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In light of recent challenges to the Telephone Consumer Protection Act on First Amendment grounds, a recent decision from the Middle District of Florida provides yet another clear example of the TCPA’s content-based discrimination.    

The case, Gaza v. Navient Solutions LLC, No. 8:18-cv-1049, concerned calls made to a cell phone to collect a student loan debt.  The plaintiff, Jason Gaza, had taken out two federal student loans which were serviced by defendant, Navient Solutions LLC.  Although the promissory note explicitly allowed for debt collection calls to his cell phone, Gaza had sent a written revocation of consent.  After Navient continued to call his cell phone to collect the debt, Gaza filed suit.  

Navient moved for summary judgment, arguing that the calls were exempt from the TCPA because they were made to collect on a loan owed to the United States Government – in this case, the Department of Education.  The Court agreed, citing the plain statutory language of the TCPA which prohibits calls using “any automatic telephone dialing system or an artificial or prerecorded voice . . . [to a cell phone] . . . unless such call is made solely to collect a debt owed to or guaranteed by the United States.”  See 47 U.S.C. § 227(b)(1)(A)(iii). 

The decision highlights the treatment of the TCPA as a content-based statute as opposed to a relationship-based one.  Indeed, at its inception, the TCPA was designed to discourage contact with consumers by telemarketers and other spammers.  However, regulatory interpretation and enforcement has shifted from shielding consumers from unwanted telemarketing calls towards treating the TCPA as a prohibition on content (i.e., debt collection for which consent has not been given) regardless of the pre-existing relationship between consumer and creditor, creating convenient statutory carve-outs for debt collection done on behalf of the United States Government (added in 2015 to alleviate the burden the TCPA places on debt collectors).  This content-based approach – the government-backed exemption specifically – is being challenged on First Amendment grounds, with the Ninth Circuit recently hearing oral arguments on the issue in Gallion v. Charter Communications.   

Time will tell if companies seeking to collect debts from their customers find the same relief the U.S. Government provided itself with the government-backed exemption.  In the meantime, follow our blog as Troutman Sanders will continue to monitor and provide updates on developments under the TCPA and other financial services matters.

On February 28, Senators Elizabeth Warren (D-Mass.) and Marco Rubio (R-Fla.) re-introduced the Protecting Job Opportunities for Borrowers (“Protecting JOBs”) Act (S.609).  The legislation would prevent states from suspending, revoking, or denying state professional, teaching, or driver’s licenses solely because a borrower falls behind on their federal student loan payments.

Government entities may seize state-issued professional licenses from residents who default on their educational loans in 19 states.  A 2017 New York Times investigation identified at least 8,700 cases in which licenses were revoked or at risk of suspension in recent years.

In a press release, Senator Warren explained, “We shouldn’t punish people struggling to pay back their student loans by taking away their drivers’ or professional licenses, preventing them from going to work and making a living.  Our bipartisan bill removes these senseless roadblocks so that borrowers can build better financial futures.”

Senator Rubio added, “It is wrong to threaten a borrower’s livelihood by rescinding a professional license from those who are struggling to repay student loans, and it deprives hardworking Americans of dignified work.  Our bill fixes this ‘catch-22’ and ensures that borrowers are able to continue working to pay off their loans, instead of being caught in a modern-day debtors prison.”

If enacted, the Protecting JOBs Act would:

  • Prevent states from denying, suspending, or revoking:
    • state-issued driver’s licenses;
    • teaching licenses;
    • professional licenses; or
    • a similar form of licensing to lawful employment in a particular field;
  • Give states two years to comply; and
  • Provide borrowers with legal recourse by allowing them to file for injunctive relief.

The bill was referred to the Senate Health, Education, Labor and Pensions Committee.  Senators Warren and Rubio first introduced the bill in June 2018, but no action has been taken.

Requiring an employee or consumer to submit any dispute to binding arbitration as a condition of employment or purchase of a product or service is commonly referred to as “forced arbitration.”  Many times, the employee or consumer is required to waive their right to sue or to participate in a class action lawsuit.  Critics argue that these arbitration agreements disempower the middle class and some in Congress have taken notice.

Last Thursday, Congressman Jerrold Nadler (D-N.Y.) and Sen. Richard Blumenthal (D-Conn.) announced a package of bills at a press conference that could end the practice of forced arbitration.

“One of the systems that is truly rigged against consumers and workers and the American people is our current system of forced arbitration,” Blumenthal said while introducing the Forced Arbitration Injustice Repeal Act.  Under the bill, companies would no longer be able to enforce arbitration agreements in consumer, employment, civil rights, or antitrust disputes.  The Democrats also introduced the Ending Forced Arbitration of Sexual Harassment Act which would eliminate arbitration in disputes that involve sexual harassment.

According to Nadler, the goal of these proposals is to help workers and consumers obtain justice.  “All Americans deserve their day in court,” Nadler said.  “We make a mockery of this principle when we allow individuals to be forced to take their claims to private arbitration.”

These lawmakers aim to reverse the Supreme Court’s ruling in Epic Systems Corp. v. Lewis – that employers may require employees to settle collective disputes in individual arbitration, thereby barring them from banding together in class-action lawsuits against employers.  Justice Neil Gorsuch wrote the decision for the majority.  The ruling was a contentious 5-4 decision along party lines.

Blumenthal believes that the bills will pass because Democrats have a majority in the House of Representatives.  However, it is unclear whether these bills are dead-on-arrival in the Republican-controlled Senate.  Furthermore, it appears unlikely that President Trump will sign a bill reversing the decision written by his first nomination to the Supreme Court.  Therefore, it appears that, notwithstanding the present legislation, the enforceability of arbitration provisions is here to stay for the time being.

Troutman Sanders will continue to monitor and report on important developments involving the changing landscape of arbitration.

On February 25, the Federal Trade Commission announced that it had finalized a consent order settling its claims against online lender SoFi in connection with SoFi’s allegedly misleading advertising of its student loan refinancing products.   

The FTC issued a complaint in October 2018 alleging that SoFi, for more than two years, had overstated the average amounts that borrowers could save through its student loan refinance products in its mail, television, and online advertising.  According to the FTC, the “average” refinance savings that SoFi conspicuously advertised were calculated by using only a select group of consumers who would have the most savings, while several other groups of consumers not included in the calculations would have only minimal savings or would ultimately end up paying more over the life of the loan if they refinanced.   

At least some of SoFi’s advertising included a disclaimer explaining how the average savings were calculated, but the FTC contended that this “fine print” information was “buried” behind terms and conditions.  The disclaimer did not mitigate the more prominent advertising claims.  The FTC instead used the disclaimer’s explanation against SoFi as evidence in support of its deceptive advertising claim.  

The settlement does not include financial penalties, but prohibits SoFi from misrepresenting the amount of savings consumers could obtain through its credit products unless it has “competent and reliable” evidence to back up the claims.  The consent order, applicable for a twenty-year period, also includes regulatory oversight provisions requiring SoFi to maintain records, submit compliance reports upon request, and ensure that its marketing staff and principals are aware of the consent order’s requirements.  

Due to limits on the FTC’s authority, it was unable to impose any monetary penalties.  However, the FTC did note that any future violations of the consent order would be subject to enforcement by the Consumer Financial Protection Bureau or state attorneys general, and that such enforcement could include financial penalties.  

The consent order was unanimously approved by all five FTC commissioners.

The Supreme Court agreed to hear a consumer’s appeal from the Third Circuit’s ruling that his claims under the Fair Debt Collection Practices Act were time-barred despite being brought within one year of discovering the violation.  The circuits have been split on whether the one-year statute of limitations under the FDCPA begins to run when an alleged violation takes place or when it is discovered.  The split has caused a lot of uncertainty about potential liability under the FDCPA and, on February 26, the Supreme Court granted certiorari in a case squarely presenting the issue.

We previously reported on Kevin Rotkiske v. Paul Klemm, et al., No. 16-1668 (3d Cir. May 15, 2018).  There, Kevin Rotkiske sued Paul Klemm, claiming that a judgment obtained by Klemm against Rotkiske in 2009 violated the FDCPA.  However, Rotkiske did not file his FDCPA claims until 2015 – five years outside of the FDCPA’s one-year statute of limitations.  In response to Klemm’s motion to dismiss, Rotkiske asserted that his FDCPA claims were timely because he did not find out about the judgment until 2014.  The trial court dismissed Rotkiske’s claims and he appealed.

The Third Circuit affirmed the dismissal and held that the plain language of the statute controls.  In particular, the FDCPA requires that actions for violations of the statute must be brought “within one year from the date on which the violation occurs.”  15 U.S.C. § 1692k(d).  Although the language leaves no room for argument, the plaintiff’s bar has claimed over the years that the discovery rule should apply.  The Fourth Circuit and the Ninth Circuit have agreed.  On the other hand, the Eighth Circuit, Eleventh Circuit, and now Third Circuit have rejected this reading of the statute and have held that the one-year statute of limitations begins to run from the time of the alleged violation, not its discovery.

In his petition to the Supreme Court, Rotkiske argued that the result reached by the Third Circuit was unjust and “absurd.”  In response, Klemm emphasized that courts could prevent any unfairness by applying the doctrine of equitable tolling in FDCPA cases involving a defendant’s fraudulent or concealed conduct which would effectively stop the statute of limitations from accruing until the violation is discovered.

It is hoped that a Supreme Court decision in this case will bring long-awaited certainty to the issue of the FDCPA’s statute of limitations.

Student loan debt in the United States has reached over $1.53 trillion – a figure the Federal Reserve suggested is discouraging young people from buying homes. While that number continues to rise, some in Congress have taken notice of its consequences and seek to implement changes in repayment options to provide desperately needed relief for nearly 40 million borrowers. 

In a speech delivered this month, Sen. Lamar Alexander (R-Tenn.) laid out a blueprint for broad changes to the system for financial aid and student loan repayments.  

Alexander, who chairs the Senate’s Health, Education, Labor and Pensions Committee, suggested two changes specifically regarding repayment.  First, he proposed a repayment plan based on a borrower’s income. Under the plan, a borrower would never be required to make payments of more than 10% of their income. “It makes sure if there were no money earned, there would be no money owed,” Alexander said. “And that would not reflect negatively on a borrower’s credit.” Second, the Senator proposed a standard 10-year payment plan, with equal monthly payments, that he compared to a 10-year mortgage. In addition, Alexander suggested creating a system of accountability that would be based on whether borrowers were repaying their student loans.  While he offered no specifics on what that accountability program would look like, Alexander indicated that it should lower the cost of tuition for certain programs and discourage schools from offering programs that “are not worth it to students.” 

According to Alexander, the goal of these three proposals is to help students afford college while simultaneously ensuring that the degree they earn is worth the time and money they invest in it.  

Federal Reserve chairman Jerome Powell has previously acknowledged the implications of rising student loan debt, largely on millennials.  Powell has suggested that student loan debt could derail an otherwise flourishing economy by negatively affecting individuals’ economic standing and credit ratings, thus hindering consumers’ ability to enter into traditional financial transactions such as investments and home and motor vehicle purchases. 

Troutman Sanders will continue to monitor and report on important developments involving the changing landscape of the student loan industry.

The Federal Reserve Board of Governors and the Federal Deposit Insurance Corporation (“FDIC”) issued a joint advisory making financial institutions aware of a recent change to the Fair Credit Reporting Act (“FCRA”) that provides that financial institutions may offer to remove defaults in private education loan borrowers’ consumer reports under an approved rehabilitation program. Qualifying borrowers must show consumer reports containing a default on a private education loan, and the financial institution must submit a written request for approval of the program to their federal regulatory agency. 

The amendment appeared in Section 602 of the Economic, Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted on May 24, 2018.  The amendment changed FCRA Section 623 to allow financial institutions to offer the Section 602 Program.  The recent joint advisory addresses requirements of the Section 602 Program. 

The joint advisory explains that if a borrower meets the requirements of a financial institution’s Section 602 Program, the institution can remove a reported default from the borrower’s consumer report.  The advisory further explains that the financial institutions that choose to establish a private education loan rehabilitation Section 602 Program are entitled to a safe harbor from potential claims under the FCRA related to removal of the reported default.

Last week, Navient Corp., the nation’s largest student loan servicer, moved for summary judgment on two enforcement claims brought against it by the Consumer Financial Protection Bureau alleging that Navient engaged in abusive and unfair practices under the Consumer Financial Protection Act.   

In January 2017, the CFPB filed an enforcement action in the U.S. District Court for the Middle District of Pennsylvania, alleging Navient engaged in harmful federal student loan servicing practices.  Specifically, the CFPB claimed that Navient injured “hundreds of thousands” of federal student loan borrowers by failing to inform them about repayment options based on income and instead pushed students to enroll in forbearance plans.  Income–driven plans are typically more beneficial to students because they can lower their monthly payment amounts while bringing their accounts current.  Forbearance plans, while cheaper and faster for Navient and its employees, cause interest to add up and increases the amount students ultimately repay. 

In its motion for summary judgment, Navient asserts that the CFPB failed to raise “any real doubt” around whether borrowers were told about income-driven plans, and also failed to identify a single borrower supporting these allegations.  Of the fifteen borrowers identified by the CFPB, fourteen were deposed and all of them apparently were informed about the income-driven plans, including prior to and immediately after obtaining forbearance.  Navient claims this shows that none of the borrowers were “steered” into forbearance plans, and therefore there is no factual support for the allegations that Navient exploited borrowers for its own profit.  Navient argues that “simply put, Navient did not cause substantial injury to, or take advantage of, borrowers, as required to establish an unfair or abusive practice.”  

The CFPB will file a response to Navient’s motion for summary judgment and a decision from the Court will then issue.

In a recent decision, the United States District Court for the Northern District of Illinois granted a debt collector’s motion to dismiss a debtor’s breach of contract claim in a putative class action, leaving for adjudication the debtor’s claims under the Fair Debt Collection Practices Act (“FDCPA”).  The case is Burdette-Miller v. Williams & Fudge, Inc., No. 1:18-cv-02187 (N.D. Ill. Jan. 15, 2019). 

The plaintiff, Crystal Burdette-Miller, is a former student of Lewis University, which contracted with Williams & Fudge, Inc. (“WFI”) to collect education-related loans from current and former students.  WFI began contacting Burdette-Miller in August of 2014 to collect a $7,345.33 debt owed to Lewis University.  After she refused to pay, WFI filed a collection action against Burdette-Miller in January of 2016.  A statement attached to the collection complaint stated that WFI was seeking to collect $5,509.00 in tuition and $1,836.33 (33% of the tuition balance) as a collection fee.  Burdette-Miller filed a motion to dismiss the complaint; however, the court struck WFI’s request for the 33% fee as an “unenforceable penalty.” 

Two years later, Lewis University disclosed for the first time that the tuition agreement attached to the collection complaint was not the one to which Burdette-Miller agreed.  Instead, her actual tuition agreement with Lewis University did not authorize a 33% collection fee.  Shortly thereafter, Burdette-Lewis filed a putative class action against WFI, complaining that it imposed exorbitant collection fees and engaged in other unlawful collection activities.  Her complaint contains claims for breach of contract, violations of the FDCPA and Illinois Consumer Fraud and Deceptive Business Practices Act, wrongful wage garnishment, and declaratory judgment.  WFI moved to dismiss the complaint. 

In adjudicating WFI’s motion to dismiss, the Court first considered WFI’s argument that Burdette-Miller lacks standing to challenge the collection contract between Lewis University and WFI.  The Court ultimately held that she lacked standing to challenge the contract because she was only an incidental beneficiary to the collection contract.  The Court based its holding on the fact that the contract lacked any express language indicating an intent to benefit Burdette-Miller or student debtors like her and that, although the contract required WFI to abide by state and federal consumer-protection laws, such provisions were intended to benefit WFI and Lewis University.  Any benefit to Burdette-Miller was incidental.  

After dismissing Burdette-Miller’s breach of contract claims, the Court evaluated WFI’s argument that her FDCPA claim is barred by the one-year statute of limitations.  WFI argued that Burdette-Miller’s FDCPA claim was barred because the last act of which she complained occurred in March of 2016 and her allegation that WFI “continued making calls” and sending her correspondence beyond this date was too generalized to extend the period of wrongful conduct.  The Court, however, disagreed because Burdette-Miller did not learn until April of 2018 that WFI had sued her on the wrong contract and lacked any contractual basis to demand a 33% collection fee.   

Troutman Sanders will continue to monitor and report on developments in this area of the law.

On January 3, 49 state attorneys general announced a settlement with Career Education Corporation (“CEC”), a for-profit education company, to resolve claims that CEC engaged in unfair and deceptive practices.  The settlement requires CEC to forgo any collection efforts against $493.7 million in outstanding loan debt held by nearly 180,000 former students.  It also imposes a $5 million fine on the company.  California was the only state not participating.

CEC operates online courses through American InterContinental University and Colorado Technical University.  CEC’s other brands include Briarcliffe College, Brooks Institute, Brown College, Harrington College of Design, International Academy of Design & Technology, Le Cordon Bleu, Missouri College, and Sanford-Brown.  According to the attorneys general, CEC used “emotionally-charged language” emphasizing the pain in prospective students’ lives to encourage them to enroll in CEC’s schools, deceived students regarding the total costs of enrollment, misled students about the transferability of their earned credits, misrepresented job prospects for graduates, and deceived prospective students about post-graduation employment rates.  The attorneys general contended that students who enrolled in CEC classes incurred substantial debts that they could not repay or discharge, when they otherwise would not have done so absent the misrepresentations.  CEC denied the allegations, but entered into the settlement agreement to resolve the AGs’ claims.

The settlement agreement requires CEC to make improved disclosures to students, including anticipated total direct costs, median debt for completion of CEC’s programs, program default rates, program completion rates, transferability of credits, median earnings for graduates, and job placement rates.  CEC must also improve students’ ability to cancel their enrollment, allowing students no fewer than seven days to cancel and receive a full refund, and up to 21 days for students with fewer than 24 credits from online programs.  In addition, the AGs are requiring CEC to inform all qualifying former students that they no longer owe money to CEC.

The investigation was led by the Maryland Attorney General’s Office.  “CEC’s unscrupulous recruitment and enrollment practices caused considerable harm to Maryland students,” said Maryland Attorney General Brian Frosh.  “The company misled students.  It claimed that students would get better jobs and earn more money, but its substandard programs failed to deliver on those promises.  The school encouraged these students to obtain millions of dollars in loans, placing them at great financial risk.  Now CEC will have to change its practices and forgo collection on those loans.”

A copy of the settlement agreement is available here