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District Court allows prerecorded-voice-based claims to proceed
On March 23, the U.S. District Court for the Western District of New York partially granted a defendant debt collector’s motion for summary judgment in an action concerning the alleged use of an automated telephone dialing system (autodialer) to collect unpaid medical debt. Plaintiff claimed the defendant repeatedly called his cell phone using an autodialer and left messages using a prerecorded voice message even after he asked the defendant to stop. These actions, the plaintiff said, violated the FDCPA and the TCPA. In partially granting the defendant’s motion for summary judgment, the court found that the plaintiff’s TCPA claims concerning the alleged use of an autodialer were “no longer viable” following the U.S. Supreme Court’s ruling in Facebook v. Duguid (covered by a Special Alert), which narrowed the definition of autodialer under the TCPA, resulting in the law only covering equipment that generates numbers randomly and sequentially.
Although both parties agreed that the Facebook decision does not affect plaintiff’s prerecorded-voice-based-claims (which are distinct from claims based on the use of an autodialer), the parties disputed how the defendant came to possess the plaintiff’s cell phone number. The defendant maintained that the hospital that treated the plaintiff provided the cell phone number; however, the plaintiff contended that he did not recall providing his number to the hospital. The court reviewed, among other things, whether the plaintiff expressly consented to receiving calls—prerecorded or not. Under the TCPA, “[p]roviding one’s phone number to an entity constitutes consent for that entity to use the number to collect a debt, so long as ‘such number was provided during the transaction that resulted in the debt [being] owed,’” the court explained, adding that the burden is on the defendant to demonstrate that the plaintiff consented to receiving the calls that allegedly used a prerecorded voice.
A purported hospital intake form submitted by the defendant that included the plaintiff’s cell phone number did not indicate that “it was filled out by, or includes information provided only by, [the plaintiff],” the court said, also writing that “this document merely demonstrates that whenever the document was typed, [the hospital] had [plaintiff’s] phone number from some source.” This is not sufficient to indicate that the plaintiff consented to be contacted, the court ruled, holding that the defendant was not entitled to summary judgment based on its express consent affirmative defense. As a result, the court allowed the prerecorded-voice-based-claims to proceed to trial.
Virginia and Kentucky enact requirements for auto renewals
Recently, Virginia and Kentucky enacted measures relating to automatic renewal offers and continuous service offers.
HB 1517 was signed by the Virginia governor on March 27 to amend the Consumer Protection Act in the Virginia code. The amendments provide that all businesses offering automatic renewals or continuous service offers that include a free trial lasting longer than 30 days are required to notify consumers of their option to cancel the free trial within 30 days of the end of the trial period. Providing this notice will avoid obligating a consumer to pay for the goods or services. Failing to timely notify a consumer is a violation of the Virginia Consumer Protection Act. Additionally, a business also violates the statute should it fail “to disclose the total cost of a good or continuous service [] to a consumer, including any mandatory fees or charges, prior to entering into an agreement for the sale of any such good or provision of any such continuous service.” HB 1517 is effective July 1.
SB 30 was signed by the Kentucky governor on March 23 to amend state law by adding sections addressing the termination of automatic renewal offers and continuous service officers. Among other things, the new sections define several terms, including “automatic renewal,” “automatic renewal offer terms,” “clear and conspicuous,” “consumer,” and “continuous service.” Businesses are required to provide clear and conspicuous automatic renewal or continuous service offer terms to consumers before the subscription or purchase agreement is fulfilled. Business also must obtain affirmative consent before charging a consumer’s credit or debit account or a consumer’s account with a third party. Additionally, businesses must (i) provide an acknowledgement that includes the terms, the cancellation policy, and information regarding how to cancel in a manner that can be retained by the consumer; (ii) give consumers appropriate mechanisms for cancellation; (iii) provide users who accept an automatic renewal or continuous service online the opportunity to terminate in the same medium; and (iv) provide a notice regarding material term changes. SB 30 outlines exemptions (including contracts entered into prior to the effective date), and states that first-time violators must “provide a prorated refund for the contract subject to an automatic renewal provision from the start of the most recent term to the date on which the business was notified of and corrects the error.” The state attorney general also may bring an action for injunctive and monetary relief against businesses that either fail to provide a prorated refund or where it is a business’s second or subsequent violation. SB 30 is effective January 1, 2024.
Crypto lender to provide refunds to Californians
On March 27, the California Department of Financial Protection and Innovation (DFPI) announced that a New Jersey-based crypto lending platform has agreed to provide more than $100,000 in refunds to California residents. The refunds, subject to bankruptcy court approval, stem from the lender’s conduct following the collapse of a major crypto exchange last November. As previously covered by InfoBytes, in December, DFPI moved to revoke the lender’s California Financing Law license following an examination, which found that the lender “failed to perform adequate underwriting when making loans and failed to consider borrowers’ ability to repay these loans, in violation of California’s financing laws and regulations.” At the time the lender announced it was limiting platform activity and pausing client withdrawals. The lender eventually filed a petition for chapter 11 bankruptcy. An investigation also revealed that due to the lender’s failure to timely notify borrowers that they could stop repaying their loans, borrowers remitted at least $103,471 in loan repayments to the lender’s servicer while they were unable to withdraw funds and collateral from the platform. A hearing on the lender’s petition to direct its servicer to return borrowers’ loan repayments is scheduled for April 19.
The lender agreed to an interim suspension of its lending license while the bankruptcy and revocation actions are pending. It also agreed to a final order to discontinue unsafe or injurious practices, as well as a desist and refrain order. Among other things, the lender has agreed to continue to direct its agents to pause collection of repayments on loans belonging to California residents while its license is suspended (including turning off autopay), will continue to set interest rates to 0 percent, and continue to not levy any late fees associated with any payments or report any loans that became delinquent or defaulted on or after November 11, 2022, to credit reporting agencies while the bankruptcy and revocation actions are pending.
Kentucky modifies allowable charges on consumer loans
On March 29, Kentucky enacted SB 165 to amend Kentucky code to modify permitted loan charges for consumer loan companies. Specifically, licensees may make loans up to $15,000, excluding charges; however, the original principal amount determines how much a licensee may charge, contract for, and receive on a loan. For loans with an original principal amount under $5,000, a licensee may charge up to 3 percent per month on the original principal of the loan, as well as on any charges, including fees, costs, expenses, or other amounts authorized by the act on the loan contract. Licensees may charge 2.42 percent on loans between $5,000 and $10,000, and 2.25 percent on loans exceeding $10,000. Additionally, every loan payment may now “be applied to the face amount of the note until the loan contract is paid in full.” The amendments also stipulate that a licensee is not allowed to “induce or permit a person to become obligated to the licensee, directly or contingently, or both under any loan contract entered into within [10] days of the origination of another loan contract with the same person for the purpose or with the result of obtaining charges.” Moreover, should a licensee make a second or subsequent loan to a person outside of the 10-day period, “the licensee shall not be required to limit the loan charges to the aggregate amount of what the loans combined would dictate under this subtitle.” For borrowers that request loan funding in a manner other than a physical check, a licensee may charge a $3 funding fee per loan for distributing the proceeds in the manner requested by the borrower. The amendments are effective 90 days after adjournment of the legislature.
Iowa establishes refund requirements for voluntary debt cancellation coverage
On March 22, the Iowa governor signed HF 133 relating to refund payments made in connection with motor vehicle debt cancellation coverage. The act provides that if a creditor is a financial institution, as defined in the Iowa consumer credit code or the Gramm-Leach-Bliley Act, and purchases a retail installment contract with voluntary debt cancellation coverage, “the only obligation of the creditor upon prepayment in full shall be to notify the motor vehicle dealer within thirty days of the prepayment.” It is the motor vehicle dealer’s responsibility to promptly determine whether a consumer is eligible to receive a refund of any voluntary debt cancellation coverage. Any refunds must be issued directly to the consumer within 60 days of the dealer receiving notice of prepayment from the creditor. The act is effective July 1.
FHFA seeks feedback on updated credit score requirements
On March 23, FHFA announced a two-phase plan for soliciting stakeholder input on the agency’s proposed process for implementing updated credit score requirements. In October, FHFA announced that the FICO credit score model would be replaced by the FICO 10T and the VantageScore 4.0 credit score models, which were both validated and approved for use by Fannie Mae and Freddie Mac (covered by InfoBytes here). The agency also announced that Fannie and Freddie will now require two credit reports – instead of three – from the national consumer reporting agencies for single-family loan acquisitions. FHFA seeks public input on the projected implementation process to inform the transition to these new credit score models, which the agency estimates will happen in two phases. Phase one, estimated to start Q3 2024, will include the delivery and disclosure of additional credit scores, while phase two will include the incorporation of the new credit score models in pricing, capital, and other processes (estimated to occur in Q4 2025).
FHA reminds servicers of HAF disclosure obligations
On March 24, FHA reminded servicers about their obligation to inform distressed homeowners about the availability of financial assistance for FHA-insured mortgages, including single-family forward mortgages and home equity conversion mortgages (HECM), through the Homeowner Assistance Fund (HAF). HAF was established in 2021 to provide financial support to eligible homeowners who suffered financial hardship during Covid-19. HAF funds may be used to bring a mortgage current or be used in combination with certain available FHA-loss mitigation options for single family forward mortgages or with the Covid-19 HECM Property Charge Repayment Plan. HAF funds also may be used to reduce the balance or pay off a borrower’s outstanding loss mitigation partial claim, even if a borrower’s mortgage payments are now current. Additionally, as permitted, HAF funds may be used to pay for delinquent property tax and homeowners insurance charges on defaulted HECMs. FHA noted in its announcement that the definition of “imminent default” also has been expanded to include homeowners who qualify for HAF. Consequently, “servicers will be able to offer additional loss mitigation options to borrowers who qualified for or used HAF funds and may no longer technically be delinquent but require further assistance to avoid redefault,” FHA explained.
FTC finalizes gaming company order on dark patterns
On March 14, the FTC finalized an administrative order requiring a video game developer to pay $245 million in refunds to consumers allegedly tricked into making unwanted in-game purchases. As previously covered by InfoBytes, the FTC filed an administrative complaint claiming players were able to accumulate unauthorized charges without parental or card holder action or consent. The FTC alleged that the company used a variety of dark patterns, such as “counterintuitive, inconsistent, and confusing button configuration[s],” designed to get players of all ages to make unintended in-game purchases. These tactics caused players to pay hundreds of millions of dollars in unauthorized charges, the FTC said, adding that the company also charged account holders for purchases without authorization. Under the terms of the final decision and order, the company is required to pay $245 million in refunds to affected card holders. The company is also prohibited from charging players using dark patterns or without obtaining their affirmative consent. Additionally, the company is barred from blocking players from accessing their accounts should they dispute unauthorized charges.
Separately, last month the U.S. District Court for the Eastern District of North Carolina entered a stipulated order against the company related to alleged violations of the Children’s Online Privacy Protection Act (COPPA). The FTC claimed the company failed to protect underage players’ privacy and collected personal information without first notifying parents or obtaining parents’ verifiable consent. Under the terms of the order, the company is required to ensure parents receive direct notice of its practices with regard to the collection, use or disclosure of players’ personal information, and must delete information previously collected in violation of COPPA’s parental notice and consent requirements unless it obtains parental consent to retain such data or the player claims to be 13 or older through a neutral age gate. Additionally, the company is required to implement a comprehensive privacy program to address the identified violations, maintain default privacy settings, obtain regular, independent audits, and pay a $275 million civil penalty (the largest amount ever imposed for a COPPA violation).
FTC proposes changes to Negative Option Rule
On March 23, the FTC announced a notice of proposed rulemaking (NPRM) seeking feedback on proposed amendments to the agency’s Negative Option Rule, which is used to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs. (See also FTC fact sheet here.) Claiming that current laws and regulations do not clearly provide a consistent legal framework for these types of programs, the NPRM, which applies to all subscription features in all media, proposes to add a new “click to cancel” provision that would make it as easy for consumers to cancel their enrollment as it was to sign up. The NPRM would also require sellers to first ask consumers whether they want to hear about new offers or modifications before making a pitch when consumers are trying to cancel their enrollment. If a consumer says “no” a seller must immediately implement the cancellation process. Sellers would also be required to provide consumers who are enrolled in negative option programs with an annual reminder involving anything other than physical goods before they are automatically renewed.
Commissioner Christine Wilson issued a dissenting statement, in which she argued that while the NPRM “may achieve the goal of synthesizing the various requirements in one rule,” it “is not confined to negative option marketing [as it] also covers any misrepresentation made about the underlying good or service sold with a negative option feature.” Wilson commented, “as drafted, the Rule would allow the Commission to obtain civil penalties, or consumer redress under Section 19 of the FTC Act, if a marketer using a negative option feature made misrepresentations regarding product efficacy or any other material fact.”
Real estate brokerage firm settles claims of discriminatory practices
On March 15, the New York attorney general announced a settlement with a real estate brokerage firm to resolve claims that it allegedly discriminated against Black, Hispanic, and other homebuyers of color on Long Island. According to the announcement, the Office of the Attorney General commenced investigations into several brokerage firms, in which it found that agents employed by the brokerage firm at issue violated the Fair Housing Act and New York state law when they allegedly “subjected prospective homebuyers of color to different requirements than white homebuyers, directed homebuyers of color to homes in neighborhoods where residents predominantly belonged to communities of color, and otherwise engaged in biased behavior.” In certain instances, agents allegedly disparaged neighborhoods of color and “warned white potential homebuyers about the diverse racial makeup of the neighborhood but did not share the same comments with Black and Hispanic potential homebuyers.”
Under the terms of the assurance of discontinuance, the brokerage firm agreed to stop the alleged conduct, will offer comprehensive fair housing training to all agents, and will provide a discrimination complaint form on its website. The brokerage firm will also pay $20,000 in penalties and $10,000 to Suffolk County to promote enforcement and compliance with fair housing laws. This is the fourth action taken by the AG’s office against real estate brokerage firms in the state. As previously covered by InfoBytes, last August three Long Island real estate brokerage firms entered settlements to resolve claims of discriminatory practices.