11th Circuit Holds Disclosing Consumer Information to Letter Vendors Violates FDCPA
Hunstein v. Preferred Collection & Mgmt. Servs., No. 19-14434, 2021 U.S. App. LEXIS 11648 (11th Cir. Apr. 21, 2021)
On April 21, the U.S. Court of Appeals for the Eleventh Circuit issued a decision holding that the transmittal of consumer information to a letter vendor constitutes a communication with an unauthorized third party in connection with the collection of a debt in violation of 15 U.S.C. § 1692c(b).
The facts are relatively straight-forward. The collector electronically transmitted information about the consumer and his debt to its letter vendor, which then used that information to create and send a letter to the consumer.
Before addressing the merits of the consumer’s claim, the court determined whether the consumer had standing to pursue that claim. The court noted that the consumer could not establish standing based upon a tangible harm, as he failed to allege one. The consumer was also unable to establish standing based on an impending risk of significant harm. Therefore, the court looked to whether the consumer was able to identify a statutory violation that gave rise to an intangible, yet still concrete, injury.
When determining whether a statuary violation confers Article III standing, courts consider history and the judgment of Congress. After reviewing the history of American and English common law, the court found that the alleged injury was sufficiently analogous to the tort of invasion of privacy. The court also found that the judgment of Congress supported standing because “invasions of individual privacy” were among the harms that Congress explicitly targeted in enacting the FDCPA.
The Eleventh Circuit recently addressed whether a consumer had standing to assert claims under § 1692e and § 1692f regarding the absence of a statute-of-limitations revival warning in a collection letter in Trichell v. Midland Credit Mgmt., Inc., 964 F.3d 990 (11th Cir. 2020). The court in Trichell held that the consumer did not have standing to pursue those claims because, among other things, he was not actually misled by the letter.
The court distinguished its decision in Trichell by explaining that the § 1692e claim asserted in that case bore an insufficiently close relationship to the most analogous common-law tort (fraudulent or negligent misrepresentation). Also, there is no evidence that Congress intended to address, as the court put it in Trichell, “misleading communication[s] that fail to mislead.” However, Congress specifically identified invasions of privacy as one of the harms against which the FDCPA was directed. Accordingly, the court held that the consumer had standing to pursue his § 1692c(b) claim.
Moving to the merits of the consumer’s claim, the court noted that the collector did not dispute that its transmittal of information to the letter vendor was a “communication” as that term is defined at 15 U.S.C. § 1692a(2). This concession meant that the court only needed to decide whether that communication was made “in connection with the collection of any debt” in violation of 15 U.S.C. § 1692c(b). The court first determined that the phrase “in connection with” and the word “connection” are both broadly defined and require only a relationship or association. From there, the court arrived at the “inescapable” conclusion that the collector’s transmittal of data (including consumer name, creditor name, and account balance) to the letter vendor was related to or associated with the consumer’s debt and, therefore, was “in connection with the collection” of that debt.
The collector asserted three arguments in support of its position that the transmittal to its letter vendor was not “in connection with the collection of any debt.” The court rejected all three. The collector first argued, citing prior Eleventh Circuit decisions, that a communication is not in connection with the collection of a debt unless it includes a demand for payment. The court rejected this argument and explained that its prior cases implying such a requirement addressed alleged violations of § 1692e, not § 1692c(b). The court also noted that § 1692c(b) contains exceptions for communications with certain third parties, such as credit reporting agencies, to which no demand for payment would be directed. Those exceptions would be redundant if a communication had to include a demand for payment to be “in connection with the collection of any debt” under § 1692c(b).
The collector next argued that the Eleventh Circuit should apply a multi-factor balancing test used by the Sixth Circuit in evaluating whether a communication was “in connection with the collection of any debt” under § 1692e. The court again noted the linguistic and operational differences between § 1692e and § 1692c(b) in rejecting this argument.
At the risk of oversimplifying the third argument, the collector essentially argued that numerous debt collectors use letter vendors yet there were no court decisions holding that the use of letter vendors violates the FDCPA. In rejecting this argument, the court observed that this case might be the first to decide whether a collector violates § 1692c(b) by transmitting information to a letter vendor.
The court understood that its interpretation of § 1692c(b) “runs the risk of upsetting the status quo in the debt-collection industry,” that it could be extended beyond the use of letter vendors, and that it “may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost.” However, the court believed that the plain language of the statute compelled its holding.
3rd Circuit Finds Correctly Itemizing Interest and Fees as $0.00 Does Not Violate FDCPA
Hopkins v. Collecto, Inc., 994 F.3d 117 (3d Cir. 2021)
A consumer received a letter from a debt collector which sought to collect past due amounts on behalf of a creditor who acquired the debt. The letter included a table itemizing the debt, including fields for interest and fees which were both stated as “$0.00.” The letter offered to “resolve this debt in full” if the consumer paid a lump-sum discounted amount.
In a putative class action complaint against the debt collector and creditor (collectively, the “debt collectors”), the consumer claimed that because the debt was static and purportedly could not accrue interest or fees, assigning a “$0.00” value to those columns falsely implied that interest and fees could accrue and increase the total debt over time, in violation of sections 1692e and 1692f of the FDCPA.
Upon consideration of the debt collectors’ motion to dismiss, the trial court dismissed the consumer’s complaint with prejudice, reasoning that the letter neither “leave[s] the least sophisticated consumer in doubt of the nature and legal status of the underlying debt” nor “impede[s] the consumer’s ability to respond to or dispute collection.” The consumer appealed.
On appeal, the Third Circuit noted that other federal appellate courts recently addressed similar claims. In Degroot v. Client Services, Inc., 977 F.3d 656 (7th Cir. 2020), the Seventh Circuit held that a collection letter that listed a debt as including $0.00 in interest and fees “mere[ly] rais[ed] . . . an open question about future assessment of other charges,” and did not mislead the unsophisticated consumer.
Likewise, in Salinas v. R.A. Rogers, Inc., 952 F.3d 680 (5th Cir. 2020), the Fifth Circuit concluded that a dunning letter’s inclusion of $0.00 due in interest and fees and the statement that “in the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice” did not violate the FDCPA “from the perspective of an unsophisticated or least sophisticated consumer.”
Finding the rationale of the Fifth Circuit in Salinas and Seventh Circuit in Degroot persuasive, the Third Circuit similarly concluded that the letter did not violate the FDCPA by itemizing $0.00 in interest and fees on his static debt and the dismissal of the class action complaint was affirmed.
Notably, the Consumer Financial Protection Bureau filed an amicus brief in support of the debt collectors. The Third Circuit noted that the CFPB’s recently finalized Regulation F “seemingly condone[s] itemizing interest and fees as [the debt collectors] did. . . Under the pending rules, debt collectors must include in certain notices a table showing the interest, fees, payments, and credits that have been applied – even if none have actually been applied – to a consumer’s debt since the itemization date. . . And a debt collector may indicate that the value of a required field is ‘0,’ ‘none,’ or may state that no interest, fees, payments, or credits have been assessed or applied to the debt.”
5th Circuit Holds Plaintiff Not Entitled to Attorney’s Fees Following FDCPA Settlement
Tejero v. Portfolio Recovery Assocs., LLC, 993 F.3d 393 (5th Cir. 2021)
A consumer sued a debt collector for purported violations of the FDCPA and parallel provisions of Texas state law. After the parties’ cross-motions for summary judgment were denied on the basis that triable issues of fact existed, the parties reached a settlement before trial wherein the debt collector agreed to waive the outstanding debt (approximately $2,100) and pay $1,000 damages.
After apprising the trial court of the settlement, the court entered sanctions against the debtor’s attorneys, ordering “thousands of dollars in costs and fees” and reporting them to the disciplinary committee for allegedly bringing the case in bad faith. See Tejero v. Portfolio Recovery Assocs., L.L.C., 955 F.3d 453, 457.
The consumer appealed, and the Fifth Circuit reversed the imposition of sanctions for abuse of discretion and remanded the matter to the trial court to determine whether the consumer’s “favorable settlement entitled him to attorney’s fees under the FDCPA.” The district court held it did not, which led to another appeal.
In this appeal, the sole question before the Fifth Circuit was whether the trial court erred in refusing the consumer’s application for attorney’s fees under the FDCPA.
The court noted that “as a general matter in the United States ‘[e]ach litigant pays his own attorney’s fees, win or lose’” under a principle known as the “American Rule.” However, the FDCPA authorizes fee shifting, allowing a plaintiff to recover reasonable attorney’s fees as determined by the court with costs “in the case of any successful action to enforce the foregoing liability.” 15 U.S.C. § 1692k(a)(3).
Reviewing dictionary definitions for “successful” and “action,” and the purpose of “the infinitive phrase ‘to enforce the foregoing liability,’”, the Court concluded that “a ‘successful action to enforce the foregoing liability’ means a lawsuit that generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA.”
Here, the Court determined that the requirements of § 1692k(a)(3) were not met: “[The consumer] won no such relief because he settled before his lawsuit reached any end result, let alone a favorable one. And by settling, [the debt collector] avoided a formal legal command or decree from [the consumer’s] lawsuit.”
Accordingly, the Fifth Circuit affirmed the trial court’s denial of attorney’s fees.
9th Circuit Holds Bona Fide Error Defense Can Be Raised in FDCPA Statute of Limitations Cases
Kaiser v. Cascade Capital, LLC, 989 F.3d 1127 (9th Cir. 2021)
The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court’s dismissal of case alleging that the defendant violated the federal Fair Debt Collection Practices Act (FDCPA) by sending a collection letter threatening litigation over a time-barred debt and filing a lawsuit seeking to collect the debt.
In so ruling, the Ninth Circuit held, “as a matter of first impression,  that a mistake about the time-barred status of a debt under state law could qualify as a bona fide error within the meaning of the FDCPA.”
The plaintiff purchased a car under a retail installment sale contract. He subsequently defaulted on his payments, and his car was repossessed and sold. The proceeds from the sale failed to cover the outstanding balance under the contract, and the plaintiff did not pay the remaining amount due.
The defendant attempted to collect the debt by sending a letter and ultimately filing a lawsuit in Oregon state court. These collection attempts occurred between four to six years after the plaintiff’s default.
The plaintiff responded to the defendant’s state court lawsuit by arguing that the debt was barred under Oregon’s four-year statute of limitations for sale-of-goods contract claims, Or. Rev. Stat. § 72.7250. The defendant countered that Oregon’s six-year statute of limitations for other contract claims, Or. Rev. Stat. § 12.080, applied instead. The state court ruled in favor of the plaintiff.
The plaintiff then filed a putative class action in federal court alleging the defendant violated the FDCPA by threatening litigation over an “out-of-statute” debt in the collection letter and by filing a lawsuit to collect the “out-of-statute” debt. The trial court dismissed for failure to state a claim, reasoning in part that the defendant did not violate the FDCPA because the state statute of limitations had been unclear at the time the defendant attempted to collect the debt. The plaintiff timely appealed.
The Ninth Circuit first addressed whether the plaintiff’s debt was, in fact, “out-of-statute” under Oregon law. If the lawsuit more closely related to portion of the contract for the underlying sale of the car, then a four-year statute of limitations would apply; however, if the focus was the portion of the contract creating a security interest in the car, a six-year statute of limitations would apply. See Or. Rev. Stat. § 72.7250 (requiring claims of breach of contract for a sale of goods to be brought within four years), and § 12.080 (requiring other contract claims to be brought within six years).
The Ninth Circuit relied, in part, on the Oregon Supreme Court case Chaney v. Fields Chevrolet Co., 503 P.2d 1239 (Or. 1972) to inform its decision: “[A]n action [by a creditor] for part of the purchase price is more closely related to the sale portion of the contract than it is to the security portion.”
The Court also noted that the four-year statute of limitations for breaches of contract for a sale of goods originated from Oregon’s codification of Article 2 of the UCC, Or. Rev. Stat. § 72.7250. Oregon applies Article 2 to sales transactions with a security element unless the “collateral is transferred by a debtor to a creditor solely as security.”
Additionally, the Court observed that Or. Rev. Stat. § 71.1030(1)(c) instructs interstate uniformity when interpreting the U.C.C., and that a majority of other states apply the Article 2 statute of limitations for sales of goods to actions to recover deficiency balances after repossession of the goods. Accordingly, the Court held that a four-year statute of limitations applied to the plaintiff’s debt under Oregon law.
Given the plaintiff’s debt was “out-of-statute” at the time the defendant attempted to collect it, the Ninth Circuit held that the defendant’s conduct violated the FDCPA, even though the defendant was unsure of the legal status of the debt during its collection attempts.
However, the Ninth Circuit also concluded that the defendant “may nonetheless be able to avoid liability through the FDCPA’s affirmative defense for bona fide errors. To successfully invoke the defense, a debt collector must show by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. 15 U.S.C. § 1692k(c).”
The Court noted that in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010), the U.S. Supreme Court “adopted the rule announced in Baker [v. G.C. Servs. Corp., 677 F.2d 775 (9th Cir. 1982)] that mistakes about the meaning of the FDCPA itself cannot be bona fide errors,” but “expressly declined to decide whether the defense could encompass mistakes of state law. . .”
The Court explained that “Jerman relied on the presumption that ‘ignorance of the law will not excuse any person, either civilly or criminally.’” However, “the ignorance-of-the-law ‘maxim does not normally apply where a defendant has a mistaken impression concerning the legal effect of some collateral matter and that mistake results in his misunderstanding the full significance of his conduct.’”
The Court concluded that in the matter at hand, the “allegations necessarily implicate a legal element entirely collateral to the FDCPA: the time-barred status of the debt under state law. This collateral legal element falls outside the ignorance-of-the-law maxim described in Jerman.”
Accordingly, the Ninth Circuit concluded that the plaintiff stated a claim for relief under the FDCPA and reversed the trial court’s dismissal of the action, remanding it for further proceedings in which the defendant could assert the bona fide error defense. The Court “express[ed] no opinion on its likelihood of success on such a defense.”
US Supreme Court Adopts Restrictive ATDS Interpretation
Facebook, Inc. v. Duguid, 141 S. Ct. 1163 (2021)
The federal Telephone Consumer Protection Act can no longer apply to devices that do not “us[e] a random or sequential number generator,” according to an April 1 decision from the U.S. Supreme Court. For businesses that use telephone technology that does not use a random or sequential number dialer – and there are many that do not – the Court’s 9-0 ruling in Facebook, Inc. v. Duguid should significantly reduce the risk of TCPA litigation for businesses using telephone technology to call their customers.
The case arose after a consumer received on his cell phone several text messages from Facebook warning him that someone had accessed his Facebook account. The consumer did not have a Facebook account. Facebook believed the consumer was assigned a cell phone number that had once belonged to a customer who requested to receive the notifications. The consumer sued Facebook alleging it violated the TCPA when it stored cellular phone numbers and then used its equipment to send automated messages to him without his consent.
Facebook argued that its text messaging system was not an “automatic telephone dialing system” (ATDS) subject to the TCPA. The trial court agreed and dismissed the case. The Ninth Circuit Court of Appeals reversed, holding that because Facebook’s equipment had the capacity to “store numbers” to be texted and could “dial such numbers automatically” it was an ATDS subject to the TCPA. The Supreme Court reversed the decision of the Court of Appeals finding that the Facebook equipment was not an ATDS because it lacked the capacity “to store or produce telephone numbers . . . using a random or sequential number generator” and to call those numbers.
Although Duguid concerns text messages, it equally applies to calls to cellular phones.
To fall within the TCPA, the call must be made using an ATDS. The TCPA itself provides a definition that would seem to limit its application to equipment which has the capacity “to store or produce telephone numbers to be called, using a random or sequential number generator” and to call those numbers.
Enacted in 1991 with the stated purpose of curtailing robocall solicitations, courts and even the federal agency tasked with TCPA rulemaking – the Federal Communications Commission – gave such broad interpretations to what constitutes an ATDS that at times any type of device, save for a rotary telephone, could be construed to be subject to the TCPA.
Calls made by businesses to their customers were often the target of TCPA lawsuits and because of the expansive interpretations, a business need not have used equipment that used a random or sequential number generator to find itself paying out TCPA awards and settlements. With statutory damages of up to $1,500 per violating call, TCPA litigation was lucrative, especially TCPA class actions.
Under the decision, to come within the ambit of the TCPA, an ATDS must have the capacity to store telephone numbers using a random or sequential number generator or produce telephone numbers using a random or sequential number generator.
Some will argue that the reference to “capacity” leaves open the argument that although the dialed number did not originate from a random or sequential number generator, the equipment still had the capacity to do so and would bring the call within the TCPA.
But, as the decision noted, “Congress’ definition of an autodialer requires that in all cases, whether storing or producing numbers to be called, the equipment in question must use a random or sequential number generator” and “[t]he statutory context confirms that the autodialer definition excludes equipment that does not ‘us[e] a random or sequential number generator.’” “Capacity,” as the decision is using it, is better read to mean the equipment’s present capacity, and not a potential capacity to do so. This leaves businesses and their telephone equipment vendors in a far better position to control TCPA risk.
The absence of “human intervention” is how one line of TCPA case law interpreted an ATDS. Simply put, if a human did not punch a button to initiate the call, the device was construed to be an ATDS subject to the TCPA and the consumer asked the Court to adopt this interpretation.
The Court refused to stretch the TCPA “as malleably” as the consumer would have liked, reasoning that “all devices require some human intervention . . .”
The decision certainly puts an end to the interpretation that the TCPA is triggered by merely storing and dialing numbers automatically. “Expanding the definition of an autodialer to encompass any equipment that merely stores and dials telephone numbers would take a chainsaw to these nuanced problems when Congress meant to use a scalpel,” Justice Sotomayor wrote in delivering the Court’s opinion.
The decision also overrules an earlier decision from the Ninth Circuit Court of Appeals which afforded a broad interpretation to what constitutes an ATDS; namely, equipment that stores and dials telephone numbers. A significant number of cases are still pending in trial and appellate courts that have been awaiting the Duguid decision and we will soon see how it will be applied by a varied number of courts. Expect a good deal of argument concerning the meaning of “capacity.”
3rd Circuit Holds Invitation to Call to “Eliminate Further Collection Action” Did Not Violate FDCPA
Moyer v. Patenaude & Felix, A.P.C., 991 F.3d 466 (3d Cir. 2021)
A consumer failed to pay her credit card debt, and the card issuer hired a debt collector. The debt collector sent the consumer a validation notice that included the information required by the FDCPA, 15 U.S.C. § 1692g(a), and further stated, in part: “If you wish to eliminate further collection action, please contact us at [the debt collector’s phone number].”
Section 1692g(a)(4) requires that the consumer be notified in writing, if not so notified in the initial communication, that if she or he “notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed,” the debt collector will mail the consumer verification of the debt or a copy of a judgment. Section 1692g(b) requires that upon receipt of such a written dispute, a debt collector must cease collection until the verification or copy of a judgment is mailed.
The consumer filed suit alleging the letter was deceptive in violation of § 1692(e)(10) of the FDPCA by indicating “that a phone call was a ‘legally effective’ means of stopping collection activity” when § 1692g requires the consumer’s notification to be in writing to effectuate cessation of collection activities.
The trial court disagreed with the consumer and granted summary judgment in favor of the debt collector, and the consumer appealed.
On appeal, the consumer again argued that the debt collector’s “invitation to ‘eliminate’ collection action through a phone call would deceive a debtor into believing that the call would, by law, require collection efforts to cease.”
The Third Circuit was not persuaded by the consumer’s argument because, while the debt collector did invite the consumer “to call to ‘eliminate’ collection action, [it] never asserted, explicitly or implicitly, that the phone call would, by law, force [the debt collector] to cease its collection efforts.”
The consumer also argued that because the sentence in question was placed above the § 1692g notices, a debtor would be left confused as to whether she should call or write to exercise her rights.
The Third Circuit again disagreed, noting that the consumer saw “confusion where none exists” because the validation notice specifically instructed her “to write to exercise [her] § 1692g rights, leaving no suggestions that a phone call would suffice,” and did “not suggest that [she] could exercise any § 1692g rights over the phone.”
Accordingly, the Third Circuit concluded that the collection letter did not violate the FDCPA, and affirmed summary judgment in favor of the debt collector.