In Thompson-Harbach v. USAA Fed. Sav. Bank, No. 15-cv-2098-CJW-KEM, 2019 U.S. Dist. LEXIS 3687 (N.D. Iowa Jan. 9, 2019), the Northern District of Iowa provided a deep dive into recent Telephone Consumer Protection Act case law and a retrospective look into Federal Communications Commission TCPA pronouncements.  After its informative analysis, the Court held that ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018), invalidated not only the FCC’s 2015 Declaratory Ruling but also the applicable provisions of the agency’s 2003 Order and 2008 Declarative Ruling, insofar as they “define a predictive dialer as an ATDS, even when the predictive dialer lacks the capacity to generate phone numbers randomly or sequentially and then to dial them.”  Accordingly, the Court granted the defendant’s motion for summary judgment after finding there was no genuine issue of material fact regarding the dialing equipment’s lack of ability to generate numbers randomly or sequentially, but instead the equipment could only dial specific numbers it was provided.

Joan Thompson-Harbach brought a single-count complaint against USAA Federal Savings Bank, alleging it violated the TCPA by continuing to call her cell phone after she asked USAA to stop placing collection calls to her cell phone.  After obtaining a credit card from USAA, Thompson-Harbach entered into an Online Agreement regarding the credit card account.  In relevant part, the agreement provides: “You authorize USAA to contact you at the telephone numbers in your profile.  …  To revoke this authorization, you may edit your profile by removing telephone number on which you do not want to receive such calls.”  She provided the number at issue as her contact number in her online profile and did not subsequently reject or withdraw from the Online Agreement or remove or change her contact number.

The Court found that the evidence showed USAA called Thompson-Harbach’s cell phone.  However, after extensive analysis, it held USAA did not use an ATDS or artificial or prerecorded voice to call her.

The Court explained that the holding in ACA Int’l “rejected the ‘expansive interpretation’ of the term ‘capacity,’” which effectively deemed all smartphones ATDSs. The D.C. Circuit invalidated the FCC’s 2015 Declarative Ruling because of its contradictory ATDS definition – “one providing that ‘a device qualifies as an ATDS only if it can generate random or sequential numbers to be dialed,’ and the other that ‘it can so qualify even if it lacks that capacity.’”  The D.C. Circuit explained that either definition might be permissible, but competing definitions in the same order “rendered unreasonable the FCC’s ruling that predictive dialers categorically qualify as ATDSs.”

By extension, the Court reasoned the FCC’s prior rulings, stating that predictive dialers automatically qualify as an ATDS – even when lacking the ability to generate numbers randomly or sequentially and then dial the generated numbers – were invalidated. The Court joined courts in the District of Minnesota, Northern District of Illinois, Northern District of Georgia, and District of Arizona in so holding.

After determining the FCC’s rulings were no longer controlling and that ACA Int’l did not provide a conclusive opinion on what meets the requirements of an ATDS, the Court set out to determine what qualifies as an ATDS, at least in the Northern District of Iowa.  It wrote: “[T]he question for this Court to determine is whether a predictive dialing device that calls telephone numbers from a stored list of numbers—rather than having generated those numbers either randomly or sequentially—satisfies the statutory definition of ATDS.”

The Court engaged in fundamental statutory analysis of the relevant TCPA text.  “[T]he TCPA defines an ATDS as ‘equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.’”  The Court found the language “using a random or sequential number generator” necessarily modifies both “store” and “produce.”  Therefore, it determined “that a device meets the definition of an ATDS only when it is capable of randomly or sequentially producing, or randomly or sequentially storing telephone numbers.”

The Court explained that its interpretation is supported by the FCC’s pre-2003 definition of an ATDS.  The Agency’s 1992 Order noted the prohibition against ATDS use “clearly do[es] not apply to functions like ‘speed dialing,’ ‘call forwarding,’ or public telephone delayed message services …. because the numbers called are not generated in a random or sequential fashion” while the Agency’s 1995 Ruling “described ‘calls dialed to numbers generated randomly or in sequence’ as ‘autodialed.’”  Finally, the Court rejected Thompson-Harbach’s reliance on the Ninth Circuit’s holding in Marks v. Crunch San Diego, LLC, 904 F.3d 1041 (9th Cir. 2018), which held equipment lacking the capacity to generate random or sequential numbers could still meet the statutory definition of an ATDS, stating, “With respect, this Court finds the Marks court’s decision erroneous as a matter of statutory construction, for the reasons previously stated.”

Since there was not a genuine dispute of material fact as to the capabilities of the dialing equipment at issue, and finding it lacked the ability to randomly or sequentially generate numbers and then dial those numbers and instead stored and called the number provided by the plaintiff, the Court granted summary judgment in favor of USAA.

In dicta, the Court also analyzed whether the calls at issue were placed without consent.  While Thompson-Harbach alleged she orally revoked consent multiple times, only one occurrence was noted in USAA’s records.  Therefore, for the purposes of summary judgment, the Court analyzed only the undisputed oral revocation to determine if it was legally sufficient to revoke consent and trigger TCPA liability for subsequent calls.

In its opinion, the Court pointed out that the TCPA is silent regarding whether consumers may revoke permission to be contacted after initially providing consent.  However, the Court also noted the FCC’s 2015 Declaratory Ruling “concluded that ‘consumers may revoke consent [to be called] through any reasonable means.”  The Court found, as a matter of law, the means for revoking consent may be limited by mutual agreement, provided the means are reasonable, but held the contract could not bar a consumer from withdrawing consent completely.

After this analysis, the Court held that the provision at issue, stating a consumer “may” edit their profile to remove the numbers on which they no longer wished to receive calls, was permissive and did not establish the only means by which consent could be effectuated. Therefore, Thompson-Harbach’s oral revocation was a valid – and reasonable – means of revoking consent to be contacted.  However, having already decided that the equipment at issue did not meet the statutory definition of an ATDS, and therefore that Thompson-Harbach could not prevail on her TCPA claim, the Court granted USAA’s motion for summary judgment.

In the home mortgage industry, loans insured by the Fair Housing Authority (“FHA”) come with statutory prerequisites that are embedded in the loan contracts and that must be followed prior to foreclosure.  One such obligation put forth by the Department of Housing and Urban Development (“HUD”) is the “face-to-face meeting” requirement.  This meeting, however, is not required in several scenarios, including when the mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either. 

The bounds and application of those two wordsbranch office bring us to a recent opinion handed down on December 18 by the U.S. District Court for the Western District of Virginia.  There, on a motion to dismiss for failure to state a claim, the Court defined a “branch office” as “one where some business related to mortgage is conducted” and dismissed the complaint with prejudice. 

The borrower had brought suit claiming improper foreclosure on her home because the lender failed to offer, attempt, or conduct a face-to-face meeting prior to foreclosing on the subject property.  The borrower alleged that the exemption did not apply because there was an office of the lender within 200 miles of the property.  It was undisputed that this office was not open to the public and did not provide services related to mortgage origination or servicing. 

The Court found that the borrower’s broad interpretation of a “branch office” to include any business office such as the office at issue here “defie[d] common sense” and was inconsistent with the purposes of the regulation and the face-to-face meeting requirement. 

To be congruent with the regulation and the meeting requirement, the Court held that a “branch office” must be both established and operated by the mortgagee, and must transact mortgage-related business. 

This definition is beneficial to the mortgage industry, especially in Virginia, by providing a limiting principle on an otherwise amorphous phrase.

On Wednesday, September 26th, from 2 – 3 pm ET, Troutman Sanders attorneys, David Anthony and Andrew Buxbaum will present a webinar discussing an in-depth examination and update on the FDCPA as well as the impact on the debt collection industry. The discussion will focus on recent case law, litigation trends and current regulatory enforcement initiatives in connection with this consumer protection statute.

The panel will review these and other key questions:

  • What are common causes of action under the FDCPA?
  • What are the litigation trends under the FDCPA?
  • What regulatory and enforcement actions should be of most concern to debt collectors under the current administration, from the FTC, CFPB and others?

One hour of CLE credit is pending.

To register, click here.

Clarity on Overlapping Background Check Laws in California

By Timothy St. George, David Anthony, Ronald Raether, Jonathan Yee and Sadia Mirza

On Aug. 20, 2018, the California Supreme Court issued its long-awaited order in Connor v. First Student Inc., finding the state’s Investigative Consumer Reporting Agencies Act, or ICRAA, was not unconstitutionally vague as applied to employer background checks, despite overlap with the Consumer Credit Reporting Agencies Act, or CCRAA.[1]

The Supreme Court resolved a conflict between two courts of appeal which had left many consumer reporting agencies, or CRAs, wondering whether the ICRAA applied even if they did not obtain the information from personal interviews — the definition of “investigative consumer report” used under the Fair Credit Reporting Act to impose additional requirements under 15 U.S.C. §1681l similar to those included in the ICRAA. With this decision, CRAs providing consumer reports for employment and tenant screening will need to carefully review their products to assure compliance with the ICRAA and the CCRAA.

View full article published on Law360.

 

On May 22, Vermont passed the nation’s most expansive data broker legislation in an effort to provide consumers with more information about data brokers, their data collection practices, and consumers’ right to opt out.

The legislation, which in part takes effect on January 1, 2019, defines “data brokers” to mean “a business … that knowingly collects and sells or licenses to third parties the brokered personal information of a consumer with whom the business does not have a direct relationship.” While this definition appears to be broad in scope, the controlling test to determine whether a business is a “data broker” is whether the sale or license of data is merely incidental to the business.  If the sale or license of data is merely incidental, the business would likely not be considered a data broker.

The legislation takes note of the fact that there are important differences between data brokers and businesses with whom consumers have a direct relationship.  Specifically, it finds that consumers who have a direct relationship with traditional and e-commerce businesses typically have some level of knowledge and control over the businesses’ data collection practices, including the choice to use the businesses’ products or services and the ability to opt out of certain data collection practices.  By contrast, however, consumers may not be aware that data brokers are collecting information about them or that they even exist.  As such, the new law aims to provide consumers with necessary information about data brokers, including information about their data collection activities, opt-out policies, purchaser credentialing practices, and security breaches.

Once the enacted legislation goes into effect, data brokers will be required to:

  1. Annually register with the Secretary of State and pay a registration fee of $100.00.  Notably, registration would only be required if, in the prior year, the data broker collected and licensed or sold to a third party the personal information of a Vermont consumer.
  2. Annually disclose the following information about its data collection practices:

a.  Whether the data broker permits a consumer to opt out of the data broker’s collection of brokered personal information, opt out of its databases, or opt out of certain sales of data;

b.  A statement specifying the data collection, databases, or sales activities from which a consumer may not opt out;

c.  A statement whether the data broker implements a purchaser credentialing process;

d.  The number of data security breaches experienced during the previous year, and if known, the total number of consumers affected by the breaches; and

e.  The data broker’s collection practices as it relates to minors.

  1. Develop, implement, and maintain a comprehensive information security program that contains administrative, technical, and physical safeguards appropriate for the size, scope, and type of business of the data broker.  Notably, a violation of the legislation’s information security requirements will constitute an “unfair and deceptive act” for which the Attorney General is authorized to bring an enforcement action.

Attorney General T.J. Donovan applauded lawmakers for the passage of the law and stated that “the state has a strong public safety interest in transparency, data security, and consumer protection generally with respect to commercial interests that elect to engage in the business of buying and selling consumer data without the consumer’s knowledge.”  And while “transparency of information is great when it comes to government,” said Vermont Secretary of State Jim Condos, it is not “for individuals and their personal information.”

Psychologists say that adolescents and young adults take more risks than any other age group. Perhaps this is why about one in five (21.2%) college students receiving financial aid to pay for their education have invested these loans in a cryptocurrency, according to a recent survey by The Student Loan Report, a website for student loan information.

Some Basics Facts About Today’s Popular Cryptocurrencies

According to numerous financial metrics, cryptocurrencies constituted one of the hottest investments of 2017, especially for young Americans. In the summer of 2017, these digital assets reached a combined market capitalization of $100 billion, split among bitcoin ($45 billion, or 40.1%), ethereum ($31 billion, or 28.3%), ripple ($12 billion, or 11.04%), litecoin ($2 billion, or 2.2%), ethereum classic ($2 billion, or 1.71%), nem ($1.7 billion, or 1.5), Dash ($1.3 billion, or 1.2%), and over 800 other currencies with market caps ranging from $1,000 to $800,000. Created in 2009, bitcoin was the first decentralized cryptocurrency and remains the most well-known. As these numbers reveal, however, countless variants, frequently called “altcoins,” (short for “alternative coins”), now exist.

“Cryptocurrencies represent an entirely new asset class and financial sector,” opined Ashe Whitener, a cryptocurrency enthusiast who formerly worked in business development for Euro Pacific Bank. Drew Cloud, Student Loan Report’s founder, told The Boston Globe: “Younger Americans are certainly the most enthusiastic about cryptocurrency; they are the most active investors and want to get involved in the space in any way possible.” Colleges today offer courses on these digital tokens, while a company called Campus Coin is attempting to establish cryptocurrencies as a medium of exchange at colleges throughout the country. At the same time, others have called the enthusiasm around cryptocurrencies “speculative mania.

This objection is not an idle one, as dramatic and inexplicable swings regularly wrack this market. For example, on January 1, 2017, a single bitcoin held a value of only $968; in December 2017, it was worth $19,783. By January 2018, bitcoin posted its worst monthly performance in three years: slipping below $6,000, it lost 70% of its value. Although it jumped to approximately $10,000 by February 15, 2018, it plummeted by 23.11% to $7,688.68 on March 14, 2018, with the announcement of a partial ban on online cryptocurrency advertising. Bitcoin slightly recovered to $8,600 by March 22 and fell to $8,490 by March 23.

Subject to a similar rollercoaster ride, Ethereum, the market’s second most-valuable cryptocurrency, was valued at over $1,400 in January 2017 but has since slumped to $520.

Less popular and smaller digital coins have proven even more volatile. Tron (TRX), for instance, reached a high of 30 cents on January 4, 2018, before nosediving to 4 cents within thirty days.

The dangers of investing in cryptocurrencies thus replicate the perils of investing in very small capital stocks. As one expert put it, “You can see big swings in a short period of time. There’s still a lot of price discovery going on.”

Financial and Legal Risks of Investing Student Loan Funds in Cryptocurrencies

Because investing in cryptocurrencies carries risk – and because student loans are intended for use in funding higher education, not speculating on the cryptocurrency market – student loan experts have been surprised by borrowers’ willingness to invest nearly non-dischargeable sums in this newest market.

“Investing from a . . . [student] loan is a terrible idea as these assets are extremely risky and volatile,” pointed out Christian Catalini, an assistant professor at the Massachusetts Institute of Technology who researches blockchain technology and cryptocurrencies. Others agree. “If you invest the student loans in cryptocurrency and lose money, you will still owe the student loans,” observed Mark Kantrowitz, a student loan expert. “And, where will you get the money to pay for college costs?”

For its part, the United States Department of Education has warned, “Federal student aid funds are to be used only to help meet the costs of attending an eligible institution of higher education. Investing is not considered an appropriate use of federal student aid funds.”

Trend Worth Watching 

For the sake of their bottom line, every participant in the student loan market, including loan providers and servicers, would be wise to monitor student borrowers’ investment of loan proceeds, particularly in innovative but volatile financial instruments.

In a unanimous decision on March 20, 2018, the United States Supreme Court held in Cyan, Inc. et al. v. Beaver County Employees Retirement Fund, et al., 583 U.S. ____ (2018) that state and federal courts retain concurrent jurisdiction to adjudicate class actions brought under the Securities Act of 1933 (the “Securities Act”) and such claims may not be removed to federal court. The opinion, delivered by Justice Elena Kagan, affirms the decision of the California Court of Appeals First Appellate District and settles a long-standing circuit split over whether the Securities Litigation Uniform Standards Act of 1998 (the “SLUSA”) divested state courts of subject matter jurisdiction over “covered class actions” where plaintiffs allege only Securities Act claims and no state law claims.

The decision was largely based on the statutory interpretation and legislative history of SLUSA—namely, its amendments to the jurisdictional provisions of the Securities Act. Indeed, the crux of this case lies in the interpretation of SLUSA’s amendment stating:

The district courts of the United States . . . shall have jurisdiction . . . , concurrent with State and Territorial courts, except as provided in section 77p of this title with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. [1]

Defendants argued that this provision strips state courts of concurrent jurisdiction over Securities Act claims because of the “except as provided” clause’s reference to “covered class actions.” Plaintiffs argued that this provision maintains state courts’ jurisdiction over all suits – including “covered class actions” – alleging only Securities Act claims. Notably, the U.S. government, which filed an amicus brief at the Court’s request, took a third approach, arguing that SLUSA does not deprive state courts of concurrent jurisdiction over cases brought under the Securities Act but does allow defendants to remove these cases to federal court.

The Court found that class actions asserting only Securities Act claims are unaffected by SLUSA, and thus, can be brought in state court – Section 77p “says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law.” The Court concluded that “SLUSA’s text, read most straightforwardly,” leaves state court jurisdiction intact and, if Congress wanted to deprive state courts of jurisdiction, it could have inserted an exclusive federal jurisdiction provision. Additionally, the Court held that SLUSA does not permit defendants to remove class actions alleging only Securities Act claims from state to federal court. Finally, the Court concluded that, “[i]f further steps are needed, they are up to Congress.”

The practical impact of the Court’s ruling is a likely increase in Securities Act claims brought in state court, with defendants potentially having to litigate these federal securities claims in federal and state courts simultaneously and in various venues. Given that plaintiffs may continue to argue for the application of certain state courts’ more lenient pleading standards and discovery procedures, defendants may be exposed to protracted, expensive, and cumbersome litigation in various courts across the country.

[1] 15 U.S.C. § 77v(a) (emphasis added).