In A-1 Premium Acceptance, Inc. v. Hunter, the Missouri Supreme Court upheld the circuit court’s order denying counterclaim defendant A-1’s motion to compel arbitration because the plain language of the consumer arbitration agreement limited the arbitrator to the National Arbitration Forum (NAF).  After the parties executed the arbitration agreement, NAF entered into a consent decree with the Minnesota Attorney General requiring NAF immediately to stop providing arbitration services for consumer claims nationwide.

The parties’ arbitration agreement stated that claims “shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure then in effect.”  The applicable Code of Procedure provides that only NAP may administer the Code.  Thus, even though the arbitration agreement did not expressly state that arbitration can proceed “only” before NAF, the Court explained that the parties agreed to arbitrate only before NAF because the language identifying NAF was coupled with the reference to a Code of Procedure that mandates only NAF can administer the Code.  The fact that A-1 drafted the agreement and could have included language contemplating the unavailability of NAF precludes any inference that the parties intended to arbitrate before another arbitrator in the event NAF became unavailable.  Accordingly, the Court ruled the parties had agreed to arbitrate “before NAF and no other arbitrator.”

The Missouri Supreme Court’s decision in A-1 Premium may have far-reaching implications for lenders based on NAF’s agreement to withdraw from arbitration services for consumer claims nationwide.  As the Court noted, however, courts are split on whether NAF’s unavailability renders an arbitration agreement unenforceable.

The Bureau of Consumer Financial Protection has continued its series of guidelines specifically addressing servicemembers’ purchases of automobiles.  Recent posts on the Bureau’s blog have provided advice for servicemembers on shopping for auto financing, options for buying new cars versus used cars, as well as recommendations on how to trade in a vehicle.

With regard to auto finance, the BCFP advises servicemembers to shop around for financing terms rather than only considering the financing options offered by dealerships.  Instead, the BCFP suggests that servicemembers contact multiple banks and credit unions, and that they ask about specific military discounts that might be available.  The BCFP also highlights the importance of the annual percentage rate and the length of financing available.

In the new versus used car debate, the BCFP suggests that servicemembers consider buying a used car rather than new.  The BCFP outlined the following factors to consider before buying:

  • How a vehicle responds under varied road conditions;
  • Researching the availability of Certified Pre-Owned (“CPO”) vehicles;
  • The vehicle’s maintenance record;
  • The value of the vehicle based on the Kelley Blue Book, Consumer Reports, and the National Automobile Dealers Association’s guides;
  • Upkeep costs; and
  • Unrepaired recalls.

The BCFP also encourages buyers to rely on the Buyers Guide, required under the FTC’s Used Car Rule.  Notably, the FTC recently updated the Buyers Guide and mandates that all used motor vehicles display the form.  Additionally, the BCFP encourages any servicemember who plans to buy a new car to shop around, negotiate on price, and order a car if a dealership does not have a car that meets their needs.

Finally, for those who intend to trade in their vehicles, the BCFP advises servicemembers to know the value of their cars, noting that dealerships are open to negotiating a trade-in value.  However, the BCFP cautions against trade-ins where a servicemember has negative equity, recommending that they consider postponing purchases until they are in a positive equity position or consider selling their vehicles themselves.  For those members of the military who decide to proceed with a negative equity trade-in, the BCFP suggests that they ask how negative equity would affect their financing and to keep the length of the new financing term as short as possible

Last month, Troutman Sanders reported on the proposed TRACED Act which would instruct the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.  FCC Chairman Ajit Pai tweeted his approval for the bill, but the FCC is not waiting on Congress to fight robocalls.  On November 21, it released its final report and order on creating a reassigned numbers database.

According to the FCC’s press release, the final draft of the report and order would create a comprehensive database to enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number, thereby helping to protect consumers with reassigned numbers from receiving unwanted robocalls.

More specifically, this proposal changes the existing federal regulatory scheme by:

  • Establishing a single, comprehensive reassigned numbers database that will enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number;
  • Establishing a minimum aging period of 45 days before permanently disconnected telephone numbers can be reassigned;
  • Requiring that voice providers that receive North American Numbering Plan numbers and the Toll Free Numbering Administrator report on a monthly basis information regarding permanently disconnected numbers; and
  • Selecting an independent third-party administrator, using a competitive bidding process, to manage the reassigned numbers database.

Pai announced the items tentatively included on the agenda for the December Open Commission Meeting scheduled for Wednesday, December 12. Considering that robocalls are the number one basis of complaints filed with the FCC and the speed in which the issue has been addressed, it will come as no surprise if the proposal is passed at the meeting.

Troutman Sanders will continue to monitor this and related FCC’s rulemaking decisions.

In an ominous sign, Americans’ total debt hit another record high, rising to $13.5 trillion in the last quarter, as student loan delinquencies jumped, according to Reuters. Specifically, flows of student debt into serious delinquency of 90 or more days rose to 9.1 percent in the third quarter from 8.6 percent in the previous quarter, reported the Federal Reserve Bank of New York, propelling the biggest jump in the overall U.S. delinquency rate in seven years.  

Total household debt, driven by $9.1 trillion in mortgages, now stands $837 billion higher than its previous peak in 2008, just as the Great Recession took hold and induced massive deleveraging across the United States. In fact, indebtedness has risen steadily for more than four years and sits more than 21% above its 2013 low point, and the $219 billion rise in total debt in the quarter that ended on September 30 amounts to the biggest jump since 2016. 

“The new charts in our report help to better understand how the debt and repayment landscape have shifted in the years following the Great Recession,” Donghoon Lee, research officer at the New York Fed, announced in a press release published on November 16. “Older borrowers now hold a larger share of total outstanding debt balances, while the shares held by younger borrowers have contracted and shifted toward auto loans and student loans.”

As Congress’ emboldened majority has sought to lessen the federal government’s regulatory footprint, the states have not always been quiet, as one summertime example amply shows.

In 2017, two congressmen introduced two bills which, if enacted, would expand the scope of federal preemption to include non-bank entities. Introduced by Rep. Patrick McHenry (R-N.C.), the first of these two bills – the Protecting Consumers’ Access to Credit Act of 2017 (HR 3299) – states that bank loans with a valid rate when made will remain valid with respect to that rate, regardless of whether a bank has subsequently sold or assigned the loan to a third party. A second bill known as the Modernizing Credit Opportunities Act of 2017 (HR 4439), championed by Rep. Trey Hollingsworth (R-Ind.), strives “to clarify that the role of the insured depository institution as lender and the location of an insured depository institution under applicable law are not affected by any contract between the institution and a third-party service provider.” Perhaps most significantly, it would establish federal preemption of state usury laws as to any loan to which an insured depository institution is the party, regardless of any subsequent assignments. In so doing, both bills amend provisions of the Home Owners’ Loan Act, Federal Credit Union Act, and/or Federal Deposit Insurance Act. Such an amendment would invalidate a long-line of judicial precedent barring a non-bank buyer’s ability to purchase a national bank’s right to preempt state usury law, which culminated in the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC, and thereby provide non-originating creditors with a potent – and until now nonexistent – shield against liability under certain state consumer laws.

On June 27, 2018, the attorneys general of twenty states[1] and the District of Columbia stated their opposition to both bills in a letter to Congressional leadership. Beginning with an historically accurate observation – “[t]he states have long held primary responsibility for protecting American consumers from abuse in the marketplace” – the A.G.s attacked these legislative efforts as likely to “allow non-bank lenders to sidestep state usury laws and charge excessive interest that would otherwise be illegal under state law.” The cudgel of preemption, they warned, would “undermine” their ability to enforce their own consumer protection laws. The A.G.s went on to argue many non-bank lenders “contract with banks to use the banks’ names on loan documents in an attempt to cloak themselves with the banks’ right to preempt state usury limits”; indeed, “[t]he loans provided pursuant to these agreements are typically funded and immediately purchased by the non-bank lenders, which conduct all marketing, underwriting, and servicing of the loans.” For their small role, the banks “receive only a small fee,” with the “lion’s share of profits belong[ing] to the non-bank entities.” In support of this position, the A.G.s cite to a 2002 press release by the Office of the Comptroller of the Currency (“OCC”) and the more recent OCC Bulletin 2018-14 on small dollar lending, the latter announcing the OCC’s “unfavorabl[e]” view of “an[y] entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).

The A.G.s concluded by arguing that the proposed legislation would erode an “important sphere of state regulation,” state usury laws having “long served an important consumer protection function in America.”

We will continue to monitor this legislation and other developments in the preemption arena, and will report on any further developments.


[1] The signatories come from California, Colorado, Hawaii, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Washington.

On November 16, Sen. John Thune (R-S.D.), the current chairman of the Senate Commerce Committee, and Ed Markey (D-Mass.), a member of the committee and the author of the Telephone Consumer Protection Act, unveiled the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (“TRACED Act”). Among other things, this bill would require carriers to eventually implement “an appropriate and effective call authentication framework” and instructs the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.

According to its proponents, an “ever increasing number … of robocall scams” prompted this bill. Indeed, one report touted by Markey estimated the number of spam calls will grow from 29% of all phone calls this year to 45% of all calls next year.

In its current form, the TRACED Act gives regulators more time to find scammers, increases civil forfeiture penalties for those caught, promotes call authentication and blocking adoption, and brings relevant federal agencies and state attorneys general together to address impediments to criminal prosecution of robocallers who intentionally flout laws.

More specifically, this act makes the following changes to the existing federal regulatory scheme:

  • Broadens the authority of the FCC to levy civil penalties of up to $10,000 per call for those who intentionally violate telemarketing restrictions.
  • Extends the window for the FCC to catch and take civil enforcement action against intentional violations to three years after a robocall is placed. Under current law, the FCC has only one year to do so. The FCC has told the committee that “even a one-year longer statute of limitations for enforcement” would improve enforcement against willful violators.
  • Brings together the Department of Justice, FCC, Federal Trade Commission, Department of Commerce, Department of State, Department of Homeland Security, the Consumer Financial Protection Bureau, and other relevant federal agencies, as well as state attorneys general and other non-federal entities, to identify and report to Congress on improving deterrence and criminal prosecution at the federal and state level of robocall scams.
  • Requires providers of voice services to adopt call authentication technologies, enabling a telephone carrier to authenticate consumers’ phone numbers prior to initiating any call.
  • Directs the FCC to initiate a rulemaking to help protect subscribers from receiving unwanted calls or texts from callers using unauthenticated numbers.

Announcing the TRACED Act, neither senator minced their words. “The TRACED Act targets robocall scams and other intentional violations of telemarketing laws so that when authorities do catch violators, they can be held accountable,” Thune said in a statement. He continued: “Existing civil penalty rules were designed to impose penalties on lawful telemarketers who make mistakes. This enforcement regime is totally inadequate for scam artists and we need do more to separate enforcement of carelessness and other mistakes from more sinister actors.” Markey added: “As the scourge of spoofed calls and robocalls reaches epidemic levels, the bipartisan TRACED Act will provide every person with a phone much needed relief. It’s a simple formula: call authentication, blocking, and enforcement, and this bill achieves all three.”

Troutman Sanders will continue to monitor this and related legislative proposals.

The Seventh Circuit Court of Appeals has affirmed summary judgment in a recent Fair Debt Collection Practices Act case where the plaintiff alleged that a repossession company demanded payment before she would be allowed to recover personal property left in the vehicle.  The Court held that the plaintiff’s testimony did not create a genuine dispute of fact when compared to documentary evidence showing the alleged payment demanded was in fact an administrative fee paid by the lender. 

The case, Duncan v. Asset Recovery Specialists, Inc. et al., No. 17-2598 (7th Cir. Oct. 31, 2018), arose after plaintiff Danelle Duncan’s vehicle was repossessed by Asset Recovery Specialists, Inc. (“ARS”).  Unable to satisfy the outstanding debt on the loan, Duncan contacted her lender to recover personal property that was left in the vehicle.  This led to communications with ARS, during which Duncan alleged the president of ARS informed her she would have to pay $100 before she could retrieve the personal items.  Duncan then met with ARS in its offices where she claims she was presented with an “assessment fee” form stating she would have to pay the $100, and that she considered it to be a demand to repay her car loan.  

ARS refuted Duncan’s account of events, arguing that the $100 charge was an administrative fee that the lender had already agreed to pay, and that the form she was presented with was simply a receipt for her to sign, acknowledging she had recovered the property.  During discovery, the document in question was produced.  Entitled “Receipt for Redeeming Personal Property,” the document described the $100 charge as a “Handling Fee” and contained handwritten notes stating that the fee had been billed to the lender. 

The district court granted summary judgment for the defendants, concluding that Duncan had failed to produce any evidence refuting the document produced by ARS.  The district court also held that, even if the money had been demanded, as Duncan alleged, there was no evidence to suggest it was anything other than an administrative fee assessed by ARS.  

On appeal, Duncan argued that her testimony was enough to raise a factual question of whether ARS was working on behalf of the lender to collect $100 to apply toward the defaulted loan. The Court of Appeals disagreed, holding that the unrefuted documentary evidence demonstrated the $100 was a handling fee assessed by ARS.  Even with Duncan’s testimony, the Court stated “There is no way on this record to view the handling fee as some sort of masked demand for a principal payment.”  The appellate court also held that, even accepting there was some verbal demand for payment from ARS, Duncan’s testimony was not sufficient to create a fact dispute over whether that demand was made on behalf of the lender.  

This case highlights the challenges lenders and debt collectors face in lawsuits based solely on plaintiffs’ own testimony and perceptions.  While summary judgment was upheld here, the same is not always true in other courts around the country.  To that end, the case demonstrates the value of creating and retaining records that unambiguously describe fees assessed for administrative tasks as opposed to regular loan payments.  As seen here, there is great benefit to letting the documents speak for themselves.

The Northern District of Illinois recently held that a collection letter sent to a consumer’s attorney seeking payment on a debt discharged in bankruptcy did not violate the Fair Debt Collection Practices Act based on the “competent lawyer” standard.  The case is Grajny v. Credit Control, LLC, No. 18-C-2719, 2018 U.S. Dist. LEXIS 173682, 2018 WL 4905019 (N.D. Ill. Oct. 9, 2018).

After plaintiff Halina Grajny obtained a bankruptcy discharge, Credit Control, LLC sent a collection letter to her bankruptcy attorney regarding a debt discharged in the bankruptcy.  The letter stated that it was “from a debt collector” and was “an attempt to collect a debt.”  The letter further stated that unless Grajny disputed the validity of the debt, it would be “assumed . . . valid,” and directed her to pay the balance of her debt.

Grajny filed suit, alleging violation of the FDCPA, codified at 15 U.S.C. 1692, et seq., by (1) misrepresenting the “character, amount, or legal status” of the debt (§ 1692e(2)); (2) using “false representations” or “deceptive means” (§ 1692e(10)); (3) engaging in “unfair or unconscionable means” (§ 1692f); and (4) using “false, deceptive, or misleading” methods (§ 1692e).  Credit Control moved to dismiss for failure to state a claim.

The Court noted at the outset that, in evaluating potential FDCPA violations, communications to an attorney are reviewed under a different standard than those sent directly to a consumer.  Specifically, with regard to an alleged false, deceptive, or misleading representation to a consumer’s attorney, the relevant inquiry is “whether a competent attorney, even if she is not a specialist in consumer debt law, would be deceived by” the subject collection letter.

Based on this standard, the Court found that Grajny failed to state a claim under the FDCPA because “[a] competent attorney that represents a plaintiff in a bankruptcy proceeding would not be deceived by a letter seeking to collect a debt that was discharged in the same bankruptcy proceeding.”

Despite two controlling decisions by the Second Circuit in Avila and Taylor, claims involving the “amount of debt” disclosure under the Fair Debt Collection Practices Act (“FDCPA”) continue to evolve thanks to the relentless efforts by the New York plaintiffs’ bar.  But these permutations of the “amount of debt” claims continue to be successfully pushed back by defendants.  In a recent ruling, the United States District Court for the Eastern District of New York granted summary judgment in a debt collector’s favor and held that the collector was not required to disclose that the balance could increase due to a prospective award of costs in a state court action.  A link to the decision can be found here.

Defendant Selip & Stylianou, LLP sent consumer plaintiff James Stewart a letter advising him that it was initiating a lawsuit in state court to collect an outstanding debt with a balance of $3,182.84.  The letter also advised Stewart that the legal documents had already been filed.  The complaint in the state court action sought costs associated with the lawsuit, but the letter did not disclose that the balance could increase due to such costs.  Stewart sued the debt collector, claiming that the letter was false and misleading since it failed to disclose the potentially increasing nature of the outstanding balance.

On summary judgment, Selip & Stylianou submitted an affidavit demonstrating that the amount of debt was static because no interest or fees accrued on the debt.  The affidavit further explained, “Only if legal action is commenced against a consumer does [creditor] seek actual disbursements incurred associated with any lawsuit, and even then only upon entry of judgment and only for the amount awarded in the judgment entered by the court.”  Despite this sworn explanation, Stewart still argued that, because Selip & Stylianou was seeking costs incurred in prosecuting the state court action, the payment of the full amount disclosed on the face of the letter would have not satisfied the debt and the balance was thus not static.  The Court disagreed and found that the balance remained static “even after the commencement of the [s]tate [c]ourt [a]ction because costs had not been awarded, and in fact, might never be awarded.”  The Court also pointed out that subsequent letters which stated the same balance further undermined Stewart’s claims and that summary judgment in Selip & Stylianou’s favor was appropriate.

“Amount of debt” claims remain risky because an outstanding balance is listed in every collection letter and periodic compliance review is crucial due to the rapidly evolving precedent.  Troutman Sanders will continue to monitor this line of cases.

Citing Seventh Circuit precedent, the Eastern District of Wisconsin recently held the broad scope of the Fair Credit Reporting Act’s permissible purpose includes use that disregards an attempted restriction requested by the consumer.

In Long v. Bergstrom Victory Lane, Inc., No. 18-cv-688, 2018 WL 4829192 (E.D. Wis. Oct. 4, 2018), consumer Emily Long alleged that automotive dealer Bergstrom Victory Lane violated the FCRA and state law by disregarding the limitations she requested in connection with her auto finance application.

Long claims she visited the dealership with pre-qualified financing already arranged from a specified lender. Long allegedly told the dealer’s employee about her pre-qualification and advised them that she only granted permission to run her credit report for use with her specific lender and no other entity. Despite allegedly agreeing to Long’s request, the dealer submitted her credit application to multiple other companies. Long claimed the dealer intentionally disregarded the restricted scope of authority she provided and therefore used her credit application for an impermissible purpose in violation of the FCRA. She asserted that the dealer’s conduct caused her to suffer emotional distress.

Section 1681b of the FCRA details permissible purposes for obtaining and using consumer credit reports. In reaching its decision, the Court relied upon one such permissible purpose, section 1681b(a)(3)(A), which authorizes a consumer report to be provided by a consumer credit reporting agency when a person “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.”

The Court held that Bergstrom Victory Lane acted within the scope of the permissible purpose granted by Long. Specifically, section 1681b(a)(3)(A) granted the “authority to search out lenders for Long so that she could obtain financing for a vehicle—a statutorily-defined permissible purpose.” The Court explained the permissible purpose was not violated, despite Long’s attempts to restrict her authority to a specific lender because “[u]nder the FRCA, a business does not require the consent of the potential customer, so long as it has a statutorily defined ‘permissible purpose.’” Therefore, the Court ruled the dealer acted with a permissible purpose and did not violate the FCRA and, as such, Long’s FCRA claim was dismissed.