It has been an extraordinary 365 days for consumer financial services law. I cannot recall a year where so many states introduced legislation or proposed regulations or rules impacting the credit industry. At the federal level, proposed rules for the Fair Debt Collection Practices Act were (finally) released and California also proposed regulations under the California Consumer Privacy Act.
And there were plenty of decisions too.
Looking back at 2019, it was a watershed year with events that will be with us well into the next decade. In short order, here is my recap of the Year in Consumer Financial Services Law – 2019.
The Proposed FDCPA Rules
In May, the Consumer Financial Protection Bureau released proposed rules for the Fair Debt Collection Practices Act. Modernizing the four-decade-old FDCPA makes up a large part of the proposal, particularly in electronic communications between consumers and debt collectors.
The CFPB’s NPRM devotes significant coverage to the use of emails, text messages and other forms of electronic communications by debt collectors. At present, the FDCPA does not prohibit a debt collector’s use of emails or text messages.
A proposed “call frequency cap” would limit a debt collector from “placing a telephone call to a particular person in connection with the collection of a particular debt either: (i) More than seven times within seven consecutive days; or (ii) Within a period of seven consecutive days after having had a telephone conversation with the person in connection with the collection of such debt. The date of the telephone conversation is the first day of the seven-consecutive-day period.” Once a person answers a call, no more calls can be made within the seven-day period respecting that debt. But if the calls go unanswered, no more than seven calls in seven consecutive days can be made. And these limits are imposed with respect to each debt (except in the case of student loans).
Both the call frequency cap and the proposals for electronic communications have been harshly criticized. Some say the call frequency cap does not go far enough in restricting telephone communications while the electronic communications proposals allow unlimited texts and emails. I disagree. As to telephone communications, most courts interpreting the FDCPA would permit more calls than the cap proposes. At the same time, the cap allows debt collectors to reduce the risk of violating the FDCPA, so long as they stick with the call caps. The same is not true for texts, emails and other electronic communications. Whether seven, ten or 12 texts in a week runs afoul of the FDCPA will be left to the courts. But you can be sure, there is no provision in the proposed rule allowing for unlimited emails and texts. If anything, the absence of a text and email cap means the quantum of these communications that violate the FDCPA will be left to be determined by courts and regulators on a case-by-case basis.
The “validation notice” received a refresh with the introduction of a model form and procedures for its electronic delivery, including an alternative method in lieu of compliance with the federal E-Sign Act.
Expect to see the final rules in 2020.
State Legislative Activity
While the proposed FDCPA rules took much of the spotlight, state legislation was where the action was in 2019. California, Colorado, the District of Columbia, Indiana, Nevada, Oregon, Rhode Island, Texas, West Virginia and Washington all either enacted new legislation or adopted regulations or court rules impacting consumer debt.
But it was the sheer number of proposals that deserves attention. New York had several bills proposing extraordinary restrictions on the collection of defaulted consumer debt. One bill proposed reducing the statute of limitations for most consumer debt to three years and “expunging” debt after the three-year period had run. The measure passed the New York Assembly, but narrowly failed in the Senate. Expect it to be re-introduced in 2020. A similar bill has been pending in Massachusetts.
In past years most proposals focused on “data and documents,” requiring particular documents and information to initiate a lawsuit or obtain a judgment. Proposals now address student loans, additional exemptions and restrictions on judgment and wage executions and reductions to the length of the statutes of limitations applicable to consumer debt. Many of these proposals, although offered as consumer protections, would actually cause consumers substantial harm. In Maine, a bill proposed to void judgments after one-year unless the judgment creditor took action to recover it. If the bill became law, judgment creditors would react by enforcing judgments annually, either by taking post-judgment depositions or executing on property when such measures would otherwise not be taken. Worse, a judgment creditor would still be required to act even if the circumstances made it impossible for the debtor to satisfy the judgment. In effect, the bill mandates harsh treatment of consumers.
Keep an eye on events in New York. Meantime, Maine, Massachusetts and Washington will remain active and bills are likely to be introduced in Connecticut and Vermont.
The California Consumer Privacy Act ushered in 2019 and continued its roll with a slew of amendments and proposed regulations. The CCPA is truly alone in the scope of activities and information it covers, and the number of industries impacted. Expansive privacy regulation, like the CCPA, is bound to conflict with existing federal privacy and consumer protection law. Yes, such federal laws protecting privacy do exist and the CCPA, though valiant in its attempt to harmonize with existing law, inevitably collided with a few as explained in the RMAI comments to the CCPA’s proposed regulations earlier this month.
Other states are active as well as is explained by Maurice Wutscher’s Eric Rosenkoetter in his article reviewing 2019 privacy developments.
The Madden “Fix”
The Second Circuit Court of Appeals’ 2015 decision in Madden v. Midland was, to put it lightly, “disruptive.” A simple FDCPA case involving a debt buyer evolved into a nightmare, not for the debt buying industry, but for non-bank lenders who found themselves questioning whether their portfolios of performing loans were worthless. As my partner Ralph Wutscher explained, Madden “held that loans that are completely legal when made by a national bank subsequently become illegal if the national bank sells or assigns them to a non-national bank purchaser or assignee.” In November, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) both issued proposed rules to “fix” the uncertainty created by Madden. Ralph offers a detailed analysis in this article.
Top Decisions of 2019
A number of decisions were handed down this year, both notable and notorious. To keep the list short, they are organized by month and distilled down to those likely to have lasting impact or that changed the law. Most decisions come from the Second, Seventh, Ninth and Eleventh Circuits. The Supreme Court continues to be particularly active.
Usury – EBF Partners v. Burlow Pharmacy (Circuit Court of the First Judicial Circuit, Santa Rosa County, FL) – Merchant cash advance funding agreement for the company’s future receivables was not a “loan” because payment to the purchaser of the future receivables was not absolute. That is, the pharmacy would not owe anything to EBF if it filed bankruptcy or otherwise ceased operations in the ordinary course of business.
FDCPA – Kolbasyuk v. Capital Mgmt. Servs. LP (2nd Circuit) – A debt collection letter that informs the consumer of the total, present quantity of his or her debt satisfies section 1692g of the Fair Debt Collection Practices Act (FDCPA) notwithstanding its failure to inform the consumer of the debt’s constituent components or the precise rates by which it might later increase.
Article III Standing – Frank v. Gaos (Supreme Court) – Class action settlement vacated where lower courts failed to analyze whether any named plaintiff alleged violations sufficiently concrete and particularized to support standing.
Fair Credit Reporting Act – Muransky v. Godiva Chocolatier, Inc. (11th Circuit) – Risk of identity theft that the consumer suffered was sufficiently concrete to confer Article III standing.
Arbitration – Lamps Plus, Inc. v. Varela (Supreme Court) – Court cannot compel classwide arbitration where the parties’ agreement to arbitrate is ambiguous as to whether such classwide arbitration is contemplated.
Fair Credit Reporting Act – Kidd v. Thomson Reuters Corp. (2nd Circuit) – Media company was not a “consumer reporting agency,” because it did not intend to furnish “consumer reports” through its services, and thus was not subject to the FCRA.
Bankruptcy – Taggart v. Lorenzen (Supreme Court) –A court may hold a creditor in civil contempt for violation of a discharge injunction if there is “no fair ground of doubt” as to whether the order barred the creditor’s conduct.
FDCPA – Casillas v. Madison Avenue Associates, Inc. (7th Circuit) – Plaintiff lacked Article III standing to sue a debt collector for failing to include a required disclosure in its letter to her because the only harm she suffered was receiving the incomplete letter.
Fair Credit Reporting Act – Warner v. Experian Information Solutions, Inc. (9th Circuit) – To trigger claims under sections 1681i and 1681e(b) arising from a consumer’s dispute to a credit reporting agency, the necessary dispute must come from the consumer, not a third party. Here, the consumer engaged a credit repair company which made the disputes on her behalf.
Telephone Consumer Protection Act – Salcedo v. Hanna (11th Circuit) – Receipt of one unwanted text message in alleged violation of the federal TCPA was not enough to allege a concrete harm that meets the injury-in-fact requirement of Article III.
FDCPA – Lavallee v. Med-1 Solutions, LLC (7th Circuit) – Attempt to provide FDCPA’s 1692g “validation” notice via an emailed hyperlink insufficient and emails that did not mention a debt or debt collection were not “communications” as defined by the Act.
Class Action Fairness Act – Arias v. Residence Inn by Marriott (9th Circuit) – When a statute or contract provides for the recovery of attorneys’ fees, prospective attorneys’ fees must be included in the assessment of the amount in controversy.
Fair Credit Reporting Act – Nayab v. Capital One Bank (9th Circuit) – A party suffers a concrete injury in fact merely by a person obtaining the party’s credit report for a purpose not authorized by the statute.
Bankruptcy – Crocker v. Navient Solutions, LLC (5th Circuit) – Bankruptcy courts lack authority to enforce discharge injunctions entered in other districts. For more on bankruptcy litigation in 2019 and the year ahead, read an analysis from Maurice Wutscher’s bankruptcy authority Alan Hochheiser.
FDCPA – Rotkiske v. Klemm (Supreme Court) – The one-year statute of limitations under the FDCPA begins to run when the violation occurs, not when it is discovered.