In an unpublished opinion, the Eleventh Circuit applied the Supreme Court’s recent opinion in Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540 (2016) and held that a debtor who allegedly did not receive certain disclosures required by the Fair Debt Collections Practices Act (FDCPA) suffered an injury-in-fact to her statutorily created right to receive such information, and therefore had standing to pursue an FDCPA claim against the entity attempting to collect the debt.
Few issues involving the Fair Debt Collection Practices Act (FDCPA) are more hotly contested than whether filing a proof of claim on a time-barred debt violates the FDCPA. In bankruptcy, creditors have a right to file proofs of claim outlining the debt owed to them by the bankrupt debtor. In some instances, the statute of limitations for filing a lawsuit on that debt has run, and up until July 10, 2014, when the Eleventh Circuit Court of Appeals issued its decision in Crawford v. LVNV Funding, LLC, it was common practice to file a proof of claim on such a time-barred debt. Crawford—for the first time—likened the filing of a proof of claim to the filing of a lawsuit, finding that if one is wrongful, so is the other. After Crawford, debt collectors have faced a tidal wave of cases across the country, raising numerous defenses, one of which is res judicata. The argument goes like this: if a debt collector files a proof of claim to which neither the debtor nor the trustee objects and the court subsequently confirms the debtor’s plan, then a final judgment exists stating the debt is valid. Thus the debtor is barred by res judicata from further challenging the debt.
Despite a chorus of cases adopting this reasoning, the United States District Court for the Southern District of Georgia recently dealt a blow to the res judicata argument, finding that the grounds upon which the FDCPA claim was raised and the grounds upon which the proof of claim was confirmed were not sufficiently similar such that one could foreclose the other. For two years the so-called Crawford cases have raged; circuit splits exist; and this recent decision from the Southern District of Georgia shows that further disagreement is likely. Creditors and debt collectors alike should monitor the development of these cases to ensure they know how their claims will be treated in the bankruptcy courts.
With the Consumer Financial Protection Bureau (“CFPB”) now employing mystery shoppers, financial institutions must ensure that their branches are actually putting non-decimation policies into practice. As we reported here on July 1, BancorpSouth, a Mississippi-based bank, recently entered into a $10.6M settlement with the CFPB regarding alleged redlining in the Memphis market. That investigation was the CFPB’s first use of testing, also called “mystery shopping,” as an investigative tool. This practice, which has long been in use by the Department of Justice and the Department of Housing and Urban Development, involves sending both white and African American individuals into branch offices to determine whether white customers are treated more favorably than African American customers.
More information about the CFPB’s use of mystery shopper’s as well as the redlining settlement can be located here.
Bankruptcy courts are currently divided on whether a debtor has a right to redeem property sold at a tax sale after the redemption period has run. The time for redemption depends on the law of the state where the property is located. In Alabama, for example, the statutory redemption period is three (3) years. Usually, a debtor must redeem by paying the full amount within the redemption period or be time barred. However, recent bankruptcy cases in Pennsylvania allowed debtors to treat tax purchasers as secured creditors, thereby permitting the debtors to pay the redemption amount as a secured claim over the life of a confirmed chapter 13 plan. See In re Gonzalez, Case No. 15-10628 (Bankr. E.D. Pa. May 18, 2016); In re Pittman, Case No. 14-17665 (Bankr. E.D. Pa. May 6, 2016). In these cases, the debtors filed chapter 13 petitions before the right of redemption expired under local law, but confirmation of their chapter 13 plans did not occur until after the redemption period would have expired. The rationale for this treatment is based on the view that a debtor’s right to redeem property after a tax sale resembles a mortgagor / mortgagee relationship with the tax purchaser. The opposing view—expressed by a California bankruptcy judge last year In re Richter, 525 B.R. 735 (Bankr. C.D. Cal. 2015)—is that the right of redemption following a tax sale is an asset of the debtor, rather than a claim. Until this issue is resolved by higher courts, tax sale purchasers should consult the law of their local jurisdiction so that they are not left waiting for years while a Chapter 13 debtor repays the redemption amount.
Last week, the Eleventh Circuit refused to compel arbitration because the defendant financial institution failed to prove that its online deposit agreement actually included an arbitration clause. This decision reflects the importance of (1) documenting the original agreement (both the actual terms and the assent of the consumer), (2) retaining the documentation, (3) documenting any change in terms (and the customer’s assent to them) and (4) carefully proving the existence of these agreements (and the customer’s assent) in Court.
In a case that demonstrates the scope of the Consumer Financial Protection Bureau’s (“CFPB’s”) reach, the CFPB and Department of Justice (“DOJ”) have entered into a settlement with BancorpSouth totaling almost $10,600,000 over alleged redlining. Redlining is the practice of denying services or raising prices to residents of certain geographic areas based upon their racial or ethnic makeup. The term was coined from the practice by lenders of marking in red areas on maps of cities that were not desirable for mortgage loans.
According to the CFPB and DOJ, when BancorpSouth expanded into the Memphis market, it did not build any branches in neighborhoods with large minority populations. Further, nearly all of its loans allegedly originated outside minority neighborhoods. The fine was announced as part of a settlement between BancorpSouth and the government under which, if approved by the court, Bancorp South will provide $4,000,000 in direct loan subsidies in minority neighborhoods, spend at least $800,000 on community programs and minority outreach, pay $2,780,000 to African American customers who were overcharged or denied credit, and pay a $3,000,000 penalty. Although it settled with the government, BancorpSouth did not admit guilt.
In a case sure to encourage more class action filings under Florida’s Unfair and Deceptive Trade Practice Act, the Eleventh Circuit upheld a Florida District Court’s certification of a class of consumers that purchased or leased 2014 Cadillac CTS Sedans in Florida. Carriulo et. al v. General Motors Company, Doc. No. 15-14442 (11th Cir. May 17, 2016) Opinion. The consumers alleged General Motors violated Florida’s Unfair and Deceptive Trade Practices Act by affixing window stickers to the CTS Sedans that claimed the vehicles received five-star safety ratings from the National Highway Traffic and Safety Administration (“NHTSA”). Id. 3-6. Specifically, the stickers represented each CTS Sedan received perfect five-star ratings in driver frontal crash tests, passenger frontal crash tests, and rollover crash tests. Id. But, the NHTSA had not yet rated the CTS Sedan. Id. The NHTSA later rated the CTS Sedan as five-star rated in driver frontal crash and rollover, but only awarded a four-star rating in passenger frontal crash tests. Id.
The consumers argued they incurred damages due to the erroneous stickers. GM argued that the predominance requirement for certifying a class was not met as “the liability question will be highly individualized because the buying and leasing experiences of each proposed class member was not uniform.” Id. p. 11. Specifically, some buyers may not have seen the sticker, may not have relied on it, may not have cared about safety, and each proposed class member’s price negotiation would have been different. Id. The Eleventh Circuit (and the District Court) rejected this argument, noting:
“Because a plaintiff asserting a FDUTPA claim ‘need not show actual reliance on the representation or omission at issue,’ the mental state of each class member is irrelevant. In Davis, the First District Court of Appeal of Florida recognized that the absence of a reliance requirement means ‘the impediment to class litigation that exists for multiple intrinsic fraud claims does not exist’ in FDUTPA cases. Thus, General Motors is incorrect to suggest that the plaintiffs must prove that every class member saw the sticker and was subjectively deceived by it.”
Id. p. 11.
The Eleventh Circuit went on to address damages and causation, holding:
Moreover, because the injury is not determined by the plaintiffs’ subjective reliance on the alleged inaccuracy, causation and damages may also be amenable to class-wide resolution. FDUTPA damages are measured according to ‘the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties.’” Rollins, Inc. v. Heller, 454 So. 2d 580, 585 (Fla. Dist. Ct. App. 1984) (quotation omitted).
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“The plaintiffs may show that a vehicle presented with three perfect safety ratings is more valuable than a vehicle presented with no safety ratings. General Motors received the same benefit of the bargain from the sale or lease to each class member — even if individual class members negotiated different prices — because a vehicle’s market value can be measured objectively.
As the district court recognized here, a manufacturer’s misrepresentation may allow it to command a price premium and to overcharge customers systematically. Even if an individual class member subjectively valued the vehicle equally with or without the accurate  sticker, she could have suffered a loss in negotiating leverage if a vehicle with perfect safety ratings is worth more on the open market. As long as a reasonable customer will pay more for a vehicle with perfect safety ratings, the dealer can hold out for a higher price than he would otherwise accept for a vehicle with no safety ratings.”
Id. pp. 13-15.
GM also argued that since two of the three five-star ratings actually turned out to be true, consumers could not maintain claims as to those ratings. The Eleventh Circuit rejected this argument also, declaring “[a] defendant may not escape FDUTPA liability under Florida law merely because a deceptive or misleading statement later turns out to be true. The injury occurs at the point of sale because the false statement allows the seller to command a premium on the sales price.”
Although this statement begs the question, “if the statement turns out to be true, isn’t a premium price warranted?” the Eleventh Circuit did not address that question– nor did it address the Supreme Court’s Spokeo injury-in-fact requirement.
This decision shows that financial services clients should take FDUPTA class allegations seriously and should brace for the filing of more such claims.
Balch recently authored an article for Law 360 regarding the conundrum the Telephone Consumer Protection Act poses for electric utilities. While their article does not involve the financial industry, it does shed insight on the many problems created by the TCPA. For example, electric utilities are often required by state law to call customers before turning off their electrical service. However, if the utility calls the customer’s cell phone using an autodialer, then the utility could be subject to statutory damages under the TCPA. An industry group has requested further guidance from the Federal Communications Commission about the proper course of action when faced with this scenario. Hopefully, the FCC will exempt such calls from the TCPA’s scope, but that is not guaranteed. As the above example shows, the TCPA can be a difficult statute to navigate, especially as businesses increasingly communicate with their customers exclusively through mobile phones.
The bottom line is this: “Every company in every industry needs to have strong TCPA compliance procedures in place for communicating with customers.” Balch has advised numerous clients both inside and outside the utility industry on how to develop TCPA compliance procedures. If you believe our expertise could benefit your company, please do not hesitate to contact us.
The full text of the article is available here.
The Alabama legislature recently adopted legislation to prevent class actions in federal court under the Alabama Deceptive Trade Practice Act (“ADTPA”). As reported here last summer, the Eleventh Circuit held in Lisk v. Lumber One Wood Preserving LLC, 792 F.3d 1331 (11th Cir. 2015) that the ADTPA’s prohibition on class actions does not apply in federal court. Thus, a private plaintiff could bring a class action under the ADTPA by suing in federal court. Not surprisingly, several plaintiff counsel began bringing these previously unavailable class actions following the Lisk decision.
The CFPB is showing that its enforcement actions are not limited to larger companies and that it will file actions in federal courts across the country. On May 11, 2016, it filed an enforcement action against Mississippi payday lender All American Check Cashing in the United States District Court for the Southern District of Mississippi. In its complaint, the CFPB alleged that all American took steps to hide its fee from customers, going so far as to train its employees to “NEVER TELL THE CUSTOMER THE FEE.” Further, the CFPB alleges that All American took steps to prevent customers who had changed their minds from cancelling transactions. According to the CFPB, these actions would constitute “unfair, deceptive, or abusive acts” under 12 U.S.C.A. ss 5531 and 5536, portions of the Consumer Financial Protection Act.