RMAI is actively monitoring over 300 bills that may impact the receivables industry in both positive and negative ways. Here are a few noteworthy bills that have been introduced:
California SB 908 – This bill would require debt collectors (collection agencies, debt buyers and collection law firms) to be licensed by the Department of Business Oversight (DBO) in California. The bill generally contains requirements similar to other state licensing requirements. Licenses would be required as of January 1, 2022. [RMAI has met with the sponsor’s office, DBO, and committee staff several times over the past three months to advocate for changes. The bill was amended on April 15th and approximately 60 percent of RMAI’s redlines were incorporated, including among other things, eliminating consumer access to bonds; allowing a family of companies to share a license and examination; and delaying the effective date until January 1, 2022. Some issues are still being negotiated, including placing a cap on annual fees and protection of confidential business records.]
California AB 2501 – This bill would, among other things, prohibit a servicer of a vehicle-secured credit from repossessing either a mobile home or a motor vehicle (including a verbal or written notice of intent) until January 1, 2023 if the consumer requests a forbearance either orally or in writing affirming that they are experiencing a COVID-19 related financial hardship. Upon receipt of the request, the servicer may require a written attestation from the consumer. The forbearance is in place for 90 days and renewable in 90-day increments until 270 days. [RMAI has issued a memo in opposition and is working with a large coalition in opposition to the bill.]
Colorado SB 211 – This bill would prohibit any new “extraordinary debt collection actions” from the effective date of the bill until November 1, 2020 if the consumer informs the creditor that they have experienced a COVID-19 hardship. An extraordinary collection action is defined as an action in the nature of a garnishment, attachment, levy, or execution to collect or enforce a judgment on a debt as defined under the “Colorado Fair Debt Collection Practices Act” (FDCPA). The creditor is required to provide consumers a written notice informing them of their right to claim a COVID-19 hardship. The prohibition may be extended until February 1, 2021 by the Administrator of the Uniform Consumer Credit Code. The bill will also automatically exempt from levy and sale under writ of attachment or writ of execution through February 1, 2021, up to $4,000 in a depository account or accounts in the name of the debtor. [RMAI retained a Colorado lobbyist to work with an industry coalition to obtain amendments to this bill. The coalition was able to successfully: (1) reduce the sunset date of the bill requirements by 6 months; (2) require the consumer to indicate that they have a COVID-19 hardship to avoid garnishment – originally it would have provided an automatic garnishment prohibition to every Colorado resident; (3) reduced the bank levy exemption from a permanent $7,000 exemption to a temporary $4,000 exemption; and (4) deleted language which would have increased the garnishment exemption from 40x state minimum wage to 80x state minimum wage.]
Massachusetts SB 2734/HB 4694 – This bill among other things: (1) reduces the statute of limitations in an action for the collection of a consumer debt from six to four years; (2) prohibits the revival of a debt that is beyond the statute of limitations through the making of a payment; (3) reduces the time allowed to take action to enforce a judgment from 20 to 10 years; and (4) increases the garnishment exemption from 50x state minimum wage to 70x state minimum wage. [RMAI has retained a lobbyist to oppose the bill in its current form. RMAI participated in a stakeholder roundtable requested by the committee chair in January 2020. Working with a receivables industry coalition, RMAI has exchanged several redlines with consumer advocates. While we have made progress, more work is needed. In May 2020, the bill was reported out of its first committee with amendments that deleted the expungement of debt after the expiration of the SOL.]
New York AB 6909-C/SB 4827-C – This bill called the “Consumer Credit Fairness Act” would: (1) reduce the statute of limitations from six to three years on consumer credit transactions; (2) prohibit the revival of a debt that is beyond the statute of limitations through the making of a payment; (3) require the mailing of a notice by the court clerk after filing proof of service of the summons and complaint; (4) require specific data to be included in the complaint; and (5) require the provision of form affidavits. [RMAI has a New York lobbyist and is working closely with a coalition of industry lobbyists to fight this bill. The coalition participated in a roundtable discussion with the Senate sponsor and consumer groups on November 26, 2019 in New York City in an attempt to find some common ground. The meeting went better than the industry anticipated. Industry submitted new redlines in January. In the latest version of the bill, the industry was successful at removing the provisions that expunged the debt after the SOL expired and required pre-charge-off itemization on credit cards.]
New Jersey SB 2423 – This bill would create a $340,000 homestead exemption; protects $15,000 in value in personal property, inclusive of $5,000 within a bank account; and increases the threshold in which an income can be garnished at a rate higher than 10 percent from 250 percent to 400 percent of the federal poverty rate.
If you are interested in obtaining a copy of the RMAI state tracking list, please contact David Reid at email@example.com.
CFPB Announces Consent Order with Short-Term Lenders
The Consumer Financial Protection Bureau (CFPB) recently announced a Consent Order entered June 2, 2020, with a company and its subsidiaries that provide short-term payday and auto-title loans (Lenders). The Lenders’ alleged conduct included providing deceptive finance charge disclosures, failing to refund overpayments and engaging in unfair debt collection practices. These alleged activities were claimed to be actionable as violations of the Truth in Lending Act and the Consumer Financial Protection Act.
Although the settlement included a $3.5 million restitution judgment for finance charges greater that those listed in the loan disclosures, the Lenders are not required to pay the entire restitution judgment because they demonstrated an inability to pay. Instead, the restitution will be suspended subject to the lenders paying $2 million in restitution and $1 as a civil monetary penalty. At the CFPB’s discretion, the restitution funds may be deposited into the U.S. Treasury as disgorgement rather than distributed to affected customers.
The Lenders are enjoined from engaging in future collection activities including:
- Placing a collection call to any person about an account after that person has notified Respondents, orally or in writing, that the person wishes Respondents to cease further contact with the person;
- Placing a collection call to a consumer’s workplace if the consumer has asked Respondents not to, or if Respondents know, or has reason to know, that such calls are prohibited by the employer; and
- Except as permitted by state law, in connection with collecting or attempting to collect a delinquent debt, disclosing the existence of such a debt to any employer, coworker, or third-party reference, unless the consumer, after default, provided his or her documented, voluntary affirmative, and specific permission on an opt-in basis for the third-party communication.
Short-term lending, in general, is a financial services sector that has been severely scrutinized by federal agencies. Last year, the CFPB published its Final Rule related to payday and title loans. Interestingly, in March the CFPB joined the other federal financial regulatory agencies in making a Joint Release in response to COVID-19 whereby the agencies encourage the making of “responsible small-dollar loans to consumers and small businesses.” The May 2020 interagency Interagency Lending Principles regarding small dollar loans provided guidance for responsible lending.
7th Cir. Holds Privacy Act Plaintiff Had Standing On ‘Private’ Rights Claim, But Not ‘Public’ Rights Claim
Bryant v. Compass Grp. USA, Inc., 958 F.3d 617 (7th Cir. 2020)
A call center employee (“consumer”) used a vending machine at her place of employment that did not accept cash but instead operated from the employee’s fingerprint, which required the employee to set up an account and have her fingerprint scanned. Under the Illinois Biometric Information Privacy Act (BIPA), 740 Ill. Comp. Stat. Ann. 14, et seq., fingerprints are one type of “biometric identifier” that require the written informed consent of the person whose data is acquired.
The consumer filed a putative class action complaint in state court against the owner and operator of the vending machines (“vendor”) alleging violations of BIPA for: 1) failing to make publicly available any retention schedule or guidelines for permanently destroying the biometric identifiers; and 2) never informing the consumer in writing that her fingerprint was being collected or stored, the specific purpose and length of term for which it was being collected, stored and used, and never obtaining a written release to collect, store, and use her fingerprint.
The consumer alleged that failure to make the requisite disclosures denied her the ability to give informed written consent as required by BIPA and resulted in the loss of the right for her, and others similarly situated, to control their biometric identifiers and information.
Following removal to federal court, the trial court found that the vendor’s alleged violations of BIPA were bare procedural violations that caused the consumer no concrete harm. The matter was remanded to the state court for lack of standing. The vendor’s petition to appeal the remand order was accepted by the Seventh Circuit.
To confer federal standing under Article III, a plaintiff must satisfy three requirements: (1) she must have suffered an actual or imminent, concrete and particularized injury-in-fact; (2) there must be a causal connection between her injury and the conduct complained of; and (3) there must be a likelihood that this injury will be redressed by a favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992).
In this case, only the first element was at issue on appeal. As the Supreme Court of the United States explained in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), a “concrete” injury must actually exist but need not be tangible. While a legislature may “elevate to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law,” “a bare procedural violation, divorced from any concrete harm,” does not “satisfy the injury-in-fact requirement of Article III.”
The vendor argued that BIPA elevated a person’s inherent right to control their body, including associated biometric identifiers and information, and that a violation or trespass upon this right is a concrete injury-in-fact for standing persons. Although the Illinois Supreme Court did not consider federal Article III standing requirements, the vendor argued that BIPA confers a right to receive certain information from an entity that collects, stores, or uses a person’s biometric information, and the violation of that right is a “real and significant” injury – also constitutes a “concrete” injury to confer federal standing under Article III. Rosenbach v. Six Flags Entm’t Corp., 432 Ill. Dec. 654, 663 (2019).
Considering the consumer’s Article III standing under BIPA as a question of first impression, the Seventh Circuit looked to Spokeo, where the Supreme Court examined Article III standing for claims raised under the federal Fair Credit Reporting Act. Although the Supreme Court in Spokeo did not rule one way or the other on the plaintiff’s standing, instead finding that the Ninth Circuit used the wrong test for injury-in-fact and remanding for application for the proper test (Spokeo at 1548), Justice Thomas’s concurrence drew a useful distinction between two types of injuries: the first arising when a private plaintiff asserts a violation of her own rights, and the second when a private plaintiff seeks to vindicate public rights. Spokeo at 1551-52.
Applying this reasoning, the Seventh Circuit found that the consumer’s claims that the vendor’s failure to comply with section 15(b) violated her personal privacy and rights was sufficient to show injury-in-fact without further tangible consequences, and confer Article III standing.
Moreover, in analyzing the consumer’s BIPA claims as a type of “informational injury,” where information required by statute to be disclosed to the public is withheld, the Seventh Circuit reached the same result.
Because the vendor’s alleged failure to provide obligatory BIPA disclosures “deprived [the consumer] of the ability to give the informed consent section 15(b) mandates” this deprivation was a concrete injury.
However, the Seventh Circuit reached a different conclusion as to the alleged failure of the vendor to make publicly available a data retention schedule and guidelines for permanently destroying collected biometric identifiers and information. Because this duty is owed to the public generally, the Seventh Circuit concluded that the consumer suffered no concrete and particularized injury as a result of the violation, and therefore lacked standing under Article III to pursue her section 15(a) claim in federal court.
Accordingly, the Seventh Circuit reversed the judgment of the trial court remanding the action to state court and remanded the case to federal trial court on the consumer’s claim under BIPA for failure to provide the required disclosures.
9th Cir. Holds Pre-Foreclosure Challenges to Ability to Foreclose Not Permitted
Perez v. Mortg. Elec. Registration Sys., 959 F.3d 334 (9th Cir. 2020)
The U.S. Court of Appeals for the Ninth Circuit recently held that California law does not permit preemptive actions to challenge a party’s authority to pursue foreclosure before a foreclosure has taken place.
Husband and wife homeowners owned two properties in California and executed deeds of trust for both in 2006. Both deeds of trust identified the lenders and the Mortgage Electronic Registration Systems, Inc. as the beneficiary for the lender’s successors and assigns. Each mortgage loan was bought and sold multiple times.
In 2009 a notice of default and a notice of trustee’s sale were issued against the homeowners for failure to make payments on one of their loans. A sale was scheduled, but it did not take place. There were no allegations that any foreclosure proceedings had been initiated against the homeowners relating to the other property.
The homeowners sued MERS and the entities currently holding the two loans seeking declaratory relief, cancellation of instruments, and quiet title as to the holders and MERS. The homeowners based their claims for relief on alleged defects in the assignments of the underlying deeds of trust, such that, the homeowners asserted, the holders never received any beneficial interest in the loans.
The actions were removed to federal court based on diversity jurisdiction and were dismissed for failure to state plausible claims for relief under California law.
On appeal, the homeowner’s claims were premised on the theory that they can preemptively challenge the holders’ authority to foreclose on their properties by filing judicial actions before any nonjudicial foreclosure has taken place. Thus, the controlling question before the Ninth Circuit was whether such preemptive, pre-foreclosure actions are viable under California law.
The Ninth Circuit began its review noting the California Supreme Court had not directly answered the question of whether preemptive, pre-foreclosure actions are viable under California law.
In Yvanova v. New Century Mortg. Corp., 365 P.3d 845, 858-59 (Cal. 2016), the California Supreme Court held that, in an action for wrongful foreclosure, borrowers have standing to challenge prior assignments of the note if they allege the assignment was void, as compared to voidable. The California Supreme Court expressly limited its holding to post-foreclosure actions for wrongful foreclosure, explaining that the holding did not apply to borrowers who “attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party’s right to proceed,” or to borrowers who bring “action[s] for injunctive or declaratory relief to prevent a foreclosure sale from going forward.”
The Ninth Circuit next turned its analysis to relevant decisions of the California intermediate appellate courts, first examining Gomes v. Countrywide Home Loans, Inc., 121 Cal. Rptr. 3d 819, 822 (Cal. Ct. App. 2011), where a defaulting borrower challenged whether the defendants were authorized to foreclose on his property. The Court of Appeals held that California’s comprehensive statutory scheme for nonjudicial foreclosures did not permit a borrower to bring a judicial action before a foreclosure had taken place to challenge whether a foreclosing party was authorized to foreclose. The intermediate appellate court reasoned that allowing borrowers to bring such pre-foreclosure actions would impermissibly interject courts into California’s “comprehensive nonjudicial scheme” of foreclosure and “fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures.”
The Ninth Circuit next examined Jenkins v. JP Morgan Chase Bank, N.A., 156 Cal. Rptr. 3d 912, 923 (Cal. Ct. App. 2013), in which the Court of Appeals held that the borrower lacked a legal basis to bring her preemptive action under California’s statutory scheme for nonjudicial foreclosure, and Saterbak v. JPMorgan Chase Bank, N.A., 199 Cal. Rptr. 3d 790, 793 (Cal. Ct. App. 2016), which examined Yvanova and held that Yvanova did not alter prior California precedent barring pre-foreclosure suits because Yvanova was “expressly limited to the post-foreclosure context.”
However, in Brown v. Deutsche Bank National Trust Co., 201 Cal. Rptr. 3d 892, 896 (Cal. Ct. App. 2016), the Court of Appeals, although not deciding the question of whether pre-foreclosure actions are viable after Yvanova, noted that the California Supreme Court could decide to extend its limited holding in Yvanova to cover some pre-foreclosure cases. The appellate court in Brown explained that the reasoning in Yvanova “raises the distinct possibility that [the California] Supreme Court would conclude that borrowers have a sufficient injury [from the initiation of foreclosure proceedings], even if less severe [than the injury from wrongful foreclosure], to confer standing to bring similar allegations before the [foreclosure] sale.”
The Ninth Circuit noted “existing California appellate cases demonstrate that, both before and after Yvanova, California appellate courts have dismissed preemptive, pre-foreclosure actions. There is no convincing evidence the California Supreme Court would break with that precedent.” Thus, the Ninth Circuit held that California law does not permit preemptive actions to challenge a party’s authority to pursue foreclosure before a foreclosure has taken place.
In the present matter, it was “undisputed that no foreclosures [had] taken place.” Accordingly, the homeowners’ claims were pre-foreclosure judicial actions that preemptively challenge the holders’ authority to foreclose on their properties in the future and thus not viable under California law.
Furthermore, the Ninth Circuit held that the trial court did not abuse its discretion by denying the homeowners leave to amend, as the proposed amendments “would not have changed the determination that the action was a preemptive, pre-foreclosure action seeking to challenge the [holders’] authority to foreclose, and that such an action is impermissible under California law.”
Accordingly, the Ninth Circuit affirmed the trial court’s dismissal of the homeowners’ claims.