ATLANTA – The Consumer Financial Services practice at Troutman Sanders LLP has been selected as one of Law360’s 2018 Practice Groups of the Year. The team was recognized in Law360’s Consumer Protection category for excellence in representing and advising clients with respect to high-stakes litigation and regulatory matters, as well as compliance issues. The firm also received the award in 2016.

“We are proud to be recognized as one of Law360’s Consumer Protection Practice Groups of the Year for the second time in three years. Our litigation, regulatory and compliance attorneys remain committed to providing the best service to our clients,” said Michael Lacy, a partner in Troutman Sanders’ Consumer Financial Services practice.

Troutman Sanders’ trial attorneys have litigated thousands of individual and class action lawsuits in the consumer protection area. The firm also provides national, regional and local banks with compliance advice in the areas of consumer credit and consumer protection.

“Clients appreciate our team’s geographic reach and our work and expertise spanning the full spectrum of industry verticals and legal scenarios,” said Ron Raether, a partner in Troutman Sanders’ Consumer Financial Services practice. “We appreciate Law360’s recognition of our team’s achievements.”

Law360 selects winners based on landmark matters and general excellence and this year received a total of 759 submissions. A profile of Troutman Sanders’ Consumer Financial Services practice will appear in Law360 later this month.

About Troutman Sanders
With a diverse practice mix, workforce and footprint, Troutman Sanders has cultivated its reputation for a higher commitment to client care for over 120 years. Ideally positioned to help clients across sectors realize their business goals, the firm’s 650 attorneys transact for growth, resolve mission-threatening disputes and navigate complex legal and regulatory challenges. See troutman.com for more information.

The federal government shutdown continues and, in the wake of the President Donald Trump’s Oval Office address in support of the border wall, it appears that it could continue for some time. Press reports say approximately 800,000 federal workers are furloughed or working without pay. Consumer-facing companies are asking: What is the impact of the shutdown on their regulatory and litigation docket, as well as anticipated regulatory matters?

At a high level, from a consumer protection point of view, the most notable emerging impacts are on the federal judiciary, the U.S. Department of Justice and the Federal Trade Commission; on the other hand, the banking regulators are fully operational and open for business. Here’s a summary of the state of the judiciary and the federal regulatory agencies under the shutdown.

Continue reading the article here.

 

 

A Fair Credit Reporting Act claim by any other name is still an FCRA claim. That’s the recent holding by the Northern District of New York in Arnold v. Navient Sols., LLC. Plaintiffs cannot avoid federal court jurisdiction through “artful pleading” when they assert claims relating to the responsibilities of information furnishers. 

Factual Background 

In 2013, plaintiff John Jay Arnold failed to make payments on three private and one federal student loan. The servicer of his loans, Navient Solutions, LLC, reported the delinquencies to the three major credit reporting agencies (“CRAs”). Arnold settled the private loans for less than the full balance and did not settle the federal loan. Navient then reported the private loans as “paid off but less than the full balance” and continued to report the federal loan as delinquent, noting that the “consumer disputes [the federal loan] account.”  

Due to the derogatory student loan account reporting, Arnold alleged his credit score was negatively affected and claimed that he was denied financing to purchase a home. When Navient refused to change the information reported to the CRAs, Arnold sued in New York’s state trial court, alleging deceptive acts in the conduct of business in violation of New York General Business Law § 349. Navient removed the case to federal court, and Arnold moved for remand back to state court. 

FCRA Preemption 

The Arnold Court held that it had federal question jurisdiction over the action because the FCRA preempted Arnold’s state-law claim. The Court acknowledged that plaintiffs are the masters of their complaint and that they can usually dodge federal court through “artful pleading.” However, Congress can completely preempt areas of state law, and, barring minor exceptions, it did so with respect to claims “relating to the responsibilities of persons who furnish information to [CRAs]” pursuant to 15 U.S.C. § 1681t(b)(1)(F). Because Arnold’s suit was based on Navient’s responsibilities as an information furnisher—namely, its duties to report accurate information and investigate disputed debts—his claims were preempted by the FCRA and, thus, arose under federal law. 

The Second, Fourth, and Seventh circuits have likewise held that the FCRA preempts similar state law claims against furnishers of information to CRAs, as demonstrated in Macpherson v. JPMorgan Chase Bank, N.A., 665 F.3d 45, 47 (2d Cir. 2011); Purcell v. Bank of Am., 659 F.3d 622, 625 (7th Cir. 2011); and Ross v. F.D.I.C., 625 F.3d 808, 813 (4th Cir. 2010). These cases serve as a reminder that, in the context of credit reporting disputes, a suit may be removable even though the plaintiff asserts only state law claims.

Effective January 1, Troutman Sanders promoted 13 attorneys to the partnership, including Virginia Flynn and Ethan Ostroff, two active contributors to the Consumer Financial Services Law Monitor blog. In addition, contributors Mohsin Reza and James Trefil were promoted to counsel, and Kyle Deak was named the managing partner of Troutman Sanders’ Raleigh office. 

Virginia Flynn represents clients in federal and state court, both at the trial and appellate levels in complex litigation and business disputes, healthcarerelated issues, financial services litigation, and consumer litigation. Virginia often counsels clients to ensure they comply with the myriad of growing laws in the consumer law and financial services fields, with an emphasis on the many “alphabet soup” federal consumer protection statutes. 

Ethan Ostroff focuses on financial services litigation and consumer law compliance counseling. He defends consumer-facing companies of all types in individual and class action claims across the country. Ethan’s litigation, compliance, and regulatory practice includes representing debt buyers, debt collectors, loan servicers, banks, auto finance companies, credit card issuers, consumer reporting agencies, and other related consumer finance entities, in particular with the “alphabet soup” of state and federal consumer protection statutes. 

Mohsin Reza focuses on representing financial institutions and other corporate clients in commercial, consumer, and lender liability disputes. Mohsin has significant experience litigating claims brought under federal consumer protection statutes.  

James Trefil represents clients in federal and state court, both at the trial and appellate levels, with a focus on areas of complex litigation, financial services litigation, and consumer litigation. Jim has represented clients within these areas in a wide variety of litigation matters involving class actions, contracts, torts, and federal and state consumer protection laws. 

Kyle Deak, an established partner within the Consumer Financial Services section, has been named managing partner of the Troutman Sanders’ Raleigh office. Kyle succeeds Walter Fisher, who has managed the Raleigh office since 2016 and most recently has overseen its strategic relocation to North Hills. Kyle has extensive experience both serving as the first chair in jury trials and handling appeals in state and federal courts throughout the United States. His practice primarily involves the representation of financial institutions, loan servicers, and mortgage investors in lender liability actions, real property financing disputes, foreclosures, and other commercial disputes.

More than two weeks have passed since the government shutdown began on December 22, 2018, and there is still no immediate end in sight. President Trump has resolved to continue the shutdown for as “long as it takes,” declining to sign spending legislation without the requested $5 billion for the border wall.  Federal governmental entities, including the judiciary, are now facing an uncertain future should the shutdown continue beyond this week.

According to the Administrative Office of the U.S. Courts, the court system has enough money to run through January 11, 2019, by using court fee balances and other funds not dependent on a new appropriation.  But if the shutdown continues past January 11, 2019 and exhausts the federal Judiciary’s resources, courts will have to develop plans for reduced operations, including forcing nonessential workers to stay home while skeleton crews (without pay) handle matters deemed essential under law.

Under such a scenario, criminal cases and other critical cases will likely be prioritized while civil cases may be delayed. Judges will have significant latitude to determine which cases move forward and which are deferred.

Some courts have already begun to issue their directions in anticipation of a prolonged shutdown.  Ruben Castillo, chief judge of the U.S. District Court for the Northern District of Illinois in Chicago, for example, said he is ready to operate a “triage system” if the shutdown extends beyond January 11. “I will have to have a meeting with our court personnel and tell them I won’t be able to pay them. Then we’ll have to shut down civil trials,’’ Judge Castillo said.

Other courts, such as the United States District Court for the Western District of Kentucky and United States District Court in the Southern District of West Virginia, have issued sua sponte general orders holding in abeyance any civil matters involving the government as a party to “avoid any default or prejudice to the United States or other civil litigants occasioned by the lapse in funding.”  But specific judges within those District Courts, including Joseph R. Goodwin in Western Virginia, issued orders exempting their cases from the first judge’s order. Judge Goodwin wrote: “It is my view that the government should not be given special influence or accommodation in cases where such special considerations are unavailable to other litigants.”

Still other courts are taking a “wait-and-see” approach.  The chief judge of the United States District Court for the Eastern District of California, for instance, is expected to issue an order detailing the scope of operations under lapsed appropriations if the shutdown continues past January 11.

In sum, the shutdown appears likely to create a complex, court-by-court or even judge-by-judge response. The shutdown could consequently cause confusion and a patchwork of differing and conflicting orders among the courts. The main general impact may be felt on civil matters, and those functions that require involvement by court staff, such as trials, hearings and some clerk’s office functions. However, absent intervening court orders, functions not requiring human attention, such as execution by parties of deadlines by non-filed discovery papers or filing papers through PACER, may not be impacted at all.

While we wait five more days to see if the government can resolve its differences, parties should take steps now to research any applicable orders and directions that may impact their pending litigation on a court-by-court or even judge-by-judge basis. Parties will then be best prepared to address the circumstances they may face should the shutdown continue after the federal judiciary runs out of money.

In December, Judge Robert D. Mariani denied Navient’s motion to dismiss a lawsuit filed by the Commonwealth of Pennsylvania, ruling that the suit is not pre-empted by a similar case filed against the company by the Consumer Financial Protection Bureau.  In the suit, the Commonwealth seeks to hold Navient liable for student loan collection activity that allegedly harmed borrowers both in Pennsylvania and nationwide.

Specifically, the Commonwealth alleges that Navient committed a variety of abusive practices in violation of the Consumer Financial Protection Act (“CFPA”) and Pennsylvania’s unfair trade practices and consumer protection law (“CPL”).  The Commonwealth’s case is similar to a parallel action pending in the same court involving the CFPB.  The motion to dismiss claimed that the Commonwealth’s complaint is “essentially cut and pasted from the CFPB’s long ago filed complaint.” But the judge, in denying the motion, rejected Navient’s argument that the Commonwealth’s action is merely a “copycat” of the CFPB suit that “unnecessarily burden[s] the courts and parties, and would risk generating inconsistent rulings across the country.”

“While Navient’s arguments are creative, they do not convince the Court that the CFPA prohibits concurrent state enforcement actions,” wrote Judge Mariani.  “Following Navient’s position would require the Court to accept an amalgam of tenuous postulates regarding several provisions of the CFPA and a strained reading of the plain text of the statute.”  Because concurrent enforcement actions are barred in other areas of the CFPA, but not in the section relevant to this particular case, “applying the canon of statutory interpretation [holding that where Congress includes language in one section but omits it in another, it is presumed Congress acts intentionally] is particularly appropriate.”  The Court also ruled that other federal statutes – the Truth in Lending Act and Higher Education Act – do not pre-empt the Commonwealth’s claims.

The opinion marks the latest development in a years-long battle among the federal government, states, and student loan companies over whether and how states can regulate the firms, which are also contractors of the Department of Education.  Navient, a Delaware-based student loan management company and formerly a part of Sallie Mae, is facing similar suits in other states, including Illinois, California, Mississippi, and Washington.  Navient’s motion to dismiss the Illinois Attorney General’s suit (based on the same preemption argument) was denied in July.

In early 2018, Secretary of Education Betsy DeVos issued a memo backing student loan servicers.  In the memo, the Department maintains that state rules and regulations aimed at greater consumer protection undermine the federal government’s goal of a single streamlined federal loan program.  State attorneys general have accused the Department of Education of rolling back protections for borrowers for some time now—a coalition of thirty attorneys general recently formed in opposition to portions of the Higher Education Act reauthorization, also known as the PROSPER Act.  States likely will continue to pursue similar claims against Navient in light of the recent rulings against preemption in this context.

The United States District Court for the Northern District of Illinois recently denied a plaintiff’s motion for class certification on a Fair Debt Collection Practices Act claim, ruling that he had failed to establish that he was an adequate class representative.  This decision illustrates that a plaintiff must meet all factors to certify a class action – even in cases dealing with standard debt collection letters.

Plaintiff Jose Luis Ocampo filed a putative FDCPA class action against GC Services Limited Partnership, alleging that the initial debt collection letter sent to him did not properly state the amount of debt owed, in violation of 15 U.S.C. § 1692g.  He also claimed that the letter contained false and misleading statements in violation of 15 U.S.C. § 1692e.  The putative class action complaint sought to include all residents of Illinois who received a similar letter from GC Services.

The Court, however, found that Ocampo was not an adequate class representative based on the record before it and, therefore, declined to certify a class.  Importantly, the Court found—and Ocampo’s deposition testimony showed—that Ocampo:

(i) did not appear to know what a class action is:

“Q: Do you know what a class action is?  A: Yeah.  Q: What is it?  A:  I’m not sure exactly, like everything and so … .  Q: Can you give me any description at all?  A: It’s to fix a problem.  Q: Anything else?  A: Sorry.”

(ii) did not know what a class representative is or the duties he owed to the class as a class representative:

“Q: Do you know what the phrase ‘class representative means?  A: No.  Q: Can you tell me what you believe your responsibilities are as a class representative?  A. No 

(iii) could not articulate why the complaint was filed:

“Q: Why did you file this lawsuit?  A: I’m not sure.”

(iv) did not understand the legal basis of his claim:

“Q: Do you know what the FDCPA is?  A: No.”

(v) testified that he was unwilling to bear financial burdens to proceed as a class representative: 

“Q: Are you willing to bear the financial burdens to proceed as the class representative in this lawsuit?  A: No.”

The Court found that Ocampo had satisfied all of the other requirements to certify a class, but ultimately declined to certify the class on the basis that Ocampo was not an adequate class representative.  Nonetheless, the Court has allowed Ocampo to file supplemental briefing regarding the legality of substituting the named plaintiff to cure the adequacy defect.  Ocampo has until January 7 to brief the issue.

Your diet and fitness goals are not the only things scheduled to change come the New Year.  On April 10, 2018, Iowa Governor Kim Reynolds signed Senate File 2177, which modified provisions applicable to consumer security freezes and personal information security breach protection.  The Act, which goes into full effect on January 1, was proposed by the Iowa Attorney General’s office as well as state legislators to address certain changes in technology.

With respect to consumer security freezes, S.F. 2177:

  • eliminates the requirement for consumers to submit requests for security freezes through certified mail, and instead allows for such requests to be submitted by mail, telephone, email, or through a secure online connection;
  • requires consumer reporting agencies (“CRAs”) to commence security freezes within three business days after receiving a request, as opposed to the previous five days;
  • requires CRAs to identify for consumers, under certain circumstances, any other “consumer reporting agency that compiles and maintains files on consumers on a nationwide basis” (as defined by section 1681a(p) of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq.), and inform them of appropriate contact information that would permit the consumer to place, lift, or remove a security freeze from such other CRA; and
  • prohibits CRAs from charging a fee for placing, removing, temporarily suspending, or reinstating a security freeze.

CRAs will want to ensure their processes and procedures have been updated to account for such changes, and that employees have been trained to comply with them.

As noted above, S.F. 2177 also modified Iowa’s personal information security breach protection statute. Those changes, however, went into effect July 1, 2018, and include the following:

  • The definition of “encryption” was modified to mean only those certain algorithmic processes that meet accepted industry standards.
  • The Act clarified that the law does not apply to businesses that are subject to and comply with the Health Insurance Portability and Accountability Act of 1996, or “HIPAA.”
  • The Act now requires notification of a security breach to the Iowa Attorney General within five business days after giving notice of the breach of security to any consumer.

Companies tracking data breach notification requirements as part of their incident response plans, policies, and procedures should ensure their materials have been updated to account for such changes.

 

What is a sufficient disclaimer regarding the statute of limitations on time-barred debt?  Courts across the country continue to wrestle with this question in a variety of contexts, including oral disclosures made to consumers over the phone.  In Jones v. Synergetic Communications, Inc., the U.S. District Court for the Southern District of California dismissed plaintiff Stephen Jones’ claims that Synergetic’s disclaimer was misleading, finding that Jones had not plausibly alleged a violation of the Fair Debt Collection Practices Act.

Jones allegedly incurred a debt of $691.60 to AT&T Mobility.  Synergetic was contracted to attempt to collect the debt after Jones defaulted on his obligation.  Synergetic sent Jones a letter offering to “settle” the debt at a discounted amount of $276.64.  Because the statute of limitations had run, in the final sentence of the letter, Synergetic stated: “The law limits how long you can be sued on a debt.  Because of the age of your debt, the creditor listed on the debt will not sue you for it … .

Jones filed a class action lawsuit against Synergetic claiming that the offer to “settle” a time-barred debt violated the FDCPA because it would be deceptive and misleading to the least sophisticated consumer.  The court rejected Jones’ claim.

Jones argued that the disclaimer language stating that Synergetic “will not sue” was misleading because it implied that Synergetic had decided not to sue instead of Synergetic being prohibited from suing due to the debt being beyond the statute of limitations.  Jones relied on the Seventh Circuit case Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017) and its progeny. 

However, the Court distinguished Pantoja as inapposite because in that case the collection letter omitted the first part of the disclaimer and only including the second sentence.  Further, the Court looked at the letter’s language and found that the disclaimer explicitly explained that the statute of limitations had run when it stated that “[t]he law limits how long you can be sued on a debt.”

While it did not explicitly defer to an agency interpretation, the Court also noted that both the Consumer Financial Protection Bureau and the Federal Trade Commission the two agencies tasked with enforcing the FDCPA – have required debt collectors, in publicly filed consent decrees, to use the very same language that Synergetic used in the letter to Jones. 

Having evaluated the complete language of the disclaimer, the Court concluded that the letter could not have been misleading to the least sophisticated consumer, and thus such claims must be dismissed. 

This is a significant victory for the debt collection industry and describes a growing trend of district courts distinguishing the Pantoja holding as inapposite to situations in which the debt collector has included both sentences of the disclaimer.  Further, it demonstrates that courts are willing to dismiss such statute of limitations disclaimer claims on a motion to dismiss because such claims are meritless as a matter of law.  Troutman Sanders will continue to monitor this developing area of the law.

A New Jersey district court allowed a Fair Credit Reporting Act claim past the pleading stage, denying the defendant credit reporting agency’s motion for judgment on the pleadings despite its claims that the plaintiff failed to plead facts sufficient to establish a claim under the FCRA because the alleged information reported was, in fact, accurate.

The action centered on the credit reporting agency’s (or CRA’s) reporting of a mortgage for a home that was jointly owned by plaintiff Marina Radley and her ex-husband.  Following dissolution of the marriage in 2013, Radley and her ex-husband entered into an agreement whereby the ex-husband took ownership of the home and would indemnify her against liability for mortgage payments.  Radley thereafter had no ownership interest in the property.  Defendant Equifax Information Services LLC continued to report the mortgage on her credit reports, which Radley thereafter disputed.  At issue was whether Radley had alleged sufficient grounds to plead a FCRA violation where the alleged inaccurate information reported by Equifax was technically correct but may nevertheless be “inaccurate” pursuant to the FCRA.

The Court agreed with Radley’s contention that, at the pleading stage, she does not have to prove that the reported information is, in fact, inaccurate.  Under 15 U.S.C § 1681e(b), a CRA “shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom” a report relates.  “Maximum possible accuracy” signifies that a report may be inaccurate not only when it is patently incorrect, but when it is misleading in such a way and to such an extent that it can be expected to have an adverse effect.  Accordingly, a consumer report that contains technically accurate information may be deemed “inaccurate” if the statement is presented in such a way that it creates a misleading impression.

On these grounds, the Court found that Radley was not required to prove that the reported information was in fact inaccurate at the pleading stage.  Rather, because she alleged that the reported information was the responsibility of her ex-husband, she had set forth facts sufficient to support her contention that the reported information was misleading, or otherwise not as complete as it could have been.  Therefore, whether the information was “inaccurate” under the FCRA was a question of fact, and Equifax was not entitled to judgment on the pleadings.

The New Jersey District Court decision confirms CRAs’ duties to not only report accurate information, but also to avoid reporting information that creates a misleading impression.  We will continue to monitor and report on developments involving the responsibilities of CRAs, furnishers, and users under the FCRA.