2013 brought some significant developments to consumer financial services law. It began early with a favorable Fair Debt Collection Practices Act decision from the U.S. Supreme Court, followed by several interesting Telephone Consumer Protection Act decisions. But what really set the year apart was the activity we saw from federal regulators.
Here’s my list of some of the most significant developments from around the country, which will likely impact 2014.
U.S. Supreme Court
The year began with the Supreme Court’s decision in Marx v. General Revenue. The Supreme Court held that a plaintiff who is unsuccessful in a claim brought under the FDCPA can be liable for the defendant’s costs even if the lawsuit was not brought in bad faith. The opinion was delivered by Justice Thomas. Justices Sotomayor and Kagan dissented with Justice Sotomayor on the dissenting opinion. Marx concerned whether the FDCPA’s section 1692k(a)(3), which provides for an award of attorney’s fees and costs if an FDCPA suit is brought in “bad faith and the purpose of harassment,” prevents the awarding of costs alone under Federal Rule of Civil Procedure 54(d), absent a showing of bad faith and harassment on the part of the unsuccessful litigant.
The decision provides some relief to defendants in FDCPA cases that are successfully defended. It can be very difficult to satisfy the standard of “bad faith and for the purpose of harassment” when attempting to recover costs and attorney’s fees. One of the primary obstacles is that several courts have interpreted bad faith under section 1692k(a)(3) as a “conscious doing of a wrong [and] contemplates a state of mind affirmatively operating with furtive design or ill will.” Silvious v. Midland Credit Mgmt., No. 07-145, 2010 WL 3491218, at *2 (N.D. W. Va. Sept. 1, 2010).
Under the Marx decision, the question of whether to tax costs is now left to the court’s discretion. An unsuccessful litigant remains exposed to costs, regardless of their intentions in bringing or maintaining the action.
Interest Waiver Claims
The last year also saw the development of a new theory of FDCPA liability concerning charged-off debt and the waiver of interest. In McDonald v. Asset Acceptance, a debt collector had purchased accounts that had been previously charged-off by the original creditors. McDonald obtained testimony from the original creditors indicating that when they charged-off his accounts, they ceased accruing interest. A Michigan federal court found that the debt collector violated the FDCPA by charging interest on the purchased account during the periods in which the original creditors did not charge interest (post “charge-off”).
The Court found that the original creditors’ decision not to charge interest post charge-off prevented Asset Acceptance from retroactively imposing interest during the same period. The decision has resulted in a slew of copy-cat lawsuits.
Disclosure of Time-Barred Status
An FDCPA claim based on a debt collector’s failure to disclose that a debt was subject to an expired statute of limitations was allowed to proceed in Delgado v. Capital Mgt. Serv., LP. A federal court in Illinois refused to dismiss a complaint that alleged a debt collector violated the FDCPA by failing to disclose in a settlement offer letter that the debt was beyond the applicable statute of limitations. A year earlier, another federal court in Illinois in McMahon v. LVNV Funding, LLC dismissed a complaint making the same allegation. Both cases are before the Seventh Circuit Court of Appeals. The Federal Trade Commission and the Consumer Financial Protection Bureau have filed an amicus brief supporting the consumers.
Telephone Consumer Protection Act
The TCPA regulates the use of an “automated telephone dialing system” to place calls to cell phones and other devices. A federal court in Wisconsin in Nelson v. Santander Consumer USA, Inc. found that an original creditor violated the TCPA when it dialed a consumer’s cell phone using a telephony system in “preview” mode. A preview dialer presents the agent with a phone number prior to the system placing the call. Many believed that the preview mode’s “human intervention” required to place the call complied with an earlier Federal Communication Commission interpretation that an ATDS is a device that can dial a call without “human intervention.” However, the court in Nelson focused on evidence that the creditor’s telephony system still had the capacity to make calls as a predictive dialer. Relying upon an earlier FCC interpretation that a predictive dialer is an ATDS, the court ruled that even though the calls were made in “preview mode,” the TCPA was still violated because “the question is not how the defendant made a particular call, but whether the system it used had the ‘capacity’ to make automated calls.” The court later vacated its decision.
Many in the industry have argued that the FCC’s interpretation of an ATDS as a device that has the capacity to call a number without human intervention goes beyond the statute’s own definition of an ATDS. The statutory definition defines an ATDS as a device that has the capacity to “store or produce telephone numbers to be called, using a random or sequential number generator.” Two decisions in 2013 suggest the FCC’s definition goes too far. In re: Midland Credit Management, Inc., a federal court in California said “[i]t could not be more clear that any predictive dialer must have the required capacity (even if unused) set out in the statute to qualify as an ATDS.” In Hunt v. 21st Mortg. Corp., an Alabama federal court reached a similar conclusion finding that “a system must have a present capacity, at the time the calls were being made, to store or produce and call numbers from a number generator” to qualify as an ATDS.
2013 also saw some conflicting decisions surrounding what constitutes “prior express consent.” If an ATDS is used to call a cell phone, the caller must first have obtained “prior express consent” to make the call. Based on an earlier FCC interpretation, it was widely believed that a person who provides their cell phone number to a creditor, for example as part of a credit application, can reasonably be expected to have consented to subsequent calls placed to that number by the creditor. In March, a federal court in New York followed the FCC interpretation in Nigro v. Mercantile Adjustment Bureau, LLC. Just a few months later, a Florida federal court in Mais v. Gulf Coast Collection Bureau, Inc., found that a wife’s provision of her husband’s cell phone number on hospital admission forms was not sufficient prior express consent because the form did not “directly, clearly, and unmistakably [state] that the creditor may call him” at the telephone number provided on an application.
The Third Circuit Court of Appeals weighed in with its decision in Gager, allowing revocation of prior express consent. A first for any Circuit and contrary to several opinions from federal district courts.
Regulators were hard at work in 2013 as well. In July, a consent decree was entered between Expert Global Solutions, Inc. (formerly known as NCO Group, and others) and the Federal Trade Commission, calling for payment of a $3.2 million civil penalty as well as changes to the debt collector’s calling practices.
In September, JP Morgan Chase Bank, N.A. and certain of its affiliates entered into a sweeping consent order with the Office of the Comptroller of the Currency covering its practices for collecting debt, as well as the practices used by its third-party service providers, including lawyers. The bank agreed to make changes in its handling of sworn documents used in collection litigation and its practices in the sale of consumer debt, among other things.
Finally, in November, the CFPB issued an Advance Notice of Proposed Rulemaking under the FDCPA, seeking public comment on various debt collection practices. The ANPR may lead to the CFPB ultimately issuing regulations interpreting the FDCPA, a first in the 40-year history of the statute.
What to Look for in 2014
With 2013 as our guide, it is not hard to expect more enforcement actions against various participants in the debt collection industry. I am not as certain we’ll see final FDCPA regulations, at least in 2014.
I expect we’ll hear from the Seventh Circuit on time-barred debt disclosure and I’m not about to call how that will come out. I am hoping for some industry-positive case law on the “charged-off debt interest waiver” theory, as a few cases are in the pipelines and there are very strong arguments running counter to McDonald’s facts and rationale.
I am also hopeful to see some positive decisions for attorneys who practice debt collection law. The Ninth Circuit Court of Appeals has a case that is examining the concept of “meaningful involvement” and we are expecting decisions from several cases in New York and New Jersey federal courts this year. I am also hopeful for continued, helpful case law concerning the limited applicability of the FDCPA to litigation conduct.
The trend in declining FDCPA cases should continue. I am hearing from long-time consumer attorneys that it is getting harder for them to find “good” cases — which really speaks to the tremendous compliance efforts made by the industry.
On the TCPA front, I hope to see the decisions like those in In re: Midland Credit Management, Inc. and Hunt moving away from the FCC’s “without human intervention” commentary concerning what constitutes an ATDS and adhering more to the statutory definition. And we might see something this year from the FTC on one of the several petitions looking to resolve the ATDS issue. It has been almost a year since I heard them say we should expect something in this area “soon.” Unfortunately, I think we will see continued uncertainty in the area of prior express consent – particularly issues concerning revocation and nature of the consent.
Whatever does happen in 2014, we hope that all of you have a healthy and Happy New Year!
CLE Webinar – A Look Back at 2013
For a complete wrap up of 2013, I’ve asked my friend Tomio Nartia to join me for a CLE webinar on Jan. 29, at 2:00 p.m. ET/11:00 a.m. PT. Tomio and I will explore several of the cases and regulatory actions discussed here, as well as many others, and answer your questions. Application has been made for one hour of CLE credits for California, Delaware, New Jersey and Virginia as a webinar or in-person at our New Jersey office. New York attorneys have CLE reciprocity under the Virginia application. Application also has been made for one hour of CLE for Pennsylvania attorneys, but only in-person at our New Jersey office.
For those seeking DBA International continuing education credits, you can earn one hour at this webinar.
The cost is $85. But, if you don’t want CLE or DBA credit, then as our gift to you, we’ve opened 50 seats for free.
Register for the webinar here, we expect the 50 seats will go fast.