on the other,” including “one susceptible to being ‘reduced to judgement.’” As such, the court concluded that when viewing the letter in its entirety, it appeared to be “carefully crafted to push the envelope of acceptable language under the FDCPA while maximizing the chance of collecting from debtors.”
Maryland Court of Appeals says law firm collecting HOA debt is not engaged in the business of making loans
On August 11, a split Maryland Court of Appeals held that “a law firm that engages in debt collection activities on behalf of a client, including the preparation of a promissory note containing a confessed judgment clause and the filing of a confessed judgment complaint to collect a consumer debt, is not subject to the Maryland Consumer Loan Law [(MCLL)].” A putative class action challenging the law firm’s debt collection practices was filed in Maryland state court in 2018. According to the opinion, several homeowners associations and condominium regimes (collectively, “HOAs”) retained the law firm to help them draft and negotiate promissory notes memorializing repayment terms of delinquent assessments. These promissory notes, the opinion said, included confessed judgment clauses that were later used against homeowners who defaulted on their obligations. The suit was removed to federal court and was later stayed while the Maryland Court of Appeals weighed in on whether the law firm was subject to the MCLL. Loans made under the MCLL by an unlicensed entity render the loans void and unenforceable, the opinion said.
Class members claimed that the law firm is in the business of making loans and that the promissory notes are subject to the MCLL and “constitute ‘loans’ because they are an extension of credit enabling the homeowners to pay delinquent debt to the HOAs.” Because neither the law firm nor the HOAs are licensed to make loans the promissory notes are void and unenforceable, class members argued. The law firm countered that it (and the HOAs) are not obligated to be licensed because they are not lenders that “engage in the business of making loans” as provided in the MCLL.
On appeal, the majority concluded that there is no evidence that the state legislature intended to require HOAs to be licensed “in order to exercise their statutory right to collect delinquent assessments or charges, including entering into payment plans for the repayment of past-due assessments.” Moreover, in order to qualify for a license, an applicant “must demonstrate, among other things, that its ‘business will promote the convenience and advantage of the community in which the place of business will be located[]’”—criteria that does not apply to an HOA or a law firm, the opinion stated. Additionally, applying class members’ interpretation would lead to “illogical and unreasonable results that are inconsistent with common sense,” the opinion read, adding that “[t]o hold that the MCLL covers all transactions involving any small loan or extension of credit—without regard to whether the lender is ‘in the business of making loans’—would cast a broad net over businesses that are not currently licensed under the MCLL.”
The dissenting judge countered that the law firm should be subject to the MCC because to determine otherwise would allow law firms to engage in the business of making loans in the form of new extensions of credit with confessed judgment clauses and would “create a gap in the Maryland Consumer Loan Law that the General Assembly did not intend.”
District Court approves $84 million payment processing settlement
On August 17, the U.S. District Court for the District of Nebraska granted final approval of an $84 million class action settlement resolving allegations that a payment processing company’s billing practices overcharged merchants. Class members retained the company to process credit card payments and claimed that the company allegedly charged fees that did not align with the terms of their contracts. Class members accused the company of Racketeer Influenced and Corrupt Organizations Act violations, breach of contract, and fraudulent concealment related to allegations that the company assessed noncompliance fees, increased contractual credit card discount rates, and shifted credit card transactions from lower-cost rate tiers to higher-cost rate tiers. Under the terms of the settlement, the company will pay up to $84 million into a settlement fund, which will provide cash benefits to class members and cover administrative costs, attorney fees, and other expenses.
3rd Circuit overturns decision in WESCA suit
On August 16, the U.S. Court of Appeals for the Third Circuit overturned a district court’s decision in a Wiretapping and Electronic Surveillance Control Act (WESCA) suit against a retailer and third-party marketing company (collectively, “defendants”). According to the opinion, the plaintiff searched the retailer’s website while the “browser simultaneously communicated” with both the retailer and a third-party marketing service. The messages to the third party marketing service alerted it to how the plaintiff was interacting with the website, including which pages she visited, when she filled in an email address, and when she added an item to her cart. The plaintiff filed suit against the defendants for using a software that used a code that placed “cookies on the user’s browser so that her activity on the webpage had an associated visitor ID,” and “told the user’s browser to begin sending information to [the third party marketing service] as she navigated through the website, such as communicating that the user had clicked the ‘add to cart’ button or tabbed out of a form field,” in violation of WESCA. The district court dismissed the common law claim and subsequently granted summary judgment to the defendants on the WESCA claim, finding that the defendants were exempt from liability as direct parties to the electronic communications.
The 3rd Circuit reversed and remanded, stating that the district court “never addressed whether [the retailer] posted a privacy policy and, if so, whether that policy sufficiently alerted [the plaintiff] that her communications were being sent to a third-party company.” The appellate court further disagreed “with the District Court’s holding that [the third party marketing company] is exempt from liability because it was a direct party to [the plaintiff’s] communications and that interception only occurred at the site of [the third party marketing company] servers in Virginia.”
8th Circuit affirms rulings for defendant in FCRA suits
On August 16, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection. The bankruptcy court entered a discharge, and when the plaintiff obtained the credit reports, among other things, one debt was still being reported as “Current; Paid or Paying as Agreed” with an outstanding balance. The plaintiff filed suit, alleging the defendants violated the FCRA because they “do not maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.” The plaintiff claimed to suffer emotional distress and obtained credit at less favorable rates. The defendants jointly moved to dismiss the complaint, contending that the plaintiff failed to plausibly allege the reporting. The district court granted the motion and dismissed the case with prejudice.
According to the 8th Circuit, the plaintiff’s complaint was “too thin to raise a plausible entitlement to relief.” The appellate court noted that, “[i]t is not the credit reporting agencies’ job to “wade into individual bankruptcy dockets to discern whether a debt survived discharge.” The appellate court ultimately agreed with the district court that “’there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’”
The same day, in a separate suit, the 8th Circuit affirmed another district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection, and after the debts were discharged, the plaintiff’s credit report still listed a debt with an outstanding balance that was noted as “open” and “past due.” The plaintiff filed suit, alleging the defendants violated the FCRA “by neglecting to ‘maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.’” The plaintiff sought damages resulting from emotional distress and financial harm, but the district court granted summary judgment in favor of defendants, agreeing that plaintiff failed to show proof of actual damages.
On the appeal, the 8th Circuit noted that it was the bankruptcy, not the information in plaintiff’s credit report, that led to her applications for credit cards being denied. Regarding her allegation about emotional distress, the appeals court reasoned that plaintiff “‘suffered no physical injury, she was not medically treated for any psychological or emotional injury, and no other witness corroborated any outward manifestation of emotional distress.’” Accordingly, the court concluded that defendants were entitled to judgment as a matter of law.
District Court grants summary judgment concerning TILA, ECOA, FHA claims
On August 12, the U.S. District Court for the Southern District of Indiana issued an order denying plaintiffs’ motion for partial summary judgment and granting defendants’ cross-motion for summary judgment in an action concerning alleged violations of TILA, ECOA, and FHA disparate impact claims. According to the court’s determination, the defendant corporate entity was not a “creditor” during the leasing portion of the underlying rent-to-buy (RTB) agreements, and the plaintiffs lacked standing on certain claims because the wrong parties were targeted.
The defendant realty group purchases, sells, and manages real estate. The plaintiffs all entered into RTB agreements with the realty group that allowed the renter to make 24 payments and then execute a sales contract for the property. The agreements carried interest rate terms between 9.87 and 18 percent. According to the plaintiffs, the defendants, among other things, did not provide TILA-required disclosures for high-cost mortgages, did not require written certifications that tenants had obtained counseling prior to entering into the transaction, and did not provide property appraisals to tenants.
The plaintiffs sued alleging several claims under TILA for failure to provide required information. However, the court concluded that during the 24-month rental period, the realty group was not a “creditor” but was instead a “landlord.” Moreover, the court determined that “the only entities that could arguably be considered creditors are the Individual Land Trusts as the sellers and parties to the Conditional Sales Contract.” These trusts were not named as defendants, the court observed, adding that the plaintiffs failed to meet the burden of showing that the land trusts were sufficiently related to the named defendants to allow the court to “pierce the corporate veil” and hold the named defendants liable for actions conducted by the non-party individual land trusts.
With respect to the plaintiffs’ ECOA claims, which claimed that the realty group’s policies and practices were intentionally discriminatory and had a disparate impact on the basis of race, color, and/or national origin, the court applied the same rationale as it did to the TILA claims and again ruled that the realty group was not a “creditor.” In terms of plaintiffs’ FHA claims, the court said that “the racial disparity must have been created by the defendant.” In this action, the court determined that the realty group did not create the condition, reasoning that “the fact that lower-priced homes are more likely to exist in minority neighborhoods is not of Defendants’ making and existed before, and without, the RTB Program.”
However, the court’s order does allow certain individual and class claims related to disparate treatment under the FHA to proceed, as well as certain claims regarding Indiana law related to standard contract terms and the condition of homes in the RTB program.
District Court dismisses EFTA claims over prepaid debit card fraud
On August 11, the U.S. District Court for the District of Maryland dismissed a putative class action alleging violations of the EFTA and state privacy and consumer protection laws brought against a national bank on behalf of consumers who were issued prepaid debit cards providing pandemic unemployment benefits. The named plaintiff—a self-employed individual who did not qualify for state unemployment insurance but who was eligible to receive temporary Pandemic Unemployment Assistance (PUA) benefits—alleged that he lost nearly $15,000 when an unauthorized user fraudulently used a prepaid debit card containing PUA funds that were intended for him. The court dismissed the class claims with respect to the EFTA and Regulation E, finding that the Covid-19 pandemic was a “qualified disaster” under applicable law and regulations (i.e. PUA payments were “qualified disaster relief payments”), and that as such, the payments satisfied the CFPB’s official interpretation of Regulation E and were excluded from the definition of a “prepaid account.” The court further explained that while relevant CFPB regulations define an “account” to include a prepaid account, Regulation E excludes “any ‘account that is directly or indirectly established through a third party and loaded only with qualified disaster relief payments.’” Because the prepaid debit card in question was established through a third party and was loaded only with PUA funds, it did not meet the definition of a “prepaid account” and therefore fell outside the EFTA’s definition of a covered account. The court also disagreed with the plaintiff’s contention that PUA payments were authorized by Congress in the CARES Act due to the public health emergency rather than a disaster.
5th Circuit overturns decision in FDCPA suit
On August 15, the U.S. Court of Appeals for the Fifth Circuit overturned a district court’s grant of class certification in an FDCPA case, ruling that the plaintiff lacked standing. According to the opinion, the plaintiff incurred a debt after failing to pay her utility bills. The city hired a law firm who tried to collect the debt by sending the plaintiff a form letter demanding payment. Her debt had become delinquent four years and one day before the defendant sent its letter, which, under Texas law is “unenforceable.” The plaintiff filed suit against the law firm alleging that it had violated the FDCPA by making a misrepresentation in connection with an attempt to collect her debt. The plaintiff also sought to represent a class of Texas consumers who received the same form letter from the defendant regarding their time-barred debts. The district court rejected the defendant’s claim that the plaintiff lacked standing to bring suit, holding “that the violation of the plaintiff’s statutory rights under the FDCPA constituted a concrete injury-in-fact because those rights were substantive, not procedural.” The district court also “maintained that [the plaintiff’s] confusion qualified as a concrete injury-in-fact.”
On the appeal, the 5th Circuit reversed, finding that the plaintiff did not suffer a concrete injury and therefore lacked standing. The court held that the Supreme Court’s ruling in TransUnion v. Ramirez (covered by InfoBytes here) foreclosed the plaintiff’s theories that a violation of statutory rights under the FDCPA or accidentally paying a time-barred debt are concrete injuries. The appellate court noted that consulting with an attorney and not making a payment is not a concrete injury under Article III, stating that it is “not aware of any tort that makes a person liable for wasting another’s time.”
District Court grants final approval of data breach settlement
On August 9, the U.S. District Court for the Western District of North Carolina granted final approval of a class action settlement resolving allegations that two hemp companies (collectively, “defendants”) were involved in data breaches. According to the plaintiffs’ unopposed motion for final approval of the class action settlement, the defendants notified the SEC, various states’ attorneys general, and thousands of affected customers about two data breaches that occurred through their website on two different occasions. The plaintiffs alleged that the incident allowed hackers to “scrape[]” many of the defendants’ consumers’ names from the website by infecting the ecommerce platform with a “malicious code,” and stole the personally identifiable information of approximately 40,000 customers. According to the settlement, the deal will provide that class members can receive as much as $210 for out-of-pocket expenses such as card replacement fees, overdraft fees, interest, and up to $80 in costs for obtaining credit monitoring and identity theft protection, among other things. The district court also approved $2,500 payments to the lead plaintiffs as service awards.
District Court awards injunctive relief to FTC in deceptive advertising case
On August 9, the U.S. District Court for the Northern District of Georgia ruled that the FTC provided “broad and detailed” evidence of alleged deceptive advertising and unfair fee practices in its $550 million case against a technology company and its CEO (collectively, “defendants”). As previously covered by InfoBytes, the FTC filed a suit in 2019, alleging the defendants made deceptive representations to customers and charged hidden, unauthorized fees in connection with the company’s “fuel card” products in violation of Section 5 of the FTC Act. In 2019, when the agency filed its lawsuit, legal precedent held that the FTC could obtain restitution for consumers directly through such civil proceedings in federal court. However, in April of 2021, the Supreme Court held in AMG Capital Management, LLC v. FTC that the FTC does not have statutory authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. (Covered by InfoBytes here.) Following that decision, the FTC filed a motion to stay or voluntarily dismiss in an attempt to preserve the possibility of obtaining monetary relief for injured consumers in federal court while pursuing claims against the defendants through the agency’s administrative process, but the district court denied the motion, concluding that the “balance of equities does not weigh in favor of a stay or dismissal without prejudice.”
In its most recent order, the district court ruled that the FTC provided compelling and overwhelming evidence, including advertisements, internal marketing studies, and a “plethora of customer complaints” that showed the defendants are liable for multiple violations of the FTC Act. Among other things, the court noted that the evidence showed that the defendants knew that many customers were unaware of certain fees when they signed up for the fuel cards and that the defendants’ terms and conditions governing the fees were “inscrutable” and confusing. However, the district court partially granted defendants’ request for summary judgment on monetary relief, ruling that in light of the Supreme Court’s decision in AMG Capital Management, the FTC cannot obtain a monetary award for the violations until the agency exhausts its administrative litigation process. A hearing will be held to determine the nature of the required injunctive relief.